vkLFkk IAS INDIAN ECONOMY

To accommodate the rising workforce, the Indian

Summary of economy needs to generate an average of nearly 78.5
The Economic Survey 2023-24 lakh jobs annually in the non-farm sector until 2030.
In terms of employment status, 57.3% of the total
Highlights of the Economic Survey 2024 workforce is self-employed, and 18.3% work as unpaid
India’s real GDP grew by 8.2% in FY 2023-24, workers in household enterprises.
exceeding the 8% mark in three out of four quarters of State-wise, the top six states in terms of the number
FY 2023-24. FY 2024-25 GDP growth is seen at 6.5% of factories were also the greatest creators of factory
to 7% with the risks to FY 2024-25 GDP growth evenly employment. More than 40 % of factory employment
balanced. was in Tamil Nadu, Gujarat, and Maharashtra.
Gross Fixed Capital Formation increased by 9% in In 2021-22, factories employing less than 100
real terms in FY 2023-24. This is due to the Government’s people constituted 79.2% of all factories while
investment in Capital Expenditure and a steady pace of contributing only 22.1% of total persons employed and
Private Investment. 20.9% of workers. This has been improving over time as
Retail inflation declined to 5.4% in FY 2023-24. This there is a visible trend towards a rise.
is because the Inflationary pressures caused by global The yearly net payroll additions to the EPFO more
issues, supply chain disruptions and monsoons have than doubled from 61.1 lakh in FY19 to 131.5 lakh in FY
been cleverly contained through administrative and 2023-24.
monetary policy initiatives.
The CEA has said that PLI Schemes have gained
India is resilient amid geopolitical challenges, with momentum in the past years and have garnered
the Indian economy having a stable footing. an investment of Rs.1.28 Cr. As a result, 8.5 Lakh
Subdued global demand for goods has pressured employment opportunities are generated.
the external balance, but strong services exports largely The 10 most populous states collectively impose
counterbalanced this. As a result, CAD stood at 0.7 % of 139 prohibitions on women from participating in factory
the GDP during FY 2023-24, an improvement from the processes such as electroplating, petroleum generation,
deficit of 2.0% of GDP in FY 2022-23. and manufacturing of products such as pesticides, glass,
GDP Growth rechargeable batteries etc.
One of the key insights from the economic survey In FY 2023-24, rural wages rose above 5%
that makes headlines is the GDP growth prediction. every month, YoY. On average, nominal wage rates in
India’s real GDP grew by 8.2% in FY 2023-24, exceeding agriculture grew by 7.4% for men and 7.7% for women,
the 8% mark in three out of four quarters of FY 2023-24, benefitting from robust agriculture growth during the
stated Economic Survey 2024. India’s real GDP growth period.
in FY 2024-25 is predicted to be between 6.5% and 7%. Monetary Management
However, this outcome will depend on global economic Bank credit growth has sustained momentum
and political factors. during FY 2023-24, with broad-based growth across
India's economy has recovered and expanded in a sectors. Credit disbursal stood at ₹164.3 lakh crore,
controlled manner since the pandemic. Real GDP in 2024 growing by 20.2 % at the end of March 2024, compared
was 20% higher than the 2020 level, a feat achieved only to 15% growth at the end of March 2023.
by a few major economies. The outlook for continued During the current tightening cycle, from May 2022
strong growth beyond FY 2024-25 looks good amid to May 2024, the external benchmark-based lending
geopolitical, financial markets, and climate risks. rate and the one-year median marginal cost-of-funds-
Apart from GDP estimates, other indicators tracking based lending rate increased by 250 bps and 175 bps,
the performance of the economy also point towards respectively.
growth resilience. Leading indicators suggest an upturn The gross non-performing assets (GNPA) ratio
in global economic activity. continued its downward trend, reaching a 12-year low
Employment Landscape of 2.8% at the end of March 2024 from its peak of 11.2%
The Economic Survey shows that 51.25% of the in FY 2017-18.
youth is deemed not eligible for employment. In other The GNPA ratio of the agriculture sector remains
words, one out of two graduates, straight from college high at 6.5% at the end of March 2024, but it has recorded
do not possess the skills to be employed. persistent improvement during H2 of FY 2023-24.
India’s per capita income has grown more than 7 Lending by non-banking financial companies
times since 1990. Economic Survey has projected India’s (NBFCs) accelerated, led by personal loans and loans to
Per Capita Income to reach Rs.14.9 Lakh by 2047. the industry, and their asset quality has improved.

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vkLFkk IAS INDIAN ECONOMY

Price and Inflation Social Sector

India successfully managed to keep retail inflation at CSR compliance has seen a growing adherence over
5.4% in FY 2023-24, the lowest level since the COVID-19 the years, with more than half the companies even going
pandemic. beyond their obligation. For the last three years, yearly
In FY 2022-23 and FY 2023-24, the agriculture CSR spending has been more than ₹25,000 crore, with
sector was affected by extreme weather events, lower yearly CSR spending increasing by 1.5 times in eight
reservoir levels, and damaged crops that adversely years.
affected farm output and food prices. So, food inflation National Health Accounts show rising role of public
based on the Consumer Food Price Index (CFPI) healthcare.
increased from 3.8% in FY 2021-22 to 6.6% in FY 2022- Total enrolment in higher education has increased
23 and further to 7.5% in FY 2023-24. to nearly 4.33 crore in FY 2021-22 from 4.14 crore in FY
RBI increased the repo rate gradually by 250 basis 2020-21 and 3.42 crore in FY 2014-15.
points since May 2022 to reign in inflationary pressures. Female enrolment in higher education increased to
External Sector 2.07 crore in FY 2021-22 from 1.57 crore in FY 2014-15,
The trade openness indicator, which rose from 37.5 i.e., a 31.6% increase since FY 2014-15.
in FY 2004-05 to 45.9 in FY 2023-24, has contributed The growing equity in higher education implies
significantly to economic growth as it facilitated an better employment opportunities for the hitherto
efficient allocation of resources through comparative backward sections.
advantage. India is making rapid progress in R&D, with nearly
India’s share of global goods exports was 1.8% in one lakh patents granted in FY 2023-24, compared to
FY 2023-24, against an average of 1.7% during 2016 to less than 25,000 patent grants in FY 2019-20.
2020. In recognition of the rising obesity rate in India,
Similarly, its share in global services exports rose to the National Institute of Nutrition is promoting healthy
4% in FY 2022-23 from an average of 3.3% during 2016 eating through dietary guidelines.
to 2020. Agriculture and Food Management
Accordingly, the share of India’s services exports in The performance of the agriculture sector remains
world services exports has risen remarkably from 0.5% critical for the economy’s growth, which has been at an
in 1993 to 4.3% in 2022. average rate of 4.18% over the last five years.
India is now the seventh-largest services exporting The Indian agriculture sector provides livelihood
country globally, with a phenomenal rise from its 24th support to about 42.3% of the population and has a
position in 2001. share of 18.2% in the country’s GDP at current prices.
India ranks second in the world in As of 31 January 2024, the total credit disbursed to
telecommunication, computer, and information services agriculture amounted to ₹ 22.84 lakh Crore, with ₹13.67
exports, sixth in personal, cultural, and recreational lakh Crore allocated to crop loans (short term) and ₹
services exports, eighth in other business services 9.17 lakh Crore to term loans.
exports, 10th in transport services exports, and 14th in
The Kisan Credit Card (KCC) has streamlined
travel services exports.
agricultural credit accessibility. As of January 31, 2024,
India’s Current Account Deficit narrowed to USD banks issued 7.5 crores KCC with a limit of ₹9.4 lakh
23.2 billion (0.7% of GDP) in FY 2023-24 from USD 67 crores.
billion (2% of GDP) during the previous year.
Industry: Small and Medium Enterprises
Climate Change and Energy Transition As per the latest reports, the share of MSMEs in all-
India has made significant progress on climate India manufacturing output during the year FY 2021-22
action. The installed solar power capacity increased was 35.4%.
by 15.03 GW in 2023-24, reaching a cumulative total of The Udyam Registration portal, launched in July
82.64 GW on 30 April 2024. 2020, has been instrumental in formalising MSMEs by
The Ministry of Power notified the regulations on providing a simple, online, and free registration process
the Carbon Credit Trading Scheme (CCTS), also called based on self-declaration.
the Indian Carbon Market, on 28 June 2023. As of 5th July 2024, 4.69 Crore MSMEs are registered
India has achieved the target of 40% of India's on the Udyam Registration portal, including Informal
installed energy generation through non-fossil fuel micro enterprises registered on the Udyam Assist
sources, nine years ahead of its target for 2030. Platform.

5 vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009. Mob. 8800233080, 9810664003 5
vkLFkk IAS INDIAN ECONOMY

Service Sector Between fiscal year 2019 and 2023, the Central and
State Governments contributed 49% and 29% of the
The services sector continues to be a significant
total investments, respectively, while the private sector
contributor to India's growth, accounting for about 55%
contributed 22%.
of the total size of the economy in FY 2023-24.
State of the Economy: Steady as she goes
The services sector witnessed a real growth rate of
more than 6% in all the years in the last decade except
in the pandemic-affected FY 2020-21.
Post-pandemic, services exports have maintained
a steady momentum and accounted for 44% of India’s
total exports in FY 2023-24.
During FY 2023-24, services imports stood at USD
178.3 billion, a 2.1% decrease on a YoY basis, dragged
down by a reduction of global freight rates.
FY 2023-24 witnessed a decline in the FDI equity
inflows to the services sector, as in the case of the overall
FDI equity inflows to India.
The number of technology start-ups in India rose
remarkably from around 2,000 in 2014 to approximately
31,000 in 2023, with EdTech being the top sector.
Infrastructure Sector
The consistent focus on road, rail, and air
connectivity, sanitation, and digital infrastructure has
led to considerable growth in assets in these sectors.

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vkLFkk IAS INDIAN ECONOMY

State of the Economy: Steady as She Goes

Global economic growth has been better than expected

2022 2023 (Apr-24 IMF WEO) 2011 to 2019 average

4.8
Growth (Per cent)
Growth (Per cent)

3.5

1.9

3.5 3.2 2.6 1.6 4.1 4.3

World
World Output
Output Advanced Economies Emerging
Advanced Economies Market
Emerging and and
Market
Developing Economies
Developing Economies

Global inflationary pressures easing. Merchandise trade dampened in 2023

Global Inflation
Recurring disruptions Increase in services
8.7% dampen global trade partly offset the
merchandise trade contraction of goods
6.8% volume growth trade

Growth in volume of Growth in volume of global

global exports of goods
2022 2023 in 2023= (-) 0.4%
exports of goods and
services in 2023= 0.5%

7 vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009. Mob. 8800233080, 9810664003 7
vkLFkk IAS INDIAN ECONOMY

India’s GDP growth expected to remain robust. Steady private consumption and emerging
investment drive growth

Sustained momentum in GDP growth Share in GDP at current prices

9.7 Exports
Exports – –
8.2 7.0 21.9%
21.9%
7.0

6.5
3.9
Per cent

Investment
Investment ––
Forecast
30.8%
30.8%

-5.8
Private
Private
consumption
consumption - -
FY20 FY21 FY22 FY23 FY24 FY25 (F) 60.3%
60.3%
(2nd RE) (1st RE) (PE)

Investment being driven by public and private capex with households also pitching in
Government capex crowding in private investment Increasing appetite for investment in housing
Household savings in
physical assets as % of
GDP up from 10.8%
Private Centre in FY21 to 12.9% in
corporate and States’ FY23

capex* grew capex grew

by 19.8% by 22.9%
(FY24) (FY24)

*Axis bank research

Quality of Union Government expenditure is improving

Higher share of capex in total expenditure Decomposition of fiscal deficit shows increasing
investment orientation

Revenue Expenditure Capital Expenditure

21% 12%

79%

FY21 88%

FY24

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vkLFkk IAS INDIAN ECONOMY

Relatively low domestic inflation, high growth and stable external sector are imparting
resilience to the economy
India a high-growth and low-inflation economy The ₹ was one of the most stable currencies over
Apr’23 – Jun’24

9
British Pound -1.4
India
(Avg. Growth - FY22 - FY24,%)

8
Mexican Peso 1.3
7
Indian Rupee 1.9
6
UK Mexico Euro 2.6
5 EMDEs
Chinese Renmimbi 5.0
4
US Brazil Brazilian Real 10.1
3 Russia
AEs
2
Indonesian Rupiah 11.3
Germany
1 Japanese Yen 18.1

0
4 6 8 10 Depreciation (-)/Appreciation (+) (per
(Avg. Inflation - FY22 - FY24,%) cent)

Improving macroeconomic stability

CPI-Inflation (%) Macro-Vulnerability Index

24.8
21.9
18.4
20.0

12.3 11.3 14.9

10.05
9.1
6.16 5.36
3.59

FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24*
Heightened Macro-vulnerability Macro-stability Pandemic & Global
Disturbance

Government is ensuring inclusivity of growth

11.7 11.6
10.3

6.9
Crore

Beneficiaries under
2.6 various schemes
since their
inception
Swacch Bharat Jal Jeevan PM Ujjwala Ayushman PM-AWAS
Mission (Toilets Mission (tap Yojana (gas Bharat Scheme Yojana (pucca
built) water connections (Hospital houses built)
connections) provided) admissions)

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vkLFkk IAS INDIAN ECONOMY

Monetary Management and Financial

intermediation: Stability is the Watchword
Double-digit growth in bank credit

164.3
136.8
Gross bank credit (₹ lakh

20.2%
118.9 growth
15%
crore)

FY22 FY23 FY24



India’s Digital Public Infrastructure: Churning the Wheels of the Economy


Microfinance Institutions (MFIs): facilitating Financial Inclusion

Rise in loans disbursed by MFIs India has the second-largest

1.8
microfinance sector
Women constitute 98 per cent
of the total clients of MFIs
1.1 1.1 1.1 MFIs have reached out to over 532 lakh
₹ lakh crore

clients with a total loan outstanding of

0.7
0.8 0.8
₹1.8 lakh crore under micro-credit
0.6
0.5

0.3
0.4 Rise in RBI’s Financial Inclusion Index from
60.1 in March 2023 to 64.2 in March 2024
indicates improvement in access, usage, and
quality of the financial sector in India
FY13

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

FY23

01 vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009. Mob. 8800233080, 9810664003 10
vkLFkk IAS INDIAN ECONOMY

GIFT City: Emerging as a dominant gateway for India’s financial sector

As of March 2024, the total asset size of IFSC Banking Units

crossed USD 60 billion, and the cumulative value of transactions
undertaken by them crossed USD 795 billion

Cumulative Fund Management Entities and funds registered with

IFSCA rose from 39 and 33 as of September 2022 to 114 and 120
Rapidly evolving banking
ecosystem as of March 2024
Robust funds industry
As of 31 March 2024, 11 ship leasing companies are registered
Aircraft and ship leasing
with IFSCA
Foreign universities initiative

Deakin University from Australia became the first foreign

university to be granted final registration for their International
Branch Campus in GIFT IFSC under IFSCA

Indian capital markets emerged as one of the best-performing among emerging markets in FY24

Systematic
Primary Secondary Market Mutual funds Investment
markets markets capitalisation Plan

Primary India’s market

India’s Nifty Assets under Annual net SIP
markets capitalisation
50 index Management of flows more
facilitated to GDP ratio
ascended by mutual funds than doubled
capital improved
26.8 per cent increased by from ₹0.96
formation of significantly
during FY24, ₹14 lakh crore lakh crore in
₹10.9 lakh from 77 % in
as against to ₹53.4 lakh FY21 to ₹2
crore in FY24, FY19 to 124 %
(-)8.2 % during crore at the end lakh crore in
compared to in FY24
FY23 of FY24 FY24
₹9.3 lakh crore
in FY23

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vkLFkk IAS INDIAN ECONOMY

Prices and Inflation: Under Control

India’s inflation lower than EMDEs in 2023 India has one of the lowest average deviations
(2021-2023) from inflation target (Actual – Target)

12 World AEs
EMDEs India S. Africa 1.3
10 1.8
India
8.3 France 2.6
8
6.2 Mexico 3.4
Per cent

6.8
6 USA 3.6
5.2 5.4
Brazil 3.9
4 4.6
3.2 Germany 4.0
2 UK 4.3
0.7 Russia 4.8
0
2020 2021 2022 2023 Per cent

Headline inflation was the lowest in FY24

Headline Inflation Core Inflation Food Inflation (CFPI)

10
7.5
8

6
Per cent

5.4

4
4.3
2

0
FY20

FY21

FY22

FY23

FY24

Monetary policy transmission evident in easing core inflation to 4-year low

6.5
7.1 Co
6.25 FEB-23 re
(%) i nfl
te ati
Ra 5.9 DEC-22 on
R epo 5.4
SEP-22
5.1
(%
4.9 )
AUG-22
4.4 JUN-22 3.2

4 MAY-22
. 3.1
MAY-20

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vkLFkk IAS INDIAN ECONOMY

Stock monitoring of Subsidised sale of

Export Prohibi- cereals and pulses cereals, pulses and
tion on cereals, onion
onion and sugar
Reduction of import
Lowered LPG duty on pulses and
and fuel prices edible oil

UTY
RT D
IMPO

ADMINISTRATIVE MEASURES TO
CONTAIN INFLATION

Bharat Atta Bharat Rice

@ Rs.27.5/kg @Rs.29/kg

Bharat Dal for Moong Bharat Dal for Chana

@Rs.107/kg for Moong dal @Rs.60/kg for 1 kg pack
@Rs.93/kg for Moong Sabut @Rs.55/ kg for 30 kg pack
Subsidised Sale of
Essential Food Items
under "Bharat" brand

Impact of government interventions on LPG and fuel inflation

Decrease in LPG inflation due to Decline in petrol and diesel inflation due
price cut to price reduction
20 petrol for vehicle diesel for vehicle
2
10

0 0
Per cent

Per cent

-10
-2
-20

-30 -4
Sep-23

Nov-23

Feb-24
Dec-23

May-24

Jun-24
Apr-23

Oct-23

Apr-24

Oct-23

Jan-24

Mar-24

Apr-24
Jun-23

Aug-23

Dec-23

Feb-24

Jun-24

31 vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009. Mob. 8800233080, 9810664003 13
vkLFkk IAS INDIAN ECONOMY

Rural-urban inflation gap in selected states in FY24

Per cent

States* with higher inflation show a wider rural-urban gap (FY24)

7
Statewise inflation rate (%)

5
4
3
2
y = 1.7646+3.4454x
1
0
0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6
Ratio of rural to urban inflation rate
*the scatter plot is based on 23 major states and NCt of Delhi

A decline in global commodity prices bodes well for India’s inflation outlook

160 2023 (Actual) 2024 (Forecast) 2025 (Forecast)

140

120
Index

100

80

60

40
Source : IMF
Total Food Energy Oils and Meals Fertilisers Base Metals

10

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vkLFkk IAS INDIAN ECONOMY

External Sector: Stability Amid Plenty

India’s services exports more than doubled in nine years

 India’s services exports share in world services exports

4.3%
 Rank in World’s telecommunication, computer &
information services exports
2nd
 Rank in World’s personal, cultural & recreational services
exports
6th
 Rank in World’s other business service exports
8th


Remarkable growth of Global Capability Centres in India

No. of GCCs: 1600 Installed GCC talent:
1659 thousand

2015-2023

Revenue: USD 460 crore No. of GCC units: 2,740

No. of GCCs: 2,100 Installed GCC talent:
3,400 thousand

2023-2028*

* Projections by PwC
Revenue: USD 900 crore No. of GCC units: 3,200

Improvement in logistics performance

51 vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009. Mob. 8800233080, 9810664003 15
vkLFkk IAS INDIAN ECONOMY

How can India benefit from China plus one strategy?

Evidence of trade diversion from China is reflected in an

increase in India’s electronic exports to US, resulting
in a rise in trade surplus

India’s electronic goods trade balance

with the US
8.7

USD billion


Promote FDI from

China
How can India
benefit from China
1.2
plus one?
Increase imports
from China FY21 FY24


Rise in India’s Global Value Chains participation

Increase in the share of GVC

-related trade in Gross trade


2022 40.3

2000 27.8
 

Rise in share of medium and high-technology manufacturing



Increase in share of high value-added services in services sector



India has begun to move downstream with increase in exports

of finished goods


Policy priorities

 Developing quality trade infrastructure

 Integrating MSMEs in the GVC network
 Simplifying procedures for entry and exit of small businesses
 Working towards trade facilitation measures

61 vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009. Mob. 8800233080, 9810664003 16
vkLFkk IAS INDIAN ECONOMY

Stable external sector

External Debt (RHS) ED to GDP

30 700
600
500
20

USD billion
400

Per cent
Decline in External debt to 300
GDP ratio 10
200
100
0 0

2023 PR
2015

2016

2017

2018

2019

2020

2021

2022 R

2024 P


India 68
China
Mexico
Japan
Brazil India witnessed the most significant
Taiwan increase in foreign exchange reserves
Hong Kong holdings in FY24
South Korea
Russia
Switzerland
Change in foreign exchange reserves from April 2023 to March 2024
(USD billion) 

42.2 44.1
36.1

22.1
USD billion

Highest level of FPI inflows 7.6

1.4
witnessed in FY24 after FY15
-0.6
-4.1 -5.2

-16.8
FY20
FY15

FY16

FY17

FY18

FY19

FY21

FY22

FY23

FY24


Current account balance as % of

0.9
0.6

-0.2
Current account surplus in Q4
GDP

-1.1 -1.0
-1.3 -1.3
-1.6
-2.1 -2.0 of FY24 led to a moderation in
-2.7
CAD in FY24
-3.8

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
FY22 FY23 FY24


13

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vkLFkk IAS INDIAN ECONOMY

Medium Term Outlook: A Growth Vision

for New India
Growth Strategy for Amrit Kaal : Strong, Sustainable and Inclusive

Boost private sector investment to 35 per cent of GDP through a

1 conducive policy and regulatory environment

Strengthen India’s MSME sector through deregulation at the state and

2 local government levels. Push for sector-specific, tailored skilling of
MSME entrepreneurs and developing a clear-cut export strategy

Remove growth impediments in the agricultural sector and allow markets

3 to function in the interest of the farmer

4 Secure financing of green transition in India.

5 Bridge the education – employment gap

6 Build state capacity and capability

Generate
Improve the quality productive
of health of India’s employment Address the
young population skill-gap
challenge

Tackle
inequality
Policy focus Tap into the full
for the short to potential of the
agriculture sector
Deepen the
corporate bond
medium-term
market

Ease regulatory
requirements and
Navigate the financing bottlenecks
Chinese conundrum for MSMEs
Manage India’s
green transition

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vkLFkk IAS INDIAN ECONOMY

Climate Change and Energy Transition:

Dealing with Trade-Offs
Present Status of India’s Climate Action

• Addition of 15.03 GW to installed solar power capacity in

2023-24
Solar Power
• Cumulative 82.64 GW installed solar capacity as on 30 April
2024

Emission • Emission intensity of India’s GDP reduced by 33% in 2019

Intensity (from 2005 level)

Tree and forest

• A carbon sink of 1.97 billion tonnes of CO2 equivalent has
cover as Carbon
already been created from 2005 to 2019
sink

Installed Power Capacity 30 April 2024: 442.8 GW

Solar
82.64 GW, 19%

Bio Coal
10.95 GW, 2% 210.97 GW, 48%
Wind
46.16 GW, 10%

Small Hydro
5 GW, 1% Gas
24.82 GW, 6%
Large Hydro,
46.93, 11%
Nuclear, 8.18, Diesel Lignite, 6.62, 1%
2% 0.59 GW, 0%

Critical and Rare Earth Mineral’s Concentration

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vkLFkk IAS INDIAN ECONOMY

PM-Surya Ghar Yojana

Total outlay of Rs.75,021 crore

Installing rooftop solar

Free electricity up to 300 units every month for 1 crore households

Create around 17 lakh direct jobs

Addition of 30 GW of solar capacity through rooftop solar

Reduction of 720 million tonnes of CO2 equivalent emissions

Steps Taken to Improve Energy Efficiency

Lifestyle for Environment (LiFE) Mission

Perform, Achieve, and Trade (PAT)

Energy Conservation Building Code (ECBC)

Shunya Labelling Program

Standards and Labelling (S&L) program

AC @ 24 campaign

16

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vkLFkk IAS INDIAN ECONOMY

Social Sector: Benefits that Empower

Saturation
approach: no one
left behind

Technology Focus on
for efficiency empowerment
Transformed
Approach to
Welfare

Cost-effective Basic
& fiscally necessities
sustainable first

Community and
Private
participation

Labour force
participation

Access to Education
basic and
necessities Skilling

Health Financial
and inclusion &
nutrition SHG
movement

Enabling Women-led Development

Youth and phone/Internet Economic Impact: productivity loss,

overuse and ‘great rewiring of healthcare cost, higher risk with rising
childhood’ urbanisation and demographic dividend

10.6 per cent adults suffered Policy action: National

from mental disorders in India, Mental Health Programme
Treatment gap of 70-92% and Ayushman Bharat

Globally, one out of every two people Need for adequate personnel,
will develop a mental health disorder breaking the stigma,
in their lifetime** community action

Mental Health
*National Mental Health Survey 2015-16
**McGrath et al., 2023

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vkLFkk IAS INDIAN ECONOMY

Employment and Skill Development:

Towards Quality
Evolving Landscape of Jobs

Improving Labour Market Indicators as per PLFS

70

60 57.9 56.0
49.8
50 46.8

40
per cent

30

20

10 6.0
3.2
0
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23
2017-18
2018-19
2019-20
2020-21
2021-22
2022-23

LFPR WPR UR
Source: Periodic Labour Force Survey (PLFS) annual reports. MoSPI
Note: LFPR: labour force participation rate, WPR: worker population ratio, UR: unemployment rate

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vkLFkk IAS INDIAN ECONOMY

Upscaling of Factories and rising Organised Manufacturing Employment

CAGR between 2017-18 and 2021-22

Less than 100 Employees More than 100 Employees
13.2%
12.2%
11.8%

4.8%
3.9%

0.4%

Factories in Workers Total Persons

Operation Engaged
Source: Annual Survey of Industries

Annual requirement for non-farm job creation 2024-2036

Job shedding by agriculture Annual increase in workforce

Need for new jobs - Total
90 78 79 80 77 78 79 80 81 77 78 79 80 81
80
70
60
in lakh

50
40
30
20
10
0
2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

 Calculations based on assumptions about workforce participation rates and share of

agriculture in the workforce.
 Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until
2030 in the non-farm sector.
 Quantity and Quality – both matter!

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vkLFkk IAS INDIAN ECONOMY

Upscaling of Factories and rising Organised Manufacturing Employment

CAGR between 2017-18 and 2021-22

Less than 100 Employees More than 100 Employees
13.2%
12.2%
11.8%

4.8%
3.9%

0.4%

Factories in Workers Total Persons

Operation Engaged
Source: Annual Survey of Industries

Annual requirement for non-farm job creation 2024-2036

Job shedding by agriculture Annual increase in workforce

Need for new jobs - Total
90 78 79 80 77 78 79 80 81 77 78 79 80 81
80
70
60
in lakh

50
40
30
20
10
0
2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

 Calculations based on assumptions about workforce participation rates and share of

agriculture in the workforce.
 Indian economy needs to generate an average of nearly 78.5 lakh jobs annually until
2030 in the non-farm sector.
 Quantity and Quality – both matter!

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vkLFkk IAS INDIAN ECONOMY

Agriculture and Food Management: Plenty

of Upside Left if we get it Right

India’s agricultural sector shows resilience and Fixing MSP at one and half times the all-India
diverse growth, with notable improvements in weighted average cost of production- assuring
fishing and aquaculture over recent years. remunerative prices to farmers
18 14000

16
12000
14

10000
12

10
8000

Rs/Quintal
8
Per cent

6000
6

4 4000

2
2000
0
2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
0
-2

Paddy
Masur

Bajra

Soyabean
Ragi

Arhar
Gram

Cotton
Wheat

-4

Crops Livestock fishing and aquaculture Agriculture 2021-22 2022-23 2023-24

Share of agriculture and allied sector in total GVA

The allied sectors of Indian 25.0
agriculture are steadily emerging
as robust growth centres and 20.0 1.6
1.4
1.3
promising sources for improving 15.0
1.4
1.2 1.5
1.2
1.5
1.3 1.3 1.3
1.3
6.1
farm incomes. 5.1 5.1 5.3 5.7 5.5
10.0

5.0 10.5 9.8 10.3 11.3 10.5 10.1

0.0
Growth in the livestock 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
sector significantly Crops Livestock Fishing Forestry
boosted the per capita
availability of milk, eggs, Growth in selected products
and meat. 16.00
14.00
12.00
10.00
in per cent

The fisheries sector has 8.00

grown at a compound 6.00

annual rate of 8.9 per cent 4.00

between 2014-15 and 2.00

2022-23 (at constant 0.00

2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23
prices) milk eggs fish

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vkLFkk IAS INDIAN ECONOMY

Industry: Small and Medium Matters

Industrial growth powers economic growth in FY24

Annual growth of industry and its components

25

20

15
12.2

9.5
10

5
2.1
-0.4
0
-1.4

-5

-10
FY20 FY21 FY22 FY23 FY24
Mining & quarrying Manufacturing Electricity, gas & other utilities Construction Industry

Coal production as % of domestic consumption improved

Key Industrial
Intermediates

 Coal: production
accelerated
reducing import India, a net exporter of finished steel in 4 out of last
5 years (metric tonnes)
dependence

 Steel: highest
production and
consumption in
FY24

21

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vkLFkk IAS INDIAN ECONOMY

Surge in electronics production and Strong growth in auto manufacturing

exports (growth in %) in FY 24

7.1%

16.0%

10.3%

R&D spend in
drugs &
pharmaceuticals was
5% of sales
turnover in FY20 India’s
Need to increase & FY21 pharmaceutical
R &D channels of
funding from venture market is the world’s
capital and angel third-largest by
investors volume
Pharmacy
of the
World
8 of the top 20
Higher R&D is
global generic
required to promote
companies based in
innovation
India
More than 12500
Janaushadhi Kendras
opened, covering all
districts

Progress under PLI until May 2024

Employment
Over ₹1.28 lakh
generation
Crore of
(direct & indirect)
investment
of over ₹8.5 lakh.

Export boosted Production/sales

by ₹4 lakh Crore of ₹10.8 lakh
Crore

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vkLFkk IAS INDIAN ECONOMY

MSME: Guarantees approved under CGTMSE increased considerably

Flourishing start-up and innovation ecosystem

There are over 13,000

DPIIT-recognized start-ups
in artificial intelligence,
Internet of things, robotics,
and nanotechnology by
End- FY24 Number of granted
patents increased
17-fold from 5978
in FY15 to 103057 in
FY24

23

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vkLFkk IAS INDIAN ECONOMY

Services: Fuelling Growth Opportunities

Increasing trend of GVA in the services sector

ϴϲ͘ϳ
(constant prices)
in ₹ lakh crore

FY15

FY16

FY17
FY13

FY14

FY18

FY19

FY20

FY21

FY22

FY23

FY24


Post COVID firming up in the share of the services sector in overall GVA

54.8 54.7
54.2

52.3
Per Cent

50.6

FY14 FY20 FY21 FY23 FY24

A decade ago Pre-COVID high COVID Post COVID firming up

PMI Services touched new heights in FY24 amidst global flux

70
Expansionary Zone
65 61.2
60 56.7
Index (50=Neutral)

55
50
45
40
35 Contractionary Zone
30
Mar 24
Mar 21

Mar 22

Mar 23
Jul 21
May 21

Sep 21

May 22

Jul 22

May 23

Jul 23
Sep 22

Sep 23

Jan 24
Nov 21

Jan 22

Jan 23

Nov 23
Nov 22

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vkLFkk IAS INDIAN ECONOMY

Booming Residential Real Estate Sales Rising tech start-ups in India

31000+

2000
%
33
X
15


  

2022 2023 2014 2023

Source: Proptiger Source: NASSCOM & Zinnov (2023). Weathering the

challenges -The Indian tech start-up landscape report 2023

Physical Connectivity Supporting Economic Activity

Persistent progress in railway Sustained increase in shipping

freight traffic tonnage Growth in air cargo traffic

150 40
150
120
Lakh Tonnes

30
Crore tonnes

Lakh tonnes
100 90
60 20
50 10
30
0 0 0
FY23
FY20

FY21

FY22

FY24
FY20

FY21

FY22

FY23

FY24

FY20

FY21

FY22

FY23

FY24
  

Growth Map of ONDC (Open Network for Digital Commerce)

68 million 65 12
Transactions since 1200+ Seller Applications Logistic Service Providers
inception Cities

535,000+ 9 million 22
85% Small Sellers Sellers Transactions per month Buyer Applications

Agriculture Food & Beverage

 Around 5,700 Farmer Producer  18% growth in orders in Q4 FY24
Organisations  Network of 95,000 restaurants in
 Over 23,000 transactions in Q4 347 cities
FY24 alone



Fashion & Beauty Grocery

 11% growth in Q4 FY24  52% growth in Q4 FY24
 More than 6400 sellers  Network of 12,858 sellers serving in
 15 Lakh Stock Keeping Units (SKU) over 665 cities.
in 900 cities  Over 6.3 Million SKUs
 

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vkLFkk IAS INDIAN ECONOMY

Infrastructure: Lifting Potential Growth

Physical Connectivity Infrastructure

Roads Railway Water transport Civil Aviation

 Capital expenditure on  New terminal
Railways increased by buildings at 21
77% percent between airports in FY24
FY20 and FY24).  Increase in passenger
handling capacity by
 Significant invest- 62 million passengers
ments in new lines, per annum
 The average pace gauge conversion and  India’s rank in Inter-
of NH construction doubling national Shipments
increased by ~3 times category in Logistics
between FY14 and Performance Index
FY24 improved from 44 in
2014 to 22 in 2023
 Toll digitisation
reduced waiting time  Under Sagarmala, 262
at toll plazas by nearly projects worth ₹1.4
16 times during lakh crore stand
2014-24 completed.

Energy Urban Sector

 India targets 50% of  190.57 GW of  PMAY-U: >1.18 crore houses were

cumulative power renewable energy (RE) sanctioned and more than 84 lakh
installed capacity from capacity installed by completed.
non-fossil fuel-based end-March 2024.
energy sources by  AMRUT Mission: 5,999 projects worth
2030.  Clean energy sector ₹83,327 crore awarded. 5,304 projects
had new investment of worth ₹51,434 crore got completed.
 UJALA Scheme led to ₹8.5 lakh crore between
annual energy savings 2014 and 2023.  Metro rail/RRTS: 945 km are operational.
of 48.42 billion kWh 939 km under construction in 27 cities.
and annual savings of 86 km operationalised in FY24.
₹19,335 crore in
electricity bills.  Swatch Bharat Mission-Urban:
Constructed 63.07 lakh individual
household latrine units. 6.37 lakh commu-
Electric power Renewables nity & public toilets

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26
vkLFkk IAS INDIAN ECONOMY

Social and Economic Infrastructure

Sports Water & Sanitation Water Resource tourism

Management
 Swatch Bharat Mis-  PRASHAD scheme:
sion-Gramin: In FY24, 29 new pilgrimage and
₹6,802.6 crore uit- heritage sites identi-
ilised. fied

 Jal Jeevan Mission:  Swadesh Darshan 2.0:

Tap water connection Outlay of ₹3,800 crore
 Khelo India: In FY24, provided to more  Namami Gange: Ad-
38 new infrastructure than 14.89 crore rural opted Hybrid Annuity
projects were sanc- households so far. Model for sewage
tioned; 58 completed. treatment plants; 33
projects sanctioned
 Sports Authority of
India: approved 9 infra  Accelerated Irrigation
projects in FY24. 13 Benefit Programme:
completed 25.80 lakh hectare of
additional irrigation
area created during
2016-24

Space Digital
Space Assets telecom Electronics & IT

India has 55 active space assets,  8.02 lakh mobile towers as of  >₹10,300 crore for compre-
including18 communication June 2024. hensive India Al Mission
satellites, 9 navigation satellites,  29.37 lakh Base Transceiver approved
5 scientific satellites, 3 meteo- Stations (BTSs) & 4.5 lakh 5G  AIRAWAT, an AI Supercom-
rological satellites, and 20 earth BTSs. puter, secured 75th position
observation satellites in the top 500 global super-
 BharatNet Project: 6,85,501
km of optical fibre cable computing list declared at the
(OFC) laid. 2.11 lakh GPs International Supercomputing
connected by OFC. Conference 2023 in Germany
 DigiLocker platform has
reached over 26.28 crore
registered users.

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vkLFkk IAS INDIAN ECONOMY

Climate Change and India: Why we Must

Look at the Problem Through our Lens
Issues with the current global approaches to addressing Climate Change
Issues with the current global approaches to addressing Climate Change

Does not seek to Irrational pursuit of The current ‘Scramble’ for energy
address the core new-age resources pathways may fall guzzling AI is directly
issue, i.e. is scarring the short of addressing at odds with the
climate goals
overconsumption planet climate change

The Food-Feed Balance in the West poses a threat to food security as more cereal is produced
for animal consumption than for human consumption

Share of Cereals Allocated to Animal Feed (2021)

India
United States
United Kingdom
Italy
Canada
Russia
France
Germany
Australia
Brazil
Spain
Ireland
0 20 40 60 80 100
Per cent of total domestic cereal supply

Source: Food and Agriculture Organization of the United Nations (2023)

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vkLFkk IAS INDIAN ECONOMY

In most developed countries, less than one-third of the domestic cereal production is for
human consumption

Chad China European Union India United Kingdom United States

Percentage Share of Total Domestic Cereal Supply

100
90
80
70
60
50
40
30
20
10
0
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
2019
2021
Source: Food and Agriculture Organization of the United Nations (2023)

It takes around 100 times as much land to produce 1000 kilocalories of meat compared to
plant-based alternatives

Beef (beef herd)

Lamb & Mutton
Beef (dairy herd)
Milk
Pig Meat
Poultry Meat
Fish (farmed)
Other Pulses
Eggs
Berries & Grapes
Tomatoes
Oatmeal
Prawns (farmed)
Nuts
Groundnuts
Wheat & Rye
Root Vegetables
Rice
Maize
Barley

0 20 40 60 80 100 120 140

Land Use per 1000 kilocalories of food in Meters Square

Source: Joseph Poore and Thomas Nemecek (2018). Additional calculations by Our World in Data.

29

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vkLFkk IAS INDIAN ECONOMY

the Path to Sustainable Housing

the Indian Approach to tackling Climate Change

Mindful Consumption instead

of Overconsumption

Collective Power of Small Promotion of a circular economy

Individual Actions and reuse of waste products

The Indian
Approach to
tackling Climate
Change

Steering people towards Local, plant-based cuisines which are highly

Mission LiFE proposes a naturally sustainable
making Pro-Planet Choices nutritious lifestyle in
and has a low ecological footprint

accordance with nature

Mission LiFE proposes a naturally sustainable lifestyle in accordance with nature

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vkLFkk IAS INDIAN ECONOMY

BUDGET AT A GLANCE 2024-2025

Budget at a Glance presents broad aggregates of the Budget for easy understanding. This document shows receipts
and expenditure as well as the Fiscal Deficit (FD), Revenue Deficit (RD), Effective Revenue Deficit (ERD) and the Primary
Deficit (PD) of the Government of India. It gives an illustrative account of sources of receipts and expenditure through
graphs and info-graphics. In addition, the document contains details of resources transferred to the States and UTs with
legislature, extracts of allocations for programme and schemes, sources of deficit financing, etc.
Fiscal Deficit is the difference between total expenditure and the Revenue Receipts (including Non-Debt Capital
Receipts). FD is reflective of the total borrowing requirement of Government. Revenue Deficit refers to the excess of
revenue expenditure over revenue receipts. Effective Revenue Deficit is the difference between Revenue Deficit and
Grant-in-Aid for Creation of Capital Assets. Primary Deficit is measured as Fiscal Deficit less interest payments. Effective
Capital Expenditure (Eff-Capex) refers to the sum of Capital Expenditure and Grants-in-Aid for Creation of Capital Assets.
The receipts and expenditure depicted in this document are net of receipts and recoveries as explained in the
reconciliation statements provided in the Receipt Budget (Annex-3) and Expenditure Profile Document (Statement No. 17).
The Provisional Actuals (PA) for FY 2023-24 have been provided in this document wherever feasible. The
provisional actuals in this document are unaudited and are subject to change
In Revised Estimates (RE) 2023-24, the total expenditure was estimated at `44,90,486 crore. Against this, total
expenditure in the Provisional Actuals (PA) for FY 2023-24 was `44,42,542 crore. The total capital expenditure of
`9,50,246 crore was estimated in RE 2023-24. In PA of FY 2023-24, the total capital expenditure was at `9,48,506
crore.
The total expenditure in Budget Estimates (BE) 2024-25 is estimated at `48,20,512 crore of which total capital
expenditure is `11,11,111 crore. Compared to RE 2023-24, the capital expenditure in BE 2024-25 reflects an
increase of 16.9 per cent. Effective capital expenditure, at `15,01,889 crore in BE 2024-25 shows an increase of
18.2 per cent over RE 2023-24.
Total resources being transferred to the States including the devolution of State’s share, Grants/Loans and
releases under Centrally Sponsored Schemes, etc. in BE 2024-25 is `22,91,182 crore, which shows an increase of
`4,82,766 crore over Actuals of FY 2022-23.

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vkLFkk IAS INDIAN ECONOMY
1
बजट का सार Budget at a Glance
(` करोड़ में ) (In ` crore)
2022-2023 2023-2024 2023-2024 2023-2024 2024-2025
वास्तववक बजट संशोधित संशोधित बजट
अनमु ान अनमु ान अनमु ान¹ अनमु ान
Actuals
Budget Revised Provisional Budget
Estimates Estimates Actuals¹ Estimates
1. राजस्व प्राप्तियाां 1. Revenue Receipts 2383206 2632281 2699713 2728412 3129200
2. कर राजस्व (केंद्र को 2. Tax Revenue (Net to 2097786 2330631 2323918 2326524 2583499
निवल) ² Centre) ²
3. कर निन्न राजस्व 3. Non Tax Revenue 285421 301650 375795 401888 545701

4. पांजी प्राप्तियाां 4. Capital Receipts 1809951 1870816 1790773 1714130 1691312

5. ऋणोां की वसली 5. Recovery of Loans 26161 23000 26000 27338 28000
6. अन्य प्राप्तियाां 6. Other Receipts 46035 61000 30000 33122 50000
3
7. उधार और अन्य दे यताएां 7. Borrowings and Other 1737755 1786816 1734773 1653670 1613312
Liabilities3

8. कुल प्राप्तियाां (1+4) 8. Total Receipts (1+4) 4193157 4503097 4490486 4442542 4820512

9. कुल व्यय (10+13) 9. Total Expenditure 4193157 4503097 4490486 4442542 4820512
(10+13)
10. राजस्व खाते पर 10.On Revenue Account 3453132 3502136 3540239 3494036 3709401
नजसमें से of which
11. ब्याज िुगताि 11. Interest Payments 928517 1079971 1055427 1063871 1162940

12. पांजीगत आप्तियोां के सृजि 12. Grants in Aid for 306264 369988 321190 303787 390778
हे तु सहायता अिुदाि creation of Capital
Assets
13. पांजी खाते पर 13. On Capital Account 740025 1000961 950246 948506 1111111

14. प्रिावी पांजी व्यय (12+13) 14. Effective Capital 1046289 1370949 1271436 1252293 1501889
Expenditure (12+13)
15. राजस्व घाटा 15. Revenue Deficit 1069926 869855 840527 765624 580201
(10-1) (10-1) (4.0) (2.9) (2.8) (2.6) (1.8)
16. प्रिावी राजस्व घाटा 16. Effective Revenue 763662 499867 519337 461837 189423
(15-12) Deficit (15-12) (2.8) (1.7) (1.8) (1.6) (0.6)
17. राजकोषीय घाटा 17. Fiscal Deficit 1737755 1786816 1734773 1653670 1613312
[9-(1+5+6)] [9-(1+5+6)] (6.4) (5.9) (5.8) (5.6) (4.9)
18. प्राथनमक घाटा (17-11) 18. Primary Deficit 809238 706845 679346 589799 450372
(17-11) (3.0) (2.3) (2.3) (2.0) (1.4)
1 1
वित्त िर्ष 2023-24 के विए अनंविम िास्तविक आं कड़ें िेखा-परीविि नहीं हैं और Provisional Actuals for FY 2023-24 are unaudited and subject to
1.पररििष
Provisio al Actuals for FY 2023-24 are unaudited and subject
न ं के अध्यधीन है। change.to change.
2 2
2. केRE
न्द्र द्वारा राज् ं क is
2023-24 वपछिे िर्ों के विए
reduced by `दे7151
य वनििcrore
रावि ह on
ने केaccount RE 2023-24
कारण सं.अंof net amount is reduced
payable by `7151tocrore
by Centre the on account
States forofprior
net amount
years.
2023-24 म़ें `7151 कर ड की कमी की गई है। payable by Centre to the States for prior years.
3.3 इसम़ें
Includes
नगदी िेर् drawdown of Cash
म़ें आहरण द्वारा कमी िावमि Balance.
है।
3
Includes drawdown of Cash Balance.
Notes:
नटप्पणी : Notes:

(i)(i) The
बजट
GDPवित्तfor
िर्ष Budget
2024-25 (वनयवमि) के विए जीडीपी
FY 2024-25 `3,26,36,912
(Regular) (i) The GDP crore
कर ड at `3,26,36,912
is estimated for Budget
whichFY is
2024-25
10.5%(Regular)
over theis Provisional
estimated at
आकविि की गई है ज वित्त िर्ष 2023-24 के `2,95,35,667 कर ड के `3,26,36,912 crore which is 10.5% over the Provisional
Estimates of FY 2023-24 at `2,95,35,667 crore.
अनंविम अनुमान से 10.5% अवधक है। Estimates of FY 2023-24 at `2,95,35,667 crore.
(ii)(ii) Individual
इस दस्तािेज items
म़ें पृथक in
-पृथthis
क मद़ेंdocument
पूणाांकन के कारण
mayजnot
ड म़ें sum नहींto the (ii)
िावमिup Individual
totals due to items in this off.
rounding document may not sum up to the
ह सकिे । totals due to rounding off.
(iii)
(iii)Figures
क ष्ठक म़ेंin
वदयेparentheses are
गए आं कडे जीडीपी as a percentage
के प्रवििि के रूप म़ें है। of GDP. (iii) Figures in parentheses are as a percentage of GDP.

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vkLFkk IAS INDIAN ECONOMY

रुपया कहां से आता है Rupee Comes From

(बजट Budget 2024-25)
बजट Budget (2023-24)

17 [पै. p.]

33
[पै. p.]

16
[पै. p.]

[पै. p.] 2
5 [पै. p.]
5
[पै. p.] 16 6 [पै. p.]
[पै. p.]

निगम कर
उधार और अन्द्य दे यताएां Corporation-tax, 17
Borrowings & Other [पै. p.]
liabilities, 27
[पै. p.]

ऋण भिन्द्ि पज
ां ी
प्रानियाां
आय कर
Non-debt Capital Income-tax, 19
receipts, 1
[पै. p.]
[पै. p.]
ऋण भिन्द्ि प्रानियाां
Non-tax receipts, 9
[पै. p.]
सीमा शुल्क
Customs, 4 [पै. p.]
केन्द्रीय उत्पाद शुल्क
माल और सेवा कर और Goods & Service Tax & Union Excise Duties, 5 [पै. p.]
अन्द्य कर Other taxes, 18
[पै. p.]

वटप्पवणयां:- 1. कुि प्राप्तिय ं म़ें कर ं और िुल् ं म़ें राज् ं का वहस्सा िावमि है , वजन्ह़ें पृष्ठ 1 पर सारणी म़ें घटा वदया गया है।
2. आं कड ं क पूणाांवकि वकया गया है।
Notes :- 1. Total receipts are inclusive of States' share of taxes and duties which have been netted in the table on page 1.
2. Figures have been rounded off.

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vkLFkk IAS INDIAN ECONOMY
3

रुपया कहां जाता है Rupee Goes To

(बजट Budget 2024-25)
बजट Budget (2023-24)

9 [पै. p.] 17
8 [पै. p.]
[पै. p.]

4
[पै. p.]

20
18 [पै. p.]

[पै. p.]

8 [पै. p.]
9 7
[पै. p.] [पै. p.]

केन्द्रीय प्रायोजजत Centrally Sponsored Central Sector Scheme केन्द्रीय क्षेत्र की

योजिाएां Scheme, 8 [पै. p.] (excluding Capital योजिा (इसमें रक्षा
Outlay on Defence and और आर्थिक सहायता
पर पांजी पररव्यय
Subsidy), 16 शाभमल
अन्द्य व्यय [पै. p.] िहीां है )
Other Expenditure, 9
[पै. p.]

पेंशि
Pensions, 4
[पै. p.]

ब्याज अदायगी
Interest Payments, 19
[पै. p.]
करों और शुल्कों में
राज्यों का हहस्सा
State Share of Taxes
and duties, 21
[पै. p.]

रक्षा
Defence, 8 [पै. p.]
ववत्त आयोग और
अन्द्य अांतरण आर्थिक सहायता
Finance Commission & Subsidies, 6 [पै. p.]
Other transfers, 9 [पै. p.]

वटप्पवणयां:- 1. कुि व्यय म़ें कर ं और िुल् ं म़ें राज् ं का वहस्सा िावमि है, वजन्ह़ें पृष्ठ 1 पर सारणी म़ें प्राप्तिय ं म़ें से घटा वदया गया है ।
2. आं कड ं क पूणाांवकि वकया गया है।
Notes :- 1. Total expenditure is inclusive of States' share of taxes and duties which have been netted against receipts in the table on page 1.
2. Figures have been rounded off.

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vkLFkk IAS INDIAN ECONOMY

1. Productivity and resilience in Agriculture

SUMMARY OF THE UNION
2. Employment & Skilling
BUDGET 2024-2025 3. Inclusive Human Resource Development and Social
Justice
PART A
4. Manufacturing & Services
Despite global economy remaining under the grip of
policy uncertainties, India’s economic growth continues 5. Urban Development
to be the shining exception and will remain so in the 6. Energy Security
years ahead. Minister of Finance and Corporate Affairs 7. Infrastructure
Smt Nirmala Sitharaman, while presenting the Union
8. Innovation, Research & Development and
Budget 2024-25 in Parliament today said that India’s
inflation continues to be low, stable and moving towards 9. Next Generation Reforms
the 4 per cent target. Core inflation (non-food, non-
fuel) currently is 3.1 per cent and steps are being taken
to ensure supplies of perishable goods reach market
adequately.
Interim Budget
The Finance Minister said that as mentioned in the
interim budget, the focus is on 4 major castes, namely
‘Garib’ (Poor), ‘Mahilayen’ (Women), ‘Yuva’ (Youth) and
‘Annadata’ (Farmer).
Budget Theme
Dwelling on the Budget theme, Smt Sitharaman
said, turning attention to the full year and beyond, in this
budget, we particularly focus on employment, skilling,
MSMEs, and the middle class. She announced the Prime
Minister’s package of 5 schemes and initiatives to
facilitate employment, skilling and other opportunities Priority 1: Productivity and resilience in Agriculture
for 4.1 crore youth over a 5-year period with a central
The Finance Minister announced that the
outlay of ₹2 lakh crore. This year, ₹1.48 lakh crore has
government will undertake a comprehensive review
been allocated for education, employment and skilling.
of the agriculture research setup to bring the focus on
raising productivity. New 109 high-yielding and climate-
resilient varieties of 32 field and horticulture crops will
be released for cultivation by farmers.

Budget Priorities
The Finance Minister said, for pursuit of ‘Viksit
Bharat’, the budget envisages sustained efforts on the
following 9 priorities for generating ample opportunities
for all.

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vkLFkk IAS INDIAN ECONOMY

™™ In the next two years, 1 crore farmers across the Government will also facilitate higher participation
country will be initiated into natural farming of women in the workforce through setting up of
supported by certification and branding. working women hostels in collaboration with industry,
™™ 10,000 need-based bio-input resource centres will and establishing creches.
be established.
™™ For achieving self-sufficiency in pulses and
oilseeds, government will strengthen their
production, storage and marketing and to achieve
‘atmanirbharta’ for oil seeds such as mustard,
groundnut, sesame, soybean, and sunflower.
™™ Government, in partnership with the states, will
facilitate the implementation of the Digital Public
Infrastructure (DPI) in agriculture for coverage of
farmers and their lands in 3 years.
™™ Smt Sitharaman announced a provision of ₹1.52
lakh crore for agriculture and allied sector this year.

Referring to the Skilling programme, the Finance

Minister announced a new centrally sponsored scheme,
as the 4th scheme under the Prime Minister’s package,
for skilling in collaboration with state governments and
Industry. 20 lakh youth will be skilled over a 5-year
period and 1,000 Industrial Training Institutes will be
upgraded in hub and spoke arrangements with outcome
orientation.
She also announced that the Model Skill Loan
Scheme will be revised to facilitate loans up to ₹7.5 lakh
with a guarantee from a government promoted Fund,
which is expected to help 25,000 students every year.
Priority 2: Employment & Skilling For helping the youth, who have not been eligible
The Finance Minister said that the government for any benefit under government schemes and policies,
will implement 3 schemes for ‘Employment Linked she announced a financial support for loans upto ₹10
Incentive’, as part of the Prime Minister’s package. These lakh for higher education in domestic institutions.
will be based on enrolment in the EPFO, and focus on E-vouchers for this purpose will be given directly to 1
recognition of first-time employees, and support to lakh students every year for annual interest subvention
employees and employers. of 3 per cent of the loan amount.

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vkLFkk IAS INDIAN ECONOMY

Priority 3: Inclusive Human Resource Development

and Social Justice
Talking about the Saturation approach, the Finance
Minister emphasised that implementation of schemes
meant for supporting economic activities by craftsmen,
artisans, self-help groups, scheduled caste, schedule
tribe and women entrepreneurs, and street vendors,
such as PM Vishwakarma, PM SVANidhi, National
Livelihood Missions, and Stand-Up India will be stepped
up.
Purvodaya
Government will formulate a plan, Purvodaya, for
the all-round development of the eastern region of
the country covering Bihar, Jharkhand, West Bengal,
Odisha and Andhra Pradesh. This will cover human
resource development, infrastructure, and generation
of economic opportunities to make the region an engine
to attain Viksit Bharat.
Pradhan Mantri Janjatiya Unnat Gram Abhiyan Priority 4: Manufacturing & Services
The Finance Minister announced that for improving Support for promotion of MSMEs
the socio-economic condition of tribal communities, Smt Sitharaman said, this budget provides special
government will launch the Pradhan Mantri Janjatiya attention to MSMEs and manufacturing, particularly
Unnat Gram Abhiyan by adopting saturation coverage for labour-intensive manufacturing. A separately
tribal families in tribal-majority villages and aspirational constituted self-financing guarantee fund will provide,
districts covering 63,000 villages and benefitting 5 crore to each applicant, guarantee cover up to ₹100 crore,
tribal people. while the loan amount may be larger. Similarly, Public
sector banks will build their in-house capability to
assess MSMEs for credit, instead of relying on external
assessment. She also announced a new mechanism for
facilitating continuation of bank credit to MSMEs during
their stress period.
Mudra Loans
The limit of Mudra loans will be enhanced to ₹ 20
lakh from the current ₹ 10 lakh for those entrepreneurs
who have availed and successfully repaid previous loans
under the ‘Tarun’ category.
MSME Units for Food Irradiation, Quality & Safety
Testing
Financial support for setting up of 50 multi-
product food irradiation units in the MSME sector
will be provided. Setting up of 100 food quality and
safety testing labs with NABL accreditation will also be
facilitated. To enable MSMEs and traditional artisans to
sell their products in international markets, E-Commerce
Export Hubs will be set up in public-private-partnership
(PPP) mode .
More than 100 branches of India Post Payment Internship in Top Companies
Bank will be set up in the North East region to expand The Finance Minister said that as the 5th scheme
the banking services. under the Prime Minister’s package, government will
She said, a provision of ₹2.66 lakh crore for rural launch a comprehensive scheme for providing internship
development including rural infrastructure was made opportunities in 500 top companies to 1 crore youth in
this year. 5 years.

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vkLFkk IAS INDIAN ECONOMY
Priority 6: Energy Security
The Finance Minister said, in line with the
announcement in the interim budget, PM Surya Ghar
Muft Bijli Yojana has been launched to install rooftop
solar plants to enable 1 crore households obtain free
electricity up to 300 units every month. The scheme has
generated remarkable response with more than 1.28
crore registrations and 14 lakh applications.
Nuclear energy is expected to form a very significant
part of the energy mix for Viksit Bharat.

Priority 5: Urban Development

Urban Housing
Under the PM AwasYojana Urban 2.0, housing needs
of 1 crore urban poor and middle-class families will be
addressed with an investment of ₹ 10 lakh crore. This
will include the central assistance of ₹ 2.2 lakh crore in
the next 5 years.
Water Supply and Sanitation
In partnership with the State Governments and
Multilateral Development Banks, government will
promote water supply, sewage treatment and solid Priority 7: Infrastructure
waste management projects and services for 100 large
The Finance Minister underlined that significant
cities through bankable projects.
investment the Central Government has made over the
PM SVANidhi years in building and improving infrastructure has had
She added that building on the success of PM a strong multiplier effect on the economy. Government
SVANidhi Scheme in transforming the lives of street will endeavour to maintain strong fiscal support for
vendors, Government envisions a scheme to support infrastructure over the next 5 years, in conjunction with
each year, over the next five years, the development of imperatives of other priorities and fiscal consolidation.
₹11,11,111 crore for capital expenditure has been
100 weekly ‘haats’ or street food hubs in select cities.
allocated this year, which is 3.4 per cent of our GDP.

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vkLFkk IAS INDIAN ECONOMY

Pradhan Mantri Gram SadakYojana (PMGSY)

The Finance Minister announced that Phase IV
of PMGSY will be launched to provide all-weather
connectivity to 25,000 rural habitations which have
become eligible in view of their population increase.
For Irrigation and Flood Mitigation in Bihar, through
the Accelerated Irrigation Benefit Programme and other
sources, government will provide financial support for
projects with estimated cost of ₹11,500 crore such as
the Kosi-Mechi intra-state link and 20 other ongoing
and new schemes including barrages, river pollution
abatement and irrigation projects. Government will
also provide assistance to Assam, Himachal Pradesh,
Uttarakhand and Sikkim for flood management,
landslides and related projects.

Priority 9: Next Generation Reforms

Economic Policy Framework

The Finance Minister said that the government will
Priority 8: Innovation, Research & Development formulate an Economic Policy Framework to delineate
the overarching approach to economic development
The Finance Minister said that government will
and set the scope of the next generation of reforms for
operationalize the Anusandhan National Research
facilitating employment opportunities and sustaining
Fund for basic research and prototype development
high growth.
and set up a mechanism for spurring private sector-
driven research and innovation at commercial scale
Labour related reforms
with a financing pool of ₹1 lakh crore in line with the Government will facilitate the provision of a
announcement in the interim budget. wide array of services to labour, including those for
employment and skilling. A comprehensive integration
Space Economy of e-shram portal with other portals will facilitate
With our continued emphasis on expanding the such one-stop solution. Shram Suvidha and Samadhan
space economy by 5 times in the next 10 years, a venture portals will be revamped to enhance ease of compliance
capital fund of ₹1,000 crore will be set up. for industry and trade.

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vkLFkk IAS INDIAN ECONOMY

Budget Estimates 2024-25

The Finance Minister informed that for the year
2024-25, the total receipts other than borrowings and
the total expenditure are estimated at ₹32.07 lakh crore
and ₹48.21 lakh crore respectively. The net tax receipts
are estimated at ₹25.83 lakh crore and the fiscal deficit
is estimated at 4.9 per cent of GDP.
She said, the gross and net market borrowings
through dated securities during 2024-25 are estimated
at ₹14.01 lakh crore and ₹11.63 lakh crore respectively.
Smt Sitharaman emphasised that the fiscal
consolidation path announced by her in 2021 has
served economy very well, and the government will aim
to reach a deficit below 4.5 per cent next year.
PART B
Government will develop a taxonomy for climate Apart from giving relief to four crore salaried
finance for enhancing the availability of capital for individuals and pensioners of the country in the direct
climate adaptation and mitigation. taxes, Union Budget 2024-25 seeks to comprehensively
Foreign Direct Investment and Overseas review the direct and indirect taxes in the next six
Investment months, simplifying them, reducing tax incidence and
compliance burdens and broadening the tax nets. The
The rules and regulations for Foreign Direct Budget proposes comprehensive rationalization of GST
Investment and Overseas Investments will be simplified tax structure along with review of the Custom Duty rate
to (1) facilitate foreign direct investments, (2) nudge structure to improve the tax base and support domestic
prioritization, and (3) promote opportunities for using manufacturing. A comprehensive review of Income –
Indian Rupee as a currency for overseas investments. Tax Act is targeted at reducing disputes and litigations
NPS Vatsalya and to make the act lucid, concise and easy to read.
NPS-Vatsalya, a plan for contribution by parents and Minister of Finance and Corporate Affairs Smt. Nirmala
guardians for minors will be started. On attaining the Sitharaman said that simplification of tax regimes
age of majority, the plan can be converted seamlessly without exemptions and deductions for corporate
into a normal NPS account. and personal income tax has been appreciated by tax
payers as over 58 per cent of corporate tax came from
New Pension Scheme (NPS) simplified tax regime in 2022-23 and more than two
The Finance Minister said that the Committee to third tax payers have switched over to the new personal
review the NPS has made considerable progress in its income tax regime.
work and a solution will be evolved which addresses
the relevant issues while maintaining fiscal prudence to
protect the common citizens.

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vkLFkk IAS INDIAN ECONOMY

Budget 2024-25 increased standard deduction of Procedure soon for simplified and rationalized
salaried employees from ₹ 50,000/- to ₹ 75,000/- for compounding guidelines for TDS defaults.
those opting for new tax regime. Similarly, deduction On Capital gains, short term gains shall henceforth
on family pension for pensioners enhanced from ₹ attract a rate of 20 per cent on certain financial assets.
15,000/- to ₹ 25,000/-. Assessments now, can be Long term gains on all financial and non-financial
reopened beyond three years up to 5 years from end of assets to attract 12.5 per cent rate. Limit of exemption
year of assessment, only if, the escaped income is more of capital gains has been increased to ₹1.25 Lakh per
than ₹ 50 Lakh. The new tax regime rate structure is year to benefit lower and middle-income classes. Listed
also revised to give a salaried employee benefits up to ₹ financial assets held for more than a year and unlisted
17,500/- in income tax. assets (financial and non-financial) held for more than
two years to be classified as long term assets. Unlisted
New Tax Regime Tax Structure
bonds and debentures, debt mutual funds and market
linked debentures will continue to attract applicable
capital gains tax.
Acknowledging that GST has decreased tax
incidence on common man and terming it as a success of
vast proportions, Union Finance Minister Smt Nirmala
Sitharaman said that GST has reduced compliance
burden and logistics cost for trade and industry. Now
the Government envisages further simplifying and
rationalizing the tax structure to expand it to remaining
sectors. Budget also proposed to further digitalise and
make paperless the remaining services of Customs and
Income Tax including rectification and order giving
effect to appellate orders over the next two years.
Custom duties have been revised to rationalize and
revise them for ease of trade and reduction of disputes.
Giving relief to cancer patients, Budget fully exempted
three more cancer treating medicines from custom
duties, namely, Trastuzumab Deruxtecan, Osimertinib
and Durvalumab. There will be reduction in Basic
To promote investment and foster employment, Customs Duty (BCD) on X-ray machines tubes and flat
Budget has given boost to entrepreneurial spirit and panel detectors. BCD on mobile phones, Printed Circuit
start-up ecosystem, abolishing angel tax for all classes Board Assembly (PCBA) and mobile chargers reduced to
of investors. Further, a simpler tax regime for foreign 15 per cent. To give a fillip to processing and refining of
shipping companies operating domestic cruises is critical minerals, Budget fully exempted custom duties
proposed looking at the tremendous potential of on 25 rare earth minerals like lithium and reduced BCD
cruise tourism. Foreign mining companies selling raw on two of them. Budget proposed to exempt capital
diamonds in the country can now benefit from safe goods for manufacturing of solar panels. To boost India’s
harbor rates which will benefit the diamond industry. seafood exports, BCD on broodstock, polychaete worms,
Further, corporate tax rate on foreign companies shrimps and fish feed reduced to 5 per cent. Budget will
reduced from 40 to 35 per cent to attract foreign capital. foster competitiveness of Indian leather and textiles
articles of export. BCD reduced from 7.5 per cent to 5
Budget further simplified the direct tax regime for
per cent in Methylene Diphenyl Diisocyanate (MDI)
charities, TDS rate structure and capital gains taxation.
used for manufacture of spandex yarn. Custom duties on
The two tax exemption regimes for charities will be gold and silver reduced to 6 per cent and on platinum
merged into one. 5 per cent TDS on many payments to 6.4 per cent. BCD on ferro nickel and blister copper
to be merged into 2 per cent TDS and 20 per cent removed, while, BCD on ammonium nitrate increased
TDS on repurchase of units by mutual funds or UTI from 7.5 to 10 per cent to support existing and new
stands withdrawn. TDS rate on e-commerce operators capacities in pipeline. Similarly, BCD on PVC flex banners
reduced from 1 per cent to 0.1 per cent. Now credit of increased from 10 to 25 per cent considering the hazard
TCS will be given on TDS deducted from salary. Budget to environment. To incentivize domestic manufacturing,
decriminalized delay of payment of TDS up to the due BCD on PCBA of specific telecom equipments increased
date of filing of TDS statement. Standard Operating from 10 to 15 per cent.

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vkLFkk IAS INDIAN ECONOMY

For dispute resolution and dispose-off backlogs, Union Finance Minister proposed Vivad se Vishwas Scheme,
2024 for resolsution of certain income tax disputes pending in appeal. The monetary limits for filing appeals related
to direct taxes, excise and service tax in High Courts, Supreme Courts and tribunals has been increased to ₹ 60 Lakh,
₹ 2 Crore and ₹ 5 Crore, respectively. Further to reduce litigation and provide certainty in international taxation,
scope of safe harbour rules to be expanded and transfer pricing assessment procedure to be streamlined.

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vkLFkk IAS INDIAN ECONOMY

Securitisation and Reconstruction of Financial

The Reserve Bank of India ™™
Assets and Enforcement of Security Interest Act,
2002 (Chapter II)
The Reserve Bank of India was established on April
1, 1935 in accordance with the provisions of the Reserve ™™ Credit Information Companies(Regulation) Act,
Bank of India Act, 1934. 2005
™™ Payment and Settlement Systems Act, 2007
The Central Office of the Reserve Bank was
initially established in Calcutta but was permanently zz Payment and Settlement Systems Regulations,
2008 and Amended up to 2011 and BPSS
moved to Mumbai in 1937. The Central Office is
Regulations, 2008
where the Governor sits and where policies are
formulated. Though originally privately owned, since zz The Payment and Settlement Systems
(Amendment) Act, 2015 - No. 18 of 2015
nationalisation in 1949, the Reserve Bank is fully
owned by the Government of India. ™™ Factoring Regulation Act, 2011
Functions of RBI
As a central bank, the Reserve Bank has significant
powers and duties to perform. For smooth and speedy
progress of the Indian Financial System, it has to
perform some important tasks. Among others it includes
maintaining monetary and financial stability, to develop
and maintain stable payment system, to promote and
develop financial infrastructure and to regulate or
control the financial institutions.
For simplification, the functions of the Reserve
Bank are classified into the traditional functions, the
development functions and supervisory functions
Monetary Authority:
™™ Formulates implements and monitors the monetary
policy.
™™ Objective: maintaining price stability while keeping
in mind the objective of growth.
Preamble
Regulator and supervisor of the financial system:
The Preamble of the Reserve Bank of India describes
™™ Prescribes broad parameters of banking operations
the basic functions of the Reserve Bank as:
within which the country's banking and financial
"to regulate the issue of Bank notes and keeping of system functions.
reserves with a view to securing monetary stability in ™™ Objective: maintain public confidence in the
India and generally to operate the currency and credit system, protect depositors' interest and provide
system of the country to its advantage; to have a modern cost-effective banking services to the public.
monetary policy framework to meet the challenge of Manager of Foreign Exchange
an increasingly complex economy, to maintain price
™™ Manages the Foreign Exchange Management Act,
stability while keeping in mind the objective of growth."
1999.
Legal Framework ™™ Objective: to facilitate external trade and payment
I. Acts administered by Reserve Bank of India and promote orderly development and maintenance
of foreign exchange market in India.
™™ Reserve Bank of India Act, 1934
Issuer of currency:
™™ Public Debt Act, 1944/Government Securities Act,
2006 ™™ Issues and exchanges or destroys currency and
coins not fit for circulation.
™™ Government Securities Regulations, 2007
™™ Objective: to give the public adequate quantity of
™™ Banking Regulation Act, 1949 supplies of currency notes and coins and in good
™™ Foreign Exchange Management Act, 1999 quality.

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vkLFkk IAS INDIAN ECONOMY

Difference between money and capital market notes except one rupee note and coins of smaller
Basis Money market Capital market
denomination. These currency notes are legal tender
issued by the RBI. Currently it is in denominations of Rs.
Meaning It is a market dealing in It is a market dealing in
securities of short-term securities for long-term 2, 5, 10, 20, 50, 100, 500, and 1,000. The RBI has powers
funds, whose maturity funds, whose maturity not only to issue and withdraw but even to exchange
period is upto one year. period is more than one these currency notes for other denominations. It issues
year.
these notes against the security of gold bullion, foreign
Participants Major participants are Participants of capital
RBI, commercial banks, market are financial
securities, rupee coins, exchange bills and promissory
financial institutions and institutions, banks, notes and government of India bonds.
finance companies. corporate entities, foreign
investors and ordinary
Banker to other Banks: The RBI being an apex
retail investors from the monitory institution has obligatory powers to guide,
members of public. help and direct other commercial banks in the country.
Instruments Instruments traded are Main instruments traded The RBI can control the volumes of banks reserves and
T-bills, commercial bills, are shares, debentures, allow other banks to create credit in that proportion.
certificate of deposits, etc. bonds, preference shares,
etc.
Every commercial bank has to maintain a part of their
reserves with its parent’s viz. the RBI. Similarly in need
Investment In money market, It does not require huge
outlay instruments require huge capital outlay, as the or in urgency these banks approach the RBI for fund.
sums of money, because value of units of securities Thus it is called as the lender of the last resort.
these are quite expensive. is generally low, i.e. ₹10 or
₹100. Even the trading lot Banker to the Government: The RBI being the apex
is kept low at 5,50, 100 or monitory body has to work as an agent of the central and
so. state governments. It performs various banking function
Duration They have a tenure of Deals with medium term such as to accept deposits, taxes and make payments on
maximum one year and and long-term securities behalf of the government. It works as a representative
may even be traded for a with a maturity period of
single day. more than one year. of the government even at the international level. It
Liquidity They are highly liquid and They are less liquid, e.g.
maintains government accounts, provides financial
have an arrangement for a person wanting to sell advice to the government. It manages government
providing liquidity, which shares may not get a public debts and maintains foreign exchange reserves
is provided by Discount buyer.
on behalf of the government. It provides overdraft
and Finance House of
India (DFHI). facility to the government when it faces financial crunch.
Risk/safety Money market Capital market Exchange Rate Management: It is an essential
of funds instruments are generally instruments are riskier function of the RBI. In order to maintain stability in
safe due to shorter both in terms of returns
duration and credibility and repayment of
the external value of rupee, it has to prepare domestic
of issuers. principal. policies in that direction. Also it needs to prepare and
Expected The expected rate of The expected returns are implement the foreign exchange rate policy which will
returns return is less due to short high and there is even a help in attaining the exchange rate stability. In order
duration. possibility of capital gain. to maintain the exchange rate stability it has to bring
Developmental role demand and supply of the foreign currency (U.S Dollar)
close to each other.
™™ Performs a wide range of promotional functions to
support national objectives. Credit Control Function: Commercial bank in the
country creates credit according to the demand in the
Related Functions economy. But if this credit creation is unchecked or
™™ Banker to the Government: performs merchant unregulated then it leads the economy into inflationary
banking function for the central and the state cycles. On the other credit creation is below the required
governments; also acts as their banker. limit then it harms the growth of the economy. As a
™™ Banker to banks: maintains banking accounts of central bank of the nation the RBI has to look for growth
all scheduled banks. with price stability. Thus it regulates the credit creation
capacity of commercial banks by using various credit
Traditional Functions of RBI
control tools.
Traditional functions are those functions which
Supervisory Function: The RBI has been endowed
every central bank of each nation performs all over
with vast powers for supervising the banking system in
the world. Basically these functions are in line with the the country. It has powers to issue license for setting up
objectives with which the bank is set up. It includes new banks, to open new branches, to decide minimum
fundamental functions of the Central Bank. They reserves, to inspect functioning of commercial banks in
comprise the following tasks. India and abroad, and to guide and direct the commercial
Issue of Currency Notes: The RBI has the sole banks in India. It can have periodical inspections an
right or authority or monopoly of issuing currency audit of the commercial banks in India.

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vkLFkk IAS INDIAN ECONOMY

Quantitative or General Collection of Data: Being the apex monetary

Qualitative Method
Method authority of the country, the RBI collects process
™™ Fixed Margin Requirements ™™ Bank Rate and disseminates statistical data on several topics. It
™™ Consumer Credit Regulations ™™ Open Marke Operations includes interest rate, inflation, savings and investments
™™ Credit Rationing ™™ Cash Reserve Ratio
etc. This data proves to be quite useful for researchers
and policy makers.
™™ Moral Suasion ™™ Statutory Liquidity Ratio

™™ Control Through Directives ™™ Liquidity Adjustment Facility Publication of the Reports: The Reserve Bank has
™™ Direct Actions ™™ Marginal Standing Facility
its separate publication division. This division collects
and publishes data on several sectors of the economy.
Developmental / Promotional Functions of RBI
The reports and bulletins are regularly published by the
Along with the routine traditional functions, central RBI. It includes RBI weekly reports, RBI Annual Report,
banks especially in the developing country like India Report on Trend and Progress of Commercial Banks
have to perform numerous functions. These functions India., etc. This information is made available to the
are country specific functions and can change according public also at cheaper rates.
to the requirements of that country. The RBI has been Promotion of Banking Habits: As an apex
performing as a promoter of the financial system since organization, the RBI always tries to promote the
its inception. Some of the major development functions banking habits in the country. It institutionalizes
of the RBI are maintained below. savings and takes measures for an expansion of the
Development of the Financial System: The banking network. It has set up many institutions such
financial system comprises the financial institutions, as the Deposit Insurance Corporation-1962, UTI-1964,
financial markets and financial instruments. The sound IDBI-1964, NABARD-1982, NHB-1988, etc. These
and efficient financial system is a precondition of the organizations develop and promote banking habits
rapid economic development of the nation. The RBI has among the people. During economic reforms it has
encouraged establishment of main banking and non- taken many initiatives for encouraging and promoting
banking institutions to cater to the credit requirements banking in India.
of diverse sectors of the economy. Promotion of Export through Refinance: The RBI
Development of Agriculture: In an agrarian always tries to encourage the facilities for providing
economy like ours, the RBI has to provide special finance for foreign trade especially exports from India.
The Export-Import Bank of India (EXIM Bank India)
attention for the credit need of agriculture and allied
and the Export Credit Guarantee Corporation of India
activities. It has successfully rendered service in this
(ECGC) are supported by refinancing their lending for
direction by increasing the flow of credit to this sector. It
export purpose.
has earlier the Agriculture Refinance and Development
Corporation (ARDC) to look after the credit, National Supervisory Functions of RBI
Bank for Agriculture and Rural Development (NABARD) The reserve bank also performs many supervisory
and Regional Rural Banks (RRBs). functions. It has authority to regulate and administer
Provision of Industrial Finance: Rapid industrial the entire banking and financial system. Some of its
growth is the key to faster economic development. In supervisory functions are given below.
this regard, the adequate and timely availability of credit Granting license to banks: The RBI grants license
to small, medium and large industry is very significant. to banks for carrying its business. License is also given
In this regard the RBI has always been instrumental in for opening extension counters, new branches, even to
setting up special financial institutions such as ICICI Ltd. close down existing branches.
IDBI, SIDBI and EXIM BANK etc. Bank Inspection: The RBI grants license to
Provisions of Training: The RBI has always tried banks working as per the directives and in a prudent
to provide essential training to the staff of the banking manner without undue risk. In addition to this it can
industry. The RBI has set up the bankers’ training ask for periodical information from banks on various
colleges at several places. National Institute of Bank components of assets and liabilities.
Management i.e. NIBM, Bankers Staff College i.e. BSC Control over NBFIs: The Non-Bank Financial
and College of Agriculture banking i.e. CAB are few to Institutions are not influenced by the working of a
mention. monitory policy. However RBI has a right to issue

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vkLFkk IAS INDIAN ECONOMY

directives to the NBFIs from time to time regarding their The Monetary Policy Framework
functioning. Through periodic inspection, it can control ™™ The amended RBI Act explicitly provides the
the NBFIs. legislative mandate to the Reserve Bank to operate
Implementation of the Deposit Insurance the monetary policy framework of the country.
Scheme: The RBI has set up the Deposit Insurance ™™ The framework aims at setting the policy (repo)
Guarantee Corporation in order to protect the deposits rate based on an assessment of the current and
of small depositors. All bank deposits below Rs. One evolving macroeconomic situation; and modulation
lakh are insured with this corporation. The RBI work of liquidity conditions to anchor money market
to implement the Deposit Insurance Scheme in case of rates at or around the repo rate. Repo rate changes
a bank failure. transmit through the money market to the entire
the financial system, which, in turn, influences
Monetary Policy - Its Meaning, Definitions aggregate demand – a key determinant of inflation
™™ The term monetary policy is also known as the and growth.
‘credit policy’ or called ‘RBI’s money management ™™ Once the repo rate is announced, the operating
policy’ in India. How much should be the supply framework designed by the Reserve Bank envisages
of money in the economy? How much should liquidity management on a day-to-day basis through
be the ratio of interest? How much should be appropriate actions, which aim at anchoring the
the viability of money? Etc. Such questions are operating target – the weighted average call rate
considered in the monetary policy. From the (WACR) – around the repo rate.
name itself it is understood that it is related to ™™ The operating framework is fine-tuned and
the demand and the supply of money. Monetary revised depending on the evolving financial
policy refers to the policy of the central bank with market and monetary conditions, while ensuring
regard to the use of monetary instruments under consistency with the monetary policy stance. The
its control to achieve the goals specified in the Act. liquidity management framework was last revised
significantly in April 2016.
™™ The Reserve Bank of India (RBI) is vested with the
responsibility of conducting monetary policy. This The Monetary Policy Process
responsibility is explicitly mandated under the ™™ Section 45ZB of the amended RBI Act, 1934 also
Reserve Bank of India Act, 1934. provides for an empowered six-member monetary
policy committee (MPC) to be constituted by the
Objectives of Monetary Policy
Central Government b2y notification in the Official
The objectives of a monetary policy in India are Gazette. Accordingly, the Central Government in
similar to the objectives of its five year plans. In a nutshell September 2016 constituted the MPC as under:
planning in India aims at growth, stability and social
1. Governor of the Reserve Bank of India –
justice. After the Keynesian revolution in economics,
Chairperson, ex officio;
many people accepted significance of monetary policy
2. Deputy Governor of the Reserve Bank of India,
in attaining following objectives.
in charge of Monetary Policy – Member, ex
™™ Rapid Economic Growth officio;
™™ Price Stability 3. One officer of the Reserve Bank of India to be
™™ Exchange Rate Stability nominated by the Central Board – Member, ex
officio;
™™ Balance of Payments (BOP) Equilibrium
4. Shri Chetan Ghate, Professor, Indian Statistical
™™ Full Employment
Institute (ISI) – Member;
™™ Neutrality of Money
5. Professor Pami Dua, Director, Delhi School of
™™ Equal Income Distribution Economics – Member; and
™™ These are the general objectives which every 6. Dr. Ravindra H. Dholakia, Professor, Indian
central bank of a nation tries to attain by employing Institute of Management, Ahmedabad –
certain tools (Instruments) of a monetary policy. In Member.
India, the RBI has always aimed at the controlled (Members referred to at 4 to 6 above, will hold office
expansion of bank credit and money supply, with for a period of four years or until further orders,
special attention to the seasonal needs of a credit. whichever is earlier.)

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vkLFkk IAS INDIAN ECONOMY

™™ The MPC determines the policy interest rate policy (weighted average lending rate) is kept close
required to achieve the inflation target. The first to the policy repo rate.
meeting of the MPC was held on October 3 and ™™ Before the constitution of the MPC, a Technical Advisory
4, 2016 in the run up to the Fourth Bi-monthly Committee (TAC) on monetary policy with experts
Monetary Policy Statement, 2016-17. from monetary economics, central banking, financial
™™ The Reserve Bank’s Monetary Policy Department markets and public finance advised the Reserve Bank
(MPD) assists the MPC in formulating the on the stance of monetary policy. However, its role was
monetary policy. Views of key stakeholders only advisory in nature. With the formation of MPC,
in the economy, and analytical work of the the TAC on Monetary Policy ceased to exist.
Reserve Bank contribute to the process for 30 August 2024
arriving at the decision on the policy repo rate.
Policy Repo Rate 6.5%
™™ The Financial Markets Operations Department Reverse Repo Rate 3.35%
(FMOD) operationalises the monetary policy,
Marginal Standing Facility Rate 6.35%
mainly through day-to-day liquidity management
Bank Rate 6.75%
operations. The Financial Markets Committee
(FMC) meets daily to review the liquidity conditions CRR 4.5%

so as to ensure that the operating target of monetary SLR 18%

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vkLFkk IAS INDIAN ECONOMY

Instruments of Monetary Policy ™™ Open Market Operations (OMOs): These include

There are several direct and indirect instruments both, outright purchase and sale of government
that are used for implementing monetary policy. securities, for injection and absorption of durable
liquidity, respectively.
™™ Repo Rate: The (fixed) interest rate at which the
Reserve Bank provides overnight liquidity to banks ™™ Market Stabilisation Scheme (MSS): This
against the collateral of government and other instrument for monetary management was
approved securities under the liquidity adjustment introduced in 2004. Surplus liquidity of a more
enduring nature arising from large capital inflows
facility (LAF).
is absorbed through sale of short-dated government
™™ Reverse Repo Rate: The (fixed) interest rate at securities and treasury bills. The cash so mobilised
which the Reserve Bank absorbs liquidity, on an is held in a separate government account with the
overnight basis, from banks against the collateral of Reserve Bank.
eligible government securities under the LAF.
Menetary Policy Fiscal Policy
™™ Liquidity Adjustment Facility (LAF): The LAF
Tool Interest rates Tax Government
consists of overnight as well as term repo auctions. spending
Progressively, the Reserve Bank has increased the
Effect Cost of borrowing/ Budget deficit
proportion of liquidity injected under fine-tuning mortgages
variable rate repo auctions of range of tenors. The Distribution Higher interest rates hit Depends which taxes
aim of term repo is to help develop the inter-bank homeowners but benefit you raise
term money market, which in turn can set market savers
based benchmarks for pricing of loans and deposits, Exchange Higher interest rates cause No effect on exchange
and hence improve transmission of monetary policy. rate appreciation rate
The Reserve Bank also conducts variable interest Supply–side Limited impact Higher taxes may effect
incentives to work
rate reverse repo auctions, as necessitated under
the market conditions. Politics Menetary policy set by Changing tax and
indepemdent Central Bank government spending
™™ Marginal Standing Facility (MSF): A facility under highly political
which scheduled commercial banks can borrow Liquidity Cuts in interest rates may Fiscal policy advised in
additional amount of overnight money from the trap not work in liquidity trap very deep recessions
Reserve Bank by dipping into their Statutory Open and Transparent Monetary Policy Making
Liquidity Ratio (SLR) portfolio up to a limit at a
Under the amended RBI Act, the monetary policy
penal rate of interest. This provides a safety valve
making is as under:
against unanticipated liquidity shocks to the
banking system. ™™ The MPC is required to meet at least four times in
a year.
™™ Corridor: The MSF rate and reverse repo rate
determine the corridor for the daily movement in ™™ The quorum for the meeting of the MPC is four
the weighted average call money rate. members.
™™ Bank Rate: It is the rate at which the Reserve Bank ™™ Each member of the MPC has one vote, and in the
is ready to buy or rediscount bills of exchange event of an equality of votes, the Governor has a
or other commercial papers. The Bank Rate is second or casting vote.
published under Section 49 of the Reserve Bank of ™™ The resolution adopted by the MPC is published
India Act, 1934. This rate has been aligned to the after conclusion of every meeting of the MPC in
MSF rate and, therefore, changes automatically as accordance with the provisions of Chapter III F of
and when the MSF rate changes alongside policy the Reserve Bank of India Act, 1934.
repo rate changes. ™™ On the 14th day, the minutes of the proceedings of
™™ Cash Reserve Ratio (CRR): The average daily the MPC are published which include:
balance that a bank is required to maintain with (a) The resolution adopted by the MPC;
the Reserve Bank as a share of such per cent of its (b) The vote of each member on the resolution,
Net demand and time liabilities (NDTL) that the ascribed to such member; and
Reserve Bank may notify from time to time in the
(c) The statement of each member on the resolution
Gazette of India.
adopted.
™™ Statutory Liquidity Ratio (SLR): The share of
™™ Once in every six months, the Reserve Bank is
NDTL that a bank is required to maintain in safe and
required to publish a document called the Monetary
liquid assets, such as, unencumbered government
Policy Report to explain:
securities, cash and gold. Changes in SLR often
influence the availability of resources in the banking (a) The sources of inflation; and
system for lending to the private sector. (b) The forecast of inflation for 6-18 months ahead.

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vkLFkk IAS INDIAN ECONOMY

Reforms in the Indian Monetary Policy During The Monetary Policy Committee would be entrusted with
1990s the task of fixing the benchmark policy rate (repo rate)
required to contain inflation within the specified target
The Monetary policy of the RBI has undergone
level. A Committee-based approach for determining the
massive changes during the economic reform period.
Monetary Policy will add lot of value and transparency
After 1991 the monetary policy is disassociated from
to monetary policy decisions. The meetings of the
the fiscal policy. Under the reform period an emphasis
Monetary Policy Committee shall be held at least 4 times
was given to the stable macro economic situation and
a year and it shall publish its decisions after each such
low inflation policy.
meeting.
The major changes in the Indian Monetary policy
The provisions of the RBI Act relating to Monetary
during the decade of 1990.
Policy have been brought into force through a Notification
Reduced Reserve Requirements: During 1990s in the Gazette of India Extraordinary on 27.6.2016.
both the Cash Reserve Ratio (CRR) and the Statutory The factors constituting failure to meet inflation target
Liquidity Ratio (SLR) were reduced to considerable under the Monetary Policy Committee Framework have
extent. The CRR was at its highest 15% plus and also been notified in the Gazette on 27.6.2016. The
additional CRR of 10% was levied, however it is now Government, in consultation with RBI, has notified the
reduced by 4.5%. The SLR is reduced from 38.5% to a inflation target in the Gazette of India Extraordinary
minimum of 18%. dated 5th August 2016 for the period beginning from the
Increased Micro Finance: In order to strengthen date of publication of this notification.
the rural finance the RBI has focused more on the Self
Inflation Target : Four per cent
Help Group (SHG). It comprises small and marginal
Upper tolerance level : Six per cent
farmers, agriculture and non-agriculture labour, artisans
Lower tolerance level : Two per cent
and rural sections of the society. However still only 30%
of the target population has been benefited. As per the provisions of the RBI Act, out of the six
Members of Monetary Policy Committee, three Members
Fiscal Monetary Separation: In 1994, the
will be from the RBI and the other three Members of MPC
Government and the RBI signed an agreement through
will be appointed by the Central Government. In exercise
which the RBI has stopped financing the deficit in the
of the powers conferred by section 45ZB of the Reserve
government budget. Thus it has separated the monetary
Bank of India Act, 1934, the Central Government has
policy from the fiscal policy.
accordingly constituted, through a Gazette Notification
Changed Interest Rate Structure: During the dated 29th Sept 2016, the Monetary Policy Committee of
1990s, the interest rate structure was changed from RBI, with the following composition, namely:-
its earlier administrated rates to the market oriented
(a) The Governor of the Bank—Chairperson, ex officio;
or liberal rate of interest. Interest rate slabs are now
reduced up to 2 and minimum lending rates are (b) Deputy Governor of the Bank, in charge of Monetary
abolished. Similarly, lending rates above Rs. Two lakh Policy—Member, ex officio;
are freed. (c) One officer of the Bank to be nominated by the
Changes in Accordance to the External Reforms: Central Board—Member, ex officio;
During the 1990, the external sector has undergone (d) Shashanka Bhide
major changes. It comprises lifting various controls on (e) Ashima Goyal
imports, reduced tariffs, etc. The Monetary policy has
(f) Jayanth R Verma
shown the impact of liberal inflow of the foreign capital
and its implication on domestic money supply. The Members of the Monetary Policy Committee
appointed by the Central Government shall hold office
Higher Market Orientation for Banking: The
for a period of four years, with immediate effect or until
banking sector got more autonomy and operational
further orders, whichever is earlier.
flexibility. More freedom to banks for methods of
assessing working funds and other functioning has Inflation and Price Policy
empowered and assured market orientation. Inflation is defined as a general rise in prices of all
Monetary Policy Committee commodities. Inflation is a market situation in which the
The Reserve Bank of India Act, 1934 (RBI Act) has price of goods and services increases consistently over
been amended by the Finance Act, 2016, to provide a period of time. So inflation reduces the value of money
for a statutory and institutionalised framework for hence too much money chases too few goods.
a Monetary Policy Committee, for maintaining price There are various methods to calculate inflation
stability, while keeping in mind the objective of growth. i.e. Wholesale Price Index (WPI), Consumer Price Index

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vkLFkk IAS INDIAN ECONOMY

(CPI), Producer Price Index (PPI), Commodity Price disparities in the consumption baskets for different
Index, Cost of Living Index, Capital Goods Price Index segment of consumers, India has adopted four CPIs
and GDP Deflator. But WPI and CPI are widely used zz CPI (Industrial Workers)
indexes to calculate inflation all over the world.
zz CPI (Urban Non- Manual Employees)
Consumer Price Index (CPI) is a price index that zz CPI (Agricultural Labour)
represents the average price of a basket of goods over
zz CPI (Rural Worker)
time. CPI calculates the average price paid by the
consumer to the shopkeepers. ™™ In India, RBI uses CPI (combined) released by
NSO for inflation purpose with base year as 2012
Measures of Inflation proposed for 2024.
Wholesale Price Index (WPI) is based on the price ™™ The number of items in CPI basket include 448 in
prevailing in the wholesale markets or the price at rural and 460 in urban
which bulk transactions are made.
Both these indices are the weighted averages of
™™ It includes three components prices of a specified set of goods and services.
zz Manufactured products = 65% approx (64.2% 1. Data on Wholesale Price Index (WPI) is available
now) every week, while data on Consumer Price Index
zz Primary articles = 20% approx (22.6% now) (CPI) is only available every month, so there is a
time lag in CPI data availability compared to WPI
zz Fuel and power = 15% approx (13.1% now)
data availability, which can impact decision making
™™ The WPI basket includes 676 (Changed to 697 now) both for RBI and the Government of India, as the
commodities in total- all of these are only goods previous answer states.
and whose prices are captured at the wholesale/ 2. In India, we do not have one CPI calculated per se.
producer level. The CPI considers inflation at the Earlier, there were 4 CPIs calculated for 4 different
retail end, while also including services. sets of workers, and now we have three such CPIs,
™™ It is measured by Ministry of commerce and out of which the most famous is CPI for Industrial
industry with base year Workers (CPI-IW). The others used currently are CPI
New WPI Series for agricultural laborers and CPI for rural laborers.
™™ Base year but it is proposed for 2022-23 The argument used therefore is that there is no one
CPI value which can be used for decision making by
™™ The number of items covered in the new series of either RBI or the Government of India.
the WPI has increased from 676 to 697.
3. According to our policy makers/decision makers
™™ Under the primary articles, new vegetables and at RBI and elsewhere, or so it seems, WPI has a
fruits like radish, carrot, cucumber, bitter gourd, broader coverage compared to all the CPIs, in terms
mosambi (sweet lime), pomegranate, jackfruit, and of the commodities covered, quotations, larger
pear have been added. number of non-agricultural products and tradeable
™™ Under the mineral group, new items like copper items, which are missing in the CPIs.
concentrate, lead concentrate and garnet have been Also, interest rates which the RBI controls may not
added and other items like copper ore, gypsum, have much of a correlation with high food prices
kaolin, dolomite, and magnesite have been dropped. and therefore decision makers may feel that since
they can’t target inflation across major sections
™™ Under the manufacturing items, 173 new items
constituting the CPI, they would rather focus on
including conveyer belt, rubber tread, steel cables,
WPI constituted of goods on whose demand interest
tissue paper, and wooden splint have been added,
rates may have a more significant impact.
while 135 items like khandsari, poppadom, and
video CD players have been taken out. 4. WPI is calculated on an all India basis, while CPI is
calculated for specific centres in India and then this
™™ Under the new series of WPI, weight of manufactured is aggregated to an all India index.
items has decreased to 64.2 per cent from 64.9 per
CPI is better than WPI
cent in old series.
™™ Conceptually, retail inflation—price rise driven by
™™ Similarly, the weight of fuel and power has decreased
potential consumer demand and available supply—
to 13.1 per cent from 14.9 per cent.
is a better indicator of inflation for guiding monetary
™™ On the other hand, the weight of primary items has policy decisions than WPI inflation.
increased to 22.6 per cent from 20.1 per cent. ™™ WPI excludes prices of services such as education,
Consumer Price Index (CPI) is based on the final healthcare, and rents. However, services now
prices of goods at the retail level. Because of the wide account for nearly 60 per cent of GDP and a vast

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vkLFkk IAS INDIAN ECONOMY

majority of these services are not traded with other Published by Office of Economic Central Statistics
countries. Conversely, the new CPI measure assigns Advisor (Ministry of Office (Ministry
nearly 36% weightage on services and includes Commerce & Industry) of Statistics and
Programme
price changes in housing, education, healthcare, Implementation)
transport and communication, personal care and
Measures prices Goods only Goods and Services
entertainment. of both
™™ WPI assigns nearly 15% and 10.7% weightage for Measurement of The first stage of the The final stage of the
the fuel group and metal and metal products group, Inflation transaction transaction
respectively.Any sharp movements in international Prices paid by Manufacturers and Consumers
prices of fuels and metals, therefore, lead to sharp wholesalers
changes in WPI.CPI shows the consumer trends of How many items 697 (Primary, 448 (Rural Basket)
the common man covered fuel & power and 460 (Urban Basket)
manufactured products)
Recent changes in CPI methodology What type of Manufacturing inputs Education,
™™ The Central Statistics Office (CSO), Ministry of items covered and intermediate goods communication,
like minerals, machinery transportation,
Statistics and Programme Implementation has basic metals etc. recreation, apparel,
revised the Base Year of the Consumer Price Index foods and beverages,
(CPI) from 2010 to 2012 and now it will be changed housing and medical
care
to 2024.
Base year 2011-12 2012
™™ In this revised series, many methodological changes
Used by Only a few countries 157 countries
have been incorporated, in order to make the indices
including India
more robust
Data released on Primary articles, fuel, Monthly basis
™™ The new index will include school uniforms, and power (Weekly
pyjamas, skirts, infant clothing, kurtas, belle shoes, basis) & overall (monthly
shoes and chappals as well basis since 2012)

™™ The methodology of calculating inflation will also So from the above table, it must be clear that what
see a change from the present average method to are the differences between the CPI & WPI indexes. Here
geometric mean, which will take care of a particular it is worth mentioning that CPI is a worldwide accepted
category driving the entire index, an internationally mode of calculating the inflation as compared to the
accepted practice WPI.
Implication of these changes Causes of Rising Prices
™™ These changes reflect the falling share of household Its causes could be nailed down to Cost-Push
expenditure on food and the rising share of the non-
inflation and Demand-Pull inflation.
food items. In addition, the number of items will
also increase from 437 to 448 in the rural basket Cost-Push Inflation is caused by rise in the cost of
and from 450 to 460 in the urban basket factors of production.
™™ Weightage for food is down from 47.58 percent to There are some of factors that have contributed to
45.86 percent. This means future increases in food increase in cost of production are as follows:
prices will impact the index marginally less than in ™™ Fluctuation in output and supply.
the old CPI. As incomes rise, people spend less on
™™ Increase in taxes i.e. taxation, as a factor in rising
food
costs and prices.
™™ The weightage for housing and clothing are higher.
™™ Changes in administered prices.
™™ The sharp downward reduction in the weightage for
fuel – from 9.49 percent to 6.84 percent. This will ™™ Hike in oil prices and global inflation.
have the effect of reducing the deflationary impact Demand-Pull Inflation is another type of inflation.
of recent oil prices decreases – which means overall In this case, the cost of factors of production remains
CPI will look higher than in the old index same. However, due to increase in the demand of the
Difference between WPI and CPI is as follows; commodity by consumers in the market relative to its
Basis For Wholesale Price Index Consumer Price Index
supply, the owner will naturally increase the prices.
Comparison (WPI) (CPI) In this case, demand has increased, but supply has
Meaning WPI, amounts to the CPI, indicates the remained constant.
average change in prices average change
of commodities at the in the prices of
There are some factors behind rapid increase in
wholesale level commodities, at the demand and relatively slow growth over the past few
retail level. decades. This is as follows:

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™™ Increase in money supply. Economic capital framework

™™ Massive increase in government expenditure. ™™ Economic capital framework refers to the risk
™™ Rapid increase in population. capital required by the central bank while taking
™™ Growth of black money. into account different risks.

Liquidity: The term Liquidity is usually used to ™™ The economic capital framework refl ects the
identify hard cash. In fact Liquidity just means money capital that an institution requires or needs to hold
in any form. Liquidity is also referred to the ability and as a counter against unforeseen risks or events or
ease with which an asset could be converted to money. losses in the future.
For e.g. cash is the most liquid asset. Savings-account Meaning of Foreign Exchange Market
deposit could also be called liquid asset. How is Liquidity
The term market has been interpreted in Economics
related to Inflation you may ask? The answer is simple.
as the place where both the buyers as well as the sellers
It's because of Demand-Pull Inflation. The demand for
meet and they buy and or sell goods.
the commodity is directly influenced by the amount of
money that people have. The Government or Central The foreign exchange market is a place where the
Bank can directly influence demand-pull inflation by transactions in foreign exchange are conducted. In
controlling liquidity. practical world the external transaction requires the use
of foreign purchasing power i.e. foreign currency. The
Consequences or effects of rising price
foreign exchange market facilitates such transactions by
Inflation had caused serious imbalances in the performing number of functions.
Indian economy. Price relationships were badly
distorted and production pattern had gone out of line In simple words, the foreign exchange market is a
with demand. market in which national currencies are bought and sold
against one another.
™™ Adverse effect on production.
™™ Adverse effect on the distribution of income.
Functions of Foreign Exchange Market
(A) Transfer Function: As mentioned above, the foreign
RBI aligning accounting year with a fiscal year
exchange markets are exchange markets engaged
The Reserve Bank of India (RBI) is aligning its in transferring the purchasing power between two
July-June accounting year with the government’s April- nations and two currencies. It is prime function of
March fiscal year in order to ensure more effective this market. In simple terms, it is conversion of one
management of the country’s finances. currency into another such as converting Indian
™™ When it commenced operations on April 1, 1935, Rs. into U.S. $ and vice versa at some rate. Various
with Sir Osborne Smith as its first Governor, the RBI instruments like bank drafts, exchange bills, are
followed a January-December accounting year. used for transferring the purchasing power. In this
™™ On March 11, 1940, however, the bank changed its regard international clearing to both the direction
accounting year to July-June. is important to because it simplifies the conduct of
™™ Now, after nearly eight decades, the RBI is making international trade as well as capital movements
another switch: the next accounting year will be from one country to another.
a nine-month period from July 2020 to March 31, (B) Credit Function: Under this function the foreign
2021, and thereafter, all fi nancial years will start exchange market provides credit to the traders such
from April, as it happens with the central and state as exporters and importers. Exporters can get credit
governments. such as reshipment and post-shipment credit.
™™ The Bimal Jalan Committee on Economic Capital Recently started Euro-Dollar market is a leading
Framework (ECF) of the RBI had proposed a more credit market at international level. This function
transparent presentation of the RBI’s annual of making credit available plays a crucial role in
accounts, and a change in its accounting year to growth and expansion of the international trade.
April-March from the financial year 2020-21.
(C) Hedging: Hedging is a specific function. Under this
™™ It said the RBI would be able to provide better function the foreign exchange market tries to protect
estimates of projected surplus transfers to the the interest of the persons dealing in the market
government for the financial year for budgeting from any unforeseen changes in the exchange rate.
purposes. The exchange rates (price of one currency expressed
™™ It is also expected to result in better management in another currency) under free market situation
of the transfer of dividend or surplus to the can go up and down. This can either bring gains or
government. losses to the concerned parties. Foreign exchange
™™ Moreover, as governments, companies, and other market guards the interest of both exports as well
institutions follow the April-March year, it will help as importers, against any changes in the exchange
with effective management of accounting. rate.

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Thus, these are various functions performed by the India, then he has to convert U.S. dollars in to the Indian
foreign exchange market. To perform above functions it Rupees. The rate at which this conversion takes place is
uses the following instruments. called as an exchange rate.
Instruments of Foreign Exchange Market How this symmetry between two currencies is
The instruments, with the help of which the expressed i.e. how the exchange rate is determined
international payments are effected. They are, is mentioned in the next section. However, it is to be
understood that there are two fundamental types of the
Cheques and Bank Drafts: Persons dealing with
exchange rates.
foreign exchanges can use bank cheques as well as bank
drafts in order to make payments. The cheque is drawn Two Fundamental Types of the Exchange Rates
on particular bank instead of a person. (A) Spot Exchange Rate: This refers to the price of
Bills of Exchange: It is also called as foreign bill foreign exchange in terms of domestic money
of exchange which is an unconditional order in writing payable for the immediate delivery of particular
addressed by one person to another. It mentions the foreign currency. It is an existing or day-to-day
person to whom a certain sum is to be paid either on exchange rate. It is an exchange of currencies on the
demand or on specific date. spot. In simple words that rate of exchange, which is
effective for spot transactions is known as the spot
Mail Transfer (MT): Under this, funds are
exchange rate.
transferred from one account of a destination to
the another destination in the nation by mail. For (B) Forward Exchange Rate: There are several
international payments air-mail is used. future transactions whose delivery would be
made sometime in the future. The rates at which
Telegraphic Transfers (TT): By this method a sum
these transactions are consummated are called
can be transferred from one place to another place in
as forward rate of exchange. It is the rate fulfilling
the world by cable or telex. This is the quickest method
the agreement between two parties based on
of transferring fund from one place to another.
future delivery of goods. The exchange rate which
Thus, these are various instruments / methods used is applicable for forward transaction is called
for inflecting International payments. as forward exchange rate. The forward rate is
Meaning of Exchange Rate expressed at par, at premium and at a discount.
The concept of exchange rate has great significance Theories for Determination of Exchange Rate
because in case of the open economy transactions there Three important theories for the exchange rate
is an existing of at least two currencies. Exchange rate determination are.
refers to the price of one national currency expressed in
Mint Parity Theory (Gold Standard): However,
terms of any other foreign currency. External economic
the gold standard had collapsed during the First World
transactions need an essential symmetry between two
War (1914 - 1918). Under the mint parity the exchange
currencies
rate was determined on a weight-to-weight basis of the
Definition of Exchange Rate two currencies. However, after the break-down of the
Exchange Rate can be defined as, “the amount of the gold standard, there was confusion in determination of
foreign currency that may be bought for one unit of the the exchange rate. Gustav Cassel a Swedish economist
domestic currency.” enunciated the theory of determination of the
It can also be defined as, “the cost in domestic equilibrium exchange rate which was based in the parity
currency of purchasing one unit of the foreign currency.” between two currencies of the countries.

Suppose the exchange rate between Indian Rupee Money Supply and Inflation
and the U.S. Dollar is expressed as Re. 1 = $0.0125 or $ 1 Supplying the money in the market is the sole
= Rs.80. It simply means the value of one Indian Rupee is responsibility of the central bank of the country (Reserve
0.0125 dollars or in other words one dollar costs Rs.80. Bank of India in case of India). RBI prints the currency
Thus, exchange rate is the price of one currency and supplies money in the economy. Coins are minted
expressed in any other currency. In order to simplify the by the Ministry of Finance but circulated by the RBI in
fulfillment of international transactions an expression of the whole country. Supply of money decides the rate of
exchange rate is must in external economic transactions. inflation in the economy. If supply of money increases in
Suppose an Indian importer wish to import goods from the economy then inflation starts rising and vice versa.
New York, then he must convert his Indian rupees in Supplying the money in the market is the sole
to U.S. dollars in order to make payments. However, on responsibility of the central bank of the country (Reserve
the other side when the U.S. importer buys goods in Bank of India in case of India). RBI prints the currency

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vkLFkk IAS INDIAN ECONOMY

and supplies money in the economy. Coins are minted Reserve money (M0)
by the Ministry of Finance but circulated by the RBI in Reserve money is also called central bank money,
the whole country. Supply of money decides the rate of monetary base, base money, high-powered money, and
inflation in the economy. If supply of money increases in sometimes narrow money. In the most simple language,
the economy then inflation starts rising and vice versa. Reserve Money is Currency in Circulation plus Deposits
The currency issued by the central bank is in fact of Commercial Banks with RBI.
a liability of the central bank and the government. In Reserve money equals:
general therefore this liability must be backed by an
1. currency in circulation plus
equal value of assets consisting mainly of gold and
2. bankers’ deposits with RBI plus
foreign exchange reserves, especially in terms of high
power foreign currencies. 3. ‘other’ deposits with RBI.
In India money supply is done on the basis of It is the base level for the money supply or the high-
Minimum Reserve System since 1956. The RBI required powered component of the money supply.
holding a reserve of Gold and foreign securities and it is ‘Money supply’ (M1-M3)?
empowered to issue currency to any extent. Since 1957, The money supply is the total stock of money
the Minimum Reserve System changed to Gold reserve circulating in an economy. In general terms, it is also
of Rs. 115 cr. and rupee securities of 85 cr. Hence RBI called broad money. In the most simple language,
needs to keep 200 cr. as security to print any amount of Reserve Money is Currency in Circulation plus Deposits
currency in the economy. in Commercial Banks.
GDP Deflator ™™ Money supply consists of:
1. GDP Deflator: The GDP deflator is another indicator 1. Total currency circulating in the public plus
of inflation, which is often considered to be broader 2. The non-bank deposits with a commercial bank.
than the CPI and the WPI. The GDP deflator in most
Money supply includes deposits generated in the
countries is obtained by using a variety of primary
banking system resulting from a multiplier effect of
price indices. These are used to deflate individual
movement of currency in the banking system as well as
components of the GDP valued at current prices other forms of liquid assets.
(either from the production or the demand side
Money Aggregates: Standard Measures of Money
estimates) to obtain volume estimates.
Supply
2. The GDP deflator is then defined implicitly as the
In short, there are two types of money.
ratio of the estimate at current prices to the one at
constant prices. When this process is followed, the 1. Central bank money (M0)- obligations of a
GDP deflator is legitimately recognized as a high central bank, including currency and central bank
quality measure of inflation. Nonetheless, given depository accounts.
the delay in publication of national accounts it is 2. Commercial bank money (M1-M3)– obligations
seldom used as a headline indicator of inflation in a of commercial banks, including current accounts
real-time setting. and savings accounts.
3. Consumer Price Index: The overall CPI is meant In the money supply statistics, central bank money
to represent the cost of a representative basket is M0 while the commercial bank money is divided up
of goods and services consumed by an average into the M1-M3 components.
household. However, in India, the existing CPIs refer Generally, the types of commercial bank money that
to specific segments of the population. tend to be valued at lower amounts are classified in the
narrow category of M1 while the types of commercial
Currency in Circulation
bank money that tend to exist in larger amounts are
It is the total value of the currency (coins and paper categorized in M2 and M3, with M3 having the largest.
currency) that has ever been issued by the Reserve Bank
of India minus the amount that has been withdrawn by
Reserve Money (M0):
it. ™™ = Currency in circulation + Bankers’ deposits with
the RBI + ‘Other’ deposits with the RBI
Currency in circulation comprises of:
™™ = Net RBI credit to the Government + RBI credit to
1. Currency notes and coins with the public
the commercial sector + RBI’s claims on banks +
2. Cash in hand with banks. RBI’s net foreign assets + Government’s currency
It is a major liability component of a central bank’s liabilities to the public – RBI’s net non-monetary
balance sheet. liabilities.

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M1: currency in circulation declines.On November 8, 2016

™™ =Currency with the public + Deposit money of the Government of India made Rs. 500 and Rs. 1000 notes
public (Demand deposits with the banking system + invalid. This meant that around Rs. 15 lakh crore
‘Other’ deposits with the RBI). worth of high-value legal tender being withdrawn from
circulation.So, the entire liability of Rs. 15 lakh crore
M2: due to Rs.500 and Rs.1000 notes in circulation was
™™ =M1 + Savings deposits with Post office savings nullified.But the demonetisation impact is neutralised
banks. when the demonetised currency is replaced with new
M3: (Broad concept of the money supply) accepted currency notes. You may note that, even if an
individual chooses to park the cash as deposits with
™™ = M1+ Time deposits with the banking system
banks, it forms a part of the overall money supply.
™™ = Net bank credit to the Government + Bank credit Thus, say for example, if the banks or RBI got Rs.10 lakh
to the commercial sector + Net foreign exchange crore as deposits after the demonetization scheme was
assets of the banking sector + Government’s introduced until December 31, 2016, that figure forms
currency liabilities to the public – Net non-monetary part of the overall money supply. You may also note that
liabilities of the banking sector (Other than Time in this example Rs.5 lakh crore never made entry into
Deposits). the banking records.Now the net-liability = Rs.15 lakh
M4: crore – Rs.5 lakh crore = Rs.10 lakh crore. This liability
™™ =M3 + All deposits with post office savings banks figure is less than the initial liability of Rs. 15 lakh crore.
(excluding National Savings Certificates). So RBI and banks gain by the demonetization move, at
least on paper.
Money Multiplier (m)
Currency in circulation a liability to RBI or
The money multiplier is an approach used to
government
demonstrate the maximum amount of broad money that
could be created by commercial banks for a given fixed Let us examine what is the status of the currency we
amount of base money and reserve ratio. hold in our hands.
™™ The money multiplier, m, is the inverse of the Section 26 of the Reserve bank of India Act 1934
reserve requirement, R: (“RBI Act”) states as follows:
™™ For example, with the reserve ratio of 20 percent, (1) Subject to the provisions of sub-section (2),
this reserve ratio, R, can also be expressed as a every bank note shall be legal tender at any place in
fraction: 4 [India] in payment or on account for the amount
™™ So then the money multiplier, m, will be calculated expressed therein, and shall be guaranteed by the 5
as: [Central Government]. This means that the money the
public hold in hand or in the bank is a debt guaranteed
This number is multiplied by the amount of reserves
by the government (to us). Currency thus represents a
to estimate the maximum potential amount of the money
‘public debt’ owed by the government to the holders of
supply. For example, from Rs.100 can be multiplied by 5
to generate Rs.500 money supply if Reserve Ratio is 1/5 the bank notes – the public.
(20%) or when Money Multiplier is 5. When Reserve Demonetisation affect the RBI’s balance sheet
Ratio is 1/4 (25%) or when Money Multiplier is 4, that If people choose not to declare and surrender their
would generate only Rs. 400 as money supply. high-denomination currency notes, then RBI stands to
Demonetisation affect reserve money and money gain to the extent that its currency liabilities are lowered.
supply The gains it makes in the process are transferred to
When a currency note of a particular denomination its reserves and then appropriated in its profit and loss
ceases to be legal tender, the central bank’s liabilities account. This gives it leeway to transfer higher amounts
are reduced to that extent and also the amount of as dividends to the government.

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vkLFkk IAS INDIAN ECONOMY

bills in order to raise short loans. However this dose not

Money Market leads to increases in the prices.
There are two types of financial markets viz., the Apart from those, money market is an arrangement
money market and the capital market. The money which accommodates banks and financial institutions
market in that part of a financial market which deals in dealing in short term monetary activities such as the
the borrowing and lending of short term loans generally demand for and supply of money.
for a period of less than or equal to 365 days. It is a Structure of Indian Money Market
mechanism to clear short term monetary transactions
The entire money market in India can be divided
in an economy.
into two parts. They are organised money market and
Definitions of Money Market the unorganized money market. The unorganised
Following definitions will help us to understand the money market can also be known as an unauthorized
concept of money market. money market. Both of these components comprise
According to Crowther, “The money market is a several constituents. The following chart will help you
name given to the various firms and institutions that in understanding the organisational structure of the
deal in the various grades of near money.” Indian money market.
According to the RBI, “The money market is Components, Sub Markets of Indian Money
the centre for dealing mainly of short character, in Market
monetary assets; it meets the short term requirements After studying above organisational chart of the
of borrowers and provides liquidity or cash to the Indian money market it is necessary to understand
lenders. It is a place where short term surplus investible various components or sub markets within it. They are
funds at the disposal of financial and other institutions explained below.
and individuals are bid by borrowers, again comprising
Call Money Market: It an important sub market
institutions and individuals and also by the government.”
of the Indian money market. It is also known as money
Functions of Money Market at call and money at short notice. It is also called inter
Money market is an important part of the economy. It bank loan market. In this market money is demanded
plays very significant functions. As mentioned above it is for extremely short period. The duration of such
basically a market for short term monetary transactions. transactions is from few hours to 14 days. It is basically
Thus it has to provide facility for adjusting liquidity to located in the industrial and commercial locations such
the banks, business corporations, non-banking financial as Mumbai, Delhi, Calcutta, etc. These transactions
institutions (NBFs) and other financial institutions help stock brokers and dealers to fulfill their financial
along with investors. requirements. The rate at which money is made available
The major functions of money market are given is called as a call rate. Thus rate is fixed by the market
below:- forces such as the demand for and supply of money.
To maintain monetary equilibrium. It means to keep Commercial Bill Market: It is a market for the
a balance between the demand for and supply of money short term, self liquidating and negotiable money
for short term monetary transactions. market instrument. Commercial bills are used to finance
the movement and storage of agriculture and industrial
To promote economic growth. Money market can
goods in domestic and foreign markets. The commercial
do this by making funds available to various units in the
bill market in India is still underdeveloped.
economy such as agriculture, small scale industries, etc.
Treasury bill Market: This is a market for sale
To provide help to Trade and Industry. Money
and purchase of short term government securities.
market provides adequate finance to trade and industry.
These securities are called as Treasury Bills which are
Similarly it also provides facility of discounting bills of
promissory notes or financial bills issued by the RBI on
exchange for trade and industry.
behalf of the Government of India. There are two types
To help in implementing Monetary Policy. It of treasury bills. (i) Ordinary or Regular Treasury Bills
provides a mechanism for an effective implementation and (ii) Ad Hoc Treasury Bills. The maturity period of
of the monetary policy. these securities range from as low as 14 days to as high
To help in Capital Formation. Money market makes as 364 days. They have become very popular recently
available investment avenues for short term period. due to high level of safety involved in them.
It helps in generating savings and investments in the Market for Certificate of Deposits (CDs): It is
economy. again an important segment of the Indian money market.
Money market provides non-inflationary sources of The certificate of deposits is issued by the commercial
finance to government. It is possible by issuing treasury banks. They are worth the value of Rs. 25 lakh and in

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multiple of Rs. 25 lakh. The minimum subscription of In 1960, the State Banks of India was given control
CD should be worth Rs. 1 Crore. The maturity period of of eight state-associated banks under the State Bank of
CD is as low as 3 months and as high as 1 year. These India (Subsidiary Banks) Act, 1959. These are called its
are the transferable investment instrument in a money associate banks.
market. The government initiated a market of CDs in In 1969 the Indian government nationalised 14
order to widen the range of instruments in the money major private banks, one of the big bank was Bank
market and to provide a higher flexibility to investors of India. A second dose of nationalisation of 6 more
for investing their short term money. commercial banks followed in 1980. These nationalised
Market for Commercial Papers (CPs): It is the banks are the majority of lenders in the Indian economy.
market where the commercial papers are traded. They dominate the banking sector because of their large
Commercial paper (CP) is an investment instrument size and widespread networks.
which can be issued by a listed company having
The Indian banking sector is broadly classified
working capital more than or equal to Rs. 5 cr. The CPs
into Scheduled banks and Non-scheduled banks. The
can be issued in multiples of Rs. 25 lakhs. However the
scheduled banks are those included under the 2nd
minimum subscription should at least be Rs. 1 cr. The
Schedule of the Reserve Bank of India Act, 1934. The
maturity period for the CP is minimum of 3 months
scheduled banks are further classified into: nationalised
and maximum 6 months. This was introcuced by the
banks; State Bank of India and its associates; Regional
government in 1990.
Rural Banks (RRBs); foreign banks; and other Indian
Short Term Loan Market: It is a market where the private sector banks. The term commercial banks refer
short term loan requirements of corporates are met by to both scheduled and non-scheduled commercial banks
the Commercial banks. Banks provide short term loans regulated under the Banking Regulation Act, 1949.
to corporates in the form of cash credit or in the form
of overdraft. Cash credit is given to industrialists and Liberalisation in the 1990s
overdraft is given to businessmen. In the early 1990s, the then government embarked
Banking in India on a policy of liberalisation, licensing a small number
of private banks. These came to be known as New
The Indian banking system consists of 12 public
Generation tech-savvy banks, and included Global Trust
sector banks, 22 private sector banks, 46 foreign banks,
Bank (the first of such new generation banks to be set
56 regional rural banks, 1485 urban cooperative banks
up), which later amalgamated with Oriental Bank of
and 96,000 rural cooperative banks in addition to
Commerce, UTI Bank (since renamed Axis Bank), ICICI
cooperative credit institutions. As on January 31, 2020,
Bank and HDFC Bank. This move, along with the rapid
the total number of ATMs in India increased to 210,263
growth in the economy of India, revitalised the banking
and is further expected to increase to 407,000 by 2021.
sector in India, which has seen rapid growth with strong
Public sector banks’ assets stood at Rs 72.59 lakh contribution from all the three sectors of banks, namely,
crore (US$ 1,038.76 billion) in FY19.
government banks, private banks and foreign banks.
In the modern sense, originated in the last decades
The next stage for the Indian banking has been set
of the 18th century. Among the first banks were the
up, with proposed relaxation of norms for foreign direct
Bank of Hindustan, which was established in 1770 and
investment. All foreign investors in banks may be given
liquidated in 1829–32; and the General Bank of India,
voting rights that could exceed the present cap of 10%
established in 1786 but failed in 1791.
at present. It has gone up to 74% with some restrictions.
The largest bank, and the oldest still in existence, is
The new policy shook the Banking sector in India
the State Bank of India (S.B.I). It originated as the
completely. Bankers, till this time, were used to the 4–6–
Bank of Calcutta in June 1806. In 1809, it was 4 method (borrow at 4%; lend at 6%; go home at 4) of
renamed as the Bank of Bengal. functioning. The new wave ushered in a modern outlook
™™ The Bank of Bombay in 1840 and and tech-savvy methods of working for traditional
™™ The Bank of Madras in 1843. banks. All this led to the retail boom in India. People
The three banks were merged in 1921 to form the demanded more from their banks and received more.
Imperial Bank of India, Current Period
Which upon India's independence, became the State The Indian banking sector is broadly classified
Bank of India in 1955. into scheduled banks and non-scheduled banks. All
For many years the presidency banks had acted as banks included in the Second Schedule to the Reserve
quasi-central banks, as did their successors, until the Bank of India Act, 1934 are Scheduled Banks. These
Reserve Bank of India was established in 1935, under banks comprise Scheduled Commercial Banks and
the Reserve Bank of India Act, 1934. Scheduled Co-operative Banks. Scheduled Co-operative

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Banks consist of Scheduled State Co-operative Banks Initially it operated as a subsidiary of Reserve Bank
and Scheduled Urban Cooperative Banks. Scheduled of India and later RBI has transferred it to Government
Commercial Banks in India are categorised into five of India. On June 29, 2018 Life Insurance Corporation of
different groups according to their ownership and/or India (LIC) has got a technical go-ahead from Insurance
nature of operation: Regulatory and Development Authority of India (IRDAI)
™™ State Bank of India and its Associates to increase stake in IDBI Bank up to 51%. LIC completed
acquisition of 51% controlling stake on January 21,
™™ Nationalised Banks
2019 making it the majority shareholder of the IDBI
™™ Private Sector Banks Bank. Reserve Bank of India has clarified vide a Press
™™ Foreign Banks Release dated March 14, 2019, that IDBI Bank stands
™™ Regional Rural Banks. re-categorized as a Private Sector Bank for regulatory
purposes with effect from January 21, 2019.
Merger of Banks
On 17 September 2018, the Government of India
™™ Merger was proposed through a ministerial panel
proposed the merger of Dena Bank and Vijaya Bank with
called Alternative Mechanism headed by Finance
the Bank of Baroda, pending approval from the boards of
Minister.
the three banks. The merger was approved by the Union
™™ The idea of bank mergers floated since 1998, when Cabinet and the boards of the banks on 2 January 2019.
2nd M. Narasimham Committee recommended
Latest Development in Banking Sector The Reserve
the government to merge banks into three-tiered
Bank of India (RBI) announced that the merger of 10
structure —
state-run banks into four lenders came into effect on
zz Three large banks with an international 1 April amid the lockdown triggered by coronavirus
presence at top, outbreak. The branches of merging banks will operate as
zz eight to ten national banks and of the banks in which the banks have been amalgamated.
zz a large number of regional and local banks. Highlights:
™™ PJ Nayak Committee in 2014 had also suggested ™™ On 4 March 2020, GoI announced the amalgamation
that government either merge or privatize state- schemes for 10 state-owned banks into four as part
owned banks. of its consolidation plan. The move aimed to create
™™ Public Sector Banks (PSBs) in India are fragmented, bigger size stronger banks in the public sector.
with some of them reeling under the mounting ™™ The amalgamation of 10 PSBs into four Banks
pressures of Non Performing Assets (NPAs). include: (i) United Bank of India and Oriental Bank
™™ Economic Survey points out that constant failure of Commerce (OBC) into Punjab National Bank
of banks to provide credit to both emerging and (PNB) (ii) Syndicate Bank into Canara Bank (iii)
existing industries has resulted in stagnation in the Corporation Bank and Andhra Bank into Union
economic growth of the nation. Bank of India (iv) Allahabad Bank into Indian Bank

Recent History of Bank Mergers ™™ The customers of the merging banks will be treated
as customers of the banks in which these banks
™™ In April 2017, 5 associate banks were merged with
have been merged. Benefit: The major objective
SBI – State Bank of Bikaner and Jaipur, State Bank of
of the merger is to achieve India's vision to make
Hyderabad, State Bank of Travancore, State Bank of
a $5 trillion economy. The merger will reduce the
Mysore and State Bank of Patiala.
lending cost and enhance the capacity in order to
™™ Bhartiya Mahila Bank was also merged along with increase credit. It will also improve the ability to
RBI. raise market resources.
™™ Government also initiated amalgamation of Regional Merge of Private sector Banks to public sector Banks
Rural Banks under Phase 3 consolidation, bringing
S.N. Name of Bank Headquarter
them down from 56 to 38.
1. Punjab National Bank New Delhi
In the bank group-wise classification, IDBI Bank 2. Indian Bank Chennai
Ltd. is included in Nationalised Banks. Industrial
3. State Bank of India Mumbai
Development Bank of India (IDBI Bank Limited or
4. Canara Bank Bangalore
IDBI Bank or IDBI) was established in 1964 by an Act
5. Union Bank of India Mumbai
to provide credit and other financial facilities for the
6. indian Overseas Bank Chennai
development of the fledgling Indian industry. Many
7. UCO Bank Kolkata
national institutes finds their roots in IDBI like SIDBI,
Exim bank, NSE and NSDL. 8. Bank of Maharashtra Pune

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vkLFkk IAS INDIAN ECONOMY

9. Punjab and Sindh Bank New Delhi to continue the process of recapitalization of Regional
10. Bank of India Mumbai Rural Banks (RRBs). Highlights: The Cabinet approved
11. Central Bank of India Mumbai
to provide minimum regulatory capital to RRBs for
another year, that is, up to 2020-21 for those RRBs
12. Bank of Baroda Gujrat
which are unable to maintain minimum Capital to Risk-
Regional Rural Banks weighted Assets Ratio (CRAR) of 9% which was set as
™™ RRBs are financial institutions which ensure per the regulatory norms prescribed by the Reserve
adequate credit for agriculture and other rural Bank of India (RBI). The CCEA also approved the RRB's
sectors. to utilize Rs.670 crore as central government share
™™ Regional Rural Banks were set up on the basis of for the scheme of Recapitalization of RRBs that are
the recommendations of the Narasimham Working subject to the condition that the release of the Central
Group (1975), and after the legislation of the Government’s share will be contingent upon the release
Regional Rural Banks Act, 1976. of the proportionate share by the sponsor banks. Earlier,
it was decided that 50% of the total recapitalization
™™ The first Regional Rural Bank “Prathama Grameen
support of Rs.1340 crore will be shared by the
Bank” was set up on 2nd October, 1975.
government. Background: RBI introduced disclosure
™™ Stakeholders: The equity of a regional rural bank norms for CRAR of RRBs with effect from March 2008.
is held by the Central Government, concerned Based on the recommendation of Dr. K.C. Chakrabarty
State Government and the Sponsor Bank in the chaired the committee, a Scheme for Recapitalization of
proportion of 50:15:35. RRBs was approved by the Cabinet on 10 February 2011.
™™ The RRBs combine the characteristics of a As per the scheme, the National Bank for Agriculture
cooperative in terms of the familiarity of the rural and Rural Development (NABARD) will identify the
problems and a commercial bank in terms of its RRBs that require recapitalization assistance to
professionalism and ability to mobilise financial maintain the mandatory CRAR of 9%. The scheme will
resources. provide recapitalization support of Rs.2,200 crore to 40
™™ Each RRB operates within the local limits as notified RRBs. Also, an additional amount of Rs.700 crore will be
by the Government. given as a contingency fund to meet the requirement of
the weak RRBs, particularly in the North-Eastern and
™™ The main objectives of RRBs are–
Eastern Region.
zz To provide credit and other facilities to the small
Cooperative Banking in India
and marginal farmers, agricultural labourers,
artisans and small entrepreneurs in rural areas. The structure of cooperative network in India can
be divided into 2 broad segments-
zz To check the outflow of rural deposits to urban
areas and reduce regional imbalances and 1. Urban Cooperative Banks
increase rural employment generation. 2. Rural Cooperatives
Amalgamation Urban Cooperatives
Currently, RRB's are going through a process of Urban Cooperatives can be further divided into
amalgamation and consolidation. 25 RRBs have been scheduled and non-scheduled. Both the categories
amalgamated in January 2013 into 10 RRBs. This counts are further divided into multi-state and single-state.
67 RRBs till the first week of June 2013. This counts 56 as Majority of these banks fall in the non-scheduled and
of March 2015. On 31 March 2016, there were 56 RRBs single-state category.
(post-merger) covering 525 districts with a network of ™™ Banking activities of Urban Cooperative Banks are
14,494 branches. All RRBs were originally conceived as monitored by RBI.
low cost institutions having a rural ethos, local feel and ™™ Registration and Management activities are
pro poor focus. However, within a very short time, most managed by Registrar of Cooperative Societies
banks were making losses. The original assumptions as (RCS). These RCS operate in single-state and Central
to the low cost nature of these institutions were belied. RCS (CRCS) operate in multiple state.
This may be again amalgamated in near future. With the Rural Cooperatives
third phase of amalgamation of RRB bringing down the
The rural cooperatives are further divided into
number of such entities to 38 from 56. As of 1st April short-term and long-term structures. The short-term
2020, there are 43 RRBs in India. cooperative banks are three tiered operating in different
Recapitalization of Regional Rural Banks (RRBs) states. These are-
The Cabinet Committee on Economic Affairs (CCEA) 1. State Cooperative Banks: They operate at the apex
chaired by Prime Minister Narendra Modi approved level in states

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vkLFkk IAS INDIAN ECONOMY

2. District Central Cooperative Banks: They operate at to provide automated clearing and settlement of
the district levels payments and drastically reduce the need for manual
3. Primary Agricultural Credit Societies: They operate reconciliation. Features:
at the village or grass-root level. ™™ Vajra Platform uses distributed ledger technology
Likewise, the long-term structures are further (DLT)
divided into – ™™ The platform uses a permissions model in order to
1. State Cooperative Agriculture and Rural ensure that only approved parties are a part of the
Development Banks (SCARDS)- These operate at network
state-level. ™™ Payment companies can apply and register to be a
2. Primary Cooperative Agriculture and Rural part of the network
Development Banks (PCARDBS)-They operate at ™™ After getting the approval, the companies can deploy
district/block level. the platform using an application programming
The rural banking cooperatives have a complex interface (API) that will be provided by NPCI.
monitoring structure as they have a dual control which Benefits: The benefits of the Vajra Platform:
has led to many problems. A Forum called State Level ™™ Near real-time clearing and settlement of
Task Force on Cooperative Urban Banks (TAFCUB) has transactions
been set-up to look into issues related to duality in ™™ Minimal reconciliation of transactions
control.
™™ Improved security and reduced operational and
™™ All banking activities are regulated by a shared financial risks
arrangement between RBI and NABARD.
™™ Legitimate audit trail as DLT is incorruptible
™™ All management and registration activities are
™™ Vajra Platform will be used for Aadhaar
managed by RCS. authentication by the Unique Identification
Payment Bank Authority of India (UIDAI)
Payments bank is a new model of banks Implementation of Ind AS by banks
conceptualized by the Reserve Bank of India (RBI). The Reserve Bank is in the advanced stages
These banks can accept a restricted deposit, which is of finalising a roadmap for implementation of Ind
currently limited to 1 lakh per customer. These banks Accounting Standards to be adopted by banks and Non-
may not issue loans or credit cards, but may offer both Banking Finance Companies.
current and savings accounts. Payments banks may
issue ATM and debit cards, and offer net-banking and Banking Sector Reform In India
mobile-banking.The draft guidelines for licensing of Indian banking sector has undergone major changes
payments banks in the private sector were formulated and reforms during economic reforms. Though it was
and released for public comments on July 17, 2014. a part of overall economic reforms, it has changed the
The banks will be licensed as payments banks under very functioning of Indian banks. This reform has not
Section 22 of the Banking Regulation Act, 1949, and only influenced the productivity and efficiency of many
will be registered as public limited company under the of the Indian Banks, but has left everlasting footprints
Companies Act, 2013. on the working of the banking sector in India.
As of February 2024, there are six active payments Let us get acquainted with some of the important
banks: reforms in the banking sector in India.
1. Airtel Payments Bank Ltd. Reduced CRR and SLR: The Cash Reserve Ratio
(CRR) and Statutory Liquidity Ratio (SLR) are gradually
2. Fino Payments Bank Ltd.
reduced during the economic reforms period in India.
3. India Post Payments Bank Ltd. By Law in India the CRR remains between 3-15% of the
4. Jio Payments Bank Ltd. Net Demand and Time Liabilities. It is reduced from the
5. NSDL Payments Bank Ltd. earlier high level of 15% plus incremental CRR of 10%
to current 4% level. Similarly, the SLR Is also reduced
6. PayTm Payments Bank Ltd.
from early 38.5% to current minimum of 20% level. This
NPCI launched the Vajra Platform for a fast and has left more loanable funds with commercial banks,
secure platform solving the liquidity problem.
The National Payments Corporation of India (NPCI) Deregulation of Interest Rate: During the
launched the Vajra Platform to make payments fast and economics reforms period, interest rates of commercial
secure. The platform is based on blockchain technology. banks were deregulated. Banks now enjoy freedom of
Aim: The main objective of the Vajra Platform is fixing the lower and upper limit of interest on deposits.

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vkLFkk IAS INDIAN ECONOMY

Interest rate slabs are reduced from Rs.20 Lakhs to timely where needed by vulnerable groups such
just Rs. 2 Lakhs. Interest rates on the bank loans above as weaker sections and low income groups at an
Rs.2 lakhs are full decontrolled. These measures have affordable cost.
resulted in more freedom to commercial banks in ™™ In a diverse country like India, financial inclusion
interest rate regime. is a critical part of the development process. Since
Fixing prudential Norms: In order to induce independence, the combined efforts of successive
professionalism in its operations, the RBI fixed governments, regulatory institutions, and the civil
prudential norms for commercial banks. It includes society have helped in increasing the financial-
recognition of income sources. Classification of assets, inclusion net in the country.
provisions for bad debts, maintaining international
™™ The state of financial inclusion has improved
standards in accounting practices, etc. It helped banks
considerably over time. However, the financial
in reducing and restructuring Non-performing assets
inclusion hasn’t reached the poorest of the poor and
(NPAs).
there exist many bottlenecks and challenges which
Introduction of CRAR: Capital to Risk Weighted need immediate attention.
Asset Ratio (CRAR) was introduced in 1992. It resulted
Financial Inclusion Initiatives
in an improvement in the capital position of commercial
banks, all most all the banks in India has reached the Expansion of financial services in Rural and Semi-
Capital Adequacy Ratio (CAR) above the statutory level Urban Areas
of 9%. ™™ Reserve Bank of India (RBI) and National Bank for
Operational Autonomy: During the reforms period Agriculture and Rural Development (NABARD) have
commercial banks enjoyed the operational freedom. If a taken initiatives to promote financial inclusion in
bank satisfies the CAR then it gets freedom in opening rural areas.
new branches, upgrading the extension counters, zz These include the opening of bank branches in
closing down existing branches and they get liberal
remote areas.
lending norms.
zz Issuing Kisan Credit Cards (KCC)
Banking Diversification: The Indian banking
sector was well diversified, during the economic zz Linkage of self-help groups (SHGs) with banks.
reforms period. Many of the banks have stared new zz Increasing the number of automated teller
services and new products. Some of them have machines (ATMs)
established subsidiaries in merchant banking, mutual zz Business correspondents model of Banking, etc.
funds, insurance, venture capital, etc which has led to
diversified sources of income of them.
Promotion of Digital Payments
New Generation Banks: During the reforms period ™™ With the strengthening of the Unified Payment
many new generation banks have successfully emerged Interface (UPI) by NPCI, digital payments have been
on the financial horizon. Banks such as ICICI Bank, HDFC made secure, compared to the past.
Bank, UTI Bank have given a big challenge to the public ™™ The Aadhar-enabled payment system (AEPS)
sector banks leading to a greater degree of competition. enables an Aadhar enabled bank account (AEBA) to
Improved Profitability and Efficiency: During the be used at any place and at any time, using micro
reform period, the productivity and efficiency of many ATMs.
commercial banks has improved. It has happened due ™™ The payment system has been made more accessible
to the reduced Non-performing loans, increased use due to offline transaction-enabling platforms, like
of technology, more computerization and some other Unstructured Supplementary Service Data (USSD),
relevant measures adopted by the government. which makes it possible to use mobile banking
These are some of the import reforms regarding the services without internet, even on a basic mobile
banking sector in India. handset.
With these reforms, Indian banks especially the Enhancing Financial Literacy
public sector banks have proved that they are no longer The Reserve Bank of India has undertaken a project
inefficient compared with their foreign counterparts as titled "Project Financial Literacy".
far as productivity is concerned.
The Objective of the project is to disseminate
Financial Inclusion information regarding the central bank and general
™™ Financial inclusion may be defined as the process banking concepts to various target groups, including,
of ensuring access to financial services like banking, school and college going children, women, rural and
insurance, stock exchange and pension services urban poor, defence personnel and senior citizens.

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vkLFkk IAS INDIAN ECONOMY

National Strategy for Financial Inclusion 2019-24 ™™ Technical definition by RBI on NPA on different
The Reserve Bank of India (RBI) unveiled a National cases
Strategy for Financial Inclusion 2019-24. The RBI's ™™ NPA is a loan or an advance where…
Strategy is aimed at providing access to formal financial ™™ Interest and/ or installment of principal remain
services in an affordable manner. It aims to promote overdue for a period of more than 90 days in respect
financial literacy among customers. Formed by: The of a term loan.
Financial Inclusion Advisory Committee of the RBI in
™™ The account remains ‘out of order’ in respect of an
consultation with the Government of India, Securities
Overdraft/Cash Credit (OD/CC).
Exchange Board of India (SEBI), Insurance Regulatory
and Development Authority of India (IRDAI), and ™™ The bill remains overdue for a period of more
Pension Fund Regulatory and Development Authority than 90 days in the case of bills purchased and
of India (PFRDA) provided the National Strategy for discounted.
Financial Inclusion 2019-24. National Strategy for ™™ The installment of principal or interest thereon
Financial Inclusion 2019-24: remains overdue for two crop seasons for short
™™ National Strategy for Financial Inclusion method duration crops.
recommends many ways in which the objective can ™™ The installment of principal or interest thereon
be fulfilled. remains overdue for one crop season for long
™™ It suggested methods to provide access to financial duration crops.
service provides in every village within a range of 5 ™™ The amount of liquidity facility remains outstanding
km. for more than 90 days, in respect of a securitisation
™™ Every adult registered under Pradhan Mantri transaction undertaken in terms of guidelines on
Jan Dhan Yojana (PMJDY) should be enrolled in securitisation dated February 1, 2006.
insurance, pension schemes. ™™ In respect of derivative transactions, the overdue
™™ The public credit registry should be made fully receivables representing positive mark-to-market
operational by March 2022. The strategy directed to value of a derivative contract, if these remain unpaid
strengthen the digital financial services to facilitate for a period of 90 days from the specified due date
less-cash society. for payment.
™™ Every new entrant should be given information on ™™ Categories of Non-Performing Assets (NPAs)
government livelihood programme.
™™ Based upon the period to which a loan has remained
Lead Bank Scheme: as NPA, it is classified into 3 types:
™™ The Lead Bank Scheme was introduced in 1969, to zz Categories of NPAs
guide commercial, regional, rural and Co-operatives zz Criteria
to improve their facilities in rural areas and deliver
effective services. zz Substandard Assets

™™ The Reserve Bank of India on the basis of the study ™™ An asset which remains as NPAs for less than or
group under the Chairmanship of Prof. D.R. Gadgil equal to 12 months.
and a committee of Bankers headed by F.K.F.Nariman ™™ Doubtful Assets
evolved the Lead Bank Scheme. ™™ An asset which remained in the above category for
™™ A “district credit” plan combined with government 12 months.
schemes is prepared and monitored by the lead ™™ Loss Assets
bank.
™™ Asset where loss has been identified by the bank
™™ The effectiveness of the Lead Bank Scheme depends or the RBI, however, there may be some value
on the dynamism of the District Collectors and the remaining in it. Therefore loan has not been not
Lead District Managers (LDMs). completely written off.
Aim of the Scheme: ™™ How serious is India’s NPA issue?
™™ The aim of the scheme is providing adequate ™™ More than Rs. 7 lakh crore worth loans are classified
banking and credit in rural areas through an ‘service as Non-Performing Loans in India. This is a huge
area approach’, with one bank assigned for one area. amount.
Non-Performing Assets (NPA) ™™ The figure roughly translates to near 10% of all
NPAs definition by Reserve Bank of India (RBI) loans given.
™™ An asset, including a leased asset, becomes ™™ This means that about 10% of loans are never paid
nonperforming when it ceases to generate income back, resulting in substantial loss of money to the
for the bank. banks.

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vkLFkk IAS INDIAN ECONOMY

™™ When restructured and unrecognised assets are Impact of NPAs

added the total stress would be 15-20% of total ™™ Lenders suffer lowering of profit margins.
loans.
™™ Stress in banking sector causes less money available
™™ NPA crisis in India is set to worsen. to fund other projects, therefore, negative impact on
™™ Restructuring norms are being misused. the larger national economy.
™™ This bad performance is not a good sign and can ™™ Higher interest rates by the banks to maintain the
result in crashing of banks as happened in the sub- profit margin.
prime crisis of 2008 in the United States of America. ™™ Redirecting funds from the good projects to the bad
™™ Also, the NPA problem in India is worst when ones.
comparing other emerging economies in BRICS. ™™ As investments got stuck, it may result in it may
Reasons for NPAs result in unemployment.
™™ Diversification of funds to unrelated business/ ™™ In the case of public sector banks, the bad health of
fraud. banks means a bad return for a shareholder which
means that government of India gets less money as a
™™ Lapses due to diligence.
dividend. Therefore it may impact easy deployment
™™ Busines losses due to changes in business/ of money for social and infrastructure development
regulatory environment. and results in social and political cost.
™™ Lack of morale, particularly after government ™™ Investors do not get rightful returns.
schemes which had written off loans.
™™ Balance sheet syndrome of Indian characteristics
™™ Global, regional or national financial crisis which that is both the banks and the corporate sector have
results in erosion of margins and profits of stressed balance sheet and causes halting of the
companies, therefore, stressing their balance sheet investment-led development process.
which finally results into non-servicing of interest
™™ NPAs related cases add more pressure to already
and loan payments. (For example, the 2008 global
pending cases with the judiciary.
financial crisis).
™™ The general slowdown of entire economy for
Various steps taken to tackle NPAs
example after 2011 there was a slowdown in the NPAs story is not new in India and there have been
Indian economy which resulted in the faster growth several steps taken by the GOI on legal, financial, policy
of NPAs. level reforms. In the year 1991, Narsimham committee
recommended many reforms to tackle NPAs. Some of
™™ The slowdown in a specific industrial segment,
them were implemented.
therefore, companies in that area bear the heat and
some may become NPAs. The Debt Recovery Tribunals (DRTs) – 1993
™™ Unplanned expansion of corporate houses during To decrease the time required for settling cases.
boom period and loan taken at low rates later being They are governed by the provisions of the Recovery of
serviced at high rates, therefore, resulting into NPAs. Debt Due to Banks and Financial Institutions Act, 1993.
™™ Due to mal-administration by the corporates, for However, their number is not sufficient therefore they
also suffer from time lag and cases are pending for more
example, willful defaulters.
than 2-3 years in many areas.
™™ Due to misgovernance and policy paralysis which
hampers the timeline and speed of projects, Credit Information Bureau – 2000
therefore, loans become NPAs. For example A good information system is required to prevent
Infrastructure Sector. loan falling into bad hands and therefore prevention of
™™ Severe competition in any particular market NPAs. It helps banks by maintaining and sharing data of
segment. For example Telecom sector in India. individual defaulters and willful defaulters.

™™ Delay in land acquisition due to social, political, Lok Adalats – 2001

cultural and environmental reasons. They are helpful in tackling and recovery of small
™™ A bad lending practice which is a non-transparent loans however they are limited up to 5 lakh rupees
way of giving loans. loans only by the RBI guidelines issued in 2001. They
are positive in the sense that they avoid more cases into
™™ Due to natural reasons such as floods, droughts,
the legal system.
disease outbreak, earthquakes, tsunami etc.
Compromise Settlement – 2001
™™ Cheap import due to dumping leads to business loss
of domestic companies. For example Steel sector in It provides a simple mechanism for recovery of NPA
India. for the advances below Rs. 10 Crores. It covers lawsuits

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vkLFkk IAS INDIAN ECONOMY

with courts and DRTs (Debt Recovery Tribunals) A-Appointments: Based upon global best practices
however willful default and fraud cases are excluded. and as per the guidelines in the companies act, separate
SARFAESI Act – 2002 post of Chairman and Managing Director and the CEO
will get the designation of MD & CEO and there would
The Securitization and Reconstruction of Financial
be another person who would be appointed as non-
Assets and Enforcement of Security Interest (SARFAESI)
Executive Chairman of PSBs.
Act, 2002 – The Act permits Banks / Financial Institutions
to recover their NPAs without the involvement of the B-Bank Board Bureau: The BBB will be a body of
Court, through acquiring and disposing of the secured eminent professionals and officials, which will replace
assets in NPA accounts with an outstanding amount the Appointments Board for appointment of Whole-time
of Rs. 1 lakh and above. The banks have to first issue Directors as well as non-Executive Chairman of PSBs
a notice. Then, on the borrower’s failure to repay, they C-Capitalization: As per finance ministry, the
can: capital requirement of extra capital for the next four
1. Take ownership of security and/or years up to FY 2019 is likely to be about Rs.1,80,000
crore out of which 70000 crores will be provided by the
2. Control over the management of the borrowing
GOI and the rest PSBs will have to raise from the market.
concern.
D-Distressing: PSBs and strengthening risk control
3. Appoint a person to manage the concern.
measures and NPAs disclosure.
Further, this act has been amended last year to make
E-Employment: GOI has said there will be
its enforcement faster.
no interference from Government and Banks are
ARC (Asset Reconstruction Companies) encouraged to take independent decisions keeping in
The RBI gave license to 14 new ARCs recently after mind the commercial the organizational interests.
the amendment of the SARFAESI Act of 2002. These F-Framework of Accountability: New KPI (key
companies are created to unlock value from stressed performance indicators) which would be linked with
loans. Before this law came, lenders could enforce their performance and also the consideration of ESOPs for top
security interests only through courts, which was a management PSBs.
time-consuming process.
G-Governance Reforms: For Example, Gyan
Corporate Debt Restructuring – 2005 Sangam, a conclave of PSBs and financial institutions.
It is for reducing the burden of the debts on the Bank board Bureau for transparent and meritorious
company by decreasing the rates paid and increasing appointments in PSBs.
the time the company has to pay the obligation back. Strategic debt restructuring (SDR) – 2015
5:25 rule – 2014 Under this scheme banks who have given loans
Also known as, Flexible Structuring of Long Term to a corporate borrower gets the right to convert the
Project Loans to Infrastructure and Core Industries. complete or part of their loans into equity shares in the
It was proposed to maintain the cash flow of such loan taken company. Its basic purpose is to ensure that
companies since the project timeline is long and they do more stake of promoters in reviving stressed accounts
not get the money back into their books for a long time, and providing banks with enhanced capabilities for
therefore, the requirement of loans at every 5-7 years initiating a change of ownership in appropriate cases.
and thus refinancing for long term projects. Asset Quality Review – 2015
Joint Lenders Forum – 2014 Classify stressed assets and provisioning for them
It was created by the inclusion of all PSBs whose so as the secure the future of the banks and further
loans have become stressed. It is present so as to avoid early identification of the assets and prevent them from
loan to same individual or company from different becoming stressed by appropriate action.
banks. It is formulated to prevent the instances where Sustainable structuring of stressed assets (S4A)
one person takes a loan from one bank to give a loan of – 2016
the other bank.
It has been formulated as an optional framework for
Mission Indradhanush – 2015 the resolution of largely stressed accounts. It involves
The Indradhanush framework for transforming the the determination of sustainable debt level for a stressed
PSBs represents the most comprehensive reform effort borrower and bifurcation of the outstanding debt into
undertaken since banking nationalization in the year sustainable debt and equity/quasi-equity instruments
1970 to revamp the Public Sector Banks (PSBs) and which are expected to provide upside to the lenders
improve their overall performance by ABCDEFG. when the borrower turns around.

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vkLFkk IAS INDIAN ECONOMY

Insolvency and Bankruptcy Code ™™ During the insolvency resolution process, a

™™ The Supreme Court upheld the Insolvency and committee consisting of financial creditors will be
Bankruptcy Code (IBC), backing the government’s constituted for taking decisions (by voting) on the
efforts to deal with the bad-debt burden of banks. resolution process.

™™ The Court rejected challenges put forth by the ™™ The Code prohibits a person from being a resolution
promoters of defaulting companies barred by the applicant if his account has been identified as a non-
law from regaining control of their firms. performing asset (NPA) for more than a year.

™™ This ruling has far-reaching implications for the ™™ The Code also bars a guarantor of a defaulter from
promoters of big defaulting companies on the block being an applicant.
such as Essar Steel and Bhushan Power & Steel. ™™ A resolution applicant may withdraw a resolution
application, from the National Company Law
Classification of financial creditors
Tribunal (NCLT), after such process has been
The Code defines two types of creditors: (I) financial creditors,
who have extended a loan or financial credit to the debtor, and (ii) initiated. Such withdrawal will have to be approved
operational creditors, who have provided goods or services to the by a 90% vote of the committee of creditors.
debtor, the payment for which is due.
™™ The ineligibility criteria for resolution applicants
Financial creditors could be secured or unsecured. Secured creditors
are those whose loans are backed by collateral (security). regarding NPAs and guarantors will not be
applicable to persons applying for resolution of
Insolvency and Bankruptcy Code
MSMEs.
™™ The code has four pillars of institutional
infrastructure.
Public ARC vs. Private ARC – 2017
This debate is recently in the news which is about
™™ The first pillar of institutional infrastructure is a class
the idea of a Public Asset Reconstruction Companies
of regulated persons, the ‘Insolvency Professionals’.
(ARC) fully funded and administered by the government
They would play a key role in the efficient working
as mooted by this year’s Economic Survey Vs. the private
of the bankruptcy process. They would be regulated
ARC as advocated by the deputy governor of RBI Mr.
by ‘Insolvency Professional Agencies.
Viral Acharya. Economic survey calls it as PARA (Public
™™ The second pillar of institutional infrastructure is a Asset Rehabilitation Agency) and the recommendation
new industry of `Information Utilities’. These would is based on the similar agency being used during the
store facts about lenders and terms of lending in East Asian crisis of 1997 which was a success.
electronic databases. This would eliminate delays
and disputes about facts when default does take Bad Banks – 2022
place. ™™ Earlier in January, the NARCL or bad bank has
™™ The third pillar of institutional infrastructure is in received all approvals to commence operations, and
adjudication. The NCLT will be the forum where firm a total of 38 NPA accounts worth Rs 82,845 crore
insolvency will be heard and DRTs will be the forum have been identified to be transferred to NARCL
where individual insolvencies will be heard. These initially.
institutions, along with their Appellate bodies, viz., ™™ The transfer of 38 stressed accounts will happen in
NCLAT and DRATs will be adequately strengthened a phased manner, with banks agreeing to transfer
so as to achieve world class functioning of the 15 NPA accounts worth Rs 50,000 crore in the first
bankruptcy process. phase by March 2022.
™™ The fourth pillar of institutional infrastructure is a ™™ According to Economic Survey 2023-24, the GNPA
regulator, ‘The Insolvency and Bankruptcy Board of public sector undertaking banks has reduced to
of India’. This body will have regulatory over- 2.5%
sight over the Insolvency Professional, Insolvency
Changing Role of Banks in India
Professional agencies and information utilities.
The role of banks in India has changed a lot since
™™ The Insolvency and Bankruptcy Code (Second
economic reforms of 1991. These changes came due to
Amendment) Bill, 2018 – Key features:
LPG, i.e. liberalization, privatization and globalization
™™ Allottees under a real estate project should be policy being followed by GOI. Since then most traditional
treated as financial creditors (debate is open for and outdated concepts, practices, procedures and
want of clarity over secured/unsecured creditors). methods of banking have changed significantly. Today,
™™ The voting threshold for routine decisions taken by banks in India have become more customer-focused and
the committee of creditors has been reduced from service-oriented than they were before 1991. They now
75% to 51%. also give a lot of importance to their rural customers.

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vkLFkk IAS INDIAN ECONOMY

They are even willing ready to help them and serve Bank on Wheels
regularly the banking needs of country-side India. The ‘Bank on Wheels’ scheme was introduced in the
The changing role of banks in India can be glanced North-East Region of India. Under this scheme, banking
in points depicted below. services are made accessible to people staying in the far-
The following points briefly highlight the changing flung (remote) areas of India. This scheme is a generous
role of banks in India. attempt to serve banking needs of rural India.
™™ Better customer service, Portfolio Management
™™ Mobile banking facility, In portfolio management, banks do all the
™™ Bank on wheels scheme, investments work of their clients.

™™ Portfolio management, Banks invest their clients’ money in shares,

debentures, fixed deposits, etc. They first enter a
™™ Issue of electro-magnetic cards,
contract with their clients and charge them a fee for
™™ Universal banking, this service. Then they have the full power to invest or
™™ Automated teller machine (ATM), disinvest their clients’ money. However, they have to
™™ Internet banking, give safety and profit to their clients.
™™ Encouragement to bank amalgamation, Issue of Electro-Magnetic Cards
™™ Encouragement to personal loans, Banks in India have already started issuing Electro-
Magnetic Cards to their customers. These cards help
™™ Marketing of mutual funds,
to carry out cash-less transactions, make an online
™™ Social banking, etc. purchase, avail ATM facility, book a railway ticket, etc.
The above-mentioned points indicate the role Banks issue many types of electro-magnetic cards,
of banks in India is changing. Now let’s discuss how which are as follows:
banking in India is getting much better day after day.
Credit cards help customers to spend money
Better Customer Service (loaned up to a certain limit as previously settled by
Before 1991, the overall service of banks in India the bank) which they don’t have in hand. They get a
was very poor. There were very long queues (lines) to monthly statement of their purchases and withdrawals.
receive payment for cheques and to depositmoney. In Along with the transacted amount, this statement also
those days, some bank staffs were very rude to their includes the interest and service fee. The entire amount
customers. However, all this changed remarkably after (as reflected in the statement of credit card) must be
Indian economic reforms of 1991. paid back to the bank either fully or in installments, but
before due date.
Banks in India have now become very customer and
Debit cards help customers to spend that money
service focus. Their service has become quick, efficient
which they have saved (credited) in their individual
and customer-friendly. This positive change is mostly
bank accounts. They need not carry cash but instead can
due to rising competition from new private banks and
use a debit card to make a purchase (for shopping) and/
initiation of Ombudsman Scheme by RBI.
or withdraw money (get cash) from an ATM. No interest
Mobile Banking is charged on the usage of debit cards.
Under mobile banking service, customers can easily Charge cards are used to spend money up to a certain
carry out major banking transactions by simply using limit for a month. At the end of the month, customer
their cell phones or mobiles. gets a statement. If he has a sufficient balance, then he
Here, first a customer needs to activate this service only had to pay a small fee. However, if he doesn’t have
by contacting his bank. Generally, bank officer asks the a necessary balance, he is given a grace period (which is
customer to fill a simple form to register (authorize) generally of 25 to 50 days) to repay the money.
his mobile number. After registration, this service is Smart cards are currently being used as an
activated, and the customer is provided with a username alternative to avail public transport services. In India,
and password. Using secret credentials and registered this covers Railways, State Transport and City (Local)
phone, customer can now comfortably and securely, Buses. Smart card has an integrated circuit (IC)
find his bank balance, transfer money from his account embedded in its plastic body. It is made as per norms
to another, ask for a cheque book, stop payment of a specified by ISO.
cheque, etc.Today, almost all banks in India provide a Kisan credit cards are used for the benefit of the
mobile-banking service. rural population of India. The Indian farmers (kisans)

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vkLFkk IAS INDIAN ECONOMY

can use this card to buy agricultural inputs and goods funds in their own names. These funds are not insured
for self-consumption. These cards are issued by both like other bank deposits. There are different types of
Commercial and Co-operative banks. funds such as open-ended funds, closed-ended funds,
Universal Banking growth funds, balanced funds, income funds, etc.

In India, the concept of universal banking has Social Banking

gained recognition after year 2000. The customers can Marginal Cost of Lending Rate Repo-Linked Loan
get all banking and non-banking services under one Linked to bank’s cost of funds Linked to RBI’s lending rate
roof. Universal bank is like a super store. It offers a wide Takes 4-6 months to move after Responds immediately to RBI rate
range of services, including banking and other financial RBI rate cut cut
services like insurance,merchant banking, etc. RBI rate cuts not fully passed on Rate cuts are automatically
to borrowers passed on
Automated Teller Machine (ATM)
Resets annually for most banks Reset every three months
There are many advantages of ATM. As a result, many
Changes by 5-10 bps Usually changes 25bps or more
banks have opened up ATM centres to offer convenience
Revised every month Reviewed bimonthly
to their customers. Now banks are operating ATM
Low volatility Higher volatility
centres not only in their branches but also at public
100bps=1% | RBI’s lending rate to banks
places like airports, railway stations, hotels, etc. Some
banks have joined together and agreed upon to set up The government uses the banking system to alleviate
common ATM centres all over India. poverty and unemployment. Many social development
programmes are initiated by the banks from time to
Internet Banking
time. The success of these programmes depends on
Internet banking is also called as an E-banking financial support provided by the banks. Banks supply a
or net banking. Here, the customer can do banking lot of finance to farmers, artisans, scheduled castes (SC)
transactions through the medium of the internet or and scheduled tribe (ST) families, unemployed youth
world wide web (WWW). The customer need not visit and people living below the poverty line (BPL).
the bank’s branch. Through this facility, the customer
can easily inquiry about bank balance, transfer funds, External Benchmark Rates
request for a cheque book, etc. Most large banks offer The Reserve Bank of India has made it mandatory
this service to their tech-savvy customers. for all banks to link all new floating rate loans (i.e.
Encouragement to Bank Amalgamation personal/retail loans, loans to MSMEs) to an external
benchmark with effect from 1st October 2019.
Failure of banks is well-protected with the facility
of amalgamation. So depositors need not worry about ™™ The move is aimed at faster transmission of
their deposits. When weaker banks are absorbed by monetary policy rates.
stronger banks, it is called amalgamation of banks. Since ™™ Banks can choose from one of the four external
1st April 2017 5 associates bank and Bharatiya Mahila benchmarks — repo rate, threemonth treasury bill
Bank merged in SBI. yield, six-month treasury bill yield or any other
Encouragement to Personal Loans benchmark interest rate published by Financial
Benchmarks India Private Ltd.
Today, the purchasing power of Indian consumers
has increased dramatically because banks give them ™™ At present, interest rates on loans are linked to a
easy personal loans. Generally, interest charged by the bank’s marginal cost of fund-based interest rate,
banks on such loans is very high. Interest is calculated known as the Marginal Cost of Lending Rate (MCLR).
on reducing balance. Large banks offer loans up to a ™™ Existing loans and credit limits linked to the MCLR,
huge amount like one crore. Some banks even organise base rate or Benchmark Prime Lending Rate, would
Loan Mela (Fair) where a loan is sanctioned on the continue till repayment or renewal.
spot to deserving candidates after they submit proper ™™ Those customers wanting to switch to the repo-
documents. linked rate can do so on mutually acceptable terms.
Marketing of Mutual Funds ™™ Adoption of multiple benchmarks by the same bank
A mutual fund collects money from many investors is not allowed within a loan category.
and invests the money in shares, bonds, short-term ™™ The interest rate under the external benchmark
money market instruments, gold assets; etc. Mutual shall be reset at least once every three months.
funds earn income by interest and dividend or both from
its investments. It pays a dividend to subscribers. The Fixed vs Floating Interest Rate
rate of dividend fluctuates with the income on mutual ™™ The fixed interest rate on loan means repayment
fund investments. Now banks have started selling these of loans in fixed equal instalments over the entire

27 vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009. Mob. 8800233080, 9810664003 72
vkLFkk IAS INDIAN ECONOMY

period of the loan. In this case, the interest rate ™™ The RBI since 2010 is publishing India Financial
doesn’t change with market fluctuations. Stability Report, biannually, to assess financial
™™ Floating interest rate by name implies that the rate stability scenario in the country. Financial stability
of interest varies with market conditions. is now one of the three important objectives of
monetary policy besides price stability and credit
Financial Benchmarks India Private Ltd
support.
™™ It was incorporated on 9th December 2014 under
™™ The FSR reflects the collective assessment on
the Companies Act 2013.
risks to financial stability and the resilience of the
™™ It was recognised by the Reserve bank of India as an financial system of India. The Report also discusses
independent Benchmark administrator on 2nd July issues relating to development and regulation of the
2015. fi nancial sector.
™™ The main objective of the company is to act as
Financial Institutions: Performance and risks
the administrators of the Indian interest rate and
foreign exchange benchmarks and to introduce and ™™ Banks: Credit growth of scheduled commercial
implement policies and procedures to handle the banks (SCBs) picked up, with public sector banks
benchmarks. (PSBs) registering near double digit growth. The
non-performing asset (NPA) cycle seems to have
™™ It is located in Mumbai.
turned around as macro stress tests show gross
™™ The transmission of policy rate changes to the non-performing assets (NPAs) may decline to 9
lending rate of banks under the current MCLR percent in March 2020, from 9.3 percent in March
framework has not been satisfactory. 2019.
™™ RBI in its August Policy, 2019 pointed out that ™™ NBFCs: Non-banking financial companies (NBFC)
although it had brought down the repo rate by 75 sector are now under greater market discipline as
basis points, the weighted average MCLR of banks the better performing companies continued to raise
had come down by only 29 basis points. funds while those with asset – liability mismatch
™™ Banks argue that the MCLR formula is calculated were subjected to higher borrowing costs.
based on the cost of funds and thus it comes down ™™ Financial Sector: Regulation and developments
only gradually after a repo rate cut.
™™ The revised prudential framework on stressed
™™ There is a strong likelihood that RBI will cut rates
assets issued by the Reserve Bank is expected to act
further to spur demand.
as incentive for early adoption of a resolution plan
™™ The external benchmark was first proposed by the (RP).
former governor Urjit Patel in 2018. The norms for
™™ Securities and Exchange Board of India (SEBI) has
external benchmark linking of interest rates was
introduced Guidelines for Enhanced Disclosures by
scheduled to be operational from April 1, but owing
Credit Rating Agencies.
to protest by the banks, the same was deferred.
™™ The Insolvency and Bankruptcy Board of India
Marginal Cost of Lending Rate (IBBI) is showing steady progress in the resolution
™™ It came into effect in April 2016. of stressed assets.
™™ It is a benchmark lending rate for fl oating-rate Utkarsh 2022
loans.
The Reserve Bank of India (RBI) board, which met
™™ This is the minimum interest rate at which in New Delhi, finalised a three- year roadmap to improve
commercial banks can lend. regulation and supervision, among other functions of
™™ This rate is based on four components—the the central bank.
marginal cost of funds, negative carry on account ™™ It is a three-year road map for medium term
of cash reserve ratio, operating costs and tenor objective to be achieved for improving regulation,
premium. supervision of the central bank
™™ MCLR is linked to the actual deposit rates. Hence, ™™ This medium term strategy — named Utkarsh
when deposit rates rise, it indicates the banks are 2022 — is in line with the global central banks
likely to hike MCLR and lending rates are set to go plan to strengthen the regulatory and supervisory
up. mechanism
RBI’s Financial Stability Report ™™ It is a roadmap to improve regulation and
The Reserve Bank of India recently released the 19th supervision, currency management and payment
issue of the Financial Stability Report (FSR). system etc.

37 vkLFkk IAS : M-1A, Jyoti Bhawan, Mukherjee Nagar, Delhi-110009. Mob. 8800233080, 9810664003 73
vkLFkk IAS INDIAN ECONOMY

™™ An internal committee was formed, which was ™™ It prompted a broader shock that made it hard for
anchored by outgoing Deputy Governor Viral many companies to refi nance their debts.
Acharya, to identify issues that needed to be ™™ NBFCs are thus increasingly fi nding it hard to
addressed over the next three years. access funding.
Need for Utkarsh/Objectives: IL & FS default
™™ Worldwide, all central banks strengthen the ™™ The problem with IL&FS was that it had been
regulatory and supervisory mechanism, everybody borrowing very short-term money through
is formulating a long-term plan and a medium-term commercial papers (CP) and certifi cates of deposits
plan. So, the RBI has also decided it will formulate a (CDs) to invest in infrastructure projects, which
pragramme to outline what is to be achieved in the have very long and sometimes very uncertain
next three years. gestation periods.
™™ The idea is that the central bank plays a proactive ™™ It increased vulnerability to asset-liability
role and takes preemptive action to avoid any crisis mismatches (ALM; this refers to the fact that these
highlighting the IL & FS debt default issue and the lenders have short-dated borrowings and long-
crisis of confi dence the non-banking financial dated assets).
sector faced in the aftermath. ™™ In the wake of demonetization in 2016, the lack of
™™ The objective of the policy is to improve regulation cash eroded liquidity for several months, thereby
and supervision of the central bank. delaying loan recoveries. The system was just about
recovering from the effects of demonetization when
NBFC
IL & FS collapsed.
™™ A company is treated as an NBFC if its financial
™™ When the cash flows from its many road and other
assets are more than 50% of total assets and income
infrastructure projects did not complete on time,
from financial assets is more than 50% of the gross IL & FS found itself with a severe mismatch in its
income. borrowing and lending tenors.
™™ NBFC means Non-banking financial company. A non- ™™ This resulted in the inevitable default and the fallout
banking financial company (NBFC) is a company spilling onto other NBFCs and mutual funds (MFs).
registered under the Companies Act, 1956 and is
engaged in the business of loans and advances, NBFC as a sector affected
acquisition of shares/stock/bonds/debentures/ ™™ Most large NBFCs are well capitalised, but have got
securities issued by government or local authority exposed due to excessive short-term borrowing
or other securities of like marketable nature, leasing, (CDs and CPs).
hire-purchase, insurance business, chit business, ™™ The IL & FS default signalled the end of easy
but does not include any institution whose principal money — that is, using cheaper, short term market
business is that of agriculture activity, industrial instruments to fund longer-term assets.
activity, sale/purchase/construction of immovable ™™ The logjam acquired crisis proportions when many
property. NBFCs are similar to banks; however they NBFCs were forced to sell profi table assets to
do not accept demand deposits. generate cash to repay maturing debts.
NBFC Crisis ™™ The defaults came around the same time as liquidity
Non-Banking Financial Companies (NBFC) are in banking sector as a whole also got stressed.
facing severe liquidity issues which have been attributed Banks, which were already reeling under the weight
to their mismanagement of asset liability mixes. It is of past debts, became exceedingly risk-averse to
important to assess the situation and look at possible lend to NBFCs.
solutions, because if not tackled, the non-bank crisis can ™™ Shying to set a precedent, RBI did not give NBFCs
have a contagious effect on the economy. necessary leeway of a liquidity window but instead
resorted to slashing rates.
™™ Non-Banking Financial Companies (NBFC) and
some housing companies are facing liquidity issues. Banks to be merged Size of Total
Troubles began when major shadow bank IL&FS merged business
entity
Group unexpectedly defaulted.
Punjab National Bank, Oriental 2nd Largest PSB Rs. 18 Lakh cr.
™™ IL & FS was a systemically important fi nance Bank of Commerce and United
company with a very large balance sheet. Bank

™™ IL&FS defaulting on its interest and loan repayments Canara Bank and Syndicate Bank 4th Largest PSB Rs. 15.2 Lakh cr.
set off a panic reaction from lenders across the Union Bank, Andhra Bank and 5 Largest PSB
th
Rs. 14.6 Lakh cr.
Corporation Bank
spectrum, which also led to the crash in the stock
markets. Indian Bank and Allahabad Bank 7th largest PSB Rs 8.08 Lakh cr.

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vkLFkk IAS INDIAN ECONOMY

™™ Since NBFCs also do not have access to RBI’s liquidity ™™ PMC scam: Due to PMC scam lakhs of customers
operations, which are restricted to commercial faced diffi culties in withdrawing their money due
banks, a temporary systemic mismatch, which to restrictions imposed by the RBI.
should have been nipped in the bud, snowballed zz Urban cooperative banks reported nearly 1,000
into a crisis. cases of fraud worth more than 220 crore in
Digital Payments: Trends, Issues and past five fiscal years.
Opportunities in India ™™ Current Regulations: Cooperative banks are
Context: According to a survey conducted by ACI currently under dual control of Registrar of
Worldwide and YouGov 42% Indians prefer digital Cooperative Societies and RBI.
payments over cash during shopping. zz The role of registrar of cooperative societies
™™ According to NITI AYOG, the digital payments includes incorporation, registration,
market In India is all set to grow to $1 trillion by management, audit, supersession of board and
2023 led by growth in mobile payments, which liquidation.
are slated to rise from 10 billion in 2017−18 to10 zz RBI is responsible for regulatory functions such
billion in 2017−18 to190 billion by 2023. maintaining cash reserve and capital adequacy,
™™ In the light of such a tremendous growth of digital among others.
payments, the regulations and security of the users’ ™™ New Changes: The administrative role will continue
data has become a challenge for the government. to be done by the Registrar of Cooperative Societies.
™™ Accordingly, a committee on Digital Payments was Implications
constituted by Department of Economic Affairs,
™™ Audit under RBI norms: Cooperative banks will be
Ministry of Finance in August 2016 under the
brought under the regulation of the RBI. They will
Chairmanship of Ratan P. Watal to recommend
be audited according to RBI’s norms.
medium term measures of promotion of Digital
Payments Ecosystem in the country. The Committee zz Cooperative banks will now be required to meet
submitted its fi nal report to Hon’ble Finance stricter capital norms.
Minister in December 2016. zz The amendments will now give legislative
™™ On the basis of recommendations a group of powers to the central bank.
stakeholders from different Departments of ™™ Appointments with permission of RBI:
Government of India and RBI was constituted in Appointments of chief executives will also require
NITI Aayog under the chairmanship of Ratan P. permission from the banking regulator, as is the
Watal to facilitate the work relating to development case for commercial banks.
of a metric for Digital Payments which was the most ™™ RBI takeover in case of stress: Central bank can
important recommendation of Watal committe. This supersede the board and take control, in consultation
group prepared a document on the measurement with state government, if any cooperative bank is
issues of Digital Payments. Accordingly, a booklet under stress.
titled “Digital Payments: Trends, Issues and
™™ Improve financial stability: To strengthen the
Challenges” was released in July 2017.
Cooperative Banks, amendments to the Banking
Revised Banking Regulation Act Regulation Act will help increase professionalism,
Recently, Union Cabinet approved amendments enable access to capital and improving governance
to the Banking Regulation Act to empower the central and oversight for sound banking through the RBI.
bank to have greater control over cooperative banks. Observing the new changes will help strengthen
™™ Union cabinet cleared changes in Banking financial stability.
Regulation Act to give RBI wider powers. Additional Measures
™™ Ambit: The amendments will apply to all urban co- ™™ Increased deposit insurance: In order to ensure that
operative banks and multi-state cooperative banks. depositors’ money is safe, Budget 2020 permitted
™™ They will not be applicable to rural cooperatives. the Deposit Insurance and Credit Guarantee
™™ Objective: This was done in order to prevent Corporation (DICGC) to increase deposit insurance
malpractices, ensure better regulation and coverage for a depositor, which is now Rs 1 lakh, to
prevent frauds such as the one seen at Punjab and Rs 5 lakh per depositor.
Maharashtra Co-operative Bank Ltd (PMC). Facts about Cooperatives
zz Amendment to Banking Regulation Act aims to ™™ Rural cooperatives are under state-policies: RBI
strengthen cooperative banks and avoid PMC has considerable control over urban cooperative
Bank like crisis. bank but has a limited control over the rural

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vkLFkk IAS INDIAN ECONOMY

cooperative banks which are guided by state-level ™™ BHIM: BHIM is a mobile app to act as Client software
policies. for the Unified Payments Interface.
™™ Assets of rural cooperatives are higher: As per ™™ Unified Payments Interface: Unified Payments
RBI’s Trends and Progress in Banking Report, Interface is a real-time interbank payment system
as of March-end 2018, rural co-operative banks for sending or receiving money.
accounted for 64.7 percent of the total assets of ™™ Bharat Bill Payment System
cooperatives.
™™ *99# USSD: An USSD channel service for UPI mobile
zz Rural cooperatives are also more in number as banking.
compared to urban cooperative banks.
™™ National Financial Switch: Network of shared
Bharat Bill Payment System (BBPS) automated teller machines in India.
RBI has expanded the scope and coverage of Bharat ™™ Aadhaar Enabled Payment System
Bill Payment System (BBPS) to include all categories ™™ Bharat QR: A common QR code developed by NPCI
of billers who raise recurring bills and payments in collaboration with Mastercard and Visa for ease
(except prepaid recharges) as eligible participants, on a of payments and interoperability.
voluntary basis.
™™ National Electronic Toll Collection: National
™™ At present, the facility of payment of recurring bills Payments Corporation of India (NPCI) has
through BBPS is available only in five segments i.e. developed the National Electronic Toll Collection
direct to home (DTH), electricity, gas, water and (NETC) program to meet the electronic tolling
telecom. requirements of the Indian market. It provides an
™™ Expansion of biller categories would increase the electronic payment facility to customer to make the
user base of Bharat Bill Pay along with providing payments at national, state and city toll plazas by
an efficient, cost-effective alternative to existing identifying the vehicle uniquely through a FASTag
systems and enhance consumer confidence and Negative Rate Policy
experience.
Negative rate policy – once considered only for
BBPS economies with chronically low inflation such as Europe
™™ The Bharat Bill Payment System (BBPS) is an RBI and Japan – is becoming a more attractive option for
conceptualised system driven by National Payments some other central banks.
Corporation of India (NPCI). Under a negative rate policy, financial institutions
™™ It is a one-stop payment platform for all bills, are required to pay interest for parking excess reserves
providing an interoperable and accessible “Anytime with the central bank. That way, central banks penalise
Anywhere” bill payment service to customers across fi nancial institutions for holding on to cash in hope of
the country. prompting them to boost lending.
™™ Payments through BBPS may be made using Merit of negative rates
cash, transfer cheques and electronic modes. ™™ Lowers borrowing costs.
Bill aggregators and banks, who will function as
™™ Help weaken a country’s currency rate by making
operating units, will carry out these transactions for
it a less attractive investment than that of other
the customers.
currencies.
NPCI ™™ A weaker currency gives a country’s export a
™™ National Payments Corporation of India (NPCI) is competitive advantage and boosts infl ation by
an umbrella organization for all retail payments pushing up import costs.
system in India.
Demerits of Negative rates
™™ It was set up with the guidance and support of
™™ Negative rates put downward pressure on the entire
the Reserve Bank of India (RBI) and Indian Banks’
yield curve.
Association (IBA) under the provisions of the
Payment and Settlement Systems Act, 2007. ™™ Narrow the margin of financial institutions earning
from lending.
™™ It has been incorporated as a “Not for Profi t”
Company under the provisions of Section 8 of ™™ If prolonged ultra-low rates can hurt the health of
Companies Act 2013. financial institutions too much, they could hold off
on lending and damage the economy.
Portfolio of NPCI includes:
™™ There are also limits to how deep central banks can
™™ RuPay: RuPay is a domestic card scheme of India. push rates into negative territory – depositors can
™™ National Common Mobility Card: Rupay avoid being charged negative rates on their bank
Contactless deposits by choosing to hold physical cash instead.

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vkLFkk IAS INDIAN ECONOMY

Unified Payments Interface (UPI) ™™ It would function as the first level of examination
UAE joined the nations like Bhutan, Nepal and of all large fraud cases before recommendations or
Singapore by accepting UPI payments. references are made to the investigative agencies by
the respective public sector banks (PSBs).
UPI and its Features
™™ Lenders would refer all large fraud cases above
™™ UPI is an instant real-time payment system
Rs. 50 crore to the board and on receipt of its
developed by NPCI facilitating inter-bank
recommendation or advice, the bank concerned
transactions.
would take further action in such matter.
™™ It is the most successful real-time payments systems
™™ The Central Bureau of Investigation may also refer
globally, providing simplicity, safety, and security
any case or matter to the board where it has any
in person to person (P2P) and person to merchant
issue or difficulty or in technical matters with the
(P2M) transactions using tools like BHIM.
PSB concerned.
About NPCI ™™ It would also periodically carry out frauds analysis
™™ NPCI is an initiative of RBI and Indian Banks' in the financial system and give inputs for policy
Association (IBA) under provisions of Payment and formulation related to the fraud to the RBI.
Settlement Systems Act, 2007, for creating a robust
Prepaid Payment Instruments (PPIs)
Payment and Settlement Infrastructure in India.
™™ Prepaid payment instruments are those which
™™ It aims to create a robust Payment & Settlement
facilitate purchase of goods and services against the
Infrastructure in India and operates-
value stored on such instruments. Value stored on
zz RuPay (Indigenously developed Payment them is paid by the holder using a medium (cash,
System), debit card, credit card etc).
zz IMPS (Immediate = Payment Service), ™™ These are generally issued in the form of smart
zz NACH (National Automated Clearing House), cards, mobile wallets, paper vouchers, internet
zz ABPS (Aadhaar Payment Bridge System), accounts/wallets.
zz NFS (National Financial Switch) and ™™ Prepaid payment instruments (PPIs) come with a
pre-loaded value and in some cases a predefined
zz Bharat Bill Payment System etc.
purpose of payment.
™™ In 2020, NPCI put a volume cap of 30% of the overall
™™ They facilitate the purchase of goods and services as
volume of transactions
well as inter-personal remittance transactions such
™™ processed in UPI for Third Party App Providers as sending money to a friend or a family member.
(TPAPs), whose deadline is now extended till
™™ These payment instruments are licensed and
December 2024.
regulated by the Reserve Bank of India.
Advisory Board for Banking Frauds (ABBF)
™™ There are three types of PPIs—closed system PPIs,
™™ The Central Vigilance Commission (CVC) has semi-closed system PPIs and open system PPIs.
constituted an ‘Advisory Board for Banking Frauds
™™ The most common example of a closed system PPI
(ABBF)’ to examine bank fraud of over Rs. 50 crore
is a brand-specific gift card. Such cards, physical or
and recommend action.
otherwise, can be used only at specific locations, and
™™ Headquartered in Delhi, the Reserve Bank of India cannot be used to transfer funds from one account
(RBI) will provide required secretarial services, to another.
logistic and analytical support along with the
necessary funding to the board. Currency Chest
™™ Composition: Besides the chairman, the Board The Reserve Bank of India (RBI) has released
consists of three other members. The tenure of the guidelines for banks to set up new currency chests.
Chairman and members would be for a period of ™™ Currency chests are branches of selected banks
two years from 21st August, 2019. authorised by the RBI to stock rupee notes and
Functions: coins.

™™ The board’s jurisdiction would be confined to ™™ The responsibility for managing the currency in
those cases involving the level of officers of General circulation is vested in the RBI.
Manager and above in the Public Sector Banks ™™ The central bank advises the Centre on the number
in respect of an allegation of fraud in a borrowal of notes to be printed, the currency denominations,
account. security features and so on.

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vkLFkk IAS INDIAN ECONOMY

™™ The number of notes that need to be printed is / Union Territories (UTs), activities of its various
determined using a statistical model that takes the Technical Groups, and a thematic study on financial
pace of economic growth, rate of inflation and the inclusion and fi nancial stability.
replacement rate of soiled notes. What are the functions of FSDC?
™™ The Government has, however, reserved the right As the name of the council itself states about its functions, the FSDC
to determine the amount of coins that have to be is responsible for Financial stability and the Development of Financial
Sector in India.
minted.
Other than these two functions, FSDC is also responsible for Inter-
SWIFT (Society for Worldwide Interbank Financial regulatory coordination, financial literacy and financial inclusion
within the country.
Telecommunications)
No funds are allocated separately to the council for undertaking its
The Reserve Bank of India (RBI) has imposed a activities.
penalty on seven banks for delayed implementation of
Financial Stability and Development Council
SWIFT-related operational controls.
™™ It is an apex regulatory body constituted by the
™™ SWIFT is a cooperative society under Belgian law
Government of India.
owned by its member financial institutions with offi
ces around the world? ™™ FSDC was created after the global fi nancial crisis of
2008 when some similar institutions were created
™™ SWIFT messaging system is a messaging network
in some other countries.
that financial institutions use to securely
transmit information and instructions through a ™™ FSDC has replaced the High-Level Coordination
standardized system of codes. Under SWIFT, each Committee on Financial Markets, which was
fi nancial organization has a unique code which is facilitating the regulatory coordination functions
used to send and receive payments. prior to setting up of FSDC, though it was not a
formal body.
™™ SWIFT does not facilitate funds transfer: rather, it
sends payment orders, which must be settled by ™™ It was constituted on the recommendations of the
correspondent accounts that the institutions have Raghuram Rajan Committee on Financial Sector
with each other. Reforms in 2008. The FSDC is an autonomous body
which deals with the financial regularities in the
™™ The SWIFT is a secure financial message carrier — entire financial sector of India.
in other words, it transports messages from one
bank to its intended bank recipient. Members of FSDC
™™ SWIFT India is a joint venture of top Indian ™™ The Finance Minister of India is the chairman of
public and private sector banks and SWIFT Financial Stability and Development Council.
(Society for Worldwide Interbank Financial Members from Regulatory Bodies
Telecommunication). The company was created to ™™ RBI Governor (RBI Governor is also the head of
deliver high quality domestic financial messaging FSDC Sub-committee).
services to the Indian financial community.
™™ Chairman of Securities and Exchange Board of India
Financial Stability & Development Council (FSDC) i.e. SEBI.
Recently, a meeting of the Sub-Committee of the ™™ Chairman of Insurance Regulatory and Development
Financial Stability and Development Council (FSDC) Authority of India i.e. IRDAI.
headed by RBI Governor Shakti Kant Das was held to in ™™ Chairman of Pension Fund Regulatory and
Mumbai. Development Authority i.e. PFRDA.
™™ The Sub-Committee reviewed the major ™™ Chairman of Insolvency and Bankruptcy Board of
developments on the global and domestic fronts India i.e. IBBI.
that impinge on the fi nancial stability of the country.
Members from Government Departments
™™ It discussed ways to address challenges pertaining
™™ Finance Secretary or Secretary of Department of
to the quality of credit ratings; and interlinkages
Economic Affairs.
between housing fi nance companies and housing
developers. ™™ Secretary of Department of Financial Services.

™™ It also deliberated on interlinking of various ™™ Secretary of Ministry of Corporate Affairs.

regulatory databases and National Strategy for ™™ Chief Economic Advisor, Ministry of Finance.
Financial Inclusion (NSFI). ™™ Secretary of Ministry of Electronics & Information
™™ It reviewed the functioning of State Level Technology i.e. MeitY. (Included in May 2018 by the
Coordination Committee (SLCCs) in various States Government of India through a Gazette notification.

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vkLFkk IAS INDIAN ECONOMY

The reason to add was increased focus of the For example, an asset backed by collateral would
government on the digital economy). carry lesser risks as compared to personal loans, which
Basel Norms and Banking Stability have no collateral. India adopted Basel 1 guidelines in
1999.
The Basel Accords refer to the banking supervision
Accords (recommendations on banking regulations)— Basel-II
Basel I, Basel II and Basel III—issued by the Basel In June ’04, Basel II guidelines were published by
Committee on Banking Supervision (BCBS). BCBS, which were considered to be the refined and
They are called the Basel Accords as the BCBS reformed versions of Basel I accord.
maintains its secretariat at the Bank for International The guidelines were based on three parameters,
Settlements in Basel, Switzerland and the committee which the committee calls it as pillars:
normally meets there. The Basel Accords is a set of Capital Adequacy Requirements: Banks should
recommendations for regulations in the banking maintain a minimum capital adequacy requirement of
industry. 8% of risk assets.
Basel is a city in Switzerland. It is the headquarters of Supervisory Review: According to this, banks were
Bureau of International Settlement (BIS), which fosters needed to develop and use better risk management
co-operation among central banks with a common goal techniques in monitoring and managing all the three
of financial stability and common standards of banking types of risks that a bank faces, viz. credit, market and
regulations. operational risks.
Basel guidelines refer to broad supervisory
Market Discipline: This need increased disclosure
standards formulated by this group of central banks –
requirements. Banks need to mandatorily disclose their
called the Basel Committee on Banking Supervision
CAR, risk exposure, etc to the central bank. Basel II norms
(BCBS).
in India and overseas are yet to be fully implemented.
The set of agreement by the BCBS, which mainly
Basel-III
focuses on risks to banks and the financial system are
called Basel accord. In 2010, Basel III guidelines were released. These
guidelines were introduced in response to the financial
The purpose of the accord is to ensure that financial
crisis of 2008.
institutions have enough capital on account to meet
obligations and absorb unexpected losses. A need was felt to further strengthen the system
as banks in the developed economies were under-
India has accepted Basel accords for the banking
capitalized, over-leveraged and had a greater reliance
system.
on short-term funding.
Basel-I
Also the quantity and quality of capital under Basel
In 1988, BCBS introduced capital measurement II were deemed insufficient to contain any further risk.
system called Basel capital accord, also called as Basel 1.
Basel III norms aim at making most banking
It focused almost entirely on credit risk. It defined activities such as their trading book activities more
capital and structure of risk weights for banks. capital-intensive.
The minimum capital requirement was fixed at 8% The guidelines aim to promote a more resilient
of risk weighted assets (RWA). banking system by focusing on four vital banking
RWA means assets with different risk profiles. parameters viz. capital, leverage, funding and liquidity.

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vkLFkk IAS INDIAN ECONOMY

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vkLFkk IAS INDIAN ECONOMY

Some common examples of suppliers of capital are:

Capital Market
1. Pension funds: A pension fund, also known as a
Capital Market is a place where different financial superannuation fund in some countries, is any plan,
instruments are traded between different entities. On fund, or scheme which provides retirement income
one side there are entities that have abundant capital, 2. Life insurance companies: Life insurance
much more than they require and on the other side, companies offer contracts between an insurance
there are entities who need capital for various purposes. policy holder and an insurer or assurer, where the
Capital Markets – Types insurer promises to pay a designated beneficiary
a sum of money (the benefit) in exchange for a
Capital markets are mainly divided into 2 different
premium, upon the death of an insured person (often
types.
the policyholder). The Insurance Development and
1. Primary Markets: The primary market is the part Regulatory Authority of India manage everything
of the capital market that deals with the issuance related to insurance in India.
and sale of securities to investors directly by the
3. Non-financial companies: Non-financial
issuer. An investor buys securities that were never
companies are those businesses which don’t accept
traded before. Primary markets create long term deposits or make loans. Examples of non-financial
instruments through which corporate entities raise companies are Healthcare, Technology, Industrial,
funds from the capital market. sector related companies.
2. Secondary Markets: The secondary market, also 4. Charitable foundations: A charitable foundation
called the aftermarket and follow on public offering is a category of a nonprofit organization that will
is the financial market in which previously issued typically provide funding and support for other
financial instruments such as stock and bonds are charitable organizations through grants.
bought and sold
Some common examples of users of capital
Capital Market – Examples
1. People looking to purchase vehicles, homes
The examples of capital markets are given below
2. Governments
1. Stock Market: A stock market, equity market or
3. Non-financial companies.
share market is the aggregation of buyers and
sellers of stocks, which represent ownership claims Capital Market – Structure
on businesses Capital markets structure is made of primary and
2. Bond Market: The bond market is a financial secondary markets.
market where participants can issue new debt, Primary markets consist of companies that issue
known as the primary market, or buy and sell debt securities and investors who purchase those securities
securities directly from the issuing company. These securities
3. Currency and Foreign Exchange Markets: The are called Initial Public Offerings (IPO). Whenever a
foreign exchange market is a global decentralized company goes public it sells its stocks and bonds to
or over-the-counter market for the trading of large scales institutional investors like hedge funds and
currencies. This market determines foreign mutual funds.
exchange rates for every currency. Secondary markets are places where the trade
Stock market and Bond market are considered as of already issued certificates between investors are
the most common capital markets. overseen by regulatory bodies. Issuing companies play
no part in the secondary market. Examples of secondary
Capital market is a cog in the wheel of the modern
markets are New York Stock Exchange (NYSE), London
economy since capital markets move money from the
Stock Exchange (LSE), Bombay Stock Exchange (BSE).
entities that have money to the entities that require
money for productive use. To know more about the Major Stock Exchanges in
India, visit the linked article.
Capital Market – Features
Capital Markets – Functions
In capital markets, there are 2 entities, one who
supplies capital and the other entity is the one who 1. Capital markets bring together those requiring
needs capital. capital and those having excess capital.

Usually, entities with surplus capital in the capital 2. Capital markets aim to achieve better efficiency in
markets are retail and institutional investors. Entities transactions.
seeking capital are people, governments and businesses. 3. It helps in economic growth

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vkLFkk IAS INDIAN ECONOMY

4. It ensures there is the continuous availability of deficit. The G- Sec instrument is in the nature of a
funds bond.
5. By ensuring the movement and productive ™™ GOI Dated Security can be held by any person,
utilisation of capital, it helps in boosting the national firm, company, corporate body or institution, State
income. Governments, Provident Funds and Trusts.
6. Minimizes transaction costs and information costs. ™™ Non-Resident Indians (NRIs, viz., Indian citizens and
7. Makes trading of securities easier for companies Individuals of Indian origin), Overseas corporate
and investors. bodies predominantly owned by NRIs and Foreign
Institutional, Investors registered with SEBI and
8. It offers insurance against market risk.
approved by Reserve Bank of India are also eligible
Capital market – Advantages to invest in the Government Stock.
1. Money moves between people who need capital and ™™ G-Secs have a maturity period ranging from one to
who have the capital. 30 years and they carry a coupon rate (interest rate)
2. There is more efficiency in the transactions. which is paid semi-annually. They are issued both in
3. Securities like shares help in earning dividend demat and physical form.
income. ™™ The minimum investment in G-Secs is Rs 10,000.
4. With the passage of time, the growth in value of G-Secs could be of the following types
investments is high. (i) Dated Securities: They have fixed maturity
5. The interest rates provided by securities like Bonds and fixed coupon rates payable half yearly and
are higher than interest rates given by banks. are identified by their year of maturity.

6. Can avail tax benefits by investing in stock markets. (ii) Floating Rate Bonds: They are bonds with
variable interest rates with a fixed percentage
7. Scope for a wide range of investments.
over a benchmark rate. There may also be a
8. Securities of capital markets can be used as cap and a floor rate attached, thereby fixing a
collateral for getting loans from banks. maximum and minimum interest rate payable
Gilt edged securities on it.
™™ Government securities, or G-Secs as they are (iii) Capital Indexed Bonds: They are bonds where
popularly known, are securities issued by the RBI the interest rate is a fixed percentage over the
on behalf of the Government of India to meet the wholesale price index. Redemption is linked to
latter’s borrowing programme for financing fiscal the wholesale price index.

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vkLFkk IAS INDIAN ECONOMY

members and the participates and finds a suitable match.

Stock Exchange The NSE does not have trading floors as in conventional
A stock exchange, securities exchange, or bourse is stock exchanges. The trading is entirely screen based
a facility where stockbrokers and traders can buy and with automated order machine. The screen provides
sell securities, such as shares of stock and bonds and entire market information at the press of a button. At
other financial instruments. Stock exchanges may also the same time, the system provides for concealment
provide facilities for the issue and redemption of such of the identify of market operations. The screen gives
securities and instruments and capital events including all information which is dynamically updated. As the
the payment of income and dividends. Securities traded market participants sit in their own offices, they have all
on a stock exchange include stock issued by listed the advantages of back office support, and facility to get
companies, unit trusts, derivatives, pooled investment in touch with their constituents.
products and bonds. Stock exchanges often function as ™™ Wholesale debt market segment,
"continuous auction" markets with buyers and sellers ™™ Capital market segment, and
consummating transactions via open outcry at a central ™™ Futures & options trading.
location such as the floor of the exchange or by using an
electronic trading platform. 3. Over the Counter Exchange of India (OTCEI)
The OTCEI was incorporated in October, 1990 as
Various Stock Exchanges In India - BSE, NSE and
a Company under the Companies Act 1956. It became
OTCEI fully operational in 1992 with opening of a counter at
1. Bombay Stock Exchange (BSE) Mumbai. It is recognised by the Government of India as a
BSE is the leading and the oldest stock exchange in recognised stock exchange under the Securities Control
India as well as in Asia. It was established in 1887 with and Regulation Act 1956. It was promoted jointly by the
the formation of “The Native Share and Stock Brokers’ financial institutions like UTI, ICICI, IDBI, LIC, GIC, SBI,
Association”. BSE is a very active stock exchange with IFCI, etc.
highest number of listed securities in India. Nearly 70% The Features of OTCEI are :-
to 80% of all transactions in the India are done alone ™™ OTCEI is a floorless exchange where all the activities
in BSE. Companies traded on BSE were 5309 by Jan, are fully computerised.
2024. BSE is now a national stock exchange as the BSE
™™ Its promoters have been designated as sponsor
has started allowing its members to set-up computer
members and they alone are entitled to sponsor a
terminals outside the city of Mumbai (former Bombay).
company for listing there.
It is the only stock exchange in India which is given
permanent recognition by the government. At present, ™™ Trading on the OTCEI takes place through a network
(Since 1980) BSE is located in the “Phiroze Jeejeebhoy of computers or OTC dealers located at different
Towers” (28 storey building) located at Dalal Street, places within the same city and even across the
Fort, Mumbai. cities. These computers allow dealers to quote,
query & transact through a central OTC computer
In 2005, BSE was given the status of a full fledged
using the telecommunication links.
public limited company along with a new name as
“Bombay Stock Exchange Limited”. The BSE has ™™ A Company which is listed on any other recognised
computerized its trading system by introducing BOLT stock exchange in India is not permitted
(Bombay On Line Trading) since March 1995. BSE is simultaneously for listing on OTCEI.
operating BOLT at 275 cities with 5 lakh (0.5 million) ™™ OTCEI deals in equity shares, preference shares,
traders a day. Average daily turnover of BSE is near Rs. bonds, debentures and warrants.
200 crores. The Participants of OTCEI are:-
2. National Stock Exchange (NSE) ™™ Members and dealers appointed by OTCEI,
Formation of National Stock Exchange of India ™™ Companies whose securities are listed,
Limited (NSE) in 1992 is one important development
™™ Investors who trade in the OTCEI,
in the Indian capital market. The need was felt by the
industry and investing community since 1991. The NSE ™™ Registrar who keeps custody of scrip certificates,
is slowly becoming the leading stock exchange in terms ™™ Settlement Bank which clears the payment between
of technology, systems and practices in due course of counters, and
time. NSE is the largest and most modern stock exchange SEBI and Government who supervise and
in India. In addition, it is the third largest exchange in
regulate the working
the world next to two exchanges operating in the USA.
World Indices
The NSE boasts of screen based trading system. In
the NSE, the available system provides complete market Brazil Bovespa France CAC 40
transparency of trading operations to both trading Germany DAX US Dow Jones

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vkLFkk IAS INDIAN ECONOMY

UK FTSE 100 Hong Kong Hang Seng speculation is undesirable as it is dangerous to

Mexican IPC Indonesia Jakarta
investors & the growth of corporate sector.
Malaysia KLSE US Nasdaq 9. Serves as Economic Barometer: Stock exchange
Japan Nikkei 225 India Sensex
indicates the state of health of companies and the
national economy. It acts as a barometer of the
South Korea Seoul Singapore Straits Times
economic situation / conditions.
Switzerland Swiss Market Taiwan Taiwan Weighted
10. Facilitates Bank Lending: Banks easily know the
Functions of Stock Exchange - Main Functions In prices of quoted securities. They offer loans to
The Market customers against corporate securities. This gives
1. Continuous and ready market for securities: convenience to the owners of securities.
Stock exchange provides a ready and continuous
Role Functions of SEBI in Monitoring the Stock
market for purchase and sale of securities. It
provides ready outlet for buying and selling of
Exchange
securities. Stock exchange also acts as an outlet/ Exchange Traded Fund
counter for the sale of listed securities. Edelweiss AMC recently got the government’s
2. Facilitates evaluation of securities: Stock permission to launch India’s first bond ETF (exchange
exchange is useful for the evaluation of industrial traded fund) which will invest in central public sector
securities. This enables investors to know the true undertakings.
worth of their holdings at any time. Comparison of ™™ Soon, Bond ETFs will be another investment vehicle
companies in the same industry is possible through available to retail investors providing access to
stock exchange quotations (i.e price list). bonds of state-run enterprises.
3. Encourages capital formation: Stock exchange
™™ Bond ETFs are similar to how equity ETFs invest in
accelerates the process of capital formation. It
line with indices covering specific baskets like the
creates the habit of saving, investing and risk taking
Nifty 50, Nifty Next 50 and Nifty Quality 30, among
among the investing class and converts their savings
others
into profitable investment. It acts as an instrument
of capital formation. In addition, it also acts as a ™™ While bond ETFs are not new in India, they have not
channel for right (safe and profitable) investment. been very popular. At present, only three GSec ETFs
are available, all with miniscule assets and poor
4. Provides safety and security in dealings: Stock
trading volumes.
exchange provides safety, security and equity
(justice) in dealings as transactions are conducted ™™ The entry of newer bond ETFs comes at a time when
as per well defined rules and regulations. The traditional bond funds are only just emerging from a
managing body of the exchange keeps control on painful period of multiple credit defaults. Investors
the members. Fraudulent practices are also checked are wary.
effectively. Due to various rules and regulations, ™™ Bond ETFs claim to be different from traditional
stock exchange functions as the custodian of funds bond funds by offering high liquidity, transparency
of genuine investors. and lower costs.
5. Regulates company management: Listed
™™ The cost angle is the most distinguishing facet of
companies have to comply with rules and
bond ETFs. Being passively managed products, these
regulations of concerned stock exchange and
charge a much lower fee than actively managed
work under the vigilance (i.e supervision) of stock
bond funds. Sometimes even less than 0.5%.
exchange authorities.
6. Facilitates public borrowing: Stock exchange ™™ In the debt segment, there is not much the fund
serves as a platform for marketing Government manager can do to enhance returns. Any strategy
securities. It enables government to raise public that can optimise costs is the need of the hour.
debt easily and quickly. ™™ Globally, Bond ETFs have reported a healthy growth
7. Provides clearing house facility: Stock exchange over the last decade. The size of Global Bond ETFs
provides a clearing house facility to members. It now accounts for over $1 trillion assets under
settles the transactions among the members quickly management (AUM) out of total $4 trillion AUM
and with ease. The members have to pay or receive across various ETFs.
only the net dues (balance amounts) because of the ™™ The key objectives of launching Bond ETF are:
clearing house facility.
zz To suffice borrowing needs of CPSEs
8. Facilitates healthy speculation: Healthy
zz To increase retail participation
speculation, keeps the exchange active. Normal
speculation is not dangerous but provides more zz To deepen the bond market and increase
business to the exchange. However, excessive liquidity

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About ETF first Indian company to issue masala bonds.

™™ An exchange-traded fund (ETF) is a marketable In the month of August 2016 public sector
security, meaning it has an associated price that unit NTPC issued first corporate green masala
allows it to be easily bought and sold. bonds worth 2,000 crore rupees.
™™ ETFs are in many ways similar to mutual funds; zz Masala bonds are those bonds issued outside
however, they are listed on exchanges and ETF India but denominated in Indian Rupees, rather
shares trade throughout the day just like ordinary than dollar or the local currency.
stock. zz They are used by the companies to raise funds.
™™ ETFs offer low expense ratios and fewer broker Till now Indian companies have been raising
commissions than buying the stocks individually. debt from overseas markets for decades through
bond offerings, which have been denominated
™™ ETFs can contain all types of investments including
in dollar or other currencies.
stocks, commodities, or bonds; some offer domestic
holdings only, while others are international. zz Any corporate, body corporate and Indian bank
is eligible to issue Rupee denominated bonds
Bond ETFs
overseas.
™™ Bond ETFs are a type of ETF that exclusively invests
zz The objective of these bonds is to fund
in bonds. Bond ETFs invest in various fixed-income
infrastructure projects in India, fuel internal
securities such as corporate bonds, treasuries,
growth via borrowings and internationalise the
municipal, international, highyield, etc.
Indian currency.
™™ Bond ETFs are passively managed and trade, much
like stock ETFs on major stock exchanges. This zz RBI mandates that the money raised through
helps promote market stability by adding liquidity such bonds cannot be used for real estate
and transparency during times of stress. activities other than for development of
integrated township or affordable housing
™™ Bond ETFs allow ordinary investors to gain projects.
passive exposure to benchmark bond indices in an
inexpensive way. zz It also can’t be used for investing in capital
markets, purchase of land and on-lending to
™™ Investors of bond ETFs are exposed to the risk of
other entities for such activities.
interest rate changes.
™™ Bond ETFs are typically of two types: They either
How Masala Bonds help in supporting the rupee?
track a specific maturity bucket like short, medium ™™ The bonds are directly pegged to the Indian currency.
or long term or they track a target maturity where So, investors will directly take the currency risk or
they invest in bonds with similar maturity as the exchange rate risks. If the value of Indian currency
product. falls, the foreign investor will have to bear the
™™ Target Maturity Bond ETFs: They provide losses, not the issuer which is an Indian entity or a
predictable returns like Fixed Maturity Plans corporate.
(FMPs), if they are held till maturity. ™™ If foreign investors eagerly invest in Masala Bonds
Masala Bonds or bring money into India, this would help in
supporting the rupee.
™™ Kerala became the first state to tap into masala
bond market by listing the Kerala Infrastructure ™™ The issuer of these bonds is shielded against the risk
Investment Fund Board (KIIFB)’s masala bond of currency fluctuation, typically associated with
worth Rs 2,150 crore in London Stock Exchange borrowing in foreign currency. Besides helping in
(LSE)’s International Securities Market (ISM). diversifying funding sources, the costs of borrowing
via masala bonds could also turn out to be lower
™™ It has a fixed interest rate of 9.72% per annum.
than domestic markets.
Through this government focuses to get
multinational corporations to invest in the state. Where can these bonds be issued and who can
zz The first Masala bond was issued by the World subscribe?
Bank- backed IFC in November 2014 when it ™™ The Rupee denominated bonds can only be issued
raised 1,000 crore bond to fund infrastructure in a country and subscribed by a resident of such
projects in India. country that is a member of financial action task
zz Later in August 2015 International Financial force and whose securities market regulator is a
Cooperation for the first time issued green member of International Organisation of Securities
masala bonds and raised Rupees 3.15 Billion Commission.
to be used for private sector investments that ™™ While residents of such countries can subscribe to
address climate change in India. the bonds, it can also be subscribed by multilateral
zz In July 2016 HDFC raised 3,000 crore rupees and regional financial institutions where India is a
from Masala bonds and thereby became the member country.

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Securities and Exchange Board Stock Exchange Transactions -

of India (SEBI) Terms Terminology Glossary List
of Terms relating to Indian Stock
Securities and Exchange Board of India (SEBI) is
an apex body for overall development and regulation of Exchange
the securities market. It was set up on April 12, 1988.
List of the important terms relating to Indian stock
To start with, SEBI was set up as a non-statutory body.
exchange transactions.
Later on it became a statutory body under the Securities
Exchange Board of India Act, 1992. The Act entrusted 1. Group A Shares: These are the listed equity shares
SEBI with comprehensive powers over practically all the of large and well established companies having
aspects of capital market operations. broad investor base. These shares are actively
traded and for these shares the facility for carrying
Role Functions of SEBI
forward a transaction from one accounting period to
The important powers of SEBI (Securities and another is available. Naturally, these shares attract a
Exchange Board of India) are:- lot of speculative multiples. These facilities are not
1. Powers relating to stock exchanges & available for group B shares. However, shares can
intermediaries: SEBI has wide powers regarding be moved from Group B to Group A and vice versa
the stock exchanges and intermediaries dealing in depending on criteria for shifting. For instance
securities. It can ask information from the stock the Bombay Stock Exchange has laid down several
exchanges and intermediaries regarding their criteria for shifting shares from Group B to Group
business transactions for inspection or scrutiny and A; such as, an equity base of Rs. 10 crores, a market
other purpose. capitalization of Rs. 25-30 crores, a public holding
2. Power to impose monetary penalties: SEBI has of 35 to 40 percent, a shareholding population of
been empowered to impose monetary penalties 15,000 to 20,000, good dividend paying status, etc.
on capital market intermediaries and other 2. Group B Shares: These are those listed shares
participants for a range of violations. It can even which do not follow the criteria prescribed for
impose suspension of their registration for a short Group A shares. Group B shares are again divided
period. into B1 and B shares on BSE. B1 shares represent
3. Power to initiate actions in functions assigned: well traded scrips among B group and they have
SEBI has a power to initiate actions in regard weekly settlements.
to functions assigned. For example, it can issue 3. Group C Shares: Under Group C, only odd lots
guidelines to different intermediaries or can and permitted securities are included. A number
introduce specific rules for the protection of of shares that are less than the market lot are
interests of investors. called odd lots. Market lot refers to the minimum
4. Power to regulate insider trading: SEBI has number of shares of a particular security that must
power to regulate insider trading or can regulate be transacted on a stock exchange. Odd lots have
the functions of merchant bankers. settlement once in fortnights or once on Saturdays.
Permitted securities are those that are not listed on
5. Powers under Securities Contracts Act: For
a stock exchange but are listed on other exchanges
effective regulation of stock exchange, the Ministry
in India. So they are permitted to be traded on BSE.
of Finance issued a Notification on 13 September,
Odd lots cannot be easily transacted on the stock
1994 delegating several of its powers under the exchange and so they are illiquid in nature.
Securities Contracts (Regulations) Act to SEBI.
4. Arbitration: Arbitration is a quasi-judicial process
SEBI is also empowered by the Finance Ministry to to resolve a dispute which is faster and inexpensive.
nominate three members on the Governing Body of The stock exchange facilitates the process of
every stock exchange. arbitration between the member and their clients.
6. Power to regulate business of stock exchanges: The disputes between the parties are resolved
SEBI is also empowered to regulate the business through arbitration in accordance with the by-
of stock exchanges, intermediaries associated with laws of the exchange. Arbitration is required in the
the securities market as well as mutual funds, matters such as settlement of claims, differences
fraudulent and unfair trade practices relating to and disputes between one member and another,
securities and regulation of acquisition of shares between a member and his clients, sub-brokers or
and takeovers of companies. authorised clerks etc.

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5. Arbitrage: Arbitrage is undertaken to make a profit broker for correction or replacement with good
out of differences in prices of a security in two delivery.
different markets. It is a highly skilled speculative 10. Bid and Offer: Bid refers to the price of a share
activity. If the prices of a security differ substantially which a prospective buyer is ready to pay for
in the two stock markets, the speculator purchases particular scrip. Offer is the price at which a share is
the security in the market where it is cheap and sells offered for a sale on stock exchange.
it at a profit in another market where it is quoted
11. Brokerage: Brokerage means the commission
high and thus makes huge profit. The speculator has
charged by a broker for purchase or sale of securities
to act very fast since the prices are highly sensitive
done through him. The maximum brokerage
and they may get equalised within a short span of
chargeable as stipulated by SEBI is at present 2.5 %
time.
of the trade value.
The arbitrage may be carried on between the two
12. BOLT: Bombay Stock Exchange has introduced
markets within the country or in two different
BOLT. That is, BSE - On - Line - Trading - System for
countries. The former is called ‘domestic arbitrage’
listed securities. Trading is order driven as quote
and the latter ‘foreign arbitrage’. Arbitrage
driver system is discontinued. For this purpose
ultimately helps in equalising the prices of securities
BSE classified the listed securities into 5 categories.
at different places; hence, it is beneficial to market.
Viz. A, B1, B2, F, G and Z. Out of these A, B1 and
The brokers who carry arbitrage activity are called
B2 groups represent equity segment. Group F
arbitragers.
represents securities which have fixed income, ‘G’
6. Auction: An auction is a mechanism utilised by group represents Government Securities whereas
the exchange to fulfill its obligation to a counter ‘Z’ represents those companies which failed to
party member when a member fails to deliver comply with listing norms or failed to redress
good securities or make the payment. The stock investors’ complaints or failed to comply with
exchange, in such cases, arranges to buy good depository requirements. Trading of securities
securities through auction and deliver them to the of listed companies of other exchanges is also
buying broker or arranges to realise the cash and permitted and these securities are categorised in
pay it to the selling broker. ‘Permitted Securities.’
7. At Best Order: It is an order from an investor for the 13. ‘Badla’ or Carry Forward Trading: Carry Forward
purchase or sale of securities wherein the investor or ‘Badla’ refers to the trading in which the
does not specify a price at which the purchase or settlement of a transaction is postponed to the next
sale of securities should be made by broker on his settlement period on payment of some charges by
behalf. Such order must be executed by the broker way of interest known as Badla Charges. Carryover
at best possible price. The client may also fix a time or Badla is a facility given to the speculator by the
frame within which the order has to be executed. other party to carry forward the transaction from
e.g. “Buy 200 Reliance Industries at best”. one settlement period to another. The scrips in
8. Authorised Clerk: An authorised clerk is a specified categories (i.e. Group A) alone could be
representative appointed by a stock broker to carried forward. Badla charges vary from period to
assist him in the securities trading. A broker cannot period and are fixed fortnightly.
remain present all the time on trading floor of stock
14. Bulls: Bulls are those brokers of stock exchange who
exchange, hence he requires assistants to carry out
are very optimistic of the rise in prices of securities.
trading activities on his behalf. As per the rules of the
Hence, they go on buying shares in expectation of
stock exchange, each broker can employ a specified
selling them at higher prices later. Thus, in a bull
number of authorised clerks to transact his business.
market there will be excess of purchase over sales.
They are also called ‘member assistants’. At Bombay,
Bulls are also called ‘Tejiwallas’.
Madras & Calcutta Stock exchanges the number of
authorised clerks allowed by a broker is 5, 3 and 8 15. Bears: Bears are those member brokers of stock
respectively. Generally, authorized clerks are given exchange who are always pessimistic in approach.
power of attorney to act on behalf of broker & hence They expect a fall in prices of securities. Hence, they
they can sign on behalf of brokers. go on selling securities. They are also called Mandi
9. Bad Delivery Cell: A delivery of shares turns out to wallas. A Bearish market refers to a market where
be bad if there is a company objection on account of prices of shares are falling continuously where
signature difference, or if shares are fake, forged or there are excess of sales over purchases.
stolen etc. In such a case the investor can approach 16. Blank transfers: Blank transfers facilitate
the bad delivery cell of stock exchange through his speculative activities through badla transactions. If

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a seller (or transferer) of security simply signs the 28. Ex-rights: The share is described as ex-rights when
transfer form without specifying the name of buyer a purchaser is not entitled to receive the current
(or transferee), it is called a blank transfer. Badla rights, the right of which remains with the seller.
transactions involve temporary purchases and sales 29. Forward trading: Forward trading refers to trading
of securities. If they have to be registered, it involves where contracts traded today are settled at some
lot of inconveniences due to registration fees, stamp future date at prices decided today.
duty, etc. Hence, to avoid such inconveniences blank
30. Good-bad delivery: A share certificate together
transfers are increasingly used to carryover the
with its transfer form which meets all the
transaction. requirements of title transfer from seller to buyer is
17. Circuit breakers: Its a mechanism by which Stock called good delivery in the market.
Exchanges temporarily suspend the trading in a
Delivery of a share certificate, together with a deed
security when its prices are volatile and tend to
to transfer, which does not meet requirements of
breach the price band.
title transfer from seller to buyer is called a bad
18. Clearing: Clearing is a process through which all delivery in the market.
transactions between members of stock exchange
31. Hand Delivery Settlement: Under this method,
are settled through multilateral netting.
the delivery of securities and payment are affected
19. Company objection: For transfer of a security a within the time stipulated in the agreement or
transferer sends a scrip certificate along with the within 14 days from the date of contract whichever
transfer deed to the company. In some cases the is earlier. Most of the transactions are conducted on
company refuses the registration of transfer on the basis of hand delivery settlements.
account of signature difference, or fake, forged or
32. Insider Trading: It means trading in a company’s
stolen shares. In such cases the company returns
shares by a person who is associated with that
the documents sent along with a letter which is
termed as a ‘company objection’. company. As a result of his association he has
a secret price sensitive information about the
20. Cornering: It refers to the process of holding entire company such as expansion plans, financial results,
supply of a particular security by an individual or a
takeover bid, bonus or right issue etc. He tries to
group of individuals with a view to dictating terms
exploit that information and maximise his profit
to the short sellers and earning more profits.
through trading in the scrip of that company. It is a
21. Clearing Settlement: Under this method, the crime and hence prohibited by stock exchanges.
transactions are cleared and settled through the
33. Jumbo certificate: A jumbo share certificate is
clearing house. Usually those securities which are
a single composite share certificate issued by
frequently traded and are usually in demand are
consolidating-a large number of market lots.
cleared through the clearing house.
34. Jobbers: A jobber is a professional independent
22. Client brokers: These brokers do simple braking
broker who deals in securities on his own behalf.
business by acting as intermediaries between the
Like brokers he does not purchase or sell securities
buyers and sellers and they earn only brokerage for
on behalf of a client for a commission. Instead
their services rendered to the clients.
he purchases the securities in his own name and
23. Cum-bonus: The shares are called cum-bonus sells them out when the prices of those securities
when a purchaser is entitled to receive the current increase and thereby earn a profit. He is like a
bonus declared by company. stockist of security of different companies. He buys
24. Cum-rights: The share is described as cum-rights securities as a owner, keeps them for a very short
when a purchaser is entitled to receive the current- period and sells them for profit known as ‘jobbers
rights shares declared by the company. turn’. He works for a profit and not for a commission.
25. Day order: A day order, as the name suggests, is 35. Lame ducks: Lame ducks are bear brokers
an order which is valid for the day on which it is (expecting decline in prices) who ultimately
entered. If the order cannot be executed during the sell the securities ultimately at a loss by making
day, it gets cancelled automatically. wrong moves. They lose in market due to the
26. Discretionary order: It is an order placed by a wrong prediction that share prices will decline
client to buy or sell shares at whatever price the but in reality they increase. Generally, they
broker thinks reasonable. This is possible only contract to sell securities which they do not
when the client has complete faith on the broker. posses, therefore, they are caught in a wrong foot.
27. Ex-bonus: The share is described as ex-bonus when 36. Limit order: It is an order for the purchase or sale
a purchaser is not entitled to receive the current of scrip at a fix price specified by the client. e.g. “Sell
bonus, the right to which remains with the seller. 100 TISCO shares @ Rs. 280”.

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37. Market Lot: Market lot refers to the minimum 50. Screen based trading: When buying / selling of
number of shares of a particular security that must securities is done using computers and matching of
be transacted on the exchange. Market lot may trades is done by a stock exchange computer.
be 10 shares, 20 shares, 50 shares or 100 shares. 51. Settlement: It refers to the scrip-wise netting of
Multiples of the market lot may also be transacted. trades by a broker after the trading period is over.
In demat scrips the market lot is 1 share.
52. Settlement guarantee: Settlement guarantee is the
38. No-delivery period: Whenever a book closure guarantee provided by the clearing corporation for
or record date is announced by a company, the settlement of all trades even if a party defaults to
Exchange sets a no-delivery period for that security.
deliver securities or pay cash.
During this period, trading is permitted in that
security. However, these trades are settled only after 53. Splitting /Consolidation: The process of splitting
the no-delivery period is over. This is done to ensure shares that have a high face value into shares of a
that investor’s entitlement for corporate benefits is lower face value is known as splitting. The reverse
clearly determined. process of combining shares that have a low face
value into one share of higher value is known as
39. Odd lot: A number of shares that are less than the
consolidation.
market lot are known as odd lots. Under the scrip
based delivery system, these shares are normally 54. Spot trading: Trading by delivery of shares and
traded at a discount to the prevailing price for the payment for the same on the date of purchase or on
marketable lot. the next day.
40. Order-driven trading: It is a trading initiated by 55. Stop transfer: It is an instruction given by a
buy I sell orders, from investors / brokers. registered holder of shares to the company to stop
41. Over-the Counter trading: Trading in those stocks the transfer of shares in his name as a result of theft,
which are not listed on a stock exchange. misplacement, loss of share certificates.
42. Open order: It is an order to buy or sell a security 56. Stags: Stags are those members in share market who
received from a client without fixing any time limit neither buy nor sell securities in stock exchange.
or price limit on the execution of the order. It is They simply apply for subscription to new issues
similar to discretionary order. expecting to sell them at a higher price later when
the issues are quoted on stock exchange. Generally,
43. Pay-in: Pay-in day is the designated day on which
stags buy new issues and sell them on allotment or
the securities or funds are delivered / paid in by the
members to the clearing house of the Exchange. even before allotment for a profit. Since they act fast
they are called stags - a fast runner.
44. Pay-out: Pay-out is the designated day on which
securities and funds are delivered I paid out to the 57. Spot delivery settlement: These transactions are
members by the clearing house of the Exchange. to be settled by delivery and payment on the date of
contract or on the next day.
45. Price band: The daily / weekly price limits within
which price of a security is allowed to rise or fall. 58. Special delivery: Delivery and payment made
anytime exceeding 14 days, but not exceeding 2
46. Price rigging (or Rigging the market): When a
months, following the date of the contract as may
person or persons acting in concert with each other
be stipulated when entering into the bargain and
collude to artificially increase or decrease the price
of a security, that process is called price rigging permitted by the Governing Board or the President.
or rigging the market. It is an undesirable activity 59. Stop Loss Order: It is an order by a client to sell as
since it prevents the free interplay of demand and soon as the prices fall upto a particular level or to
supply. Stock exchanges and SEBI try to discourage buy when the price rises up to a specified level. This
such practice. is mainly to protect the clients against a heavy fall or
47. Quote-driven trading: Trading where brokers rise in prices so that they may not suffer more than
/ market makers give buy I sell quote for a scrip the pre-specified amount.
simultaneously. 60. Trade guarantee: Trade guarantee is the guarantee
48. Record date: Record date is the date on which the provided by the clearing corporation for all trades
beneficial ownership of an investor is entered into that are executed on the exchange. In contrast, at the
the register of members. Such a member is entitled settlement guarantee, guarantees the settlement of
to get all the corporate benefits. trade after multilateral netting.
49. Rematerialisation of shares: It is the process 61. Transfer deed: A transfer deed is a form that is
through which shares held in electronic form in used for effecting transfer of shares or debentures
depository are converted into physical form. and is valid for a specified period. It should be sent,

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vkLFkk IAS INDIAN ECONOMY

to the company along with the share certificate for Commercial Paper
registering the transfer. The transfer deed must It represents short term unsecured promissory
be duly stamped and signed by or on behalf of notes issued by top rated corporates, primary dealers
the transferor and transferee and complete in all (PDS), Satellite dealers(SDS) and the all-India financial
respects. institutions (FIs).
62. Wash Sales: Wash sales is a kind of fictitious
Commercial Bills
transaction through which a speculator is able to
reap huge profit by creating a misleading picture Bills of exchange are negotiable instruments drawn
in the market. He makes fictitious sale of a security by the seller (drawer) of the goods on the buyer (drawee)
and then makes a purchase of the same security of the goods for the value of the goods delivered. These
at higher price through another broker. Thus, he bills are called trade bills. These trade bills are called
creates a misleading opinion in the market as if the commercial bills when they are accepted by commercial
price of a security in question is rising. As a result banks. If the bill is payable at a future date and the seller
of such false opinion, when the price of the security needs money immediately, he may approach his bank
actually rises the speculator sells it to earn a good for discounting the bill.
profit. Wash sale is a kind of cheating hence stock Merchant Banks/Investment Banks
exchanges impose severe penalty on such sales. MBs are those who manage and underwrite
63. Wolves: These are the brokers who are fast and (Underwriting an issue means to guarantee to purchase
smart speculators. They quickly perceive changes any shares in a new issue of rights issue not fully
in the trends in the market and trade fast to make subscribed by the public) new public issues floated
profit. They are not generally caught in the wrong by companies to raise funds from public. They advise
foot. corporate clients on fund raising. They are also called
64. Money Market: Money market refers to lending investment banks (I banks). They deal only with
and borrowing short term funds- funds with a corporates and not general public, essentially.
maturity of less than one year. Banks and financial Mutual Funds
institutions (IDBI, LIC etc) are the main lenders Mutual funds raise money from public and invest
and borrowers while individuals, companies, them in stock market securities, bonds etc. Mutual
Government and others are the main borrowers. funds were virtually synonymous with the Unit Trust of
65. Call Money / Notice Money: Call/Notice money is India (UTI) till two decades ago when India witnessed
money borrowed or lent for a very short period. If financial sector liberalization and many more public
the period is more than one day and upto 14 days sector and private mutual funds came up, SEBI regulates
it is called ‘Notice money’ otherwise the amount is mutual funds.
known as ‘Call money’.
Venture Capital
66. Treasury Bills:
Venture capital is money provided by financial
zz Treasury bills are short-term money market institutions who invest alongside management in young,
instruments, which are issued by the RBI on rapidly growing companies that have the potential to
behalf of the GOI. The GOI uses these funds to develop into significant economic contributors. Venture
meet its short-term financial requirements of capital is an important source of equity for start-up
the government. T-Bills are sovereign zero risk companies.
instruments.
Qualified Institutional Placement
zz There are T-Bills of 14 days, 91 days, 182 days
The QIP Scheme is open to investments made by
and 364 days maturity. Minimum investment
Qualified Institutional Placement which includes public
required in case of T-Bills is Rs 25,000
financial institutions, mutual funds, foreign institutional
Inter Bank Term Money investors, venture capital funds and foreign venture
Inter bank market for deposits of maturity beyond capital funds registered with the SEBI) in any issue of
14 days and upto three months is referred to as the term equity shares / fully convertible debentures / partly
money market. convertible debentures or any securities which are
convertible into or exchangeable with equity shares at a
Certificates Of Deposit
later date (Securities).
After treasury bills, the next lowest risk category
investment option is the certificate of deposit (CD) Credit Default Swap
issued by scheduled commercial banks and FIs, Regional It is a form of insurance against debt default. When
rural banks and Local area banks can not issue CDs. an investor buys corporate (or government) bonds he/

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vkLFkk IAS INDIAN ECONOMY

she faces the risks of default on part of the issuing agent. ™™ Disadvantages of P-notes
The investor can insure its investment in such bonds zz Because of the anonymous nature of the
against default through a third party. The investor pays instrument, the investors could be beyond the
a premium to the party providing insurance. In the event reach of Indian regulators.
of default by the bond issuer, the insurer would step in
zz P-Notes are being used in money laundering
and pay the investor. A CDS is just that insurance, which
with wealthy Indians, like the promoters of
is bought by those who fear default.
companies, using it to bring back unaccounted
Participatory Notes funds and to manipulate their stock prices.
Investments through participatory notes (P-notes) ™™ Why SEBI is not in favour to ban P-Notes?
in the Indian capital market stood at Rs 79,088 crore in zz P-Notes are used globally in many markets.
August-end, registering the third consecutive month-
zz According to SEBI’s and government’s views,
on-month decline.
P-Notes are legitimate instruments that are
™™ What are Participatory Motes (P- Notes)? required for normal fi nancial transactions and
zz P-notes are issued by registered foreign are prevalent in all the larger markets.
portfolio investors (FPIs) to overseas investors zz In an attempt to ban, P-Notes in 2007 due to
who wish to be a part of the Indian stock market a surge in capital fl ows and excess liquidity,
without registering themselves directly after markets crashed immediately which recognised
going through a due diligence process. the importance of P-Notes in Indian economy.
™™ Who issues P- Notes and what is the process? Merchant Discount Rate (MDR)
zz Participatory notes are issued by brokers and All businesses with turnover worth Rs 50 crore or
FIIs registered with SEBI. The investment is above need to mandatorily provide certain electronic
made on behalf of these foreign investors by the payment modes facilities like RuPay debit cad, BHIM-
already registered brokers in India. UPI (Unifi ed Payments Interface), BHIM-UPI QR Code
zz For example, Indian-based brokerages and UPI QR code. People making payments via these
buy India-based securities and then issue electronic modes will not need to pay any charge
participatory notes to foreign investors. Any including MDR (Merchant Discount Rate) fee.
dividends or capital gains collected from the ™™ Merchant Discount Rate is a fee charged from a
underlying securities go back to the investors. merchant by a bank for accepting payments from
zz The brokers that issue these notes or trades in customers through credit and debit cards in their
Indian securities have to mandatorily report establishments.
their PN issuance status to SEBI for each quarter. ™™ MDR compensates the card issuing bank, the lender
These notes allow foreign high networth which puts the PoS terminal and payment gateways
individuals, hedge funds and other investors such as Mastercard or Visa for their services.
to put money in Indian markets without
™™ MDR charges are usually shared in pre-agreed
being registered with SEBI, thus making their
proportion between the bank and a merchant and
participation easy and smooth.
is expressed in percentage of transaction amount.
™™ Advantages of participatory notes
Core Investment Companies (CICs)
zz Anonymity: Any entity investing in
participatory notes is not required to register ™™ The Reserve Bank had constituted a working group
with SEBI, whereas all FIIs have to compulsorily to review the regulatory and supervisory framework
get registered. It enables large hedge funds to for core investment companies.
carry out their operations without disclosing ™™ The six-member working group was headed by
their identity. Tapan Ray, non-executive chairman, Central Bank
zz Ease of trading: Trading through participatory of India and former secretary, Ministry of Corporate
notes is easy because they are like contract notes Affairs.
transferable by endorsement and delivery. CICs:
zz Tax saving: Some of the entities route their ™™ CICs are non-banking financial companies with
investment through participatory notes to take asset size of Rs.100 crore and above which carry on
advantage of the tax laws of certain preferred the business of acquisition of shares and securities,
countries. subject to certain conditions.
zz P-Notes also aid in saving time and costs ™™ CICs, which are allowed to accept public funds,
associated with direct registrations. hold not less than 90% of their net assets in the

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form of investment in equity shares, preference credit-rating agency to rate its instrument. This is done
shares, bonds, debentures, debt or loans in group before issuing the instrument. The agency collects and
companies. studies information about the issuing company. Then
™™ Investments of CIC in the equity shares (including it gives a rating for the instrument. This rating is not
instruments compulsorily convertible into equity permanent. It is reviewed periodically.
shares within a period not exceeding 10 years from Moody’s cut India’s Rating from Stable to
the date of issue) in group companies constitutes Negative
not less than 60% of its net assets.
Ratings agency Moody’s has reacted predictably to
™™ Exemption: CICs having asset size of below Rs 100 the turbulence in the economy by revising the outlook
crore are exempted from registration and regulation on its sovereign rating for India from stable to negative.
from the RBI, except if they wish to make overseas ™™ Moody’s Investor Service changed its outlook
investments in the fi nancial sector. for India’s sovereign rating (Baa2) from stable
Credit Rating to negative, saying that the domestic economic
Credit rating is done for debt instruments such as downturn could be structural.
debentures, fixed deposits, commercial papers, bonds, etc. ™™ The agency’s action does not amount to a rating
The company which issues debt instruments is downgrade, but comes as a caution against policy
called an issuer or issuing company. The issuer, issues inaction. Moody’s credit rating of Baa2, the second-
these instruments to collect finance from the investors. lowest investment grade score, is better than those
of other agencies, such as S & P and Fitch, who have
The investor looks at the credit rating of the assigned the lowest investment grade to India with
instrument and the issuer before investing. If the credit a stable outlook.
rating is a high, investor will invest in the company. That
™™ However, the Union finance ministry said that
is, he will purchase the debentures, etc. issued by that
India’s potential growth rate remains unchanged,
company. If the credit rating is low, he will not purchase
as evident from the assessment by the International
the debentures, etc. of that company. So, credit rating
Monetary Fund (IMF) and other multilateral
guides the investor while investing.
organizations that continue to hold a positive
Credit rating is an opinion about a debt instrument outlook on India.
and its issuer. It tells the investor, whether the debt
™™ The government has undertaken a series of
instrument is safe or risky. That is, it tells whether the
financial sector and other reforms to strengthen the
company will be able to pay the interest and repay
economy as a whole. Government of India has also
the principal amount in time. Credit rating is only an
proactively taken policy decisions in response to the
opinion. It is not a recommendation. It does not ask an
global slowdown. These measures would lead to a
investor to buy, hold or sell an instrument.
positive outlook on India and would attract capital
So, credit rating is an opinion about the future flows and stimulate investments
ability and legal obligation of the issuer to make timely
™™ India has often criticized the methodology followed
payments of principal amount and interest on their
by rating agencies.
debt instruments. Credit rating is done by independent
credit-rating agencies like S & P, which is based in USA, ™™ India’s ratings were upgraded to Baa2 from Baa3 in
while CRISIL, CARE and ICRA Ltd., which are based in 2017 citing progress on ‘economic and institutional
India. Credit rating is done by experts after examining reforms’ by the Narendra Modi Government.
various factors. The rating is expressed in alphabetical ™™ Moody’s said India’s potential gross domestic
or alphanumeric symbols. For e.g. if the rating of product (GDP) growth and job creation will remain
debenture is AAA (Triple A), then it is considered to constrained unless reforms are advanced to directly
have the highest safety for the investor. However, if the reduce restrictions on the productivity of labour
credit rating is D, then the debenture is considered to be and land, stimulate private sector investment, and
very risky for the investor. The issuing company asks the sustainably strengthen the financial sector.

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vkLFkk IAS INDIAN ECONOMY

Public Finance ™™ Dividend Tax ™™ Endowment Tax

™™ Estate Tax ™™ Gift Tax

Tax System in India ™™ Flat Rate Tax or Flat Tax ™™ Fuel Tax

This paper seeks to provide a bird eye’s view of the ™™ Inheritance Tax ™™ Transfer Tax

taxation structure in India. The topics broadly covered ™™ Payroll Tax ™™ Poll Tax

here are Direct Taxes (Income Taxes) and Indirect taxes ™™ S. E. T. or Self Employment ™™ Social Security Tax
Tax
(At Central Government level and State Government
level). The other level of classification can be based on ™™ Usage Tax ™™ Value Added Tax or Sales Tax

who levies the taxes. It is an overview and not supposed ™™ Wealth Tax

to be a comprehensive in-depth analysis of different Direct Taxes

taxes.
They are called so as the burden of taxation falls
Central Government levies taxes on the following: directly on the tax payer.
™™ Income Tax: Tax on income of a person Direct Taxes
™™ Customs duties: Duties on import and export of ™™ Banking Cash Transaction Tax ™™ Capital Gains Tax
goods ™™ Corporate Income Tax ™™ Fringe Benefit Tax
™™ Central excise: Taxes on Manufacturing of dutiable ™™ Personal Income Tax ™™ Securities Transaction Tax
goods ™™ Indirect Taxes ™™ Customs Duty
™™ Service tax: Taxes on provision of services ™™ Excise Duty ™™ Service Tax

State Governments can levy the following taxes: ™™ Merged in GST

™™ Value Added Tax (VAT): This is tax on sale of Under the Income Tax Act, 1961 The Central
goods. While intra-state sale of goods are covered Government levies direct taxes on the income of
by the VAT Law of that state, inter-state sale of individuals and business entities as well as Non
goods is covered by the Central Sales Tax Act. Even business entities also. The taxation level depends on
the revenue collected under Central Sales Tax Act is the residential status of individuals. The thumb rule of
done so by the State Governments themselves and residential status is that an individual becomes resident
actually the Central Government has no role to play in India if he has remained in India for more than 182
so. days in a particular residential year. If he becomes
™™ Stamp duties and Land Revenue: Since land is a resident in India, then his global income i.e. income
matter on which only State Governments can govern, earned even outside India is taxable in India. This has
thus the Stamp duties on transfer of immovable to be noted very carefully by Expatriates on deputation
properties are levied by State Governments. to India. They need to plan their stay in such a manner
as to avoid becoming a resident in India. The following
™™ State Excise on Liquor and certain agricultural
para explains this in a slightly more detailed manner:
goods.
Apart from the above, certain powers of taxation
Tax Resident
have been devolved in the hands of local bodies. These An individual is treated as resident in a year if
local governing bodies can levy taxes on water, property, present in India:
shop and establishment charges etc. 1. For 182 days during the year or
Taxes Levied in India 2. For 60 days during the year and 365 days during the
Taxes Levied by the Central Government of India preceding four years.

The Central Indian Government that is officially So an expatriate has to time his stay in India by
named as the "Union Government" is responsible for taking into account the above.
the imposition of both direct taxes as well indirect taxes. A resident who was not present in India for 730
Listed below are some of the taxes that are levied by the days during the preceding seven years or who was
India Government: nonresident in nine out of ten preceding years is treated
as not ordinarily resident. A person not ordinarily
Taxes Imposed by the State Governments
resident is taxed like a non-resident but is also liable to
Though the majority of the taxes are levied by the tax on income accruing abroad if it is from a business
Central Government of the country, there are some controlled in or a profession set up in India.
taxes, which can not be levied by them. These kinds
of taxes are the one of the sole responsibilities of the What is taxable for a Non-Resident?
governments of the individual states. To name a few of Non-residents are taxed only on income that is
such taxes in India are: received in India or arises or is deemed to arise in

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India. He is entitled to get benefit of any double taxation In case of ESOP the employee will have to pay tax
avoidance agreement that his country of residence on the difference between the Fair Market Value (FMV)
has signed with India. Then he shall be liable for taxes of the shares on the date of exercise and the price paid
at rates mentioned in the Indian domestic tax laws or by him/her.
the rates mentioned in the Double Taxation Avoidance Direct Tax Code
Agreement whichever is lower.
Recently, the draft legislation of the new Direct Tax
Minimum Alternative Tax (MAT) Code (DTC) was submitted by the task force, headed by
Normally, a company is liable to pay tax on the Akhilesh Ranjan, to the Government of India. More on
income computed in accordance with the provisions of the news
the income tax Act, but many a times due to exemptions ™™ The Direct Tax Code (DTC) is an attempt by the
under the income tax Act, there is huge actual profit as Government of India to simplify the direct tax laws
shown in the profit and loss account of the company but
in India.
no taxable income. To overcome this issue, and in order
to bring such companies under the income tax act net, ™™ It will revise, consolidate and simplify the structure
the concept of Minimum Alternate Tax (MAT) has been of direct tax laws in India into a single legislation. o
introduced. The present rate of MAT is 15%. When implemented, it will replace the Income-tax
Act, 1961 (ITA), and other direct tax legislations like
Another aspect which must be looked into is
the Wealth Tax Act, 1957. Trends of Direct tax
the concept of Witholding Taxes; also called as Tax
Deduction at Source (TDS). ™™ There has been a growth of more than 80% in the
number of returns filed in the last four financial
Capital Gains Tax:
years and direct tax-GDP ratio rose to 5.98% in FY
Capital Gain tax as name suggests it is tax on gain 2017-18, the highest it has been in the last 10 years.
in capital. If you sale property, shares, bonds & precious
material etc. and earn profit on it within predefined ™™ Further, the number of persons filing income tax
time frame you are supposed to pay capital gain tax. returns also increased by about 65% during period
The capital gain is the difference between the money from 2014-2018.
received from selling the asset and the price paid for it. ™™ Moreover, Direct Tax-GDP ratio rose to 5.98% in FY
Capital gain tax is categorized into short-term gains 2017-18, which is highest in the last 10 years. This
and long-term gains. The Long-term Capital Gains Tax shows a sign of improvement of Tax-Buoyancy in
is charged if the capital assets are kept for more than the economy.
certain period 1 year in case of share and 2 years in case of Indirect Taxes:
property. Short-term Capital Gains Tax is applicable if these In India, indirect taxes is a vast ocean as there are
assets are held for less than the above-mentioned period. number of taxes to be paid on manufacture, import,
Rate at which this tax is applied varies based on sale and even purchase in certain cases. Further the
investment class. law is governed less by the Acts and more by day to
Securities Transaction Tax: day notifications, circulars and orders by the Governing
bodies. So an explicit understanding is very much
A lot of people do not declare their profit and avoid
essential. A simplistic way to understand Indirect taxes
paying capital gain tax, as government can only tax
is as follows:
those profits, which have been declared by people. To
fight with this situation Government has introduced Sales Tax:
STT (Securities Transaction Tax) which is applicable on Sales tax charged on the sales of movable goods. Sale
every transaction done at stock exchange. That means tax on Inter State sale is charged by Union Government,
if you buy or sell equity shares, derivative instruments, while sales tax on intra-State sale (sale within State)
equity oriented Mutual Funds this tax is applicable. (now termed as VAT) is charged by State Government.
This tax is added to the price of security during the Sales can be broadly classified in three categories.
transaction itself, hence you cannot avoid (save) it. As (a) Inter-State Sale (b) Sale during import/export (c)
this tax amount is very low people do not notice it much. Intra-State (i.e. within the State) sale. State Government
Perquisite Tax: can impose sales tax only on sale within the State.
Earlier to Perquisite Tax we had tax called FBT CST is payable on inter-State sales is @ 2%, if C form
(Fringe Benefit Tax) which was abolished in 2009, this is obtained. Even if CST is charged by Union Government,
tax is on benefit given by employer to employee. E.g If the revenue goes to State Government. State from which
your company provides you non-monetary benefits movement of goods commences gets revenue. CST Act is
like car with driver, club membership, ESOP etc. All this administered by State Government. This tax is merged
benefit is taxable under perquisite Tax. in GST.

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Service Tax: This tax is paid by every employee working in

Most of the paid services you take you have to pay Private organizations. The tax is deducted by the
service tax on those services. This tax is called service Employer every month and remitted to the Municipal
tax. Over the past few years, service tax been expanded Corporation and it is mandatory like income tax.
to cover new services. Now this tax is merged in GST. The rate on which this tax is applicable is not same
Value Added Tax: in all states.
Dividend distribution Tax:
The Sales Tax is the most important source of
revenue of the state governments; every state has their Budget 2020 abolished the Dividend Distribution
respective Sales Tax Act. The tax rates are also different Tax (DDT).
for respective states. ™™ Budget 2020 has proposed to make dividend income
Tax imposed by Central government on sale of from shares and mutual funds taxable in the hands
goods is called as Sales tax same is called as Value added of recipients at the applicable income tax slab rates
tax by state government.VAT is additional to the price of to the individual.
goods and passed on to us as buyer (end user). Around ™™ Called the Dividend Distribution Tax (DDT), it
220+ Items are covered with VAT.VAT rates vary based was hitherto levied on dividend income before
on nature of item and state. distribution by the company or mutual fund house.
VAT, service tax and sales tax merged in Goods ™™ Dividend distribution tax is the tax imposed by the
service tax (GST). Indian Government on Indian companies according
to the dividend paid to a company’s investors.
Custom duty & Octroi (On Goods):
™™ Dividend is the return given by a company to its
Custom Duty is a type of indirect tax charged on
shareholders out of profi ts earned by the company
goods imported into India. One has to pay this duty, on
in a particular year.
goods that are imported from a foreign country into
India. This duty is often payable at the port of entry (like ™™ Dividend constitutes income in the hands of the
the airport). This duty rate varies based on nature of shareholders which ideally should be subject to
items. income tax. However, the income tax laws in India
provide for an exemption of the dividend income
Octroi is tax applicable on goods entering in
received from Indian companies by the investors by
to municipality or any other jurisdiction for use, levying DDT on the company paying the dividend.
consumption or sale. In simple terms one can call it as
™™ Previously, in addition to corporate tax, companies
Entry Tax.
had to pay DDT at the time of distributing profi ts to
Excise Duty: its shareholders.
An excise or excise duty is a type of tax charged on Section 115 BBD of tha act proviides for a
goods produced within the country. This is opposite to concessional rate of tax of 15% on the dividend income
custom duty which is charged on bringing goods from received by and Indian company from a foreign company
outside of country. Another name of this tax is CENVAT in which the said Indain company holds 26% or more in
(Central Value Added Tax). nominal value of equity shares.
If you are producer / manufacturer of goods or you Municipal Tax:
hire labour to manufacture goods you are liable to pay Municipal Corporation in every city imposed tax in
excise duty. terms of property tax. Owner of every property has to
Anti Dumping Duty: pay this tax. This tax rate varies in every city.
Dumping is said to occur when the goods are Entertainment Tax:
exported by a country to another country at a price lower Tax is also applicable on Entertainment; this tax
than its normal value. This is an unfair trade practice is imposed by state government on every financial
which can have a distortive effect on international trade. transaction that is related to entertainment such as
In order to rectify this situation Central Govt. imposes an movie tickets, major commercial shows exhibition,
anti dumping duty not exceeding the margin of dumping broadcasting service, DTH service and cable service.
in relation to such goods.
Stamp Duty, Registration Fees, Transfer Tax:
Other Taxes:- If you decide to purchase property than in addition
Professional Tax: to cost paid to seller. You must consider additional cost
If you are earning professional you need to pay to transfer that property on your name.
professional tax. Professional tax is imposed by That cost include registration fees, stamp duty
respective Municipal Corporations. Most of the States in and transfer tax. This is required for preparing legal
India charge this tax. document of property.

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In simple sense this tax is imposed on the handing Swachh Bharat Cess:
over of the title of property ownership by one person to Swacch Bharat Cess is recently being imposed by the
another. It incorporates a legal transaction fee & stamp government of India. This tax is applicable on all taxable
duty. This amount varies from property to property
services from 15th Novemeber, 2015. The effective rate
based on cost.
of Swachh Bharat Cess is 0.5%. After this tax we need to
Education Cess, Surcharge: pay 14.5% service tax.
Education cess is deducted and used for Education Krishi Kalyan Cess:
of poor people in INDIA. All taxes in India are subject to
an education cess, which is 3% of the total tax payable. In budget 2016 finance minister has introduced new
The education cess is mainly applicable on Income tax, tax namely KrishiKalyanCess. This cess is introduced in
excise duty and service tax. order to extend welfare to the farmers. The effective rate
Surcharge is an extra tax or fees that added to of KrishiKalyanCess is 0.5%. This tax will be imposed
your existing tax calculation. This tax is applied on tax on all taxable services. KrishiKalyanCess would come
amount. in force with effect from June, 1, 2016. Once this cess is
applied we need to pay service tax @ 15%.
Gift Tax:
If you receive gift from someone it is clubbed with Dividend Tax:
your income and you need to pay tax on it. This tax is In budget 2016 finance minister has introduced
called as gift tax. a new tax on the dividend amount. It is proposed that
This tax is applicable if gift amount or value is more 10% additional tax will be imposed on dividend income
than 50000 Rs/- in a year. above 10 Lac from 1st April 2016 onwards.
Wealth Tax: Infrastructure Cess:
Wealth tax is a direct tax, which is charged on the New Infrastructure cess on car and utility vehicle
net wealth of the assessee. Wealth tax is chargeable in imposed recently in budget 2016. 1% infrastructure
respect of Net wealth corresponding to Valuation date. cess is applicable on petrol/LPG/CNG-driven motor
Net wealth means all assets less loans taken to acquire vehicles of length not exceeding 4 meters and engine
those assets. Wealth tax is 1% on net wealth exceeding capacity not exceeding 1200cc. 2.5% cess on diesel
30 Lakhs (Rs 3,000,000). So if you have more money, motor vehicles of length not exceeding 4 meters and
assets you are liable to pay tax. engine capacity not exceeding 1500cc and 4% cess is
Note:- Wealth tax is abolished by government in budget 2015.Now applicable on big sedans and SUVs.
onwards surcharge of 12% is applicable on individual earning 1 crore
and above. Entry Tax:
Toll Tax: This entry tax is imposed by Gujarat, Madhya
At some of places you need to pay tax in order to use Pradesh, Assam, Delhi and Uttarakhand state
infrastructure (road, bridge etc.) build from your money government recently. The tax rate is variable 5.5-10%
given to government as Tax. This tax is called as toll tax. depending upon the state. All items entering in the state
This tax amount is very small amount but, to be paid for boundaries ordered via E-commerce are under this tax
maintenance work and good up keeping. boundary.

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4. GST in India was implemented on July 1, 2017

GST (Goods and Services Tax)
5. The first state which implemented the GST was
Goods and Services Tax (GST) is an indirect tax Assam.
which has been implemented in India on 1 July 2017. 6. Amitabh Bachchan has been made the brand
The main objective behind the implementation of this ambassador of GST.
tax is to make a uniform tax system in the country. Due to
7. GST has been implemented under Article 279 of the
the implementation of the GST, incidence of tax evasion
Indian constitution.
will come down in the country. So GST will increase the
total tax collection of the government. In this article, we 8. GST Council was formed by the President of India in
are giving 20 key facts related to the goods and services September 2016.
tax (GST). 9. At present Finance Minister Arun Jaitley is the
With 66.79 lakh new dealers registered under the Chairman of the GST Council.
Goods and Service Tax, GST Network has decided to 10. At present GST Council has 31 members.
make Aadhaar authentication or physical verification
11. GST has been implemented by the 101st Constitution
mandatory for new dealers from January 1, 2020, to
Amendment Act, 2016.
check malpractices.
12. The GST was the 122nd constitutional amendment
About GST bill to be introduced in the Parliament of India.
™™ GST is a destination-based indirect tax and is levied
13. The President of India approved GST bill on 8th
at the final consumption point.
September 2016.
™™ Under GST, a gamut of 17 indirect taxes like excise
14. During passing of GST bill in parliament; 336 votes
duty, VAT, service tax, luxury tax etc are subsumed. o
casted in the favour of GST bill and 11 votes were
Taxes NOT subsumed under GST: Basic Custom Duty,
against it.
Anti-Dumping Duty, Central Excise on Petroleum
Products, VAT on alcohol for human consumption, 15. There is a provision of 5 years imprisonment for
Stamp Duty, Property Tax (levied by local bodies), those who do not pay GST.
Professional Tax etc. 16. There are 5 rates of taxes in GST i.e. 0%, 5%, 12%,
™™ GST is currently levied on every product [except 18% and 28%.
petroleum products, alcohol, real estate & 17. GST is an indirect tax in more broader terms it can
electricity] in four slabs of 5, 12, 18 and 28%. be said a federal tax.
™™ Most of the daily use articles have zero GST as per 18. After the implementation of GST, sales tax, service
the latest revision of the tax rates last year. tax, customs duty, excise duty, VAT, Octroi tax etc.
™™ In addition, a cess is levied on automobiles, luxury, will not exist.
and demerit and sin goods. 19. The biggest reason behind the implementation of
™™ It was launched on 1st July, 2017 in a special session the GST is to bring uniformity in the tax system of
of Parliament. the country.
™™ GST collection rose 6% to cross Rs 1 lakh crore 20. After the implementation of GST, tradition of 'Tax
mark in November upon Tax' will be eliminated.
™™ Centre has written to all States voicing concern
that due to the lower Goods and Services Tax (GST)
collections, the compensation cess might not be
enough to pay for losses arising out of the new tax
system.
zz Compensation cess is levied on luxury and sin
goods, and the proceeds are used to compensate
states for any loss they incur within the first five
years of GST implementation.
1. The Goods and Services Tax (GST) was first
implemented in France.
2. India's GST is based on the Canadian model.
3. GST in India was made on the recommendation of
Vijay Kelkar Committee.

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Goods & Services Tax Appellate Tribunal What is GST?

The Union Cabinet has approved the creation of GST is an Indirect Tax which has replaced many Indirect Taxes in India.
National Bench of the Goods and Services Tax Appellate The Act came into effect on 1st July 2017; Goods & Services Tax Law
in India is a comprehensive, multi-stage, destination-based tax that is
Tribunal (GSTAT).
levied on every value addition.
™™ Goods and Services Tax Appellate Tribunal What is GST Council?
zz GSTAT would serve as the forum of second Goods & Services Tax Council is a constitutional body for making
appeals to do with the applicability of GST, and recommendations to the Union and State Government on issues
will also be the first common forum of dispute related to Goods and Service Tax. The GST Council is chaired by the
Union Finance Minister and other members are the Union State
resolution between the Centre and the States. Minister of Revenue or Finance and Ministers in-charge of Finance or
zz It will be situated in New Delhi. Taxation of all the States.

™™ Composition What is Appellate Authority for Advance Rulings (AAAR)?

™™ Any advance tax ruling is a written interpretation of tax laws. It
zz The tribunal has been established under is issued by tax authorities to corporations and individuals who
Chapter XVIII of the CGST Act which provides request for clarifi cation of certain tax matters. An advance ruling
for the Appeal and Review Mechanism for is often requested when the taxpayer is confused and uncertain
dispute resolution under the GST Regime. about certain provisions. Advance tax ruling is applied for, before
starting the proposed activity.
zz Section 109 under CGST Act empowers the ™™ The applicant or the offi cer aggrieved by any advance ruling can
Central Government to constitute, on the appeal to the Appellate Authority. Appeal against advance ruling
recommendation of Council, an Appellate must be made within 30 days (extendable by 30 days) from the
date of the advance ruling.
Tribunal known as the Goods and Services Tax
Appellate Tribunal for hearing appeals against GST COUNCIL
the orders passed by the Appellate Authority or
the Revisional Authority. 1 A joint forum of the Center and state

zz It will be presided over by its president. It will Will function under the chairmanship of Union Finance
consist of a technical member from the Centre 2 Minister and will have ministers nominated by states and
UTs as members
and a representative of the States.
The council will act as a benchmark and will guide the
BENEFITS OF GST TO INDIA 3 states and union on issues like tax rates, exemption lists,
threshold limits etc
NO DOUBLE TAXATION

1 Double taxation means levy of tax more than once on a

single transaction In the previous tax regime, there was 4
The central government shall have a weightage of 1/3rd of
the total votes cast
double taxation on many goods and services
5
The votes of all state governments taken together shall
NO CASCADING EFFECT have a weightage of 2/3rd of the total votes cast
2 Cascading effect means tax on tax. Due to cascading
E-Way Bill
effect, defect of taxation system has been removed in GST.
REDUCTION IN CORRUPTION ™™ The government’s decision to make some changes
to the E-way bill system effective November 16,
3 Due to introduction of GST, everything is available on GST
portal and there are no manual dealings with Government 2018, has not gone down well with transporters.
employees.
™™ Transporters have complained that they have
NO NEED OF BIFURCATION B/W GOODS & SERVICES
not been communicated properly regarding the
4 In GST regime, there is no need of bifurcation between
changes made by the National Informatics Centre,
goods and services.
EASY COMPLIANCE which handles the e-way bill project.
5 Now, even a small businessman without the help of It is a document required to be carried by a person
consultant can file the GST returns easily. in charge of the conveyance carrying any consignment
Significance of goods of value exceeding fifty thousand rupees as
™™ The national bench of the GST Appellate Tribunal mandated by the Government in terms of Section 68 of
will expedite resolution of disputes under GST laws. the Goods and Services Tax Act.
Being a common forum, GST Appellate Tribunal ™™ It is generated from the GST Common Portal
(national bench) will ensure that there is uniformity for e-Way bill system by the registered persons
in redressal of disputes arising under GST. or transporters who cause movement of goods
™™ The appellate authority is being seen crucial as of consignment before commencement of such
a forum for higher appeal for disputes under the movement.
indirect tax regime and will also help in resolving ™™ E-way bills are required:
the confusion created by contradictory rulings given
by Appellate Authority for Advance Rulings (AAAR) zz To comply with Section 68 of the GST Act, and;
on the same or similar issues in different states. zz rule 138 of CGST Rules, 2017

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™™ Who can generate e-way bill? JAM Trinity

zz The consignor or consignee, as a registered DBT by leveraging the JAM (Jan Dhan, Aadhaar and
person or a transporter of the goods can Mobiles) trinity and the technological prowess offers to
generate the e-way bill. drastically improve the benefit delivery system in the
zz The unregistered transporter can enroll on the country. The JAM Trinity will enable this novel system
common portal and generate the e-way bill for to transfer benefits in a leakage-proof, well targeted,
movement of goods for his clients. cashless and timely manner.

zz Any person can also enroll and generate the Programs part of DBT
e-way bill for movement of goods for his/her ™™ National Child Labour Project
own use. ™™ Student Scholarship
™™ Whether the e-way bill is required for all the ™™ LPG subsidy
goods that are being transported?
On 1 June 2013, the minister of Petroleum &
zz The e-way bill is required to transport all the Natural Gas, M Veerappa Moily formally launched the
goods except exempted under the notifi cations scheme direct benefit transfer for LPG (DBTL) Scheme
or rules. Movement of handicraft goods or in 20 high Aadhaar coverage districts. The subsidy on
goods for job-work purposes under specified LPG cylinders will be credited directly to consumers'
circumstances also requires e-way bill even Aadhaar-linked bank accounts. All Aadhaar-linked
if the value of consignment is less than fifty domestic LPG consumers will get an advance in their
thousand rupees. bank account as soon as they book the first subsidized
™™ National Informatics Centre has categorised cylinder before delivery. On receiving the first subsidized
e-way bills into four types: cylinder subsidy for next will again get credited in
their bank account, which can then be available for the
zz Regular as mentioned above
purchase of the next cylinder at market rate until the cap
zz Bill to /Ship to: Sometimes, the tax payer of 12 cylinders per year is reached.
raises the bill to somebody and sends the
Modified Version of DBTL Scheme : (November
consignment to somebody else as per the
2014) Government of India Introduced Modified
business requirements. There is a provision
Direct Benefit Transfer of LPG (DBTL) scheme in 54
in the e-way bill system to handle this
districts in 11 states including all in Kerala starting 15
situation, called as ‘Bill to’ and ‘Ship to’.
November 2014 whereby LPG consumers who have not
zz Bill from and Dispatch from: Sometimes, the yet availed the benefit will be able to get cash subsidy
supplier prepares the bill from his business amount transferred into their accounts to buy Liquefied
premises to consignee, but moves the Petroleum Gas (LPG) cylinders at market price.
consignment from some others’ premises to the
The central DBT scheme covers as many as 439
consignee as per the business requirements.
schemes run by 56 ministries and departments and over
This is known as ‘Billing From’ and ‘Dispatching
Rs 2.25 lakh crore has been paid out in the country in
From’.
the present financial year.
zz Combination of both (2) and (3) mentioned
Pension Schemes of India
above.
Earlier, in 2004, the Old Pension Scheme (OPS) was
Direct Benefit Transfer discontinued and the National Pension Scheme was
Direct Benefit Transfer or DBT is an attempt introduced for the government employees which was a
to change the mechanism of transferring subsidies big shift for them. This is because, OPS offered a fixed
launched by Government of India on 1 January 2013. lifetime pension whereas NPS was a market-linked
This program aims to transfer subsidies directly to the scheme where there was no guarantee of returns.
people through their bank accounts. It is hoped that
And while these debates were still on, the centre
crediting subsidies into bank accounts will reduce
has announced a Unified Pension Scheme (UPS) trying
leakages, delays, etc.
to bring together the best of both OPS and NPS
The success of an ambitious and a highly desirable
What changes with the UPS?
initiative like DBT depends on a set of a few critical
factors. For a heterogeneous and a large country like ™™ Assured pension amount: 50% of the averages
India, it becomes imperative that these critical success basic pay over the last 12 months before retirement
factors are ensured to achieve smooth rollout of a for those with at least 25 years of service.
programme like DBT. The key success factors or enablers ™™ Government contribution: 18.5% of basic pay +
for an efficacious Implementation of DBT would include: DA (14% in NPS)

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™™ Employee contribution: 10% of basic pay + DA (same as NPS)

™™ Assured minimum pension: ₹10,000 per month for employees with at least 10 years of service.
™™ Family pension: 60% of the pension amount is provided to the family in case of the retiree’s death.
How does this compare to other pension schemes?
Old Pension Scheme (OPS) National Pension Scheme (NPS) Unified Pension Scheme (UPS)
Guaranteed pension Yes No Yes
Pension amount 50% of last drawn basic pay + DA Market-linked, depends on fund 50% of average basic pay over the last
performance 12 months
Government contribution Not applicable 14% of basic pay + DA 18.5% of basic pay + DA
Employee contribution Not applicable 10% of basic pay + DA 10% of basic pay + DA
Inflation protection Yes No Yes
Lump sum payment No No 1/10th of the monthly pay (basic +
DA) for every 6 months of service
completed
Minimum pension* ₹9,000 No ₹10,000

OPS vs NPS vs UPS

Features Old Pension Scheme (OPS) National Pension System (NPS) Unified Pension System (UPS)
Pension Amount 50% of last drawn salary. Market-linked pension. No defined Guaranteed pension of 50% of the average
pension, with the value depending upon basic pay from the last 12 months before
the performance of the invesment fund retirement.
Inflation Indexation Adjusted for inflation Not applicable, the pension is market Indexed for Inflation based on the All India
through Dearness Allowance linked. Consumer Price Index for Industrial Workers
(DA). (AICPI-IW)
Employee No contribution from Defined contribution of 10% of basic pay Defined contribution of 10% of basic pay and
Contribution employee. and dearness allowance (DA). dearness allowance (DA).
Government Full Funding Defined contribution of 14% of the Defined contribution of 18.5% of the
Contribution employee's basic pay and dearness employee's basic pay and dearness
allowance. allowance.
Family Pension Yes. Continues after retirees Corpus Dependent Yes. It is 60% of employee's pension.
death.
Risk No market risk Market risk Lower risk than NPS

and NPS (replacing OPS from 01 January 2004)

for new entrants.
zz Armed forces personnel are an exception to
NPS and are still covered by OPS:
zz Employee Pension Scheme (EPS) for employees
in the organized sector by Employees' Provident
Fund Organisation (EPFO).
zz Government Pension Schemes such as Atal
Pension Yojana, Pradhan Mantri Vaya Vandana
Yojana (PMVVY), Indira Gandhi National Old
Age Pension Scheme (IGNOAPS) etc.
zz Pension Plans from Organizations such as LIC’s
Saral Pension etc.
™™ Reasons behind NPS Introduction: It was introduced
in 2004 based on the report of OASIS (Old Age Social
and Income Security) Project due to
zz Increasing pension liability of the government
India’s Pension System with no specific growing corpus for payments.
™™ The Indian Pension System is highly complex and zz Unsustainable nature of OPS as pension
fragmented with a wide variety of options. E.g. liabilities kept climbing with increasing life
zz Public Pensions such as OPS for civil servants expectancy due to better health facilities.

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vkLFkk IAS INDIAN ECONOMY

commission recommended for making a ‘Performance

Union Budget : Concept and types Budget’ in the USA. In the Performance Budget, it is the
In simple words, the budget is an estimate of income compulsion of the government to tell that 'what is done',
and expenditure for a definite duration. In economics, 'how much done' by it for the betterment of the people.
budget is a systematic list of revenue and expenditure or In India, the Performance Budget is also known as the
we can say it's a plan for income and expenditure. ‘Outcome Budget’.

The word ‘budget’ has been borrowed from the 3. Zero Based Budget: There are two primary
English word "Bowgette" which traces its origin from the reasons for adopting this type of Budget in India.
French word “Bougette”. Word “Bougette” has arrived (i) The continuous revenue deficit in the budget of the
from the word, ‘Bouge’ which means a leather bag. country.
Why the Government works out a budget every (ii) Poor implementation of the Performance Budget.
year? In the zero-based budget, neither expenses incurred
The Government performs two important functions during the previous financial years are not considered
by making a budget every year- nor the expenditure of the last financial year used for
1. The Government estimates the expected the coming years.
expenditures for developmental works in different Under Zero-based budgets, every activity is decided
sectors of the economy e.g. Industry, Manufacturing, based on Zero basis i.e. the previous expenditures are
Education, Health, Transport, etc. not considered. This budget is also known as ‘Sun Set
2. To meet the expenditures for the coming financial Budget’ which means the finance department has to
year, the Government tries to work out the sources present the zero-based budget before the end of the
of revenue. ( i.e. by imposing new taxes or increasing financial year.
or decreasing the previous rates of taxes, or to Peter Pyre is known as the father of ‘Zero Based
remove or impose subsidy on any commodity. Budgeting’ who presented this sort of budget in 1970.
This system of budgeting was first used in the Georgia
In other words, the Governments decide about
State of USA by its Governor Jimmy Carter. Later in 1979,
the expenditure to be incurred on which commodities
The National Budget of America adopted this strategy.
primarily and how the money is going to be arranged
for these expenditures? The details of such income and In India, the Zero Based Budgeting was introduced
expenditures statements are known as ‘Budget’. Each by the mainstream Research organization, Council
budget is made for a specified duration. of Scientific and Industrial Research and the Central
Government adopted the same in 1987-88.
Types of Budget
Outcome Budget: In India, development-related
1. Traditional or General Budget: The initial schemes such as MGNREGA, NRHM, Mid Day Meal,
structure of the present-day general budget is known PMGSY, Digital India, Prime Minister Skill Development
as the Traditional Budget. The main aim of the General Council, etc. are started every year. The large sum of
Budget is to set up financial control over the Executive money is spent on these schemes every year. However,
and the Legislative. This budget contains the details of at present, the government doesn’t have any parameters
income and expenditure of the Government. to measure the results of these schemes.
This budget contains the details of the expenditure Sometimes, the delay in implementation of the
in different sectors done by the Government. However, schemes causes an increase in the cost of these schemes.
the result of this expenditure is not explained in this Therefore, in order to reduce this cost, the Government
budget. Thus the main idea behind the traditional budget of India introduced the Outcome Budget in 2005.
that is to solve the problems of independent India and to Outcome Budget acts as a pathfinder for all the
achieve the developmental targets was defeated. Ministries and Departments which helps in improving
As a result, the need and importance of drafting a Services, the performance of the programmes.
‘Performance Budget was accepted and it was presented Gender Budget: If a budget describes the schemes
as a complimentary budget to the earlier Traditional and plans for the welfare of children and females, it is
budget. known as Gender Budget. Through Gender Budget, the
2. Performance Budget: When the outcome of Government declares an amount to be spent over the
any activity is taken as the base of any budget, such a development, Welfare, Empowerment schemes and
budget is known as ‘Performance Budget’. For the first programmes for Females.
time in the world, the performance budget was made So it can be concluded that the government has
in the USA. An Administrative Reforms Commission made all the necessary steps to utilised every penny of
was set up in 1949 in America under Sir Hooper. This the taxpayers.

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vkLFkk IAS INDIAN ECONOMY

Deficit Financing in India or the gap between the expenditures and income, the
™™ Deficit financing is defined as “borrowings from the government may cut back on certain expenditures and
Reserve Bank of India against the issue of Treasury also increase revenue-generating activities.
Bills and running down of accumulated cash Types of Government Deficit
balances”.
Revenue Deficit
™™ When the government borrows from the Reserve
The shortfall between the total revenue received to
Bank of India, it merely transfers its securities to
the total revenue expenditure is revenue deficit.
the Bank. On the basis of these securities the bank
issues more currency and puts them into circulation Revenue deficit = Total revenue expenditure – Total
on behalf of the government. This amounts to the revenue receipts
creation of money. This deficit only includes current income and
™™ Rationale for Deficit Financing: sometimes the current expenses. A high value of deficit indicates that
government fails to mobilise adequate resources. the government should cut down on its expenditures.
In this situation, the option of deficit financing is The government may increase its revenue receipts by
required to meet fiscal deficit targets. If the option increasing tax income. Disinvestment which means
of deficit financing is not utilized the government selling off assets is another remedial measure to reduce
ends up compromising on growth targets. revenue deficit.

FRBM Act Fiscal Deficit

™™ The Fiscal Responsibility and Budget Management A fiscal deficit is a gap by which government’s total
Act, 2003 (FRBMA) is an Act of the Parliament of expenditures exceed the government’s total generated
India to institutionalize financial discipline, reduce revenue. This, however, does not include the government
India’s fiscal deficit, improve macroeconomic borrowings.
management and the overall management of the Fiscal deficit = Total expenditure – Total receipts
public funds by moving towards a balanced budget. excluding borrowings
Major Provisions of the FRBM Act, 2003 Fiscal deficit indicates the amount of money that
™™ The FRBM rule set a target reduction of fiscal deficit the government will need to borrow during the financial
to 3% of the GDP by 2008-09. This will be realized year. A greater deficit implies more borrowing by the
with an annual reduction target of 0.3% of GDP per government and the extent of the deficit indicates the
year by the Central government. amount of expense for which the money is borrowed.
™™ Revenue deficit has to be reduced by 0.5% of the A huge disadvantage or implication of fiscal deficit is
GDP per year with complete elimination by 2008- it may lead to a debt trap. Also, it may lead to unnecessary
09. and wasteful expenditure by the government. Increased
fiscal deficit leads to uncontrolled inflation. Borrowing
™™ Amendments to FRBM Act: Fiscal Responsibility
is one way to reduce fiscal deficit. Another way is deficit
and Budget Management Act, 2003 was amended in
financing.
2012 that mandated the Central Government to lay
before the Houses of Parliament, Macro-Economic Deficit financing refers to the printing of new notes
Framework Statement, Medium Term Fiscal Policy to increase cash flow in the system. The fiscal deficit is a
Statement and Fiscal Policy Strategy Statement positive outcome if it leads to the creation of assets. It is
along with the Annual Financial Statement and detrimental to the economic condition of the nation if it
Demands for Grants. is used to simply cover revenue deficit.
™™ NK Singh committee, that was set up in 2016 to Primary Deficit
review the FRBM Act, recommended that the A primary deficit is the amount of money that the
government must target a fiscal deficit of 3% of the government needs to borrow apart from the interest
GDP in the years up to March 31, 2020, subsequently payments on the previously borrowed loans.
cut it to 2.8% in 2020-21 and to 2.5% by 2023.
Primary deficit = Fiscal deficit – Interest payments
Different Budgetary Deficits on previous loans
A deficit is an amount by which the expenditures Measures to Reduce Government Deficit
in a budget exceed the income. A Government Deficit
is the amount of money in the set budget by which ™™ Increased emphasis on tax-based revenues and
the government expenditure exceeds the government appropriate measures to reduce tax evasion.
income amount. This deficit provides an indication of ™™ Disinvestment should be done where assets are not
the financial health of the economy. To reduce the deficit being used effectively

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vkLFkk IAS INDIAN ECONOMY

™™ Reduction in subsidies by the government will also Description: This fund was constituted under
help reduce the deficit. Article 266 (1) of the Constitution of India. All revenues
™™ Try and avoid unplanned expenditures. received by the government by way of direct taxes and
indirect taxes, money borrowed and receipts from loans
™™ Borrowing from domestic sources.
given by the government flow into the Consolidated
™™ Borrowing from external sources.
Fund of India.
™™ A broadened tax base may also help in reducing the
All government expenditure is made from this
government deficit.
fund, except exceptional items which are met from the
To summarize, a government deficit is a condition Contingency Fund or the Public Account. Importantly,
where the budget expenditure exceeds the budget no money can be withdrawn from this fund without the
revenue receipts. This could be due to a sudden shift Parliament's approval
in budget requirements. A controlled deficit situation
causes an economy to grow. Definition of 'Contingency Fund'
An uncontrolled government deficit may lead to Contingency Fund is created as an impress account
deterioration in the financial health of the economy. The to meet some urgent or unforeseen expenditure of the
agenda of the government should be to plan the revenues government.
and expenditures such that the economy moves towards Description: This fund was constituted by the
a balanced budget situation. government under Article 267 of the Constitution of
Definition of 'Consolidated Fund' India. This fund is at the disposal of the President.
Consolidated Fund of India is the most important Any expenditure incurred from this fund requires
of all government accounts. Revenues received by the a subsequent approval from the Parliament and the
government and expenses made by it, excluding the amount withdrawn is returned to the fund from the
exceptional items, are part of the Consolidated Fund. Consolidated Fund.

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vkLFkk IAS INDIAN ECONOMY

covering the period of six years commencing on 1st

Report of the 16th Finance April, 2020 through its Interim and Final Reports.
Commission India zz The recommendations of the Fifteenth Finance
Commission are valid up to the financial year
The Finance Commission normally takes about
2025-26.
two years to make their recommendations. As per
the clause (1) of article 280 of the Constitution, the Criteria for Devolution:
Finance Commission is to be constituted every fifth Criteria 14th FC 15th FC 15th FC
year or earlier. However, as the recommendations of (2015-20) (2020-21) (2021-26)
the 15th FC cover the six-year period up to 31st March Income Distance 50.0 45.0 45.0
2026, the 16th FC is proposed to be constituted now. Area 15.0 15.0 15.0
This will enable the Finance Commission to consider Population (1971) 17.5 - -
and appraise the finances of the Union and the States Population (2011)# 10.0 15.0 15.0
for the period immediately, preceding the period of Demographic - 12.5 12.5
its recommendations. In this context, it is pertinent to Performance
mention that there are precedents where the Eleventh Forest Cover 7.5 - -
Finance Commission was constituted six years after the Forest and Ecology - 10.0 10.0
Tenth Finance Commission. Similarly, the Fourteenth Tax and fiscal efforts* - 2.5 2.5
Finance Commission was constituted five years and two
Total 100 100 100
months after the Thirteenth Finance Commission.
'Population (1971)' was considered only for the
The Advance Cell of the 16th FC was formed
14th Finance Commission, while 'Population (2011)'
in Ministry of Finance on 21.11.2022, to oversee
preliminary work, pending formal constitution of the and 'Tax and fiscal efforts' were introduced by the
Commission. 15th Finance Commission. The figures represent the
weightage in percentage for each criterion during the
Terms of Reference for the Sixteenth Finance
specified periods.
Commission:
™™ Key Recommendations of 15th Finance Commission:
The Finance Commission shall make
recommendations as to the following matters, namely: zz Share of States in Central Taxes: The
The distribution between the Union and the States Commission proposed maintaining the states'
of the net proceeds of taxes which are to be, or may be, share in central taxes at 41% for the 2021-
divided between them under Chapter I, Part XII of the 26 period, a slight reduction from the 42%
Constitution and the allocation between the States of allocated during 2015-20 by the 14th Finance
the respective shares of such proceeds; Commission.
The principles which should govern the grants-in- ™™ This 1% adjustment aims to accommodate the newly
aid of the revenues of the States out of the Consolidated formed union territories of Jammu and Kashmir and
Fund of India and the sums to be paid to the States by Ladakh from the central resources.
way of grants-in-aid of their revenues under article 275
zz Fiscal Deficit and Debt Levels: The
of the Constitution for the purposes other than those
Commission recommended that the Centre
specified in the provisos to clause (1) of that article; and
aims to limit its fiscal deficit to 4% of GDP by
The measures needed to augment the Consolidated 2025-26.
Fund of a State to supplement the resources of the
Panchayats and Municipalities in the State on the basis of ™™ For states, it advised specific fiscal deficit limits as a
the recommendations made by the Finance Commission percentage of Gross State Domestic Product (GSDP)
of the State. for different years within the 2021-26 period.

The Finance Commission in India ™™ States not fully utilizing the sanctioned borrowing
limits in the initial four years (2021-25) can access
™™ The Finance Commission in India is a constitutional
the remaining amount in subsequent years.
body established under Article 280 of the Indian
Constitution. Other Recommendations:
zz Its primary function is to recommend the ™™ Defense and Internal Security Funding: The
distribution of financial resources between the report suggests establishing a Modernisation
central government and the state governments. Fund for Defence and Internal Security (MFDIS),
™™ The Fifteenth Finance Commission was constituted non-lapsable and funded primarily through the
on 27th November, 2017. It made recommendations Consolidated Fund of India and other sources.

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vkLFkk IAS INDIAN ECONOMY

™™ Centrally Sponsored Schemes (CSS): Article 281 of the Indian Constitution

Recommendations include setting a threshold for ™™ It is related to the recommendations of the Finance
annual CSS allocations, third-party evaluations,
Commission:
transparent funding patterns, and stable financial
allocations to phase out redundant schemes. ™™ The President has to lay the recommendation made
by the Finance Commission and its explanatory
Constitution of the Sixteenth Finance Commission
memorandum before each House of Parliament.
The Government of India, in adherence to Article
™™ This commission holds the critical responsibility of
280(1) of the Constitution, has established the Sixteenth
recommending the formula for revenue distribution
Finance Commission, appointing Dr. Arvind Panagariya,
former Vice-Chairman of NITI Aayog and Professor at between the Centre and the States for the upcoming
Columbia University, as its Chairman. five-year period starting from April 1, 2026.

™™ Specific terms of reference have been outlined, Terms of Reference for 16th Finance Commission
including the distribution of tax proceeds between ™™ Division of Tax Proceeds: Recommending the
the Union and States, principles governing grants- distribution of taxes between the Union Government
in-aid to States, and measures to bolster State funds and the States under Chapter I, Part XII of the
for local bodies like Panchayats and Municipalities. Constitution.
™™ The Commission has also been tasked with reviewing zz This includes the allocation of shares among
disaster management financing arrangements
the States from these tax proceeds.
under the Disaster Management Act, 2005, and
making recommendations for improvements. ™™ Principles for Grants-in-Aid: Establishing the
principles governing grants-in-aid to the States
™™ The Commission has been requested to make its
from the Consolidated Fund of India.
report available by 31st October, 2025.
™™ Composition of Finance Commission zz This encompasses determining the amounts
to be provided to the States as grants-in-
Finance Commission Chairman and Members aid, specifically under Article 275 of the
™™ Chairman: Heads the Commission and presides Constitution, for purposes beyond those
over the activities. He should have had public affairs outlined in the provisos to clause (1) of that
experience. article.
™™ Four Members. ™™ Enhancing State Funds for Local Bodies:
™™ The Parliament determines legally the qualifications Identifying measures to enhance the Consolidated
of the members of the Commission and their Fund of a State.
selection methods.
zz This is aimed at supplementing the resources
™™ The 4 members should be or have been qualified as available to Panchayats and Municipalities
High Court judges, or be knowledgeable in finance
within the State, based on recommendations
or experienced in financial matters and are in
made by the State's own Finance Commission.
administration, or possess knowledge in economics.
™™ Evaluation of Disaster Management Financing:
™™ The recommendations of Finance Commissions are
advisory in nature and not binding on the Union The Commission may review the current financing
government. However, they are usually accepted structures related to Disaster Management
with minor modifications or deviations. initiatives.
™™ The Union government notifies the acceptance of zz This involves examining the funds created
the recommendations through a Presidential Order, under the Disaster Management Act, 2005,
which also specifies the period for which they are and presenting suitable recommendations for
valid (usually five years). improvements or alterations.

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Among the major states, highest decadal growth in

Census 2011 ™™
population has been recorded in Bihar (25.4 per
The census is a very important source of statistics cent) while 14 states and Union Territories have
on various indicators. Given here is an introduction to recorded population growth above 20 per cent.
the census and a discussion of the important findings of Top Populous state of the Country
the 2011 Census. 1. Uttar Pradesh 19,98,12,341
Census is nothing but a process of collecting, 2. Maharashtra 11,23,74,333
compiling, analyzing, evaluating, publishing and 3. Bihar 10,40,99,452
disseminating statistical data regarding the population. 4. West Bengal 9,12,76,115
It covers demographic, social and economic data and are 5. Andhra Pradesh 8,45,80,777
provided as of a particular date. Least Populous UTs of the Country
Census operations started in India long back during 1. Lakshadweep 64,473
the period of the Maurya dynasty. It was systematized 2. Daman and Diu 2,43,247
during the years 1865 to 1872, though it has been 3. Dadra and Nagar Haveli 343,709
conducted uninterruptedly from the year 1881 being a 4. Andaman and Nicobar Islands 3,80,581
trustworthy resource of information. 5. Sikkim 6,10,577
Importance of census
Highest Populous UT Delhi
1. The Indian Census is the most credible source Least Populous UT Lakshadweep
of information on Demography (Population Highest Populous state Uttar Pradesh
characteristics), Economic Activity, Literacy and Least populous state Sikkim
Education, Housing & Household Amenities,
Highest urban Population in india Maharashtra - 4,11,00,980
Urbanisation, Fertility and Mortality, Scheduled (state & UT)
Castes and Scheduled Tribes, Language, Religion, Lowest urban Population in india (state Lakshadweep - 26,967
Migration, Disability and many other socio-cultural & UT)
and demographic data since 1872. Census 2011 is Highest Rular Population in india (state Uttar Pradesh - 13,16,58,339
& UT)
the 15th National Census of the Country. This is the
only source of primary data in the village , town Lowest Rular Population in india (state Lakshadweep - 33,683
& UT)
and ward level, It provides valuable information
for planning and formulation policies for Central 2. Rural and urban population
and the State Governments and is widely used ™™ Altogether, 833.5 million persons live in rural area
by National and International Agencies, scholars, as per Census 2011, which was more than two-third
business people, industrialists, and many more. of the total population, while 377.1 million persons
live in urban areas. Urban proportion has gone up
2. The delimitation/reservation of Constituencies –
from 17.3 per cent in 1951 to 31.2 per cent in 2011.
Parliamentary/Assembly/Panchayats and other
Empowered Action Group (EAG) states have lower
Local Bodies is also done on the basis of the
urban proportion (21.1 per cent) in comparison to
demographic data thrown up by the Census. Census
non-EAG states (39.7 per cent).
is the basis for reviewing the country’s progress in
the past decade, monitoring the ongoing Schemes of ™™ Highest proportion of urban population is in NCT
Delhi (97.5 per cent). Top five states in share of
the Government and most importantly, plan for the
urban population are Goa (62.2 per cent), Mizoram
future.
(52.1 per cent), Tamil Nadu (48.4 per cent), Kerala
Key findings of 2011 census (47.7 per cent) and Maharashtra (45.2 per cent).
1. Population 3. Literacy
™™ India’s total population stands at 1.21 billion, which ™™ Literacy rate in India in 2011 has increased by 8 per
is 17.7 per cent more than the last decade, and cent to 73 per cent in comparison to 64.8 per cent
growth of females was higher than that of males. in 2001.
™™ There was an increase of 90.97 million males and ™™ While male literacy rate stands at 80.9 per cent –
increase of 90.99 million females. The growth rate which is 5.6 per cent more than the previous census,
of females was 18.3 per cent which is higher than the female literacy rate stands at 64.6 per cent — an
males — 17.1 per cent. India’s population grew by increase of 10.9 per cent than 2001.
17.7 per cent during 2001-11, against 21.5 per cent ™™ The highest increase took place in Dadra and Nagar
in the previous decade. Haveli by 18.6 points (from 57.6 per cent to 76.2

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vkLFkk IAS INDIAN ECONOMY

per cent), Bihar by 14.8 points (from 47.0 per cent ™™ The other two worst-performing states in terms of
to 61.8 per cent), Tripura by 14.0 points (from 73.2 skewed sex ration are Uttar Pradesh (912 females)
per cent to 87.2 per cent) and Bihar (918 females).
™™ Improvement in female literacy is higher than males ™™ Five top performing states in terms of sex ratio were
in all states and UTs, except Mizoram (where it is Kerala (1,084 females), Tamil Nadu (996), Andhra
same in both males and females) during 2001-11. Pradesh (993), Chhattisgarh (991), Odisha (979).
™™ The gap between literacy rate in urban and rural Sex Ratio (Females per 1000 Males)
areas is steadily declining in every census. Gender Sex ratio in India 943
gap in literacy rate is steadily declining in every Highest sex ratio in state Kerala (1084)
census. In Census 2011, the gap stands at 16.3
Lowest sex ratio in state Haryana (879)
points.
Highest sex ratio in UT Pondicherry (1037)
™™ Top five states and UTs, where literacy rate is the Lowest sex ratio in UT Daman and Diu (618)
highest, are Kerala (94 per cent), Lakshadweep Child (0-6 years) sex ratio 914
(91.8 per cent), Mizoram (91.3 per cent), Goa (88.7
Highest child (0-6) sex ratio in state Mizoram (971)
per cent) and Tripura (87.2).
Lowest child (0-6) sex ratio in state Haryana (830)
™™ The bottom five states and UTs are Bihar (61.8 per
6. Child population
cent), Arunachal Pradesh (65.4 per cent), Rajasthan
(66.1 per cent), Jharkhand (66.4 per cent) and ™™ Child population in the age of 0 to 6 years has seen
Andhra Pradesh (67 per cent). an increase of 0.4 per cent to 164.5 million in 2011
from 163.8 million in 2001.
Literacy Rate in India
Total Person Literacy Rate 74%
™™ The child population (0-6) is almost stationary. In
17 states and UTs, the child population has declined
Males 82.14%
in 2011 compared to 2001.
Females 65.46%
Highest Literacy Rate in State Kerala (94%) ™™ With the declaration of sex ratio in the age group 0-6,
Lowest Literacy Rate in State Bihar (61.8%)
the Census authorities tried to bring out the recent
Hightest Literacy Rate in UT Lakshadweep (91%)
changes in the society in its attitude and outlook
towards the girl child. It was also an indicator of the
Lowest Literacy Rate in UT Dadra and Nagar Haveli (76.24%)
likely future trends of sex ratio in the population.
4. Density
™™ There has been a decline of 8 per cent in the sex
™™ The density of population in the country has also
ratio of 0-6 age group. In 2011, the child sex ratio
increased from 325 in 2001 to 382 in 2011 in per sq
(0-6) stands at 919 female against 1000 male in
km. Among the major states, Bihar occupies the first
comparison to 927 females in 2001.
position with a density of 1106, surpassing West
Bengal which occupied the first position during ™™ Male child (0-6) population has increased whereas
2001. female child population has decreased during 2001-
11. Eight states, Jammu and Kashmir, Rajasthan,
™™ Delhi (11,320) turns out to be the most densely
Uttar Pradesh, Bihar, Jharkhand, Arunachal Pradesh,
inhabited followed by Chandigarh (9,258), among
Mizoram, and Meghalaya have proportion of child
all states and UT’s, both in 2001 and 2011 Census.
population more than 15 per cent.
The minimum population density works out in
Arunachal Pradesh (17) for both 2001 and 2011 ™™ The worst performing states in regard to sex ration
Census. in the age group of 0 to 6 years are Haryana (834
females), Punjab (846), Jammu and Kashmir (862),
5. Sex ratio
Rajasthan (888) and Gujarat (890).
™™ The sex ratio of population in the country in 2011
™™ The best performing states are Chhattisgarh (969),
stands at 940 female against 1000 males, which
Kerala (964), Assam (962), West Bengal (956)
is 10 per cent more than the last census when the
Jharkhand (948) and Karnataka (948).
number female per thousand male stood at 933.
Haryana has the dubious distinction of having the 7. SC/ST data
worst male-female ratio among all states while ™™ According to the Census, Scheduled Castes are
Kerala fares the best. notified in 31 states and UTs and Scheduled Tribes
™™ The number of females per 1000 males in Haryana in 30 states. There are altogether 1,241 individual
in 2011 stands at 879 followed by Jammu and ethnic groups, etc. notified as SC’s in different states
Kashmir (889 female) and Punjab (895 females). and UT’s.

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vkLFkk IAS INDIAN ECONOMY

™™ The number of individual ethnic groups, etc. notified is larger than the non-working-age share of the
as ST’s is 705. There has been some changes in the population (14 and younger, and 65 and older)".
list of SC’s/ST’s in states and UT’s during the last ™™ With fewer births each year, a country’s working-
decade. age population grows larger relative to the young
™™ The SC population in India now stands at 201.4 dependent population. With more people in the
million, which is 20 per cent more than the last labor force and fewer children to support, a country
census. The ST population stands at 104.3 million in has a window of opportunity for economic growth
2011 – 23.7 per cent more than 2001. if the right social and economic investments and
8. Religious demographics policies are made in health, education, governance,
and the economy.
The religious data on India Census 2011 was
released by the Government of India on 25 August 2015. Demographic Dividend in India
Hindus are 79.8% (966.3 million), while Muslims are ™™ India has one of the youngest populations in an
14.23% (172.2 million) in India. For the first time, a aging world. By 2020, the median age in India will
“No religion” category was added in the 2011 census. be just 28, compared to 37 in China and the US, 45
2.87 million Were classified as people belonging to in Western Europe, and 49 in Japan.
“No Religion” in India in the 2011 census. – 0.24% of
™™ Since 2018, India’s working-age population (people
India’s population of 1.21 billion. Given below is the
between 15 and 64 years of age) has grown larger
decade-by-decade religious composition of India till the
than the dependant population — children aged 14
2011 census. There are six religions in India that have
or below as well as people above 65 years of age.
been awarded “National Minority” status – Muslims,
This bulge in the working-age population is going to
Christians, Sikhs, Jains, Buddhists and Parsis.
last till 2055, or 37 years from its beginning.
9. Median marriage age
™™ This transition happens largely because of a
The median age increased for men – from 22.6 decrease in the total fertility rate (TFR, which is the
(2001) to 23.5 (2011) and for women – from 18.2 number of births per woman) after the increase in
(2001) to 19.2 (2011) life expectancy gets stabilised.
Population Dividend zz A study on demographic dividend in India
™™ India has 62.5% of its population in the age group by United Nations Population Fund (UNFPA)
of 15-59 years which is ever increasing and will throws up two interesting facts.
be at the peak around 2036 when it will reach zz The window of demographic dividend
approximately 65%. opportunity in India is available for five decades
™™ These population parameters indicate an availability from 2005-06 to 2055-56, longer than any
of demographic dividend in India, which started in other country in the world.
2005-06 and will last till 2055-56. zz This demographic dividend window is available
™™ According to Economic Survey 2018-19, India’s at different times in different states because
Demographic Dividend will peak around 2041, of differential behaviour of the population
when the share of working-age,i.e. 20-59 years, parameters.
population is expected to hit 59%. Total Polulation = 145 cr.
Demographic Dividend: Definition
™™ According to United Nations Population Fund Literacy Rete Sex Ratio
(UNFPA), demographic dividend means, "the Polulation 2024
74% 1020
economic growth potential that can result from
shifts in a population’s age structure, mainly when
the share of the working-age population (15 to 64) Population Dinsity 488

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1. Disguised Unemployment: This is a type of

Unemployment unemployment where people employed are more
than actually needed. Disguised unemployment
Unemployment in India, statistics has traditionally
is generally traced in unorganised sectors or the
been collected, compiled and disseminated once every
agricultural sectors.
five years by the Ministry of Labour and Employment
(MLE), primarily from sample studies conducted by 2. Structural Unemployment: This unemployment
the National Sample Survey Office. Other than these arises when there is a mismatch between the
5-year sample studies, India has – except since 2017 – worker’s skills and availability of jobs in the market.
never routinely collected monthly, quarterly or yearly Many people in India do not get job matching to their
nationwide employment and unemployment statistics. skills or due to lack of required skills they do not get
jobs and because of poor education level, it becomes
In 2016, Centre for Monitoring Indian Economy – a non-
important to provide them related training.
government entity based in Mumbai, started sampling
and publishing monthly unemployment in India 3. Seasonal Unemployment: That situation of
statistics. unemployment when people do not have work
during certain seasons of the year such as labourers
The unemployment rate in India fell to 3.2% in June
in India rarely have occupation throughout the year.
2024 from the record high of 29% since the country
went into lockdown from March 2020, says the report 4. Vulnerable Unemployment: People are deemed
of CMIE – Centre For Monitoring Indian Economy. The unemployed under this unemployment. People
lockdown to contain the coronavirus outbreak has are employed but informally i.e. without proper
job contracts and thus records of their work are
forced many industries to shut down thus increasing
never maintained. It is one of the main types of
unemployment across the country.
unemployment in India.
Unemployment is a situation when a person
5. Technological Unemployment: the situation
actively searches for a job and is unable to find work.
when people lose their jobs due to advancement in
Unemployment indicates the health of the economy.
technologies. In 2016, the data of the World Bank
The unemployment rate is the most frequent predicted that the proportion of jobs threatened by
measure of unemployment. The unemployment rate automation in India is 69% year-on-year.
is the number of people unemployed divided by the 6. Cyclical Unemployment: unemployment caused
working population or people working under labour due to the business cycle, where the number of
force. unemployed heads rises during recessions and
Unemployment rate = (Unemployed Workers / declines with the growth of the economy. Cyclical
Total labour force) × 100 unemployment figures in India are negligible.
National Sample Survey Organization (NSSO) 7. Frictional Unemployment: this is a situation
defines employment and unemployment on the following when people are unemployed for a short span of
activity statuses of an individual. NSSO, an organization time while searching for a new job or switching
under MoSPI – Ministry of Statistics and Programme between jobs. Frictional Unemployment also called
Implementation measures India’s unemployment on Search Unemployment, is the time lag between the
three approaches: jobs. Frictional unemployment is considered as
voluntary unemployment because the reason for
1. Daily Status Approach: unemployment status of
unemployment is not a shortage of jobs, but in fact,
a person under this approach is measured for each
the workers themselves quit their jobs in search of
day in a reference week. A person having no gainful
better opportunities.
work even for one hour in a day is described as
unemployed for that day. Government Initiative To Control Unemployment
2. Weekly Status Approach: This approach highlights Several policies have been initiated by the
the record of those persons who did not have gainful government to reduce the unemployment problem in
work or were unemployed even for an hour on any the economy. The policies to reduce unemployment are
day of the week preceding the date of the survey. highlighted below:
3. Usual Status Approach: This gives the estimates ™™ In 1979 the government launched TRYSEM –
of those persons who were unemployed or had no Training of Rural Youth for Self-Employment The
gainful work for a major time during the 365 days. objective of this scheme was to help unemployed
youth of rural areas aged between 18 and 35 years
Types of Unemployment in India to acquire skills for self-employment. The priority
In India, there are seven types of unemployment. under this scheme was given to women and youth
The types of unemployment are discussed below: belonging to SC/ST category.

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™™ The Government launched the IRDP – Integrated entrepreneurship across the nation. Check detailed
Rural Development Programme (IRDP) in the year information on Startup India Scheme in the given link.
1980 to create full employment opportunities in ™™ Stand Up India Scheme also launched in 2016
rural areas. aimed to facilitate bank loans to women and SC/ST
™™ A new initiative was tried namely RSETI/ borrowers between Rs 10 lakh and Rs. 1 crore for
RUDSETI in 1982 jointly by Sri Dharmasthala setting up a greenfield enterprise. Details on Stand-
Manjunatheshwara Educational Trust, Canara Up India is given in the linked page.
Bank and Syndicate Bank. The aim of RUDSETI, ™™ National Skill Development Mission was set up in
the acronym of Rural Development And Self November 2014 to drive the ‘Skill India’ agenda in a
Employment Training Institute was to mitigate the ‘Mission Mode’ in order to converge the existing skill
unemployment problem among the youth. Rural training initiatives and combine scale and quality of
Self Employment Training Institutes/ RSETIs are skilling efforts, with speed. Check the National Skill
now managed by Banks with active cooperation Development Mission in detail.
from the state and central Government. PM Garib Kalyan Yojana
™™ The Jawahar Rozgar Yojana (JRY) was started The latest announcement on PMGKY was made
in April 1989 by merging the two existing wage on 29th June 2020. Earlier on 26th March 2020, the
employment programme i.e. RLEGP – Rural government took an initiative towards the loss caused
Landless Employment Guarantee Programme and by the outbreak. The lockdown in the nation due to
NREP – National Rural Employment Programme on Coronavirus expected to cost the Indian Economy a cost
an 80:20 cost-sharing basis between the state and of around 9 lakh crores.
centre. Announcements made by the Finance Minister,
™™ MNREGA – Mahatma Gandhi National Rural Nirmala Sitharaman on 26th March 2020 are mentioned
Employment Guarantee Act launched in 2005 below:
providing the right to work to people. An ™™ To provide insurance cover of Rs 50 lakhs per health
employment scheme of MGNREGA aimed to provide worker affected by COVID-19.
social security by guaranteeing a minimum of 100 ™™ To provide free resources of 5 kg wheat or rice and
days paid work per year to all the families whose 1 kg of preferred pulses for 80 crore poor people for
adult members opt for unskilled labour-intensive the next three months under the PM Garib Kalyan
work. For details on MNREGA check the link Anna Yojana.
provided. ™™ 20 crore Women Jan Dhan account holders will
™™ PMKVY – Pradhan Mantri Kaushal Vikas Yojana was be provided Rs 500 per month for the next three
launched in 2015. The objective of PMKVY was to months. To know more about the PM Jan-Dhan
enable the youth of the country to take up industry- Yojana, refer to the linked article.
relevant skill training in order to acquire a secured ™™ There will be an increase in MNREGA wage to Rs
better livelihood. For further details on Pradhan 202 per day to benefit 13.62 crore families.
Mantri Kushal Vikas Yojana check the given link. ™™ The Central Government has given orders to State
™™ The government launched the Start-Up India Scheme Governments to use the Building and Construction
in 2016. The aim of Startup India programmes was Workers Welfare Fund to provide relief to
to develop an ecosystem that nurtures and promotes Construction Workers.

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Poverty Poverty Estimation in India

Tendulkar ™™ Methodology: Based on Monthly Per Capita
Committee, 2009 Consumption Expenditure (MPCE) computed
™™ Poverty is a state or condition in which a person
on the basis of data from the National Sample
or community lacks the financial resources and Survey Organisation (NSSO).
essentials for a minimum standard of living. Poverty ™™ Findings: 21.9% of total population was
means that the income level from employment is so below poverty line in 2011-12.

low that basic human needs can't be met. Rangarajan ™™ Methodology: Based on an independent
Committee, 2014 large survey of households by Center for
™™ According to World Bank, Poverty is pronounced onitoring Indian Economy (CMIE).
deprivation in well-being, and comprises many ™™ Findings: 29.5% of total population was
below poverty line in 2011-12.
dimensions. It includes low incomes and the inability
NITI Aayog’s ™™ It is developed by NITI Aayog in collaboration
to acquire the basic goods and services necessary National MPI: with UNDP and Oxford Poverty and Human
for survival with dignity. Poverty also encompasses Baseline Report Development Initiative (OPHI)
low levels of health and education, poor access to ™™ It is based on 12 parameters (10 indicators
of MPI and two new indicators antenatal
clean water and sanitation, inadequate physical
care and bank account under Health and
security, lack of voice, and insufficient capacity and Standard of Living.
opportunity to better one's life. ™™ Findings: 25.01% of India's population as
multidimensionally poor.
™™ In India, 21.9% of the population lives below the
Other ™™ Alagh Committee (1979), Lakdawala
national poverty line in 2011. committees Committee (1993)
™™ In 2018, almost 8% of the world’s workers and their ™™ Poverty is measured based on consumer
families lived on less than US$1.90 per person per expenditure surveys of the National Sample Survey
day (international poverty line). Organisation. A poor household is defined as one
Types of Poverty: There are two main classifications with an expenditure level below a specific poverty
of poverty: line.
™™ Absolute Poverty: A condition where household ™™ The incidence of poverty is measured by the poverty
income is below a necessary level to maintain ratio, which is the ratio of the number of poor to the
basic living standards (food, shelter, housing). This total population expressed as a percentage. It is also
condition makes it possible to compare between known as head-count ratio.
different countries and also over time. ™™ Alagh Committee (1979) determined a poverty line
zz It was first introduced in 1990, the “dollar a based on a minimum daily requirement of 2400 and
day” poverty line measured absolute poverty by 2100 calories for an adult in Rural and Urban area
the standards of the world's poorest countries. respectively.
In October 2015, the World Bank reset it to ™™ Subsequently different committees; Lakdawala
$1.90 a day. Committee (1993), Tendulkar Committee (2009),
™™ Relative Poverty: It is defined from the social Rangarajan committee (2012) did the poverty
perspective that is living standard compared to estimation.
the economic standards of population living in ™™ As per the Rangarajan committee report (2014),
surroundings. Hence it is a measure of income the poverty line is estimated as Monthly Per Capita
inequality. Expenditure of Rs. 1407 in urban areas and Rs. 972
in rural areas.
zz Usually, relative poverty is measured as the
percentage of the population with income less ™™ Two-thirds of people in India live in poverty: 68.8%
than some fixed proportion of median income. of the Indian population lives on less than $2 a
day. Over 30% even have less than $1.25 per day
Poverty Estimation in India available - they are considered extremely poor. This
™™ Poverty estimation in India is carried out by makes the Indian subcontinent one of the poorest
NITI Aayog’s task force through the calculation countries in the world; women and children, the
of poverty line based on the data captured by the weakest members of Indian society, suffer most.
National Sample Survey Office under the Ministry of ™™ India is the second most populous country after
Statistics and Programme Implementation (MOSPI). China with about 1.2 billion people and isthe
™™ Poverty line estimation in India is based on the seventh largest country in the world with an area
consumption expenditure and not on the income of 3,287,000 km². The highly contrasted country
levels. has enjoyed growth rates of up to 10% over many

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years and is one of the largest economies in the zz Suresh Tendulkar in 2009
world, with a gross domestic product (GDP) of zz C Rangarajan in 2014
1,644 billion US dollars. But only a small percentage
The government did not take a call on the report
of the Indian population has benefited from this
of the Rangarajan Committee; therefore, poverty is
impressive economic boom so far, as the majority of
measured using the Tendulkar poverty line.
people in India are still living in abject poverty.
™™ As per this, 21.9% of people in India live below the
Poverty in India impacts children, families and
poverty line.
individuals in a variety of different ways through:
™™ What does the basket of goods include?
™™ High infant mortality
The PLB comprises goods and services considered
™™ Malnutrition
essential to a basic minimum standard of living — food,
™™ Child labour clothing, rent, conveyance, and entertainment.
™™ Lack of education The price of the food component can be estimated
™™ Child marriage using calorie norms or nutrition targets.
™™ HIV / AIDS Until the 1990s, the calorie norms method was used
Ways to Measure Poverty in India — it was based on the minimum number of calories
recommended by the Indian Council of Medical Research
American President praised India for having lifted
(ICMR) for a household of five members.
“over 270 million people out of poverty” in “a single
decade”, and said that “12 Indian citizens are lifted out ™™ However, this method does not consider the
of extreme poverty every single minute of every single different food groups that are essential for health
day”. — this is why the Tendulkar Committee targeted
nutritional outcomes.
™™ The Lakdawala Committee assumed that health
and education is provided by the state — therefore,
expenditure on these items was excluded from the
consumption basket it proposed.
™™ Since expenditure on health and education rose
significantly in the 1990s, the Tendulkar Committee
included them in the basket.

Poverty can be defined as a condition in which an

individual or household lacks the financial resources to
afford a basic minimum standard of living.
Economists and policymakers estimate “absolute”
poverty as the shortfall in consumption expenditure
from a threshold called the “poverty line”.
™™ The official poverty line is the expenditure incurred
to obtain the goods in a “poverty line basket” (PLB).
™™ Poverty can be measured in terms of the number
of people living below this line (with the incidence
India at risk of losing hard-won gains against
of poverty expressed as the head count ratio). The
“depth” of poverty indicates how far the poor are poverty, says World Bank
below the poverty line. The coronavirus pandemic is pushing millions of
™™ Six official committees have so far estimated the Indians into poverty and eroding the hard-fought gains
number of people living in poverty in India made in the past two decades, the World Bank said.
zz The working group of 1962 “Between 2011-12 and 2015, poverty declined
from 21.6% to an estimated 13.4% at the international
zz V N Dandekar and N Rath in 1971
poverty line (2011 PPP $1.90 per person per day),
zz Y K Alagh in 1979 continuing the earlier trend of rapid poverty reduction.
zz D T Lakdawala in 1993 However, preliminary analysis following the national

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covid-19 lockdown suggests these gains are eroding," employees. These proportions are much lower for
the World Bank said in its India Development Update on rural workers.
Wednesday. “A recent telephonic survey across 10 states ™™ “Even among workers in formal employment in the
found poor households expected to lose around 60% non-agricultural sector, about 70% did not have
of their average monthly income in April following the written job-contracts and about 52% were not
national lockdown." eligible for social security benefits. These workers
are at risk of (temporarily, depending on the pace
of recovery) falling into poverty due to wage and
livelihood losses triggered by shrinking economic
activity, government-imposed closures, and social-
distancing protocols," the World Bank cautioned.
™™ In India, seasonal inter-state migrants dominate
low-paying, hazardous, and informal market jobs in
key sectors, such as construction, in urban areas.
The Multidimensional Poverty Index (MPI) is a
measure that goes beyond income to assess poverty by
considering multiple deprivations that people might
experience. Developed by the Oxford Poverty and
Human Development Initiative (OPHI) and the United
Nations Development Programme (UNDP), the MPI
Almost half of India’s population was vulnerable to looks at various dimensions of poverty to provide a
slipping back into poverty even prior to covid-19, with more comprehensive picture.
consumption levels precariously close to the poverty MPI based Poverty
line, despite absolute poverty reduction in the past two The Multidimensional Poverty Index (MPI) is a
decades. “A contraction in high-frequency consumption measure that goes beyond income to assess poverty by
indicators, such as quarterly sales of two-wheeled considering multiple deprivations that people might
vehicles, FMCG (fast-moving consumer goods), and experience. Developed by the Oxford Poverty and
retail personal credit disbursements, also suggests Human Development Initiative (OPHI) and the United
increased vulnerabilities for poorer households. These Nations Development Programme (UNDP), the MPI
households are likely to slip back into poverty because looks at various dimensions of poverty to provide a
of income and job losses triggered by covid-19," it said. more comprehensive picture.
™™ The National Sample Survey Office data suggests Here's a brief overview of the MPI and its
that a 30-day period without work can reduce components:
household consumption expenditures for the
Components of MPI
poorest quintile by 10%.
1. Education:
™™ “Impacts of the global covid-19 pandemic will
™™ Years of schooling
also compound pre-existing concerns that the
pace of poverty reduction had been disrupted by ™™ School attendance
implementation challenges of indirect tax reforms, 2. Health:
the stress in the rural economy, and high youth ™™ Child mortality
urban unemployment rates. Social inequalities in
™™ Nutrition
poverty, well-being, and access to jobs, particularly
for women and tribal communities, are expected to 3. Living Standards:
amplify differences in how the evolving economic ™™ Access to clean drinking water
crisis impacts different social groups," the report ™™ Sanitation
said. ™™ Electricity
™™ About 90% of the workforce is informal, without ™™ Flooring (e.g., whether the floor is made of a durable
access to significant savings or workplace-based material)
social protection benefits such as paid sick leave
™™ Cooking fuel
or social insurance. The latest Indian Periodic
Labour Force Survey (2018-19) showed only 47.2% Calculation of MPI
of urban male workers and about 55% of urban To calculate the MPI, the following steps are
female workers were regular wage or salaried involved:

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1. Identify Indicators: Determine the indicators ™™ Resource Allocation: It assists in allocating

for each dimension (education, health, and living resources more effectively to address the multiple
standards). dimensions of poverty.
2. Define Deprivation Cutoffs: Set thresholds for ™™ Monitoring and Evaluation: MPI provides a tool
what constitutes deprivation in each indicator. for monitoring poverty trends and evaluating the
effectiveness of poverty reduction programs.
3. Measure Deprivation: Assess whether individuals
or households are deprived in each indicator. Limitations
4. Aggregate Deprivations: Combine the individual ™™ Complexity: The MPI is more complex to calculate
deprivations into a single measure for each person than simple income-based measures.
or household. ™™ Data Requirements: It requires detailed data on
various indicators, which might not be available in
5. Calculate MPI: The MPI is calculated as the product
all regions.
of the incidence of poverty (the proportion of people
who are multidimensionally poor) and the intensity ™™ Context Sensitivity: The indicators and cutoffs
of poverty (the average proportion of dimensions in used in the MPI might not be universally applicable
and can vary by context.
which poor people are deprived).
Overall, the MPI offers a richer understanding of
Uses and Implications
poverty by highlighting the various ways in which people
™™ Policy Making: MPI helps policymakers understand can be deprived, providing a more nuanced approach to
poverty more comprehensively and design targeted poverty measurement and alleviation.Department of
interventions. Food and Public Distribution– 2022

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vkLFkk IAS INDIAN ECONOMY

step down, putting forward the argument that planning

The Planning Commission needed a reciprocity between science and politics. M.
The Planning Commission was set up by a Resolution Visvesvaraya generously agreed and Jawaharlal Nehru
of the Government of India in March 1950 in pursuance was made head of the National Planning Committee.
of declared objectives of the Government to promote The so-called "British Raj" also formally established
a rapid rise in the standard of living of the people by the Advisory Planning Board under K. C. Neogy that
efficient exploitation of the resources of the country, functioned from 1944 to 1946.
increasing production and offering opportunities to Industrialists and economists independently
all for employment in the service of the community. formulated at least three development plans. Some
The Planning Commission was charged with the scholars have argued that the introduction of planning
responsibility of making assessment of all resources of as an instrument was intended to transcend the
the country, augmenting deficient resources, formulating ideological divisions between Mahatma Gandhi and
plans for the most effective and balanced utilisation of Nehru. Other scholars have argued that the Planning
resources and determining priorities. Jawaharlal Nehru Commission, as a central agency in the context of plural
was the first Chairman of the Planning Commission. democracy in India, needs to carry out more functions
than rudimentary economic planning.
The first Five-year Plan was launched in 1951 and
two subsequent five-year plans were formulated till After India achieved independence, a formal model
1965, when there was a break because of the Indo- of planning was adopted, and accordingly the Planning
Pakistan Conflict. Two successive years of drought, Commission, reporting directly to the Prime Minister of
devaluation of the currency, a general rise in prices and India, was established on 15 March 1950, with Prime
erosion of resources disrupted the planning process and Minister Jawaharlal Nehru as the Chairman. Authority
after three Annual Plans between 1966 and 1969, the for creation of the Planning Commission was not derived
fourth Five-year plan was started in 1969. from the Constitution of India or statute; it is an arm of
the Central Government of India.
The Eighth Plan could not take off in 1990 due to
the fast changing political situation at the Centre and The first Five-Year Plan was launched in 1951,
the years 1990-91 and 1991-92 were treated as Annual focusing mainly on development of the agricultural
Plans. The Eighth Plan was finally launched in 1992 after sector. Two subsequent Five-Year Plans were formulated
the initiation of structural adjustment policies. before 1965, when there was a break because of the
Indo-Pakistan conflict. Two successive years of drought,
For the first eight Plans the emphasis was on a
devaluation of the currency, a general rise in prices and
growing public sector with massive investments in
erosion of resources disrupted the planning process and
basic and heavy industries, but since the launch of the
after three Annual Plans between 1966 and 1969, the
Ninth Plan in 1997, the emphasis on the public sector
fourth Five-Year Plan was started in 1969.
has become less pronounced and the current thinking
on planning in the country, in general, is that it should The Eighth Plan could not take off in 1990 due to
increasingly be of an indicative nature. the fast changing political situation at the Centre, and
the years 1990–91 and 1991–92 were treated as Annual
™™ The Planning Commission
Plans. The Eighth Plan was finally launched in 1992 after
™™ Formed-15 March 1950 the initiation of structural adjustment policies.
™™ Dissolved-17 Aug 2014 For the first eight Plans the emphasis was on a
™™ Superseding agency-NITI Aayog growing public sector with massive investments in
™™ Headquarters-Yojana Bhavan, New Delhi basic and heavy industries, but since the launch of the
Ninth Plan in 1997, the emphasis on the public sector
™™ In his first Independence Day speech in 2014, Prime
has become less pronounced and the current thinking
Minister Narendra Modi announced his intention to
on planning in the country, in general, is that it should
dissolve the Planning Commission. It has since been
increasingly be of an indicative nature.
replaced by a new institution named NITI Aayog.
In 2014, Narendra Modi government decided to
Rudimentary economic planning, deriving from
wind down the Planning Commission. It was replaced
the sovereign authority of the state, was first initiated
by the newly formed NITI Aayog to better represent the
in India in 1938 by Congress President and Indian
present needs and aspirations of people of India.
National Army supreme leader Netaji Subhash Chandra
Bose, who had been persuaded by Meghnad Saha to Organisation
set up a National Planning Committee. M. Visvesvaraya The composition of the Commission underwent
had been elected head of the Planning Committee. considerable changes since its initiation. With the Prime
Meghnad Saha approached him and requested that he Minister as the ex officio Chairman, the committee

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had a nominated Deputy Chairman, with the rank of a III. Its main focus was on the agricultural
full Cabinet Minister. Cabinet Ministers with certain development of the country.
important portfolios acted as ex officio members of the IV. This plan was successful and achieved a growth
Commission, while the full-time members were experts rate of 3.6% (more than its target of 2.1%).
in various fields like economics, industry, science and V. At the end of this plan, five IITs were set up in
general administration. the country.
Ex officio members of the Commission included the 2. Second Five Year Plan:
Finance Minister, Agriculture Minister, Home Minister,
I. It was made for the duration of 1956 to 1961,
Health Minister, Chemicals and Fertilisers Minister,
under the leadership of Jawaharlal Nehru.
Information Technology Minister, Law Minister, Human
Resource Development Minister and Minister of State II. It was based on the P.C. Mahalanobis Model
for Planning. made in the year 1953.
III. Its main focus was on the industrial development
NITl Aayog Planning Commission
of the country.
Chairperson: Prime minister Chairperson: Prime minister
IV. This plan lags behind its target growth rate of
Vice- chairperson: To be Deputy Chairman: Nominated
appointed by the PM by PM; to have Cabinet rank
4.5% and achieved a growth rate of 4.27%.
Governing Council: Chief National Development Council V. However, this plan was criticized by many
ministers (CMs) and lieutenant (NDC): Created by an order of experts and as a result, India faced a payment
governors (L-Gs) Planning Commission, which crisis in the year 1957.
Regional councils: To be set calls the council; has CMs and 3. Third Five Year Plan:
up to address specific issues for L-G and is responsible for framing
specified tenures; to comprise five-year Plans
I. It was made for the duration of 1961 to 1966,
CMs and L-Gs under the leadership of Jawaharlal Nehru.
Part-time members: Experts Eight full-time members: II. This plan is also called ‘Gadgil Yojna’, after the
from relevant institutions in ex- Usually subject expert; appointed Deputy Chairman of Planning Commission D.R.
officio capacity (maximum two, as minister Gadgil.
ona rotational basis) of state; also people from outside III. The main target of this plan was to make the
government
economy independent. The stress was laid
Ex- officio members: Union 10 Cabinet ministers, including on agriculture and the improvement in the
ministers to be nominated by the Planning Minister
PM (maximum 4) production of wheat.
CEO: To be appointed by the PM Member secretary/Secretary IV. During the execution of this plan, India was
in the rank of secretary for a fixed engaged in two wars: (1) the Sino-India war of
tenure
1962 and (2) the Indo-Pakistani war of 1965.
Secretariat: As deemed Planning Commission of India These wars exposed the weakness in our
necessary
economy and shifted the focus to the defence
Special invitees: Experts, industry, the Indian Army and the stabilization
specialists and practitioners with
relevant domain knowledge;
of the price (India witnessed inflation).
nominated by PM V. The plan was a flop due to wars and drought.
Sources: Planning Commission & PIB The target growth was 5.6% while the achieved
growth was 2.4%.
List of five year plans of India
Welfare Programmes by the Government of India
The present NDA government has stopped the
formation of five-year plans. So the 12th five-year plan 4. Plan Holidays:
would be called the last five-year plan of India. The I. Due to the failure of the previous plan, the
decades-old Five-Year Plans will make way for a three- government announced plan holidays from
year action plan, which will be part of a seven-year 1966 to 1969.
strategy paper and a 15-year vision document. The Niti II. The main reason behind the plan holidays was
Aayog has replaced the Planning Commission in the the Indo-Pakistani war and the Sino-India war,
Modi Cabinet and has launched a three-year action plan leading to the failure of the third Five Year Plan.
from April 1, 2017, onwards.
III. During this plan, annual plans were made and
1. First Five Year Plan: equal priority was given to agriculture its allied
I. It was made for the duration of 1951 to 1956, sectors and the industry sector.
under the leadership of Jawaharlal Nehru. IV. In a bid to increase the exports in the country,
II. It was based on the Harrod-Domar model with the government declared devaluation of the
a few modifications. rupee.

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means that if the targets can be mended each

year, it would be difficult to achieve the targets
and will result in the destabilization in the
Indian economy.
8. Sixth Five Year Plan:
I. Its duration was from 1980 to 1985, under the
leadership of Indira Gandhi.
II. The basic objective of this plan was economic
liberalisation by eradicating poverty and
achieving technological self-reliance.
III. It was based on investment Yojna, infrastructural
changing and trend to the growth model.
5. Fourth Five Year Plan:
IV. Its growth target was 5.2% but it achieved a
I. Its duration was from 1969 to 1974, under the 5.7% growth.
leadership of Indira Gandhi.
9. Seventh Five Year Plan:
II. There were two main objectives of this plan
I. Its duration was from 1985 to 1990, under the
i.e. growth with stability and progressive
leadership of Rajiv Gandhi.
achievement of self-reliance.
II. The objectives of this plan include the
III. During this time, 14 major Indian banks
establishment of a self-sufficient economy,
were nationalized and the Green Revolution
opportunities for productive employment and
was started. Indo-Pakistani War of 1971 and
up-gradation of tecnology.
Bangladesh Liberation War took place.
III. For the first time, the private sector got the
IV. This plan failed and could achieve a growth rate
priority over public sector.
of 3.3% only against the target of 5.6%.
IV. Its growth target was 5.0% but it achieved
6. Fifth Five Year Plan:
6.01%.
I. Its duration was 1974 to 1978.
10. Annual Plans:
II. This plan focussed on Garibi Hatao, employment,
justice, agricultural production and defence. I. Eighth Five Year Plan could not take place due
to the volatile political situation at the centre.
III. The Electricity Supply Act was amended in
1975, Twenty-point programme was launched II. Two annual programmes were formed for the
in 1975, the Minimum Needs Programme year 1990-91& 1991-92.
(MNP) and the Indian National Highway System 11. Eighth Five Year Plan:
was introduced. I. Its duration was from 1992 to 1997, under the
IV. Overall this plan was successful which achieved leadership of P.V. Narasimha Rao.
a growth of 4.8% against the target of 4.4%. II. In this plan, the top priority was given to
V. This plan was terminated in 1978 by the newly the development of human resources i.e.
elected Moraji Desai government. Garibi hatao employment, education, and public health.
7. Rolling Plan: III. During this plan, Narasimha Rao Govt. launched
I. After the termination of the fifth Five Year Plan, the New Economic Policy of India.
the Rolling Plan came into effect from 1978 to IV. This plan was successful and got an annual
1990. growth rate of 6.8% against the target of 5.6%.
II. In 1980, the Congress rejected the Rolling Plan 12. Ninth Five Year Plan:
and a new sixth Five Year Plan was introduced.
I. Its duration was from 1997 to 2002, under the
III. Three plans were introduced under Rolling leadership of Atal Bihari Vajpayee.
plan: (1) For the budget of the present year (2)
II. The main focus of this plan was “growth with
this plan was for a fixed number of years- 3,4 or
justice and equity”.
5 (3) Perspective plan for long terms-- 10, 15 or
20 years. III. It was launched in the 50th year of independence
of India.
IV. The plan has several advantages as the targets
could be mended and projects, allocations, etc. IV. This plan failed to achieve the growth target of
were variable to the country's economy. This 7% and achieved a growth rate of 5.6%.

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II. This plan aims to double the Per Capita Income

of India in the next 10 years.
III. It aims to reduce the poverty ratio of 15% by
2012.
IV. Its growth target was 8.0% but it achieved only
7.2%.
14. Eleventh Five Year Plan:
I. Its duration was from 2007 to 2012, under the
leadership of Manmohan Singh.
II. It was prepared by the C. Rangarajan.
III. Its main theme was “rapid and more inclusive
growth”.
IV. It achieved a growth rate of 8% against a target
of 9% growth.
15. Twelfth Five Year Plan:
I. Its duration is from 2012 to 2017, under the
leadership of Manmohan Singh.
II. Its main theme is “Faster, More Inclusive and
Sustainable Growth”.
III. Its growth rate target was 8%.
The NDA government has dissolved the Planning
Commission with the NITI Aayog. Thus, there will
be no thirteen Five Year Plan, however, the five-year
defence plan is still made. It is important to note that
the documents of the NITI Aayog have no financial role.
They are only policy guide maps for the government.
The three-year action plan only provides a broad
13. Tenth Five Year Plan: roadmap to the government and does not outline any
I. Its duration was from 2002 to 2007, under schemes or allocations as it has no financial powers.
the leadership of Atal Bihari Vajpayee and Since it doesn't require approval by the Union Cabinet,
Manmohan Singh. its recommendations are not binding on the government.

Brief Description of Five Plans

Plans Objectives Facts Assessments
First Plan (1951- ™™ Highest priority accorded to agriculture in view of large-import of ™™ Agriculture production increased dramatically.
56) (Harrod foodgrain and inflation. ™™ National Income went up by 18% and Per-
Domar Model) ™™ Increasing the rate of investment from 5% to 7%. Capita Income by 11%.
™™ 31% of total plan outlay on agriculture followed by transport and ™™ Targeted growth rate was 2.1% and First Plan
communication, social services, power and industry. achieved 3.6%.
™™ Economist KN Raj was the architect. ™™ Price level was stable.
Second Plan ™™ Rapid industrialisation with particular emphasis on the ™™ Moderately successful, targeted growth rate
(1956-61) development of basic and heavy industry, also called Nehru was 4.5% but achieved 4.1%.
Mahalanobis plan. ™™ Durgapur (UK), Bhillai (USSR) and Rourkela. (W
™™ To promote a socialistic pattern of society as envisaged at Avadi Germany) Steel Plants set-up with foreign help.
Summit of Indian National Congress in 1955. ™™ Atomic Energy Commission came into being
™™ To increase National income by 25%, expansion of employment and TIFR was set-up.
and reduction of inequality. ™™ Inflation and low agricultural production and
™™ To increase the rate of investment from 7% to 11% of GDP. Suez crisis.
™™ There was a thrust towards substitution of basic and capital good
industries in this plan.

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Third Plan ™™ Indian economy entered take off stage (WW Rostow). ™™ A failure because of worst famine (1965-66), in
(1961-66) (Gadgil 100 years.
™™ Self-reliant and self-generating economy was the goal.
Yojana)
™™ Priority to agriculture and development of basic industries. Tried to ™™ Indo-China (1962) and Indo-Pakistan
balance industry and agriculture. (1965), conflict diverted the resources from
development to defence.
™™ To increase the National Income by 30% and Per Capita Income by
17%. ™™ Postponement of fourth Plan by 3 years.
Targeted growth 5.6% achieved growth 2.8%. .
™™ The situation created by Indo-Pakistan Conflict
(1965), two successive years of severe drought,
devaluation of currency by 57% general rise
in prices and erosion of resources for plan
delayed.
™™ Fourth Plan delayed because between 1966 to
1969 three Annual Plans were formulated.
Annual Plan ™™ Due to the unfortunate fallure of the Third Plan, the production in various sectors of the economy became stagnant. In
(1966-69) 1966, the Government of India declared the devaluation of rupee, with a view to increase the exports of the country. So,
the Fourth Plan was postponed and 3 Annual Plans were implemented. Some of the economists called this period, Le
from 1966 to 1969, Plan Holiday
Fourth Plan ™™ Objective was growth with stability and progressive achievement ™™ First 2 years of the plan were successful with
(1969-74) of self-reliance. record foodgrain production on account of
™™ Laid special emphasis on improving the condition of under Green Revolution.
privileged and weaker sections. ™™ Adoption of import-substitution policy
™™ Food security in gold was also one of its main goal. and export-promotion policy widened the
industrial base.
™™ The objective is of correcting the earlier trend of increased
concentration of wealth and economic power. ™™ Targeted growth 5.7% however, achieved
growth 3.3%.
™™ The plan was failure on account of runaway
Inflation (due to 1972 oil crisis or supply shock);
huge influx of refugees from Bangladesh post
1972 Indo-Pak War.
Fith Plan ™™ Original approach to plan prepared by C Subramaniam, who ™™ Targeted growth 4,4% and achieved growth
(1974-79) proposed economic growth alongwith direct attack on poverty. 4.8%
™™ However, final draft prepared by DP Dhar with objectives of ™™ Fifth Plan cost calculations based on 1971-72,
removal of poverty (Garibi Hatao) and March, 1978. attainment of prices proved to be wrong.
self-reliance. ™™ Fifth Plan terminated 1 year before the plan
™™ To step-up domestic rate of saving. period in March, 1978.
™™ Introduction of minimum needs programme. ™™ Brought to the fore problem associated with
coalition government making a mockery of
formulation of Five Year Plan.
Rolling Plan ™™ Rolling Plan (Gunnar Myrdal) was brought out by Janata Party Government under Morarji Desai in 1978. The focus of the
(1978-80) plan was enlargement of the employment potential in agriculture and allied activities to raise the income of the lowest
income classes through minimum needs programme. Annual Plan period was 1979-80.
Sixth Plan ™™ Removal of poverty through strengthening of infrastructure for ™™ Indian economy made an all round progress
(1980-85) both agriculture and industry. and most of the targets fixed by the plan was
™™ The emphasis was laid on greater management, efficiency and achieved.
monitoring of various schemes. ™™ Targeted growth 5.2%.
™™ Involvement of people in formulating schemes of development at ™™ Achieved growth 5.4%,
local level.
Seventh Plan ™™ To accelerate foodgrains production. ™™ Foodgrain production grew by 3.23% as
(1985-90) compared to a long-term growth rate of 2.68%
™™ To increase employment opportunities.
between 1967-68 and 1988-89.
™™ To raise productivity.
™™ The Indian economy finally crossed the barrier
™™ Outward looking strategy with gradual liberalisation over of of the Hindu Rate of Growth of 3% given by
economy. Professor Raj Krishna.
™™ Average Annual Growth Rate was 6,0% as
against the targeted 5.0% and average of 3.5%
in the previous plans.
™™ It saw the beginning of liberalisation of Indian
economy.
Annual Plan ™™ The Eighth Plan could not take off due to fast changing political situations at the centre. Therefore, from 1990-92, Annual
(1990-92) plans were formulated.

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Eighth Plan ™™ Process of fiscal reforms and economic reforms initiated by™™ Higher economic growth rate of 6.8% achieved
(1992-97) Narasimha Rao Government to prevent another major economic as against the targeted 5.6%.
crisis. ™™ Improvement in trade and current account
™™ To increase the average industrial growth rate to 7.5% deficit.
™™ To provide a new dynamism of the economy and improve the ™™ Significant reduction in fiscal deficit.
quality of life of the common man. ™™ Agriculture growth and industrial growth
™™ Also called as Rao-Manmohan Singh model. increased.
™™ First indicative plan. ™™ Unshackled private sector and foreign
investment control was the prime reason for
high growth.
™™ Overall socio-economic development
indicators low.
™™ The growth became jobless and fruitless.
Ninth Plan (1997- ™™ Growth with social justice and equality. ™™ Global economic slowdown and other factors
02) ™™ Emphasis on Seven Basic Minimum Services (BMSs), which led to revision of targeted growth rate from 7%
included safe drinking water universalisation of primary education, to 6.5%, which too was not achieved.
streamlining PDS among others. ™™ The economy grew at 5.4% only.
™™ Pursued the policy of fiscal consolidation. ™™ Agriculture grew by 2.1% as against the target
™™ Decentralisation of planning with greater reliance on states. of 4.2% per annum.

™™ Ensuring food and nutritional security to all.

™™ Empowerment of women, SC/ST/OBCs.
Tenth Plan (2002- ™™ The Tenth Plan aimed at achieving 8.1% GDP growth assuming that ™™ Increase in GDP growth to 7.6% compared to
07) ICOR (Incremental Capital Output Ratio) will decline from 4.53% to 5.5% compared to 5.5% in the Ninth Plan. The
3.58%. lower than targeted growth rate of 8% was due
™™ It aimed at increasing domestic saving rate from 23.52% to 29.4% to low growth of 3% in the first year of Tenth
of GDP and gross capital formation to 32.2% from 24.4% of GDP. Plan.

™™ To improve the overall framework of governance. ™™ Increase in gross domestic saving and
investment.
™™ Agriculture was the core element.
™™ Reduction in ICOR to 4.2% though higher than
targeted, but less than Ninth Plan's ICOR of
4.53%.
™™ Increase in foreign exchange reserves to US $
287 billion.
™™ However, Tenth Plan fared worst on socio-
economic indicators and the agricultural
growth rate was meagre 2.1%.
Eleventh Plan ™™ Average GDP growth of 8.1% per year. ™™ The growth rate during the Eleventh Plan
(2007-12) ™™ Agricultural GDP growth of 4% per year. Generation of 58 million period was about 7.9%, which is higher than
employment opportunities. the 7.8% growth rate achieved in the Tenth
Plan.
™™ Sex ratio for age group 0-6 years to be raised to 935 by 2011-12 and
to 950 by 2016-17. ™™ As against the target of 4% growth in the
agriculture sector, the plan could register a
growth of only 3% during 2007-12 period.
™™ The services sector continued to register a
growth rate of more than 10%. However, the
industrial growth rate showed at 7.9%.
Twelfth Plan ™™ Average GDP growth of 8% per year. ™™ GDD growth rate achieved of FY of 2012-13,
(2012-17) ™™ Seek to achieve 4% growth in agricultural sector. 2013-14, 2014-15, 2015-16 and 2016-17 was
(expended by 5.6, 6.6, 7.5, 8.0 and 6.6 percent respectively.
six months till ™™ Reducing head court poverty by 10%
™™ Child sex ratio (0-6) was 914.
September 2017) ™™ Improving child sex ratio (0-6) to 950.
™™ Final report not published.
™™ Providing access to banking services to 90% Indian households

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Objectives
NITI Aayog (National Institution
™™ To foster cooperative federalism through structured
for Transforming India) support initiatives and mechanisms with the States
on a continuous basis, recognizing that strong
Background States make a strong nation.To develop mechanisms
™™ Planning has been in Indian psyche as our leaders to formulate credible plans at the village level and
came under influence of the socialist clime of aggregate these progressively at higher levels of
erstwhile USSR. Planning commission served as government.
the planning vehicle for close to six decades with a ™™ To ensure, on areas that are specifically referred
focus on control and command approach. to it, that the interests of national security are
™™ Planning Commission was replaced by a new incorporated in economic strategy and policy.
institution – NITI AAYYOG on January 1, 2015 with ™™ To pay special attention to the sections of our society
emphasis on ‘Bottom –Up’ approach to envisage that may be at risk of not benefitting adequately
the vision of Maximum Governance, Minimum from economic progress.
Government, echoing the spirit of ‘Cooperative ™™ To provide advice and encourage partnerships
Federalism’. between key stakeholders and national and
Administrative Skeltal international like-minded Think Tanks, as well as
™™ Chairperson: Prime Minister educational and policy research institutions.
™™ To create a knowledge, innovation and
™™ Vice-Chairperson: To be appointed by Prime-
entrepreneurial support system through a
Minister
collaborative community of national and
™™ Governing Council: Chief Ministers of all states and international experts, practitioners and other
Lt. Governors of Union Territories. partners.
™™ Regional Council: To address specific regional ™™ To offer a platform for resolution of inter-sectoral
issues, Comprising Chief Ministers and Lt. Governors and inter-departmental issues in order to accelerate
Chaired by Prime Minister or his nominee. the implementation of the development agenda.
™™ Adhoc Membership: 2 member in ex-officio ™™ To maintain a state-of-the-art Resource Centre, be a
capacity from leading Research institutions on repository of research on good governance and best
rotational basis. practices in sustainable and equitable development
™™ Ex-Officio membership: Maximum four from as well as help their dissemination to stake-holders.
Union council of ministers to be nominated by Challenges
Prime minister. ™™ To prove its mettle in policy formulation, the
™™ Chief Executive Officer: Appointed by Prime- NITI Aayog needs to prioritize from the long list
minister for a fixed tenure, in rank of Secretary to of 13 objectives with clear understanding of the
Government of India. difference in policy, planning and strategy.
™™ Special Invitees: Experts, Specialists with domain ™™ To build the trust, faith and confidence more
knowledge nominated by Prime-minister. than the planning commission, NITI Aayog needs
NITI Aayog Hubs freedom of various kinds with budgetary provisions
not in terms of plan and non-plan expenditures
1. Team India Hub acts as interface between States but revenue and capital expenditure as the higher
and Centre.
rate of increase in capital expenditure can remove
2. Knowledge and Innovation Hub builds the think- infrastructural deficits at all levels of operation in
tank acumen of NITI Aayog. the economy.
™™ The Aayog planned to come out with three
NITI Aayog Planning Commission
documents — 3-year action agenda, 7-year
It serves as an advisory Think It served as extra-constitutional
mediumterm strategy paper and 15-year vision
Tank. body.
document.
It draws membership from a It had limited expertise.
Importance wider expertise.
™™ The 65 year-old Planning Commission had become It serves in spirit of Cooperative States participated as spectators
a redundant organization. It was relevant in a Federalism as states are equal in annual plan meetings.
partners.
command economy structure, but not any longer.
Secretaries to be known as CEO Secretaries were appointed
™™ India is a diversified country and its states are in appointed by Prime- Minister. through usual process.
various phases of economic development along
It focuses upon ‘Bottom-Up’ It followed a ‘Top-Down’
with their own strengths and weaknesses. approach of Planning. approach.
™™ In this context, a ‘one size fits all’ approach to It does not possess mandate to Imposed policies on states and
economic planning is obsolete. It cannot make India impose policies. tied allocation of funds with
competitive in today’s global economy. projects it approved.

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It does not have powers to It had powers to allocate ™™ The 17 SDGs are a bold commitment to finish what
allocate funds, which are vested funds to ministries and state the Millennium.
in Finance Minister. governments.
™™ Development Goals (MDGs) started, and tackle
Way Forward some of the more pressing challenges.
™™ Decentralization of planning but within a five-year ™™ The SDG India Index 2020–21 is also live on an
plan framework. online dashboard, which has crosssectoral relevance
™™ Bureaucratic inertia need to be shaken, specializing across policy, civil society, business, and academia.
it and fixing the accountability on basis of Methodology:
performance. ™™ The SDG India Index computes goal-wise scores on
™™ NITI Aayog could emerge as an agent of change the 16 SDGs for each State and Union Territory.
over time and contribute to the government’s ™™ These scores range between 0–100, and if a State/
agenda of improving governance and implementing UT achieves a score of 100, it signifies it has achieved
innovative measures for better delivery of public the 2030 targets.
services.
zz The higher the score of a State/UT, the greater
™™ NITI Aayog continues to be representative of the distance to target achieved.
efficient, transparent, innovative and accountable
governance system in country with distinguished ™™ States and Union Territories are classified in four
categories based on their SDG India Index score:
work ethics. Aspirant (0–49), Performer (50–64), Front-Runner
SDG India Index 2020-21: NITI Aayog (65–99), Achiever (100).
Why in News Comparison with Previous Editions:
™™ Recently, the third edition of the Sustainable ™™ The SDG India Index 2020–21 is more robust than
Development Goals (SDG) India Index and the previous editions on account of wider coverage
Dashboard 2020–21 was released by NITI Aayog. of targets and indicators with greater alignment
zz The SDG India Index 2020–21 is developed in with the National Indicator Framework (NIF).
collaboration with the United Nations in India. ™™ The 115 indicators incorporate 16 out of 17 SDGs,
with a qualitative assessment on Goal 17, and cover
70 SDG targets.
™™ This is an improvement over the 2018–19 and
2019–20 editions of the index, which had utilised
62 indicators across 39 targets and 13 Goals, and
100 indicators across 54 targets and 16 Goals,
respectively.
National Analysis:
™™ The country’s overall SDG score improved by 6
points - from 60 in 2019 to 66 in 2020–21.
zz Currently, there are no states in the aspirant
and achiever category; 15 states/UTs are in the
performer category and 22 states/UTs in the
front runner category.
About: ™™ India saw significant improvement in the SDGs
™™ The NITI Aayog launched its index in 2018 to related to clean energy, urban development and
monitor the country’s progress on the Goals through health in 2020. However, there has been a major
data-driven assessment, and foster a competitive decline in the areas of industry, innovation and
spirit among the States and Union Territories in infrastructure as well as decent work and economic
achieving them. growth.
™™ NITI Aayog has the twin mandate to oversee the State Wise Performance:
adoption and monitoring of the SDGs in the country, ™™ Kerala retained its position at the top of the rankings
and also promote competitive and cooperative in the third edition of the index, with a score of 75,
federalism among States and UTs. followed by Tamil Nadu and Himachal Pradesh,
™™ The index represents the articulation of the both scoring 72.
comprehensive nature of the Global Goals under the ™™ At the other end of the scale, Bihar, Jharkhand and
2030 Agenda while being attuned to the national Assam were the worst performing States. However,
priorities. all States showed some improvement from last
™™ In 2015, the UNs General Assembly adopted the year’s scores, with Mizoram and Haryana seeing the
2030 Agenda for Sustainable Development. biggest gains.

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4. Net National Product (NNP) at Factor Cost

Concepts of National Income (National Income): NNP at factor cost or National
The important concepts of national income are: Income is the sum of wages, rent, interest and profits
paid to factors for their contribution to the production
1. Gross Domestic Product (GDP)
of goods and services in a year. It may be noted that:
2. Gross National Product (GNP)
NNP at Factor Cost = NNP at Market Price – Indirect
3. Net National Product (NNP) at Market Prices Taxes + Subsidies.
4. Net National Product (NNP) at Factor Cost or 5. Personal Income: Personal income is the
National Income sum of all incomes actually received by all individuals
5. Personal Income or households during a given year. In National Income
6. Disposable Income there are some income, which is earned but not
actually received by households such as Social Security
Let us explain these concepts of National Income in
contributions, corporate income taxes and undistributed
detail.
profits. On the other hand there are income (transfer
1. Gross Domestic Product (GDP): Gross payment), which is received but not currently earned
Domestic Product (GDP) is the total market value of all such as old age pensions, unemployment doles, relief
final goods and services currently produced within the payments, etc. Thus, in moving from national income to
domestic territory of a country in a year. personal income we must subtract the incomes earned
Four things must be noted regarding this definition. but not received and add incomes received but not
First, it measures the market value of annual output currently earned. Therefore,
of goods and services currently produced. This implies Personal Income = National Income – Social Security
that GDP is a monetary measure. contributions – corporate income taxes – undistributed
Secondly, for calculating GDP accurately, all goods corporate profits + transfer payments.
and services produced in any given year must be counted Disposable Income: From personal income if
only once so as to avoid double counting. So, GDP should we deduct personal taxes like income taxes, personal
include the value of only final goods and services and property taxes etc. what remains is called disposable
ignores the transactions involving intermediate goods. income. Thus,
Thirdly, GDP includes only currently produced Disposable Income = Personal income – personal
goods and services in a year. Market transactions taxes.
involving goods produced in the previous periods such
Disposable Income can either be consumed or
as old houses, old cars, factories built earlier are not
saved. Therefore,
included in GDP of the current year.
Disposable Income = consumption + saving.
Lastly, GDP refers to the value of goods and services
produced within the domestic territory of a country by Measurement of National Income
nationals or non-nationals. Production generate incomes which are again spent
2. Gross National Product (GNP): Gross National on goods and services produced. Therefore, national
Product is the total market value of all final goods and income can be measured by three methods:
services produced in a year. GNP includes net factor 1. Output or Production method
income from abroad whereas GDP does not. Therefore, 2. Income method, and
GNP = GDP + Net factor income from abroad. 3. Expenditure method.
Net factor income from abroad = factor income Let us discuss these methods in detail.
received by Indian nationals from abroad – factor
1. Output or Production Method: This method
income paid to foreign nationals working in India.
is also called the value-added method. This method
3. Net National Product (NNP) at Market Price:
approaches national income from the output side.
NNP is the market value of all final goods and services
Under this method, the economy is divided into
after providing for depreciation. That is, when charges
different sectors such as agriculture, fishing, mining,
for depreciation are deducted from the GNP we get NNP
construction, manufacturing, trade and commerce,
at market price. Therefore’
transport, communication and other services. Then, the
NNP = GNP – Depreciation gross product is found out by adding up the net values of
Depreciation is the consumption of fixed capital or all the production that has taken place in these sectors
fall in the value of fixed capital due to wear and tear. during a given year.

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In order to arrive at the net value of production of are both conceptual and statistical in nature. Some of
a given industry, intermediate goods purchase by the these difficulties or problems are discuss below:
producers of this industry are deducted from the gross 1. The first problem relates to the treatment of non-
value of production of that industry. The aggregate or monetary transactions such as the services of
net values of production of all the industry and sectors housewives and farm output consumed at home.
of the economy plus the net factor income from abroad On this point, the general agreement seems to be to
will give us the GNP. If we deduct depreciation from the exclude the services of housewives while including
GNP we get NNP at market price. NNP at market price –
the value of farm output consumed at home in the
indirect taxes + subsidies will give us NNP at factor cost
estimates of national income.
or National Income.
2. The second difficulty arises with regard to the
The output method can be used where there exists a
treatment of the government in national income
census of production for the year. The advantage of this
accounts. On this point the general viewpoint is
method is that it reveals the contributions and relative
that as regards the administrative functions of
importance and of the different sectors of the economy.
the government like justice, administrative and
2. Income Method: This method approaches defense are concerned they should be treated as
national income from the distribution side. According to giving rise to final consumption of such services
this method, national income is obtained by summing by the community as a whole so that contribution
up of the incomes of all individuals in the country. of general government activities will be equal
Thus, national income is calculated by adding up the
to the amount of wages and salaries paid by the
rent of land, wages and salaries of employees, interest
government. Capital formation by the government
on capital, profits of entrepreneurs and income of self-
is treated as the same as capital formation by any
employed people.
other enterprise.
This method of estimating national income has
3. The third major problem arises with regard to the
the great advantage of indicating the distribution of
treatment of income arising out of the foreign firm
national income among different income groups such as
in a country. On this point, the IMF viewpoint is that
landlords, capitalists, workers, etc.
production and income arising from an enterprise
3. Expenditure Method: This method arrives at should be ascribed to the territory in which
national income by adding up all the expenditure made production takes place. However, profits earned
on goods and services during a year. Thus, the national by foreign companies are credited to the parent
income is found by adding up the following types of
company.
expenditure by households, private business enterprises
and the government:- Special Difficulties of Measuring National Income
(a) Expenditure on consumer goods and services by in Under-developed Countries
individuals and households denoted by C. This is In under-developed countries like India, we face
called personal consumption expenditure denoted some special difficulties in estimating national income.
by C. Some of these difficulties are:
(b) Expenditure by private business enterprises 1. The first difficulty arises because of the prevalence
on capital goods and on making additions to of non-monetised transactions in such countries so
inventories or stocks in a year. This is called gross that a considerable part of the output does not come
domestic private investment denoted by I. into the market at all. Agriculture still being in the
(c) Government’s expenditure on goods and services nature of subsistence farming in these countries, a
i.e. government purchases denoted by G. major part of output is consumed at the farm itself.
(d) Expenditure made by foreigners on goods and 2. Because of illiteracy, most producers have no idea
services of the national economy over and above of the quantity and value of their output and do
what this economy spends on the output of the not keep regular accounts. This makes the task of
foreign countries i.e. exports – imports denoted by getting reliable information very difficult.
(X – M). Thus, 3. Because of under-development, occupational
specialization is still incomplete, so that there is
GDP = C + I + G + (X – M).
lack of differentiation in economic functioning. An
Difficulties in the Measurement of National individual may receive income partly from farm
Income ownership, partly from manual work in industry
There are many difficulties in measuring national in the slack season, etc. This makes the task of
income of a country accurately. The difficulties involved estimating national income very difficult.

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4. Another difficulty in measuring national income handicap in measuring national income in these
in under-developed countries arises because countries.
production, both agriculture and industrial, is Gross Value Added (GVA) Vs. GDP
unorganized and scattered in these countries. In Gross value added (GVA) is defined as the value of
India, agriculture, household craft, and indigenous output less the value of intermediate consumption. Value
banking are the unorganized and scattered sectors. added represents the contribution of labour and capital
An assessment of output produced by self-employed to the production process. When the value of taxes on
agriculturist, small producers and owners of products (less subsidies on products) is added, the sum
household enterprises in the unorganized sectors of value added for all resident units gives the value of
requires an element of guesswork, which makes the gross domestic product (GDP). Thus, Gross Domestic
figure of national income unreliable. Product (GDP) of any nation represents the sum total
of gross value added (GVA) (i.e, without discounting for
5. In under-developed countries there is a general capital consumption or depreciation) in all the sectors
lack of adequate statistical data. Inadequacy, non- of that economy during the said year after adjusting for
availability and unreliability of statistics is a great taxes and subsidies.

Introduction of GVA at basic prices in India and GDP at market prices include both production and
In India, GDP is estimated by Central Statistical product taxes and excludes both production and product
Office (CSO). Under the Fiscal Responsibility and Budget subsidies.
Management Act 2003 and Rules thereunder, Ministry The relationship between GVA at Factor Cost and
of Finance uses the GDP numbers (at current prices) GVA at Basic Prices and GDP at market prices and GVA at
to peg the fiscal targets. For this purpose, Ministry of basic prices is shown below:
Finance makes their own projections about GDP for the
GVA at factor cost + (Production taxes less
coming two years while specifying future fiscal targets.
Production subsidies) = GVA at basic prices
In the revision of National Accounts statistics done
GDP at market prices = GVA at basic prices + Product
by Central Statistical Organization (CSO) in January
2015, it was decided that sector-wise wise estimates taxes- Product subsidies
of Gross Value Added (GVA) will now be given at basic Production taxes or production subsidies are
prices instead of factor cost. In simple terms, for any paid or received with relation to production and are
commodity the basic price is the amount receivable by independent of the volume of actual production. Some
the producer from the purchaser for a unit of a product examples of production taxes are land revenues, stamps
minus any tax on the product plus any subsidy on the and registration fees and tax on profession. Some
product. However, GVA at basic prices will include production subsidies include subsidies to Railways,
production taxes and exclude production subsidies input subsidies to farmers, subsidies to village and small
available on the commodity. On the other hand, GVA at industries, administrative subsidies to corporations or
factor cost includes no taxes and excludes no subsidies cooperatives, etc. Product taxes or subsidies are paid

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or received on per unit of product. Some examples of In cases (b) and (c), the items taxes on products and
product taxes are excise tax, sales tax, service tax and subsidies on products includes taxes and subsidies on
import and export duties. Product subsidies include imports as well as on outputs.
food, petroleum and fertilizer subsidies, interest The government has approved the merger of
subsidies given to farmers, households, etc. through National Sample Survey Office (NSSO) with the Central
banks. Statistics Office (CSO) under the Ministry of Statistics
The concept of GVA at basic prices follows from and Programme Implementation (MoSPI).
the United Nation's System of National Accounts (SNA) The restructuring is in line with the proposed
introduced in 1993 and carried forward in an identical National Policy on Official Statistics which was floated
fashion in SNA 2008 as a part of revision of compilation last year. The policy suggests discontinuing with the
and classification systems. This has been adopted by role of the Chief Statistician of India as secretary to the
CSO in its base revision carried out in January 2015. National Statistical Commission (NSC) and doing away
Deriving GDP from the GVA with the usage of the terms CSO and NSSO Instead, the
two will be treated as being under a single entity called
From these various concepts of GVA, one can arrive the National Statistical Organisation (NSO).
at an estimate of GDP in the following manner:
The policy is based on a 2005 decision in the
GDP = the sum of the gross value added at producers’ United Progressive Alliance (UPA) government’s tenure,
prices, plus taxes on imports, less subsidies on imports, following the recommendations of the report of the
plus non-deductible VAT. National Statistical Commission, headed by former
GDP = the sum of the gross value added at basic Reserve Bank of India governor C Rangarajan.
prices, plus all taxes on products, less all subsidies on MoSPI said the restructuring will “streamline and
products. strengthen the present nodal functions” and “to bring in
GDP = the sum of the gross value added at factor more synergy by integrating its administrative functions
cost plus all taxes on products, less all subsidies on within the ministry.”
products, plus all other taxes on production, less all The proposed NSO would be headed by MoSPI
other subsidies on production. secretary.

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2. By analyzing the BOP accounts of the last year

External Sector one can come to know the overall gains and losses
Balance of Payment (BOP): Definition and from international trade. It can be ascertained that
whether composition and direction of international
Components
trade and capital movements have improved or
Balance of Payment (BOP) of ac country can be
caused deterioration in the economic condition of
defined as a systematic statement of all economic
the country.
transactions of a country with the rest of the world
during a specific period usually one year. The systematic 3. BPO statements give warning signals for future
accounting is done on the basis of double entry book policy formation.
keeping (both sides of transactions credit and debit For preparing a BOP accounts, economic
are included). Economic transaction includes all transactions between a country and rest of the world
such transactions that involve the transfer of title or are grouped under two broad categories:
ownership of goods and services, money and assets.
A. Current Account
B. Capital Account
C. Financial Account
A. Current Account: It includes export and import
of gods and services i.e. visible and invisible trade. This
type of transaction changes (increase or decreases) the
current level of consumption of the country.
Within the current account are credits and debits
on the trade of merchandise, which includes goods
such as raw materials and manufactured goods that are
bought, sold or given away (possibly in the form of aid).
Definition of Balance of Payment (BOP) Services refer to receipts from tourism, transportation
Balance of Payment (BOP) of a country can be (like the levy that must be paid in Egypt when a ship
defined as a systematic statement of all economic passes through the Suez Canal), engineering, business
transactions of a country with the rest of the world service fees (from lawyers or management consulting,
during a specific period usually one year. for example), and royalties from patents and copyrights.
The systematic accounting is done on the basis of When combined, goods and services together make up a
double entry book keeping (both sides of transactions country's balance of trade (BOT).
credit and debit are included). Economic transaction The BOT is typically the biggest bulk of a country's
includes all such transactions that involve the transfer of balance of payments as it makes up total imports and
title or ownership of goods and services, money and assets. exports. If a country has a balance of trade deficit, it
The Balance of Payments (BOP) is the method imports more than it exports, and if it has a balance of
countries use to monitor all international monetary trade surplus, it exports more than it imports.
transactions at a specific period of time. Usually, the BOP
Receipts from income-generating assets such as
is calculated every quarter and every calendar year. All
stocks (in the form of dividends) are also recorded in
trades conducted by both the private and public sectors
the current account. The last component of the current
are accounted for in the BOP in order to determine how
much money is going in and out of a country. account is unilateral transfers. These are credits that
are mostly worker's remittances, which are salaries
If a country has received money, this is known
sent back into the home country of a national working
as a credit, and, if a country has paid or given money,
abroad, as well as foreign aids that are directly received.
the transaction is counted as a debit. Theoretically, the
BOP should be zero, meaning that assets (credits) and B. Capital Account: Inflow and outflow of capital
liabilities (debits) should balance. But in practice this is including foreign investment, gold and foreign exchange
rarely the case and, thus, the BOP can tell the observer if reserves. This is of stock nature.
a country has a deficit or a surplus and from which part The capital account is where all international capital
of the economy the discrepancies are stemming. transfers are recorded. This refers to the acquisition or
Purposes of calculation of Balance of Payment: disposal of non-financial assets (for example, a physical
1. The basic purpose of BOP accounting is to know asset such as land) and non-produced assets, which are
the strength and weaknesses of the Economy in needed for production but have not been produced, like
international relations. a mine used for the extraction of diamonds.

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The capital account is broken down into the After the collapse of Breton Woods’s system in
monetary flows branching from debt forgiveness, the 1971, the various countries switched over to the
transfer of goods, and financial assets by migrants floating foreign exchange rate system. Under the
leaving or entering a country, the transfer of ownership floating or flexible exchange rate system, exchange rates
on fixed assets (assets such as equipment used in the between different national currencies are allowed to be
production process to generate income), the transfer of determined through market demand for and supply of
funds received to the sale or acquisition of fixed assets, the same.
gift and inheritance taxes, death levies, and, finally, Convertibility of Rupee:
uninsured damage to fixed assets.
For the first time, the Union Budget for 1992-93
C. The Financial Account: In the financial has made the Indian rupee partially convertible. This
account, international monetary flows related to was an inevitable move for the expeditious integration
investment in business, real estate, bonds and stocks are of Indian economy with that of the world In order to
documented. face the serious current account deficit in the balance
Also included are government-owned assets such of payments, the Government of India introduced the
as foreign reserves, gold, special drawing rights (SDRs) partial convertibility of rupee from March 1. 1992.
held with the International Monetary Fund, private Under this system, which remained in operation
assets held abroad, and direct foreign investment. for a period of one year, 60 per cent of the exchange
Assets owned by foreigners, private and official, are also earnings were convertible in rupees at market
recorded in the financial account. determined exchange rate and the remaining 40 per
cent earnings were convertible in rupees at the officially
The Balancing Act
determined exchange rate. The term convertibility of a
The current account should be balanced against the currency indicates that it can be freely converted into
combined-capital and financial accounts. However, as any other currency. Convertibility can also be identified
mentioned above, this rarely happens. We should also as the removal of quantitative restrictions on trade and
note that, with fluctuating exchange rates, the change payments on current account. Convertibility establishes
in the value of money can add to BOP discrepancies. a system where the market place determines the rate
When there is a deficit in the current account, which is a of exchange through the free interplay of demand and
balance of trade deficit, the difference can be borrowed supply forces.
or funded by the capital account.
Current Account Convertibility: Meaning
If a country has a fixed asset abroad, this borrowed
Current account convertibility is the next phase for
amount is marked as a capital account outflow. However,
attaining full convertibility of rupee. Current account
the sale of that fixed asset would be considered a convertibility relates to the removal of restrictions
current account inflow (earnings from investments). on payments relating to the international exchange
The current account deficit would thus be funded. of goals, services and factor incomes, while capital
When a country has a current account deficit that is account convertibility refers to a similar liberalization
financed by the capital account, the country is actually of a country’s capital transactions such as loans and
foregoing capital assets for more goods and services. If a investment, both short term and long term.
country is borrowing money to fund its current account Current account convertibility has been defined
deficit, this would appear as an inflow of foreign capital as the freedom to buy or sell foreign exchange for the
in the BOP. When the export of a country exceeds the following international transactions:
import, then BOP is termed as the favourable BOP or
(a) All payments due in connection with foreign trade,
surplus BOP. But when import exceeds the export, then
other current business, including services and
BOP is termed as the unfavourable or deficit BOP.
normal short term banking and credit facilities;
Convertibility of Currency in India (b) Payments due as interest on loans and as net income
Prior to the First World War the whole world from other investments;
was having gold standard under which the currency (c) Payments of moderate amount of amortization of
in circulation was allowed to get converted either in loans or for depreciation of direct investment; and
gold or other currencies based on the gold standard.
(d) Moderate remittances for family living expenses.
But after the failure of Bretton woods system in 1971
this system changed. Presently convertibility of money Capital Account Convertibility: Meaning
implies a system where a country’s currency becomes Capital account convertibility refers to a
convertible in foreign exchange and vice versa. Since liberalization of a country’s capital transactions such as
1994, Indian rupee has been made fully convertible in loans and investment, both short term and long term as
current account transactions. well as speculative capital flows.

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In a way, capital account convertibility removes all become more expensive after convertibility of a
the restrains on international flows on India’s capital currency. This discourages imports and gives boost
account. There is a basic difference between current to import substitution.
account convertibility and capital account convertibility. ™™ Incentive to send remittances from abroad:
In the case of current account convertibility, it is Thirdly, rupee convertibility provided greater
important to have a transaction – importing and incentives to send remittances of foreign exchange
exporting of goods, buying and selling of services, by Indian workers living abroad and by NRI. Further,
inward or outward remittances, etc. involving payment it makes illegal remittance such ‘hawala money’ and
or receipt of one currency against another currency. smuggling of gold less attractive.
In the case of capital account convertibility, a currency
™™ A self – Balancing Ability: Another important
can be converted into any other currency without any
merit of currency convertibility lies in its self-
transaction. balancing mechanism. When balance of payments
Current Status of Capital Account Convertibility is in deficit due to over-valued exchange rate,
(a) Capital account convertibility exists for foreign under currency convertibility, the currency of the
investors and Non-Resident Indians (NRIs) for country depreciates which gives boost to exports
undertaking direct and portfolio investment in by lowering their prices on the one hand and
India. discourages imports by raising their prices on the
other. In this way, deficit in balance of payments get
(b) Indian investment abroad up to US $ 4 million is
automatically corrected without intervention by
eligible for automatic approval by the RBI subject to
the Government or its Central bank. The opposite
certain conditions. happens when balance of payments is in surplus
(c) In September 1995, the RBI appointed a special due to the under-valued exchange rate.
committee to process all applications involving ™™ Integration of World Economy: Currency
Indian direct foreign investment abroad beyond convertibility gives the chance to Indian economy
US $ 4 million or those not qualifying for fast track to interact with the rest the world economy. As
clearance. under currency convertibility there is easy access
Tara-pore Committee’s Second Report on Capital to foreign exchange, it greatly helps the growth of
Account Convertibility (July 2006) trade and capital flows between the countries. The
With the growing strength of balance of payments in expan¬sion in trade and capital flows between
the post-1991 period and with external sector remaining countries will ensure rapid economic growth in
robust and gaining strength every year and the relative the econo¬mies of the world. In fact, currency
macro economic stability with high growth providing a convertibility is said to be a prerequisite for the
conducive environment relaxation of capital controls, success of Globalisation.
RBI, in pursuance of the announcement the Prime The Benefits of Capital Account Convertibility
Minister constituted a committee on March 20, 2006 The Tarapore Committee mentioned the
with Mr. S.S. Tarapore as its chairman for setting out a following benefits of capital account convertibility
roadways towards fuller capital account convertibility. to India:
The committee submitted its Report to the RBI on July
1. Availability of large funds to supplement domestic
31, 2006.
resources and thereby promote economic growth.
Advantages of Currency Convertibility 2. Improved access to international financial markets
™™ Export promotion: An important advantage of and reduction in cost of capital.
currency convertibility is that it encourages exports 3. Incentive for Indians to acquire and hold
by increasing their profitability. With convertibility international securities and assets, and
profitability of exports increases because market
4. Improvement of the financial system in the context
foreign exchange rate is higher than the previous
of global competition.
officially fixed exchange rate. This implies that
from given exports, exporters can get more rupees 5. Freedom to convert local financial assets into
against foreign exchange (e.g. US dollars) earned foreign ones at market-determined exchange rates
from exports. Currency convertibility especially 6. Leads to free exchange of currency at lower rates
encourages those exports which have low import- and an unrestricted mobility of capital
intensity. Preconditions for Capital Account Convertibility
™™ Incentive to Import Substitution: Since free or The Tarapore Committee recommended that,
market determined exchange rate is higher than before adopting capital account convertibility (CAC),
the previous officially fixed exchange rate, imports India should fulfill three crucial pre-conditions:

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(i) Fiscal deficit should be reduced to 2% per cent of GDP. Balance of Trade (BoT)
The Government should also set up a Consolidated ™™ Balance of Trade (BoT) is also known as Trade
Sinking Fund (CSF) to reduce Government debt. Balance.
(ii) The Governments should fix the annual inflation ™™ Balance of Trade (Merchandise) = Export of goods –
target below 4 per cent. This was called mandated Import of goods
inflation target — and give foil freedom to RBI to use
monetary weapons to achieve the inflation target. ™™ Balance of Trade (Services) = Export of services –
Import of services
(iii) The Indian financial sector should be strengthened.
For this, interest rates should be folly deregulated, ™™ Note: In general, if someone mentions Balance of
gross non-paying assets (NPAs) should be reduced Trade, he/she is intending only the Balance of Trade
to 5 per cent, the average effective CRR should be (Merchandise)
reduced to 3 per cent and weak banks should either Exports of India
be liquidated or be merged with other strong banks.
™™ Top Export Items: Petroleum products, precious
Foreign Trade stones, drug formulations & biologicals, gold,
Exports and Imports and other precious metals are the top exported
commodities.
Now, India exports around 7500 commodities
to about 190 countries, and imports around 6000 ™™ India’s merchandise exports are less than its
commodities from 140 countries. Exports and Imports merchandise imports.
are not only restricted to commodities (merchandise). Imports of India
Service is also a major export/import item.
™™ Top Import Items: Crude petroleum, gold, petroleum
™™ To make it simple, let’s summarise foreign trade of products, coal, coke & briquettes constitute top
India as below: import items.
™™ Export of goods (merchandise/commodities) ™™ India’s service exports are more than its service
™™ Export of services imports. This means that India has a net service
™™ Import of goods (merchandise/commodities) surplus.
™™ Import of services ™™ However, India’s net services surplus has been
steadily declining in relation to GDP.
Foreign Trade Policy 2023 Objectives
™™ Now, India’s service surplus finances about 50
The objectives of the 2023 Foreign Trade Policy
percent of the merchandise deficit (the trade
(FTP) are as under.
balance).
™™ To integrate India with the global markets: As India
is on the path to becoming a developed nation by Top Trading Partners of India
2047, the policy lays down a blueprint to integrate India’s top five trading partners continue to be the
India with the global markets and make it a reliable USA, China, UAE, Saudi Arabia, and Hong Kong.
and trusted trade partner. Top 10 Export Commodities:-
™™ To build a future-ready India: To build a future- ™™ Petroleum Products
ready India and to fulfil India’s strategic vision of
™™ Pearl, Precious, Semiprecious Stones
making India one of the top exporting nations in the
‘Amrit Kaal’. ™™ Drug Formulations, Biologicals
™™ To create an enabling ecosystem: The approach of ™™ Gold and Other Precious Metal Jewellery
this FTP is to gradually move away from an incentive- ™™ Iron and Steel
based regime and create an enabling ecosystem to ™™ Electric Machinery and equipment
support the philosophy of ‘Atma Nirbhar Bharat’
and ‘Local goes Global’. ™™ Organic Chemicals

™™ To collaborate with state governments: To build and ™™ RMG Cotton including Accessories
encourage export promotion at the district level. ™™ Motor Vehicles/ Cars
™™ To triple India’s goods and services exports: The ™™ Marine Products
new policy will replace the existing policy that had Top 10 Countries to which India exports the most-
been in place since 2015. The new policy aims to
™™ USA
almost triple India’s goods and services exports to
$2 trillion by 2030, from an estimated $760 billion ™™ UAE
in 2022-23. ™™ China PRP

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™™ Hong Kong Total goods imports by India in 2023–24

™™ Singapore decreased by 5.66 percent to US$675.44 billion.
™™ United Kingdom Looking ahead, India is actively working on
™™ Netherland expanding its export portfolio beyond traditional sectors
like iron ore and agricultural commodities. The focus
™™ Germany
is on diversifying into electronics, pharmaceuticals,
™™ Bangladesh PR engineering products, and food items. The Ministry
™™ Nepal of Commerce’s initiative aims to strengthen export
Service Exports: Top Services offerings by introducing goods such as alcohol
beverages, prepared meals, confectioneries, and value-
The composition of service exports has remained
added products like jackfruit and bananas.
largely unchanged over the years.
To tailor products to the preferences and legal
Software services constitute the bulk of it at
requirements of each target market, the commerce
around 40-45 percent, followed by business services
ministry’s strategy will entail thorough market research
at about 18-20 percent, travel at 11-14 percent, and
and analysis.
transportation at 9-11 percent.
Top 10 Import Commodities:
India’s trade performance in FY 2023-24
™™ Petroleum: Crude Trade during FY 2023-24 (April 1, 2023 to March 31, 2024) *

™™ Gold Export/ 2023-24 2022-23

import (US$ billion) (US$ billion)
™™ Petroleum Products
Export 437.06 451.07
™™ Coal, Coke Briquettes, etc. Merchandise
Import 677.24 751.97
™™ Pearl, Precious, Semiprecious Stones Export 339.62 325.33
Services
™™ Electronic Components Import 177.56 182.05

™™ Telecom Instruments Overall trade Export 776.68 776.40

(merchandise Import 854.80 898.01
™™ Organic Chemicals
+ services)* Trade balance -78.12 -121.62
™™ Industrial Machinery for Dairy etc.
Data provided by Ministry of Commerce and Industry
™™ Iron and Steel
The information with (*) indicates that the values are an
Top 10 Countries from which India imports the
estimate and are subjected to revision after the Reserve Bank
most:
of India (RBI) releases trade data for FY 2023-24.
™™ China PRP
The 2023-24 trade data indicates that non-
™™ USA petroleum and non-gems and jewelry exports have
™™ UAE seen a modest increase of 1.45 percent, rising from
™™ Saudi Arabia US$315.64 billion in FY 2022-23 to US$320.21 billion in
FY 2023-24. Key drivers of merchandise export growth
™™ Iraq
in FY24 were electronic goods, drugs & pharmaceuticals,
™™ Switzerland engineering goods, iron ore, cotton yarn, fabrics, and
™™ Hong Kong made-ups, handloom products, ceramic products, and
™™ Korea RP glassware.
™™ Singapore China surpasses the US to become India’s largest
India’s Trade Performance in FY 2023-24 and trading partner
Strategy to Explore According to data from the economic think tank
India has released its latest trade data, forecasting GTRI, China has emerged as India’s largest trading
that export figures will sustain the peak achieved in the partner, surpassing the US, with two-way commerce
previous year, reaching an estimated US$776.68 billion totaling US$118.4 billion in FY 2023-24. In the same
in the fiscal year (FY) 2023–24, slightly surpassing the period, bilateral trade between India and the US
US$776.40 billion recorded in the preceding fiscal year. amounted to US$118.3 billion. Previously, the US was
According to the Ministry of Commerce and Industry, India’s top trading partner in 2021-22 and 2022-23.
FY24 concluded with the highest monthly merchandise GTRI’s analysis shows that India’s exports to China
exports of the fiscal year, totaling US$41.68 billion in experienced a notable increase of 8.7 percent in FY24,
March 2024. reaching US$16.67 billion. Key sectors driving this

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growth included iron ore, cotton yarn/fabrics/madeups, Based on data from the commerce ministry, China
handloom products, spices, fruits and vegetables, as well held the position of India’s primary trading partner
as plastic and linoleum. Meanwhile, imports from China from 2013-14 to 2017-18, and then again in 2020-21.
saw a moderate rise of 3.24 percent, totaling US$101.7 Prior to China’s dominance, the UAE occupied the top
billion. Key import items included high-tech gear like spot as India’s largest trading partner. However, in FY24,
telecom and smartphone parts, laptop and PCs, as well the UAE ranked third with a trade volume of US$83.6
as industrial inputs such as plastic, iron and steel, and billion. Following closely were Russia with US$65.7
chemicals. billion, Saudi Arabia with US$43.4 billion, and Singapore
India top 15 trade partners for 2023-2024 (Apr with US$35.6 billion in trade with India.
2023-Feb 2024) (Value in US$ million) In FY24, imports from India’s key free trade agreement
(FTA) partners (South Korea, Japan, Australia, UAE,
India top 15 trade partners for 2023-2024 (Apr 2023-Feb 2024) (Value
in US$ million) Mauritius, ASEAN, and SAFTA) exhibited a robust growth
Rank Country/Region Export Import rate, outpacing the overall influx of goods into the country.
1 China 15,102.42 93,997.58
Specifically, these imports saw an impressive increase of
nearly 38 percent, reaching a total of US$187.92 billion.
2 USA 70,000.96 37,637.14
This growth rate surpassed the 31.4 percent jump in
3 United Arab Emirates 31,618.56 43,129.60
India’s total imports, which amounted to US$675.45 billion
4 Russia 3,820.24 55,591.65
during the same period. India’s total outbound shipments
5 Saudi Arabia 10,365.97 29,127.47
to its FTA partners grew at a more subdued pace.
6 Singapore 12,822.40 19,614.52
Climbing up the ladder of merchandise exports
7 Iraq 3,007.01 26,664.61
8 Indonesia 5,576.05 21,478.16 India’s position among the world’s merchandise
9 Hong Kong 7,743.86 18,479.46
exporters has advanced from 19th to 17th place, with a
marginal increase in its share from 1.70 percent in 2014
10 Republic of Korea 5,899.10 19,471.66
to 1.82 percent in 2023. India states that, despite global
11 Netherland 20,258.00 4,588.86
economic uncertainties, its exports have expanded to
12 Germany 8,856.10 14,944.24
115 countries out of a total of 238 destinations during
13 Australia 7,470.84 14,948.38
the 2023-24 period.
14 Switzerland 1,236.59 20,460.29
These 115 export destinations, which represent
15 Japan 4,684.08 15,984.85
46.5 percent of India’s export portfolio, include key
Data Source: Department of Commerce
markets such as the US, UAE, Netherlands, China, UK,
Conversely, Indian exports to the US witnessed a Saudi Arabia, Singapore, Bangladesh, Germany, and Italy.
slight decrease of 1.32 percent, amounting to US$77.5 While the country’s overall merchandise exports
billion in FY24, compared to US$78.54 billion in 2022– experienced a 3 percent decline to US$437.1 billion in
23. Additionally, imports from the US declined by the previous fiscal year, services exports increased to
approximately 20 percent, settling at US$40.8 billion, as US$341.1 billion in 2023-24, up from U$325.3 billion in
indicated by the data. 2022-23.
Top Sectors in Merchandise Trade FY 2023-24 (value in US$ million)
Export Growth/Degrowth Import Growth/Degrowth
Iron Ore 3913.85 (117.74%) Cotton Raw & Waste 598.63 (-58.39%)
Electronic Goods 29121.26 (23.64%) Fertilizers, Crude & Manufactured 10456.90 (-39.23%)
Tobacco 1449.55 (19.46%) Sulphur & Unroasted Iron Pyrites 211.17 (-37.51%)
Ceramic Products & Glassware 4277.37 (14.44%) Vegetable Oil 14871.65 (-28.63%)
Fruits & Vegetables 3653.31 (13.86%) Pearls, Precious & Semi-Precious Stones 23831.88 (-22.37%)
Meat, Dairy & Poultry Products 4527.31 (12.34%) Coal, Coke & Briquettes, Etc. 38886.93 (-21.81%)
Spices 4251.05 (12.3%) Organic & Inorganic Chemicals 26710.73 (-20.13%)
Coffee 1286.29 (12.22%) Newsprint 425.49 (-18.39%)
Drugs & Pharmaceuticals 27849.24 (9.67%) Project Goods 1321.39 (-17.56%)
Cereal Preparations & Miscellaneous Processed Items 2852.29 (8.96%) Petroleum, Crude & Products 179618.18 (-14.23%)
Oil Seeds 1437.02 (7.43%) Transport Equipment 26937.03 (-14.02%)
Handicrafts Excl. Hand Made Carpet 1802.36 (6.74%) Textile Yarn Fabric, Made-Up Articles 2277.85 (-12.98%)
Cotton Yarn/Fabs. / Made-Ups, Handloom Products Etc. 11682.93 (6.71%) Pulp And Waste Paper 1856.67 (-12.33%)

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India seeking new exports markets crop diversification and promoting processed food
India’s Ministry of Commerce intends to promote products in global markets.
iron ore exports to Kenya, Saudi Arabia, and France. China market access for Indian companies
Additionally, it has identified new markets for Acknowledging India’s concerns regarding its
engineering items in Sao Tome, Macao, Georgia, and substantial trade deficit with China, the newly appointed
Croatia. For agricultural and processed food products, Chinese ambassador, Xu Feihong, expressed Beijing’s
it has secured markets in Nigeria, Switzerland, and willingness to address this issue by enabling more
Lithuania, and for pharmaceuticals, it is exploring new Indian enterprises to access the Chinese market.
markets such as Montenegro and South Sudan.
In 2022, India’s trade deficit surpassed the US$100
To support these initiatives, policy interventions billion mark, reaching US$101 billion for the first time.
are underway to strengthen ties with the processed India has approached China to open up sectors such as
food industry through the Agricultural and Processed IT, pharmaceuticals, and grains, which hold significant
Food Products Export Development Authority (APEDA). export potential for India.
Additionally, the government is contemplating lifting
The bilateral trade between India and China
bans on certain exports, such as wheat and rice, to
continues to be robust, with total trade reaching a
further balance trade dynamics.
record US$136.2 billion in 2023. India’s trade deficit
In September 2022, India had imposed a ban on decreased marginally to US$99.2 billion in 2023, from
the trading of broken rice, followed by a prohibition US$100 billion in 2022, according to data from China’s
on wheat exports in May 2022. Effective July 20, 2023, customs authorities.
exports of non-basmati rice were also prohibited.
China is reportedly prepared to assist Indian
Regarding onions, a notification from the Directorate companies in meeting the demands of the Chinese
General of Foreign Trade (DGFT) in December 2023 market and exploring opportunities for commercial and
introduced a minimum export price (MEP) of US$550 trade collaboration. Xu noted that Chinese diplomatic
per tonne. Furthermore, on May 10, 2024, a 40 percent missions in India issued nearly 190,000 visas in 2023,
export tariff on staple vegetables was implemented, with over 80 percent being business visas, underscoring
with onion shipments remaining banned for over six the importance of business travel for bilateral trade. Xu
months. also said that China would offer more support for India’s
Considering lifting the export ban on additional participation in events like the China International
commodities could open up trading opportunities for Import Expo, the China-South Asia Expo, and the Canton
India, potentially enhancing farmers’ income through Fair.

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Special Economic Zone

SEZ is a specifically delineated duty-free enclave and deemed to be foreign territory for purposes of trade
operations and duties and tariffs.
Objectives of SEZ Scheme include: generation of additional economic activity, promotion of exports, promotion
of investment from domestic and foreign sources, creation of employment opportunities along with development of
infrastructure facilities. All laws of India are applicable in SEZs unless specifically exempted as per SEZ Act/ Rules.
SEZ Rules provide for, simplified procedures for conducting business, single window clearances, simplified
compliance procedures and emphasis on self-certification.
Exports from SEZs are growing at a faster rate than overall exports from the country

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vkLFkk IAS INDIAN ECONOMY

In December 2020, changes in the guidelines for the

FDI in India provision of Direct-to-Home (DTH) services have been
approved by the Union Cabinet, enabling 100% FDI in
Apart from being a critical driver of economic
the DTH broadcasting services market.
growth, Foreign Direct Investment (FDI) has been a
major non-debt financial resource for the economic Road ahead
development of India. Foreign companies invest in India India is expected to attract foreign direct investments
to take advantage of relatively lower wages, special (FDI) of US$ 120-160 billion per year by 2025, according
investment privileges like tax exemptions, etc. For a to CII and EY report. Over the past 10 years, the country
country where foreign investment is being made, it also witnessed a 6.8% rise in GDP with FDI increasing to GDP
means achieving technical know-how and generating at 1.8%.
employment. In terms of attractiveness, investors ranked India
The Indian Government’s favourable policy regime #3; 80% investors have plans to invest in India in the
and robust business environment has ensured that next 2-3 years, while 25% reported investments worth
foreign capital keeps flowing into the country. The >US$ 500 million, the Economic Times reported.
Government has taken many initiatives in recent years Foreign investment
such as relaxing FDI norms across sectors such as Foreign investment is when investors purchase an
defence, PSU oil refineries, telecom, power exchanges, asset in a foreign country, resulting in the cash flow
and stock exchanges, among others. consideration transferring from one country to the
Countries with highest foreign direct investment in India next. Foreign direct investments (FDIs) are long-term
Rank Country Percent
physical investments, such as plants, toll roads, and
bridges within foreign countries.
1 Mauritius 28»
2 Singapore 22» Types of Foreign Investments
3 United States of america 8» Funds from foreign country could be invested
4 Netherlands 7» in shares, properties, ownership / management or
collaboration. Based on this, Foreign Investments are
5 Japan 7»
classified as below.
States receiving the most foreign investment ™™ Foreign Direct Investment (FDI)
Rank State Percent ™™ Foreign Portfolio Investment (FPI)
1 Maharashtra 27» ™™ Foreign Institutional Investment (FII)
2 Gujarat 25»
Foreign Direct Investment (FDI)
3 Karnataka 20»
FDI is an investment made by a company or
4 Delhi 11»
individual who us an entity in one country, in the form of
5 Tamil Nadu 4» controlling ownership in business interests in another
country. FDI could be in the form of either establishing
Sectors receiving maximum foreign investment
business operations or by entering into joint ventures
Rank Area Percent
by mergers and acquisitions, building new facilities etc.
1 Service area 16»
Foreign Portfolio Investment (FPI)
2 computer software and hardware 14»
Foreign Portfolio Investment (FPI) is an investment
3 telecommunications 7»
by foreign entities and non-residents in Indian securities
4 Trade 6»
including shares, government bonds, corporate bonds,
5 automobile industry 6» convertible securities, infrastructure securities etc. The
Government Initiatives intention is to ensure a controlling interest in India at
In December 2020, the government of Uttar Pradesh an investment that is lower than FDI, with flexibility for
entry and exit.
agreed to provide Samsung Display Noida Private
Limited with special incentives to set up a mobile and IT Foreign Institutional Investment (FII)
display product manufacturing unit. Under the Central Foreign Portfolio Investment (FPI) is an investment
Government's scheme for promotion of manufacturing by foreign entities in securities, real property and
electronic components and semiconductors (SPECS), other investment assets. Investors include mutual fund
Samsung will also receive a financial incentive of Rs. companies, hedge fund companies etc. The intention is
460 crore (US$ 62.61 million). This project will develop not to take controlling interest, but to diversify portfolio
a global export hub in Uttar Pradesh and will help the ensuring hedging and to gain high returns with quick
state attract more foreign direct investments (FDI). entry and exit.

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vkLFkk IAS INDIAN ECONOMY

The differences in FPI and FII are mostly in the type 9.6% (US$ 65.19 billion), the Netherlands at 7.17% (US$
of investors and hence the terms FPI and FII are used 48.68 billion), and Japan at 6.17% (US$ 41.92 billion).
interchangeably. The state that received the highest FDI equity inflow
Distinction between FDI and FPI during October 2019-March 2024, was Maharashtra
(US$ 69.08 billion) at 29.68%, followed by Karnataka
FDI FPI
(US$ 51.03 billion) at 21.93%, Gujarat (US$ 39.20
™™ It is long-term investment ™™ It is generally short-term
investment
billion) 16.84%, Delhi (US$ 31.72 billion) 13.63%, and
Tamil Nadu (US$ 10.94 billion) 4.7%.
™™ Investment in physical assets ™™ Investment in financial assets
™™ Aim is to increase enterprise ™™ Aim is to increase capital
India was the third largest recipient of greenfield
capacity or productivity or availability projects with 1,008 greenfield project announcements
change management control as per the World Investment Report 2023. The number
™™ Leads to technology transfer, ™™ FPI results in only capital of international project finance deals in India also
access to markets and inflows increased by 64%, making it the recipient of the second
management inputs largest number of international project finance deals.
™™ FDI flows into the primary ™™ FPI flows into the secondary
market market
During FY23, FDI inflow of US$ 71.35 billion was
reported while during FY24, FDI worth US$ 70.95 billion
™™ Entry and exit is relatively ™™ Entry and exist is relatively
difficult easy has been reported on provisional basis.
™™ FDI is eligible for profits of ™™ FPI is eligible for capital gain INVESTMENTS/DEVELOPMENTS
the company
India has become an attractive destination for FDI
™™ Does not tend be speculative ™™ Tends to be speculative in recent years, influenced by several factors which have
™™ Direct impact on ™™ No direct impact on boosted FDI. India ranked 40th in the World Competitive
employment of labour and employment of labour and Index 2023 jumping 3 positions from the 43rd rank in
wages wages
2021. India was also named as the 48th most innovative
™™ Fleeting interest in mgt.
country among the top 50 countries, securing 40th
Foreign direct investment in India is a major position out of 132 economies in the Global Innovation
monetary source for economic development in India. Index 2023. India rose from 81st position in 2015 to
Foreign companies invest directly in fast growing 40th position in 2023. These factors have boosted FDI
private auspicious businesses to take benefits of investments in India. Some of the recent developments
cheaper wages and changing business environment of are as follows:
India. Economic liberalisation started in India in wake of According to the RBI data, the net FDI flows in
the 1991 economic crisis and since then FDI has steadily India for FY24 were US$ 10.58 billion. Of the US$
increased in India, which subsequently generated more 70.9 billion gross FDI inflows in the country, US$ 44.4
than one crore (10 million) jobs. billion was repatriated through dividends, share sale
India's FDI inflows have increased ~20 times from or disinvestment, while US$15.96 billion was invested
overseas by the Indians. Indian companies also
2000-01 to 2023-24. According to the Department
announced over 550 greenfield FDI projects abroad, as
for Promotion of Industry and Internal Trade (DPIIT),
per the RBI report.
India's cumulative FDI inflow stood at US$ 990.97
billion between April 2000-March 2024, mainly due to Routes
the government's efforts to improve the ease of doing FDI Routes in India
business and easing of FDI norms. The total FDI inflow There are three routes through which FDI flows into
into India from April 2023 to March 2024 stood at US$ India. They are described in the following table:
70.95 billion and FDI equity inflow for the same period
stood at US$ 44.42 billion. Category 1 Category 2 Category 3
100% FDI permitted Up to 100% FDI Up to 100% FDI
From April 2000-March 2024, India's service sector through Automatic permitted through permitted through
attracted the highest FDI equity inflow of 16.13% Route Government Route Automatic +
amounting to US$ 109.49 billion, followed by the Government Route
computer software and hardware industry at 15.16%, There are three routes by which India gets FDI.
amounting to US$ 102.88 billion, trading at 6.39% (US$ 1. Automatic route: By this route FDI is allowed
43.39 billion), telecommunications at 5.79% (US$ 39.33 without prior approval by Government or Reserve
billion), and automobile industry at 5.34% (US$ 36.27 Bank of India.
billion). 2. Government route: Prior approval by government
India also had major FDI inflows during April is needed via this route. The application needs to
2000-March 2024, coming from Mauritius at US$ be made through Foreign Investment Facilitation
171.85 billion with a total share of 25.31%, followed by Portal, which will facilitate single window clearance
Singapore at 23.56% (US$ 159.94 billion), the USA at of FDI application under Approval Route.

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vkLFkk IAS INDIAN ECONOMY

of $ 1 each. The authorized capital of World Bank has

World Bank increased $ 24 bn to $27 bn. Members countries repay
The International Bank for Reconstruction and the share of the World Bank in the following way:
Development (IBRD) was created in 1944 to help i. Only 2% of allotted share are repaid in gold, US
Europe rebuild after World War II. Today, IBRD provides dollar or SDR.
loans and other assistance primarily to middle income ii. Every member country is free to repay 18% of its
countries. IBRD is the original World Bank institution. capital share in its own currency
It works closely with the rest of the World Bank Group iii. The remaining 80% is deposited by the member
(IBRD, IDA, IFC, MIGA) to help developing countries country on demand by the World Bank.
reduce poverty, promote economic growth, and build
prosperity. IBRD is owned by the governments of its 188 Functions of the World Bank:
member countries. Presently the World Bank is playing the main role
of providing loans for development works to member
countries, especially to under developed countries. The
bank provides loans for various development projects of
5 to 20 years duration.
i. Bank can grant loans to members countries up to 20
% of its share in paid up capital.
ii. Bank also provides loans to private investors
belonging to the members on its own guarantee,
but private investors need to take permission of its
native country. Banks charges 1% to 2% as service
WORLD Bank is also known as The International charge.
Bank for Reconstruction and Development (IBRD). iii. The quantum of loan service, interest rate, terms
The Second World War damages the economies of the and conditions are decided by the World Bank itself.
world. So in 1945 it was realized to concentrate on the
iv. Generally bank grant loans for a particular project
reconstruction of that war damaged economies. The
duly submitted to the bank by the member country.
IBRD was established in Dec. 1945 with the IMF on
the basis of recommendations of the Bretton woods v. he debtor nation has to repay either in reserve
conference that is reason why IMF and World Bank currencies or in the currencies in which the loan
are called Bretton woods twin. IBRD started working was sanctioned.
in June 1946. As on April 2019; the World Bank of 189 Appraisal of the World Bank Activities:–
members. Bank has sanctioned 75% of its loans to developing
Objectives of World Bank: countries of AFRICA, Asia and Latin America while only
25% was given to developed nations of the Europe.
i. To provide long term capital to members countries
But still it is believed by most of the countries that the
for economic reconstruction and development.
developed countries do have good command on the
ii. To induce long term capital investment for assuring governing body of World Bank because of their largest
BOP equilibrium and balanced development of contribution to the exchequer of the bank.
international trade
International Monetary Fund (IMF)
iii. To promote capital investment in members
countries by following ways International Monetary Fund (IMF) and
International Bank for Reconstruction and Development
a. To provide guarantee on private loans or capital
(IBRD) were established at the conference of 44 nations
investment
held at Bretton Woods, New Hampshire, USA in July
b. If capital is not available even after providing 1944. These two international institutions are known as
guarantee, then IBRD provides loans for the Bretton Woods twins.
productive activities on considerate conditions. In this article we have compiled important facts
iv. To ensure the implementation of development about the IMF which is very important for all the
projects so as to bring about a smooth transference competitive exams to be held in India.
from a war time to peace economy. 1. Establishment: The IMF was established in
Capital Resource of World Bank: July 1944 at the United Nations Bretton Woods
Initial authorized capital of World Bank was Conference in New Hampshire, United States.
$10,000 million, which was divided in one lakh shares 2. Founding Members: 44 countries

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3. Total Membership: 189 countries. Generally every 15. Largest borrowers: Greece, Ukraine, Pakistan and
member country of the IMF becomes the members Egypt
of the World Bank. Similarly a country which quits The IMF was established to build a framework for
IMF is automatically expelled from the World Bank. international economic cooperation and avoid repeating
India is founding member of the IMF. the competitive currency devaluations that contributed
4. Headquarters: Washington, D.C. to the Great Depression of the 1930s.
5. Primary Objectives; The World Trade Organization (WTO)
(a) To Promote exchange stability throughout the
Formation 1 January 1995; 25 years ago
world
Type International trade organization
(b) To Promote international monetary Purpose Reduction of tariffs and other barriers to trade
cooperation;
Headquarters Centre William Rappard, Geneva, Switzerland
(c) To Facilitate the expansion and balanced Coordinates 46°13='27"N 06°08'58"ECoordinates: 46°13'27"N
growth of international trade; 06°08'58"E
(d) To Assist in the establishment of a multilateral Region served Worldwide
system of payments; and Membership 164 member states

(e) Make resources available to members Official English, French, Spanish

languages
experiencing Balance of Payments difficulties.
Director-General Vacant
6. Publications: IMF provides periodic assessments
of global prospects in its "World Economic Outlook", The World Trade Organization (WTO) is the only
of financial markets in its "Global Financial Stability global international organization dealing with the rules
Report", of public finance developments in its of trade between nations. At its heart are the WTO
"Fiscal Monitor", and of external positions of the agreements, negotiated and signed by the bulk of the
largest economies in its "External Sector Report", in world’s trading nations and ratified in their parliaments.
addition to a series of Regional Economic Outlooks. The WTO has 164 members (including European
7. Executive Board: 24 Directors each representing Union) and 23 observer governments (like Iran, Iraq,
a single country or groups of countries. Executive Bhutan, Libya etc).
directors are representing around 189 countries. ™™ The GATT became the only multilateral instrument
Every member country nominates 2 governor for (not an institution) governing international trade
attending the meetings of Board of Governors. from 1948 until the WTO was established in 1995.
Generally the Finance Minister of the member
country is the governor at the IMF meetings but in ™™ Despite its institutional deficiencies, the GATT
his absence Governor of the Central Bank represents managed to function as a de facto international
the seat. organization, sponsoring eight rounds (A round is
a series of multilateral negotiations) of multilateral
8. Staff: Approximately 2,700 from 150 countries
trade negotiations.
9. Total Quotas: SDR 477 billion (US$692 billion)
™™ So, the GATT became the only multilateral
10. Special Drawing Right Allocation: Total global instrument governing international trade from
allocations of (Special Drawing Right) SDR are
1948 until the WTO was established in 1995.
currently about SDR 204 billion (some $296 billion).
™™ The Uruguay Round, conducted from 1987 to 1994,
11. SDR Basket: The value of SDR is determined by
culminated in the Marrakesh Agreement, which
the basket of 5 currencies i.e. Euro, US Dollar, Yen,
established the World Trade Organization (WTO).
Chinese Yuan, Pound Sterling. Chinese Yuan was
introduced as the 5th currency in the SDR basket in zz The WTO incorporates the principles of
Oct. 2016. the GATT and provides a more enduring
12. Currency Weightage in SDR: US dollar has highest institutional framework for implementing and
weightage (41.73%) in deciding the value of SDR extending them.
followed by the Euro (30.93%). zz The GATT was concluded in 1947 and is now
13. Quota Share in IMF: Currently Indian quota in the referred to as the GATT 1947. The GATT 1947
IMF is 2.76% (vote share). USA has biggest quota was terminated in 1996 and WTO integrated its
of 17.46% followed by the Japan (6.48%), China provisions into GATT 1994.
(6.41%). ™™ The GATT 1994 is an international treaty binding
14. Lending Capacity: The IMF is able to lend around upon all WTO Members. It is only concerned with
$1 trillion dollar to its member countries. trade in goods.

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The WTO and the United Nations (UN) zz the future work already provided for under
™™ Although the WTO is not a UN specialized agency, it other existing agreements and decisions taken
has maintained strong relations with the UN and its at Marrakesh;
agencies since its establishment. zz possible future work on the basis of the work
™™ The WTO-UN relations are governed by the programme initiated at Singapore;
“Arrangements for Effective Cooperation with zz Priority areas for the next round of
other Intergovernmental Organizations-Relations comprehensive negotiations on agriculture
between the WTO and the United Nations” signed include Market access, Export subsidies etc.
on 15 November 1995.
Seattle, USA November 30 – December 3, 1999
™™ The WTO Director General participates to the Chief (MC3)
Executive Board which is the organ of coordination
within the UN system. ™™ There were two major issues,
zz first, whether to start a new comprehensive
Governance
round of negotiations such as the Uruguay
Ministerial Conference Round or confine negotiations to the so-called
™™ The topmost decision-making body of the WTO is "built in agenda" of agriculture and services
the Ministerial Conference, which usually meets mandated at the last Ministerial.
every two years. zz Secondly, what should the negotiations
The Trade Policy Review Body (TPRB) encompass, more specifically what should be
™™ The WTO General Council meets as the TPRB to included in the agenda of the meeting.
undertake trade policy reviews of Members under ™™ The meeting was unable to resolve both issues, and
the TPRM and to consider the Director-General's ended in stalemate.
regular reports on trade policy development. ™™ The deliberations were suspended without
™™ The TPRB is thus open to all WTO Members. agreement on a new round of negotiations and
Dispute Settlement Body (DSU) without agreement on a ministerial declaration.
™™ The General Council convenes as the Dispute Doha, Qatar 9-13 November 2001 (MC4)
Settlement Body (DSB) to deal with disputes ™™ Agriculture: The special and differential treatment
between WTO members. for developing countries shall be an integral
WTO Ministerial Conferences (MC) part of all elements of the negotiations to enable
The first Ministerial Conference (i.e. MC1) was developing countries to effectively take account of
held in Singapore in 1996 and the last one (MC11) was their development needs, including food security
organised in Buenos Aires in 2017. All these MCs have and rural development.
evolved prevailing current global trading system. ™™ Services: The negotiations on trade in services
Singapore, 9-13 December 1996 (MC1) shall be conducted with a view to promoting the
™™ Trade, foreign, finance and agriculture Ministers economic growth of all trading partners and the
from more than 120 World Trade Organization development of developing and least-developed
Member governments and from those in the process countries.
of acceding to the WTO participated. zz It recognizes the work already undertaken
™™ The following four issues termed as the Singapore in the negotiations, initiated in January 2000
issues were first brought up on which the under Article XIX of the General Agreement on
multilateral body could initiate negotiations: Trade in Services (GATS), and the large number
zz trade and investment of proposals submitted by members on a wide
range of sectors and several horizontal issues,
zz trade facilitation
as well as on movement of natural persons.
zz transparency in government procurement
™™ Market access for non-agricultural products:
zz trade and competition
zz The negotiations shall take fully into account
Geneva, Switzerland 18-20 May 1998 (MC2) the special needs and interests of developing
™™ The Ministerial Declaration included following and least-developed country participants,
work programmes: including through less than full reciprocity in
zz the issues, including those brought forward reduction commitments, in accordance with
by Members, relating to implementation of the relevant provisions of Article XXVIII bis of
existing agreements and decisions; GATT 1994.

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vkLFkk IAS INDIAN ECONOMY

™™ Transparency in government procurement: WTO's work, exchange ideas and extend guidance
zz Recognizing the case for a multilateral on the best way forward in the years to come.
agreement on transparency in government Geneva, Switzerland 15-17 December 2011 (MC8)
procurement and the need for enhanced ™™ The Conference approved the accessions of the
technical assistance and capacity building in Russian Federation, Samoa and Montenegro.
this area, it agreed that negotiations would take
™™ It adopted a number of decisions on intellectual
place on the basis of a decision to be taken, by
property, electronic commerce, small economies,
explicit consensus.
least developed countries’ accession, a services
Cancún, Mexico 10-14 September 2003 (MC5) waiver for least developed countries, and trade
™™ The main task was to take stock of progress in policy reviews.
negotiations and other work under the Doha ™™ It reaffirmed the integrality of special and differential
Development Agenda. treatment provisions to the WTO agreements and
Hong Kong, 13-18 December 2005 (MC6) their determination to fulfil the Doha mandate to
review them with a view to strengthening them
™™ The WTO member economies aimed to reach a and making them more precise, effective and
preliminary agreement on liberalization of farm operational.
trade by reducing subsidies, and address other
issues at meeting, aiming for a successful conclusion Bali, Indonesia 3-6 December 2013 (MC9)
of the Doha Round in 2006. ™™ The Conference adopted the “Bali Package”, a series
of decisions aimed at:
™™ After an intense talk, WTO Members have produced
an interim package for the Doha Round negotiation: zz streamlining trade,
zz the deadlines for the elimination of agricultural zz allowing developing countries more options for
export subsidies (2013) and cotton export providing food security,
subsidies (2006), zz boosting least-developed countries’ trade and
zz and also mandates that duty and quota-free helping development more generally.
access for at least 97% of products originating ™™ The Bali Package is a selection of issues from the
from the least developed countries (LDCs) be broader Doha Round negotiations.
provided by 2008. ™™ The Conference also approved accession of Yemen
zz Regarding non-agricultural market access as a new member of the WTO.
(NAMA), Members adopted the "Swiss formula" Nairobi, Kenya 15-19 December 2015 (MC10)
mandating greater cuts in higher tariffs, and
™™ It culminated in the adoption of the "Nairobi
decided that modalities for tariff reduction be
Package", a series of decisions on agriculture, cotton
established by April 30, 2006.
and issues related to least-developed countries
™™ The Swiss Formula (by the Swiss Delegation to the (LDCs).
WTO) is a suggested method for reducing tariff on ™™ Agriculture:
non-agricultural goods (NAMA) by both developed
zz Special Safeguard Mechanism for Developing
and developing countries.
Country Members;
™™ It makes different coefficients for developed and
zz Public Stockholding for Food Security Purposes;
developing countries.
zz Export Competition;
™™ Here, tariff-cuts are supposed to be undertaken
such that it cuts higher tariffs more steeply than it ™™ Cotton: Stressing the vital importance of cotton to
cuts lower tariffs. a number of developing economies and particularly
the least-developed amongst them,
™™ This meeting could have been the final step of the
Doha trade talks launched in 2001. zz Developed country Members, and developing
country Members declaring themselves in a
Geneva, Switzerland 30 November - 2 December position to do so, shall grant preferential trade
2009 (MC7) arrangements in favour of LDCs, as from 1
™™ The theme of the Conference is “The WTO, the January 2016, duty-free and quota-free market
Multilateral Trading System and the Current Global access for cotton produced and exported by
Economic Environment”. LDCs.
™™ Unlike previous Conferences, this meeting was ™™ LDC issues:
not a Doha Round negotiating session, but rather zz Preferential Rules of Origin for Least Developed
a chance for Ministers to reflect on all elements of Countries;

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vkLFkk IAS INDIAN ECONOMY

zz Implementation of Preferential Treatment in these places and have specific characteristics

Favour of Services and Service Suppliers of (for example, “Champagne”, “Tequila” or
Least Developed Countries; “Roquefort”). Under the TRIPS Agreement, all
zz and Increasing LDC Participation in Services geographical indications have to be protected
Trade; at least to avoid misleading the public and to
prevent unfair competition (Article 22).
™™ The decision in Nairobi builds on the 2013 Bali
Ministerial Decision on preferential rules of origin zz This is the only intellectual property issue that
for LDCs. is definitely part of the Doha negotiations.
™™ The “Nairobi Package” pays fitting tribute to the zz The objective is to “facilitate” the protection
Conference host, Kenya, by delivering commitments of wines and spirits in participating countries.
that will benefit in particular the organization’s The talks began in 1997 and were built into the
poorest members. Doha Round in 2001.

Buenos Aires, Argentina 10-13 December 2017 ™™ Other intellectual property issues: Some members
want negotiations on two other subjects and to link
(MC11)
these to the register for wines and spirits. Other
™™ The Conference ended with a number of ministerial members disagree. Following these two topics are
decisions, including on fisheries subsidies and discussed:
e-commerce duties, and a commitment to continue
zz GI “extension”- Extending the higher level of
negotiations in all areas.
protection for geographical indications beyond
™™ Trade facilitation: To ease customs procedures and wines and spirits.
to facilitate the movement, release and clearance of
zz Biopiracy, benefit sharing and traditional
goods.
knowledge
zz This is an important addition to the overall
™™ Dispute settlement: To improve and clarify the
negotiation since it would cut bureaucracy and
Dispute Settlement Understanding, the WTO
corruption in customs procedures and would
agreement dealing with legal disputes.
speed up trade and make it cheaper.
™™ Rules: These cover anti-dumping, subsidies and 12th Ministerial Conference (MC12)
countervailing measures, fisheries subsidies, and The WTO's 12th Ministerial Conference (MC12)
regional trade agreements. took place from 12 to 17 June 2022 at WTO headquarters
zz “Clarifying and improving disciplines” under in Geneva. Ministers from across the world attended to
the Anti-Dumping and Subsidies agreements; review the functioning of the multilateral trading system,
to make general statements and to take action on the
zz And to “clarify and improve WTO disciplines
future work of the WTO. The Conference was co-hosted
on fisheries subsidies, taking into account
by Kazakhstan and chaired by Mr Timur Suleimenov,
the importance of this sector to developing
Deputy Chief of Staff of Kazakhstan's President.
countries.
Kazakhstan was originally scheduled to host MC12 in
™™ The environment: These are the first significant June 2020 but the conference was postponed due to
negotiations on trade and the environment in the the COVID-19 pandemic. The conference concluded
GATT/ WTO. They have two key components: successfully on 17 June, with agreement on a package of
zz Freer trade in environmental goods – Products key trade initiatives.
that WTO members have proposed include: 13th Ministerial Conference (MC13)
wind turbines, carbon capture and storage
The WTO's 13th Ministerial Conference (MC13)
technologies, solar panels.
took place from 26 February to 2 March 2024 in Abu
zz Environmental agreements – Improving Dhabi, United Arab Emirates. Ministers from across
collaboration with the secretariats of the world attended to review the functioning of the
multilateral environmental agreements and multilateral trading system and to take action on the
establishing more coherence between trade future work of the WTO. The Conference was chaired by
and environmental rules. H.E. Dr Thani bin Ahmed Al Zeyoudi, UAE's Minister of
™™ Geographical indications (GI): multilateral State for Foreign Trade.
register for wines and spirits The opening session took place on Monday 26
zz Geographical indications are place names (in February followed by a ceremony to mark the accessions
some countries also words associated with a of Comoros and Timor-Leste and a ceremony for the
place) used to identify products that come from latest acceptances of the Fisheries Subsidies Agreement.

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vkLFkk IAS INDIAN ECONOMY

On the same day, two "ministerial conversations" were zz India has an obvious interest in the liberalisation
held on "Trade and Sustainable Development, including of services trade and wants commercially
Trade and Industrial Policy and Policy Space for meaningful access to be provided by the
Industrial Development" and on "Trade and Inclusion". developed countries.
Pre-recorded general statements by ministers were zz Since the Uruguay Round, India has
posted on the website as soon as they were made autonomously liberalised its Services trade
available. regime across the board.
A "scene-setting" Heads of Delegation meeting on ™™ Ensuring food and livelihood security is critical,
27 February included reports by Geneva chairs. From 27 particularly for a large agrarian economy like India.
to 29 February, working sessions were held on various zz India is persistently demanding for a permanent
topics followed by convergence-building sessions. A solution on public stockholding subsidies at
Heads of Delegation meeting was held at the end of each WTO.
day.
zz At 2013 Ministerial Conference (MC9) in Bali, an
On 29 February, it was decided to extend the interim agreement (a peace clause) was made
conference by one day, until 1 March, in order to on “public stockholding” continuing exceptions
facilitate outcomes on the main issues at stake. The that allow developing countries to stockpile
closing ceremony was held in the early hours of 2 March. agricultural products to protect against food
WTO agreements: shortages.
zz The WTO’s rules – the agreements – are the ™™ India strongly favours extension of higher levels
result of negotiations between the members. of protection to geographical indications for
products like Basmati rice, Darjeeling tea, and
zz The current set is largely the outcome of the
Alphonso mangoes at par with that provided to
1986- 94 Uruguay Round negotiations, which
wines and spirits under the Trade-related Aspects
included a major revision of the original General of Intellectual Property Rights (TRIPS) agreement.
Agreement on Tariffs and Trade (GATT).
™™ Developed countries have been putting pressure
zz Goods: From 1947 to 1994, the GATT was on inclusion of non-trade issues such as labour
the forum for negotiating lower tariffs and standards, environmental protection, human rights,
other trade barriers; the text of the GATT rules on investment, competition policy in the WTO
spelt out important rules, particularly non- agreements.
discrimination. After 1994, WTO ratified new, zz India is against any inclusion of non-trade issues
comprehensive, integrated GATT as GATT 1994. that are directed in the long run at enforcing
WTO and India protectionist measures (based on non-trade
™™ India is a founder member of the General Agreement issues, the developed countries like USA and
on Tariffs and Trade (GATT) 1947 and its successor, European Union are trying to ban the imports
of some goods like textile, processed food etc.),
the WTO.
particularly against developing countries.
zz India's participation in an increasingly
rule based system in the governance of
Stages of Economic Integration
international trade is to ensure more stability ™™ The Regional Comprehensive Economic Partnership
and predictability, which ultimately would lead (RCEP) is a proposed FTA of which India aims to be
to more trade and prosperity. a part of. The BREXIT proposal has also created
pressure on India to form FTAs with the UK. In this
™™ Services exports account for 40% of India's total
Context: it is important to consider the meaning
exports of goods and services. The contribution of of FTA, and various other stages of economic
Services to India's GDP is more than 55%. integration.
zz The sector (domestic and exports) provides Independent Economy:
employment to around 142 million people,
™™ In order to implement the principle of economic
comprising 28% of the work-force of the
self-sufficiency, one must build an independent
country.
national economy.
zz India's exports are mainly in the IT and IT
™™ If an independent national economy is to be built,
enabled sectors, Travel and Transport, and the economy must be developed in a diversified
Financial sectors. and integral manner. It requires development of
zz The main destinations are the US (33%), the EU heavy industry and light industry and agriculture
(15%) and other developed countries. simultaneously.

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vkLFkk IAS INDIAN ECONOMY

™™ It is necessary to establish reliable and independent zz Some jobs may be lost as production moves to
sources of raw materials and fuel. Technical areas with comparative advantage.
independence is also necessary. zz Outcomes of FTA may represent the influence
™™ An independent economy is opposed to foreign of pressure groups, and rent-seeking behaviors
economic domination and subjugation; but it does may increase.
not rule out international economic cooperation. zz FTAs may actually distort patterns of
Preferential Trade Area: international specialization and division of
labor by biasing and limiting trade toward trade
™™ A preferential trade area/agreement (PTA) is a
blocs, as opposed to allowing natural market
trading bloc that gives preferential access to certain
forces to determine patterns of production and
products from the participating countries.
trade across countries.
™™ This is done by reducing tariffs but not by abolishing
them completely. A PTA can be established through Customs Union
a trade pact. It is the first stage of economic ™™ A Customs Union (CU) involves the removal of
integration. tariff barriers between members, and acceptance
™™ Today simple PTA has evolved into bilateral PTAs of a common (unified) external tariff against non-
and Mega-PTAs. Mega-PTA is wide regional trade members.
agreements, such as the Transatlantic Trade and ™™ Countries that are part of a CU only need to make a
Investment Partnership (TTIP) or Trans Pacific single payment (duty), once the goods have passed
Partnership (TPP). through the border. Once inside the union goods
can move freely without additional tariffs. Tariff
™™ These tariff preferences create departures from the
revenue is then shared between members.
normal trade relations principle.
™™ Advantage: A common external tariff effectively
Free Trade Area
removes the possibility of arbitrage and is one
™™ A Free Trade Area (FTA) is a group of countries who of the fundamental building blocks of economic
have mutually agreed to limit or eliminate trade integration.
barriers - tariffs or quotas - among them.
™™ Disadvantage: CU members are not free to
™™ FTAs tend to promote free trade and the international negotiate individual trade deals with nonmembers.
division of labor, allowing countries to increase For example, if a member wishes to protect a
specialization in their respective comparative declining or infant industry it cannot do so through
advantages. imposing its own tariffs.
™™ To develop a FTA, participating nations must Common Market
develop rules for how the new FTA will operate and
™™ A common (or single) market is the most significant
decide upon the following:
step towards full economic integration.
zz Customs procedures that each country will
™™ A common market is the extension of free trade
follow
from just tangible goods, to include all economic
zz Tariffs, if any, that will be allowed and their resources. This means that all barriers are
costs eliminated to allow the free movement of goods,
zz Trade despite resolution mechanism services, capital, and labour.
zz Transportation of goods ™™ Tariffs and all non-tariff barriers are also reduced
zz Intellectual property rights protection and and eliminated.
management ™™ For a common market to be successful there must
zz FTA rules decide the scope and degree of how also be a signifi cant level of harmonisation of micro-
“free” trade will actually be. economic policies, and common rules regarding
product standards, monopoly power and other anti-
™™ Advantages: FTAs can benefit consumers, who get
competitive practices.
increased access to less expensive and/or higher
quality foreign goods. Population may also see ™™ There may also be common policies affecting key
increased living standards. industries, such as the Common Agricultural Policy
(CAP) and Common Fisheries Policy (CFP).
™™ Disadvantages: Producers can struggle with
increased competition, but they might also acquire Economic Union
a greatly expanded market of potential customers ™™ An Economic Union is a type of trade bloc which
or suppliers. is composed of a common market with a customs

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vkLFkk IAS INDIAN ECONOMY

union. It has common trade policy towards non- ™™ The US government had recently said that it is
members, although members are free to pursue planning to curb the distribution of H-1B visa to
independent macro-economic policies. Indians. Hence, at the 2+2 dialogue with the US,
™™ The member countries have common policies on India pitched its stand for H-1B visa holders.
product regulation, freedom of movement of goods, ™™ Objective: The reason H-1B visas may see changes
services and factors of production (capital and is to better protect US workers and wages, and save
labour) and a common external trade policy. them from competition from workers arriving from
™™ The European Union (EU) is the best known outside countries like India and China.
Economic union, and came into force on November ™™ H-1B visa: The H-1B is a United States visa under
1st 1993, following the signing of the Maastricht the Immigration and Nationality Act. It has roots
Treaty (formally called the Treaty on European in the earlier issued H-1 visa which was later split
Union.) between H-1A (for nurses) and H-1B. H-1B is one of
Monetary Union the most popular visas for foreigners visiting the US
™™ Monetary union is the first major step towards for business or trade purpose.
macro-economic integration, and enables zz It is a non-immigrant visa that allows US
economies to converge even more closely. companies to employ foreign workers in
™™ In monetary union, members adopt a single, shared speciality occupations that require theoretical
currency, such as the Euro for the Euro-17 countries, or technical expertise.
and the East Caribbean Dollar for 11 islands in the zz Speciality occupations include specialized
East Caribbean. fields like IT, finance, accounting, architecture,
™™ This means that there is a common exchange rate, engineering, mathematics, science, medicine,
a common monetary policy, including interest rates etc. which usually require a bachelor’s degree
and the regulation of the quantity of money, and a or higher.
single central bank, such as the European Central
zz US employers wishing to bring in staff for long-
Bank or the East Caribbean Central Bank.
term assignment prefer H1B visa because its
Fiscal Union application is quicker than applying for a US
™™ A fiscal union is an agreement to harmonise tax Green Card.
rates, to establish common levels of public sector zz H-1B visa has its roots in the H1 visa of the
spending and borrowing, and jointly agree national Immigration and Nationality Act; which split
budget deficits or surpluses. between H-1A (for nurses) and H-1B in 1990.
™™ The majority of EU states agreed a fiscal compact ™™ Who will be worst hit: Worst hit by the new H1B
in 2012. Though it is a less binding version of a full bill will be Indian companies such as Infosys, TCS,
fiscal union. and Wipro, as well as US tech giants like Apple,
Economic and Monetary Union Facebook and Google, who use the H1B visa to fill
™™ Economic and Monetary Union (EMU) is a key stage positions that cannot be filled by American workers.
towards compete integration, and involves a single How is H-1B visa important to India?
economic market, a common trade policy, a single
™™ Majority H-1B visa holder: India has been the only
currency and a common monetary policy.
country that takes 70 per cent of the 85,000 H-1B
Complete Economic Integration visas applied annually. The H-1B visa is crucial for
™™ Complete economic integration involves a single the IT sector in India.
economic market, a common trade policy, a single ™™ IT professionals: The technology companies
currency, a common monetary policy, together with of US depend on it to hire tens of thousands of
a single fiscal policy, including common tax and employees each year from countries like India and
benefit rates – in short, complete harmonisation of China. Hence, a cancellation of H-1B visas will most
all policies, rates, and economic trade rules. adversely affect Indian IT professionals.
H1-B Visas ™™ Talent flow: The US should not obstruct the flow
United States government has said that it is planning of talent from India as it is an important part of the
to curb the distribution of H-1B visa to Indians. While economic cooperation and almost acts as a strategic
the fi nal decision is yet to be taken, Government of India bridge between the two countries, and is important
has expressed concerns to the US over the proposal. for the bilateral ties.

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Problems that Indians face with current H-1B What Is Palm Oil?
rules ™™ It’s an edible vegetable oil that comes from the fruit of oil palm
trees; the scientific name is Elaeis guineensis.
™™ Recent changes in H-1B visa rules: Recently,
™™ Two types of oil can be produced; crude palm oil and palm kernel
US proposed revision of “specialty occupations” oil.
definition for the H1B visa. H1B visas will be issued ™™ Palm oil is in nearly everything – it’s in close to 50% of the
to only the most-skilled foreigners or highest paid packaged products we find in the market.
beneficiaries. ™™ Palm oil is extremely versatile oil that has many
zz USCIS can reject H1B applications that do not different properties and functions which makes it
provide the necessary required information so useful and so widely used.
when submitted. ™™ It is semi-solid at room temperature so can keep
zz New rules require H-1B petitioners to first spreads spreadable
electronically register with USCIS. ™™ it is resistant to oxidation and so can give products
zz US can initiate deportation of expired H1-B a longer shelf-life
holders. ™™ it’s stable at high temperatures and so helps to give
zz US Department of Homeland Security (DHS) is fried products a crispy and crunchy texture
also considering ban on work authorization for ™™ It’s also odourless and colourless so doesn’t alter
spouses of H-1B visa holders. the look or smell of food products.
™™ Problem in job switch: H-1B visa holders in the INSTEX – Instrument in Support of Trade Exchanges
US face problems in switching jobs even if the new
Six Countries - Belgium, Denmark, Finland, the
job requires the exact same skill set as before. The
Netherlands, Norway and Sweden have recently joined
US citizenship and Immigration Services (USCIS)
INSTEX.
has denied several applications by new employers
citing that the new position does not constitute a ™™ It is a payment mechanism being setup by the
‘specialty occupation’. European Union to secure trade with Iran and skirt
US sanctions after Washington pulled out of the
™™ If the H-1B holder starts working elsewhere and
landmark nuclear deal last May.
the transfer is denied, the person could be ‘out of
status’ with a bar on entry into the US, unless the ™™ Its mission is to facilitate non-USD transactions and
old employer is willing to take him/her back. non-SWIFT to avoid breaking U.S. sanctions.
™™ Removing country-cap on green cards: Recently, ™™ It is registered at Paris with an initial 3,000 Euros in
US also removed 7% country-cap on issue of Green the capital and a supervisory board with members
Cards. This too will agonise the wait of many skilled from France and Germany and chaired by the UK.
professionals from India who had sought permanent ™™ It is a project of the governments of France, Germany
residency in USA. and United Kingdom and will receive the formal
India bans import of Refined Palm Oil endorsement of all 28 EU members.

India has banned the imports of refined palm oil, a ™™ It will allow trade between the EU and Iran without
government notification said, as New Delhi tries to curb relying on direct financial transactions.
imports from Malaysia following criticism from Kuala ™™ It will initially be used for non-sanctionable trade,
Lumpur on India’s actions in the Kashmir region and including humanitarian goods such as medicine,
its new citizenship law-- The Citizenship (Amendment) food and medical devices.
Act, 2019. ™™ This mechanism is the first concrete step by the EU
™™ India imports most of its refined palm oil from to counter Trump’s unilateral decision to withdraw
Malaysia and crude palm oil from Indonesia. from the nuclear deal.
™™ Indonesia and Malaysia are the top two producers of Currency Swap Arrangement
palm oil, while India is the biggest importer of palm oil. With an objective to strengthen financial stability
™™ Indonesia and Malaysia make up over 85% of global and economic cooperation, the Reserve Bank of India has
supply but there are 42 other countries that also revised the framework on currency swap arrangement
produce palm oil. for SAARC countries till 2022.
™™ India has cut import duty on crude palm oil (CPO) ™™ This is an arrangement, between two friendly
and refined, bleached and deodorised (RBD) palm countries, which have regular, substantial or
oil, and also moved RBD oil from the “free” to the increasing trade, to basically involve in trading
“restricted” list of imports. in their own local currencies, where both pay for

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vkLFkk IAS INDIAN ECONOMY

import and export trade, at the pre-determined ™™ Therefore, borrowing overseas allows the
rates of exchange, without bringing in third country government to raise funds in such a way that there
currency like the US Dollar. is enough domestic credit available for the private
™™ In such arrangements no third country currency sector.
is involved, thereby eliminating the need to worry ™™ Sovereign external borrowing is also considered a
about exchange variations. cheap source of raising money by the government
™™ Currency swap agreement can be bilateral or as interest rates in advanced countries are very low.
multilateral. Implications
™™ The currency swap agreement is an important ™™ It may facilitate the inclusion of India’s government
measure in improving the confi dence in the Indian bonds in the global debt indices.
market and it would not only enable the agreed ™™ India’s representation in global debt market indices
amount of capital being available to India, but it is small compared to other emerging markets.
will also bring down the cost of capital for Indian
™™ This may lead to higher foreign inflows into India.
entities while accessing the foreign capital market.
™™ The swap arrangement should aid in bringing Reciprocal Trade Agreements (RTAs)
greater stability to foreign exchange and capital The Commerce minister’s recent statement that
markets in India. With this arrangement in place, non-tariff barriers such as reciprocal access should be
prospects of India would further improve in tapping cut down and should be made easy for Indian companies
foreign capital for country’s developmental needs. to operate elsewhere, makes absolutely pragmatic sense.
This facility will enable the agreed amount of foreign ™™ Countries use bilateral/regional trade agreements to
capital being available to India for use as and when increase market access and expand trade in foreign
the need arises. markets. These agreements are called reciprocal
Overseas Bonds trade agreements (RTAs) because members grant
The government plans to raise a part of its gross special advantages to each other.
borrowing in external markets. ™™ RTAs include many types of agreements, such as
Sovereign Bonds preferential arrangements, free trade agreements,
customs unions, and common markets, in which
™™ A government bond or sovereign bond is a form
members agree to open their markets to each
of debt that the government undertakes wherein
other’s exports by lowering trade barriers.
it issues bonds with the promise to pay periodic
interest payments and also repay the entire face ™™ Need: They have become an increasingly prominent
value of the bond on the maturity date. feature of the multilateral trading system in recent
years, in part, because of stalled global negotiations
™™ The government has been arguing that the quantum
taking place under the auspices of the World Trade
of its borrowing within India is ‘crowding out’ the
Organization (WTO).
private sector. In other words, it is saying that
government borrowing is at such a level that there ™™ Many observers believe that RTAs deepen market
are not enough funds available for the private sector integration and complement efforts by the WTO to
to adequately meet its credit and investment needs. liberalize international markets.
™™ If the private sector cannot borrow adequately, then ™™ Other observers contend that these agreements also
it cannot invest as it wants to, and that cripples one distort trade and discriminate against nonmember
major engine of economic growth. countries.

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estimated at 33.85 lakh tonnes (LT) as compared to last

Agriculture & Farmers Welfare year’s production of 33.12 LT. With the harvesting still
in progress, there may be further changes in successive
Agriculture
estimates. The production of lentil (Masur) is estimated
The Indian economy continues to be predominantly at 17.54 LT, which is higher by 1.95 LT than the previous
an Agricultural Economy in terms of employment of year’s production of 15.59 LT.
labour force and as a source of subsistence for the
millions in the countryside. It is an undisputed fact that Features of Indian Agriculture Sector
the dream of Inclusive growth' will remain a far-cry. if Largest Employment Providing Sector Agriculture
the growth plans fail to account for the significance of in India, is the most important source of employment.
agriculture. To quote Professor Gunnar Myrdal, "It is Basis for Industrial Development Agriculture offers
in the agriculture sector that the battle for long-term raw materials including (cotton, Sugarcane and oilseeds)
economic development of India will be won or lost." for industries like textiles, sugar and oil-processing
Agricultural Sector etc. Besides, it also offers market for the expanding
Agriculture is the primary industry in India. The industrial sector of the economy.
agriculture sector of India has occupied almost 43% Industries producing capital goods (like tractors,
of India's geographical area and over 58% of the rural thrashers and harvesters) are directly dependent upon
households depend on agriculture as their principal agricultural sector.
means of livelihood. Development of Tertiary Sector Tertiary sector
The Indian agriculture sector provides livelihood provides helpful services to the industries and
support to about 42.3 per cent of the population and has agriculture like banking, warehousing etc.
a share of 18.2 per cent in the country’s GDP3 at current Internal Trade is mostly done in agricultural
prices. The sector has been buoyant, which is evident produce, eg various means of transport get bulk of their
from the fact that it has registered an average annual business by the movement of agricultural goods.
growth rate of 4.184 per cent at constant prices over the
Contribution in Foreign Trade Agriculture plays an
last five years. Several initiatives and measures taken
important role in the international trade. Jute, tea, coffee
by the government in the form of assured remunerative
prices through MSP improving access to institutional and spices are the country's well known conventional
credit, enabling crop diversification, promoting exports.
digitisation, and mechanisation, encouraging adoption Fertilizers, harvesters and thrashers are the notable
of sustainable practices through organic and natural import items meant exclusively for agriculture sector of
farming, and focusing on productivity enhancement have the economy.
had a positive impact on the sector. As per provisional International Importance India is the largest
estimates for 2023-24, the growth rate of the agriculture producer of coconuts, mangoes, bananas, milk and dairy
sector stood at 1.4 per cent,5 which is below 4.7 per cent products, cashew nuts, pulses, ginger, turmeric and
in 2022-236 , mainly because of a drop in the foodgrain black pepper. It is also the 2nd largest producer of rice,
production due to delayed and poor monsoons caused wheat, sugar, cotton, fruits and vegetables
by El Nino. The allied activities - livestock and fisheries
have performed better than the traditional crops such Five Year Plan and Agriculture
as cereals7 , which is evident from an increase in their 1st Plan (1951-56) The 1st Plan aimed at solving
share in agriculture Gross Value Added (GVA) at current food crisis, hence, highest priority to agriculture with
prices from 24.38 per cent and 4.44 per cent in 2014- allocation of more than 14% of the total plan outlay The
15 to 30.23 per cent and 7.25 per cent in 2022-238 growth in agriculture remained 2.71%.
respectively. The share of the crops sector in Agriculture 2nd Plan (1956-61) This plan saw significant
GVA at current prices in 2022-239 was 55.28 per cent as reduction in agricultural outlay. It was 11.7% of the total
compared to 61.75 per cent in 2014-15. plan outlay. This plan witnessed a growth of 3.15% in
In 2022-23, foodgrain production hit an all-time agricultural sector.
high of 329.7 million tonnes, and oilseeds production 3rd Plan (1961-66) 2nd Plan experience and
reached 41.4 million tonnes. In 2023-24, food grain recognition that agricultural production is the
production is slightly lower at 328.8 million tonnes limiting factor, the 3rd Plan fixed ambitious targets of
12, primarily because of poor and delayed monsoons. production for all agricultural crops. This plan also
Production of other crops such as Shree Anna/nutri saw the introduction of Intensive Agricultural District
cereals and total oilseeds marked a slight increase. Programme (ADP), followed by High Yielding Variety
The nutri-cereals increased marginally by 1 per cent Programme (HYVP) Agricultural growth fell to a low of
from the previous year, as did Tur, with a production 0.73%.

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4th Plan (1969-74) This plan aimed at systematic Agricultural Inputs

application of science and technology to improve It play a crucial role in determining yield levels and
agricultural practices: The allocation to agriculture in turn augmentation of level of production in the long
sector was 15% of the total plan outlay. Agricultural run. Improvement in yield depends on application of
growth reached a level of 4, 16% during this plan. technology. use of quality seeds, fertilizers, pesticides,
5th Plan (1974-79) The 5th Plan was the only micro-nutrients and irrigation.
period, when the actual foodgrain production exceeded Natural Farming
the targeted production The agricultural growth under
The main aim for promotion of Natural Farming is
this plan was 3.28%.
elimination of chemical fertilisers and pesticides usage
6th Plan (1980-85) Agriculture growth rate in and promotion of good agronomic practices Natural
this plan was 4.3% as against the targeted 3.8% The Farming also aims to sustain agriculture production
year 1983-84, of the plan is hailed as the Second Green with eco-friendly processes in tune with nature to
Revolution. Agricultural sector during this plan made produce agricultural produce free of chemicals Soil
a growth of 2.52%. It was the result of expansion in fertility and sail organic matter is restored by natural
supplies of inputs and services to farmers, agricultural farming practices. Natural farming systems require
extension and better management. less water and are climate friendly Natural farmings in
7th Plan (1985-90) Total plan outlay on agriculture India is being promoted through a dedicated scheme of
was 6% and except cotton, none of the targets fixed Bharatiya Pral ritik Krishi Paddhati Programme (BPKP).
for various sectors was achieved. During this plan The scheme promotes on-farm biomass recycling with
agricultural growth was 3.47% major stress on biomass mulching use of on-farm cow
dung-urine formualtions, periodic soil aeration and
8th Plan (1992-97) Agriculture growth rate in this
exclusion of all synthetic chemical inputs Under BPKP,
plan was 2.44% on account of weather and climate
financial assistance of `12200/ha for 3 years is provided
conditions being favourable. The agricultural sector
for cluster formation, capacity building and continuous
registered an impressive growth rate of 4.68%.
handholding by trained personnel, certification and
9th Plan (1997-2002) Agriculture growth rate residue analysis.
in this plan was 2.44%. All the set targets were not
achieved and hence, 9th Plan was a failure on agriculture
Organic Farming
front. In this plan, the agricultural growth fell to 2.02% It is a form of agriculture that relies on techniques
such as crop rotation, green manure compost and
10th Plan (2002-07) This plan adopted the
biological pest control.
prescription of the National Agricultural Policy (NAP),
2000 and therefore, envisaged better management of The main objectives of National Project on Organic
resources, soil and water, so as to promote sustainable Farming include:
and inclusive agricultural growth. The agricultural ™™ Capacity building through service providers.
sector grow at 2.3% ™™ Financial and technical support for setting up of
11th Plan (2007-12) This Plan witnessed an average organic input production unit such as fruits and
annual growth of 3.6% in the Gross Domestic Product vegetable market, waste compost, bio-fertilisers
(GDP) from agricultural and allied sector against a target and bio-pesticides and vermiculture hatcheries.
of 4.0%. While it may appear that the performance of ™™ Human resource development through training and
the agriculture and allied sector has fallen short of the demonstrations.
target. production has improved remarkably, growing ™™ Awareness creation and market development.
twice as tast as population.
™™ Quality control of organic inputs
12th Plan (2012-17) As against the 12th Five Year
™™ Biological assessment of soil health
Plan target 4% growth for the agriculture and allied
sectors, the growth registered was 1.5% in 2012-13, Seeds (National Seeds Policy, 2002)
4.2% in 2013-14, -0.2% in 2014-15, 1.2% in 2015-16, Seeds are a critical input for long-term sustained
and 4.9% in 2016-17. growth of agriculture. In India, more than four-fifths
Some of the challenges faced by agriculture during of farmers rely on farm saved seeds leading to a low
the 12th Plan include a shrinking land base, dwindling seed replacement rate Hence, the Central Government
water resources, adverse impact of climate change, has been addressing this issue through various
shortage of farm labour and increasing costs and programmes/schemes.
uncertainties associated with volatility in international ™™ Indian Seed Programme involving the participation
markets. of Central and State Governments, the Indian Council

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of Agricultural Research (ICAR), state agricultural Irrigation

universities, co-operatives and the private sector It is one of the most important inputs for enhancing
and farmers and plant breeders. productivity and is required at different critical stages of
™™ The Protection of Plant Varieties and Farmers' plant growth of various crops. The Government of India
Rights (PPV and FRS) authority established in has taken up irrigation potential creation through public
November 2005, at New Delhi has been mandated funding and is assisting farmers to create potential on
to implement provisions of the PPV and FR Act, their own farms
2001. The total irrigation potential in the country has
™™ PPV and FR Act has been passed within the context increased from 81.1 million hectare in 1991-92 to about
of Su Genens System of the WTO, so as to effectively 139.9 million hectare in 2018-19.
block the efforts of MNCs to capture the seed market Initiation of the Accelerated Irrigation Benefit
by getting patents in their favour and gradually Programme (AIBP)
buying out small seed growers in the country.
From 1996-97, to extend assistance for the
Sui Generis System completion of incomplete irrigation schemes. Under
TRIPS Agreement offers three options for plant this programme, projects approved by the Planning
varieties and their protection, viz. Patent System, Sui Commission (Now NITI Aayog) are eligible for assistance.
Generis Systems and combination of two. Monitoring of the projects covered under the AIBP is
Under Sui Generis System: farmer has the right periodically done by the Central Water Commission.
to save, use. exchange share or sell the farm produce National Mission on Micro Irrigation (NMMI)
including seeds However, farmer cannot sell the branded Irrigation consumes more than 80% of the water
seeds. resources of the country. Availability of adequate
Seed Bank quantity and quality of water is the key to achieve higher
productivity levels.
™™ A scheme for the establishment and maintenance of
a seed bank has been in operation since, 1999-2000. This mission will result in 2.85 million hectare to
be brought under micro irrigation; savings in use of
™™ The basic objective of the scheme is to make available
imgation water, fertilizer and electricity, increase in
seeds for meeting contingent requirements and
production and productivity of crops, convergence with
also develop infrastructure for production and
other on going schemes of Department of Agriculture
distribution of seeds.
and Cooperation (DAC) and other minntries on creation
™™ The scheme is being implemented through National
of water harvesting structures and linking the same with
Seed Corporation of India and 12 State Seeds
Micro Irrigation System for higher water use efficiency
Corporations of various states.
and enhanced return to the farmers.
Fertilisers Pradhan Mantri Krishi Sinchai Yojana (PMKSY)
India is meeting 85% of its urea requirement
With an eye on improving farm productivity, the
through Indigenous production, but depends heavily on
government has decided to spend 50,000 crore over the
imports for its phosphatic and potash (P and K) fertiliser
next 5 years under the Pradhan Mantri Krishi Sinchai
requirements.
Yojana (PMKSY) launched in 2015.
Fertiliser Subsidy The major objective of the PMKSY is to achieve
Fertilizer subsidy is borne by the Union Government. convergence of investments in irrigation at the field
The two objectives of providing fertiliser subsidy are as level expand cultivable area under assured irrigation
follows: improve on farm water use efficiency to reduce wastage
(i) Making fertilisers available to the farmers at of water, enhance adoption of precision imgation and
affordable prices so as to encourage intensive other water saving technologies.
cultivation Neeranchal Watershed Yojana
(ii) Attracting more investment to the domestic The project is implemented by the Union Ministry
fertiliser industry of Rural Development over a six-year period (2016-21)
Since 2010, government is implementing a Nutrient to achieve objectives of PMKSY on 7th October, 2015.
Based Subsidy Scheme (NBS) in which a fixed subsidy It will support the Pradhan Mantri Krishi Sinchayee
is announced on per kg of nutrient annually. Additional Yojana (PMKSY) in hydrology and water management,
subsidy is given to micro-nutrients. The prices of urea agricultural production systems. capacity building and
however, remain under statutory price control. monitoring, and evaluation.

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It seeks to ensure access to irrigation to every ™™ Over exploitation of ground water resources by
farmland (Har Khet Ko Pani) and for efficient use of farmers.
water (Per Drop More Crop). ™™ Inefficient use of irrigation water leading to water
Rainfed Area Development Programme logging and salinity.
Given the importance of rainfed agriculture in India, National Horticulture Mission (NHM)
the Rainfed Area Development Programme (RADP) was It was launched in 2005-06 for the holistic
launched by the government as a pilot scheme in 2011- development of the horticulture sector through ensuring
12 under the RKVY focusing on small and marginal forward and backward linkages and with the active
farmers and farming systems. participation of all the stakeholders.
It adopted a holistic end-to-end approach' covering 18 States and the 3 Union territories of Andaman
integrated farming, on farm water management, storage and Nicobar Islands Lakshadweep and Puducherry are
marketing and value addition of farm produce in order covered under the mission and the mission covers 372
to enhance farmers' income in rainfed areas. districts.
Sprinkler Irrigation National Bamboo Mission (NBM)
Under sprinkler imigation, water is sprinkled under pressure on to the
crop through a set of nodes attached to a network of pipes in the form
The NBM is a Centrally Sponsored Scheme which
of rainfall. This system is suitable for high density horticultural crops. was launched in 2006-07 for harnessing the potential of
The sprinkler system sets, unlike drip system are moveable. Hence, the bamboo crop in the country. At present, it is being
one sprinkler set could cover more than one hectare by shifting from
one place to another.
implemented in 27 States with a total outlay of ` 568,23
crore.
Drip Irrigation
It is also known as trickle irrigation or micro imigation, it is an ` 1200 crore have been allotted for this mission in
irrigation method that saves water and fertilizer by allowing water the budget of 2018-19.
to drip slowly to the roots of plants, either on to the soil surface
or directly on to the root zone, through a network of valves, pipes, Horticulture Mission for North-East and
tubing and emitters It is done through emitters fitted on a network of Himalayan States (HMNEH)
pipes (mains, sub-mains and laterals). The emitting devices could be
drippers, micro sprinklers, mini sprinklers, micro jets, misters, fan jets, The technology mission for North-Eastern states
micro sprayers and forgers. including Sikkim, aimed at the holistic development of
National Rainfed Area Authority (NRAA) all the horticulture crops, has now been renamed as
The government has set-up National Rainfed HMNEH.
Area Authority (NRAA), an expert body to provide the The main objective of the mission is to set-up
much needed knowledge inputs regarding systematic nurseries for production and distribution of quality
upgradation and management of country's dry land and planting materials.
rainfed agriculture. An order for setting up the authority Grain ATM
was issued on 3rd November, 2006.
India's first Grain dispensing ATM has been installed
The NRAA has a two tier structure. The 1st tier is at Farrukhanagar in Gurugram district of Haryana on
the governing board that provides necessary leadership 15th July, 2021 Main objective of this project is to make
and appropriate coordination in implementation of ration dispersal hassel and complaint free for citizens.
programmes. These Grain ATM's are installed under the World Food
The 2nd tier is the Executive Committee consisting of Programme of United Nations.
technical experts and representatives from stakeholder Land Reforms
ministries.
With the twin objectives of achieving social equity
Power and Irrigation Subsidies and ensuring economic growth the land reforms
Since water and electricity fall within the state programme was built around three major issues as
domain, power and irrigation subsidies are provided by follows:
the State Governments. (i) Abolition of intermediaries.
Irrigation subsidies are incurred on account of the (ii) Settlement and regulation of tenancy.
pricing of irrigation water provided to the farmers by (iii) Regulation of size of holdings.
the Sate Governments.
After independence, the government has undertaken
Consequences of power and irrigation subsidies. many land reform measures e.g.
™™ Increased fiscal burden. ™™ Zamindari System has been abolished. The actual
™™ Less revenue available for investment in irrigation cultivator has been given either the ownership right
and other large scale projects. or the right of occupancy tenant.

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™™ Tenancy System has been reformed by enacting 'record of rights' to village houshold owners possessing
various legislative measures in different states. houses in inhabited rural areas in villages and issuance
™™ Ceiling on landholdings has been fixed. of property cards to the property owners". "The plan is
to survey all rural properties using drones and prepare
™™ By 2004, about 1633 lakh hectare of holdings have
GIS based maps for each village.
been consolidated.
™™ Co-operative Farming has also been developed. Precision Farming
Also known as satellite farming, it uses satellite technology.
™™ In order to improve the conditions of landless information technology and GIS Systems to improve Crop
farmers, Acharya Vinoba Bhave launched Bhoodan management. It is based on observing and responding to intra-fields
Movement in the country. variations. It helps in matching farming practices with crop needs,
reducing ecological footprint and boosting competitiveness through
National Land Records Modernisation more efficient practices like improved management of fertilizer usage
etc.
Programme (NLAMP)
Agricultural Prices and Procurement
The Government of India decided to implement
the centrally-sponsored scheme in the shape of the The Government of India undertakes an agricultural
National Land Records Modernisation Programme pricing policy and procurement programme to provide
(NLRMP) by merging two existing centrally-Sponsored reasonable returns to the farmers and instil certainty
Schemes of Computerisation of Land Records (CLR) and and confidence in them.
Strengthening of Revenue Administration and Updating The procurement programme is also essential to
of Land Records (SRA and ULR) in 2008 the functioning of the Public Distribution System (PDS)
The integrated programme seeks to achieve the Price Fixation
following- modernise management of land records, Another method of intervention in the market
minimise scope of land/property disputes enhance mechanism has been the announcement of different
transparency in the land records maintenance system administered prices viz minimum support prices
and facilitate moving eventually, towards guaranteed statutory minimum prices procurement prices issue
conclusive titles to immovable properties in the country. prices.
™™ A single window to handle land records. These prices are announced for different
™™ The mirror principle, which refers to the fact that agricultural crops by the Government of India on the
cadastral records mirror the ground reality. recommendations of Commission for Agricultural Costs
and Prices (CACP)
™™ The curtain principle, which indicates that the
record of title is a true depiction of the ownership Minimum Supports Prices (MSP) These are in the
status. nature of a guarantee to the producers in that prices
paid to the farmers cannot be lower than the MSP.
™™ Title insurance, which guarantees the title for its
correctness and identifies the title holder against Procurement Prices These are higher than the
loss arising on account of any defect therein, MSP and are the prices at which government buys
from farmers. In recent years, government has been
SVAMITVA Scheme announcing endless procurement so, that farmers have
SVAMITVA (Survey of Villages and Mapping with been selling to the government at procurement prices.
Improvised Technology in Village Areas) scheme is a Central Issues Prices (CIP) It indicate the prices
new initiative of the Ministry of Panchayati Raj. It aims at which government supplies produce to the fair price
to provide rural people with the right to document their shops and ration depots. Wheat and rice are issued to the
residential properties so that they can use their property State Governments/UTS at CIP for distribution through
for economic purposes. the PDS. States may choose to provide additional subsidy
The scheme is for surveying the land parcels in to the beneficiaries by reducing prices below CIP.
rural inhabited area using Drone technology. The survey Price support through MSP and procurement
shall be done across the country in a phase wise manner prices is extended only for specific crops. This has led
over the period 2020-2025 The sheme is proposed as to a change in cropping pattern in the country towards
a Central Sector scheme with a projected outlay of ` certain specific crops such as rice and wheat whose MSP
79.65 crores for the pilot phase (FY 2023-24). The aim has increased a lot. It has also benefitted farmers in
is to cover all 6,62 lakh villages in the country. those states where such crops are produced in a larger
SVAMITVA Card number.

The acronym SVAMITA stands for Survey of Village Decentralised Procurement Scheme
and Mapping with Improvised Technology in Village In view of a this, a decentralised procurement
Areas. It is a Central Sector Scheme aimed at "providing scheme was started in 1997, under which State

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Governments themselves procure and distribute Under the PDS, presently, the commodities namely
foodgrains. The difference between the economic cost wheat, rice, sugar and kerosene are being allocated
fixed for the State and the Central Issue Price (CIP) is to the states/UTs for distribution. Some states/UTs
passed on to the states as subsidy. also distribute additional/items of mass consumption
The objectives of this scheme are to cover more including oils, iodised salt, spices etc.
farmers under MSP operations, improving efficiency There are about 4.99 lakh Fair Price Shops (FPS)
of PDS, providing foodgrains suited to local tastes and across India.
reducing transportation costs.
The Targeted Public Distribution System (TPDS)
National Commission on Farmers was introduced with effect from June 1997.
It was appointed in 2004, under the chairmanship
Revamped Public Distribution System (RPDS)
of Dr. MS Swaminathan.
The Revamped Public Distribution System (RPDS)
The commission suggested an Agricultural Renewal
was launched in June, 1992, with a view to strengthen
Plan, which has five components
and streamline the PDS as well as to improve its reach in
(i) Soil health enhancement with special focus on dry
the far-flung, hilly, remote and inaccessible areas, where
farming.
a substantial section of the poor live.
(ii) Irrigation water supply augmentation and demand
The RPDS included area approach for ensuring
management.
effective reach of the PDS commodities, their delivery
(iii) Credit and insurance facilities like creation of by State Governments at the doorstep of FPSs in the
agriculture risk fund.
identified areas, additional ration cards to the left out
(iv) Technological reforms in the form of proper families, infrastructure requirements like additional
integration of production and post-harvest Fair Price Shops, storage capacity etc and additional
technologies, development of a cadre of rural farm commodities such as tea, salt, pulses, soap etc for
science managers and lab-to-land demonstrations: distribution through PDS outlets.
(v) Assured and remunerative marketing.
Targeted Public Distribution System (TPDS)
The commission also suggested a Risk Stabilisation
The TPDS as it operated earlier had been widely
Fund and a farmer centric Minimum Support Price and
Market Intervention Scheme (MIS) and creation of Pan criticised for its failure to serve the population
Panchayats. below the poverty line. Therefore, on the basis of the
recommendations of the Chief Ministers Conference
Food Security
held in July, 1996, an effort was made to streamline the
The World Food Summit of 1996 defined food PDS, through the introduction of the Targeted Public
security as a condition existing when "All people, at Distribution System (TPDS) in June, 1997.
all times, have physical, social and economic access to
sufficient, safe and nutritious food to meet their dietary This system follows a 2 tier subsidised pricing
needs and food preferences for an active and healthy structure for families, Below Poverty Line (BPL) and for
life." those Abov Poverty Line (APL).
India's food security programme tries to tackle The identification of poor under the scheme is done
some of these problems through various intervention. by the states as per the state-wise poverty estimates of
The main interventions can be said to be the public Planning Commission.
distribution system and the National Food Security Act, In order to make the TPDS more focused and
2013. targeted towards the poor, the Antyodaya Anna Yojana
Public Distribution System (PDS) was launched in December 2000.
Presently, PDS is operated under the joint The scheme contemplates identification of 10
responsibility of the Central and the State Governments. million po families and providing them with 25 kg of
The Central Government, through FCI, has assumed the foodgrains pem family per month at a low price of ` 2
responsibility for procurement, storage, transportation per kg for wheat and ` 3 per kg for rice.
and bulk allocation of foodgrains to the State
Governments:
Fortification of Rice and its Distribution
The operational responsibility including allocation The Government of India approved the Centrally
within states, identification of families below the Sponsored Pilot Scheme Fortification of Rice and its
poverty line, issue of ration cards and supervision of Distribution under public Distribution System' on 14
the functioning of fair price shops, rest with the State Febury, 2024 for a period of 3 years beginning 2023-
Governments. 24. The Pilot Scheme is being implemented in 15

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Districts (1 District per state). Eleven States including International Fund for Agricultural Development
Andhra Pradesh, Gujarat, Maharashtra, Tamil Nadu, IFAD is an International Financial Institution and a specialised UN
Chhattisgarh, Uttar Pradesh, Odisha, Telangana, Madhya agency based in Rome - the UN's food and agricultural hub. It is a
Pradesh Uttarakhand and Jharkhnad have started unique partnership of 165 members from the Organisation of the
Petroleum Exporting Countries (OPEC), other developing countries
distributing the fortified rice in their identified districts and the Organisation for Economic Cooperation and Development
under the pilot scheme. (OECD).
FAD provides a strong global platform for discussing rural policy
National Food Security Act 2013, (NFSA)
issues-and for increasing awareness about why investment in
NFSA is the biggest intervention of its kind in the agriculture and rural development is critical to reducing poverty and
improving food security.
world in the realm of food security. It implemented
property this law can improve the lives of millions in Storage Capacity and Constraints
this country. There are three agencies in the public sector which
™™ Some of the highlights of this act are as follows: are engaged in building large scale storage/warehousing
capacity namely, Food Corporation of India (FCI),
™™ It extends to the whole of India.
Central Warehousing Corporation (CWC) and 17 States
™™ Priority households are entitled to 5 kgs of food Warehousing Corporations (SWCs).
grains per person per month and Antyodaya
While the capacity available with FCI is used mainly
households to 35 kgs per household per month.
for storage of foodgrains that with CWC and SWCS is
™™ Combined coverage of pronty and Antyodaya used for storage of foodgrains as well as certain other
households will extend to 75% of the rural items
population and 50% of the urban population.
Food Processing Industry
™™ PDS issue prices will be 3/2/1 per kg for rice/ ™™ India is the 3rd largest producer of food crops in the
wheat/millets These may be revised after 3 years. world. after China and the US.
™™ For children in the age group 6 months to 6 years, ™™ During the last 5 years ending 2019-20, Food
an age- appropriate meal will be provided through Processing Industries (FPI) sector has been
the local Anganwadi. growing at an average annual growth rate of around
™™ For children aged 6-14 years, one free mid-day meal 11 18%. It also provides employment to 7 million
in all government and government aided schools up peoples with a share of 32% in India's food market
to class VII. and 10.4% in India's total export. The output of food
™™ For children below 6 months 'exclusive breast processing sector in India is expected to reach $ 535
feeding will be promoted'. billion by 2025-26.

™™ Every pregnant and lactating mother is entitled to a ™™ The industry is segmented into sectors namely,
milk and allied products (dairy), meat and poultry,
free meal at the local Anganwadi (during pregnancy
seafood, bakery and confectionery, fruit and
and 6 months after) and maternity benefits of `
vegetables, grain, pulses and oilseeds (staple)
6000 to bestallments.
products, alcoholic and non-alcoholic products
™™ The act does not specify criteria for identification (beverages) and packaged foods. The classification
of eligible households Central Government will is not distinct as many processed products overlap
determine state-wise coverage and states will then different segments.
identity the beneficiaries.
™™ In FPI, 100 percent FDI is permitted under the
™™ State food commissions will be created to monitor automatic route. However, in case of trading
implementation of the act. in respect of food products manufactured and
™™ Grievance Redressal System consists of the district produced in India including through-e-commerce,
Grievance Redressal officer and the State Food 100 percent FDI is allowed under the Government
Commission. approval route.
™™ Transparency provisions include placing PDS Food Corporation of India (FCI)
records in the public domain, conducting periodic FCI was set-up in 1965 with the primary duty to
social audits, use of information and communication undertake the purchase, storage, movement, transport,
technology and setting up of vigilance committees. distribution and sale of foodgrains and other foodstuffs.
™™ The act also states that the Central and State It has also been entrusted with maintaining buffer
Governments will endeavour to undertake PDS stocks of foodgrains on behalf of the government. It is
reforms. the sole repository of foodgrains meant for the PDS.

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National Mission on Food Processing productivity; create employment opportunities and

NMFP has been launched under the 12 Plan for th enhance the farm level economy to restore confidence
a decentralised implementation of various schemes of farmers.
under the ministry of food processing with the help of The National Food Security Mission (NFSM) during
State Governments. the 12th Five Year plan have 5 components (i) NFSM-Rice
It consists of the following main schemes technology (ii) NFSM-Wheat (iii) NFSM-Pules (iv) NFSM-Coarse
up gradation of food processing industries, cold chain cereals and (v) NFSM-Commercial crops.
facilities for non-horticultural produces, modernisation Prime Minister-Formalisation of Micro Food
of abattoirs, primary processing centres/collection
Processing Enterprises (PM-FME)
centres in rural areas. upgradation of quality of street
food etc. Under the ANB Mission, Ministry of food Processing
industrie (MoFPI) has launched a new Centrally
National Food Processing Development Council (NFPDC)
Sponsored Scheme, PM-FME with a total outlay of `
NFPDC has been set-up to provide guidance to all schemes of
10,000 crore over the period 2020-2025 Under the
the ministry of food processing including NMFP it will comprise
the Agriculture Minister as Chairman, representatives of State scheme, One District One Product (ODOP) status for 137
Government, industry associations and related government officials. unige products in 710-districts of 35 States/UTS has
Pradhan Mantri Kisan SAMPADA Yojana been approved by the Ministry.
In 2016, the Ministry of Food Processing Industries Ethanol Blended with Petrol (EBP) Programme
introduced an umbrella Scheme for Agro-Marine The Government has now set 20 per cent ethonal
Processing and Development of Agro-Processing blending target for mixing ethanol with petrol to be
Clusters of SAMPADA. In 2017, SAMPADA was renamed achieved by 2025 It is estimated that the blending target
as the Pradhan Mantri Kisan Sampada Yojana (PMKSY). at 10 per cent would be achieved during 2024. With a
Under the PMKSY, the Ministy is implementing view to achieve these targets, Government has allowed
various component schemes, inter-alia, including (i) production of ethanol from different feed stocks viz B-Hy
Mega Food Parks, (ii) Integrated Cold Chain and Value and C-Hy molasses, cane juice, sugar syrup, sugar and
Addition Infrastructure, (iii) Infrastructure for Agro- damaged food grains including surplus FCI rice, maize,
processing Clusters, (iv) Creation of Backward and etc. by the distilleries either attached with sugar mills or
Forward Linkages, (v) Creation/Expansion of Food standalone. Financial assistance in the form of interest
Processing and Preservation Capacities, (vi) Operation subvention are also provided to eligible distilleries for
Greens and (vii) Food Testing Laboratories. augmentation of ethanol production capacity in the
Mega Food Park Scheme (MFPS) country.
The 10th Plan scheme of Food Parks was renamed as
the Mega Food Park Scheme (MFPS) in 2008. The scheme Agricultural Revolution
has been launched with the objective of implementing
the express objectives of the Vision 2015, document Green Revolution in India
through creation of excellent infrastructure.
The introduction of high-yielding varieties of
As of 1st August, 2021, there are 22 Mega Food Parks seeds after 1965 and the increased use of fertilisers
functioning in the country. and irrigation are known collectively as the Green
Objectives of the Mega Food Park Scheme are as Revolution, which provided the increase in production
follows: needed to make India self-sufficient in foodgrains.
™™ To provide state of the art infrastructure for food The term 'Green Revolution' is a general one that is
processing in the country on a pre-identified cluster applied to successful agricultural experiments in many
basis. third world countries. It is not specific to India, but it
™™ To ensure value addition of agricultural was most successful in India.
commodities. There were three basic elements in the method of
™™ To establish a sustainable raw material supply chain the Green Revolution:
for each cluster, To facilitate induction of latest
(i) Continued expansion of farming areas.
technology.
(ii) Double-cropping existing farmland.
™™ Quality assurance through better process control
and capacity building. (iii) Using seeds with improved yields.
National Food Security Mission (NFSM) Drawbacks of First Green Revolution
It was launched in rabi 2007-08. The mission aims While the first Green Revolution achieved many
to increase production through area expansion and successes, there were also many flaws in its strategy,

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which were not envisaged at that time. These flaws Blue Revolution Fishery
include, negative impact on environment and health due Pink Revolution Prawns/Meat processing
to excessive use of fertilizers and pesticides; depletion Golden Revolution Honey
of soil nutrients; depletion of water resources including
Golden Fibre Revolution Jute
ground water; higher costs of input etc.
Silver Fibre Revolution Cotton
Bringing Green Revolution in Eastern India Programme
(BGREI) Evergreen Revolution
The BGREI was launched in 2010-11, as a part of the Rashtriys Krishi The concept was given by renowned agricultural
Vikas Yojana. It was implemented in the Eastern region of the country. Scientist Dr MS Swaminathan Evergreen Revolution
It focused on resource allocation and utilisation t has resulted in a
robust increase in foodgrain production, growth rate being estimated
emphasises on organic agriculture and groen agriculture
at 11,9% during 2011-12 as against the overall growth rate of 2.2% with the help of integrated pest management, integrated
of the country as a whole The Indian state of West Bengal, Assam, nutrient supply and integrated natural resource
Bihar. Chattisgarh, Jharkhand, Odisha and Eastern Utter Pradesh are
perting the benefits of BGREI. Based on the past experiences and
management. The core of the Evergreen Revolution is
performance of 12th Five Year Plan, it has been decided to continue sustainability.
the centrally sponsored scheme of BGREI beyond 12th Planie. 2015-16
to 2019-20 Rainbow Revolution
Certain other conditions have also emerged after In July 2000, the Central Government of India had
the first Green Revolution, which are having a negative announced the first-ever National Agriculture Policy.
impact on agriculture like, land constraints due to The policy aimed at achieving a growth rate of over 4%
diversion of land to other economic areas; climate per annum by introducing Rainbow Revolution in the
change, diversion of crops to bo-diesel; fragmentation next two decades so that the total GDP growth can be
of land holdings making farming unviable. sustained at 6,5%.
For these reasons and to ensure the food security Tricolour Revolution
of the country, there is a need for a Second Green The reference to a Tricolour Revolution was made
Revolution in the country, which would address all the by Prime Minister Narendra Modi.
problems.
This phrase has three components these are as
Second Green Revolution in India follows:
Second Green Revolution will consist of a number of (i) Saffron Energy Revolution for promotion and better
different programmes working towards the same goals. utilisation of solar energy.
Some of the initiatives, which will help in this direction (ii) White Revolution to ensure cattle welfare and
are as follows: further the goals of White Revolution.
™™ Increasing crop yields in Eastern states. (iii) Blue Revolution for fishermen's welfare, cleansing
™™ Organic farming and contract farming. rivers and sea and conserving water.
™™ Amending the Agricultural Produce Marketing Operation Green
Committee (APMC) Acts.
The former Finance Minister Arun Jaitley has
™™ Investing in research to drought proof crops as well announced Operation Green on the lines of Operation
as to tackle climate change. Flood for enhancing the production of tomato, onion
™™ Investing in supply chain and cold chains. and potatoes in budget 2018-19.
™™ Encouraging private investments through tax law A sum of ` 500 crore has been allocated for this new
amendments. measure. It may help in doubling the income of farmers
™™ Use of plant breeding and biotechnology. by the end of 2024
™™ Rain water harvesting and watershed development. Sweet Revolution
™™ Improving credit availability. The mission was announced in Budget 2022-23
™™ Improving soil quality and reclaiming degraded as a part of the Atma Nirbhar Bharat Scheme. National
land. Beekeeping and Honey Mission (NBHM) aims for
the overall promotion and development of scientific
Major Agricultural Revolutions beekeeping in the country to achieve the goal of Sweet
Green Revolution Cereals, wheat and leguminous plants. Revolution which is being implemented through
White Revolution Milk and dairy products National Bee Board (NBB) for three years (2020-21 to
Silver Revolution Egg and poultry 2022-23). Beekeeping is a part of integrated farming
Yellow Revolution Edible oil system.

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Agricultural Marketing and Extension Services provisions of the Banking Regulations Act,
Organised marketing of agricultural commodities 1949, the Banking Regulations Act empowers
is being promoted in the country through a network NABARD (National Bank for Agriculture and Rural
of regulated markets. Most of the states and Union Development) to undertake the inspection of RRBs.
Territories have enacted legislations (the Agriculture ™™ Area of RRBs is limited to a specified region
Produce Marketing Committee [APMC] Act) to provide comprising one or more districts of a state. They
for regulation of agricultural produce markets. grant direct loans and advances only to small
Seventeen states or UTs have amended their APMC and marginal farmers, rural artisans, agricultural
Act and the remaining are in the process of doing so. labourers and others of small means for productive
purposes. Lending rates of RRBS cannot be higher
India has 2,477 principal regulated primary
than those of co-operative societies in any particular
agricultural markets in the country. These markets are
state.
governed by APMC Acts and administered by a separate
Agricultural Produce Marketing Committee (APMC) RRB (Amendment) Act, 2015
which has its own marketing regulations. This set up The Regional Rural Banks (Amendment) Act
hinders the free flow of agricultural commodities from seeks to amend the existing Act so as to increase the
one market to another. authorised capital of each Regional Rural Bank (RRB)
National Agricultural Market Yojana from ` 5 crore to ` 2000 crore divided into ` 200 crore
The purpose behind NAM is the creation of a of fully paid shares of ` 10 each.
common national market for agricultural commodities The bill also provides that the authorised capital of
through an e-platform network. any Regional Rural Bank shall not be reduced below ` 1
As a part of National Agricultural Market (NAM), crore and shares in all cases to be fully paid up shares of
Prime Minister Narendra Modi launched the national ` 10 each. It also provides that the issued capital of each
e-agriculture market on 21st April, 2016. These e-mandis rural bank shall not be less than ` 1 crore.
(markets) will integrate the various vegetable markets At present, there are 43 RRBs and they are doing
across country. well. The amendment to raise the authorised capital of
The Kisan Call Centre Scheme was launched in the RRBS from ` 5 crore to ` 2000 crore, will strengthen
2004, to provide agricultural information to the farming these institutions and further deepen financial inclusion.
community through toll-free telephone lines. A country- Kisan Credit Card (KCC) Scheme
wide common 11 digit number-1800-180-1551has
Kisan Credit Cards were started by the Government
been allocated for KCCs.
of India, Reserve Bank of India (RBI) and National Bank
The Agri-clinic and Agri-business Centres Scheme for Agricultural and Rural Development (NABARD)
was launched in 2002, to provide extension services in August 1998, to help the farmers access timely and
to farmers on payment basis through setting up of adequate credit.
economically viable self employment ventures. NABARD
The scheme includes reasonable components
monitors the credit support to Agri-clinics through
of consumption credit and investment credit within
Commercial banks.
the overall credit limit sanctioned to the borrowers,
Commercial Banks and Rural Credit to provide adequate and timely credit support to the
Share of commercial banks in rural credit was farmers for their cultivation needs. Budget 2012-13, has
meagre just ahe Independence. expanded the scope of KCCs as now they can be used as
Regional Rural Banks (RRBs) smart cards and ATMs. The card is valid for 3 years and
subject to annual renewals.
™™ RRBS were set-up to supplement the efforts of co-
operatives and commercial banks. NABARD : An Overview
™™ In 1976, the Parliament enacted the Regional Rural NABARD was set-up by the Government of India as a
Banks Act, 1976 to provide for the incorporation, development bank with the mandate of facilitating credit
regulation and winding up of Regional Rural Banks. flow for promotion and development of agriculture and
The Act has been made effective from the 26th Integrated rural development.
September, 1975. The mandate also covers supporting all other allied
™™ The equity of the RRBS is contributed by the Central economic activities in rural areas, promoting sustainable
Government, concerned State Government and the rural development and ushering in prosperity in the
sponsor bank in the proportion of 50:15:35. rural areas.
™™ Besides the Reserve Bank, which is the regulatory It is an apex institution handling matters concerning
authority for the RRBs in accordance with the policy, planning and operations in the field of credit for

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vkLFkk IAS INDIAN ECONOMY

agriculture and for other economic and developmental National Agricultural Insurance Scheme
activities in rural areas. ™™ The NAIS was a government sponsored central
Essentially, it is a refinancing agency for financial sector crop insurance scheme being implemented
institutions offering production and investment credits in the country since 1999-2000, season with the
for promoting agricultural and developmental activities objective of providing financial support to farmers
in rural areas. in the event of failure of crops as a result of natural
NAFED calamities, pests and diseases.
National Agricultural Co-operative Marketing ™™ The Agriculture Insurance Company of India
Federation of India Limited (NAFED) is the Apex Co- Limited is the implementing agency for the scheme.
operative Organisation at the national level. Modified NAIS
It deals in procurement distribution export and ™™ With the aim of further improving crop insurance
import of selected agricultural commodities. It was schemes, the MNAIS is under implementation on
established in 1958. pilot basis in 50 districts in the country from rabi
TRIFED 2010-11 season.
Tribal Co-operative Marketing Development ™™ Both the Agri-insurance scheme NAIS and modified
Federation of India Limited (TRIFED) came into NAIS have been replaced with a unified and
existence in 1987 and got registered under the Multi- comprehensive scheme; Pradhan Mantri Fasal Bima
State Co-operative Societies Act, 1984. Now, the Multi- Yojana.
State Co-operative Societies Act, 2002.
Agriculture Insurance Company of India Limited
Recommendations of Task Force on Credit AICIL was incorporated under the Companies
Related Issues of Farmers (Chairman Umesh Act, 1956 in 2002 as a specialised participation from
Chandra Sarangi) General Insurance Company four public sector GICs and
™™ The task force looked into the issue of large number NABARD.
of farmers, who had taken loans from private Pilot Weather Based Crop Insurance Scheme
moneylenders, not being covered under the loan (PWBCIS)
waiver scheme.
Similarly, the WBCIS is also being implemented as
™™ Financial literacy and counselling campaigns be
a central-sector scheme from kharif 2007 season. The
undertaken to increase awareness among farmers
scheme is intended to provide insurance protection
on the KCC.
to farmers against adverse weather incidence such
™™ Banks be encouraged to educate their rural branch as deficit and excess rainfall, high or low temperature
staff about the KCC. and humidity that are deemed to adversely impact crop
™™ Banks use farmers co-operatives and SHG production.
federations as banking correspondents to increase Commodity Futures Market
out reach.
The commodity futures market facilitates the
™™ The KCC be technology-enabled, including the price discovery process and provides a platform for
conversion to a smart card with withdrawals and
price risk management in commodities. Currently, 113
remittances enabled at Automated Teller Machines
commodities are notified for futures trading of which
(ATMs), Points of Sale (POS) and through hand
51 are actively traded in 5 national and 15 regional
held machines; banks need to have Core Banking
commodity specific exchanges
Solutions (CBSS) in place at the earliest, to enable
technology to benefit the farmer. Forward Markets Commission
™™ The KCC limit be fixed for five years, based on the The Forward Markets Commission (FMC) was
banker's assessment of total credit needs of the the regulator for commodity futures trading, which it
farmer for a full year and that the limit be operated regulates under the provisions of the Forward Contracts
by the borrower as and when needed, with no (Regulation Act, 1952.
sublimits for kharif and rabi or for different stages In 2015 FMC was merged with Securities and
of cultivation. Exchange Board of India (SEBI) which became single
™™ There should be automatic renewal and annual regulator of stock and commodity market in India.
increase in credit limit linked to inflation rate. Mobile Apps for Farmers
Agriculture Insurance Union Agriculture and Farmers Wealth Minister,
There are various major crop insurance schemes Shri Radha Mohan Singh launched two mobile apps for
under implementation in the country: the farmers on 23rd December, 2015.

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Mobile app 'Crop Insurance' National Mission for Sustainable Agriculture (NMSA)
It will help the farmers not only to find out complete NMSA is one of the 8 plans, under the National
details about insurance cover available in their area, but Action Plan on Climate Change (NAPCC) and will be
also to calculate the insurance premium for notified implemented during the 12th Five Year Plan. It seeks to
crops, coverage amount and loan amount in case of a transform agriculture into an ecologically sustainable
loaned farmer. climate resilient production system, while at the same
time, exploiting its fullest potential and thereby ensuring
Mobile app 'Agrimarket Mobile' food security, equitable access to food resources,
This app automatically captures the location of enhancing livelihood opportunities and contributing to
person using mobile GPS and fetches the market prices economic stability at the national level
of crops in those markets which fall within the range Objectives of NMSA
of 50 km. There is another option to get price of any
The objectives of NMSA are as follows
market and any crop in case person does not want to
™™ To devise strategic plans at the agro-climatic zone
use GPS location.
level.
Role of R&D in Agriculture ™™ To enhance agricultural productivity through
Research and development and its application customised interventions such as use of
in agriculture and allied sectors can pay a major role biotechnology.
in realisation of Sustainable agriculture practice that ™™ To facilitate access to information and institutional
efficiently meets the objectives of nutritional security support by expanding automatic weather station
and improvement in farm income. World's food system networks to the Panchayat level and linking them to
contributes to about one-fifth of global greenhouse existing insurance mechanisms.
gas (GHG) emissions. According to a repor of the ™™ To promote laboratory to land research by creating
International Food Policy Research Institute, agriculture model villages and model farm units in rainfed and
is key to meeting half of the 17 Sustainable Development dryland areas.
Goal (SDG) targets which, inter alia, include the tartets ™™ To strategise long-term interventions for emission
of eliminating poverty and hunger and reducing reduction from energy and non-energy uses by way
inequalities. Climate-resilient varieties with resistant of introduction of suitable crop varieties and farm
to multiple pests and diseases and abiotic stress is a practices, livestock and manure management.
significant area of work in the context of climate and ™™ To realise the enormous potential of growth in
food security. dryland farming.

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vkLFkk IAS INDIAN ECONOMY

timely access to credit. Kisan Credit Card scheme was

Government Schemes and introduced in 1998 to provide short-term formal credit
Programmes in Agriculture to the farmers. KCC scheme was launched to ensure that
the credit requirements for cultivators in the agriculture,
for Farmers fisheries & animal husbandry sector were being met.
Welfare of farmers has been the top priority of Under this scheme, farmers are given short-term loans
Government of India. For this it has implemented to purchase equipment & for their other expenses as
different schemes or yojana to revive agriculture sector well. There are many banks that offer KCC including SBI,
and to improve the economic conditions of farmers. HDFC, ICICI, Axis.

These agricultural schemes are very beneficial Pashu Kisan Credit Card Scheme
for the farmers and they must know about it so as to For the growth and development of animal
take its benefit. So through this article we will tell you husbandry sector in India, the Government has launched
about some of the most useful and popular government ‘Pashu Kisan Credit Card’ for livestock farmers. Haryana
schemes for farmers in India. is the first state in the country to provide Pashu Kisan
Important government schemes in agriculture Credit Card to the farmers. Under this scheme, farmers
are given loan to buy cow, buffalo, goat etc. To apply
PM-Kisan Scheme
for Pashu Kisan Credit Card you will have to go to your
Pradhan Mantri Kisan Samman Nidhi Yojana is nearest bank.
an initiative of the Government wherein 120 million
Paramparagat Krishi Vikas Yojana (PKVY)
small and marginal farmers of India with less than two
hectares of landholding will get up to Rs. 6,000 per year Paramparagat Krishi Vikas Yojana is implemented
as minimum income support. PM-Kisan scheme has with the aim to promote organic cultivation in India. To
become operational since 1st December 2018. Under improve soil health as well as organic matter content
this scheme, cultivators will get Rs. 6000 in three and to boost the net income of the farmer so as to realize
installments. premium prices. Under Paramparagat Krishi Vikas
Yojana, an area of 5 lakh acre is targeted to be covered
Pradhan Mantri Kisan Maandhan yojana
though 10,000 clusters of 50 acre each, from 2015-16 to
Prime Minister Narendra Modi launched a pension 2017-18.
scheme for the small & marginal farmers of India last
September. Under PM Kisan Maandhan scheme about 5 Pradhan Mantri Krishi Sinchai Yojana (PMKSY)
crore marginalised farmers will get a minimum pension Pradhan Mantri Krishi Sinchai Yojana was launched
of Rs 3000 / month on attaining the age of 60. Those on 1 July 2015 with the motto ‘Har Khet Ko Paani’ to
who fall in the age group of 18 - 40 years will be eligible provide end-to end solutions in irrigation supply chain,
to apply for the scheme. Under this scheme, the farmers viz. water sources, distribution network & farm level
will be required to make a monthly contribution of Rs 55 applications. PMKSY focuses on creating sources for
to 200, depending on their age of entry, in the Pension assured irrigation, also creating protective irrigation
Fund till they reach the retirement date, 60 years. The by harnessing rain water at micro level through ‘Jal
Government will make an equal contribution of the Sanchay’ & ‘Jal Sinchan’.
same amount in the pension fund for the cultivators.
Components:
Pradhan Mantri Fasal Bima Yojana (PMFBY) ™™ Accelerated Irrigation Benefit Programme -
Pradhan Mantri Fasal Bima Yojana is an actuarial implemented by Ministry of Water Resources, RD & GR.
premium based scheme where farmer has to pay ™™ PMKSY (Har Khet ko Pani) - implemented by
maximum premium of 2 percent for Kharif, 1.5 percent
Ministry of Water Resources, RD & GR
for Rabi food & oilseed crops and 5 percent for annual
commercial or horticultural crops and the remaining part ™™ PMKSY (Watershed) - implemented by Department
of the actuarial or bidded premium is equally shared by of Land Resources.
the Central & State Government. An important purpose ™™ PMKSY(Per Drop More Crop - PDMC)
of the scheme is to facilitate quick claims settlement. National Agriculture Market (e-NAM)
The claims should be settled within 2 months of harvest
National Agriculture Market gives an e-marketing
subject to timely provision of both yield data & share of
platform at the national level and support creation
premium subsidy by State Government.
of infrastructure to enable e-marketing. This new
Kisan Credit Card (KCC) scheme market process is revolutionizing agriculture markets
Kisan Credit Card scheme is yet another important by guaranteeing better price discovery. It also brings
Government scheme that provides farmers with in transparency & competition to enable cultivators to

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vkLFkk IAS INDIAN ECONOMY

get improved remuneration for their produce moving ™™ Paramparagat Krishi Vikas Yojana (PKVY) -
towards ‘One Nation One Market’. To register on e-NAM implemented by INM Division
Dairy Entrepreneurship Development Scheme ™™ National Rainfed Area Authority (NRAA) -
implemented by RFS Division
The Department of Animal Husbandry, Dairying &
Fisheries (DAHD&F) had launched a pilot scheme called ™™ Soil and Land Use Survey of India (SLUSI) -
as “Venture Capital Scheme for Dairy & Poultry” in the implemented by RFS Division
year 2005-06. The scheme aimed at extending support ™™ National Centre of Organic Farming (NCOF) -
for setting up small dairy farms and other components implemented by INM Division
to bring structural changes in the dairy sector. Later on, ™™ Mission Organic Value Chain Development in North
DAHD&F changed its name to 'Dairy Entrepreneurship Eastern Region (MOVCDNER) - implemented by
Development Scheme' (DEDS) & the revised scheme INM Division
came into operation with effect from 1st September, Livestock insurance Scheme
2010. Livestock insurance Scheme is aimed at providing
Rainfed Area Development Programme (RADP) protection mechanism to farmers as well as cattle rearers
Rainfed Area Development Programme was started against any eventual loss of animals because of death.
The scheme also tells about the benefit of insurance of
as a sub-scheme under the Rashtriya Krishi Vikas Yojana
livestock to dairy farmers and popularizes it with the
(RKVY). The aim was to improve quality of life of farmers’
ultimate goal of attaining a qualitative improvement in
especially, small & marginal farmers by giving a complete
livestock & their products.
package of activities to maximize farm returns. It also
help in increasing agricultural productivity of rainfed Farm Laws 2020
areas in a sustainable way by adopting suitable farming These Farm Acts are as follows:
system based approaches. It minimises the adverse 1. Farmers' Produce Trade and Commerce (Promotion
impact of possible crop failure because of drought, flood and Facilitation) Act, 2020
or un-even rainfall distribution through diversified & 2. Farmers (Empowerment and Protection)
composite farming system. The programme also help Agreement on Price Assurance and Farm Services
in increasing farmer’s income & livelihood support for Act, 2020
reduction of poverty in Rainfed areas.
3. Essential Commodities (Amendment) Act, 2020
Soil Health Card Scheme Farmers (Empowerment and Protection)
Soil health card scheme was launched in the year Agreement on Price Assurance and Farm Services
2015 in order to help the State Governments to issue Soil Act, 2020
Health Cards to farmers of India. The Soil Health Cards
™™ Citation: Act No. 20 of 2020
gives information to farmers on nutrient status of their
™™ Territorial extent: India
soil along with recommendation on appropriate dosage
™™ Lok Sabha: The Bill was introduced in Lok Sabha on 14 September
of nutrients to be applied for improving soil health and 2020, passed in Lok Sabha on 17 September 2020.
its fertility. Check for more information. ™™ Rajya Sabha: It was passed in Rajya Sabha on 20 September
2020.
National Mission for Sustainable Agriculture
™™ Presidential Assent: The Bill received Presidential Assent on 27
(NMSA) September 2020.
National Mission for Sustainable Agriculture is one ™™ Introduced by: Minister of Agriculture and Farmers Welfare,
Narendra Singh Tomar
of the eight Missions under the National Action Plan
on Climate Change (NAPCC). It is aimed at promoting 1. Background: On 5 June 2020, The Farmers
Sustainable Agriculture via climate change adaptation (Empowerment and Protection) Agreement on
measures, boosting agriculture productivity especially in Price Assurance and Farm Services Ordinance, 2020
Rainfed areas focusing on integrated farming, soil health was promulgated by the Union Cabinet.
management & synergizing resource conservation. 2. Act: It creates a national framework for contract
farming through an agreement between a farmer
Schemes under NMSA
and a buyer before the production or rearing of any
™™ Rainfed Area Development (RAD) - implemented by farm produces.
RFS Division. 3. Provisions:
™™ Sub Mission on Agro Forestry (SMAF) - implemented (a) Farming Agreement: The Act provides for a
by NRM Division farming agreement between a farmer and a
™™ Soil Health Management (SHM) - implemented by buyer prior to the production or rearing of any
INM Division farm produce.

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(b) Minimum Period of Farming Agreement: trading channels to promote barrier-free

The minimum period of the farming agreement intra-state and inter-state trade of agriculture
shall be for one crop season or one production produce.
cycle of livestock. (c) Electronic Trading: Additionally, it allows
(c) Maximum Period of Farming Agreement: the electronic trading of scheduled farmers’
The maximum period of the farming agreement produce (agricultural produce regulated under
shall be five years. It also states that if the any state APMC Act) in the specified trade area.
production cycle of any farming produce is It will also facilitate direct and online buying
longer and may go beyond five years, the and selling of the agricultural produce via
maximum period of farming agreement may electronic devices and the internet.
be mutually decided by the farmer and the (d) Market Fee Abolished: As per the Act, the
buyer and explicitly mentioned in the farming
State Governments are prohibited from levying
agreement.
any market fee or cess on farmers, traders
(d) Pricing of Farming Produce: The pricing and electronic trading platforms for trading
of farming produce and the process of price farmers’ produce in an 'outside trade area'.
determination should be mentioned in the
Agricultural Produce Market Committee (APMC):
agreement. For prices subjected to variation,
a guaranteed price for the produce and a clear All you need to know
reference for any additional amount above Essential Commodities (Amendment) Act, 2020
the guaranteed price must be specified in the
™™ Citation: Act No. 10 of 1995
agreement.
™™ Territorial extent: India
(e) Settlement of Dispute: The Act provides for ™™ Status: Amended
a three-level dispute settlement mechanism-- ™™ Lok Sabha: The Bill was introduced in Lok Sabha on 14 September
Conciliation Board, Sub-Divisional Magistrate 2020, passed in Lok Sabha on 15 September 2020.
and Appellate Authority. ™™ Rajya Sabha: It was passed in Rajya Sabha on 22 September
2020.
Farmers' Produce Trade and Commerce ™™ Presidential Assent: The amendment received Presidential
(Promotion and Facilitation) Act, 2020 Assent on 27 September 2020.

™™ Citation: Act No. 21 of 2020 1. Background: On 5 June 2020, the Essential

™™ Territorial extent: India Commodities (Amendment) Ordinance, 2020 was
™™ Lok Sabha: The Bill was introduced in Lok Sabha on 14 September promulgated by the Union Cabinet.
2020, passed in Lok Sabha on 17 September 2020.
2. Act: It is an act of Indian Parliament which was
™™ Rajya Sabha: It was passed in Rajya Sabha on 20 September
2020. enacted in 1955 to ensure the delivery of certain
™™ Presidential Assent: The Bill received Presidential Assent on 27 commodities or products, the supply of which if
September 2020. obstructed owing to hoarding or black-marketing
™™ Introduced by: Minister of Agriculture and Farmers Welfare, would affect the normal life of the people. This
Narendra Singh Tomar
includes foodstuff, drugs, fuel (petroleum products)
1. Background: On 5 June 2020, the Farmers' Produce etc.
Trade and Commerce (Promotion and Facilitation)
3. Powers of Central Government:
Ordinance, 2020 was promulgated by the Union
Cabinet. (a) The Government of India regulates the
production, supply, and distribution of a whole
2. Act: It permits intra and inter-state trade of
host of commodities it declares ‘essential’ in
farmers’ produce beyond the physical premises of
order to make them available to consumers at
Agricultural Produce Market Committee (APMC)
fair prices.
markets and other markets notified under the state
APMC Acts. (b) The Government can also fix the MRP of any
3. Provisions: packaged product that it declares an 'essential
commodity'.
(a) Trade of Farmers' Produce: The Act allows
the farmers to trade in outside trade area such (c) The Centre can add commodities in this list
as farm gates, factory premises, cold storages, when the need arises and can take them off the
and so on. Previously, it could only be done in list once the situation improves.
the APMC yards or Mandis. (d) If a certain commodity is in short supply and
(b) Alternative Trading Channels: It facilitates its price is spiking, the Government can notify
lucrative prices for the farmers via alternative stock-holding limits on it for a specified period.

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vkLFkk IAS INDIAN ECONOMY

4. Powers of State Government: The respective ™™ To provide structured income support for procuring
State Governments can choose not to impose any inputs such as seeds, fertilizers, equipment, labour
restrictions as notified by the Centre. However, and other needs.
if the restrictions are imposed, traders have to Features of the programme
immediately sell any stocks held beyond the
™™ Vulnerable landholding farmer families, having
mandated quantity into the market. This is done to
cultivable land upto 2 hectares, will be provided
improve supplies and brings down prices.
direct income support at the rate of Rs 6,000 per
5. Amendment: With the amendment in the Act, the year.
Government of India will list certain commodities ™™ Income support will be transferred directly into the
as essential to regulate their supply and prices only bank accounts of beneficiary farmers, in three equal
in cases of war, famine, extraordinary price rises, installments of Rs 2,000 each.
or natural calamities. The commodities that have
™™ This programme will entail an annual expenditure of
been deregulated are food items, including cereals,
Rs 75,000 crore and will be funded by Government
pulses, potato, onion, edible oilseeds, and oils.
of India. Around 12 crore small and marginal farmer
6. Stock Limit: As per the amendment, the imposition families are expected to benefit from this.
of any stock limit on agricultural produce will ™™ It came into effect on 1st December 2018 and the
be based on price rise and can only be imposed first installment for the period upto 31st March 2019
if there's-- a 100% increase in the retail price of would be paid during this year itself.
horticultural produce and 50% increase in the retail
price of non-perishable agricultural food items. Other Important Income Support Schemes for Farmers
™™ Rythu Bandhu scheme (Telangana)/Farmers’ Investment Support
7. Calculation: The increase will be calculated over Scheme (FISS).
the price prevailing immediately preceding twelve ™™ It is a welfare program to support farmer’s investment for two
months, or the average retail price of the last five crops a year.
years, whichever is lower. ™™ The government is providing 58.33 lakh farmers, ?4000 per acre
per season to support the farm investment, twice a year, for rabi
It is to be noted that these restrictions will not be
and kharif seasons.
applied to stocks of food held for public distribution in
™™ This was the first direct farmer investment support scheme in
India. India, where the cash is paid directly.
Criticism
Krushak Assistance for Livelihood and Income
(a) President of the Maharashtra Rajya Bazaar Samiti Augmentation (KALIA)
Sahakari Sangh, Dilip Mohite Patil claimed that ™™ State Government of Odish aims to lend farmers with an all
around 100-125 market committees in Vidarbha inclusive and flexible support system, ensuring accelerated
and Marathwada regions have reported almost no agricultural prosperity.
business and are on the verge of closure after the ™™ It will cover 92% of the small and marginal farmers of the State.
An amount of ?10,000 per family at the rate of ?5,000 for Kharif
announcement of the central Ordinance. and Rabi shall be provided as fi nancial assistance for taking up
(b) Food Processing Industries Minister, Harsimrat Kaur cultivation.
Badal of Shiromani Akali Dal resigned from her post ™™ The farmers will have complete independence to take up
interventions as per their needs.
in protest against these Bills.
™™ This component is not linked to extent of land owned and will
(c) Former Chief Minister of Punjab, Prakash Singh greatly benefit share croppers and actual cultivators most of
Badal returned his Padma Vibhushan to protest 'the whom own very small extent of land.
betrayal of farmers by the Government of India'. Pradhan Mantri Kisan Maan Dhan Yojana (PM-
Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) KMY)
Recently, Government has launched “Pradhan Prime Minister Narendra Modi launched the
Mantri Kisan Samman Nidhi (PM-KISAN)” programme Pradhan Mantri Kisan Maan Dhan Yojana at Ranchi,
to provide an assured income support to the small and Jharkhand.
marginal farmers. Need of such scheme
Why it is needed ™™ There is a felt need to create a social security net
™™ Declining prices of agricultural commodities in for the farmers as old age may result in loss of
the international market and fall in food inflation livelihood for many of them.
in India since 2017-18, relative to non-food sector, ™™ Farming requires hard work in fields which becomes
therefore reduced the returns from farming. difficult at an advanced age.
™™ To increase the income of farmers as small and ™™ The problem is compounded in respect of small
fragmented land holdings and their further divisions and marginal farmers as they have minimal or no
has contributed in declined income. savings to provide for old age.

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Key features of the Scheme: ™™ Ministry of Agriculture has launched a campaign for
™™ The PM-KMY is a Central Sector Scheme, enhanced registration of Kisan Credit Cards to those
administered by the Department of Agriculture, who have remained untouched by it so far.
Cooperation & Farmers Welfare, Ministry of ™™ The IBA advisory comes amidst reports that some of
Agriculture & Farmers’ Welfare, Government scheduled commercial banks are collecting service
of India in partnership with the Life Insurance charges which are at a bit higher, irrespective of
Corporation of India (LIC). whether the loan is sanctioned or not.
™™ The Life Insurance Corporation of India (LIC) shall ™™ This often acts as a deterrent for the farmers to
be the Pension Fund Managerand responsible for approach the banks for loans.
Pension pay out. ™™ Scheme was introduced in 1998 to facilitate and
™™ The Pradhan Mantri Kisan Maan-Dhan Yojana (PM- make accessible credit availability to the farmers.
KMY) provides for an assured monthly pension of ™™ It is issued on the basis of the land holdings so that
Rs. 3000/- to all land holding Small and Marginal the farmer can avail credit for purchase of agriculture
Farmers (SMFs), whether male or female, on their input such as Seeds, Fertilizers, Pesticides and other
attaining the age of 60 years. production needs.
™™ The amount of the monthly contribution ranges ™™ GOI provides interest subvention of 2% and Prompt
between Rs.55 to Rs.200 per month depending upon Repayment Incentive of 3% to the farmers, thus
the age of entry of the farmers into the Scheme. making the credit available at a very subsidized rate
™™ The Central Government will also make an equal of 4% per annum.
contribution of the same amount in the pension ™™ There are around 6.95 crore active KCCs as per
fund. latest estimates
™™ The spouse is also eligible to get a separate pension National Rural Economic Transformation Project
of Rs.3000/- upon making separate contributions to
Context:
the Fund.
™™ The Union Cabinet approved the implementation of
™™ In case of death of the farmer before retirement date,
an externally aided project namely National Rural
the spouse may continue in the scheme by paying
Economic Transformation Project (NRETP).
the remaining contributions till the remaining age
of the deceased farmer. ™™ It will be implemented under the Deendayal
Antyodaya Yojana – National Rural Livelihoods
™™ If the farmer dies after the retirement date, the
Mission (DAY-NRLM) through loan assistance (IBRD
spouse will receive 50% of the pension as Family
Credit) from World Bank.
Pension.
More on News:
™™ After the death of both the farmer and the spouse,
the accumulated corpus shall be credited back to ™™ The development objective of the NRETP for India
the Pension Fund. is to establish efficient and effective institutional
platforms of the rural poor to enable them to
Eligibility: increase household income through sustainable
™™ All Small and Marginal Farmers (SMFs) in all States livelihood enhancements, and improved access to
and Union Territories of the country, who are of the financial and selected public services.
age of 18 years and above and upto the age of 40 years,
The additional financing will bring following
and who do not fall within the purview of the exclusion
changes:
criteria as mentioned in the guidelines, are eligible to
avail the benefits of this Scheme by joining it. ™™ The results target and the intermediate indicators
are updated to refl ect the changes introduced by
™™ Farmers falling within the purview of the exclusion
the AF
criteria are not eligible for the benefit.
™™ The project will co-locate areas for investment with
Kisan Credit Card those selected under mission Antyodaya
™™ The Indian Banking Association (IBA) has issued ™™ The project will update the following components-
advisory guidelines requesting banks to waive off
™™ Institutional and human capacity development
the processing, documentation, inspect+ion, ledger
folio charges and all other service charges for Kisan ™™ State livelihood support
Credit Card (KCC) /crop loans upto 3 Rs lakh. ™™ Innovation and partnership support

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vkLFkk IAS INDIAN ECONOMY

Aajeevika - National Rural Livelihoods Mission (NRLM) ™™ It will provide the State/UT Governments subsidized
™™ It was launched by the Ministry of Rural Development in June 2011.
loan for developing marketing infrastructure in 585
™™ Aided in part through investment support by the World Bank, Agriculture Produce Market Committees (APMCs)
the Mission aims at creating efficient and effective institutional and 10,000 Grameen Agricultural Markets (GrAMs).
platforms of the rural poor.
™™ States may also access AMIF for innovative
™™ It is enabling them to increase household income through
sustainable livelihood enhancements and improved access to integrated market infrastructure projects including
financial services. Hub and Spoke mode and in Public Private
™™ NRLM set out with an agenda to cover 7 Crore rural poor Partnership mode.
households, across 600 districts, 6000 blocks, 2.5 lakh Gram
Panchayats and 6 lakh villages in the country through self- ™™ In these GrAMs, physical and basic infrastructure
managed Self Help Groups (SHGs) and federated institutions and
will be strengthened using MGNREGA and other
support them for livelihoods collectives in a period of 8-10 years.
™™ In addition, the poor would be facilitated to achieve increased
Government Schemes.
access to rights, entitlements and public services, diversified risk ™™ After approval of AMIF Scheme, the interest
and better social indicators of empowerment.
subsidy will be provided by DAC&FW to NABARD
™™ In November 2015, the program was renamed Deendayal
Antayodaya Yojana (DAY-NRLM). in alignment with annual budget releases during
2018-19 and 2019-20 as well as upto 2024-25.
New Agri Project- “Green Ag.”
™™ The Scheme being demand driven, its progress
The government launched a Global Environment
is subject to the demands from the States and
Facility (GEF) assisted project namely, “Green –
proposals received from them.
Ag.” in collaboration with the Food and Agriculture
Organisation (FAO) during September, 2018. Minimum Support Price (MSP)
™™ ‘Green Ag.’ will help in transforming Indian The Cabinet Committee on Economic Affairs (CCEA)
Agriculture for global environmental benefi ts and has approved an increase in Minimum Support Price
the conservation of critical biodiversity and forest (MSP) for six Rabi crops for 2023-24.
landscapes.
About Minimum Support Price (MSP)
™™ The aim of the project is to mainstream biodiversity,
climate change and sustainable land management It is a price support mechanism that acts as a safety
objectives and practices into Indian agriculture. net for farmers through guaranteed prices and assured
markets for their products.
™™ It will also support harmonization between India’s
agricultural and environmental sector priorities and ™™ MSP was started in 1966-67 for wheat and expanded
investments so that the achievement of national and further to other essential food crops, which was
global environmental benefits can be fully realized then sold to the poor under subsidised rates under
without compromising India’s ability to strengthen Public Distribution System (PDS).
rural livelihoods and meet its food and nutrition ™™ It saves the crops from price fluctuations caused by
security. unwarranted factors such as monsoon, information
™™ It started in high-conservation-value landscapes asymmetry etc.
of five States including- Madhya Pradesh: Chambal
Landscape, Mizoram: Dampa Landscape, Odisha:
Similipal Landscape, Rajasthan: Desert National
Park Landscape and Uttarakhand: Corbett.
™™ Key missions that will be targeted for strengthening
include the National Mission on Sustainable
Agriculture; National Livestock Mission; National
Food Security Mission; National Initiative on
Climate-resilient Agriculture, National Mission for
Horticulture and Rashtriya Krishi Vikas Yojana.
Agri-Market Infrastructure Fund
The Cabinet Committee of Economic Affairs recently
approved creation of a corpus of Rs. 2000 crore for Agri-
Market Infrastructure Fund (AMIF).
™™ The fund would be created with NABARD for
development and up-gradation of agricultural
marketing infrastructure in Gramin Agricultural
Markets and Regulated Wholesale Markets.

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vkLFkk IAS INDIAN ECONOMY

It is fixed twice a year on Commission for Agricultural Costs and Prices (CACP- statutory body) recommendations
and then approved by Cabinet Committee of Economic Affairs (CCEA).
The CACP determines the MSP based on the expenses incurred by the farmer (See infographics).
™™ The final MSP is determined as a function of expenses incurred (A2) and the imputed value of family labour (FL).
™™ There have been demands for considering a different costing method (C2).
™™ National Commission on Farmers (Swaminathan Committee) had also recommended MSP should be at least
50% more than the weighted average cost of production.

APMC ™™ As per information provided by State Agricultural

™™ Agricultural Produce Market Committee (APMC) Marketing Boards/State Governments, there are
is a statutory market committee constituted by 22941 Rural Haats.
State Governments for trade in certain notifi ed ™™ State Marketing Boards provided only numbers
agricultural or horticultural or livestock products, without other information like location, etc on
under the Agricultural Produce Market Committee village haats under local bodies and under private
Act of the respective state. sector.
™™ APMCs are responsible for:
Reforms in Agro-Economy
zz ensuring transparency in pricing system and
PM announces panel with CMs for deep reforms in
transactions taking place in market area;
agriculture.
zz providing market-led extension services to
™™ In the fifth meeting of the Governing Council of NITI
farmers;
Aayog, focus was on increasing investment in the
zz ensuring payment for agricultural produce sold agriculture sector, boosting exports, and addressing
by farmers on the same day;
issues of water supply and conservation.
zz promoting agricultural processing including
™™ The focus towards reviving the agrarian sector
activities for value addition in agricultural
assumes signifi cance as it has been witnessing
produce;
low farm prices over the past few years leading to
zz publicizing data on arrivals and rates of several large-scale farm protests.
agricultural produce brought into the market
area for sale; and ™™ The fifth meeting of the Governing Council of the
NITI Aayog comes in the backdrop of challenges on
zz setup and promote public private partnership
the economic front and rising unemployment rates
in the management of agricultural markets.
(45-year high of 6.1 %).
Grameen Agriculture Markets
Key Points discussed in the meeting:
™™ These are called by varied names like “Gramin
Haats, Haats, shandies, painths and fairs etc. Increasing Exports:
™™ They are owned by Local Bodies (Panchayats/ ™™ The meeting focused on the need to increase exports
councils), Agricultural/ Horticultural Departments and explore untapped export potential in several
of State Governments, Cooperatives, Marketing states in order to drive economic growth and this will
Boards/APMCs and Private Sector. also provide a boost to both income and employment.

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Need for structural reform in agriculture: ™™ This unit will focus on the application of
™™ Meeting emphasizes to focus on fisheries, animal computational fluid dynamics in various agri-food
husbandry, horticulture, fruits, and vegetables. processing applications.
™™ There is need to boost corporate investment, Ministry of Food Processing Industries:
strengthen logistics and provide ample market ™™ It is responsible for formulation and administration
support.
of the rules and regulations and laws relating to
™™ The food processing sector should grow at a faster food processing in India.
pace than food grain production.
™™ Ministry has also been instrumental in helping
™™ Scrapping of the Essential Commodities Act, 1955
farmers and have approved 42 mega food parks.
because it is thought to be an “impediment in the
free movement of commodities” given that the ™™ It provides financial support of 35% of the total cost
country is now mostly self-sufficient. of plant and machinery for encouraging growth in
™™ Flagship schemes like PM-KISAN, should reach food processing.
intended benefi ciaries well within time. ™™ Other steps taken by Government of India (GOI)
Water Supply and Conservation: towards food processing
™™ Promoting efficient water conservation practices ™™ GOI has entrusted specialized agro-processing
with rain-water harvesting to be undertaken at financial institutions to finance/refi nance the
the household and community level with proactive food processing sector, and has launched neoteric
policy and investment support. initiatives such as ‘Operation Greens’, to monitor price
™™ Aside from addressing the issue of agriculture, PM fluctuations.
also focused on a collective fight against poverty, Pradhann Mantri Kisan Sampada Yojna:
unemployment, flood, pollution, corruption, and
violence. PM also called for effective steps to tackle ™™ (PMKSY) is approved by GOI and it is a central
drought by adopting ‘per-drop, more-crop’ strategy. sponsored scheme under Ministry of Food
Processing Industries. It is a scheme for Agro-
™™ Meeting also underlined the need for states to focus
Marine Processing and Development of Agro-
on their core competencies and work towards
increasing the GDP right from the district level so as Processing Clusters.
“India can become a $5 trillion economy by 2024.” ™™ It is a big step towards doubling of farmer’s income
™™ PM also announces panel with CMs for deep reforms through the assets (Sampada) of farmer.
in agriculture, which would submit its report in the ™™ It is a comprehensive package which will result in
next few months. creation of modern infrastructure with efficient supply
™™ Additionally, with parts of India experiencing chain management from farm gate to retail outlet.
drought situation, some States asked for changes
™™ It will provide a big boost to the growth of food
in the National Disaster Response Force and State
processing sector in the country and creates huge
Disaster Response Fund (SDRF) guidelines. They
employment opportunities in the rural areas,
will work with MHA and Agriculture ministry to
reducing wastage of agricultural produce and
make changes.
increasing the food processing level and its export.
Food Processing
The following schemes will be implemented
™™ Ministry of Food Processing Industries inaugurated
under PMKSY:
Computational Modelling and Nanoscale Processing
Unit at the Indian Institute of Food Processing ™™ Mega Food Parks
Technology (IIFPT) in Thanjavur, Tamil Nadu. ™™ Integrated Cold Chain and Value Addition
™™ The Ministry also inaugurated a National Conference Infrastructure
on Emerging Techniques in Food Processing. ™™ Creation/ Expansion of Food Processing/
Computational Modelling and Nano-scale Preservation Capacities (Unit Scheme)
Processing Unit: ™™ Infrastructure for Agro-processing Clusters
™™ Modelling is a powerful tool for optimizing and ™™ Creation of Backward and Forward Linkages
improving process control over various unit
™™ Food Safety and Quality Assurance Infrastructure
operations by acquiring an in-depth understanding
of the intricate transport phenomena in food ™™ Human Resources and Institutions
systems. ™™ Operation Greens

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‘Meri Fasal Mera Byora’

The Haryana government announced the launch of ‘Meri Fasal Mera Byora’ portal whereby farmers can avail
benefi ts of several government schemes directly after uploading their crop-related details.
Agricultural Revolutions in India
Revolution Product related Father/Person associated with

Protein Revolution Higher Production (Technology driven 2nd Green revolution). Coined by PM Narendra Modi and FM Arun Jaitley.

Yellow Revolution Oilseed Production (Especially Mustard and Sunflower). Sam Pitroda

Black Revolution Petroleum products.

Blue Revolution Fish Production Dr. Arun Krishnan.

Brown Revolution Leather / Cocoa / Non-Conventional Products.

Golden Fiber Revolution. Jute Production.

Golden Revolution Fruits / Honey Production / Horticulture Development Nirpakh Tutej.

Grey Revolution Fertilizers.

Pink Revolution Onion Production / Pharmaceuticals / Prawn Production. Durgesh Patel.

Evergreen Revolution Overall Production of Agriculture. Started in 11th 5 year Plan.

Silver Revolution Egg Production / Poultry Production Indira Gandhi.

Silver Fiber Revolution Cotton.

Red Revolution Meat Production / Tomato Production. Vishal Tewari.

Round Revolution Potato.

Green Revolution Food Grains. Norman Borlong M.S. Swaminathan. William

Goud (UK).
White Revolution (or, Operation Flood) Milk Production. Verghese Kurien.

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Utilize the available human resources better

Industrial Development in India zz

zz To accelerate the progress of the country

Economic growth can be defined as an increase in through different means
the value of goods and services produced in an economy zz To match the level of international standards
over a period of time. This value calculation is done in and competitiveness
terms of % increase in GDP or Gross Domestic Product.
Industrial Policy in India
Economic growth is calculated in real terms where
the effects of variation in the value of goods and services ™™ The various industrial policy introduced by the
due to inflation distortion are also accounted for. Indian government are as follows:

Factors influencing Economic Growth Industrial Policy Resolution, 1948

™™ Human resources – this is a major factor that is ™™ It declared the Indian economy as Mixed Economy
responsible for boosting the economic growth ™™ Small scale and cottage industries were given the
of a country. The rate of increase in the skills and importance
capabilities of a workforce ultimately increases the ™™ The government restricted foreign investments
economic growth of a country.
™™ Industries were divided into 4 categories
™™ Infrastructure development- Improvements and
increased investment in physical capital such as zz Exclusive monopoly of central government(arms
roadways, machinery, and factories will increase the and ammunitions, production of atomic energy
efficiency of economic output by reducing the cost. and management of railways)
™™ Planned utilization of natural resources – Proper use zz New undertaking undertaken only by state
of available natural resources like mineral deposits (coal, iron and steel, aircraft manufacturing,
helps boost the productivity of the economy. ship building, telegraph, telephone etc.)
™™ Population growth – An increase in the growth of zz Industries to be regulated by the government
the population will result in the availability of more (Industries of basic importance)
human resources which in turn will increase the zz Open to private enterprise, individuals and
output in terms of quantity. This is also an important cooperatives (remaining)
factor that influences economic growth.
Industrial Policy Resolution, 1956 (IPR 1956)
™™ Advancement in technology – Improvement in
technology will affect the economic growth of a ™™ This policy laid down the basic framework of
country positively. The application of advanced Industrial Policy
technology will result in increased productivity of ™™ This policy is also known as the Economic
labor and economic growth will advance at a lower Constitution of India
cost. ™™ It is classified into three sectors
Economic Development zz Schedule A – which covers Public Sector (17
™™ The term economic development can be explained Industries)
as the process by which the economic well-being and zz Schedule B – covering Mixed Sector (i.e. Public
quality of life of a nation, community, or particular & Private) (12 Industries)
region are improved according to predefined goals
zz Schedule C – only Private Industries
and objectives.
™™ This has provisions for Public Sector, Small Scale
™™ Economic development is a combination of market
Industry, Foreign Investment. To meet new
productivity and the welfare values of the nation.
challenges, from time to time, it was modified
Industrial Policy through statements in 1973, 1977, and 1980.
™™ Industrial Policy is the set of standards and measures Industrial Policy Statement, 1977
set by the Government to evaluate the progress of
™™ This policy was an extension of the 1956 policy.
the manufacturing sector that ultimately enhances
economic growth and development of the country. ™™ The main was employment to the poor and
reduction in the concentration of wealth.
™™ The government takes measures to encourage and
improve the competitiveness and capabilities of ™™ This policy majorly focused on Decentralisation
various firms. ™™ It gave priority to small scale Industries
™™ Objectives of Industrial Policy ™™ It created a new unit called “Tiny Unit”
zz To maintain steady growth in productivity. ™™ This policy imposed restrictions on Multinational
zz To create more employment opportunities. Companies (MNC).

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Industrial Policy Statement, 1980 ™™ Monopolies and Restrictive Trade Practices Act
™™ The Industrial Policy Statement of 1980 addressed – Under his MRTP commission was established.
the need for promoting competition in the domestic MRTP Act was introduced to check monopolies. The
market, modernization, selective Liberalization, MRTP Act was relaxed in 1991.
and technological up-gradation. ™™ On the recommendation of the SVS Raghavan
™™ It liberalised licensing and provided for the committee, Competition Act 2000 was passed. Its
automatic expansion of capacity. objectives were to promote competition by creating
an enabling environment. To know more about the
™™ Due to this policy, the MRTP Act (Monopolies
Competition Commission of India, check the linked
Restrictive Trade Practices) and FERA Act (Foreign
article.
Exchange Regulation Act, 1973) were introduced.
™™ Review of the Public sector under this New
™™ The objective was to liberalize the industrial
Industrial Policy, 1991 are:
sector to increase industrial productivity and
competitiveness of the industrial sector. zz Public sector investments (Disinvestment of
Public sector)
™™ The policy laid the foundation for an increasingly
competitive export-based and for encouraging zz De-reservations –Industries reserved
foreign investment in high-technology areas. exclusively for the public sector were reduced
New Industrial Policy, 1991 zz Professionalization of Management of PSUs
™™ The New Industrial Policy, 1991 had the main zz Sick PSUs to be referred to the Board for
objective of providing facilities to market forces and Industrial and financial restructuring (BIFR).
to increase efficiency. zz The scope of MoUs was strengthened (MoU is
™™ Larger roles were provided by an agreement between a PSU and concerned
ministry).
zz L – Liberalization (Reduction of government
control) Public Sector
zz P – Privatization (Increasing the role & scope of ™™ At the time of independence, the country was
the private sector) predominantly agrarian and lacked basic industries
zz G – Globalisation (Integration of the Indian and infrastructure facilities. The economy needed a
economy with the world economy) big push.

™™ Because of LPG, old domestic firms have to compete ™™ The push could not come from the Indian private
with New Domestic firms, MNC’s and imported sector, which was starved of funds and lacked
items technical and managerial abilities. Further, it was
incapable of taking risk involved in long gestation
™™ The government allowed Domestic firms to import
investments. So, the development in the public
better technology to improve efficiency and to have
sector became imperative.
access to better technology. The Foreign Direct
Investment ceiling was increased from 40% to 51% ™™ The expansion of public sector in the field of
in selected sectors. industries took place in a big way with the launching
of the Second Plan (1956-61), which gave top
™™ The maximum FDI limit is 100% in selected sectors
priority to the industrial growth of the country.
like infrastructure sectors. Foreign Investment
promotion board was established. It is a single- Objectives of the Public Sector
window FDI clearance agency. The technology ™™ To capture commanding heights of the economy i.e. to take up
transfer agreement was allowed under the strategic role in the industrialisation of the country.
automatic route. ™™ To accelerate the rate of economic growth through creation of
basic infrastructure.
™™ Phased Manufacturing Programme was a condition
™™ To generate employment.
on foreign firms to reduce imported inputs and use
™™ To promote balanced regional development.
domestic inputs, it was abolished in 1991.
™™ To generate surplus resources for development.
™™ Under the Mandatory convertibility clause, while
™™ To promote exports and to develop import substitution
giving loans to firms, part of the loan will/can be
industries.
converted to equity of the company if the banks
™™ To check concentration of economic power.
want the loan in a specified time. This was also
abolished. Expansion of Public Sector
™™ Industrial licensing was abolished except for 18 ™™ There were only five Central Public Sector
industries. Enterprises (CPSES) in 1951, with investment of

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`29 crore. The number of CPSES (excluding financial of autonomy and simultaneously held accountable
institutions) has increased to 348 by March, 2019. for the performance of the PSUs.
™™ There were over 800 state level public enterprises ™™ New Industrial Policy, 1991 The policy contained
with total investment in public sector in the entire the following reformative measures for PSUs;
country (i.e. Centre + States) stood at over `6 lakh dereservation, disinvestment, professionalisation
crore. of management, reference of sick PSUS to the BIFR
and expanding the scope of MoUs.
Contribution of Public Sector
™™ Voluntary Retirement Scheme (VRS) The VRS (or
™™ The public sector was instrumental in the creation
Golden Handshake Scheme) was launched in 1988,
of infrastructure and the development of basic
for the rationalisation of manpower in the central
industrial structure of the country.
PSUs. The scheme enabled the PSUs to shed their
™™ PSUS did a commendable job in the promotion excess staff by offering attractive compensation
of strategic and key industries like atomic energy, package to the workers, who seek voluntary
armaments and ammunition, aircrafts, heavy retirement.
machinery, iron and steel, coal, drugs, fertilizers etc.
™™ Dismantling of Administered Price Mechanism
™™ The public sector provided employment to about (APM) The government has initiated steps for
70% of the workers employed in the organised dismantling of price controls in respect of a number
sector. Presently, public sector contributes about of products of PSUs. e.g. it removed the price and
24% to the GDP and accounts for over 20% of the distribution controls on iron, steel and cement. The
Gross Domestic Capital Formation (investment). government also decontrolled the prices of most of
Problems of the Public Sector the fertilizers and petro-products.
™™ The return on capital invested in PSUS has been Policy of Maharatnas
deplorably low due to low profitability and losses ™™ Maharatna Scheme was introduced for Central
of some PSUs. Public Sector Enterprises (CPSES), with effect from
™™ Problems related with the Price Policy i.e. 19th May. 2010, in order to empower mega CPSES
Administered Prices of the products of PSUs were to expand their operations and emerge as global
deliberately kept lower than the market prices. giants. As on 31 March, 2024, total 254 CPSES were
™™ Lack of autonomy to the management of the PSUs operational.
due to excessive political interference. ™™ The objective of the scheme is to delegate enhanced
™™ Low efficiency due to lack of incentives for better powers to the boards of identified large-sized
performance. Navratna CPSES, so as to facilitate expansion of
their operations, both in domestic as well as global
™™ Excessive overheads especially in providing
markets.
housing and other amenities to the employees e.g.
townships. ™™ CPSES fulfiling the following criteria are eligible to
™™ Over staffing inflated the wage bills. be considered for grant of Maharatna status:

™™ Inappropriate investment decisions like zz Having Navratna status.

inappropriate location, technology, product mix etc. zz Listed on the Indian Stock Exchange, with
™™ Indiscriminate expansion of the public sector in a minimum prescribed public shareholding
almost all areas. under SEBI regulations.
zz An average annual turnover of more than
Public Sector Reforms
`25000 crore during the last 3 years.
™™ To improve the performance of the PSUs, the
government has adopted the following measures, zz An average annual net worth of more than
especially in the post reform (1991 onwards) era. `15000 crore during the last 3 years.

™™ Memorandum of Understanding the concept zz An average annual net profit after tax of more
of Memorandum of Understanding (MoU) was than `5000 crore during the last 3 years.
introduced in 1987, on the recommendation of zz Significant global presence or international
the 'Committee to Review the Policy for the Public operations.
Enterprises' headed by Mr Arjun Sengupta. ™™ The coveted status empowers the boards of these
™™ MoU refers to the agreement between the firms to take investment decisions up to `5000
concerned ministry and the management of a PSUs crore as against the present `1000 crore limit for
in which the latter is provided a reasonable degree Navratnas without seeking government approval.

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vkLFkk IAS INDIAN ECONOMY

™™ The Maharatna firms would now be free to decide ™™ Oil India Limited
on investments up to 15% of their net worth in a ™™ Container Corporation of India Limited
project, limited to an absolute celling of `5000
™™ Engineers India Limited
crore.
™™ National Buildings Construction Corporation
Maharatna CPSES- Total number 13 (2024)
Limited
™™ Oil and Natural Gas Corporation Limited (ONGC)
™™ Rashtriya Ispat Nigam Limited
™™ Indian Oil Corporation Limited (IOCL)
™™ Rural Electrification Corporation Limited
™™ Steel Authority of India Limited (SAIL) NTPC
™™ Shipping Corporation of India Limited
Limited
™™ Neyveli Lignite Corporation Limited
™™ Coal India Limited (CIL)
™™ Bharat Heavy Electricals Limited (BHEL)
Policy of Miniratnas
The government has also accorded the status of
™™ Gas Authority of India Limited (GAIL) .
Miniratna to some profit making PSEs. There are two
™™ Bharat Petroleum Corporation Limited types of Miniratnas- Category I and Category II.
™™ Hindustan Petroleum Corporation Limited Category-I Miniratna-57
™™ Power Grid Corporation of India Limited ™™ These are companies, which have made a profit in
™™ Power Finance Corporation Limited (PFCL) each of last 3 years and earned a profit of `30 crore
Policy of Navratnas in atleast one of the 3 years.
™™ Navratna was the title given originally to nine ™™ They are allowed to incur capital expenditure
Public Sector Enterprises (PSES), identified by the without government approval upto `500 crore or
Government of India in 1997, as its most prestigious, equal to their net worth whichever is lower. There
which allowed them greater autonomy to compete are 60 Miniratnas of this category at present (June
in the global market. 2021).

Criteria for Navratna Status for PSUs Category-II - 11

™™ It should have a schedule 'A' and Miniratna category- ™™ These are companies, which have made profits for
1 status. the last 3 years continuously and have a positive
net worth. They can incur capital expenditure upto
™™ It should have atleast three 'excellent' or 'very good'
`300 crores or 50% of their net worth whichever
Memorandum of Understanding (MoU) ratings
is lower.
during the last 5 years.
™™ There are presently (June 2021) 12 such category-II
™™ It should have a composite score of 60 out of 100
Miniratnas.
based on its performance during the last 3 years on
these 6 criterias-net profit to net worth, manpower Disinvestment
marks cost-to-cost of production or services, gross The New Industrial Policy, 1991, envisaged
margin as capital employed, gross profit as turnover, disinvestment of a part of government shareholdings in
earnings per share, inter-sectoral comparison based selected PSUs as an important element of public sector
on net profit to net worth. reforms. In pursuit of this, the process of disinvestment
™™ The company should also have four independent began in 1991-92, with the sale of minority stakes in
directors on its board. some PSUs.
™™ Navratna status empowers the PSUs to invest up to The primary aim of disinvestment in this phase
`1000 crore or 15% of their net worth on a single was to raise non-inflationary finance to plug budgetary
project without seeking government approval. The deficit. But the focus of disinvestment shifted to
overall ceiling on such investments in all projects strategic sale since 1999, in which substantial chunk of
put together is 30% of the net worth of the company. government equity is sold to private sector enterprises
with an objective to improve the performance of the
Navratna CPSEs (2024)-16
PSUs and to reorient public investment.
™™ Bharat Electronics Limited
Objectives of Disinvestment
™™ Hindustan Aeronautics Limited
™™ To transfer the resources from non-strategic sector
™™ Mahanagar Telephone Nigam Limited
to the strategic sector, which is much higher on
™™ National Aluminium Company Limited social priority such as basic health, family welfare,
™™ NMDC Limited primary education etc.

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vkLFkk IAS INDIAN ECONOMY

™™ To raise funds to cover up the fiscal deficit of the zz Chronically, loss-making companies will be
government. either sold-off or closed, after all workers get
™™ To improve efficiency of the public sector by their legitimate dues and compensation.
inducing private initiative and competition. zz All privatisations will be considered on a
™™ To enhance accountability of the PSUS by exposing transparent and consultative case-by-case
them to the capital market. To reduce political basis.
interference by imparting market orientation to the zz A Board for Reconstruction of Public Sector
enterprise. Enterprises (BRPSES) to be constituted.
™™ Bring down government equity in all non- strategic zz A National Investment Fund will be established.
PSUs to 26% or lower, if necessary. ™™ On 25th November, 2005, the government decided,
™™ Restructure and revive potentially viable PSUs. in principle, to list large, profitable CPSES on
Domestic Stock Exchanges and to selectively sell
™™ Close down PSUs, which can not be revived.
small portions of equity in listed, profitable CPSES
™™ Fully protect the interest of workers. (other than Navratnas).
Disinvestment vs Privatisation ™™ On 17th May, 2020, as part of a stimulus package the
Disinvestment refers to selling of equity of a PSU to a private Finance Minister Nirmala Sitharaman announced
organisation or to general public. Privatisation refers to providing that the Government will privatize all Public Sector
for larger role for private capital and enterprise in the functioning enterprises in non-strategic sector.
of an economy. Privatisation is a wider term than disinvestment.
Disinvestment is one of the means for achieving privatisation. National Investment Fund
Privatisation may result from any of the following
™™ In pursuance of the policy laid down in NCMP, the
™™ Disinvestment
Central Government set-up National Investment
™™ Denationalisation (i.e. complete sell off of a PSUs)
Fund in November 2005. The proceeds from
™™ Transfer of management and control of a PSUs to the private
sector
disinvestment of CPSUS will be channelised into NIF,
which is to be maintained outside the Consolidated
™™ Dereservation of areas reserved for the public sector etc.
Fund of India.
The Disinvestment Process ™™ NIF will be professionally managed to provide
™™ In 1992, government constituted a committee on sustainable returns to the government, without
the disinvestment of shares in PSE's headed by depleting the corpus. Selected Public Sector Mutual
Dr C Rangarajan to recommend on the policy of Funds will be entrusted with the management of the
disinvestment. The committee recommended that corpus of NIF. 75% of the Annual Income of NIF will
upto 49% equity of the PSUS under the exclusive be used to finance selected social sector schemes,
participation of the state could be disinvested but which promote education, health and employment.
for rest of the industries disinvestment can be ™™ The residual 25% of the annual income of the
allowed upto 74%. fund will be used to meet the capital investment
™™ Further, the government constituted a 5 member requirements of profitable and revivable CPSUS that
Disinvestment Commission, under the chairmanship yield adequate returns or in order to enlarge their
of Shri GV Ramakrishnan in August, 1996, to draw capital base to finance expansion diversification.
up a comprehensive policy for the long-term ™™ The following Public Sector Mutual Funds have been
disinvestment programme. appointed initially as Fund Managers, to manage
™™ The commission was mandated to advise the the funds of NIF.
government on the extent, methodology, strategy zz UTI Assets Management Company Limited
and timing of disinvestment. zz SBI Funds Management Company (Private)
™™ In May 2004, the government adopted National Limited
Common Minimum Programme, which outlined the zz Life Insurance Corporation, Asset Management
policy of the government with respect to the public Company Limited
sector as follows:
National Monetisation Pipeline
zz In general, profit making PSU's will not be
™™ The Union Government in August 2021 launched the National
privatised. Monetisation Pipeline to unlock the value of investments in
zz In case of privatisation of profitable PSU's, Brownfield public sector assets by tapping institutional and long-
government will retain at least 51% of the term capital. This four year pipeline will unlock value in Brownfield
equity and the management control of the projects by engaging the private sector and transferring to them
the rights but not the ownership in projects. It is indicatively
enterprise. valued at 6.0 lakh crore for 4 years with largest values coming
zz Navratnas PSUs will be retained under the in from monetisation of assets in Roads, Railways and Power
public sector. transmission sector.

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vkLFkk IAS INDIAN ECONOMY

Category Eligibility Benefits for investment

Maharatna Three years with an average annual net profit of over Rs. 2500 crore, Rs. 1,000 crore – Rs. 5,000 crore, or free to decide
Average annual Net worth of Rs. 10,000 crore for 3 years, OR Average annual on investments up to 15% of their net worth in
Turnover of Rs. 20,000 crore for 3 years (against Rs 25,000 crore prescribed earlier). a project.
Navratna A score of 60 (out of 100), based on six parameters which include net profit, net
worth, total manpower cost, total cost of production, cost of services, PBDIT Up to Rs. 1,000 crore or 15% of their net worth
(Profit Before Depreciation, Interest and Taxes), capital employed, etc. on a single project or 30% of their net worth in
A company must first be a Miniratna and have 4 independent directors on its the whole year (not exceeding Rs. 1,000 crores).
board before it can be made a Navratna.
Miniratna Have made profits continuously for the last three years or earned a net profit of Up to Rs. 500 crore or equal to their net worth,
Category-I Rs. 30 crore or more in one of the three years. whichever is lower.
Miniratna Have made profits continuously for the last three years and should have a Up to Rs. 300 crore or up to 50% of their net
Category-II positive net worth. worth, whichever is lower.

Micro, Small and Medium Enterprises (MSMEs)

Recently, the Parliamentary Standing Committee on Finance presented its report on MSMEs.

Government Initiatives for MSME Sector

Self-Reliant India (SRI) Fund ™™ SRI Fund has committed %5,000 crore to fund Micro, Small and Medium Enterprises (MSMEs).

™™ SRI Fund is a SEBI-registered Category II Alternative Investment Fund (AIF), launched in 2020 by the
government to provide growth capital to MSMEs.
zz It is anchored by NSIC Venture Capital Fund and SBICAP Ventures is the investment manager.

zz lt operates through the mother-fund and daughter-fund structure.

zz Asa mother fund, it invests up to 20% of the overall corpus of daughter fund, and the latter raises the
balance 80% capital from outside sources.
Scientific Research ™™ The SRIMAN Guidelines are released by the Department of Science and Technology for better access and
Infrastructure Sharing sharing of publicly funded Scientific Research and Development Infrastructure.
Maintenance and Networks zz It includes Networking and Cluster Approach, creating Cluster Central Instrumentation Facility (CCIF)
(SRIMAN) Guidelines, 2022 to reduce redundancy and acquire more variety of equipment.
zz CCIF will also tie up with industries, especially MSMEs and startups.
Udyam Portal ™™ The registrations on Udyam Portal of the Ministry of MSMEs reached the landmark of 1 crore.

™™ It was launched in 2020 for voluntary registration of MSMEs to avail benefits of the Ministry of MSME
schemes and for Priority Sector Lending.
zz Itis fully digitalized and the registered MSM is issued an Udyam Registration Certificate.

zz It is integrated with databases of Income Tax and Goods and Services Tax Identification Number
(GSTIN) systems.

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National Board of MSME ™™ NBMSME was established under Micro, Small and Medium Enterprises Development Act, 2006, as a statutory
(NBMSME) body.
™™ It examines the factors affecting the promotion and development of MSMEs and review the policies &
programs of the Central Government.
™™ It provides representation to all sections/segments including Associations of Micro, Small and Medium
manufacturing and service enterprises, women enterprises, Central Ministries, etc.
Trade receivables discounting ™™ Finance ministry has directed central public sector enterprises to get registered on TReDS.
system (TReDS) ™™ TReDS is an electronic platform for facilitating the financing / discounting of trade receivables of Micro,
Small and Medium Enterprises (MSMEs) through multiple financiers.
™™ It is a platform for uploading, accepting, discounting, trading and settling invoices of MSMES.
Indian Business Portal (IBP) ™™ It is an online global trade hub for exporters and foreign buyers.

zz It is Business to Business (B2B) digital marketplace to empower small medium enterprises (SMEs)
exporters, artisans and farmers to identify new markets for their products and grow their sales globally.
zz Developed by Federation of Indian Export Organisations.

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recovered from the COVID pandemic and registered a

Industry double-digit growth of 11.4%. Industrial production
further expanded by 5.2% in FY 2022-23. During
2023 Year End Review for Department for
April to October period of FY 2023-24, IIP registered
Promotion of Industry and Internal Trade cumulative growth of 6.9% over the corresponding
™™ Production Linked Incentive for 14 key sectors to period of previous year. Index of Manufacturing, Mining
enhance India’s manufacturing capabilities and and Electricity sector grew by 6.4%, 9.4% and 8.0%
Exports respectively during the aforesaid period.
™™ Over 1,14,000 startups spread across all 36 States Trends in Growth of Eight Core Industries
and UTs of the country create more than 12 lakh
The Index of Eight Core Industries (ICI) measures
jobs
the performance of eight core industries i.e. Cement,
™™ Alternative Investment Funds invest Rs. 17,272 Coal, Crude Oil, Electricity, Fertilizers, Natural Gas,
crores in 915 startups Petroleum Refinery Products, and Steel. The industries
™™ 2.3 Lakh+ sellers and service providers active on included in the ICI comprise 40.27 % weight in the Index
ONDC network spread across 500+ cities and towns of Industrial Production (IIP). During 2022-23, the ICI
across India recorded an annual growth of 7.8% compared to average
™™ Detailed Project Reports of Unity Malls in 17 States growth rate of 1.5% during the last 3 years i.e. 2019-
approved worth total amount of Rs. 2944 Cr. 20 to 2021-22. During Apr - Oct 2023 in the current
Financial Year 2023-24, output of core industries further
™™ Over 3,600 compliances decriminalized and more
increased by 8.6% over the corresponding period last
than 41,000 compliances reduced to promote Ease
year. Among the eight core industries, Steel, Coal and
of Doing Business
Cement registered double-digit growth of 14.5%, 13.1%
™™ More than 2,55,000 approvals facilitated through & 12.2% respectively.
National Single Window System
Production Linked Incentive (PLI) Scheme
™™ Make in India 2.0 focusing on 27 sectors to make
Keeping in view India’s vision of becoming
India a Manufacturing Hub
‘Atmanirbhar’, Production Linked Incentive (PLI)
™™ PM GatiShakti becomes mainstream across Schemes for 14 key sectors were announced with
Government an outlay of Rs. 1.97 lakh crore to enhance India’s
™™ Unified Logistics Interface Platform successfully Manufacturing capabilities and Exports. PLI Scheme
integrates with 35 systems of 08 Ministries covering across these key specific sectors is poised to make
1800+ fields Indian manufacturers globally competitive, attract
™™ Project Monitoring Group on-boards 2426 projects investment in the areas of core competency and cutting-
with investment of Rs 61.90 lakh crores; facilitates edge technology; ensure efficiencies; create economies
resolution of 6978 issues of scale; enhance exports and make India an integral
™™ Index of Industrial Production expands by part of the global value chain.
6.9% during Apr-Oct 2023 in FY 2023-24 Key Achievements:
over corresponding period last year; Mining, 746 applications have been approved till November
Manufacturing and Electricity record robust growth 2023. PLI units established in more than 150 districts (24
™™ Index of Eight Core Industries registers robust States). Over Rs. 95,000 crore of investment reported till
growth of 8.6% during Apr to Oct, 2023-24. September 2023, which has led to production/sales of
™™ Number of Patents granted witnesses eight-fold Rs. 7.80 lakh crore and employment generation (direct
growth from 2014-15 to 2023-24 (upto 30th Nov, & indirect) of over 6.4 lakh. Export have been boosted by
2023) Rs. 3.20 lakh crore. Incentives worth around Rs. 2,900
crores have been disbursed in FY 2022-23. There has
™™ India retains 40th rank in Global Innovation Index
been a value addition of 20% in mobile manufacturing
retained in 2023 from 81st in 2015
within a period of 3 years. Of the USD 101 billion total
Industrial Performance electronics production in FY 2022-23, smartphones
Industrial production as measured by Index of constitute USD 44 billion, including USD 11.1 billion as
Industrial Production (IIP) expanded by 6.9% during exports.
April-October 2023-24 over the corresponding period Import substitution of 60% has been achieved in the
last year on the back of broad-based growth. All three Telecom sector and India has become almost self–reliant
sectors — Mining, Manufacturing and Electricity - in Antennae, GPON (Gigabit Passive Optical Network) &
recorded robust growth during the period. CPE (Customer Premises Equipment). There has been
There has been a consistent recovery after COVID-19 a significant reduction in imports of raw materials in
pandemic. In the FY 2021-22, industrial production the Pharma sector. Unique intermediate materials and

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vkLFkk IAS INDIAN ECONOMY

bulk drugs are being manufactured in India including The Government has also notified the establishment
Penicillin-G, and transfer of technology has happened in of the Credit Guarantee Scheme for Startups (CGSS)
manufacturing of Medical Devices such as CT scan, MRI for providing credit guarantees to loans extended
etc. by Scheduled Commercial Banks, Non-Banking
Drones sector has seen 7 times jump in turnover, Financial Companies and AIFs. The Scheme has been
which consists of all MSME Startups. Under the PLI operationalized on 1st April 2023.
Scheme for Food Processing, sourcing of raw materials More than 21,800 DPIIT recognised startups have
from India has seen significant increase which has been on-boarded on Government e-Marketplace (GeM)
positively impacted income of Indian farmers and which have received over 2,43,000 orders from public
MSMEs. entities, totalling Rs. 18,540 crores. GeM Startup Runway
Production Linked Incentive (PLI) Scheme for is a fast-track process for onboarding of startups on the
GeM platform.
White Goods (ACs and LED Lights)
Under India’s G20 Presidency in 2023, a Startup20
It was approved by the Union Cabinet on 7 April
Engagement Group was institutionalised to create a
2021, with total outlay of Rs.6,238 crore. 64 Companies
global narrative for supporting startups and enabling
have been selected under the Scheme. 34 Companies to
synergies among startups, corporates, investors,
invest Rs.5,429 crore for Air Conditioner Components
innovation agencies and other key ecosystem
and 30 Companies to invest Rs.1,337 crore for LED
stakeholders. The Startup20 Engagement Group in
Component Manufacturing. Further investments of ₹
India’s G20 Presidency held four meetings in different
Rs.6,766 crore is envisaged creating additional direct
regions of India.
employment of about 48 thousand persons.
In 2023, Startup India organised 3 regional and 2
The net incremental production is expected to
international capacity building and exposure visits for
be more than Rs.1 lakh 23 thousand crore during the
officials from States/ UTs to interact with and learn from
scheme period. 13 Foreign Companies are investing
policy makers, incubators, and other ecosystem enablers
Rs. 2,090 crore under the scheme. 23 MSME applicants
in national and international startup ecosystems.
have committed investment of Rs.1,042 crore under
the Scheme. 100% Applicants, who opted for gestation Open Network for Digital Commerce (ONDC)
period upto March, 2022 have commenced production. Open Network for Digital Commerce (ONDC) is an
As against the threshold investment of Rs. 1,266 crore, initiative by DPIIT aiming at promoting open networks
actual investment of Rs.2,002 crore have been done for all aspects of exchange of goods and services over
by the beneficiaries upto March, 2023. Investment of digital or electronic networks.
Rs.2,084 crore have been done by the beneficiaries upto
ONDC recorded more than 6.3 million transactions in
September, 2023.
the month of November’23 across 600+ cities. 2.3 Lakh+
Startup India initiative sellers and service providers are active on the ONDC
Startup India initiative launched by the Prime network spread across 500+ cities and towns across
Minister, Shri Narendra Modi on 16th January 2016, has India. 59 Network Participants are live on the Network.
evolved into the launchpad for ideas to innovation in the The sellers and service providers are spread across
country. Several programs have been implemented over 500+ cities expanding the geographical coverage of the
the years under the Startup India initiative to support ONDC network. Presently, over 3000 Farmer Producer
entrepreneurs, build a robust startup ecosystem, and Organisations (FPOs) have registered to be a part of
transform India into a country of job creators rather the ONDC network through various Seller Network
than job seekers. Participants. Around 400 Self-Help Groups (SHGs),
It is a remarkable achievement that more than micro-entrepreneurs and social sector enterprises have
1,14,000 startups have been recognized by the been onboarded on the network.
Government which have reported creation of more than Mobility through the ONDC network is live in
12 lakh jobs with an average of 11 jobs created by each Bengaluru, Mysuru, Kochi and Kolkata with taxi and
recognised startup. The DPIIT recognized startups are auto drivers on boarded. ONDC team has successfully
spread across all 36 States and UTs of the country. conducted a pilot for exports, with Singapore being the
Under the Fund of Funds for Startups (FFS) Scheme, first market to buy products from Indian sellers through
the Government has committed about Rs. 10,229 crore the ONDC Network.
to 129 Alternative Investment Funds (AIFs). A total of Nodal officer for each State/UT has been
Rs. 17,272 crore has been invested by the AIFs in 915 appointed to accelerate state level engagement plans
startups. Under the Startup India Seed Fund Scheme and awareness campaigns and workshops have been
(SISFS), a total sum of Rs. 747 crore has been approved organized across the country. The ONDC Network
to 192 incubators. Also, the selected incubators have started with two categories (F&B and Grocery) and has
approved a total of Rs. 291 crore to 1,579 startups. expanded the categories to Mobility, Fashion, Beauty

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and Personal Care, Home & Kitchen, Electronics and single point interface of the Government to facilitate
Appliances, Health & Wellness and B2B. investors for Foreign Direct Investment through
ONDC is actively working with the Ministry of MSME approval route.
to onboard MSMEs to the network through existing National Single Window System (NSWS) has been
seller applications and also working to integrate MSME- launched as the online single point interface of the
Mart which has over 2 lakh MSMEs, with ONDC. Government of India for investors to start any industry in
One District One Product (ODOP) India and take requisite permissions. This portal is also
be used for seeking Government approval for Foreign
One District One Product (ODOP) aims to foster
Direct Investment, wherever required. DPIIT is the
balanced regional development across all districts of
Competent Authority for grant of Approvals/ Rejection
the country by being vocal for local products. More than
of foreign investment proposals requiring Government
1,200 products have been identified across 767 districts
approval in case of Trading (Single, Multi brand and Food
of the country which are showcased on ODOP portal and
Product Retail Trading) and for investments related to
many of these products are also being sold on GEM and
product categories under its mandate.
other e-commerce platforms.
Invest India
ODOP- Ekta/Unity Mall
Invest India is the National Investment Promotion
Setting up of Ekta/Unity Mall in the States was
and Facilitation Agency of India and acts as the first point
announced in the Union Budget 2023-24 for promotion
of reference for investors. It acts as a facilitation arm for
and sale of their own ODOPs, GI products, and other
the Government of India for two of its key initiatives
handicraft products, and for providing space for such
“Make in India” and “Start-up”. Invest India provides
products of all other States. The Union Budget also
complete end-to-end facilitation support to companies
provided for an outlay of Rs. 5,000 crores of fifty-year
looking at investing in India by working very closely
interest-free loans to States under the ‘Scheme for
with the relevant stakeholders in the Government of
Special Assistance to States for Capital Investment
India, Industry Associations, Private companies and
2023-24’, which will be linked to or allocated for certain
Indian Embassies abroad.
purposes which, inter-alia, includes constructing the
Unity Malls. At present, 27 States have submitted their It is transforming the country's investment climate
Detailed Project Reports, out of these, 17 have been by simplifying the business environment for investors.
approved by Department of Expenditure. Its experts, specializing across different countries,
states and sectors, handhold investors through their
Foreign Direct Investment (FDI)
investment life-cycle from pre-investment to after-care.
The Department for Promotion of Industry and This venture provides multiple forms of support such
Internal Trade is the Nodal Department for formulation as market entry strategies, deep dive industry analysis,
of policy of the Government on Foreign Direct partner search, location assessment and policy advocacy
Investment (FDI). It is responsible for maintenance and
with decision-makers
management of data on inward FDI, based upon the
remittances reported by the Reserve Bank of India. With India is one of the most attractive FDI destinations
a view to attract higher levels of FDI, Government has in the world today. The Government has put in place an
put in place a liberal policy on FDI, under which, FDI investor friendly Foreign Direct Investment (FDI) policy
up to 100%, is permitted, under the automatic route, in under which most sectors except certain strategically
most sectors/activities. important sectors are open for 100% FDI under the
automatic route.
Significant changes have been made in the FDI policy
regime in the recent times to ensure that India remains Measures taken by the Government on FDI Policy
an increasingly attractive investment destination. The reforms have resulted in increased FDI inflow in the
Department plays an active role in the liberalization country. FDI inflow in India stood at USD 36 billion in
and rationalization of the FDI policy. Towards this end, 2013-14 and registered its highest ever annual FDI
it has been constructively engaged in the extensive inflow of USD 85 billion in the financial year 2021-
stakeholder consultations on various aspects of the FDI 22. During FY 2022-23, FDI inflow of USD 71 billion
Policy. (provisional figure) has been reported. During the
Further, after abolition of the erstwhile Foreign current financial year, 2023-24 (up-to September 2023)
Investment Promotion Board (FIPB), process for FDI worth USD 33 billion has been reported.
granting FDI approvals has been simplified wherein the FDI inflow in the last 9 financial years (2014-23: USD
work relating to processing of applications for FDI and 596 billion) has increased by 100% over the previous 9
approval of the Government thereon under the extant financial years (2005-14: USD 298 billion) and is nearly
FDI Policy and FEMA, is now handled by the concerned 65% of the total FDI reported in the last 23 years (USD
ministries/Departments. However, Department for 920 billion). FDI equity inflow in the manufacturing
Promotion of Industry and Internal Trade (DPIIT) is a sectors in the last 9 financial years (2014-23) (USD 149

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vkLFkk IAS INDIAN ECONOMY

billion) has increased by 55% over the corresponding an integrated system of infrastructure and policy/
period of the previous nine years (2005-14) (USD 96 regulatory interventions to promote inter-modality and
billion). These trends in India’s FDI are an endorsement identification of skill gaps across modes.
of its status as a preferred investment destination The Division is also promoting and encouraging
amongst global investors. adoption of digitization across logistics value chains. On
Make in India (MII) 13th October 2021, Hon’ble Prime Minister inaugurated
DPIIT has been at the forefront of supporting ‘PM Gati Shakti National Master Plan’ for multimodal
the manufacturing and investment ecosystem in the infrastructure connectivity to various Economic Zones.
country. “Make in India” was launched on September Subsequently CCEA had approved the Cabinet Note
25, 2014, to facilitate investment, foster innovation, mooted by the Department for Promotion of Industry
building best in class infrastructure, and making India and Internal Trade (DPIIT) on PM Gati Shakti on 21st
a hub for manufacturing, design, and innovation. The October 2021. Subsequently, vide Cabinet Secretariat
development of a robust manufacturing sector continues Notification dated 10th November 2021, the mandate
to be a key priority of the Indian Government. for integrated development of Logistics Sector has been
allocated to DPIIT and Logistics Division stands shifted
It was one of the first 'Vocal for Local' initiatives that
to DPIIT.
exposed India's manufacturing domain to the world.
The sector has the potential to not only take economic Industrial Corridors
growth to a higher trajectory but also to provide Government of India is developing various Industrial
employment to a large pool of our young labour force. Corridor Projects as part of National Industrial Corridor
Make in India 2.0 programme which is aimed at development of futuristic
Since its launch, Make in India has made significant industrial cities in India which can compete with the
achievements and is now focusing on 27 sectors under best manufacturing and investment destinations in
Make in India 2.0. DPIIT is coordinating Action Plans the world. The program is aimed at providing multi
for 15 manufacturing sectors, while the Department of modal connectivity with complete “plug and play”
Commerce is coordinating for 12 service sectors. infrastructure till the plot level along with building
resilient and sustainable future ready cities.
Now, DPIIT is working closely with 24 sub-sectors
which have been chosen keeping in mind the Indian Delhi Mumbai Industrial Corridor (DMIC) Project is
industries strengths and competitive edge, need for the first Industrial Corridor which is being implemented
import substitution, potential for export and increased in the country wherein substantial progress has been
employability. These 24 sub-sectors are – furniture, air- made. For coordinated and unified development of
conditioners, leather and footwear, ready to eat, fisheries, industrial corridor projects, Government of India on 7th
agri-produce, auto components, aluminium, electronics, December 2016, approved expansion of the scope of
agrochemicals, steel, textiles, EV components and existing DMIC Project Implementation Trust Fund (PITF)
integrated circuits, ethanol, ceramics, set top boxes, and re-designated it as National Industrial Corridor
robotics, televisions, close circuit cameras, toys, drones, Development and Implementation Trust (NICDIT).
medical devices, sporting goods, gym equipment. Efforts
Presently, as part of National Industrial Corridor
are on to boost the growth of the sub-sectors in a holistic
Programme, following 11 Industrial Corridors are
and coordinated manner.
being taken up for development with 32 Projects to
Investment outreach is being done through be developed in 04 phases forming part of National
Ministries, State Governments and Indian Missions Infrastructure Pipeline (NIP):
abroad; Investment Identification of potential investors,
handholding and investment facilitation is done through i. Delhi Mumbai Industrial Corridor (DMIC);
Invest India. ii. Chennai Bengaluru Industrial Corridor (CBIC);
Development of Logistics Sector iii. Amritsar Kolkata Industrial Corridor (AKIC);
This Logistics Divsion was created in the iv. East Coast Industrial Corridor (ECIC) with Vizag
Department of Commerce with amendment in the Chennai Industrial Corridor (VCIC) as Phase 1;
Allocation of Business Rules in July 2017 with the v. Bengaluru Mumbai Industrial Corridor (BMIC);
mandate for integrated development of logistics sector
vi. Extension of CBIC to Kochi via Coimbatore;
in the country and to bring about reduction in the
logistics cost. For the said mandate, the Division has been vii. Hyderabad Nagpur Industrial Corridor (HNIC);
engaged in identification of regulatory, infrastructure or viii. Hyderabad Warangal Industrial Corridor (HWIC);
services bottlenecks in freight logistics and easing them
ix. Hyderabad Bengaluru Industrial Corridor (HBIC);
through industry engagement and inter-ministerial
coordination, monitoring performance and efficiency x. Odisha Economic Corridor (OEC) and
of logistics infrastructure and services, creation of xi. Delhi Nagpur Industrial Corridor (DNIC).

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Ease of Doing Business (EODB) States/ UTs. India has reported meteoric improvement
DPIIT is the nodal Department for coordinating in Ease of Doing Business Ranking from 142nd rank in
the initiatives under Ease of Doing Business. DPIIT 2014 to 63rd rank in the World Bank Doing Business
is spearheading the exercise for improving overall 2020 report.
business regulatory environment in the country by The Jan Vishwas (Amendment of Provisions) Bill,
streamlining the existing regulations and processes and 2023 was passed by the Parliament. Through this
eliminating unnecessary requirements and procedures. Amendment Act, a total of 183 provisions are proposed
DPIIT, in consultation with the State Governments, to be decriminalized in 42 Central Acts administered by
started a comprehensive reform exercise in States and 19 Ministries/Departments.
UTs in December 2014. Under the Business Reforms All States/UTs are being assessed under Business
Action Plan (BRAP), all States/UTs in the country are Reform Action Plan on the basis of implementation
assessed on the basis of reforms undertaken by them of designated reform parameters contained in the
on designated parameters. BRAP covers reform areas Action Plan such as Investment Enablers, Access to
such as Information Wizard, Single Window Systems, Information and Transparency, Online Single Window
Online Building Permission System, Inspection Reforms, System, Land Allotment, Construction Permits Enablers,
Labour Reforms, etc. This exercise has helped in Labour Regulation Enablers, Environment Registration
improving business environment across States/UTs. Enablers, Inspection Enablers, Obtaining Utility Permits,
Till date five editions of BRAP (2015, 2016, 2017- Contract Enforcement, Sector-specific reforms, etc.
18, 2019 and 2020) have been completed and States/ Report of BRAP 2022 is to be released soon.
UTs have been assessed accordingly. The Action Plan Further under EoDB reforms, Government is moving
for BRAP, 2022 (i.e., the sixth edition) was shared with towards centralized KYC and PAN as Single Business
States/UTs for its implementation and is currently Identity and Regulatory Impact Assessment, thereby
under progress. giving impetus to FDI in the country and domestic
The Action Plan for BRAP 2022 consists of 352 manufacturing activities.
reforms, divided into two Parts - Part A (Business centric PM GatiShakti National Master Plan
reforms) and Part B (Citizen centric reforms). Citizen
In 62 Network Planning Group meetings held so far
centric reforms (91 reforms) have been included for the
under PM GatiShakti (PMGS), more than 123 big-ticket
first time to enable Ease of Living across the country.
infrastructure projects, worth Rs. 12.08 lakh crores,
Reforms related to integration of State Single Window
have been examined on PMGS principles.
with National Single Window System (NSWS) have
also been included in BRAP 2022. This would facilitate PM GatiShakti National Master Plan (NMP) has 1463
the investors to get all the information and obtain the data layers today, belonging to 39 Central Ministries /
required approvals (Centre and/or State) through NSWS Departments (585) and 36 States/UTs (878). Individual
as well as State Single Window. portals of 39 Central Ministries (Infrastructure, Social,
and Economic) have been developed and integrated with
DPIIT also coordinates with Ministries/Departments
and States/UTs for initiatives to reduce compliance NMP. 22 Social Sector Ministries have been onboarded
burden on citizen and business activities. The objective on PM GatiShakti with over 200 data layers mapped
of this exercise is to improve Ease of Doing Business and on NMP (like Primary Healthcare Facilities, Post Office,
Ease of Living by Simplifying, Rationalizing, Digitizing Hostels, Colleges, PVTG- Particularly Vulnerable Tribal
and Decriminalizing Government to Business and Groups, etc).
Citizen Interfaces across Ministries/States/UTs. The key State Master Plan (SMP) portals for 36 States/UTs
focus areas of the initiative are: have been developed for mapping and synchronised
1. Simplification of procedures related to applications, integration of infrastructure assets. Five Regional
renewals, inspections, filing records, etc. Workshops on PM GatiShakti was conducted between
February and April this year, covering all 36 States/
2. Rationalization of legal provisions, by repealing,
UTs for larger sensitization, exchange of knowledge,
amending or omission of redundant laws,
and demonstration of use cases by Ministries and the
3. Digitization of government processes by creating States/UTs.
online interfaces, and
To integrate GatiShakti further in all infrastructure
4. Decriminalization of minor, technical or procedural works in the States, Department of Expenditure (DoE)
defaults directed to utilize NMP for mapping and planning all
As part of Reducing Compliance Burden exercise and the infrastructure projects proposed under the Scheme
based on data uploaded on the Regulatory Compliance for Special Assistance to States for Capital Investments
Portal, more than 3,600 compliances have been for 2023-24 of Rs. 1.3 lakh crores. On 11 July 2023, DoE
decriminalized and more than 41,000 compliances have issued the notification for all State Governments to map
been reduced by various Ministries/ Departments and and plan the capital investment projects approved under

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vkLFkk IAS INDIAN ECONOMY

the Scheme using the PM GatiShakti platform. This will iii. Draft Sector Specific Plans developed by M/o Coal
give further fillip to usage of PM GatiShakti NMP. and discussed in 6th EGoS.
Logistics Ease Across Different States (LEADS) ™™ Human Resource Development and Capacity
The 5th edition of LEADS annual exercise - LEADS Building:
2023 report was released by the Union Minister for ™™ To further give traction to training and capacity
Commerce and Industry, Shri Piyush Goyal on 16th building in Logistics and Infrastructure
December, 2023. Development, Syllabus and training modules
are being developed with the Capacity Building
National Logistics Policy, 2022
Commission (CBC), which will be imparted through
On completion of one year of launch of National webinars, workshops, digital training, physical
Logistics Policy significant progress has been made training, integrating courses with the existing
to achieve NLP targets, viz. reduction in logistics curriculum of Central Training Institutes (CTIs) and
cost, improvement in India’s ranking in the Logistics Administrative Training Institutes (ATIs).
Performance Index (LPI), and create data-driven
™™ A webinar on PM GatiShakti was held on 04 August
decision support mechanism for an efficient logistics
2023 with CBC for all Ministries and Business/
ecosystem.
Trade Associations, etc. As on date, 17 CTIs and 19
Progress made on the eight action areas under the State ATIs have appointed Nodal officers for the
Comprehensive Logistics Action Plan (CLAP), defined same.
under the NLP, is as follows:
™™ MoU signed between Logistics Division of DPIIT and
™™ The Service Improvement Group (SIG) is well GatiShakti Vishwavidyalaya (Ministry of Railways)
established with the involvement of more than 30 on 4th October 2023 for capacity building, outreach,
business associations in the field of logistics; critical knowledge sharing, and related aspects on PM
issues concerning logistics services are raised by GatiShakti.
business associations on the E-LoGS platform. SIG
™™ Progress on Unified Logistics Interface Platform
and E-LoGS have together established a robust
(ULIP):
mechanism to address and resolve logistics issues/
promote logistics efficiency. ™™ The integration of ULIP with 35 systems of 08
different Ministries through 113 APIs, covering
™™ 7 SIG and 1 special SIG meetings with Customs
1,800+ fields has been completed. 699 industry
and a meeting with Member Customs have been
players have been registered on ULIP. Over 125
conducted.
private companies have signed NDA, and this will
™™ 108 logistics-related issues were received on enhance supply chain visibility and boost trade.
E-LoGS platform, of which 16 issues were resolved, Over 65 applications have been made live. GST data
58 are in progress, 19 are under review, and 15 are is being integrated with ULIP to provide end-to-end
not admissible. multimodal tracking of cargo and demand-supply
™™ A NPG meeting was held to discuss Sectoral Plan mapping for trade.
for Efficient Logistics (SPEL) by individual line ™™ Project Monitoring Group (PMG)
Ministries/Departments on 16th November 2023
™™ The PMG portal has been upgraded from an issue-
for prioritizing cross-sectoral cooperation and to
based resolution mechanism to a Milestone-based
focus on the optimization of modal mix for holistic
monitoring system. The new system will ensure
planning.
proactive monitoring of projects and will help
™™ Progress made in implementation of the in initiating course correction measures in time.
Comprehensive Logistics Action Plan (CLAP) is as This will put the Project Monitoring Group at the
below: forefront of driving transformational change in the
i. Infrastructure gaps are being addressed and digital infrastructure space.
initiatives undertaken (under National Committee ™™ Till November, 2023 PMG Portal has on-boarded
on Trade Facilitation). 2426 projects of worth Rs 61.90 lakh crore.
ii. To bring holistic focus on ‘logistics’ in public policy These include all important mega infrastructure
at State level, States/UTs are developing State projects including high impact GatiShakti projects
Logistics Plans (SLPs) aligned with NLP. So far, 23 and critical infrastructure gap projects. PMG has
States have notified their respective State Logistics facilitated resolution of 6978 issues worth Rs. 51.90
policies. lakh crore.

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Power, Oil And Gas

Infrastructure in India
In her speech, the FM hinted about the Central
The FM focused on infrastructure as part of her Government's intention to provide a push for
second theme for the Union Budget i.e. economic solarization of farms. The FM has proposed support to
development. As regards infrastructure, the focus has the farmers for setting up solar powered hand pumps
been on transportation and connectivity as well as and grid connected solar plants on barren lands owned
increasing the solar power generation capacity, in the by farmers. The Central Government hopes that the sale
backdrop of the larger theme of 'Aspirational India' of power generated from the farmers' solar power plants
being development for all. through the grid would provide promising income to the
In line with the overall "Sabka Saath, Sabka Vikas, farmers Acknowledging India's best effort commitments
Sabka Vishwas" principle, the FM also proposed that the to the Paris Agreement signed in 2015, the FM has
National Skill Development Agency would give a special recommended that the concerned power utilities close
thrust to infrastructure-focused skill development old thermal power plants having high carbon emissions
opportunities in light of the huge employment potential than permitted.
of the infrastructure sector. A project preparation The FM also urged the State Governments and Union
facility for infrastructure projects is also proposed to Territories to adopt smart metering systems instead of
be set up. This step is significant, given that the lack of the conventional ones which would not only help in
capacity with the relevant expertise has been identified checking payment defaults (due to prepaid metering)
as a major requirement for the sector. but will also provide the customer with the ability to
choose the power supplier. This is a welcome move, but
Investments In Infrastructure Sector
many more reforms are required to aid ailing DISCOMs.
Tax Exemptions for Sovereign Wealth Funds
In the passing, the FM also spoke about deliberations
One of the most significant announcements for the
by the Government on honoring of the terms of its
infrastructure sector was the 100% tax exemption
contracts. It may be inferred that this, in part, has to
granted to sovereign wealth funds of foreign governments
do with the recent arm twisting of power developers
in respect of their interest, dividend and capital gains
by state DISCOMs/State Governments by renegotiating
income from investments made in infrastructure and
the power tariffs and the terms and conditions of the
other notified sectors before March 21, 2024. The only
renewable power purchase agreements.
conditionality placed on such exemption is a minimum
lock-in period of 3 years. The FM proposed an allocation of INR 220 billion
for the power and renewable energy sector. The FM has
The aforesaid move should definitely incentivize
proposed to extend the new concessional corporate
further investment in India by sovereign wealth funds,
tax rate of 15% to new domestic companies engaged
that generally make longer term investments in socially
in the generation of electricity in order to incentivize
relevant sectors as compared to other foreign funds.
investment in the power sector.
National Infrastructure Pipeline
With respect to the oil and gas sector, the FM
In consonance with one of the prominent themes announced that reforms will be undertaken to make
of the FM for the Union Budget i.e. a caring society, the natural gas price discovery more transparent and
Union Budget aims to improve the physical quality of facilitate ease of transactions. Additionally, the FM also
life through the NIP. The NIP was launched by the FM announced that the existing national gas grid will be
on December 31, 2019. As per the PIB release dated expanded from 16,200 km to 27,000 km.
December 31, 2020, the total project capital expenditure
While the FM acknowledged the never ending
in infrastructure sectors in India during the fiscals 2020
stress over DISCOMs, nothing was proposed on how
to 2025 was projected at over INR 10.2 trillion
the Central Government would address the present
The FM indicated that the NIP would consist of over situation. In her previous budget speech in July 2019,
6,500 projects. As per the FM, about INR 220 billion the FM mentioned that the performance of the efforts
has already been provided, as support to NIP, which to address the DISCOM stress including the success of
would cater for equity support to infrastructure finance Central Government's UDAY Scheme is being evaluated.
companies such as IIFCL and a subsidiary of NIIF. As per However, the FM did not discuss the same in this
the Union Budget, such companies would leverage it, as speech. It may be advisable for the Central Government
permissible, to create financing pipeline of more than to focus on the more critical concerns that have been
INR 1 trillion which would in turn create a major source looming over the power sector such as, fuel supply
of long-term debt for infrastructure projects. issues, easing the renewable purchase obligations,
In our view, the NIP is a critical measure that would cross - subsidy surcharge, pilferage and transmission
boost investments in the infrastructure sector. However, losses, transmission capacity augmentation and open
given the mammoth proposal, the financing of the NIP access availability, payment defaults by DISCOMs
may be a challenge. and compliance of their obligations under the power

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vkLFkk IAS INDIAN ECONOMY

purchase agreements (such as providing payment that effective steps are being taken to make the sector on
securities to the developer/power supplier), the long railways amenable to private investment. Insofar as the
pending amendments to the Electricity Act, 2003 and the setting up of large solar power capacity alongside the
captive power rules, anti-dumping, building indigenous rail tracks on the land owned by the railways has been
capabilities for renewal equipment and technologies etc. envisioned, it remains unclear whether land owned
Roads by private players will be excluded for the purpose, in
a scenario where the stretch of land alongside the rail
The FM announced that accelerated development of tracks owned by the Indian Railways is not contiguous.
highways would be undertaken, including development
of 2,500 km access control highways, 9,000 km of S. Zone Headquarters Divisions
economic corridors, 2,000 km of coastal and land 1 Central Mumbai Mumbai(CST), Bhusawal,
port roads and 2,000 km of strategic highways. The Nagpur, Pune
Delhi-Mumbai Expressway and two other packages 2 Western Mumbai Mumbai(Central),Vadodara,
Ratlam,Ahmedabad,Rajkot,
are targeted to be completed by 2023 and work on the Bhavnagar
Chennai-Bengaluru Expressway would also be started.
3 Northern Delhi Ambala, Delhi, Lucknow,
The FM also stated that the FASTag mechanism Moradabad, Ferozpur
encourages towards greater commercialization of 4 Eastern Kolkata Asansol, Howrah, Malda,
highways enabling the NHAI to raise more resources. Sealdah
It was proposed to monetize at least 12 lots of highway 5 Southern Chennai Chennai, Madurai, Palghat,
bundles of over 6,000 km before 2024. Trichy, Trivandrum, Salem
6 East Central Hajipur Danapur, Dhanbad,
While monetization of 12 lots of highway bundles is
Mughalsarai, Samastipur,
a welcome move, it would be important to see whether Sonpur
timely monetization is actually achieved in a manner 7 East Coast Bhubaneshwar Khurda Road, Sambalpur,
that enables NHAI to decrease its debt burden. Given Waltair
the tepid response received for the previous TOT 8 North Allahabad Allahabad, Agra, Jhansi
bundles, it would be crucial to ascertain whether the Central
Central Government proposes another model for the 9 North Gorakhpur Lucknow, Izzatnager,
monetization or amends the TOT model as envisaged by Eastern Varanasi
the Cabinet in November 2019. The geographies of the 10 North East Guwahati Katihar, Alipurduar,
identified bundles would be key. Frontier Rangiya, Lumding, Tinsukia
11 North Jaipur Ajmer, Bikaner, Jaipur,
Railways Western Jodhpur
The FM envisions the setting up of "Kisan Rail" 12 South Secunderabad Hyderabad, Nanded,
through PPP arrangements, with a view to attaining a Central Secunderabad
seamless national cold supply chain for perishables, 13 South East Bilaspur Bilaspur, Nagpur, Raipur
inclusive of milk, meat and fish. Equipping express and Central
freight trains with refrigerated coaches is also identified 14 South Kolkata Adra, Chakradharpur,
under the theme "Aspirational India' in the Union Eastern Kharagpur, Ranchi
Budget. 15 South Hubli Bangalore, Hubli, Mysore
Western
As regards railways, the Central Government's focus
16 South Visakhapatnam Guntakal, Guntur,
has been on fostering economic development through Coastal Vijayawada
optimization of costs and ensuring greater connectivity 17 West Jabalpur Bhopal, Jabalpur, Kota
through the following: Central
Increase in the number of Tejas type trains; 18 Southern Vishakhapattanam —
coast
High speed train between Mumbai and Ahmedabad; railway
Setting-up a large solar power capacity alongside Airports
the rail tracks on the land owned by the railways;
Noting the rapid growth in air traffic in the country,
Re-development projects for 4 stations and operation the FM announced that 100 more airports would be
of 150 passenger trains would be done through PPP mode; developed by 2024 to support the Regional Connectivity
Grant of financial assistance for the 148 km long Scheme i.e. UDAN. It was also proposed that the air fleet
Bengaluru Suburban transport project; number is expected to double from the present number
The Union Budget reinforces the importance of 600 by 2024.
of raising resources through PPP for network The development of new airports would ease the
strengthening, connectivity and modernization of Indian strain on the existing airports. However, it would be
Railways. In light of the announcement by the FM that important to see whether such development is done
bidding for various PPP projects is underway, it is clear through the PPP mode or otherwise. Furthermore, given

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vkLFkk IAS INDIAN ECONOMY

the news reports from January 2020 suggesting that the Given that a National Logistics Policy has been in
Central Government may introduce a cap on the number the works for a while now, it would be important to
of projects a bidder can get, it would be interesting to ensure that the aforesaid announcement of the FM is
see whether such move leads to wider participation by implemented timely and efficiently. Considering that
private parties in the sector and more realistic bids. logistics involve inter-state movement, it would be
Ports and Waterways crucial for the policy to harmonize the roles of the Central
Government and the various State Governments, whilst
In order to increase the efficiency of sea-ports, the at the same time bringing down the cost of logistics and
FM proposed to implement a governance framework making the Indian logistics sector globally competitive.
in line with global benchmarks. Further, it has also
been proposed to corporatize at least 1 major port and Human Development Dashboard
subsequently list it on the stock exchanges. Quality of Human Development

As regards inland waterways, the FM announced Quality of Health:

that the Jal Vikas Marg on the 1,620 km Haldia-Allahabad ™™ India lost 13.9% in total life expectancy as health expectancy in
2016.
stretch of river Ganga would be completed. Further, the
™™ There were only 7.6 physicians per 10,000 people in the period
890 km Dhubri-Sadiya connectivity was proposed to be 2007-17 falling behind Pakistan who have a better physician to
done by 2022. The FM announced that in consonance people ratio with 9.8 physicians for every 10,000 people.
with Arth Ganga, plans are being prepared to energize ™™ There are only 7 beds for every 10,000 people in India where a
economic activity along river banks. smaller nation like Nepal have 50 beds for every 10,000 people
and has a lot to catch up with international standard.
There are 13 mazor ports in India: Kandla, Vadhavan, Quality of Education:
Mumbai, Manglore, Marmagoa, Kochi, Kolkata, Paradeep,
™™ There is only one teacher in primary schools for every 35 pupil in
Vishakhapattanam, Chennai, Ennore, Tuticorien, Nahwa India falling in the bottom tercile. International model standard
Shahwa. comes up to somewhere 15-18 pupils per children.
™™ Only 70% teachers in primary schools are trained to teach in
Corporatization of ports would go a large way in
Indian schools.
improving operational efficiencies which has been
Quality of Standard of Living:
a challenge with India's major ports. It would be
™™ 77.5% of the employed people are engaged as unpaid family
interesting to see the way this would be achieved and to workers and own account workers.
also evaluate the global benchmarks that are introduced ™™ 77.6% of the rural population had access to electricity in 2016.
by the Central Government. ™™ 87.6% of the total population was using improved drinking
Logistics water sources in 2015, with only 44.2 % people having access to
improved sanitation facilities in 2015.
The FM announced that a National Logistics
Policy would be released clarifying the roles of the PM Gati Shakti
Central Government, the State Governments and other Last year, government identified 197 critical
regulators. A single window e-logistics market is also infrastructure gaps across various proojects under PM
envisaged under the policy. Gati Shakti.

About PM Gati Shakti

™™ PM Gati Shakti National Master Plan (NMP) for Multi-modal Connectivity, is a digital platform for comprehensive
database of the ongoing & future projects of 16 Ministries.
™™ Aim: Create Next Generation Infrastructure by learning from the past and achieving enhanced efficiency through
6 pillars (refer to the infographic).
™™ It is integrated with 200+ layers of geospatial data on existing infrastructure, forests, rivers and district
boundaries.
™™ It has been developed by the BISAG-N

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About Bhaskaracharya National Institute for Space Applications and Geo-informatics (BISAG-N)
™™ BISAG-N is an Autonomous Scientific Society registered under the Societies Registration Act, 1860 under the Meity.

™™ Its three main domain areas Satellite communication Geoinformatics; and Geo-spatial technology.

zz Dynamic mapping of all infrastructure projects with real- time updation by way of a map developed by
BISAG-N.
zz The map will be built on open-source technologies and hosted securely on Meghraji.e. Gol cloud.
Digitisation Initiatives
™™ Existing and proposed economic zones have been mapped along with the multimodal connectivity infrastructure
in a single GIS platform.
™™ Logistic Data Bank (LDB) and Unified Logistic Interface Platform (ULIP) may be integrated under PM GatiShakti.

Electricity Amendment Bill 2022 zz Cross-subsidy refers to the arrangement

Recently, the government introduced the Electricity of one consumer category subsidizing the
Amendment Bill 2022 in the Lok Sabha. consumption of another consumer category.
™™ The Electricity (Amendment) Bill, 2022 amends the zz Any surplus with a distribution licensee on
which regulates the electricity sector in India. account of cross-subsidy will be deposited into
the fund.
zz The fund will be used to finance deficits in
cross-subsidy for other discoms in the same
area or any other area.
™™ CERC will grant licenses for distribution of electricity
in more than one state.
™™ Electricity will not be scheduled or despatched if
adequate payment security is not provided by the
discom.
Key Provisions of Bill
zz The central government may prescribe rules
™™ Removes requirement of discoms to distribute regarding payment security.
electricity through their own network.
™™ Empowers the CERC and SERCS to adjudicate
zz Bill adds that a discom must provide non- disputes related to the performance of contracts.
discriminatory open access to its network to all
other discoms operating in the same area, on zz These refer to contracts related to the sale,
payment of certain charges. purchase, or transmission of electricity. Further,
the Commissions will have powers of a Civil
™™ SERC will specify a minimum tariff in case of
Court.
multiple discoms in the same area of supply, in
addition to maximum ceiling for tariff. ™™ Empowers SERCS to specify RPO for discoms.
™™ Cross-subsidy Balancing Fund to be set up by the zz RPO should not be below a minimum percentage
state government upon grant of multiple licenses prescribed by the central government and
for the same area. Failure to meet RPO will be punishable.

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India Ranking in Different Indexes 2024

Index Index released by India's Rank 1st Rank
QS World University Rankings Quacquarelli Symonds (QS) and 150 th
IIT Bombay
the Indian Institutes of Technology
(IIT) Bombay and Delhi
Container Port Performance Index World Bank 20th Yangchan Port in China and Port of
Salaah in Oman
WEF’s Global Gender Gap Index World Economic Forum 129th -
IEP’ Global Peace Index 2024 Institute for Economics & Peace 116 th
Iceland
WEF’s Energy Transition Index World Economic Forum 63rd Sweden
World Press Freedom Index 2024 global media watchdog Reporters 159 Norway
World University Rankings (CWUR) The Center for World University Indian Institute of Management Harvard University
2024 Rankings (IIM) Ahmedabad, 410
Young University Rankings 2024 Times Higher Education Mahatma Gandhi University Nanyang Technological University
(MGU) in Kottayam, 81 (NTU), Singapore
Travel & Tourism Development World Economic Forum 39th United States
Index (TTDI) 2024
Oxford Economics Global Cities Oxford Economics 350th position, New Delhi New York City
Index 2024
Bloomberg Billionaires Index 2024 Bloomberg L.P. Mukesh Ambani and Gautam Bernard Arnault from France
Adani
Times Higher Education (THE) Asia Times Higher Education magazine Indian Institute of Science (IISc), Tsinghua University and Peking
University Rankings 2024 32nd position. University in China
The Business Environment The Economist Intelligence Unit 10th Singapore
Rankings (BER) for 2024 (EIU)
The hurun global unicorn index Hurun research institute 3rd with 67 unicorns United states with 703 unicorns
2024,
World University Rankings by Quacquarelli Symonds (QS) The Indian Institute of 1st place in this category is
Subject for 2024. Technology (IIT) Bombay has the Massachusetts Institute of
secured the 45th rank Technology (MIT), United States of
America
‘World cybercrime index’ International team of researchers 10th Russia
World airport traffic dataset The airports council international Delhi’s igi airport was ranked 10th Hartsfield-jackson atlanta
(aci) globally international airport.
Hurun Global Rich List 2024, Hurun Research Institute 3rd China
Human Development Index (HDI) United Nations Development 134th Switzerland
Programme (UNDP)
Women, Business, and the Law World Bank Group 113th Belgium
(WBL) 2024
State Energy Efficiency Index Bureau of Energy Efficiency (BEE) Karnataka -
(SEEI) 2023 and the Alliance for an Energy-
Efficient Economy (AEEE)
Gender Inequality Index (GII) United Nations Development 108th Denmark
Programme (UNDP),
Grievance Redressal Assessment Department of Administrative Ministry of Home Affairs (MHA) -
Index (GRAI) Reforms and Public Grievances
Indian Institutional Ranking Education Post, a monthly Indian Institute of Management, -
Framework magazine Ahmedabad
Brand Guardianship Index 2024 Brand Finance 2nd (Mukesh Ambani of Reliance) First rank is held by Huateng Ma of
China-based Tencent
FIFA rankings Fédération Internationale de 117th Argentina
Football Association
Henley Passport Index Henley & Partners in partnership 85th France
with the International Air
Transport Association (IATA)
International IP Index 2024 Global Innovation Policy Center 42nd USA
(GIPC) of the U.S. Chamber of
Commerce

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vkLFkk IAS INDIAN ECONOMY

Global airports in terms of Aviation analytics firm Cirium 2nd Hyderabad US

operational performance
Global airports in terms of Aviation analytics firm Cirium 3rd Bengaluru US
operational performance
Henley Passport Index 2024 International Air Transport 80th France
Association & Henley & Partners
MSCI Emerging Markets (EM) Morgan Stanley Capital 2nd China
index International
2023 Corruption Perceptions Transparency International 93rd Denmark
Index
Global derivatives market World Federation of Exchanges 3rd US
The 2024 Military Strength Global Firepower 4th US
Ranking
Avtar & Seramount Most Inclusive Avtar Group Chennai
Companies Index (MICI)
States and Union Territories Department for Promotion of Gujarat, Kerala
Ranking Industry and Internal Trade
Ranking
World Digital Competitiveness IMD World Competitiveness 49th U.S.A
Ranking Center
QS World University Rankings Quacquarelli Symonds 220th in the world Toronto
S&P’s Ranking S&P Global Market Intelligence 4th largest insurer Allianz SE from Germany.
Inclusiveness Index Othering and Belonging Institute 117 th
New Zealand
(OBI) at California
The Prime Global Cities Index for Knight Frank India 4th , 10th & 17th -
Q3 2023
QS Asia University Rankings 2024 QS Quacquarelli Symonds - Peking University Mainland China
Global Mobile Speed Ranking Ookla 47th UAE
Global Innovation Index World Intellectual Property 40th Switzerland
Organization
World University Rankings Times Higher Education 4th University of Oxford
Digital Quality of Life Index Surfshark 52nd France
World Trade Statistical Review World Trade Organization 18th -
Henley Passport Index Henley & Partners 80 th
Singapore
THE Young University Rankings Times Higher Education 77th Singapore
Global Peace Index Institute for Economics & Peace 126th Iceland
WEF’s Energy Transition Index World Economic Forum 67 th
Sweden
Global Liveability Index Economist Intelligence Unit 46th Vienna
Global Gender Gap Index World Economic Forum 127th Iceland
Global Slavery Index Walk Free Foundation, 1st North Korea
Food Safety Index Food Safety and Standards 1 st
Jammu and Kashmir
Authority of India
World Press Freedom Index Reporters Without Borders 161th Norway
Australia's Highest Civic World Bank’s LPI 38 th
Singapore
Distinction
EASE Reforms Index Department of Financial Services 1st -
Global Business Environment Economist Intelligence Unit 52nd Singapore
Rankings
Brand Guardianship Index 2023 Brand Finance 2nd (Mukesh Ambani of Reliance) Jensen Huang, the CEO of Nvidia

List of Committees With Purposes

Name of Committee/Commission Purpose
Abhijeet Sen Committee Formulating food policy in the long term
Abid Hussain Committee Small scale industries and Trade Policy Reform
Chakravarty Committee (1985) Monetary policy
G V Ramakrishna Committee Disinvestment

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JJ Irani Committee Company laws; Formation of the new Companies Act

Kelkar Committee (2015) Assessing PPP in India and Tax Structure Reforms
Raja Chelliah Committee Tax reforms in India
Khusro Committee Agricultural Credit System
Sarkaria Commission Relationship and power balance between the Centre and States
Malegam Committee Microfinance
Narasimhan Committee Banking Reforms

Mckinsey Report Merger of seven Associate Banks with State Bank of India
Suresh Tendulkar Committee The methodology of estimation of poverty
Tarapore Committee Capital Account Convertibility
A Ghosh committee Malpractices in banks
Y B Reddy Committee Assessing of Income Tax Rebates
Bhagwati Committee Unemployment and Public Welfare
C Rao Committee Agricultural policy
Dharia Committee Public Distribution System
Rangarajan Committee Computerization of Banking Industry and Public Sector Disinvestment
Lodha committee To recommend reforms for cricket in India
Raghunath Anant Mashelkar panel To suggest the best technologies for Swachh Bharat Abhiyaan
K V Kamath Panel To examine the MSME sector
Bibek Debroy Committee Railway restructuring
Justice B. M Shah Committee Black money
A C Shah Committee Non-Banking Financial Company
Ajit Kumar Committee Army pay scales
Athreya Committee Restructuring of IDBI
Bhurelal Committee Increase in Motor Vehicle Tax
Bimal Jalan Committee Report on the working of capital market infrastructure institutions (MIIs)
Chandra Shekhar Committee Venture Capital
Dave Committee Pension Scheme for Unorganized Sector
Deepak Parekh Committee Financing Infrastructure through PPP model
Hanumant Rao Committee Fertilisers
Janakiramanan Committee Securities Transactions
Kasturirangan Committee Draft National Education Policy
Kothari Commission To examine all aspects of the educational sector in India
Kumaramangalam Birla Report Corporate Governance
N.N. Vohra Committee Relations (Nexus) of Politicians with Criminals
Radha Krishnan Commission (1948) Establishment of the University Grant Commission
K. Santhanam Committee Establishment of CBI
Shivaraman Committee (1979) Establishment of NABARD
Swaminathan Commission (2004) To find the problems faced by the farmers
Balwantrai Mehta Committee (1957) Panchayati Raj Institutions
Justice A.K Mathur Commission 7th Pay Commission
Vaghul Committee Money market in India
Vasudev Committee NBFC sector reforms

Y B Reddy Committee Review of Income Tax rebates

Aruna Sundararajan Committee Telecom sector revival
Rajiv Kumar Committee Selling of OIL and ONGC fields to private companies
Sushil Modi Committee To look into GST revenue shortfall faced by states
Lokpal Search Committee (Justice Ranjana Desai) For recommending names for Lokpal
Injeti Srinivas Committee Corporate Social Responsibility (CSR)
Punchhi Commission Centre-State relations

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NDA Government Schemes

In this article, we have compiled the list of important centrally sponsored schemes by the Modi government.
Scheme / programme Starting date Objective of Scheme
Jan Dhan Yojna 28 August, 2014 To connect more and more peoples from the banking services
Skill India Mission 28 August, 2014 Skill Development in Youth
Make in India 28 September, 2014 Promoting manufacturing Sector in the country
Swachh Bharat Mission 2 October, 2014 Making India a clean country till October 2, 1919
Sansad Adarsh Gram Yojana 11 October, 2014 Development in the villages which includes social development, cultural development.
Shramew Jayate Yojana 16 October, 2014 Plan dedicated to labour development
Beti Bachao Beti Padhao 22 January, 2015 The goal of this scheme is to make girls socially and financially self-reliant through education.
Hridaya Plan 21 January, 2015 To take care of world heritage sites and to make these sites economically viable.
PM Mudra Yojna 8 April , 2015 Loan to small businessmen from 50 thousand to 10 lakh
Ujala Yojana 1 May, 2015 Distribution of LED bulbs at a low price to reduce electricity consumption
Atal Pension Yojna 9 May, 2015 Monthly pension for people from the unorganized sector b/w age of 18 to 40 years
Prime Minister Jyoti Jyoti 9 May, 2015 Life Insurance of Rs. 2 lakh for people b/w 18 to 50 years (@Premium of Rs. 330 per annum)
Bima Yojna
Pradhan Mantri Suraksha 9 May, 2015 General insurance/accident insurance for people between 18 and 70 years of 2 lakh (at a
Bima Yojana premium of 12 Rs. / year)
Smart city scheme 25 June, 2015 Developing 100 selected cities of the country as smart cities from 2015 to 2020
AMRUT Plan 25 June, 2015 Developing all the basic amenities in more than 500 cities which have more than one lakh
population
Digital India Mission 2 July, 2015 Making all government services electronically available to the public
Gold Monetization Scheme 5 November, 2015 Putting inoperative gold (lying at home and lockers) in productive works.
Sovereign Gold Bond 5 November, 2015 To check the real demand of Gold; government introduced the Sovereign Gold Bond
Scheme Scheme.
UDAY 20th November, 2015 Financial turnaround of Power Distribution Companies of Public Sector
Start-up India 16 January, 2016 To Promote new enterprises
Setu Bhartam Yojna 4 March , 2016 Construction of Over and Under Bridge to make National Highways Railway Crossing free
Stand Up India 5 April, 2016 Loans up to 10 lacs to 1 crore for establishment of new companies to Scheduled Castes /
Tribes and Women Entrepreneurs
Gramoday Se Bharat Uday 14-24 April 2016 Emphasizing the development of villages for proper development of the country
Prime Minister Ujjwala Plan 1 May, 2016 Providing the LPG connection to BPL families at subsidized rates
Namami Gange Yojana 7 July, 2016 Cleanliness of river Ganga

About the Government Schemes 2. Make in India: PM Narendra Modi launched

Knowing all the government schemes is one thing, the ‘Make in India’ campaign that will facilitate
but the candidates must also know their purpose. investment, foster innovation, enhanced
Candidates stand a better chance of scoring high marks protection for intellectual property and build
if and when they go through the purpose of each scheme best in manufacturing infrastructure. ‘Make in
given below. India’ has identified 25 sectors in manufacturing,
infrastructure and service activities and detailed
1. Pradhan Mantri Jan Dhan Yojana: Pradhan
information is being shared through interactive
Mantri Jan Dhan Yojana is a National Mission on
web-portal and professionally developed brochures.
Financial Inclusion that provides an integrated
approach to bring about a robust financial inclusion 3. Swachh Bharat Mission: Swachh Bharat Mission
and ultimately provide banking services to all was launched in the entire country as a national
households in the country. With the outbreak of movement. The campaign aims to achieve the vision
Covid-19 in India, the Finance Minister of India, of a ‘Clean India’ by 2nd October 2019. The Swachh
Nirmala Sitharaman made an announcement to Bharat Abhiyan is the most significant campaign
provide Rs. 500 per month to every Women Jan- with regards to sanitation by the Government of
Dhan Account Holders for the next three months. India.
This announcement was made on 26th March 2020 4. Beti Bachao Beti Padhao: The goal of this scheme
as an initiative towards the loss caused by the is to make girls socially and financially self-reliant
outbreak. through education.

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5. Atal Pension Yojna: Atal Pension Yojana is a Status of Reported Cases of Crop Residus Burning in Bihar
pension scheme mainly aimed at providing a (2019-20 to 2022-23)
universal pension scheme for those who are a part Year 2019-20 2020-21 2021-22 2022-23 Total
of the unorganized sector such as maids, gardeners,
Total Reported 376 1758 2612 1996 6742
delivery boys, etc. This scheme replaced the
Total Blocked 285 1732 2616 1749 6382
previous Swavalamban Yojana which wasn’t well-
received by the people. Note: A total of 91 farmers were unblocked after completion of the
ban of three years.
6. Digital India Mission: The Digital India programme Source: Department of Agriculture, GoB
is a flagship programme of the Government of India
with a vision to transform India into a digitally Progress of Chief Minister Crash Seed Programme in Bihar
empowered society and knowledge economy. (2019-20 to 2022-23)
Year 2019-20 2020-21 2021-22 2022-23
7. Pradhan Mantri Shram Yogi Maan-dhan: It is a (Kharif )
voluntary and contributory pension scheme, under
Seeds distributed 37657.90 35705.78 37315.78 12867.63
which the subscriber would receive the following (qntls.)
benefits:
Source: Department of Agriculture, GoB
(i) Minimum Assured Pension: Each subscriber
under the PM-SYM, shall receive minimum Details of the Contingent Crop Scheme in Bihar
(2020-21 to 2022-23)
assured pension of Rs 3000/- per month after
Year No. of Farmers Amount (in Rs.)
attaining the age of 60 years.
2020-21 1,59,557 19,70,49,121
(ii) Family Pension: During the receipt of a
2021-22 1,98,745 14,87,50,000
pension, if the subscriber dies, the spouse of
the beneficiary shall be entitled to receive 50% 2022-23 3,31,265 21,77,50,728
of the pension received by the beneficiary as Source: Department of Agriculture, GoB
a family pension. Family pension is applicable
Details of the Contingent Crop Scheme in Bihar
only to a spouse. (2020-21 to 2021-22)
(iii) If a beneficiary has given a regular contribution Year Calamity No of Farmers (lakh) Amount (Rs. crore)
and died due to any cause (before age of 60 2020-21 Flood 15.89 650.39
years), his/her spouse will be entitled to join and
Cyclone 3.73 82.50
continue the scheme subsequently by payment
2021-22 Flood 12.32 513.01
of regular contribution or exit the scheme as
per provisions of exit and withdrawal. Unsown area 0.91 21.89
Source: Department of Agriculture, GoB
8. Gold Monetisation Scheme: Gold Monetisation
Scheme was launched by Government of India in 11. Ayushman Bharat: Launched in 2018 by Prime
2015, under this scheme one can deposit their gold Minister Narendra Modi Ayushman Bharat is a
in any form in a GMS account to earn interest as the health scheme. It is the largest government-funded
price of the gold metal goes up. healthcare programme in the world with over
9. PM CARES Fund -Prime Minister’s Citizen 50 crore beneficiaries. The Ayushman Bharath
Assistance and Relief in Emergency Situation programme has two sub-missions PM-JAY & HWCs.
Fund: Is a public charitable trust initiated by the zz Pradhan Mantri Jan Arogya Yojana (PM-JAY),
Prime Minister Narendra Modi. This national trust earlier known as the National Health Protection
is created with the objective to meet the distressed Scheme (NHPS) will cover the financial
and dreadful situation like COVID-19 in times ahead. protection for availing healthcare services at
PM CARES was initiated on March 28, 2020, under the secondary and tertiary levels.
the chairmanship of the Indian Prime Minister with zz Health and Wellness Centres (HWCs) aimed
Ministry of Home Affairs, Defence Minister and at improving access to cheap and quality
Finance Minister as the ex-officio Trustee. healthcare services at the primary level. Read
10. Aarogya Setu: The Government of India took about Ayushman Bharat in detail in the link
the initiative to fight the Coronavirus pandemic. provided above.
It launched a mobile application to spread the 12. UMANG: Unified Mobile Application for New-age
awareness of COVID-19 among the citizens of India Governance is a mobile application launched by
through an app called Aarogya Setu. The Aarogya PM Narendra Modi to provide secured access to
Setu mobile app has been developed by the National the citizens to multiple government services at one
Informatics Centre (NIC) that comes under the platform. UMANG is a key component of the Digital
Ministry of Electronics and Information Technology. India initiative of the government that intends to
For detailed information, visit the link of Aarogya make all traditional offline government services
Setu given above. available 24 * 7 online through a single unified app.

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13. PRASHAD Scheme: Pilgrimage Rejuvenation and development and beautification of the identified
Spirituality Augmentation Drive. The Scheme is pilgrimage destinations. Further details on PRASAD
launched under the Ministry of tourism in the year scheme is given in the related page link given above
2015. The aims of PRASAD Scheme is the integrated in the article.
development of pilgrimage destinations in a
The path to success in the Government and bank
prioritised, planned, and sustainable manner for
providing complete religious tourism experience. exams is paved with difficulties but it is not an impossible
The focus of Pilgrimage Rejuvenation And path to walk on. Practising with mock tests and brushing
Spirituality Augmentation Drive- PRASAD is on the up daily on study materials will lead to success.

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are not included in this count. It comes under the

The most important words to umbrella of Balance of Payment (BOP).
enhance your knowledge of 8. Bank rate: It’s a rate at which Reserve Bank of
Economics India lends money to the commercial banks of the
country. Repo rate and bank rate both are similar in
1. Monetary policy: This comprises the instruments nature but former is called a short term interest rate
used by the Reserve bank of India to regulate the while later is a long term rate of interest.
flow of money or liquidity in the economy. Its main 9. Reverse Repo Rate: Reverse repo rate is the rate
instruments are interest rate, CRR, SLR, cash reserve at which the central bank of a country (Reserve
ratio, repo rate, reverse repo rate, bank rate. Bank of India in case of India) borrows money
from commercial banks within the country. It is a
2. Fiscal policy: this policy is mainly used by the
monetary policy instrument which can be used to
finance ministry. It deals in the government
control the money supply in the country.
economic policy like taxation, public expenditure,
public debt etc. this policy decides the infrastructural 10. Blue chip: It is concerned with such equity
development and expenditure on the social welfare shares whose purchase is extremely safe. It a safe
schemes within the country. investment and does not involve any risk.
11. Consumer Price Index: It is the method used
3. Budget deficit: It is the difference between the
to know the price of retail market in India. It is
estimated public expenditure and public receipts.
also known as the cost of living index. This index
The government meets this deficit by the printing of
compiled by Central Statistical Organisation (CSO)
new currency or by borrowing.
which tries to encompass the entire population
4. Lorenz curve: This curve shows the degree under its ambit.
of inequalities of a frequency distribution in a 12. Whole Sale Price Index: Under this method the
graphical manner. This curve is commonly used to price of goods and services are measured on the
depict income distribution showing the cumulative basis of wholesale prices. Inflation rate of India is
percentage of people from the poorest up and their calculated on the basis of this index.
cumulative share of national income.
13. Cost Push Inflation: If the rate of inflation rises due
to increase in the cost of factors of production (land.
Labour ,capital and entrepreneur)
14. Deflation: Deflation is the state of falling prices in
the economy. In this satiation the Price of goods and
services falls in the absence of their demand. It’s an
opposite situation of inflation.
15. Disinflation: It refers to the process of bringing
down the prices moderately from their high level
without any adverse impact on production and
employment. Thus disinflation is an anti inflationary
measure.
16. Laffer Curve: It’s a curve given by the American
economist Arthur Laffer. It represents the
relationship between the total tax revenue and
corresponding tax rate. If tax rate is increased then
tax revenue decreases and vice versa.
5. Amalgamation: It means: ‘merger’. As per the
requirement of the market; when two or more
than two companies are merged into a new large
company, it is called merger. In this process old firms
completely lose their identity when the merger is
completed.
6. Arbitrage: When a person performs the job of
middle man and buys and sells goods at a particular
time to cash the price difference of two markets.
Purchases are made in those markets where prices
are low and sold at high price market.
7. Balance of Trade: It is the difference between
export and import of visible goods only. Services

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17. Liquidity: Any asset which can easily be converted in which a country is involved over a period of time, say,
into cash very easily is called most liquid asset. a year. As the BOP shows the total assets and obligations
‘Land’ takes a long time to get converted into cash. over a time-period, it always balances.
Currency (100, 500 and 1000 notes) is most liquid Barriers to Entry: This refers to the factors which
because you can easily use them to purchase goods make it disadvantageous for new entrants to enter an
and services. industry as compared with the firms already established
18. Mixed Economy: It refers to an economic system within the industry.
where public (ONGC) and private (TCS) system Better Compliance: Obeying or complying with the
exists together. India is the example of a mixed Government regulation. It is referred to usually in case
economy. of payment of taxes and dues to the Government.
19. Monopoly: It refers to a market where there is only Bilateral Trade Agreements: The agreements
one seller in the market. This seller controls the full relating to exchange of commodities or services between
supply of the market so he/she charges higher price two countries.
for goods and services. Brundtland Commission: A Commission
20. Plastic Money: This type of money refers to the established by United Nations Organization in 1983 to
generally credit card and debit card. study the world’s environmental problems and propose
21. Privatization: When the 51% shares of a public agenda for addressing them. It came out with a report.
company are sold to private investor/many The definition provided by the Commission for the term,
investors then this company is termed as the private ‘sustainable development’, is very popular and widely
company; although government may have 49% cited all over the world.
shares of this company. Budgetary Deficit: A situation when the
22. Shadow Price: It is an imputed value for a good government’s income and tax receipts fail to cover its
based on the opportunity costs of the resources expenditures.
used to produce it such values are of particular Bureau of Energy Efficiency (BEE): It is a
significance in resolving the problems of resource government organization that aims to develop policies
allocating with respect to the effect on welfare. and strategies with a thrust on self regulation and
23. Trickle down Theory: This theory signifies the market principles. It promotes energy conservation
in different sectors of the economy and undertakes
attempt of transferring the benefits of high growth
measures against the wasteful uses of electricity.
rate of national income to the lowest strata of the
society. This theory ensures to reduce income Business Process Outsourcing (BPO): Outsourcing
disparities in the society. of business processes (activities constituting a service)
by companies to other companies. This term is frequently
24. Statutory Liquidity Ratio: The amount of liquid
associated with outsourcing of such activities (e.g.
assets, such as cash, precious metals (Gold) or other
receiving and making calls on behalf of other companies
short term securities that a financial institution
popularly known as call centres), by foreign companies
must maintain in its reserves. Every bank is
to Indian companies in the field of IT-enabled services.
required to maintain a minimum proportion of their
net demand and time liabilities as liquid assets in Carrying Capacity: It is the measure of habitat to
the form of cash, gold and unencumbered approved indefinitely sustain a population at a particular density.
securities. A more technical definition for carrying capacity is
the largest size of a density-dependent population for
25. VAT: Its expansion is Value added tax. VAT seeks to
which the population growth rate is zero. Hence, below
tax the value added at every stage of manufacturing
carrying capacity, populations will tend to increase,
and sale, with a provision of refunding the amount while they will decrease above carrying capacity.
of VAT already paid at the earlier stage to avoid Population size decreases above carrying capacity due
double taxation. to either reduced survivorship (e.g. due to insufficient
The Association of South-east Asian Nations space or food) or reproductive success (e.g. due to
(ASEAN): It is a political, economic, and cultural insufficient food, or behavioural interactions), or both.
organization of countries located in South-east The carrying capacity of an environment will vary for
Asia—Thailand, Indonesia, Malaysia, Singapore, the different species in different habitats, and can change
Philippines, Brunei Darussalam, Cambodia, Laos, over time due to a variety factors, including trends in
Myanmar and Vietnam. food availability, environmental conditions and space.
Balance of Payments (BOP): It is a statistical Cascading Effect: When tax imposition leads to a
statement summarizing all the external transactions disproportionate rise in prices, i.e. by an extent more
(receipts and payments) on current and capital account than the rise in the tax, it is known as cascading effect.

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Cash Reserve Ratio (CRR): A proportion of the phases of demographic transition, pre-industrial,
total deposits and reserves of the commercial banks developing and modern industrialised societies. Later
that is to be kept with the central bank (RBI) in liquid another phase, post-industrial was also included.
form. It is used as a measure of control of RBI over the De-reservation: Allowing an individual or group of
commercial banks. enterprises to produce goods and services which were
Casual Wage Labourer: A person, who is casually hitherto produced by a particular individual or group
engaged in others’ farm or non-farm enterprises and, of enterprises. In India, it refers to allowing large-scale
in return, receives wages according to the terms of the industries to produce goods and services which were
daily or periodic work contract. produced only by the small-scale industries.
Colonialism: The practice of acquiring colonies by Devaluation: A fall in the external value of domestic
conquest or other means and making them dependent. currency while internal value remains unchanged.
It also means extending power, control or rule by a Disinvestment: A deliberate sale of a part of the
country over the political and economic life of areas capital stock of a company to raise resources and change
outside its borders. The main feature of colonialism is the equity and/or management structure of a company.
exploitation. Employers: Those self-employed workers who by
Commercialisation of Agriculture: It implies and large, run their enterprises by hiring labourers.
production of crops for the market rather than for Enterprise: An undertaking owned and operated
self-consumption i.e. family consumption. During by an individual or by group of individuals to produce
the British rule, the commercialisation of agriculture and/or distribute goods and/or services mainly for the
acquired a different meaning—it became basically purpose of sale, whether fully or partly. Equities: Shares
commercialisation of crops. The British started offering in the paid up capital or stock of a company whose
higher price to farmers for producing cash crops rather holders are considered as owners of the company with
than for food crops. They used these cash crops as raw voting rights and dividends in the profit.
materials for industries in Britain.
Establishment: An enterprise which has got at
Communes: Known as people’s communes, or least one hired worker for major part of the period of
Renmin Gongshe in China, was formerly the highest of operation in a year.
three administrative levels in rural areas in the period European Union: It is a union of twenty-five
from 1958 to 1982-85, when they were replaced by independent states founded to enhance political,
townships. Communes, the largest collective units, were economic and social cooperation within the European
divided in turn into production brigades and production continent. The member countries of European
teams. The communes had governmental, political, and Union are Austria, Belgium, Cyprus, Czech Republic,
economic functions. Denmark, Estonia, Finland, France, Germany, Greece,
Consumption Basket: Group of goods and services Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg,
consumed by a household. In order to estimate the Netherlands, Portugal, Spain, Sweden, United Kingdom,
consumption pattern of people, statistical agencies Malta, Poland, Slovakia and Slovenia.
identify such items. For instance NSSO has indentified Export Duties: Taxes imposed on goods exported
19 groups of items in the consumption basket. Some from a country.
of them are (i) cereals (ii) pulses (iii) milk and milk Export Promotion: A set of measures (including
products (iv) edible oil (v) vegetables (vi) fuel and light fiscal and commercial support measures and steps aimed
and (vii) clothing. at removal of trade barriers) taken by a government
Default: Failure to make repayment of the principal to promote the export of goods with a view to achieve
and interest on a debt e.g. sovereign debt (loan obtained higher economic growth and accumulation of foreign
by the government) to the lenders, say, international exchange earnings.
financial institutions, on the scheduled date, causing Export-Import Policy: The economic policies of
loss of credibility as a debtor. the government relating to its exports and imports.
Deficit Financing: A situation in which the Family labour/Worker: A member who works
government borrows money from the internal, external without receiving wages in cash or in kind in a farm, an
and prints notes (by the RBI) factors to run the economy. industry, business or trade conducted by the members
Demographic Transition: It is a concept developed of the family.
by demographer Frank Note stein in 1945 to describe Financial Institutions: Institutions that engage
the typical pattern of falling death and birth rates in in mobilisation and allocation of savings. They include
response to better living conditions associated with commercial banks, cooperative banks, developmental
economic development. Note stein identified three banks and investment institutions.

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vkLFkk IAS INDIAN ECONOMY

Fiscal Management: The use of taxation and Gratuity: An amount of money given by the
government expenditure to regulate the economic employer to the employee at the time of retirement for
activities. services rendered by the employee.
Fiscal Policy: All the planned actions of a Gross Domestic Product: The total value of final
government in mobilising financial resources for goods and services produced within a country’s borders
meeting its expenditure and regulating the economic in a year, regardless of ownership. It is used as one of
activities in a country. many indicators of the standard of living in a country,
but there are limitations with this view.
Foreign Direct Investment: Investment of foreign
assets into domestic structures, equipment and Household: A group of persons normally living
organisations. It does not include foreign investment into together and taking food from a common kitchen. The
the stock markets. Foreign direct investment is thought word ‘normally’ means that temporary visitors are
to be more useful to a country than investments in the excluded and those who temporarily staying away is
equity of its companies because equity investments are included.
potentially ‘hot money’ which can leave at the first sign Import Licensing: Permission required from the
of trouble, whereas FDI is durable and generally useful government to import goods into a country.
whether things go well or badly. Import Substitution: A policy of the state for
Foreign Exchange: Exchange of a Currency or development of economy in which import of goods is
bonds with currency of other country. generally substituted by domestic production (through
import controls, tariffs and other restrictions) with a
Foreign Exchange Markets: A market in which
view to encourage domestic industry on grounds of self-
currencies are bought and sold at rates of exchange fixed
sufficiency and domestic employment.
now, for delivery at specified dates in the future.
Infant Mortality Rate: It is the number of deaths
Foreign Institutional Investment: Foreign
of infants before reaching the age of one, in a particular
investments which come in the form of stocks, bonds, or
year, per 1,000 live births during that year.
other financial assets. This form of investment does not
entail active management or control over the firms or Inflation: A sustained rise in the general price level.
investors. Foreign Institutional Investors (FIIs): Banking Informal Sector Enterprises: Those private sector
and non-banking financial institutions of foreign origin enterprises, which employ less than 10 workers on a
e.g. commercial banks, investment banks, mutual funds, regular basis.
pension funds or other such institutional investors Integration of Domestic Economy: A situation
(as distinct from the domestic financial institutions where the policies of government facilitate free trade
investing) whose investment in stocks and bonds in and investment with other countries making the
the country through stock markets have significant domestic economy work together with other economies
influence. in an efficient and mutually interdependent way.
Formal Sector Establishments: All the public Invisibles: Various items enter in the current
sector establishments and those private sector account of the balance of payments, some of which
establishments which employ 10 or more hired workers. are not visible goods. Invisibles are mainly services,
G-20: Group of developing countries established like tourism, transport by shipping or by airways, and
to focus on issues relating to trade and agriculture financial services such as insurance and banking. They
in the World Trade Organisation. The group includes also include gifts sent abroad or received from abroad
Argentina, Bolivia, Brazil, Chile, China, Cuba, Egypt, and private transfer of funds, government grants and
Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, interests, profits and dividends.
Paraguay, Philippines, South Africa, Thailand, Tanzania, Labour Laws: All the rules and regulations framed
Venezuela, and Zimbabwe. by the government to protect the interests of the
G-8: The Group of Eight (G-8) consists of Canada, workers.
France, Germany, Italy, Japan, the United Kingdom of Land/Revenue Settlement: With the British
Great Britain and Northern Ireland, the United States of acquiring territorial rights in different parts of India,
America, and Russian Federation. The hallmark of the administration of territories was formulated on the
G-8 is an annual economic and political summit meeting basis of survey of land. It was decided in the interests
of the heads of government with international officials, of government in terms of revenues to be collected from
though there are numerous subsidiary meetings and each parcel of land in possession of either a Ryot (means
policy research. The Presidency of the group rotates peasant) or a Mahal (revenue village) or a Zamindar
every year. For the year 2006 it was held by Russia. (a proprietary land holder). Decision in each of these

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vkLFkk IAS INDIAN ECONOMY

cases was meant for the rights of the latter over land Non-renewable Resources: Resources that cannot
for the purposes of either ownership of land or rights be renewed. They have a finite, even if large, stock.
to cultivation. This system is known as land/revenue Some examples are fossils fuels such as oil and coal and
settlement. There were different land settlements mineral resources—iron, lead, aluminium, uranium.
formulated in India. They are (i) system of permanent Non-tariff Barriers: All the restrictions on imports
settlement, which is also known as the Zamindari system by a government in the form other than taxes. They
(ii) Ryotwari system (a system of revenue settlement mainly include restrictions on quantity and quality of
entered into by the government with individual tenants) goods imported.
(iii) Mahalwari system (a system of revenue settlement
Opportunity Cost: It is defined with respect to
entered into by the government with a Mahal).
a particular value or action and is equal to the value
Life Expectancy at Birth (years): The number of of the foregone alternative choice or action. Pension:
years a newborn infant would live if prevailing patterns A monthly payment to a worker who has retired from
of age-specific mortality rates at the time of birth were work. Per Capita Income: Total national income of a
to stay the same throughout the child’s life. country divided by its population in a specific period.
Maternal Mortality Rate: It is the relationship Permit License Raj: A term used to denote the rules
between the number of maternal deaths due to and regulations framed by the government to start, run
childbearing by the number of live births or by the sum and operate an enterprise for production of goods and
of live births and foetal deaths in a given year. services in India.
Merchant Bankers: Banks or financial institutions, Poverty Line: The per capita expenditure on certain
also known as investment bankers, those specialize minimum needs of a person including food intake of a
in advising the companies and managing their equity daily average of 2,400 calories in rural areas and 2,100
and debt requirement (often referred to as portfolio calories in urban areas.
management) through floatation and sale/purchase
Private Sector Establishments: All those
of stocks and bonds. Morbidity: It is the propensity to
fall ill. It affects a person’s work by making him or her establishments, which are owned and operated by
temporarily disabled. Prolonged morbidity may lead to individuals or group of individuals. Productivity: Output
mortality. In our country, acute respiratory infections per unit of input employed. Increase in the efficiency
and Diarrhoea are two major causes of morbidity. on the part of capital or labour leads to increase in
productivity. This term is generally used to refer to
Mortality Rate: The word ‘mortality’ comes from
productivity increase in labour inputs.
‘mortal’ which originates from the Latin word Mors
(meaning death). It is the annual number of deaths Provident Fund: A savings fund in which both
(from a disease or in general) per 1,000 people. It is employer and employee contribute regularly in the
distinct from morbidity rate, which refers to the number interest of the employee. It is maintained by the
of people who have a disease compared to the total government and given to the employee when he or she
number of people in a population. resigns or retires from work.
MRTP Act: An Act (Monopolies Restrictive Trade Public Sector Establishments: All those
Practices Act) framed to prevent monopolistic practices establishments which are owned and operated by
and regulate the conductor business practices of firms the government. They may be run either by local
that are not in public interest. government, state government or by central government
Multilateral Trade Agreements: Trade independently or jointly.
agreements made by a country with more than two Quantitative Restrictions: Restrictions in the
nations to exchange goods and services. form of total quantities or quotas imposed on imports
National Product/Income: Total value of goods to reduce balance of payments (BOP) deficit and protect
and services produced in a country plus income from domestic industry.
abroad. Regular Salaried/Wage Employee: Persons, who
Nationalisation: Transfer of ownership from work in others’ farm or non-farm enterprises and, in
private sector to public sector. This involves takeover of return, receive salary or wages on a regular basis (i.e.
companies owned by individuals or group of individuals not on the basis of daily or periodic renewal of work
by either state or central government. In some contexts, contract). They include not only persons getting time
it also involves transfer of ownership from state wage but also persons receiving piece wage or salary
government to central government. and paid apprentices, both full time and part-time.
New Economic Policy: A term used to describe the Renewable Resources: Resources that can be
policies adopted in India since 1991. renewed through natural processes if they are used

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vkLFkk IAS INDIAN ECONOMY

wisely. Forests, animals and fishes, if not overexploited, provides the facilities for stock brokers to trade company
get easily renewed. Water is also in that category. stocks and other securities.
South Asian Association for Regional Stock Market: An institution where stocks and
Cooperation (SAARC): It is an association of eight shares are traded.
countries of South Asia — Bangladesh, Bhutan, India, Structural Reform Policies: Long-term measures
Maldives, Nepal, Pakistan, Sri Lanka and Afghanistan. like liberalisation deregulation and privatisation aimed
SAARC provides a platform for the peoples of South to improve the efficiency and competitiveness of the
Asia to work together in a spirit of friendship, trust
economy.
and understanding. It aims to accelerate the process of
economic and social development in member countries. Tariff: A tax on imports, which can be levied
either on physical units, e.g. per tonne (specific) or on
Self-Employed: Those who operate their own farm
value. Tariffs may be imposed for a variety of reasons
or non-farm enterprises or are engaged independently
including: to raise government revenue, to protect
in a profession or trade with one or a few partners. They
domestic industry from subsidised or low-wage imports,
have freedom to decide how, where and when to produce
to boost domestic employment, or to ease a deficit on
and sell or carry out their operation. Their earning is
the balance of payments. Apart from the revenue that
determined wholly or mainly by sales or profits from
they raise tariffs achieve little good—they reduce the
their enterprises.
volume of trade and increase the price of the imported
Social Security: A government or privately commodity to consumers.
established system of measures, which ensures material
security for the elderly, disabled, destitute, widows and Tariff Barriers: All the restrictions on imports by a
children. It includes pension, gratuity, provident fund, government in the form of taxes.
maternal benefits, health care etc. Trade Union: An organisation of workers formed
Special Economic Zone (SEZ): It is a geographical for the purpose of addressing its members’ interests in
region that has economic laws different from a country’s respect of wages, benefits, and working conditions.
typical economic laws. Usually the goal is to increase Unemployment: A situation in which all those who,
foreign investment. Special Economic Zones have been owing to lack of work, are not working but either seek
established in several countries, including the People’s work through employment exchanges, intermediaries,
Republic of China, India, Jordan, Poland, Kazakhstan, the friends or relatives or by making applications to
Philippines and Russia. prospective employers or express their willingness or
Stabilisation Measures: Fiscal and monetary availability for work under the prevailing condition of
measures adopted to control fluctuations in the balance work and remunerations.
of payments and high rate of inflation. Urbanisation: Expansion of a metropolitan area,
State Electricity Boards (SEBs): These are part namely the proportion of total population or area in urban
of the state administration that generate, transmit and localities or areas (cities and towns), or the increase of
distribute electricity in different states. this proportion over time. It can thus represent a level of
Statutory Liquidity Ratio (SLR): A minimum urban population relative to total population of the area,
proportion of the total deposits and reserves to be or the rate at which the urban proportion is increasing.
maintained by the banks in liquid form as per the Both can be expressed in percentage terms, the rate of
regulations of the central bank (RBI). Maintenance of change expressed as a percentage per year, decade or
SLR, in addition to the Cash Reserve Ratio (CRR), is an period between censuses.
obligation of the banks. Worker-Population Ratio: Total number of
Stock Exchange: A market in which the securities workers divided by the population. It is expressed in
of governments and public companies are traded. It percentage.

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vkLFkk IAS INDIAN ECONOMY

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