NextGenIAS Economic Survey Vol II 2020 21 Highlights

Economic Survey 2020-21 Highlights by Teju, NextGen IAS
For Economy Basics and Static Portion, refer to Indian Economy Notes by Teju, NextGen IAS
Subscribers can download the Indian Economy Notes from PMF IAS Downloads Page
PDF Contents
Chapter 1: State of the Economy 2020-21 - A Macro View ...........................................................................................7
Demand-side Shock: ...............................................................................................................................................7

Supply Shock: .........................................................................................................................................................8
Effect on International Trade and Financial Linkages: ..............................................................................................8
GVA Shock: ............................................................................................................................................................9
Back to Basics: Gross Value Added ................................................................................................................................. 9
Impact on Employment: ....................................................................................................................................... 11

GDP contraction: .................................................................................................................................................. 11
V-shaped Recovery: .............................................................................................................................................. 11
Back to Basics: Shapes to describe Economic Recovery ............................................................................................... 12
Agriculture Sector: ............................................................................................................................................... 14

Industrial Sector: .................................................................................................................................................. 14
Back to Basics: Index of Industrial Production .............................................................................................................. 15
Services Sector: .................................................................................................................................................... 16

Inflation: .............................................................................................................................................................. 16
Back to Basics: Headline Inflation ................................................................................................................................. 16
Bank Credit: ......................................................................................................................................................... 17

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Govt. Bonds: ........................................................................................................................................................ 17

Back to Basics: Consolidated Sinking Fund (CSF) .......................................................................................................... 18
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Global Output: ..................................................................................................................................................... 18

Imports: ............................................................................................................................................................... 18
Current Account Surplus: ...................................................................................................................................... 18
Back to Basics: Current Account ................................................................................................................................... 18
Major Drivers of India’s GDP in 2020-21: ............................................................................................................... 19
Chapter 2: Fiscal Developments ................................................................................................................................ 20
Impact of PANDEMIC: ........................................................................................................................................... 20

Back to Basics: Govt. Borrowing ................................................................................................................................... 20
Fiscal policy response of the Government of India to the pandemic: ...................................................................... 21

Back to Basics: ‘One Nation, One Ration Card’ system................................................................................................. 22
Back to Basics: Pradhan Mantri Jan-Dhan Yojana (PMJDY) .......................................................................................... 23
Fiscal Situation and Response to Covid Pandemic: ................................................................................................. 23

Back to Basics: Fiscal Stimulus ...................................................................................................................................... 24
Counter-cyclical expansionary fiscal policy ............................................................................................................ 24

Back to Basics: Consumption Expenditure .................................................................................................................... 25
Reforms in Tax Administration: ............................................................................................................................ 25

Faceless Assessment Scheme 2020: ............................................................................................................................. 26
Faceless Appeals Scheme 2020:.................................................................................................................................... 26
Taxpayers Charter: ........................................................................................................................................................ 26
Deficits: ............................................................................................................................................................... 26
Back to Basics: Deficits .................................................................................................................................................. 27
Borrowings: ......................................................................................................................................................... 27
Back to Basics: Market Borrowings ............................................................................................................................... 27
Receipts: .............................................................................................................................................................. 27
Non-debt capital receipts: ............................................................................................................................................ 27
Debt Capital Receipts: ................................................................................................................................................... 28
Tax Revenue .................................................................................................................................................................. 29
Non-Tax Revenue: ......................................................................................................................................................... 29
Expenditure ......................................................................................................................................................... 30
Back to Basics: Revenue Expenditure ........................................................................................................................... 30
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Transfer to States: ................................................................................................................................................ 30

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Debt .................................................................................................................................................................... 31
Back to Basics: Public Debt ........................................................................................................................................... 31
Back to Basics: Extra Budgetary Resources ................................................................................................................... 31
State Finances ...................................................................................................................................................... 32
STEPS TAKEN BY CENTRAL GOVERNMENT TO SUPPORT STATE GOVERNMENTS ........................................................ 32
Central Govt. + State Govt. Finances ..................................................................................................................... 33
Chapter 3: External Sector ........................................................................................................................................ 33
Back to Basics: 1929 Great Depression ......................................................................................................................... 34
Global Economic Environment: ............................................................................................................................. 34

Developments in India’s Balance of Payments (BOP) ............................................................................................. 34
Trends in Balance of Payments (BoP) in the last 4 years: ............................................................................................. 37
Merchandise Trade .............................................................................................................................................. 37

India: Potential to be the “PHARMACY OF THE WORLD” ........................................................................................ 38
Foreign Exchange Reserves: .................................................................................................................................. 38
Initiatives undertaken to promote exports: ........................................................................................................... 38
Production-linked incentive (PLI) scheme: ................................................................................................................... 38
Remission of Duties and Taxes on Exported Products (RoDTEP): ................................................................................. 39
Improvement in logistics infrastructure: ...................................................................................................................... 39
Digital initiatives............................................................................................................................................................ 41
Chapter 4 - Monetary Management and Financial Intermediation ............................................................................. 41
Monetary Developments during 2020-21: ............................................................................................................. 41

Back to Basics: Repo Rate ............................................................................................................................................. 41
Liquidity: .............................................................................................................................................................. 42
Monetary Aggregates: .......................................................................................................................................... 42
Back to Basics : Reserve Money .................................................................................................................................... 43
Liquidity conditions and its management: ............................................................................................................. 44

Weighted average credit rating (WACR) ................................................................................................................ 47
Development in the G-Sec Markets ....................................................................................................................... 47
Banking Sector: .................................................................................................................................................... 48
Back to Basics: Capital to Risk weighted Assets Ratio (CRAR) ...................................................................................... 48
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Regulatory Measures in Banking Sector: ...................................................................................................................... 49

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Non-Banking Financial Companies (NBFC) Sector: ................................................................................................. 50

Back to Basics: NBFC ..................................................................................................................................................... 50
Developments in Capital Markets ......................................................................................................................... 50

Back to Basics: Capital Market ...................................................................................................................................... 51
Insurance Sector:.................................................................................................................................................. 51
Pension Sector: .................................................................................................................................................... 51
Back to Basics: National Pension Scheme ..................................................................................................................... 51
Chapter 5: Prices and Inflation.................................................................................................................................. 52
Back to Basics: ............................................................................................................................................................... 52
Current trends in inflation: ................................................................................................................................... 53

Back to Basics: Headline inflation ................................................................................................................................. 53
Drivers of Inflation: .............................................................................................................................................. 53

Back to Basics: Consumer Food Price Index .................................................................................................................. 54
Inflation in States: ................................................................................................................................................ 54

Global Commodity Prices:..................................................................................................................................... 54
Measures to control Inflation: .............................................................................................................................. 54
Back to Basics: Price Stabilisation Fund ........................................................................................................................ 55
Essential Commodities Act, 1955: ......................................................................................................................... 56

Essential Commodities (Amendment) Act, 2020: ......................................................................................................... 56
Chapter 6: Sustainable Development and Climate Change ......................................................................................... 56
Back to Basics: United Nations Framework Convention on Climate Change (UNFCCC) ............................................... 57
Prominent Government initiatives on mitigation & adaptation actions and their progress: .................................... 57
8 National Missions ....................................................................................................................................................... 57
Climate Risk Insurance: ........................................................................................................................................ 62

India’s initiatives at international stage: ............................................................................................................... 62
International Solar Alliance: .......................................................................................................................................... 62
Coalition for Disaster Resilient Infrastructure (CDRI) ................................................................................................... 62
IMPORTANT FEATURES OF INDIA'S NDCs (Data point): .......................................................................................... 62

Social Stock Exchange: .......................................................................................................................................... 63
Green Bonds: ....................................................................................................................................................... 63
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Chapter 7: Agriculture and Food Management .......................................................................................................... 63

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Back to Basics: What is Gross Value Added? ................................................................................................................ 63

Back to Basics: Gross Capital Formation ....................................................................................................................... 65
Agriculture Infrastructure Fund: ........................................................................................................................... 66

Minimum Support Price (MSP):............................................................................................................................. 66
Back to Basics: Minimum Support Price ....................................................................................................................... 66
Pradhan Mantri Fasal Bima Yojana (PMFBY).......................................................................................................... 66

PM-KISAN: ........................................................................................................................................................... 67
Livestock Sector: .................................................................................................................................................. 68
Recent initiatives in Livestock sector: ........................................................................................................................... 69
Fisheries: ............................................................................................................................................................. 69
Govt. initiatives in Fisheries sector: .............................................................................................................................. 69
Food processing sector: ........................................................................................................................................ 69

New initiatives in Food Processing Sector: ................................................................................................................... 69
Food Management: .............................................................................................................................................. 70

PRADHAN MANTRI GARIB KALYAN ANNA YOJANA (PM-GKAY) SCHEME: ............................................................... 71
National Food Security Act (NFSA): ....................................................................................................................... 71
Chapter 8: Industry and Infrastructure ...................................................................................................................... 71
Measure of relief and support to the Indian Economy: .......................................................................................... 72

Atmanirbhar Bharat 1.0: ............................................................................................................................................... 72
Overview of Industrial Sector: .............................................................................................................................. 74

Index of Industrial Production (IIP): .............................................................................................................................. 74
Index of Eight-Core Industries:...................................................................................................................................... 75
Gross Capital Formation in the Industrial Sector: ......................................................................................................... 76
Performance of Central Public Sector Enterprises (CPSEs): .......................................................................................... 76
Start-up ecosystem in India: ......................................................................................................................................... 76
Foreign Direct Investment (FDI): ........................................................................................................................... 77

Sector wise issues and initiatives .......................................................................................................................... 78
Steel: ............................................................................................................................................................................. 78
Coal: .............................................................................................................................................................................. 79
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MSME Sector: ...................................................................................................................................................... 79

Back to Basics: Champion Sectors (10) ......................................................................................................................... 80
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Textile and Apparels Industry: .............................................................................................................................. 80

Infrastructure: ...................................................................................................................................................... 81
Back to Basics: National Infrastructure Pipeline (NIP) .................................................................................................. 81
Civil Aviation: ....................................................................................................................................................... 82
Port and Shipping: ................................................................................................................................................ 82
Railways: ............................................................................................................................................................. 83
Back to Basics: New India New Railway Initiative ......................................................................................................... 83
Road Sector:......................................................................................................................................................... 83
Petroleum and Natural Gas: ................................................................................................................................. 83
Power: ................................................................................................................................................................. 84
Back to Basics: Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY) .......................................................................... 84
Mining Sector: ...................................................................................................................................................... 84

Housing and Urban Infrastructure: ........................................................................................................................ 85
Back to Basics: Deendayal Antyodaya Yojana - National Urban Livelihoods Mission................................................... 85
Chapter 9: Services Sector ........................................................................................................................................ 87
Contact-intensity of final demand: ........................................................................................................................ 87

Contact-intensity of supply chain: ......................................................................................................................... 87
Services Purchasing Managers Index: .................................................................................................................... 87
Back to Basics: PMI or Purchasing Managers’ Index (PMI) ........................................................................................... 87
Service sector share at the State and UT level: ...................................................................................................... 87

FDI Inflows into Services Sector: ........................................................................................................................... 88
Trade-in Services Sector: ...................................................................................................................................... 88
Ports, Shipping and Waterways Services: .............................................................................................................. 88
Space Sector: ....................................................................................................................................................... 88
Back to Basics: Indian National Space Promotion and Authorization Centre (IN-SPACe) ............................................ 89
Chapter 10: Social Infrastructure, Employment and Human Development ................................................................. 89
Back to Basics: Pradhan Mantri Garib Kalyan Yojana (PMGKY) .................................................................................... 89
Trends in Social Sector Expenditure: ..................................................................................................................... 90

Human Development: .......................................................................................................................................... 90
Back to Basics: Human Development Index.................................................................................................................. 91
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Quality Education for All:...................................................................................................................................... 91

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Skill Development: ............................................................................................................................................... 92

Status of Employment: ......................................................................................................................................... 93
Unemployment: ................................................................................................................................................... 93
Labour Reforms:................................................................................................................................................... 94
Gender Dimension of Employment: ...................................................................................................................... 94
Health: ................................................................................................................................................................. 94
Water and Sanitation: .......................................................................................................................................... 94
Swachh Bharat Mission-Grameen (SBM-G): ................................................................................................................. 94
Jal Jeevan Mission: ........................................................................................................................................................ 95
Rural Development: ............................................................................................................................................. 95
Economic Survey @ PRELIMS: Based on UPSC CSE Previous Papers ........................................................................... 96
Fiscal Developments............................................................................................................................................. 96
Shortfall in Revenue Collection ..................................................................................................................................... 97
External Sector ................................................................................................................................................... 104

Reserve Tranche Position (RTP): ......................................................................................................................... 110
Foreign Currency Assets (FCA): ........................................................................................................................... 110
Monetary Management and Financial Intermediation ......................................................................................... 111
Prices and Inflation............................................................................................................................................. 113
Agriculture and Food Management:.................................................................................................................... 114
Industry and Infrastructure ................................................................................................................................. 117
Services ............................................................................................................................................................. 119
Social Infrastructure, Employment and Human Development: ............................................................................. 119
Chapter 1: State of the Economy 2020-21 - A Macro View
Demand-side Shock:
• A demand shock is a sudden and temporary increase or decrease in the demand for a good or a bundle
of goods.
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• Demand-side shocks affect one or more of the components of aggregate demand - examples of such shocks
include:
1) Economic downturn in a major trading partner
2) Unexpected tax increases or cuts to welfare benefits
3) Financial crisis causing bank lending /credit to fall
4) Bigger than expected rise in unemployment rates
• Coronavirus pandemic created a "severe demand shock" for the Indian economy.
Reasons:
o Increased uncertainty
o Loss of incomes
o Weaker growth prospects
o Fear of contagion
o Curtailment of spending options due to closure of all contact sensitive activities
o Triggering of precautionary savings
o Risk aversion among businesses
o Fall in consumption and investment
Supply Shock:
• A supply shock is a sudden and unexpected change in a cost variable, such as oil prices, commodity
prices.
• Example: 1970s Oil Shocks
Reasons:
o Supply chain disruptions caused by closure of economic activity

o Restricted movement of labour
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Effect on International Trade and Financial Linkages:

• Dampened global activity
• Fall in commodity prices
• NEGATIVE
GVA Shock:
• Non-essential activities endured a combined shock directly proportional to their respective GVA contribu-
tion in the economy.
• Example: TOURISM ➔ Could not operate during lockdown
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• Essential activities underwent a dampened shock, primarily arising from the indirect impact of restricted
activities in non-essential sectors.
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• Example: Movement of essential products was initially hindered due to impact on logistical services
• NEGATIVE
Back to Basics: Gross Value Added

• Put simply, it is a measure of total output and income in the economy.
• It provides the rupee value for the amount of goods and services produced in an economy after de-
ducting the cost of inputs and raw materials that have gone into the production of those goods and ser-
vices.
• It also gives sector-specific picture like what is the growth in an area, industry or sector of an economy.
• Example: Imagine buying a cake from a bakery

• The cake is a produced good, or output, created by the bakery
• The price charged for the cake [OUTPUT] is included in the GVA for bakery
• But .. in order to produce the cake, the baker will need to purchase a number of ingredients like eggs, flour
and butter ➔INTERMEDIATE CONSUMPTION
• The total value of this intermediate consumption is subtracted from output and this gives the total GVA
from the sale of this cake
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 By adding up GVA of all firms, we can calculate total GVA of the country
How is it measured?
 At the macro level, from national accounting perspective, it is the sum of a country’s GDP and net of subsi-
dies and taxes in the economy.
 When measured from the production side, it is a balancing item of the national accounts.
Impact on Employment:
• Contact-sensitive sectors like trade, hotels, transport etc. were severely affected.
• Disproportionate impact on informal workers.
• NEGATIVE
GDP contraction:
• Q1: FY 2020-21 ➔ - 23.9%

• Q2: FY 2020-21 ➔- 7.5%
• Reason: Stringent lockdown
• NEGATIVE
• This is the 5th time Indian Economy has registered negative GDP growth rate.
• Prior to this, Indian Economy has registered negative GDP growth rates in 1957-58, 1965-66, 1972-73 and
1979-80.
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V-shaped Recovery:
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• A V-shaped recovery is a period of economic decline, then a short trough, and finally a rapid recovery.
We also call it a V-shaped recession.
• The majority of periods of ‘recession and then recovery’ come in the form of a V-shaped recovery.
• Since Q3: FY 2020-21 indicators like E-way bills, rail freight, GST collections and power consumption sur-
passed pre-pandemic levels
• Strong leading indicator of revenue collections: E-way bills
Back to Basics: Shapes to describe Economic Recovery
• Z–shaped recovery is when a post-lockdown spending surge is so fierce that growth is lifted above the
trendline and then after a party settles down to trend.
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• U-shaped recovery — resembling a bathtub — is a scenario in which the economy, after falling, struggles
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and muddles around a low growth rate for some time, before rising gradually to usual levels.
• W-shaped recovery is a dangerous creature — growth falls and rises, but falls again before recovering yet
again, thus forming a W-like chart.
• L-shaped recovery is the worst-case scenario, in which growth after falling, stagnates at low levels and does
not recover for a long, long time.
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• J-shaped recovery is somewhat unrealistic scenario, in which growth rises sharply from the lows much higher
than the trend-line and stays there.
Agriculture Sector:
• POSITIVE Performance
• Growth @ 3.4% in Q1 and Q2
• It is the only sector that has contributed positively to the overall Gross Value Added (GVA) in both Q1
and Q2
• Resilient rural demand boosted agricultural growth
• Agri initiatives like PM-KISAN, PMKSY, FPOs and e-NAM also contributed to agricultural sector’s robust-
ness.
• Food grain production target has been set at 301 million tonnes for the 2020-21 crop year.
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Industrial Sector:
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• V-shaped recovery → Manufacturing rebounded and industrial value started to normalize

• Growth in IIP → POSITIVE
• Share of Industry sector has steadily decreased in the last 5 years.
Back to Basics: Index of Industrial Production
o Index of Industrial Production (IIP) is an index for India which details out the growth of various sectors in
an economy such as mineral mining, electricity and manufacturing
o The all India IIP is a composite indicator that measures the short-term changes in the volume of pro-
duction of a basket of industrial products during a given period with respect to that in a chosen base
period
o Calculated and published by the Central Statistical Organisation (CSO) every month
o IIP is published monthly, six weeks after the reference month ends
o 8 Core Industries comprise nearly 40.27% of the weight of items included in the Index of Industrial
Production (IIP). These are electricity , steel, refinery products, crude oil, coal, cement, natural gas and fer-
tilisers.
Industry groups that it measures are classified under the following:
➔ Broad sectors like manufacturing, mining and electricity.

➔ Use-based sectors like capital goods, basic goods, intermediate goods, infrastructure goods, consumer
durables and consumer non-durables.
Total – 8 Core Industries
Industry Weight
Refinery Products [HIGHEST] 28.04

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Electricity 19.85
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Steel 17.92
Coal 10.33
Crude Oil 8.98

Natural Gas 6.88
Cement 5.37
Fertilisers [LOWEST] 2.63
Total 100
Impact of IIP on Indian Economy:
Services Sector:
• Recovered from pandemic driven decline

• Rise in PMI services output
Inflation:
• Headline inflation eased gradually by Dec 2020 @ 4.6%

• This was driven by a steep fall in food prices, particularly of vegetables, cereals, and protein products and
favourable base effects.
• Fuel inflation remained sticky owing to higher crude oil prices.
• Supply chain disruptions impacted the flow of agricultural goods leading to high food inflation and ad-
verse initial impact on some major agricultural exports.
• Food Inflation remained above 6% for much of the year.
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Back to Basics: Headline Inflation

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➢ A measure of the total inflation within an economy, including commodities such as food and energy
prices (e.g., oil and gas), which tend to be much more volatile and prone to inflationary spikes.
➢ RAW Inflation figure
Back to Basics: Food Inflation
o Food inflation refers to the condition whereby there exist increase in wholesale price index of essential
food items (defined as food basket) relative to the general inflation or the consumer price index
Bank Credit:
• Sluggish compared to previous years

• Bank credit remained subdued in FY 2020-21 amid risk aversion and muted credit.
Govt. Bonds:
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• G-Sec Yield on an average has been decreasing since 2019-20
Inputs that enabled bond markets to absorb pressures of increased Govt. Borrowings:
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o Govt. and RBI led liquidity support measures

o Increase in limits of ways and means advances
o Relaxation of rules governing withdrawals from Consolidated Sinking Fund (CSF)
Back to Basics: Consolidated Sinking Fund (CSF)
• Consolidated Sinking Fund in India was established by the Reserve Bank in 1999–2000 to enable states
to repay their debt easily.
• At present 23 states have set up consolidated sinking funds.
• This fund of State Govt.’s is managed by the Reserve Bank of India.
Global Output:
• The pandemic induced border closures and supply disruptions interrupted the international provision of
goods and services.
• Global output is expected to witness the sharpest contraction in a century, contracting in the range of 3.5
- 4.3 % in 2020 as per IMF and World Bank.
• Loss of output is anticipated to be more severe in Advanced Economies at 5.4% compared to Emerging
market and developing economies (EMDEs)
Imports:
• The weak demand led to a sharper contraction in imports than exports, with Forex reserves rising to cover
18 months of imports.
Current Account Surplus:
• India recorded a current account surplus of 3.1% of GDP in the first half of the year largely supported by
strong services export.
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Back to Basics: Current Account

▪ The current account is one of the two components of a country's balance of payments, the other being the
capital account.
▪ It consists of the trade balance (the difference between the total value of exports of goods and services
and the total value of imports of goods and services), the net factor income (difference between the re-
turn on investments generated by citizens abroad and payments made to foreign investors domestically)
and net cash transfers, where all these elements are measured in the domestic currency.
▪ When a country's current account balance is positive (also known as incurring a surplus), the country is a
net lender to the rest of the world. When a country's current account balance is negative (also known as
running a deficit), the country is a net borrower from the rest of the world.
▪ The ratio of the current account balance to the Gross Domestic Product (or % of GDP) provides an indi-
cation of the country’s level of international competitiveness.
Major Drivers of India’s GDP in 2020-21:
• According to Expenditure method, GDP is calculated as C+G+I+(X-M)

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o C → Private final consumption expenditure (PFCE)

o G → Government Final consumption Expenditure (GFCE)
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o I → Investment
o X → Exports
o M → Imports
• PFCE accounts for the highest contribution followed by Investment.
Chapter 2: Fiscal Developments
Impact of PANDEMIC:
• Shortfall in revenue collection owing to the interruption in economic activity

• Additional expenditure requirements to mitigate the fallout of the pandemic on vulnerable people, small
businesses.
• PANDEMIC created immense pressure on the available limited fiscal resources.
• With increased demand for resources, target for gross market borrowings of Central Govt. for FY 2020-21
was revised from Budget estimate of 7.8 lakh cr to 12 lakh cr.
• It signals a major slippage in fiscal deficit amid rising pressures on both revenue and expenditure because
of the covid-19 pandemic.
• Increase in the gross borrowing programme could push up fiscal deficit.
• Capital expenditure during Oct-Dec 2020 recorded an unprecedented YoY growth of 129 % in October, 249
% in November and 62 % in December. It expected to register a fiscal slippage in 2020-21.
Back to Basics: Govt. Borrowing

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• Govt. borrows through issue of Govt. securities called G-secs and Treasury Bills.
• Borrowing is a loan taken by the Govt. and falls under capital receipts in the Budget document.
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• It is essentially the total amount of money that the Central Govt. borrows to fund its spending on public
services and benefits.
• As the tax and non-tax revenue fall short in financing Govt.'s spending programme, the Govt. announces an
annual borrowing programme in the Budget.
• Larger borrowing programme means that the public debt will go up and especially at a time when GDP
growth is subdues, it will lead to a higher debt-to-GDP ratio.
NOTE: Gross borrowing includes repayments of past loans.
Back to Basics: Fiscal Deficit
• Fiscal deficit is the difference of government expenditure and government revenue.(assume that gov-
ernment expenditure is more than revenue).
• More fiscal deficit means government has no money, he has to borrow money from central bank or
through some bond/scheme.
• If government is borrowing from RBI, in other words RBI has to print more money, so it will increase
the liquidity of money in the market. So people will have more money in their hand, but we have limited
resources. For example, before there was 5 car buyers for 1 car, now there is 10 car buyer for 1 car. So de-
mand for car will increase and it will increase the price of car. So price of everything will go up. Ultimately
Inflation will go up.
• If government is borrowing money from people as bond or some scheme through, government has
to pay high interest after some year. So people will invest their money in government schemes, so
liquidity of the money will come down. Before we have 5 car buyer for 1 car, now we have 2 car buyer for
1 car, so car price will go down. Price of everything will go down, people will buy less things. It will slow
down the industrial growth and it will be deflation in the country. It will make economic growth sluggish.
And in the situation of the deflation, Government has to pay high interest to the people.
• Third case, government has to borrow money from world bank or from some other country. Because
of that Government has to devalue it’s currency.
• As government has no money, government can’t bring any new development scheme. It will become diffi-
cult to tackle any crisis over country.
Back to Basics: Capital Expenditure
✓ This expenditure basically associated with Govt’s asset creation activity.

✓ Example: Building roads, airports, or buying defence equipments, loans given by centre to state govt. etc.
Fiscal policy response of the Government of India to the pandemic:

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Unlike many other countries that chose a front-loaded grand stimulus package for revival of the economy, Gov-
ernment of India adopted a step-by-step approach.
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1) To provide a cushion for the poor and vulnerable section of society ➔ Included the world’s largest food
programme, direct transfers to Jan Dhan accounts.
2) To the business sector (especially the MSMEs) in the initial phase of lockdown ➔ Government guarantees for
credit, postponement of financial deadlines etc.
Back to Basics: ‘One Nation, One Ration Card’ system
• Idea: To make the PDS completely portable.

• Aim: To allow beneficiaries to lift entitled ration from any part of the country.
• The central government will deduct this ration from the quota of the home state and add it in the quota of
the selling state.
• As per Census 2011, 4.1 crore people were inter-state migrants and 1.4 crore people migrated (inter and
intra-state) for employment.
• With the ONORC scheme, the beneficiary can buy food grains from ration shops located in any of the
states.
• The eligible beneficiaries will be able to buy subsidized foodgrains, rice at Rs.3 per kg, wheat at Rs.2 per kg,
and coarse grains at Re 1 per kg, from anywhere in the country.
• It is based on a technological solution to identify a beneficiary through biometric authentication on elec-
tronic Point of Sale (ePoS) devices installed at the FPS’s.
• Integrated Management of Public Distribution System (IM-PDS) portal provides the technological plat-
form for the inter-state portability of ration cards.
Back to Basics: Stimulus Package
• Stimulus package is a package of tax rebates and incentives used by Govt.’s of various countries to stimulate
economy and save their country from a financial crisis.
Idea behind Stimulus Package:
o To provide tax rebates and boost spending, as spending increases demand, which leads to increase in em-
ployment rate which in turn increases income and hence boosts spending.
o This cycle continues until the economy recovers from collapse.
o India too used its first stimulus package in 2008 to ensure the safety of bank deposits and stability of the
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financial system.
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Back to Basics: Pradhan Mantri Jan-Dhan Yojana (PMJDY)
• Launched on Aug 28, 2014.

• Pradhan Mantri Jan-Dhan Yojana (PMJDY) - National Mission for Financial Inclusion, completed its 6 years
of successful implementation.
• PMJDY is National Mission for Financial Inclusion to ensure access to financial services, namely, Banking/
Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner.
• During lockdown Govt deposited Rs. 1500 (Rs.500 x 3 months) into Jan Dhan accounts held by women.
Fiscal Situation and Response to Covid Pandemic:
Fiscal stimulus by the Government of India was introduced in a phased manner.

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Initial phase of lockdown:

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• Govt. announced special economic and comprehensive package to primarily provide a cushion to the vulner-
able sections of the society and the small businesses.
• It included direct benefit transfers to the vulnerable sections, emergency credit to the small businesses, and
the world’s largest food subsidy programme targeting 80.96 crore beneficiaries.
Phase of steady unwinding of the lockdown and restrictions:
• The demand side impetus was given to re-inflate consumption demand.
Phase of lifting up of the lockdown:
• The focus shifted towards investment boosting measures like Production Linked Incentives, enhancing capital
expenditure and steps to encourage investment in infrastructure sector.
Total stimulus ➔ 29.87 lakh crore [ 15% of national GDP ] → Out of this, stimulus worth 9% of GDP has been
provided by the Govt. under AtmaNirbhar Bharat Package.
Back to Basics: Fiscal Stimulus
• Fiscal stimulus refers to increasing government consumption or transfers or lowering taxes.
Back to Basics: Emergency Credit Line Guarantee Scheme (ECLGS)
• Emergency Credit Line Guarantee Scheme (ECLGS) : For MSMEs and MUDRA borrowers
• 100% guarantee coverage to be provided by National Credit Guarantee Trustee Company Limited (NCGTC)
for additional funding of up to Rs. 3 lakh crore to eligible MSMEs and interested MUDRA borrowers.
• Credit will be provided in the form of a Guaranteed Emergency Credit Line (GECL) facility.
• Tenure of the loan shall be 4 years with a moratorium period of 1 year on the principal amount.
• Announced as part of the Atmanirbhar Bharat package in May to support micro, small and medium enter-
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prises, the scheme provided fully guaranteed and collateral-free loans for amounts up to 20% of out-
standing loans as of Feb 29.
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Counter-cyclical expansionary fiscal policy

• It refers to the steps taken by the government that go against the direction of the economic or business
cycle.
• In a recession or slowdown, the government increases expenditure and reduces taxes to create a de-
mand that can drive an economic boom.
• Currently in India when private consumption, which contributes to 54% of GDP is contracting, and investment,
which contributes to 29% is uncertain, the relevance of counter-cyclical fiscal policy is paramount.
• Adoption of this policy in times of crisis is expected to boost the growth in GDP both directly, and indirectly
through multiplier effects on private consumption expenditure and private investment.
• Higher GDP growth would thereby facilitate buoyant revenue collection in the medium term, and thereby
enable a sustainable fiscal path.
Back to Basics: Consumption Expenditure
• Consumption Expenditure is the spending by households on goods and services, excluding new hous-
ing.
Back to Basics: Private Final Consumption Expenditure
• It is the expenditure incurred by the resident households and non-profit institutions serving households
(NPISH) like Temples and Gurudwaras on final consumption of goods and services, whether made within or
outside the economic territory.
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Reforms in Tax Administration:

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• Govt. launched a new platform ‘Transparent taxation - Honoring the Honest’.

• Objective: To impart greater efficiency, transparency and accountability, and to eliminate physical interface
between taxpayers and tax officers.
• Imp Features:
✓ Usage of technology, data analytics and Artificial Intelligence
✓ Recognizing taxpayers as partners in nation-building
• It stands on 3 pillars of tax administration reforms.
1) Faceless assessment
2) Faceless appeal
3) Taxpayers charter
Faceless Assessment Scheme 2020:
• Automated random allocation of cases across Income Tax teams

• Elimination of face-to-face contact between the income-tax authorities and the taxpayer
• It establishes a National Faceless Assessment Centre (NFAC) in Delhi.
Faceless Appeals Scheme 2020:
• All Income Tax appeals will be finalised in a faceless manner under the faceless ecosystem
• Exceptions: Appeals relating to serious frauds, major tax evasion, sensitive & search matters, International tax
and Black Money Act
• It establishes a National Faceless Appeal Centre (NFApC) as the apex body for conduct of e-appeal proceed-
ings in a centralized manner.
Taxpayers Charter:
• Historical Background: Concept of taxpayers’ Bill of Rights was first introduced in the US in 1988
• India’s Taxpayer Charter comprises of commitments by the Income Tax Department and obligations of the
taxpayers.
• Taxpayers Charter emphasizes the importance of fair, courteous and reasonable treatment to taxpayer.
Deficits:
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• Fiscal Deficit (Borrowings): 9.5% of GDP

• Medium Term Fiscal Policy (MTFP) Statement pegged the fiscal deficit target for FY 2020-21 at 3.5% of
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GDP.
• Primary Deficit (Fiscal Deficit – Interest Payments): 6% of GDP
• Revenue Deficit (Revenue Expenditure- Revenue Receipts) : 7.5% of GDP
• Effective Revenue Deficit (Revenue Deficit - Grants to States for Capital Assets) : 6.3% of GDP
Back to Basics: Deficits
➢ A deficit occurs when expenses exceed revenues

➢ Imports exceed exports, or liabilities exceed assets
➢ Revenue deficit (RD): It is the difference between the revenue receipts (RR) and the revenue expenditure
(RE)
➢ Effective Revenue deficit (ERD): It is defined as the difference between the revenue deficit and creation of
capital assets.
➢ Fiscal deficit (FD):It is the difference between what government earns and its total expenditure (excluding
non-debt creating capital expenditure)
➢ Budget deficit: The difference between the total budgeted receipts and expenditure
➢ Primary deficit: It is the difference between fiscal deficit and interest payments
Borrowings:
• Highest Source of Borrowings: Market borrowings (Dated Securities + T-Bills) > Securities against NSSF
Back to Basics: Market Borrowings
• When the government runs a fiscal deficit i.e. when its total expenditure is higher than its total revenue — it
borrows money to meet the difference.
• Governments typically raise funds from the market to fund their fiscal deficit through dated securities
and treasury bills.
• RBI conducts the sale and purchase of these government securities.
Back to Basics: National Small Savings Fund (NSSF)
• National Small Savings Fund (NSSF) is a fund body, which pools money from various small saving schemes.
• NSSF was established in 1999 within the Public Account of India.
• It is administered by the Ministry of Finance, Government of India, under the National Small Savings Fund
(Custody and Investment) Rules, 2001, derived from Article 283(1) of the Constitution.
• Money parked in the NSSF is used by the Centre and states to finance their fiscal deficit, while the
balance is invested in central and state government securities.
Receipts:
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• Revenue receipts comprise both tax and non-tax revenues while capital receipts consist of capital receipts
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and non-debt capital receipts.
Non-debt capital receipts:

• Taxes and duties levied by the government form the biggest source of its income or receipts.
• The government spends this money on both operational and developmental needs.
• Non-debt receipts are the receipts which doesn’t incur any future repayment burden for the government.
• Non-debt Capital receipts have been pegged at 2.3 lakh crore that is 1 % of GDP in 2020-21 BE.
• Contribution of Non-debt Capital receipts in the total pool of Non- debt receipts have declined from 6.8%
in 2018-19 to 3.9% 2019-20, primarily due to shortfall in disinvestment proceeds.
Non debt capital receipts (NDCR) of the Union government include:
o Recoveries of loans and advances given to state governments, Union territories and foreign governments
o Disinvestment proceeds
o Money accrued to the Union government from listing of central government companies and issue of bonus
shares
Types of Non Debt Capital Receipts:

Broadly, there are two kinds of non debt capital receipts:
1) Recoveries of loans and advances

o Recovery of loans and advances from State govts and UTs with legislature
o Recovery of loans given to foreign governments
o Recovery of loans and advances from PSUs and other autonomous bodies
2) Miscellaneous capital receipts [Proceeds from disinvestment in PSUs]
o Disinvestment receipts
o Strategic disinvestment
o Listing of PSUs in stock markets
o Issue of bonus shares
Debt Capital Receipts:
• Debt Receipts have to be repaid by the government.

• Around 25 % of government expenditure is financed through borrowing.
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• A reduction in debt receipt (or borrowing) can be a big leap for the economy's financial health. Most of the
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capital receipts of the government are debt receipts.

• Examples of debt capital receipts:
o Market loans
o Issuance of special securities to public-sector banks
o Issue of securities
o Short-term borrowings
o Treasury bills
o Securities against small savings
o State provident funds
o Relief bonds
o Saving bonds
o Gold bonds
o External debt
• The target for gross market borrowings of the Central Government for the financial year 2020-21 was revised
from the Budget estimate of 7.8 lakh crore to 12 lakh crore.
Tax Revenue
• Taxes collected from both direct and indirect taxes are considered in Tax Revenue
• Budget 2020-21 estimated Gross Tax Revenue to be 24.23 lakh crore (10.8 % of GDP also known as Tax-to-
GDP Ratio)
• Direct taxes: Corporate and Personal income tax, constitute around 55% of GTR
• Receipts from corporate and personal income tax have come down in 2019-20
Non-Tax Revenue:
• Revenue receipts which are not generated by taxing the public➔ Non-Tax Revenue
• Budget 2020-21 aimed to raise 3.85 lakh crore of Non-Tax revenue, 1.7 % of the GDP.
• Nearly 40 % of Non Tax revenue is envisaged to be raised from dividends and profits.
Examples:
o Money which the Govt earns as “Dividends and profits” from its profit making public enterprises
(PSUs).
o Interest which the Govt earns on the money lent by it to external or internal borrowers. Thus this reve-
nue receipts may be in foreign currency as well as Indian Rupees.
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o The money which the govt receives out of its fiscal services such as stamp printing, currency printing,
medal printing etc.
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o Money which the Govt earns from its “General Services” such as power distribution, irrigation, banking
services, insurance, and community services etc. which make the part of the Government business.
o Money which the govt accrues as fees, fines, penalties etc.
o Grants the Govt of India receives from the external sources. In case of the State Govts, it may be the internal
grant from the central Government.
Decreasing order of Taxes:
• GST
• Income Tax
• Corporate Tax
• Union Excise Duty
• Customs Duty
Expenditure
• Budget 2020-21 estimated total expenditure at 30.42 lakh crore

o Revenue expenditure ➔ 26.3 lakh crore (11.7 % of GDP)
o Capital expenditure ➔ 4.12 lakh crore (1.7 % of GDP)
• Apart from budgetary spending, Government has raised Extra Budgetary Resources (EBRs) of 1.35 lakh crore
during the period from 2016-17 to 2019-20.
Back to Basics: Revenue Expenditure
• This expenditure basically refers to expenditure by Govt to maintain its assets.

• Broadly it encompasses expenditure made by govt on salaries for employees, pensions, maintenance of in-
frastructure, buying accessories of various equipments which are part of govt asset , subsidies on educa-
tion, PDS, loan that has been repaid by govt etc.
Back to Basics: Capital Expenditure
• This expenditure basically associated with Govt’s asset creation activity.

• Example: Building roads, airports, or buying defence equipments, loans given by centre to state govt. etc.
Transfer to States:
• Central Govt. accepted 15th Finance Commission recommendations ➔ Grant-in-Aid amounting to 1.99 lakh
crore for transfer to States during 2020-21
o Post Devolution Revenue Deficit Grant
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o Grants to Local bodies [Allocation: 90,000 crore]

o Disaster Management Grants (50% higher than recommended by the FC-XIV)
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NOTE: For the first time, Finance Commission grants were also allocated for the purpose of improving ambient
air quality in million plus cities/ urban agglomerations.
Debt
• Total liabilities of the Central Government at end March 2020 stood at 97.05 lakh crore (49% of India’s GDP)
• Major Part of Liabilities ➔ PUBLIC DEBT (88.67 %)
• Most of the public debt has been contracted at fixed interest rate making India’s debt stock virtually insulated
from interest rate volatility.
• Gradual elongation of the maturity profile of the Central government’s debt lead to reduced rollover risks.
• The proportion of dated securities maturing in less than five years has seen consistent decline in recent years.
• Debt-GDP Ratio, declined steadily immediately after the enactment of the FRBM Act, 2003.
• Debt-to-GDP ratio reliably indicates that particular country’s ability to pay back its debts.
Back to Basics: Public Debt
• Public debt includes the total liabilities of the Union government that have to be paid from the Consoli-
dated Fund of India.
• Public debt is the total amount borrowed by the government of a country.
• Union government broadly classifies its liabilities into two broad categories.
1) Debt contracted against the Consolidated Fund of India (Public Debt)
2) Public Account
Sources of Public Debt
• Dated government securities or G-secs

• Treasury Bills or T-bills
• External Assistance
• Short term borrowings
• Public Debt definition by Union Government
Back to Basics: Extra Budgetary Resources
The sources of funds for expenses in a budget are usually

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• Taxes — Direct or Indirect

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• Non-revenue Receipts like royalty, rent, profit dividend of PSUs, sale of assets.
• Debt - The debt is taken by the GOI and interest paid by GOI too.
• Government of India has financial involvement in Public Sector Units too.
• The GOI would have originally provided the capital for starting these units using Tax Payer's money, hence it
would have been part of the expenditure budget.
• The dividend from these investments are part of the non-revenue budget.
• The sale of these investment is a source of money too.
• Subsequently these PSUs have the privilege of raising money themselves.
• The Ministry taking care of these PSUs authorises raising of capital by the PSU.
The money could be raised through
o Rights issue, IPO

o Debt from a PSB
o Driving back profits into capital
o One PSU investing in another PSU
• These investments that add to the book value of PSUs are not part of the Union Budget. They are called
extra budgetary resources.
• Essentially it means the money doesn't come from the Central or State Government Exchequer.
State Finances
• States had budgeted for a consolidated gross fiscal deficit of 2.8 % of GDP in 2020-21 BE
• Trend of fiscal consolidation for the combined States in the last 3 years ➔ Average Gross Fiscal Deficit: 2.46
% of GDP
STEPS TAKEN BY CENTRAL GOVERNMENT TO SUPPORT STATE GOVERNMENTS
1) Enhanced limit of borrowing for FY2020-21 under Atma Nirbhar Bharat package
o Additional borrowing limit of up to 2% of GSDP was allowed to the States
o Of the additional 2% borrowing allowed to the States, the first instalment of 0.5% borrowing was untied
for all the states.
o The second part amounting to 1% of GSDP was subject to implementation of following four specific
State level reforms.
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a) Implementation of One Nation One Ration Card System

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b) Ease of doing business reform

c) Urban Local body/ utility reforms
d) Power Sector reforms
o The final 0.5% borrowing was conditional on undertaking at least 3 out of the above mentioned reforms.
2) Compensation to the States for loss in GST revenue:
2 options to States
1. OPTION 1: Issue of debt under a Special Window coordinated by the Ministry of Finance which was
passed on to the States and UTs
2. OPTION 2: Raise the entire shortfall through the issue of market debt
3) Scheme for Special Assistance to States for Capital Expenditure:
• Special assistance is being provided to the State Governments in the form of 50-year interest free loan
up to an overall sum not exceeding 12,000 crore.
4) SDRF
• In 2020, the states limit for spending the SDRF during FY 2020-21 was raised to 50%, in order to support
them in containment measures of COVID-19
Back to Basics: Gross State Domestic Product
▪ Volume of all goods and services produced within the boundaries of the State during a given period of
time, accounted without duplication
▪ Stamp duties and property taxes ➔ production taxes
▪ Subsidies to labour, capital and investment (apprentice subsidies and interest subsidies)➔ production
subsidies
Central Govt. + State Govt. Finances
o Debt-to-GDP ratio exhibit an increasing trend over the last few years.
o Due to pandemic it is expected to register a fiscal slippage in FY 2020-21, on account of the shortfall in rev-
enue and higher expenditure requirements.
Chapter 3: External Sector
• COVID-19 pandemic has triggered the worst global recession in 2020 since the Great Depression of 1929.
• Economic crisis led to
o Sharp decline in global trade
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o Lower commodity prices

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o Tighter external financing conditions with varying implications for current account balances and cur-
rencies of different countries
• NEGATIVE SIDE ➔ Drop in exports of gems and jewellery, engineering goods, textile and allied products
• POSITIVE SIDE ➔ Rise in exports of drugs and pharma, software and agriculture and allied products
Back to Basics: 1929 Great Depression
• Depression is a prolonged period of economic recession marked by a significant decline in income

and employment.
• Depression is a negative GDP growth of 10% of more, for more than 3 years.
• Great Depression was a major economic crisis that began in the United States in 1929.
• It began on October 24, 1929, a day that is referred to as “Black Thursday”
• A monumental crash occurred at the New York Stock Exchange as stock prices fell by 25%.
Back to Basics: Gems and Jewellery Sector
• Gems and Jewellery Sector contributes to 7% of GDP

• It forms around 12% of our exports.
• Govt. of India presently allows 100% Foreign Direct Investment (FDI) in the sector through the automatic
route.
• India is the world’s largest centre for cut and polished diamonds in the world and exports 75 % of the
world’s polished diamonds.
Global Economic Environment:
• Due to suspension of economic activities WTO revised forecast predicted decline of 9.2% in volume of
world merchandise trade in 2020, followed by 7.2% rise in 2021.
• Advanced Economies ➔ Severe contraction in GDP and steepest decline in exports and imports
Developments in India’s Balance of Payments (BOP)
According to the RBI, balance of payment is a statistical statement that shows

1) The transaction in goods, services and income between an economy and the rest of the world
2) Changes of ownership and other changes in that economy’s monetary gold, special drawing rights
(SDRs), and financial claims on and liabilities to the rest of the world
3) Unrequited transfers
• Simply, Balance of Payments (BoP) is a systematic record of economic transactions between residents
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and non-residents of a country for a period of 1 year.

• INFLOW ➔ +ve
• OUTFLOW ➔ -ve
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• BoP is made up of two parts: Current account and capital account (As per IMF definition, three parts:
Current Account + Capital account+ Financial account)
Current Account:
• Imports and Exports
• Income from abroad (interest, dividends paid on Indian investor’s FDI, FII in USA etc.)
• Transfer (gift, remittances from NRI to their families etc.
NOTE: It is expected to witness a current account surplus in FY21 after a gap of 17 years due to resilience
shown by software service exports.
Current account has two components – exports and imports of goods and export and imports of invisibles
(include services). Hence the current account has two subcomponents:
1) Merchandise trade account ( for exports and imports of goods) ➔ Balance of TRADE
2) Invisible account ( for services, remittances and income) ➔ Balance of Invisibles
Merchandise trade account: It gives the money value of India’s exports and imports of goods. When we often
mention exports and imports, it is about the merchandise account.
Balance of TRADE = Exports - Imports
o If Balance of TRADE is POSITIVE ➔ Trade Surplus

o If Balance of TRADE is NEGATIVE ➔ Trade Deficit
India registered a trade surplus in the month of June, 2020 after a gap of 18 years.
• India had the most favourable trade balance with USA in April-Dec 2020.
• India had the highest trade deficit with China.
Invisible account (Balance of Invisibles):

It indicates India’s
(a) Service exports and imports (software exports, tourism revenues, etc, various service imports)
(b) TRANSFERS: Donations, Gifts, Remittances (private remittances from abroad and payment to foreign coun-
tries)
(c) Income (Profit, Interest, Dividend, income earned by MNCs from their investment in India).
o Remittances are projected to fall by about 8.9 % to US$ 76 billion in 2020.

o As per, World Migration Report 2020, India has the largest number of migrants living abroad and
India was top recipient of remittances in 2019.
Capital and Financial Account:
• Capital account records the net flow of investment transaction into an economy.
• A surplus in the capital account means money is flowing into the country.
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• Foreign investment in India (FDI, FII, ADR, direct purchase of land, assets)
• External commercial borrowing, external assistance etc.
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FDI:
o During April-October, 2020, net FDI flows recorded an inflow of US$ 27.5 billion, 14.8% higher as com-
pared to same period previous year.
o Computer software and hardware attracted the highest FDI equity inflows.
o Singapore is the top investing country, in terms of FDI equity inflows.
FPI:
o Foreign portfolio investment (FPI) witnessed strong rebound especially in equity inflows during April-
December 2020.
o In the months following the outbreak of the pandemic, India experienced unprecedented FPI out-
flows and later large stimulus by central banks in advanced economies has resulted in heightened capi-
tal flows into emerging markets such as India.
ECBs:
o Banking capital outflow and net outflows on ECBs increased during first half of FY 2020-21.
o ECBs were the largest component of external debt.
o Bulk of the ECBs was in the form of commercial loans and securitized borrowings (91.2 %) predomi-
nantly denominated in US$ (77.2 %) and accessed mainly by non-financial corporations (74.5 %).
Back to Basics: Foreign Direct Investment
• Foreign direct investment is a form of investment that earns interest in enterprises which function out-
side the domestic territory of the investor.
• Foreign direct investment is a component of a country's national financial account.
• Foreign direct investment is a lead driver for economic growth and brings certain benefits to national
economies.
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• It can contribute to Gross Domestic Product (GDP), Gross Fixed Capital Formation (total investment in a
host economy) and Balance of Payments.
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Back to Basics: Foreign Portfolio Investment
• Foreign portfolio investment is the entry of funds into a country where foreigners deposit money in a
country's bank or make purchases in the country's stock and bond markets, sometimes for specula-
tion.
• In 1992, India opened up its economy and allowed foreign portfolio investment in its domestic stock
markets.
• Since then, foreign portfolio investment has emerged as a major source of private capital inflow in this
country.
• FPI is investment by non-resident in Indian securities including shares, govt. bonds, infrastructure securities
etc.
Back to Basics: External Commercial Borrowings
• ECB is basically a loan availed by an Indian entity from a non-resident lender.

• Most of these loans are provided by foreign commercial banks and other institutions.
• It is a loan availed of from non-resident lenders with a minimum average maturity of 3 years.
• Simply, borrowing money from the non-resident lenders and investing it in the commercial activities of In-
dia.
Trends in Balance of Payments (BoP) in the last 4 years:
o 2017-18: $ 43 bn (+ve)
o 2018-19: $ 3 bn (-ve)
o 2019-20: $ 59 bn (+ve)
o 2020-21: > $ 60 bn (+ve)
Merchandise Trade
• In April-November, 2020, USA was to be the largest export market for India
• Total exports during April-December, 2020-21 contracted by -15.7%
REASON: Fall in Petroleum, Oil and Lubricants (POL) exports
• Within Non-POL exports, agriculture & allied products, drugs & pharmaceutical and ores & minerals
recorded expansion.
• Drug formulations, biologicals have consistently registered positive growth making it the 2nd largest ex-
ported commodity
Top 3 Export commodities: Petroleum Products, Drug Formulations, Pearls and Precious Stones
Top 3 Export Destinations for India: USA, China, UAE
Top 3 Import Commodities: Crude Oil, Petroleum products and Gold
Top 3 Import sources: China, USA, UAE

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o During April-December, 2020-21 there was decline in POL imports.

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o Gold and silver imports witnessed a sharp growth primarily due to the simultaneous rise in international
gold and silver prices.
o Crude Petroleum is the highest imported commodity in April-November, 2020.
o China is the largest import source for India in April-November, 2020
India: Potential to be the “PHARMACY OF THE WORLD”
• Indian pharmaceutical industry is 3rd largest in the world, in terms of volume.

• Indian pharmaceutical industry is 14th largest in terms of value.
• India almost doubled its share in world pharma exports in a span of 10 years from 1.4% in 2010 to 2.6% in
2019.
• India was at 11th position in terms of share in world pharma exports in 2019.
• Indian pharmaceutical industry is currently valued at US$ 41 billion and is expected to grow to US$ 120-130
billion by 2030.
Foreign Exchange Reserves:
• India’s foreign exchange reserves reached an all-time high of US$ 586.1 billion as on January, 2021.
• The rise in the foreign exchange reserves has largely been due to the current account surplus.
• India is the 5th largest foreign exchange reserves holder (Sep 2020)
Initiatives undertaken to promote exports:
a) Production Linked Incentive (PLI) Scheme

b) Remission of Duties and Taxes on Exported Products (RoDTEP)
c) Improvement in logistics infrastructure
d) Digital initiatives
Production-linked incentive (PLI) scheme:
• To make India a manufacturing hub, govt recently announced the PLI scheme for mobile phones, pharma
products, and medical equipment sectors.
• It was notified on April 1 as a part of the National Policy on Electronics.
• It proposes a financial incentive to boost domestic manufacturing and attract large investments in the
electronics value chain.
• It extends an incentive of 4% to 6% on incremental sales (over base year) of goods manufactured in India
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and covered under target segments, to eligible companies, for a period of 5 years with financial year (FY)
2019-20 considered as the base year for calculation of incentives.
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• India will extend the production-linked incentive (PLI) scheme to atleast 8 more sectors to support domestic
manufacturing which includes battery manufacturing, auto components, network products, textiles, food pro-
cessing, solar photovoltaic cells, genomics, artificial intelligence, 5G, robotics and drones.
• The move is aimed at spurring local manufacturing and promoting India as an alternate global manu-
facturing hub in Asia.
• Govt. believes that the reduced corporate tax rate of 25%, PLI benefits and phased manufacturing plan
(PMP) make India an attractive destination. The government has already rolled out a PLI scheme worth
50,000 crore for electronics and another 10,000 crore for active pharmaceutical ingredients (APIs).
Remission of Duties and Taxes on Exported Products (RoDTEP):
• Duties and taxes levied at the Central, State and local levels, such as VAT on fuel used for transportation,
which are not getting exempted or refunded under any other existing mechanism will be refunded to ex-
porters in their ledger account with Customs.
• The credits can be used to pay basic customs duty on imported goods or transferred to other importers.
• It is a WTO compliant scheme, as earlier Merchandise Exports from India Scheme was observed as ‘prohib-
ited subsidy’ by WTO panel.
NOTE: India has introduced an online portal, ARTIS (Application for Remedies in Trade for Indian industry
and other Stakeholders) – to submit online petitions for different trade remedies like anti-dumping duty, safe-
guard duty and countervailing duty.
Improvement in logistics infrastructure:
India’s rank has improved significantly in trading across borders parameter of ‘Ease of Doing Business’ index from
146 in 2018 to 68 in 2020.
Infrastructure Initiatives:
o Bharatmala Pariyojana
o Sagarmala
o Multi-Modal Logistics Parks
o Dedicated Freight Corridors
o Trade Infrastructure for Export Scheme
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Bharatmala Pariyojana:
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• Bharatmala Pariyojana is an umbrella program for the highways sector envisaged by the Ministry of Road
Transport and Highways.
• PHASE 1: Implementation of 34,800 km of national highways in 5 years (from 2017 to 2022) has been
approved at an estimated outlay of Rs. 5,35,000 crore.
• PHASE 2: 48,000 km of road network across India by 2024.
Sagarmala:
• India has a 7,517 km (4,670.84 miles) long coastline, 14,500 km (9,010 miles) of potentially navigable water-
ways, and strategic locations along major international maritime trade routes.
• Sagarmala is a port-led development program that seeks to improve infrastructure development leading
to better competitiveness in logistics, increasing industrialization and job creation and subsequently the de-
velopment of the overall coastal economy.
Multi-Modal Logistics Parks:
• Multi-Modal Logistics Parks (MMLPs) are a key policy initiative of the Government of India to improve the
country's logistics sector by lowering overall freight costs, reducing vehicular pollution and conges-
tion, and cutting warehousing costs.
• Ministry of Road Transport and Highways (MoRTH) is developing multi-modal logistics parks at selected
locations in the country under its Logistics Efficiency Enhancement Program (LEEP).
• Country's first Multi-Modal Logistics Park (MMLP) ➔ Jogighopa in Assam
Dedicated Freight Corridor Project:
• Under Ministry of Railways

• The project involves the construction of 6 freight corridors traversing the entire country.
• The purpose of the project is to provide a safe & efficient freight transportation system.
• Initially, the construction of 2 freight corridors,
1) Western DFC connecting the states of Haryana & Maharashtra
2) Eastern DFC connecting the states Punjab & West Bengal, is being undertaken.
• It aims at reduction in unit cost of transportation with higher speed of freight trains and better turna-
round of wagons.
Trade Infrastructure for Export Scheme:

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• Union Ministry of Commerce and Industry launched the Trade Infrastructure for Export Scheme (TIES) in
March, 2017.
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• The scheme would provide assistance for setting up and up-gradation of infrastructure projects with
overwhelming export linkages like the Border Haats, Land customs stations, quality testing and certification
labs, cold chains, trade promotion centres, dry ports, export warehousing and packaging, SEZs and ports/air-
ports cargo terminuses.
Digital initiatives
• Logistics Planning and Performance Monitoring Tool (LPPT) ➔ Real-time monitoring of operational per-
formance and asset utilization of various logistics infrastructure such as ports, airports etc.
• India Logistics Platform (iLOG) ➔ Integrating all logistics related digital portals such as Port Community
System, Freight Operations Information System (FOIS) by Indian Railways and VAHAN (National Vehicle Reg-
istration System) etc.
Chapter 4 - Monetary Management and Financial Intermediation
Monetary Developments during 2020-21:
Repo Rate and Reverse Repo Rate:
• Repo rate reduced by 115 basis points (bps) to 4%

• Reverse repo rate was reduced by 90 bps to 4%
• REASON ➔ To make it unattractive for banks to passively deposit funds with the Reserve Bank.
• Decrease in repo rates is to aim at bringing in growth and improving economic development in the country.
Consumers will borrow more from banks thus stabilizing the inflation.
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Back to Basics: Repo Rate
It is rate at which RBI lends to its clients generally against Govt securities
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•
• When SBI wants to borrow money from RBI for short term, SBI will have to pay this much interest rate
Example:
 RBI has cash of Rs.100 lakhs.
 SBI has Government securities worth Rs.100 lakhs.
 SBI enters into Repo agreement with RBI.
 The agreement reads “I (SBI) am selling my Government securities worth Rs.100 lakh to RBI and I (SBI)
promise to buy back(repurchase) those securities from RBI after 6 months @Rs.107 lakhs.
Time: After 6 months.
RBI’s investment: Rs.100 lakhs
After 6 months, RBI gets: Rs.107 lakhs from SBI.
So profit of RBI (or interest earned by RBI or interest paid by SBI)=(107-100)/100 = 7%. This is Repo rate.
Back to Basics: Reverse Repo Rate
• It is the rate at which banks lend funds to RBI

• When SBI parks its surplus money in RBI for short term, SBI makes this much profit.
Example:
o RBI has Government securities worth Rs.100 lakhs.

o SBI has surplus Rs.100 lakhs and nobody is taking them as loans. But SBI is sure more people will come to
take loans before Makar Sankranti. So SBI just wants to park this surplus 100 lakhs somewhere for the
short-term.
o SBI enters into Reverse Repo agreement with RBI.
o The agreement reads “I (SBI) will give buy Government securities worth Rs.100 lakhs from the RBI, and RBI
promises to buy back those securities from me after 6 months @Rs.106 lakhs.
Time: After 6 months,
SBI’s investment: Rs.100 lakhs
After 6 months, SBI gets: Rs.106 lakhs.
So profit of SBI (or interest earned by SBI or interest paid by RBI)=(106-100)/100 = 6%. This is reverse repo rate.
Liquidity:
• Systemic liquidity in 2020-21 remained in surplus so far.

• RBI undertook various conventional and unconventional measures like Open Market Operations, Long Term
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Repo Operations, Targeted Long Term Repo Operations etc. to manage liquidity situation in the economy.
• Open market operations are conducted by the RBI by way of sale or purchase of government securities
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(G-secs) to adjust money supply conditions. The central bank sells G-secs to suck out liquidity from the
system and buys back G-secs to infuse liquidity into the system.
Monetary Aggregates:
• Reserve money (M0) ➔ Growth of 15.2 % driven by currency in circulation (CIC)
Main driver for increase in M0 during 2020-21 was Net Foreign Assets
• Broad Money (M3) ➔ Growth of 12.5 %
Bank credit to the government was a major contributor to the increase in M3
Money Multiplier ➔ DECLINING since 2016-17
• REASON: Sharp rise in currency-deposit ratio, and also large amount of funds parked under reverse repos
with RBI.
• It’s a clear signal that that the money supply has responded only partially to reserve money growth, reflecting
that the liquidity transmission in the economy remains impaired.
Back to Basics : Reserve Money
• It is “High Powered Money” and also “Monetary Base”.

• Reserve Money is all the Cash in the economy and denoted by M0
• This has the following components:
1. Currency with Public
2. Other Deposits with the RBI
3. Cash Reserves of the banks held with themselves
4. Cash Reserves of the Banks held with RBI
✓ Narrow Money (M1) = Currency with the public + Demand Deposits of public in Banks
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✓ When a third component viz. Post office Savings Deposits is also added to M1, it becomes M2.
M2 = M1 + Post Office Savings

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✓ M3: (Broad concept of money supply)
M3 (Broad Money)= M1+ Time deposits with the banking system

✓ M4 = M3 + All deposits with post office savings banks (excluding National Savings Certificates)
Back to Basics : Currency in Circulation
• It is a major liability component of a central bank’s balance sheet.

• It comprises of:
a) Currency notes and coins with the public

b) Cash in hand with banks
Back to Basics: Money Multiplier
➔ It describes how an initial deposit leads to a greater final increase in the total money supply.
➔ It represents the largest degree to which the money supply is influenced by changes in the quantity of de-
posits.
Liquidity conditions and its management:
• Systemic liquidity in 2020-21 ➔ SURPLUS
Main drivers of liquidity:
1. Currency in Circulation (CIC)

2. Government cash balances
3. Reserve Bank’s forex operations
Steps taken by RBI to manage liquidity:
o Injection of durable liquidity: > 2.7 lakh cr through OMO purchases

o OMOs in State Development Loans (SDLs)
o Targeted Long Term Repo Operations (TLTROs) ➔ Upto 3 years tenor for a total amount of 1.13 lakh cr
for investment in corporate bonds, commercial papers, and non-convertible debentures
o Reduction in the CRR requirement of banks from 4 % of net demand and time liabilities (NDTL) to 3 %
o Raising banks limit for borrowing overnight under the MSF by dipping into their Statutory Liquidity Ra-
tio (SLR) to 3 % of NDTL from 2 %.
o Special Liquidity Facility for mutual funds for 50,000 crore
o Refinance facility worth 75,000 crore for all India financial institutions i.e., NABARD, NHB, SIDBI and
EXIM Bank.
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Back to Basics: Open Market Operations:

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➔ Open market operations is the sale and purchase of govt. securities and treasury bills by RBI or the
central bank of the country.
➔ The objective of OMO is to regulate the money supply in the economy.
➔ When the RBI wants to increase the money supply in the economy, it purchases the government secu-
rities from the market and it sells government securities to suck out liquidity from the system.
➔ RBI carries out the OMO through commercial banks and does not directly deal with the public.
➔ OMO is one of the tools that RBI uses to smoothen the liquidity conditions through the year and minimise
its impact on the interest rate and inflation rate levels.
➔ OMO is a part of credit policy.
Back to Basics: State Development Loans (SDLs)
• State Development Loans (SDLs) are market borrowings by state governments.

• RBI co-ordinates the actual process of selling these securities.
• Each state is allowed to issue securities up to a certain limit each year.
• SDLs are normally sold through an auction process, just like central government securities.
• SDLs too are traded in secondary market but are much less liquid than central G-secs.
Back to Basics: Targeted Long Term Repo Operations (TLTROs)
• TLTROs are Long term repo operations (LTROs) conducted by the RBI to ensure adequate liquidity at the
longer period for specific sectors.
• RBI will auction funds to banks for making investment in prescribed corporate and other instruments.
• PURPOSE: to ensure that there is enough liquidity in markets like corporate market and their yield are not
going up in the context of the Covid set back.
Back to Basics: CRR and SLR
• Let’s assume there are only four people in India: 1) common men and 2) businessmen 3) Commercial banks
(like SBI) 4) Central Bank (RBI.)
• Now the Question: How do commercial banks make money?
• Common man save their money in bank. Bank gives them say 4% interest rate on savings.
• Then Bank gives that money as loan to businessmen and charges 10% interest rate.
• So 10-4=6% is the profit of Bank. Although that’s technically incorrect, because we’ve not counted bank’s
input cost=staff salary, telephone-internet-electricity bill, office rent, xerox machine etc. So actual profit will
be less than 6%.
Example:
 SBI has only one branch in a small town. It was opened on Monday.
 On the very same day, Total 100 common men deposited 1 lakh each in their savings accounts here
(=total deposit is 1 crore)
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 SBI offered them 4% interest rate per year on their savings

Here comes the concept of Cash Reserve Ratio
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✓ On Tuesday, SBI Branch manager gives away entire 1 crore to a businessman as loan for 10% interest rate
for 5 years.
✓ From SBI’s point of view, sounds very good right? 10-4=6% profit!
✓ But we’ve not considered the fact that on Wednesday, some of those common men (account holders) will
need to take out some money from their banks savings account- to pay for gas, electricity, mobile bills, col-
lege fees, writing cheques and demand drafts etc.
✓ But SBI’s office doesn’t have a single paisa left! = problem, protest, rioting, suicides.
✓ So condition #1: Banks must not give away all of the deposit money to businessmen for loans. Banks
must keep some money with aside.
✓ Ok but who’ll decide how much minimum cash should a bank keep aside? Ans. RBI via CRR.(Cash reserve
ratio).
Why SLR: Statutory liquidity ratio?
• Continuing the same example. SBI got 1 crore on Monday.

• But suppose, RBI gave him order, “you must keep Rs.10 lakhs aside. (CRR)”
• Thus, SBI is left with only 1 crore – 10 lakhs = 90 lakh rupees.
• So SBI manager decides to get maximum profit out of remaining money. Suppose ongoing rate for busi-
ness loans is 10%.
• But there is one businessman Mr.Naidu.
• No bank is offering him loan, because his past track record is not good: his earlier business adventures
were epic fail.
• This Mr.Naidu comes to SBI
• After six months, Mr. Naidu’s new business project = BIG FAILURE
• He cannot pay back the EMIs.
• Although SBI can attach his assets and auction them to recover the money. But it’ll take lot of time.
• In the mean time, common-men also read this story in local newspapers and they panic that SBI will col-
lapse and bank manager will shut down the office and run away.
• So all the common men line up in front of bank and demand back their money. Recall that SBI still has 10
lakh left in CRR. But people want total 1 crore back!
• Again money of account holders (common men) is stuck =problem, protest, rioting, suicides.
• So, condition #2: Bank must not give away all its loans to risky loan takers. Banks must invest part
of its money in “safe and liquid” investment. So during emergency, bank can sell those “liquid” in-
vestments and take out the money.
• For example, Government securities, gold, corporate bonds of reputed companies like Infosys, reliance, TCS.
These are “safe” investments.
• These are also “liquid”, because you can sell them quickly whenever you want. (recall that SBI could also
auction Mr.Naidu’s properties, but it’ll take lot of time in paperwork, legal issues etc.)
• Ok so, bank should invest part of common-men’s money in “safe” investments like Government securities,
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gold and corporate bonds of highly reputed companies.

• BUT who will decide how much money should be invested in this sector? Ans. RBI via SLR (Statutory liquid-
ity ratio).
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• Let’s assume RBI ordered SBI to keep Rs.25 lakhs under SLR.
• Thus, out of original Rs.1 crore that SBI had, 10 lakhs (CRR) + 25 lakhs (SLR) are gone.
Back to Basics: NDTL

CRR, SLR is counted on amount of money a bank receives.
But bank receives lot of money,
• from depositors,
• from loan takers who’re re-paying EMI,
• (fraudulent) hidden charges imposed on credit cards
• Commission charged on giving demand draft
• Commission charged on online money transfer
• Commission charged on foreign currency conversion etc.etc.etc.
• So how does bank exactly count CRR, SLR requirements? = Net Demand and Time Liabilities
(NDTL)
Time Liabilities
✓ Money deposited in Fixed deposits (FD)

✓ Cash certificates
✓ Gold deposits
✓ Staff security deposit. E.g. in some banks when you join as Probationary officer, you’ve to sign bond
worth RS.1-2 lakh rupees.
Demand Liabilities
✓ Money deposited in savings account

✓ Money deposited in current account
✓ Demand drafts
✓ Unclaimed deposits
Weighted average credit rating (WACR)
• It relates to the weighted average rating regarding all bonds in a bond fund.
• This rating procedure provides investors with an idea as to a fund's credit quality.
• It also helps to identify the overall risk involved with a bond portfolio
• Comfortable liquidity conditions were reflected in the movement of weighted average call rate (WACR) dur-
ing the lockdown period.
• The liquidity availability in the system pushed down the WACR outside the corridor from late October and
remained so until early January.
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Development in the G-Sec Markets

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• G-Secs are debt instruments issued by the government to borrow money.

• It is divided into 2 categories.
1) Treasury bills (T-Bills) – short-term instruments which mature in 91 days, 182 days, or 364 days.
2) Dated securities – long-term instruments, which mature anywhere between 5 years and 40
years
Yields on 10 year benchmark G-sec ➔ DECLINING
REASONS:
 Low trading volumes amid the countrywide lockdown
 Reduced market hours
 Selling pressure by Foreign Portfolio Investors (FPIs)
 Upward movement of US treasury yields
In 2020-21, certain specified categories of Central Government securities were opened up fully for non-resident
securities without any restrictions.
Accordingly, a separate route viz., Fully Accessible Route (FAR) for investment by non-residents in securities
issued by the Government was notified.
Banking Sector:
• Gross Non-Performing Advances (GNPA) ratio and Stressed Advances ratio of Scheduled Commercial
Banks (SCBs) ➔ DECREASED
• Restructured Standard Advances (RSA) ratio of Scheduled Commercial Banks (SCBs) ➔ INCREASED
• Capital to risk-weighted asset ratio (CRAR) of Scheduled Commercial Banks ➔ INCREASED
• For SCBs, the net profit (profit after tax) ➔INCREASED
• Improvement in transmission of policy repo rates to deposit and lending rates
• Recovery rate for the Scheduled Commercial Banks through Insolvency and Bankruptcy Code (since
its inception) has been over 45%
Back to Basics: Capital to Risk weighted Assets Ratio (CRAR)

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➔ CRAR also known as Capital Adequacy Ratio (CAR)

➔ It is the ratio of a bank's capital to its risk.
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➔ CRAR is decided by central banks and bank regulators to prevent commercial banks from taking excess
leverage and becoming insolvent in the process.
➔ It is a standard metric to measure Strength of balance sheets of banks.
Regulatory Measures in Banking Sector:
Commercial Banks:
• Merger of PSBs: Consolidation among another 10 PSBs, with Punjab National Bank, Canara Bank, Union
Bank of India and Indian Bank as anchor banks came into effect from April 1, 2020.
• Restructuring of MSME loans: A one-time restructuring of loans to MSMEs that were in default but
‘standard’ as on January 1, 2019, was permitted.
• Large exposure framework: A bank’s exposure under the Large Exposure Framework to a group of con-
nected counterparties was increased from 25 % to 30 % of the eligible capital base of the bank.
• Export Credit: The maximum permissible period of pre-shipment and post-shipment export credit sanc-
tioned by banks was increased from 12 months to 15 months for disbursements made up to July 31, 2020,
in line with the relaxation granted in the period of realization and repatriation of the export proceeds to
India.
• Monetary policy transmission – external benchmarking of loans: RBI deregulated the interest rates on
advances by SCBs (excluding RRBs). With a view to strengthen the transmission of monetary policy, the
banks were mandated to link all new floating rate personal or retail loans and floating rate loans extended
to MSMEs to external benchmarks such as repo rate, Treasury Bill Rate and any external benchmark pub-
lished by Financial Benchmarks India Pvt Ltd (FBIL).
Co-operative Banks:
• Revision in the target for priority sector lending: To promote financial inclusion, the overall priority sec-
tor lending target for Urban Co-operative Banks has been increased.
• Inclusion of co-operative banks as eligible member lending institutions under interest subvention
scheme for MSMEs - issuance of guidelines: All co-operative banks have been advised of their inclusion as
Eligible Lending Institutions under the “Interest Subvention Scheme (ISS) for MSMSEs 2018” of the Govern-
ment.
• Urban Cooperative Banks (UCBs) with assets of 500 crore and above were brought under the Central
Repository of Information on Large Credits(CRILC) reporting framework.
• Limits on exposure to single and group borrowers and large exposures: The exposure norms for single
borrower and a group of borrowers from 15 % and 40 % of UCB’s capital funds, to 15 % and 25 %, respec-
tively, of UCB’s Tier-I capital.
Back to Basics: Monetary Transmission Mechanism
• Monetary transmission mechanism is the process by which asset prices and general economic conditions
are affected as a result of monetary policy decisions.
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• Such decisions are intended to influence the aggregate demand, interest rates, and amounts of money and
credit in order to affect overall economic performance.
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• The traditional monetary transmission mechanism occurs through interest rate channels, which affect inter-
est rates, costs of borrowing, levels of physical investment, and aggregate demand.
• Additionally, aggregate demand can be affected through friction in the credit markets, known as the credit
view.
• In short, the monetary transmission mechanism can be defined as the link between monetary policy and
aggregate demand.
• Monetary transmission is the process through which RBI’s policy actions reach its effective end goal of tack-
ling inflation and addressing growth concerns.
Non-Banking Financial Companies (NBFC) Sector:
• 2019-20 ➔ NBFCs witnessed slowdown in their growth largely due to isolated credit events and chal-
lenges in accessing funds.
• Credit growth of NBFCs continued to slowdown in 2019-20.
• Asset quality of NBFCs deteriorated moderately.
• Banks continued to support NBFCs with their lending expanding 9.2 % well above the overall bank credit
growth.
• External liabilities of NBFCs in the form of secured and unsecured borrowings and public deposits IN-
CREASED by 13.7%
Back to Basics: NBFC
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Developments in Capital Markets
Equity:
• Resource mobilization INCREASED through both public issue and rights issue route
• Resource mobilization DECREASED through private placement route.
Debt:
• Amount raised through private placement of debt INCREASED.

• Amount raised through public debt issues DECREASED.
Mutual Funds:
• Net inflow of 2.76 lakh crore into the mutual funds industry during 2020-21.
Back to Basics: Capital Market
▪ The market in which bonds, shares and securities are bought and sold is called as Capital Market
▪ It is an institutional arrangement for medium and long-term funds and provides facilities for
marketing and trading of securities.
▪ Securities➔ shares, bonds, debentures etc.
 Primary Market : Consists of arrangements for procurement of long-term funds by companies by
fresh issue of shares and debentures.
 Secondary Market: Secondary Market or stock exchange provides a ready market for existing long
term securities.
Insurance Sector:
• Insurance penetration which was 2.71 % in 2001 has steadily increased to 3.76 % in 2019.
• Insurance density in India reached to approximately US$ 78 in 2019 from US$11.5 in 2001.
Back to Basics: Insurance Penetration
• The ratio of premium underwritten in a given year to the gross domestic product (GDP).
Back to Basics: Insurance Density
• The ratio of premium underwritten in a given year to the total population
Pension Sector:
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• Overall contribution under NPS grew by more than 30%
Back to Basics: National Pension Scheme

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• It is a pension scheme sponsored by the government that was started in 2004 for all government employ-
ees.
• The scheme was made open to all citizens in 2009.
• It is a voluntary and a long-term retirement scheme.
• It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) and Central Govern-
ment.
• Mandatory contribution by the Central Government enhanced by 4 % from the existing 10 % to 14 % for
employees covered under NPS Tier-I.
• The entire withdrawal will now be exempt from income tax as the tax exemption limit for lump sum
withdrawal on exit has been enhanced to 60 %.
Chapter 5: Prices and Inflation
• CPI-C (combined) inflation from 2013-14 to 2019-20 ➔ Moderate

• Headline CPI Inflation during lockdown ➔ High
REASONS:
o Supply side disruptions caused spike in food inflation
o Drop in demand due to lower economic activity
Back to Basics:
Consumer Price Index CPI

➢ Measures changes in the price level of a weighted average market basket of consumer goods and ser-
vices purchased by households.
➢ It measures changes over time in the level of retail prices of selected goods and services on which con-
sumers of a defined group spend their incomes.
➢ Base Year for CPI ➔ 2012
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Four types of CPI:

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1) CPI for Industrial Workers (IW)

2) CPI for Agricultural Labourer (AL) Labour Bureau in the Ministry of Labour
3) CPI for Rural Labourer (RL) and Employment
4) CPI (Rural/Urban/Combined) ➔ National Statistical Office (NSO)
Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour and Employment.
Fourth is compiled by the National Statistical Office (NSO) in the Ministry of Statistics and Programme
Implementation.
Current trends in inflation:
• Headline inflation based on CPI-C from 2014 to 2018 ➔ DOWNWARD

• Headline inflation based on CPI-C since 2019 ➔ UPWARD
• Key reason for rise in inflation @ 2020-21 ➔ FOOD INFLATION (rise in vegetable prices)
• WPI inflation in 2020-21 ➔ DECREASED mainly on account of fuel and power
• Rural-Urban difference in CPI inflation ➔ DECREASED
• Inflation in non-food components of CPI is higher in urban areas as compared to rural areas in 2020-
21.
Back to Basics: Headline inflation
➢ A measure of the total inflation within an economy, including commodities such as food and energy
prices (e.g., oil and gas), which tend to be much more volatile and prone to inflationary spikes.
➢ RAW Inflation figure
Back to Basics: Wholesale Price Index (WPI)
➢ Price of a representative basket of wholesale goods

➢ Focuses on the price of goods traded between corporations, rather than the goods bought by consum-
ers, which is measured by the Consumer Price Index
➢ Purpose of the WPI ➔ To monitor price movements that reflect supply and demand in industry, manufac-
turing and construction
➢ Helps in analyzing both macroeconomic and microeconomic conditions
➢ Published by Office of Economic Adviser, Ministry of Commerce and Industry
➢ Base year of All-India WPI ➔ revised from 2004-05 to 2011-12 in 2017
Drivers of Inflation:
• Major driver of CPI-C inflation ➔ Food and Beverages group

• 2nd largest contributor to inflation ➔ Miscellaneous group
• Food inflation based on Consumer Food Price Index (CFPI) ➔ INCREASED since July 2019 (rise in vege-
table prices)
• Major contributors of food inflation ➔ vegetables, meat & fish, oils & fats, pulses & products
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Back to Basics: Consumer Food Price Index
• It is a measure of change in retail prices of food products consumed by a defined population group in a
given area with reference to a base year.
• It is an index used to calculate the retail inflation in the country.
Inflation in States:
• CPI-C inflation ➔ INCREASED

• Lowest inflation ➔DELHI
• Most of the states witnessed HIGHER Urban Inflation
• North-Eastern states witnessed HIGHER Rural Inflation
Global Commodity Prices:
• Largest impact of Covid-19 ➔ Energy prices driven by fall in crude oil prices
• Agricultural prices ➔ STABLE
Gold prices ➔ INCREASED
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Measures to control Inflation:

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• Stabilised prices of food items by taking necessary steps like banning of export of onions, imposition of
stock limit on onions, easing of restriction on imports of pulses etc.
• Price Stabilisation Fund ➔ Succeeded in stabilising prices of pulses and offered significant benefits to all
stakeholders.
• Creation of buffer stock of pulses ➔ moderated prices of pulses and utilised for PDS distribution, Mid-
day meal scheme and ICDS scheme
• Procurement of MSP under Price Support Scheme (PSS)
• Govt. of India signed MoU with Mozambique to ensure assured supply of pulses
Back to Basics: Price Stabilisation Fund
• Price Stabilisation Fund (PSF) refers to any fund constituted for the purpose of containing extreme volatil-
ity in prices of selected commodities.
• The amount in the fund is generally utilised for activities aimed at bringing down/up the high/low prices
say for instance, procurement of such products and distribution of the same as and when required, so that
prices remain in a range.
Back to Basics: Public Distribution System
• Public distribution system (PDS) is an Indian food Security System established under the Ministry of
Consumer Affairs, Food, and Public Distribution.
• PDS evolved as a system of management of scarcity through distribution of food grains at affordable
prices.
• In June, 1997, the Government of India launched the Targeted Public Distribution System (TPDS) with a
focus on the poor.
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• The centre procures food grains from farmers at a minimum support price (MSP) and sells it to states
at central issue prices. It is responsible for transporting the grains to go-downs in each state.
States bear the responsibility of transporting food grains from these go-downs to each fair price shop (ra-
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•
tion shop), where the beneficiary buys the food grains at the lower central issue price. Many states fur-
ther subsidise the price of food grains before selling it to beneficiaries.
Essential Commodities Act, 1955:
• This act empowers the Govt. to regulate essential commodities through regulation, by licenses, permits,
control of prices etc. for maintaining or increasing their supplies and for securing their equitable distribu-
tion and availability at fair prices.
Essential Commodities (Amendment) Act, 2020:
• Foodstuffs shall only be regulated under extraordinary circumstances which may include war, famine,
extraordinary price rise and natural calamity of grave nature.
• This amendment has not curbed the powers of the State Govt. to enforce stock limits on essential com-
modities or take actions on hoarders and profiteers.
Essential Commodities under EC Act:
• Drugs
• Fertilizers
• Foodstuffs including edible oilseeds and oils
• Hank yarn made from cotton
• Petroleum and petroleum products
• Raw jute and jute textiles
• Seeds of food-crops, fruits, vegetables, cattle fodder, jute, cotton
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Chapter 6: Sustainable Development and Climate Change

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• 2030 agenda for Sustainable Development encompasses a comprehensive developmental agenda inte-
grating social, economic and environmental dimensions.
• Union and state government have undertaken several initiatives to mainstream the 17 Sustainable Devel-
opment Goals (SDGs) and 169 associated targets into the policies, schemes and programmes.
• In its Nationally determined contributions (NDCs), under UNFCCC, India has sought
o To reduce the emissions intensity of its GDP by 33 to 35 per cent below 2005 levels by the year 2030
o Achieve 40 per cent of cumulative electric power installed capacity from non-fossil fuel sources by 2030
o Enhance forest and tree cover to create additional carbon sink equivalent to 2.5 to 3 billion tons of carbon
dioxide by 2030
Back to Basics: United Nations Framework Convention on Climate Change (UNFCCC)
• United Nations Framework Convention on Climate Change (UNFCCC) is an international environmental

treaty produced at the United Nations Conference on Environment and Development (UNCED), informally
known as the Earth summit, held in Rio de Janeiro in 1992.
• Objective – to “stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent
dangerous anthropogenic interference with the climate system.”
• The framework set no binding limits on greenhouse gas emissions for individual countries and contains no
enforcement mechanisms.
• In that sense, treaty is considered legally non-binding. Instead, the treaty provides for updates (called “pro-
tocols”) that would set mandatory emission limits.
• UNFCCC is also the name of UN secretariat charged with supporting the operation of the convention.
Prominent Government initiatives on mitigation & adaptation actions and their

progress:
 India’s National Action Plan on Climate Change (NAPCC) was launched in 2008. It has through 8 National
Missions focussed on advancing the country’s climate change related objectives of adaptation, mitigation
and preparedness on climate risks.
8 National Missions
National Solar Mission:
• National Solar Mission is one of the eight key National Missions of India’s National Action Plan on Cli-
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mate Change (NAPCC).

• The objective of the National Solar Mission is to establish India as a global leader in solar energy, by creating
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the policy conditions for its development across the country.

• The Mission has set the ambitious target of deploying 100GW of grid connected solar power by 2022.
• The target will comprise of 40 GW Rooftop and 60 GW through Large and Medium Scale Grid Connected
Solar Power Projects.
• The mission is aimed at reducing the cost of solar power generation in the country through long term policy;
large scale deployment goals and aggressive R&D.
• Of the current goal of 100 GW from solar energy by 2022, 40 GW is to come from rooftop installations,
and 60 GW from large solar parks.
• India is targeting 40% of electricity generation from non-fossil fuel-based resources by 2030 as it looks
to tap vast solar and wind potential to replace reliance on polluting coal to meet its energy needs
Progress:
• The cumulative capacity of 36.9 GW was commissioned till November 2020.

• Around 36 GW solar energy capacity is under installation
• Additional 19 GW capacity has been tendered.
National Mission for Enhanced Energy Efficiency (NMEEE):
• NMEEE seeks to strengthen the market for energy efficiency by creating conducive regulatory and pol-
icy regime.
• NMEEE has been envisaged to foster innovative and sustainable business models to the energy efficiency
sector.
• NMEEE seeks to create and sustain markets for energy efficiency in the entire country which will benefit the
country and the consumers.
Progress:
Perform Achieve and Trade (PAT) Scheme is one of the initiatives under the NMEEE
o PAT Cycle I (2012-2015) has overachieved the target, saving around 31 million tonnes of CO2
o PAT Cycle II (2016-17 to 2018-19) emission reduction of 61.34 MtCO2 was achieved.
National Mission for a Green India:

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• Increased forest/tree cover on 5 million hectares (ha) of forest/non-forestlands and improved quality
of forest cover on another 5 million ha of non-forest/forestlands (total of 10 million ha)
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• Improved ecosystem services including biodiversity, hydrological services, and carbon sequestration from the
10 million ha of forest/ non-forest lands mentioned above
• Increased forest-based livelihood income of about 3 million households, living in and around the forests
• Enhanced annual CO2 sequestration by 50 to 60 million tons in the year 2020
Progress:
• The various afforestation activities including tree plantation were taken up over 8.49 m ha area from 2015-
16 to 2019-20 under the various schemes of the Central Government inclusive of 1.42 lakh ha under this
mission, state plan schemes and also plantation taken up by the NGOs, civil societies and corporate houses
as reported under the Twenty Point Program.
National Mission on Sustainable Habitat:
• National Mission on Sustainable Habitat" seeks to promote sustainability of habitats through improve-
ments in energy efficiency in buildings, urban planning, improved management of solid and liquid waste,
modal shift towards public transport and conservation through appropriate changes in legal and regulatory
framework.
• It also seeks to improve ability of habitats to adapt to climate change by improving resilience of infra-
structure, community based disaster management and measures for improving advance warning systems for
extreme weather events.
Progress:
• The mission is being implemented through 3 programmes:

1) Atal Mission on Rejuvenation and Urban Transformation
2) Swachh Bharat Mission
3) Smart Cities Mission
National Water Mission (NWM):
• Ensuring integrated water resource management for conservation of water, minimization of wastage and
equitable distribution both across and within states.
• Developing a framework for optimum water use through increase in water use efficiency by 20%
through regulatory mechanisms with differential entitlements and pricing, taking the National Water Policy
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(NWP) into consideration.

• Ensuring that a considerable share of water needs of urban areas is met through recycling of waste water.
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• Meeting water requirements of coastal cities through the adoption of new and appropriate technologies such
as low-temperature desalination technologies allowing use of ocean water.
• Revisiting NWP to ensure basin-level management strategies to deal with variability in rainfall and river flows
due to climate change.
• Developing new regulatory structures to optimize efficiency of existing irrigation systems
Progress:
• National Institute of Hydrology is the nodal agency to get the State Specific Action Plan (SSAP) for the
water sector.
National Mission for Sustainable Agriculture (NMSA):

NMSA has identified key dimensions for
o Adaptation and mitigation

o Improved Crop Seeds, Livestock and Fish Culture
o Water Efficiency
o Pest Management
o Improved Farm Practices
o Nutrient Management
o Agricultural Insurance
o Credit Support
o Markets
o Access to Information
o Livelihood Diversification
Progress:
• Farm machinery banks established to reduce crop residue burning.

• Under Rainfed Area Development Programme, land is brought under Integrated Farming System.
• Promoted Organic Farming
National Mission for Sustaining the Himalayan Ecosystem (NMSHE):

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• Develop a sustainable National capacity to continuously assess the health status of the Himalayan Ecosystem
• Assist States in the Indian Himalayan Region with their implementation of actions selected for sustainable
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development
Progress:
• The centre of Glaciology was set up at Wadia Institute of Himalayan Geology.
• A national network programme on Himalayan Cryosphere has been launched.
• A mega programme named Human and Institutional Capacity Building (HICAB) programme for the In-
dian Himalayan Region was launched.
National Mission on Strategic Knowledge for Climate Change (NMSKCC):
• Formation of knowledge networks among the existing knowledge institutions engaged in research and de-
velopment relating to climate science.
• Establishment of global technology watch groups with institutional capacities to carry out research on risk
minimized technology selection for developmental choices.
• Development of national capacity for modeling the regional impact of climate change on different ecological
zones within the country for different seasons and living standards.
• Establishing research networks and encouraging research in the areas of climate change impacts on im-
portant socio-economic sectors like agriculture, health, natural ecosystems, biodiversity, coastal zones, etc.
Progress:
• 12 Centres of Excellence and 10 State Climate Change Centres have been established.
• 8 Global Technology Watch Groups (GTWGs) in areas of Renewable Energy Technology, Advance Coal Tech-
nology, Enhanced Energy Efficiency, Green Forest, Sustainable Habitat, Water, Sustainable Agriculture and
Manufacturing have set up.
Climate Change Action Plan (CCAP)
• Climate Change Action Plan (CCAP) is a Central Sector Scheme.

• It was formulated to build and support the scientific and analytical capacity for assessment of climate change
in the country and to establish appropriate institutional framework and implement climate actions.
• Two important components are
1) National Carbonaceous Aerosols Program (NCAP)
2) Long-Term Ecological Observatories (LTEO)
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National Adaptation Fund on Climate Change (NAFCC):

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• It was established to support concrete adaptation activities which are not covered under on-going activities
through the schemes of State/UT and National Government.
Faster Adoption and Manufacturing of (Hybrid&) Electric Vehicle in India (FAME India) scheme:
• Govt. is implementing this scheme to encourage progressive induction of reliable, affordable and efficient
electric and hybrid vehicles.
Climate Risk Insurance:
• It is an important tool for providing security against loss of livelihoods and of assets as a consequence of
disasters.
• Thus, given the significant contribution of the agricultural sector in the Indian economy, coupled with loom-
ing “climatic aberrations,” crop insurance becomes a necessity to mitigate the risks associated with a majority
of the country’s farmers.
India’s initiatives at international stage:
1) International Solar Alliance (ISA)

2) Coalition for Disaster Resilient Infrastructure (CDRI)
International Solar Alliance:
• ‘World Solar Bank’ which would cater to the need for dedicated financing window for solar energy projects
across the members of ISA. It is expected to provide low-cost financing at favourable terms for solar energy
projects as well as engage in co-financing with other multilateral/bilateral development financial institutions.
• ‘One Sun One World One Grid’ initiative aims to create an interconnected green grid that will enable solar
energy generation in regions with high potential and facilitate its evacuation to demand centers.
• ISA Secretariat has recently launched a ‘Coalition for Sustainable Climate Action’ comprising of global
public and private corporates.
• ISA organized the First World Solar Technology Summit (WSTS) in September 2020 with an objective of
showcasing to Member Countries the state of the art and next-generation solar technologies.
Coalition for Disaster Resilient Infrastructure (CDRI)
• Coalition functions as an inclusive multi-stakeholder platform led and managed by national governments,
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where knowledge is generated and exchanged on different aspects of disaster resilience of infrastructure.
• CDRI is co-chaired by India and the United Kingdom (UK).
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IMPORTANT FEATURES OF INDIA'S NDCs (Data point):
• Reduce emissions intensity of GDP by 33 to 35% by 2030 from 2005 level.

• Achieve about 40% cumulative electric power installed capacity from non-fossil fuel based energy
sources by 2030, with the help of transfer of technology and low cost international finance.
• Create additional carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent through additional forest and
tree cover by 2030.
Social Stock Exchange:
• India is aiming to create a Social Stock Exchange (SSE) under the regulatory ambit of SEBI for raising
capital by Social Enterprises working for the realization of a social welfare objective.
• SEBI constituted a committee to make recommendations for Social Stock Exchanges.
Green Bonds:
• They are debt instruments issued by an entity for raising funds from investors the proceeds of which are
used for financing 'green' projects.
• They are an effective tool to raise capital for renewable energy projects while meeting environmental tar-
gets of the investors and climate targets of the Government of India.
• SEBI in 2017 issued guidelines on green bonds including listing of green bonds on Indian stock exchange.
• Launch of green indices such as S&P BSE CARBONEX (in 2012), MSCI ESG India (in 2013), and S&P BSE 100
ESG Index (in 2017) allows passive and retail investors to invest in ‘green’ companies.
• 8 ESG mutual funds have been launched in India.
• Cumulative issuance of global green bonds crossed $1 trillion in 2020. However, green bond issuance slowed
down in first half of 2020.
• Green bonds were most negatively impacted of all themes, but there were positive signs in the market
that point to increasing demand and better performance of green vs. vanilla debt instruments.
• India has the second largest green bond market among the emerging markets after China.
Chapter 7: Agriculture and Food Management
• Total workforce engaged in agricultural and allied sector activities ➔ 54.6 %

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• Share in Gross Value Added (GVA) ➔ DECLINED to 17.8% in 2019-20

• Share of Crops ➔ DECREASED
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Back to Basics: What is Gross Value Added?
• Put simply, it is a measure of total output and income in the economy.

• It provides the rupee value for the amount of goods and services produced in an economy after de-
ducting the cost of inputs and raw materials that have gone into the production of those goods and ser-
vices.
• It also gives sector-specific picture like what is the growth in an area, industry or sector of an economy.
• Example: Imagine buying a cake from a bakery

• The cake is a produced good, or output, created by the bakery
• The price charged for the cake [OUTPUT] is included in the GVA for bakery
• But .. in order to produce the cake, the baker will need to purchase a number of ingredients like eggs, flour
and butter ➔INTERMEDIATE CONSUMPTION
• The total value of this intermediate consumption is subtracted from output and this gives the total GVA
from the sale of this cake
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 By adding up GVA of all firms, we can calculate total GVA of the country
How is it measured?
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 At the macro level, from national accounting perspective, it is the sum of a country’s GDP and net of subsi-
dies and taxes in the economy.
 When measured from the production side, it is a balancing item of the national accounts.
Back to Basics: Agriculture and allied activities
• Agricultural and allied sector activities are divided into different segments ➔ Horticulture, Fisheries sec-
tor, animal husbandry, livestock, sericulture etc.
• Share of livestock and fisheries sector ➔ INCREASED

• GVA for agriculture during 2020-21 ➔ POSITIVE growth of 3.4%
• Gross Capital Formation (GCF) ➔ Fluctuating Trend
Back to Basics: Gross Capital Formation
• Gross Capital Formation is Investment

• When people save, they tend to invest
• The percentage of the investment made each year out of the total GDP is called Gross Capital For-
mation.
• Example: construction of roads and railways
• So, Rate of Gross Capital Formation is arrived as follows:
Rate of Capital Formation = (Investments /GDP) X 100
• Production of Crops ➔ total food production estimated at record high 296.65 million tonnes during 2018-
19
• Agriculture credit flow target for 2020-21 ➔ 15,00,000 cr
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• Share of agricultural credit in Southern region was more than 40%

• Share of agricultural credit in North-Eastern region was less than 2% [Reason: Low cultivable area in
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North-Eastern states]
• Major destinations of agri products ➔ USA, Saudi Arabia, Iran, Nepal and Bangladesh
• Top agriculture and related products exported from India ➔ Marine products, basmati rice, buffalo
meat, spices, non-basmati rice, raw cotton, sugar, castor oil and tea
• Share of Marine products, basmati rice, non-basmati rice, spices and sugar in total agricultural ex-
port value during 2015-16 to 2019-20 ➔ INCREASED
• Share of buffalo meat and raw cotton during 2015-16 to 2019-20 ➔ DECREASED
• India’s total agri-export basket accounts in world agri trade ➔ over 2.5%
Agriculture Infrastructure Fund:
• It is a Central Sector Scheme

• It is operational from the year 2020-21 to 2029-30
• This scheme provides medium to long term debt financing for investment in viable projects for post-har-
vest management infrastructure and community farming assets
• All loans will have interest subvention of 3% per annum upto a limit of 2 crores
• Maximum period for subvention ➔ 7 years
Minimum Support Price (MSP):
• MSP of kharif crops: Highest increase in MSP ➔ Nigerseed

• MSP of rabi crops: Highest increase in MSP ➔ Lentil
Back to Basics: Minimum Support Price
▪ A Minimum Support Price (MSP) is a form of market intervention by the Government of India to insure ag-
ricultural producers against any sharp fall in farm prices.
▪ The minimum support prices are announced by the Govt of India at the beginning of the sowing sea-
son for certain crops on the basis of the recommendations of the Commission for Agricultural Costs
and Prices (CACP).
▪ MSP is price fixed by Government of India to protect the producer - farmers - against excessive fall in
price during bumper production years.
▪ The minimum support prices are a guarantee price for their produce from the Government.
▪ The major objectives are to support the farmers from distress sales and to procure food grains for
public distribution.
▪ In case the market price for the commodity falls below the announced minimum price due to bumper pro-
duction and glut in the market, government agencies purchase the entire quantity offered by the farmers at
the announced minimum price.
Pradhan Mantri Fasal Bima Yojana (PMFBY)

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• Average sum insured per hectare has increased from Rs. 15,100 during the pre-PMFBY schemes to Rs.
40,700 under PMFBY
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• PMFBY was launched on January 13, 2016

• This scheme provides a comprehensive insurance cover against failure of the crop thus helping in stabi-
lising the income of the farmers.
• PM Fasal Bima Yojana scheme extends coverage for the entire cropping cycle from pre-sowing to post-
harvest including coverage for losses arising out of prevented sowing and mid-season adversities.
• Individual farm level losses arising out of localized calamities and post-harvest losses are also covered due
to perils such as inundation, cloudburst and natural fire.
• The scheme was compulsory for loanee farmers availing Crop Loan/Kisan Credit Card (KCC) account
for notified crops and voluntary for others.
In order to ensure more efficient and effective implementation of the scheme, the central government had re-
vamped PMFBY in the 2020 Kharif season. It is often called as PMFBY 2.0
PMFBY 2.0 features:
➢ Completely Voluntary: Enrolment 100% voluntary for all farmers from 2020 Kharif.
➢ Limit to Central Subsidy: The Cabinet has decided to cap the Centre’s premium subsidy under the scheme
for premium rates up to 30% for unirrigated areas/crops and 25% for irrigated areas/crops.
➢ More Flexibility to States: The government has given the flexibility to states/UTs to implement PMFBY
and given them the option to select any number of additional risk covers/features.
➢ Investing in ICE Activities: Insurance companies have to now spend 0.5% of the total premium collected
on information, education and communication (IEC) activities.
PM-KISAN:
• Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) Scheme was launched on Feb 24, 2019
• It is the first universal basic income-type of scheme targeted towards farmers.
• Aim: To provide income support to all landholder farmer families across the country with cultivable
land, subject to certain exclusion.
• PM-KISAN Mobile App developed and designed by the National Informatics Centre in collaboration
with the Ministry of Electronics and Information Technology has been launched.
• It is a Central Sector Scheme with 100% funding from the Government of India.
• It is being implemented by the Ministry of Agriculture and Farmer’s Welfare.
• It intends to supplement the financial needs of the Small and Marginal Farmers (SMFs) in procuring vari-
ous inputs to ensure proper crop health and appropriate yields, commensurate with the anticipated farm
income at the end of each crop cycle.
In order to further strengthen and support the agricultural sector, several initiatives have been taken by the
Government of India under the Atma Nirbhar Bharat Abhiyan.
1 lakh crores Agri Infrastructure Fund:
 Financing will be provided for funding agriculture infrastructure projects at farm-gate and at aggregation
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points and for financially viable post-harvest management infrastructure.
10,000 crores scheme for Formalisation of Micro Food Enterprises (MFE):

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 Aiding 2 lakh MFEs who need technical upgradation to attain FSSAI food standards, build brands and
support marketing.
20,000 crores for fisherman through Pradhan Mantri Matsya Sampada Yojana (PMMSY):
 It aims at integrated, sustainable and inclusive development of marine and inland fisheries by developing
infrastructure such as fishing harbours, cold chain, markets, etc.
National Animal Disease Control Programme:
 It targets Foot and Mouth Disease (FMD) and Brucellosis by ensuring 100 per cent vaccination of cattle,
buffalo, sheep, goat and pig population.
Animal Husbandry Infrastructure Development Fund - 15,000 crores:
 It is to support private investment in dairy processing, enable value addition and improved cattle feed
infrastructure.
 From ‘TOP’ to TOTAL, “Operation Greens” run by Ministry of Food Processing Industries (MOFPI) to be
extended from tomatoes, onion and potatoes to ALL fruit and vegetables.
Reforms in Essential Commodities Act, Agriculture Marketing and Agriculture Produce Pricing and Quality
Assurance:
 These legislative reforms seek to remove agricultural commodities such as cereals, pulses, oilseeds etc.
from the list of essential commodities and aim to reform agricultural marketing.
PM Garib Kalyan Anna Yojana:
 The scheme aimed at ensuring food and nutritional security to around 80 crores ration card holders who
were affected due to the COVID-19 induced national lockdown.
One Nation One Ration Card Scheme:
 This scheme will enable migrant workers and their family members to access PDS benefits from any fair
price shop in the country.
Livestock Sector:
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• Livestock Sector contributed 4.2% of total GVA in 2018-19

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• Contribution of livestock in total agriculture and allied sector ➔ INCREASED

• Milk: India continues to be the largest producer of milk in the world.
• Milk production ➔ INCREASED
• Egg: India ranks 3rd in egg production in the world.
• Egg Production ➔ INCREASED
• Meat: India ranks 5th in meat production in the world.
• Meat Production ➔ INCREASED
Recent initiatives in Livestock sector:
• Inclusion of livestock sector in Kisan Credit Card (KCC): 1.5 crores dairy farmers of milk cooperatives and
milk producer companies’ were targeted to provide KCC as part of Prime Minister’s AtmaNirbhar Bharat
Package.
• National Animal Disease Control Programme (NADCP): It aims at vaccinating all cattle, buffalo, sheep,
goat and pig population against Foot & Mouth Disease (FMD) and all bovine female calves of 4-8 months of
age against brucellosis. The programme has a total outlay of Rs.13,343 crores for five years (2019-20 to 2023-
24).
• Animal Husbandry Infrastructure Development Fund (AHIDF): Rs. 15000 crores AHIDF has been set up
to incentivize investments by individual entrepreneurs, private companies including MSME, farmers produc-
ers organizations(FPOs) and Section 8 companies, through 3 % interest subvention.
Fisheries:
• India is the 2nd largest fish producing country in the world and accounts for 7.58% of the global produc-
tion
• Fisheries sector contribution to agricultural GVA → 7.28%
• Fisheries sector contribution to GVA → 1.24%
Govt. initiatives in Fisheries sector:
• Centrally sponsored scheme – Blue Revolution (CSS-BR) to catalyze the “Integrated, Responsible and Ho-
listic Development and Management of the Fisheries Sector”, ended in March 2020. Blue Revolution was
launched in 2015.
• Pradhan Mantri Matsya Sampada Yojana (PMMSY) was launched in May, 2020 as a part of AtmaNirbhar
Bharat Package by Government of India with an estimated investment of Rs. 20,050 crores. It aims to enhance
fish production to 220 lakh metric tons by 2024-25 at an average annual growth rate of about 9%.
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Food processing sector:
1. During the last 5 years ending 2018-19, food processing industries (FPI) has been growing at an average
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annual growth rate of 9.99%

2. Contribution of food processing sector to GVA in manufacturing @ 8.98%
New initiatives in Food Processing Sector:

Prime Minister-Formalisation of Micro Food Processing Enterprises (PM-FME): It was launched under the
AtmaNirbhar Bharat Abhiyan as a Centrally Sponsored Scheme, with a total outlay of Rs.10,000 crores over the
period 2020- 2025.
➢ The Scheme adopts One District One Product (ODOP) approach to reap benefit of scale in terms of
procurement of inputs, availing common services and marketing of products. ODOPs of 650 districts in
34 States/UTs have already been approved.
➢ The Scheme also places focus on waste to wealth products, minor forest products and Aspirational
Districts.
Operation Greens:
➢ Under AtmaNirbhar Bharat Abhiyan, this scheme has been extended from tomato, onion and potato
(TOP) crops to the other notified horticulture crops (Total) for a period of 6 months.
➢ Transport subsidy has been allowed on any fruit & vegetable through any rail service provided by Indian
Railways.
➢ This years budget has increased the scheme of the scheme to include 22 perishable crops.
Production-Linked Incentive (PLI) Scheme:
• It was approved in November 2020 with financial outlay of Rs. 10,900 crores for food processing sector.
• The scheme would also support the branding and marketing abroad.
Pradhan Mantri Kisan SAMPADA Yojana (PMKSY):

Various components under the umbrella scheme include
➢ Mega Food Parks

➢ Integrated Cold Chain and Value Addition Infrastructure
➢ Infrastructure for Agro-processing Clusters
➢ Creation of Backward and Forward Linkages
➢ Creation/ Expansion of Food Processing & Preservation Capacities, and Operation Greens
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Food Management:
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• Sale of wheat and rice is undertaken through Open Market Sale Scheme (OMSS) to check inflationary trend
of food in market.
• During the Financial Year 2020-21, allocation of foodgrains has been done through two channels- under
the National Food Security Act (NFSA) and the Pradhan Mantri Garib Kalyan Anna Yojana (PM-GKAY) scheme.
• Fortification of Rice and Its Distribution: To address the issue of anaemia and micro-nutrient deficiency
and to promote nutrition security in the country, a centrally sponsored pilot scheme named “Fortification
of Rice & its Distribution under Public Distribution System” was approved for a period of 3 years begin-
ning in 2019-20.
• Open Market Sale Scheme (Domestic): Food Corporation of India (FCI) on the instructions from the Gov-
ernment sells excess stocks out of Central Pool through Open Market Sale Scheme (Domestic) in the open
market from time to time at predetermined prices.
• Food Subsidy: The difference between the per quintal economic cost and the per quintal Central Issue Price
(CIP) gives the quantum of food subsidy. Non revision of Central Issue Price (CIP) and rise in economic cost
of wheat and rice for FCI operations has resulted in the rise in food subsidy.
• Ethanol: Government has set 10% blending target for mixing ethanol with petrol by 2022 & 20 % blend-
ing target by 2030.
PRADHAN MANTRI GARIB KALYAN ANNA YOJANA (PM-GKAY) SCHEME:
• Additional allocation of foodgrains from Central Pool at the rate of 5 kg per person per month free of cost
for all beneficiaries covered under Targeted Public Distribution System (TPDS) including those covered
under Direct Benefit Transfer for three month period of April-June 2020.
• The scheme was extended for a further period of 5 months i.e. July-November 2020.
• PMGKAY is a part of Pradhan Mantri Garib Kalyan Package (PMGKP) to help the poor fight the battle
against Covid-19.
National Food Security Act (NFSA):
• NFSA is being implemented in all States and UTs. They receive monthly allocation of foodgrains under NFSA.
• State Governments are also provided central assistance to meet expenditure incurred on intra-state move-
ment of foodgrains and fair price shop dealers margins.
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Chapter 8: Industry and Infrastructure

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The financial year 2020-21 (FY21) began amidst a global pandemic, the management of which led to countries
adopting unprecedented measures that brought the economy to a grinding halt.
Measure of relief and support to the Indian Economy:
• A bouquet of measures equivalent to 29.87 lakh crores or 15% of India’s GDP were introduced as a measure
of relief and support to the economy.
Atmanirbhar Bharat 1.0:
Relief and credit support to MSMEs
o 3 lakh crores Collateral-free Automatic Loans for Businesses, including MSMEs ➔ Emergency Credit
Line Guarantee Scheme (ECLGS) has been formulated as a relief measure to the MSMEs by providing them
additional funding of up to 3 lakh crores in the form of a fully guaranteed emergency credit line.
ELIGIBILITY: Borrowers with up to 25 crores outstanding and 100 crores turnover
o 20,000 crores Subordinate Debt for Stressed MSMEs: Government to support MSMES (stressed or NPA)
with 4,000 crores to Credit Guarantee Trust for Micro and Small enterprises(CGTMSE)
o 50,000 crores equity infusion through MSME Fund of Funds: Government to set up a Fund of Funds with
a corpus of 10,000 crores that will provide equity funding support for the MSMEs.
o Income Tax Refund: Income tax refunds to nearly 8.2 lakh small businesses worth 5,204 crores has been
issued with the objective to help the MSMEs to carry on their business activities without pay cuts and layoffs
in these challenging times.
o Relief of 1500 crores to MUDRA- Shishu loans: GoI to provide interest subvention of 2 % to prompt
payees for a period of 12 months.
o Packages for Power Sector- 90,000 crores liquidity injection for DISCOMs
• It provided 25,000 crores as additional capital expenditure to the Ministry of Road Transport and Ministry of
Defence

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• 1.46 lakh crores boost for Atmanirbhar manufacturing production-linked incentives for 10 Champion Sec-
tors
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• 18,000 crores additional outlay for PM Awaas Yojana (PMAY) –Urban

• 1.10 lakh crores platform for infra debt financing – 6000 crores equity infusion in National Investment
and Infrastructure Fund (NIIF) Debt Platform, 10,200 crores additional budget outlay will be provided towards
capital and industrial expenditure for domestic defence equipment, industrial incentives, industrial infrastruc-
ture, and green energy.
Back to Basics: Emergency Credit Line Guarantee Scheme (ECLGS)
• Emergency Credit Line Guarantee Scheme (ECLGS) : For MSMEs and MUDRA borrowers
• 100% guarantee coverage to be provided by National Credit Guarantee Trustee Company Limited
(NCGTC) for additional funding of up to Rs. 3 lakh crore to eligible MSMEs and interested MUDRA borrowers.
• Credit will be provided in the form of a Guaranteed Emergency Credit Line (GECL) facility.
• Tenure of the loan shall be 4 years with a moratorium period of 1 year on the principal amount.
Back to Basics: MUDRA
▪ MUDRA stands for Micro Units Development and Refinance Agency

▪ Nodal Ministry → Ministry of Finance
▪ The core objective of the bank is to fund the unfunded. It will finance to “Last Mile Financiers” of
small/micro businesses.
▪ The lending priority will be given to SC/ST enterprises
Back to Basics: Production-linked incentive (PLI) scheme
• To make India a manufacturing hub, govt recently announced the PLI scheme for mobile phones, pharma
products, and medical equipment sectors.
• It was notified on April 1 as a part of the National Policy on Electronics.
• It proposes a financial incentive to boost domestic manufacturing and attract large investments in the
electronics value chain.
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• It extends an incentive of 4% to 6% on incremental sales (over base year) of goods manufactured in

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• India and covered under target segments, to eligible companies, for a period of 5 years with financial year
(FY) 2019-20 considered as the base year for calculation of incentives.
• The move is aimed at spurring local manufacturing and promoting India as an alternate global manufacturing
hub in Asia.
Back to Basics: Debt Financing
• Debt financing is a time-bound activity where the borrower needs to repay the loan along with interest
at the end of the agreed period. The payments could be made monthly, half yearly, or towards the end of
the loan tenure.
Overview of Industrial Sector:
• Industrial sector experienced a sharp decline during the period of lockdown.

• Industrial sector is expected to record a growth of -9.6% with an overall contribution in GVA of 25.8% in FY21
➔ NEGATIVE Growth
• Contribution of the industrial sector has been constantly declining since 2011-12.
Index of Industrial Production (IIP):
• IIP growth started contracting immediately after the lockdown reaching its historical low in April-2020.
• IIP turned positive for the first time in September 2020.
Back to Basics: Index of Industrial Production
o Index of Industrial Production (IIP) is an index for India which details out the growth of various sectors in
an economy such as mineral mining, electricity and manufacturing
o The all India IIP is a composite indicator that measures the short-term changes in the volume of pro-
duction of a basket of industrial products during a given period with respect to that in a chosen base
period
o Calculated and published by the Central Statistical Organisation (CSO) every month
o IIP is published monthly, six weeks after the reference month ends
o 8 Core Industries comprise nearly 40.27% of the weight of items included in the Index of Industrial
Production (IIP). These are electricity , steel, refinery products, crude oil, coal, cement, natural gas and fer-
tilisers.
Industry groups that it measures are classified under the following:
➔ Broad sectors like manufacturing, mining and electricity.

➔ Use-based sectors like capital goods, basic goods, intermediate goods, infrastructure goods, consumer
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durables and consumer non-durables.
Total – 8 Core Industries

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Industry Weight
Refinery Products [HIGHEST] 28.04

Electricity 19.85
Steel 17.92
Coal 10.33
Crude Oil 8.98
Natural Gas 6.88
Cement 5.37
Fertilisers [LOWEST] 2.63
Total 100
 The new series of IIP has a total of 809 items occurring in the manufacturing sector in the item basket
(405 item groups)
 Primary goods have the highest weight of 34% and capital goods have the least weight i.e. 8.22%
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Index of Eight-Core Industries:
• Recorded its all-time low growth of (-) 37.9 % due to covid-19 led nationwide lockdown (April-2020) ➔
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NEGATIVE
Eight industries and their weights are covered under the scheme are:
1. Natural Gas (6.9)
2. Cement (5.4)
3. Crude Oil (9)
4. Refinery Products (28) ➔ HIGHEST
5. Steel (17.9)
6. Fertilisers (2.6) ➔ LOWEST
7. Electricity (19.9)
8. Coal (10.3)
• These 8 industries have together close to 40% weight in the IIP.

• The index is released by Office of Economic Adviser under Ministry of Commerce and Industry.
Gross Capital Formation in the Industrial Sector:
• Registered a sharp rise from 1.2% in FY18 to 17.5% in FY19

• Showed a substantive improvement in GCF in the sector ➔ POSITIVE
NOTE: Share of GCF of the industrial sector had declined from 38.2 % in FY12 to 30.2 % of GDP in FY18 before
an uptick (31.9 %) was recorded in FY19
Performance of Central Public Sector Enterprises (CPSEs):
• CPSEs are operating in 4 sectors –Agriculture, Mining & Exploration, Manufacturing, and Services.
• Profitable CPSEs: There are 366 CPSEs as of March 2020. Of these, 256 are in operation, but only 171 CPSEs
booked profit during FY20.
• The public sector enterprise policy enunciated by the Government in November 2020, spells a complete
change in paradigm as compared to its policy of import substitution and self-sufficiency which became the
basis of the Mahalanobis Plan in 1956.
• Under the aegis of the Atmanirbhar Bharat Mission, the government has proposed to rationalise the par-
ticipation of the CPSEs in commercial activities.
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Start-up ecosystem in India:

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• Startups are the platform for entrepreneurs who have the ability to think out of the box and innovate to
conceive products that can create a niche for themselves in a dynamically changing world.
• To facilitate the growth of startups, Government of India had announced the “Startup India, Stand-up In-
dia” initiative
• The action plan is based on three pillars
1) Simplification and Handholding,
2) Funding Support and Incentives,
3) Industry-Academia Partnership and Incubation
Government has taken following initiatives to promote the startups:
o Startups Intellectual Property Protection (SIPP) scheme enable filing process of patent or trademark ap-
plication transparently.
o Fund of Funds for Startups (FFS) with a total corpus of Rs. 10,000 crores were established with contribution
spread over the 14th and 15th Finance Commission cycle based on the progress of implementation.
o Startup Yatra: An initiative that includes travelling to Tier 2 and Tier 3 cities of India to search for entrepre-
neurial talent by conducting day-long boot camps.
Foreign Direct Investment (FDI):
• FDI is a one of the major sources of investment and investment financing that drives the economic growth in
the country.
• FDI flows are also associated with the enhancement of productivity, skills and technology development in the
country.
• Total inflows: During FY20, total FDI equity inflows were US$49.98 billion as compared to US$44.37 billion
during FY19.
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• The bulk of FDI equity flow is in the non-manufacturing sector leading to a reduction in the share of
manufacturing in the FDI flows.
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Back to Basics: Foreign Direct Investment
• Foreign direct investment is a form of investment that earns interest in enterprises which function out-
side the domestic territory of the investor.
• Foreign direct investment is a component of a country's national financial account.
• Foreign direct investment is a lead driver for economic growth and brings certain benefits to national
economies.
• It can contribute to Gross Domestic Product (GDP), Gross Fixed Capital Formation (total investment in a
host economy) and Balance of Payments.
Sector wise issues and initiatives
Steel:
• Steel is one of the critical inputs to industries, urban development and infrastructure development.
• India is the second-largest producer of crude steel only after China.
• India is also the second largest consumer of steel.
Government initiatives under Atmanirbhar Abhiyan:
o ‘Specialty Steel’ incorporating under the Production Linked Incentive (PLI) scheme
o Parity price under the Duty Draw Back scheme of DGFT
o Preference to domestically produced iron and steel in Govt. procurement
National Steel Policy, 2017 aims at achieving a crude steel capacity of 300 million tonnes (MT) and a finished
steel capacity of 230 MT with a per capita consumption of 158 kg by 2030-31
Back to Basics: National Steel Policy, 2017
Key features of the NSP 2017:
• Create self-sufficiency in steel production by providing policy support & guidance to private manufacturers,
MSME steel producers, CPSEs
• Encourage adequate capacity additions
• Development of globally competitive steel manufacturing capabilities
• Cost-efficient production
• Domestic availability of iron ore, coking coal & natural gas
• Facilitating foreign investment
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• Asset acquisitions of raw materials

• Enhancing the domestic steel demand
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The policy projects crude steel capacity of 300 million tonnes (MT), production of 255 MT and a robust
finished steel per capita consumption of 158 Kgs by 2030 – 31.
Reduce import dependence on coking coal from about 85% to around 65% by 2030-31.
Coal:
• Coal accounts for 55% of the country’s energy needs.

• Government Initiative to balance between energy demand and the environment:
1. Development of clean coal through creating carbon sinks.
2. Two Coal Bed Methane (CBM) Projects with considerable potential for carbon footprint reduction
are in the pipeline.
3. Several amendments were brought into like Coal Mines (Special Provisions) Act, 2015, Mineral Laws
(Amendment) Act, 2020.
MSME Sector:
• India has more than 6 crore MSMEs

• Employment: The sector employs more than 11 crore people
• Contribution to GDP: Close to 30%
• Exports: Contributes roughly half of India's exports
Government Initiatives in MSME Sector
1. Revision of the investment criteria in the MSME definition

2. Champions Portal
3. Udyam registration portal
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Back to Basics: Champion Sectors (10)
I. Automobiles and Auto Components

II. Pharmaceuticals Drugs
III. Specialty Steel
IV. Telecom & Networking Products
V. Electronic/Technology Products
VI. White Goods (ACs and LEDs)
VII. Food Products
VIII. Textile Products: MMF segment and technical textiles
IX. High efficiency solar PV modules
X. Advanced Chemistry Cell (ACC) Battery
Textile and Apparels Industry:
• Contributes 2% of GDP and 11% of total manufacturing GVA in FY20.

• Provides direct and indirect employment to 10.5 crore people. (2nd largest employment generator after
agriculture sector)
• Women are a major part of workforce of this sector, allowing for women development and overall social
development for the country.
• India is 6th largest exporter of textile and apparels after China, Germany, Bangladesh, Vietnam and Italy.
Schemes:
o Amended Technology Upgradation Funds Scheme (ATUFS) has an objective to modernize and upgrade
the technology of the Indian textile industry
o Scheme for Integrated Textile Parks (SITP) aims to provide world class infrastructure to textile sector
o Samarth focuses on capacity building in the textile sector. In addition, other schemes specific to silk, jute,
wool, handloom and handicraft sectors are also being implemented 80
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Infrastructure:
• National Infrastructure Pipeline (NIP) for the FY 2020-2025 to facilitated world class infrastructure pro-
jects to be implemented.
• Public Private Partnership Appraisal Committee (PPPAC) responsible for the appraisal of PPP projects in
the Central sector.
• Infrastructure Viability Gap Funding revamped scheme till 2024-25.
Back to Basics: National Infrastructure Pipeline (NIP)
• In the budget speech of 2019-2020, Finance Minister announced an outlay of Rs 100 lakh Crore for infra-
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structure projects over the next 5 years.

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• NIP is a first-of-its-kind initiative to provide world-class infrastructure across the country and improve
the quality of life for all citizens.
• It will improve project preparation, attract investments (both domestic & foreign) into infrastructure, and
will be crucial for attaining the target of becoming a $5 trillion economy by FY 2025.
• Covers both economic and social infrastructure projects.
Back to Basics: Viability Gap Funding (VGF) Scheme
• Viability Gap Finance means a grant to support projects that are economically justified but not finan-
cially viable.
• The scheme is designed as a Plan Scheme to be administered by the Ministry of Finance and amount in the
budget are made on a year-to-year basis.
• Such a grant under VGF is provided as a capital subsidy to attract the private sector players to participate in
PPP projects that are otherwise financially unviable.
• Projects may not be commercially viable because of the long gestation period and small revenue flows in
future.
• VGF scheme was launched in 2004 to support projects that come under Public-Private Partnerships.
Civil Aviation:
• From the 3rd largest domestic aviation market, it is expected to become the 3rd largest overall (including
domestic and international traffic) by the year FY25.
• At forefront during COVID-19: Vande Bharat Mission (to evacuate stranded Indians) and Lifeline Udan
initiative (transporting life-critical supplies to remotest corners of the country) are the major initiatives in
civil aviation sector.
• Air bubble: Government has also entered into air-links or air transport bubble arrangements with 23 coun-
tries to facilitate the movement of passengers between the respective countries and India.
Port and Shipping:
• In India, around 95 % of total volume of international trade is transported by sea.

• Sagarmala Programme: To promote port-led development in the country and reduce logistics costs for
trade.
Back to Basics: Sagarmala

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Railways:
• Indian Railways (IR) with over 67,580 route km, is the third-largest network in the world under a single
management.
• Government of India has allowed the private players to operate in the Railways sector through the PPP mode
under the “New India New Railway” initiative.
• Kisan Rail to provide better market opportunity by transporting perishables and Agriproduct.
• Ministry of Railways has developed a National Rail Plan (NRP). It aims at developing adequate rail infra-
structure by 2030 to cater to the projected traffic requirements up to 2050.
Back to Basics: New India New Railway Initiative
• Under this initiative, private players have been allowed to operate in the Railways Sector through PPP
mode.
• Private sector is expected to invest Rs 30,000 crore in this initiative.
• Ministry of Railways has identified over 150 pairs of train services for the introduction of 151 modern train
sets or rakes through private participation.
• The private entity shall be responsible for financing, procuring, operating, and maintenance of the trains and
shall have the freedom to decide on the fare to be charged from its passengers.
Back to Basics: National Rail Plan (NRP)
• Aims at developing adequate rail infrastructure by 2030 to cater to projected traffic requirements upto 2050
• Aims to increase modal share of rail in freight from current 27% to 45%
• Indian Railway Finance Corporation (IRFC) is mobilizing resources with sufficient moratorium period and
projects are being targeted to be completed well before the expiry of the moratorium period.
• These priority projects are being planned in such a way that they will provide enough return to service the
debt.
Road Sector:
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• India (63.86 lakh km) has 2nd largest road network in the world.
• Road density is lowest in Jammu & Kashmir, Delhi and Jharkhand.
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• Road density is highest in Arunachal Pradesh followed by Maharashtra and Tripura.
Petroleum and Natural Gas:

• India is the 3rd largest energy consumer in the world after USA and China.
Power:
• The total installed capacity has increased from 3,56,100 MW in March-2019 to 3,70,106 MW in March 2020.
• Integrated Power Development Scheme (IPDS) aims to facilitate state utilities to ensure quality and relia-
ble 24*7 power supply in urban areas.
• India has accomplished two major landmarks in rural electrification arena:
➢ 100% village electrification under Deen Dayal Upadhyaya Gram Joyti Yojana (ii) Universal household elec-
trification under ‘Pradhan Mantri Sahaj Bijli Har Ghar Yojana’ (Saubhagya)
Back to Basics: Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY)
• Launched on July 25, 2015 in Patna

• It focuses on feeder separation (rural households & agricultural) and strengthening of sub-transmission
& distribution infrastructure including metering at all levels in rural areas. This will help in providing
round the clock power to rural households and adequate power to agricultural consumers.
• The earlier scheme for rural electrification viz. Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) has
been subsumed in the new scheme as its rural electrification component.
Back to Basics: Saubhagya Scheme
• The objective of the Saubhagya scheme is to provide energy access to all by last mile connectivity to
achieve universal household electrification in the country.
• It was launched in September 2017.
• It is being funded to extent of 60% by central grants, 30% by bank loans and 10% by states.
• Under it, free electricity connections are provided to below poverty line (BPL) households, while other
households have to pay Rs.500 for the connection.
• The scheme envisages electricity connection for each household by drawing a service cable from the near-
est electricity pole to the home, installing an energy meter, and wiring for a single light point with an LED
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bulb and a mobile charging point.
Mining Sector:
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• India produces as many as 95 minerals which include 4 hydrocarbon energy minerals (coal, lignite, petro-
leum & natural gas), 5 atomic minerals (ilmenite, rutile, zircon, uranium, and monazite)
• Mining and quarrying sector in FY20 was accounting for about 2.1% of the overall GVA during FY20
• Production value of the major minerals increased by 2.3 % in FY20 as compared to 22.4% growth in
FY19.
Housing and Urban Infrastructure:
• Government of India has been implementing the Deendayal Antyodaya Yojana - National Urban Liveli-
hoods Mission in all the statutory towns to address the social & occupational vulnerabilities of the urban
poor.
• PM Street Vendor’s Atmanirbhar Nidhi (PM SVANidhi) was launched as part of the Atmanirbhar Bharat
Abhiyan for providing micro-credit facility to the street vendors to restart their businesses post COVID-19
lockdowns.
• Pradhan Mantri Awas Yojan-Urban (PMAY-U) has been rapidly moving towards achieving the vision for
providing a pucca house to every household by 2022.
• Light House Projects (LHPs): To provide impetus to innovative technology for housing construction,
Prime Minister laid foundation stones of Light House Projects (LHPs) on 1st January 2021.
Back to Basics: Deendayal Antyodaya Yojana - National Urban Livelihoods Mission
• National Urban Livelihoods Mission (NULM) is renamed as Deen Dayal Antyodaya Yojana-(DAY-NULM) and
in Hindi as – Rashtriya Shahri Aajeevika Mission.
• Coverage: Under the scheme urban areas extends the coverage to all the 4041 statutory cities and towns,
there by covering almost the entire urban population.
Aim:
• To reduce poverty and vulnerability of the urban poor households by enabling them to access gainful self
employment and skilled wage employment opportunities, resulting in an appreciable improvement in their
livelihoods on a sustainable basis, through building strong grassroots level.
• To provide the shelter equipped with essential services to the urban homeless in a phased manner.
• To address the livelihood concern of the urban street vendors by facilitating with suitable space, institu-
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tional credit, and social security and skills to the urban street vendor for accessing emerging market oppor-
tunities.
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The scheme has two components one for urban India and other for rural India:
• Urban component named as Deen Dayal Antyodaya Yojana will be implemented by the Ministry of
Housing and Urban Poverty Alleviation.
• Rural component named as Deen Dayal Upadhyaya Grameen Kaushalya Yojana will be implemented
by the Ministry of Rural Development.
Back to Basics: PM Street Vendor’s Atmanirbhar Nidhi (PM SVANidhi)
• Ministry of Housing and Urban Affairs (MoHUA) has launched Pradhan Mantri Street Vendor's Atma
Nirbhar Nidhi (PM SVANidhi), for providing affordable loans to street vendors.
• The vendors can avail a working capital loan of up to Rs. 10,000, which is repayable in monthly instal-
ments within a year. The loans would be without collateral.
• It is for the first time that Microfinance Institutions, Non-Banking Financial Company, Self Help Groups have
been allowed in a scheme for the urban poor.
• The scheme is valid until March 2022.
• On timely/early repayment of the loan, an interest subsidy of 7% per annum will be credited to the bank
accounts of beneficiaries through direct benefit transfer on a 6 monthly basis.
Back to Basics: Light House Projects
• People have been provided with sustainable housing considering the local climate and ecology.
• Under this project, economical and potentially strong houses would be built employing various special
techniques.
• House’s beam-columns and panels would be prepared in the factories and brought directly to the place of
construction so as to assemble them.
• The carpet area covered in the project would be around 34.50 square meters.
• 14-storey towers would be built under this project with a total of 1,040 flats. The area of each flat would be
415 square feet.
• LightHouse Projects (LHPs) is a part of the Global Housing Technology Challenge-India (GHTC-India)
initiative.
• Ministry of Housing and Urban Affairs has conceptualized a Global Housing Technology Challenge - In-
dia (GHTC- India)
• Prime Minister declared the year 2019-20 as ‘Construction Technology Year’ while inaugurating GHTC-
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India in March 2019.

• Six LHPs consisting of about 1,000 houses each with physical & social infrastructure facilities are being con-
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structed at 6 places across the country namely Indore (Madhya Pradesh), Rajkot (Gujarat), Chennai (Tamil
Nadu), Ranchi (Jharkhand), Agartala (Tripura) and Lucknow (Uttar Pradesh)
Chapter 9: Services Sector
• Share of Total Services sector in the Gross Value Added @ 2020-21 ➔ 54.3%
• COVID-19 pandemic, the subsequent lockdown, and social distancing measures have had a significant im-
pact on the contact-intensive services sector.
• First-half of FY 2020-21 saw services sector contract by almost 16%
• Services sector’s significance in the Indian economy has been steady.
Contact-intensity of final demand:
• Consumption of certain goods/services requires consumers to gather in large crowds and/or come in contact
with other people.
• E.g. hotels, restaurants, shopping malls, cinema, airports, salons etc.
Contact-intensity of supply chain:
• Intuitively, sectors that employ a large number of people and have labour-intensive production processes
have highly contact-intensive production processes
• E.g. construction, health & personal care services etc.
Services Purchasing Managers Index:
• This index is also known as IHS Markit India Services Business Activity Index.
• It shows the performance of services sector in Indian economy.
• The index was at 57.5 in February 2020 contracted to lowest 5.4 in April 2020.
Back to Basics: PMI or Purchasing Managers’ Index (PMI)
➢ Indicator of business activity — both in the manufacturing and services sectors.

➢ It is a survey-based measure that asks the respondents about changes in their perception of some key busi-
ness variables from the month before.
➢ It is calculated separately for the manufacturing and services sectors and then a composite index is
constructed.
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➢ A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction.
➢Higher the difference from this mid-point greater the expansion or contraction.
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Service sector share at the State and UT level:
• Services sector accounts for more than 50% of the Gross State Value Added (GSVA) in 15 states.
• Highest ➔ Chandigarh and Delhi (> 85%)
• Lowest ➔ Sikkim (27.02%)
FDI Inflows into Services Sector:
• As per World Investment Report 2020 by United Nations Conference on Trade and Development (UNCTAD),
India has improved its position from 12th in 2018 to 9th position in 2019.
• ‘Computer Software & Hardware’ subsector accounted for most FDI
• FDI into India recorded almost 17% jump during April-September 2020
• Services sector is the largest recipient of FDI in India. Service Sector accounted for almost 4/5th of FDI
inflows in India.
Trade-in Services Sector:
• India remained among top 10 trading countries in commercial services in 2019 accounting for 3.5% of world
services exports.
• India’s services sector remained relatively resilient when compared to merchandise trade. The sector
provided steady flow of current receipts even though exports from a few sub-sectors were adversely af-
fected.
• Software sector accounted for most exports from service sector.
Ports, Shipping and Waterways Services:
• Ports handle around 90% of export-import cargo by volume and 70% by value in India.
• India has a 1 % share in world fleet as on January 2020.
• To harness the coastline, 14,500 km of potentially navigable waterways, and strategic location on key
international maritime trade routes, the Government has embarked on the ambitious Sagarmala Pro-
gramme to promote port-led development in the country.
Back to Basics: Sagarmala
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Space Sector:
• India spent about US$ 1.8 billion on space programmes in 2019-20.
• India has launched around 5-7 satellites per year in recent years.
• New Space India Limited (NSIL), a Central Public Sector Enterprise under the Department of Space, has
been mandated to transfer the technologies emanating out of the Indian space programme and enable the
Indian industry to scale up its high-technology manufacturing base.
• Government of India has also established Indian National Space Promotion and Authorization Centre
(IN-SPACe) for promoting industries and attracting investment in the space sector.
Back to Basics: Indian National Space Promotion and Authorization Centre (IN-SPACe)
• It aims at promoting industries and attracting investment in space sector.

• IN-SPACe is established as a single-window nodal agency, with its own cadre, which will permit and oversee
the activities of private companies.
• IN-SPACe is an independent nodal agency under Department of Space for allowing space activities and
usage of DOS owned facilities by NGPEs as well as to prioritise the launch manifest.
Chapter 10: Social Infrastructure, Employment and Human Develop-

ment
• COVID-19 has brought into focus the vulnerabilities of societies, states and countries in facing a pandemic.
• Lockdown had an inevitable impact on the vulnerable and informal sector, the education system, and on the
economy as a whole.
• Government announced the first relief package of 1.70 lakh crores under ‘Pradhan Mantri Garib Kalyan
Yojana (PMGKY)’ in March, 2020 and comprehensive stimulus cum relief package of 20 lakh crore under
‘Atma Nirbhar Bharat Abhiyan’.
Back to Basics: Pradhan Mantri Garib Kalyan Yojana (PMGKY)
• Union Finance & Corporate Affairs Minister Smt. Niramla Sitharaman has announced Rs 1.70 Lakh Crore
relief package under Pradhan Mantri Garib Kalyan Yojana for the poor to help them fight the battle
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against Corona Virus.

• These measures are intended at reaching out to the poorest of the poor, with food and money in hands, so
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that they do not face difficulties in buying essential supplies and meeting essential needs.
Components:
o Any health professional, who while treating Covid-19 patients, meet with some accident, then he/she
would be compensated with an amount of Rs 50 lakh under the scheme.
o All government health centres, wellness centres and hospitals of Centre as well as States would be covered
under this scheme.
o Approximately 22 lakh health workers would be provided insurance cover to fight this pandemic.
o Safai karamcharis, ward-boys, nurses, ASHA workers, paramedics, technicians, doctors and specialists and
other health workers would be covered.
o PM Garib Kalyan Ann Yojana: Under this scheme, 80 crore poor people, covering about two-thirds of the
country’s population, will get 5 kg rice or wheat each month for the next three months free of charge, in
addition to the 5 kg they already get. Each household will get 1 kg of dal of their choice, for next three
months, also free of charge.
o A total of 20.40 crores PMJDY women account-holders would be given an ex-gratia of Rs 500 per month
@ 3 months.
o Gas cylinders, free of cost, would be provided to 8 crore poor families for 3 months.
o Wage-earners below Rs 15,000 per month in businesses having less than 100 workers: Government
proposes to pay 24 % of their monthly wages into their PF accounts for 3 months.
o Support for senior citizens (above 60 years), widows and Divyang: Government will give them Rs 1,000
to tide over difficulties during 3 months.
o MNREGA wages would be increased by Rs 20 with effect from 1 April, 2020. Wage increase under
MNREGA will provide an additional Rs 2,000 benefit annually to a worker.
o Self-Help groups: Limit of collateral free lending would be increased from Rs 10 to Rs 20 lakhs.
Trends in Social Sector Expenditure:
• Public spending on social sector was INCREASED in 2020-21 to mitigate the hardships caused by the
pandemic and the loss to livelihood due to the lockdown
• Expenditure on social services (education, health and other social sectors) by Centre and States com-
bined as a proportion of GDP INCREASED from 6.2 to 8.8 per cent during the period 2014-15 to 2020-21
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(BE)
• A special economic and comprehensive package of 20 lakh crore- equivalent to 10 per cent of India’s
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GDP was announced under Atma Nirbhar Bharat to revive the economy and to address the pandemic. In
subsequent announcements, additional support cumulating to 29.88 lakh crore was announced.
Human Development:
• India’s rank in Human Development Index (HDI) was 131 in 2019, compared to 129 in 2018.
• Average annual HDI growth during 2010-2019 was 1.21% and cross-country comparison of average an-
nual HDI growth shows India is ahead of BRICS countries.
Back to Basics: Human Development Index
• It is an index released by UNDP as part of its Human Development Index.

• Components of Human Development Index (HDI)
1. Health Life Expectancy (Minimum and Maximum)
2. Education Expected and Mean Years of Schooling (Minimum and Maximum)
3. Standard of Living Gross National Income (GNI) per capita
Back to Basics: Planetary Pressures Adjusted Human Development Index (PHDI)
• It is an index released by UNDP as part of 2019 version of Human Development Index.

• This index adjusts for planetary pressures and environmental pollution the actual Human Development
Index.
• If a country puts no pressure on the planet, its PHDI and HDI would be equal, but the PHDI falls below
the HDI as pressure rises.
Quality Education for All:
• According to National Sample Survey, literacy rate of persons of age 7 years and above at all India level stood
at 77%.
• Female literacy remains below male literacy among all social groups and religious communities.
• As per U-DISE 2018-19, the physical infrastructure of more than 9.72 lakh government elementary schools
has improved significantly.
Govt. Initiatives:
Samagra Shiksha:
• It is a overarching programme for the school education sector extending from pre-school to class 12.
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• Under the Samagra Shiksha scheme, a National Mission to improve learning outcomes at the elementary
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level through an Integrated Teacher Training Programme called NISHTHA (National Initiative for School
Heads’ and Teachers’ Holistic Advancement) was contextualized and made 100 per cent online according
to the needs of teaching and learning during the COVID-19 pandemic.
PM-eVIDYA:
• It is an initiative for school and higher education to unify all efforts related to digital/online/on-air education
to enable multi-mode and equitable access to education for students and teachers.
National Repository of Open Educational Resources (NROER):
• NROER is an open storehouse of e-content. Pieces of e-content are available for various school subjects in
all grades.
MANODARPAN:
• The ‘Manodarpan’ initiative for psychosocial support has been included in the Atmanirbhar Bharat Abhiyan,
as part of strengthening and empowering the human capital to increase productivity and efficiency through
reforms and initiatives in the education sector.
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Skill Development:
• There is an improvement in the proportion of skilled people over the annual cycle of Periodic Labour
Force Survey (PLFS) across rural, urban and gender classification.
Policy Reforms under Skill Development Initiatives:
o Unified Skill Regulator- National Council for Vocational Education and Training: Under this, regulatory
capacity is being continuously strengthened through various standardization processes, regulatory systems,
human resources.
o Pradhan Mantri Kaushal Vikas Yojana 3.0 (PMKVY 3.0): Its first phase targets to skill 8 lakh candidates
including migrants. Other features include, bottom-up approach for identification and mapping of job roles,
vocational courses in schools. District Skill Committees will be the focal point of implementation.
o Quality Enhancement: Grading of Industrial Training Institutes (ITI) to improve their quality and transpar-
ency.
o Integration of Vocational and Formal education both at school and higher education: Offering voca-
tional courses in schools and equal weightage to vocational courses for admission in undergraduate courses;
‘hub-n-spoke’ model being piloted in an ITI becoming a ‘Hub’ for providing Vocational Education and Train-
ing.
Status of Employment:
• Females labour force participation rate increased from 17.5 % in 2017-18 to 18.6 % in 2018-19
• Self-employment is the major source of employment with close to 52% of the workforce was self-em-
ployed
• As per PLFS, size of labour force in 2018-19 was estimated at about 51.8 crore persons with 3.0 crore
unemployed.
• Industry wise employment:
1) Largest number of persons are employed in Agriculture (42.5%)
2) 'Other Services' (13.8%)
3) Trade, Hotel and Restaurants (12.6%)
4) Manufacturing (12.1%)
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5) Construction Sector (12.1%)

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Unemployment:
• Unemployment rates at all India level declined marginally to 5.8 % in 2018-19 from 6.1 % in 2017-18.
• Highest decline in unemployment rates is seen among those who have received formal vocational train-
ing.
Labour Reforms:
• Nearly 29 Central Labour laws being amalgamated, rationalized and simplified into 4 labour codes viz.:
(i) Code on Wages, 2019
(ii) Industrial Relations Code, 2020
(iii) Occupational Safety, Health and Working Conditions Code, 2020
(iv) Code on Social Security, 2020
Gender Dimension of Employment:
• Labour Force Participation Rate (LFPR) of females in the productive age (15-59 years) was 26.5 % in
2018-19, as compared to 80.3 % for males.
• Low female LFPR is attributed to high participation of women in domestic duties, that is 55.7 % in rural
areas and 59.1 % in urban areas in 2018-19.
• As per National Statistics Office’s Time Use Survey, time spent on employment-related activities by female
members is 127 minutes lower than male.
Health:
• India has made significant progress in improving its health outcomes over the last two decades by
eliminating Polio, Guinea worm disease, Yaws and maternal & neonatal Tetanus.
India improved health indicators
o Total Fertility Rate has reduced from 3.6 in 1991 to 2.2 in 2018
o Maternal Mortality Ratio was 113 per 1,00,000 live births (2016- 2018)
o Under Five Mortality Rate was 36 per 1000 live births in 2018
o Infant mortality rate and under five mortality rates have declined in most of the selected States
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Water and Sanitation:

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Prime Minister Gareeb Kalyan Rozgar Abhiyaan was launched for creating sanitary infrastructure creation in
order to have better, safe hygiene and sanitary practices during COVID-19.
Swachh Bharat Mission-Grameen (SBM-G):

• Rural sanitation coverage increased from 39% in 2014 to 100% in 2019.
• More than 10 crore toilets have been built since 2014.
• According to UNICEF, 91% of women have been able to save upto an hour as they do not have to travel up
to a kilometre for defecation after construction of toilets.
Jal Jeevan Mission:
• Before the launch of the scheme, only 17% of rural households had tap water supply.
• The scheme aimed to provide remaining 83% of rural households with functional tap water connections
by 2024.
• This scheme aims to provide every rural household assured supply of potable piped water at a service level
of 55 litres per capita per day regularly on long-term basis by ensuring functionality of tap water connec-
tions.
• Goa has become the first state to have 100% households with tap water connections ie 'Har Ghar Jal Rajya'
• 18 districts have become 'Har Ghar Jal Districts'
• Number of households with functional tap water connection has doubled since the launch of the
scheme. Total 6.4 crore households have FTWC compared to 3.2 crore households before the launch of
scheme.
Rural Development:
Deen Dayal Antyodaya Yojana-National Rural Livelihoods Mission (DAY-NRLM)
o To alleviate rural poverty through building sustainable community institutions of the poor
o It is a scheme of Ministry of Rural Development which aims to mobilise 9-10 crore households into
SHGs and link them to sustainable livelihoods opportunities by building their skills and enabling them to
access formal sources of finance, entitlements and services from both public and private sectors.
o In terms of funding support, SHGs are provided as Revolving Fund and Community Investment Fund from
the Mission.
o The scheme supports digital finance and deployment of SHG Women as Banking Correspondent Sakhi (BC
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Sakhi), with the support of banks and Common Service Centres

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Pradhan Mantri Gram Sadak Yojana (PMGSY):

o To provide single all weather road connectivity to all eligible unconnected habitations of the desig-
nated population size (500+ in plain areas, 250+ in North-Eastern and Himalayan States) in rural areas of
country.
Garib Kalyan Rojgar Abhiyan (GKRA):
o Launched to address hardship of large number of returnee migrant workers, districts with a concentra-
tion of 25,000 and more returnee migrant workers were selected.
o Scheme was launched for a period of 125 days with a focus on 25 works in 6 States.
o Was a convergent effort between 12 different Central Ministries.
o The funding for the scheme was Rs 50,000 crore with estimated employment generation of 40.34 crore person
days.
o Abhiyan has helped in empowering villagers with livelihood opportunities in the selected 116 Districts of 6
States namely Bihar (32 districts), Jharkhand (3 districts), Madhya Pradesh (24 districts), Odisha (4 districts),
Rajasthan (22 districts) and Uttar Pradesh (31 districts)
Economic Survey @ PRELIMS: Based on UPSC CSE Previous Papers
Fiscal Developments
KEYWORD: Revenue
UPSC CSE Prelims 1982:
States earn more revenue directly through which of the following taxes ?
a) Sales tax
b) Custom duties
c) Excise duties
d) Income tax

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Maximum revenue is being earned from

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a) Excise
b) Non-tax revenue
c) Customs
d) Corporation tax
In India, the tax proceeds of which one of the following as a percentage of gross tax revenue has signifi-
cantly declined in the last five years?
a) Service tax
b) Personal income tax
c) Excise duty
d) Corporation tax
Shortfall in Revenue Collection
➔ Reason: PANDEMIC created immense pressure on the available limited fiscal resources
➔ Monthly GST collections crossed 1 lakh crore mark consecutively from Oct 2020 to Dec 2020
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➔ Gross Tax Revenue during the first 8 months of 2020-21 was 10.26 lakh crore, 42% of BE, 12.6% lower than
in the same period last year. This decline was owing to the negative growth in all direct taxes and major
indirect taxes, except excise duties.
NOTE: Shortfall in direct tax collection contributed to 92% of the shortfall in Gross Tax Revenue
The decline in global petroleum prices acted as an important fiscal shock absorber during 2020-21, as it led to
a decline in petroleum subsidies and an increase in revenue collection from excise duties (owing to increased
excise duty levies on petroleum products).
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Keyword: Fiscal Deficit
Fiscal deficit in the Union Budget means
a) sum of budgetary deficit and net increase in internal and external borrowings
b) difference between current expenditure and current revenue
c) sum of monetized deficit and budgetary deficit
d) net increase in Union Government’s borrowing from the Reserve Bank of India
In the context of governance, consider the following:
1. Encouraging Foreign Direct Investment inflows

2. Privatization of higher educational Institutions
3. Down – sizing of bureaucracy
4. Selling / offloading the shares of Public Sector Undertakings
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Which of the above can be used as measures to control the fiscal deficit in India?
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a) 1, 2 and 3
b) 2, 3 and 4
c) 1, 2 and 4
d) 3 and 4 only
➔ Fiscal Deficit for 2019-20 Provisional Actuals stood at 4.6% of GDP, which was 0.8 percentage points
higher than the Fiscal Deficit envisaged in 2019-20 RE, and 1.2 percentage points higher than Fiscal deficit in
2018-19.
➔ Medium Term Fiscal Policy (MTFP) Statement presented with Budget 2020-21 pegged the fiscal deficit
target for FY 2020-21 at 3.5% of GDP.
Keyword: Revenue Expenditure
There has been a persistent deficit budget year after year. Which of the following actions can be taken by
the government to reduce the deficit?
100
1. Reducing revenue expenditure

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2. Introducing new welfare schemes

3. Rationalizing subsidies
4. Expanding industries
Select the correct answer using the code given below.
a) 1 and 3 only
b) 2 and 3 only
c) 1 only
d) 1, 2, 3 and 4
On the expenditure front, Budget 2020-21 estimated total expenditure at 30.42 lakh crore, comprising revenue
expenditure of 26.3 lakh crore and capital expenditure of 4.12 lakh crore, which work out to be 11.7 % and 1.7
% of GDP, respectively.
Revenue Expenditure constitutes over 87 % of the total expenditure was envisaged to grow at 11.9 % in 2020-
21 BE over 2019-20 PA. This is a modest growth rate relative to the 17 % growth of revenue expenditure in 2019-
20 PA over 2018-19
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Interest payments (26 %), Defence Revenue expenditure (9 %), Major Subsidies (10 %), Grants-in-aid to
States/UTs (22 %) and Pension (8 %) are the major items of revenue Expenditure which together accounted for
nearly 65% of the total expenditure, as per 2019-20 PA.
Keyword: Debt
Consider the following:
1. Market borrowing
2. Treasury bills
3. Special securities issued to RBI
Which of these is/are component(s) of internal debt?
a) I only
b) I and II
c) II only
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d) I, II and III
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Consider the following statements:
1. Most of India’s external debt is owed by governmental entities.

2. All of India’s external debt is denominated in US dollars.
Which of the statements given above is/are correct?
a) 1 only
b) 2 only
c) Both I and 2
d) Neither 1 nor 2
Total liabilities of the Central Government at end March 2020 stood at 97.05 lakh crore. Out of these, 88.67 %
was public debt and the remaining 10 % catered to Public Account liabilities, which include National Small
Savings Fund, State Provident Funds, Reserve Funds and Deposits and other Accounts.
Total liabilities of the Central Government, as a ratio of GDP, declined steadily immediately after the enact-
ment of the FRBM Act, 2003, and has sustained at a level during the last decade.
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➔ Central government debt is characterised by low currency and interest rate risks. This is owing to low
share of external debt in the debt portfolio.
➔ Most of the public debt has been contracted at fixed interest rate making India’s debt stock virtually
insulated from interest rate volatility. This lends certainty and stability to budget in terms of interest pay-
ments.
External Sector
Keyword: Merchandise Exports
1. In India, during the financial year 2004 - 2005 an increase of below 10% over the value of exports (in
rupee terms) in the financial year 2003 - 2004 was reported.
2. According to the WTO, India’s share in the world merchandise exports 2% in the year 2005.
Which of the statements given above is/are correct ?

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a) 1 only
b) 2 only
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c) Both 1 and 2
d) Neither 1 nor 2

With reference to the international trade of India at present, which of the following statements is/are
correct?
1. India’s merchandise exports are less than its merchandise imports.

2. India’s imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years.
3. India’s exports of services are more than its imports of services.
4. India suffers from an overall trade/current account deficit.
Select the correct answer using the code given below:
a) 1 and 2 only
b) 2 and 4 only
c) 3 only
d) 1, 3 and 4 only
➔ During Q1: FY 2020-21, India’s exports and imports saw a sharp contraction in line with the contraction
in global trade. The decline in imports outweighed that in exports – leading to smaller trade deficit of US$
9.8 billion as compared to US$ 49.2 billion in Q1 last year.
➔ India registered a trade surplus in the month of June, 2020 after a gap of 18 years. With the unlocking
of the economy from June onwards, a gradual revival in India’s merchandise trade got underway.
105
➔ Global merchandise trade, as per data available from WTO, recorded its sharpest ever one period decline
in Q2-2020.
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Merchandise Exports:
✓ Petroleum, Oil and Lubricants (POL) exports - NEGATIVE Performance [Reason: Softening of International]
✓ Agriculture & allied products, drugs &pharmaceutical and ores & minerals – POSITIVE Performance
✓ Iron and Steel – POSITIVE Performance
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➔ As the top export destinations are concerned, USA continues to be the largest export market for India in
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April-November, 2020.
➔ Malaysia is a new entrant among the top 10 export destinations, as compared to last year, while Nepal
no longer occupies position among the top 10 destinations.
Services:
➔ Net services receipts amounting to US$ 41.7 billion remained stable in April-September, 2020 as compared
with US$ 40.5 billion in corresponding period a year ago.
➔ Resilience of the services sector was primarily driven by software services, which accounted for 49% of total
services exports.
Keyword: Current Account Deficit
Consider the following actions which the government can take
1. Devaluing the domestic currency

2. Reduction in the export subsidy
3. Adopting suitable policies which attract greater FDI and more funds from FIIs
Which of the above action/actions can help in reducing the current account deficit ?
a) 1 and 2
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b) 2 and 3
c) 3 only
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d) 1 and 3
➔ India’s current account deficit averaged 2.2% of GDP in the last 10 years. Reversing this trend, current
account balance turned into surplus (0.1% of GDP) in Q4: FY 2019-20.
➔ In H1: FY 2020-21, steep contraction in merchandise imports and lower outgo for travel services led to a
sharper fall in current payments (by 30.8 per cent) than current receipts (15.1 per cent) – leading to a current
account surplus of US$ 34.7 billion (3.1 per cent of GDP)
➔ Given the trend in imports of both goods and services, it is expected that India will end with an annual
current account surplus of atleast 2% of GDP – after a period of 17 years.
➔ A current account surplus implies a higher level of national savings relative to investment.
Keyword: Foreign Direct Investment
The largest share of Foreign Direct Investment (1997-2000) went to
a) Food and food-product sector

b) Engineering sector
c) Electronics and electric equipment sector
d) Service sector

108
In the last one decade, which one among the following sectors has attracted the highest Foreign Direct
Investment inflows into India?
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a) Chemicals other than fertilisers

b) Services sector
c) Food processing
d) Telecommunication
➔ During April-October, 2020, net FDI flows recorded an inflow of US$ 27.5 billion, 14.8% higher as compared
to first seven months of 2019-20, an endorsement of India’s status as a preferred investment destination
amongst the global investors.
➔ As far as sector-wise FDI is concerned, computer software and hardware attracted the highest FDI equity
inflows.
➔ Singapore continues to be the top investing country, in terms of FDI equity inflows.
Keyword: External Debt
1. Most of India’s external debt is owed by governmental entities.

2. All of India’s external debt is denominated in US dollars.
a) 1 only
b) 2 only
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c) Both I and 2
d) Neither 1 nor 2
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➔ At end-September 2020, India’s external debt was placed at US$ 556.2 billion recording a decrease of US$
2.0 billion (0.4 per cent) over the level, as at end-March 2020.
➔ External Commercial Borrowings: Largest component of external debt [Bulk of the ECBs was in the form of
commercial loans and securitized borrowings predominantly denominated in US$]
➔ Govt. Debt increased
➔ US is the most heavily indebted country in the world with 23.9% of the total external debt stock. India is
placed at 23rd position globally with an estimated stock at US$ 554.4 billion as at end-June 2020.
➔ India’s external debt to exports ratio dropped secularly downwards since the crisis year 1992.
Imp Terms in Economic Survey
UPSC CSE Prelims 2016
Which of the following best describes the term 'import cover', sometimes seen in the news?
a) It is the ratio of value of imports to the Gross Domestic Product of a country

b) It is the total value of imports of a country in a year
c) It is the ratio between the value of exports and that of imports between two countries
d) It is the number of months of imports that could be paid for by a country's international reserves
Reserve Tranche Position (RTP):
➔ A country's Reserve Tranche Position (RTP) is the difference between the International Monetary Fund's (IMF)
holdings of that country's currency and the country's IMF-designated quota.
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Foreign Currency Assets (FCA):

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➔ Foreign Currency Assets (FCA) is the most important component of the RBI’s foreign exchange reserve are
the assets like US Treasury Bills bought by the RBI using foreign currencies.
➔ FCA is the largest component of the forex reserve.
Keyword: Foreign Exchange Reserves
Which of the following has/have occurred in India after its liberalization of economic policies in 1991?
1. Share of agriculture in GDP increased enormously.

2. Share of India’s exports in world trade increased
3. FDI inflows increased
4. India’s foreign exchange reserves increased enormously.
Select the correct answer using the code given below:
a) 1 and 4 only
b) 2, 3 and 4 only
c) 2 and 3 only
d) 1, 2, 3 and 4
➔ While improved current account balance has been a key factor for reserve accretion in H1 of 2020-21, robust
capital flows, particularly FDI and FPI, in subsequent months largely drove foreign exchange reserves to
an all-time high of US$ 586.1 billion as on January 8, 2021.
➔ As at end-September 2020, India is the 5th largest foreign exchange reserves.
➔ The rise in the foreign exchange reserves of the RBI has largely been due to the current account surplus
which, in turn, is largely due to contraction in imports rather than increase in competitiveness of exports.
➔ A rise in foreign exchange reserves also represents investments in bonds/ securities of other countries – in
effect investing abroad.
Monetary Management and Financial Intermediation
Keyword: Monetary Policy Committee
UPSC CSE Prelims 2017: 111
Which of the following statements is/ are correct regarding the Monetary Policy Committee (MPC)?
1. It decides the RBI’s benchmark interest rates.

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2. It is a 12-member body including the Governor of RBI and is reconstituted every year.
3. It functions under the chairmanship of the Union Finance Minister.
Select the correct answer using the code given below.

a) 1 only
b) 1 and 2 only
c) 3 only
d) 2 and 3 only
➔ The repo rate has been cut by 115 bps from 5.15% to 4% so far since March 2020, with 75 bps cut in first
Monetary Policy Committee (MPC) meeting in March 2020.
➔ Liquidity support was significantly enhanced. Systemic liquidity in 2020-21 remained in surplus so far.
Keyword: NBFCs
With the reference of the Non-Banking Financial Companies (NBFCs) in India, consider the following
statements:
1. They cannot engage in the acquisition of Securities issued by the government.

2. They cannot accept demand deposit like Saving Account.
Which of the statements given above is /are correct?
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
➔ Credit growth of NBFCs continued to slow down.
➔ Credit growth contracted in September 2020 with a YoY growth of -6.6 %
➔ RBI included Targeted Long-Term Repo (TLTRO) Operations covering the NBFC sector as a part of liquidity
infusion during the time of pandemic.
➔ External liabilities of NBFCs in the form of secured and unsecured borrowings and public deposits increased
by 13.7 % on YoY basis in June 2020.
➔ Asset quality of NBFCs deteriorated moderately with GNPA ratio at the end of June 2020.
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➔ Net NPA ratio improved marginally.

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Keyword: Money Multiplier
The money multiplier in an economy increases with which one of the following?
a) Increase in the cash reserve ratio
b) Increase in the banking habit of the population
c) Increase in the statutory liquidity ratio
d) Increase in the population of the country
➔ The significant rise in reserve money has not translated into a commensurate increase in money supply as
the money multiplier has remained depressed due to a sharp rise in currency-deposit ratio, and also
large amount of funds parked under reverse repos with RBI.
➔ Money multiplier, measured as a ratio of M3/M0 which was mostly increasing from 1980s onwards up to
2016-17, has however been declining since then.
Prices and Inflation
Keyword: Food Inflation
India has experienced persistent and high food inflation in the recent past. What could be the reasons ?
1. Due to a gradual switchover to the cultivation of commercial crops, the area under the cultivation of food
grains has steadily decreased in the last five years by about 30%.
2. As a consequence of increasing incomes, the consumption patterns of the people have undergone a
significant change.
3. The food supply chain has structural constraints.
Which of the statements given above are correct ?
a) 1 and 2 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2, and 3
➔ The rise in inflation was mostly driven by food inflation, which increased to 9.1% during 2020-21 (Apr-Dec).
113
➔ Due to COVID-19 induced disruptions, an overall increase in the price momentum is witnessed.
➔ Supply chain disruptions have caused spikes in food inflation.
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➔ 'Vegetables’, ‘meat & fish’, ‘oils & fats’ and ‘pulses & products’ were the major contributors to food inflation
in the current year.
➔ Majority of the States/UTs has witnessed higher urban inflation than rural inflation in the current year with
variations, mainly due to high food inflation in urban areas.
1. The weightage of food in Consumer Price Index (CPI) is higher than that Wholesale Price Index (WPI).
2. The WPI does not capture changes in the prices of services, which CPI does.
3. Reserve Bank of India has now adopted WPI as its key measure of inflation and to decide on changing
the key policy rates.
a) 1 and 2 only
b) 2 only
c) 3 only
d) 1, 2 and 3
➔ WPI inflation declined from 4.3% in 2018-19 to 1.7% in 2019-20 and further to (-) 0.1 % in 2020-21 (Apr-
Dec).
➔ The decline in WPI inflation in the current year is mainly on account of fuel & power. Persistent volatility in
the global crude oil prices during the year led to fall in inflation of major fuel products.
➔ The rural-urban difference in CPI inflation, which was high in 2019, saw a decline in 2020.
➔ In the current year, CPI-Urban inflation has moved closely with CPI-Rural inflation. Since November
2019, CPI-Urban inflation has closed the gap with CPI-Rural inflation
➔ CPI-IW is a price index released by the Labour Bureau to measure the impact of price rise on the cost of
living for working class families spread across certain select industries. The base year of CPI-IW has been
revised from its earlier 2001 to a more recent base year of 2016.
➔ CPI headline and CPI core inflation from April 2020 to October 2020 was driven mostly by substantial
increase in price momentum.
➔ Headline CPI inflation averaged 6.6 % in 2020-21 (Apr-Dec) and stood at 4.6 % in December 2020.
➔ During 2019-20 (Apr-Dec) as well as 2020-21 (Apr-Dec), the major driver of CPI-C inflation was the food
and beverages group.
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➔ Food inflation has been driving overall CPI-C inflation due to the relatively more weight of food items in
the index.
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Agriculture and Food Management:
Keyword: Minimum Support Price

1. In the case of all cereals, pulses and oil-seeds, the procurement at Minimum Support Price (MSP) is un-
limited in any State/UT of India.
2. In the case of cereals and pulses, the MSP is fixed in any State/UT at a level to which the market price will
never rise.
a) 1 only
b) 2 only
c) Both 1 and 2
d) Neither 1 nor 2
MSP of Kharif Crops:
➔ Union Budget for 2018-19 had announced that MSPs would be kept at the level of 1.5 times of the cost
of production.
➔ The highest increase in MSP announced is for nigerseed (Rs. 755 per quintal)
➔ The expected returns to the farmers over their cost of production are estimated to be highest in the case of
bajra (83%)
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MSP of Rabi Crops:

➔ The highest increase in MSP has been announced for lentil (Rs. 300 per quintal)
➔ The expected returns to the farmers over their cost of production are estimated to be highest in case of
Wheat (106%)
Keyword: Pradhan Mantri Fasal Bima Yojana
With reference to 'Pradhan Mantn Fasal Bima Yojana', consider the following statements :
1. Under this scheme, farmers will have to pay a uniform premium of two percent for any crop they cultivate in
any season of the year.
2. This scheme covers post-harvest losses arising out of cyclones and unseasonal rains.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
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(d) Neither 1 nor 2
➔ Pradhan Mantri Fasal Bima Yojana (PMFBY) is a milestone initiative to provide a comprehensive risk solution
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at the lowest uniform premium across the country for farmers.

➔ It extends coverage for the entire cropping cycle from pre-sowing to post-harvest including coverage for
losses arising out of prevented sowing and mid-season adversities.
➔ Individual farm level losses arising out of localized calamities and post-harvest losses are also covered due
to perils such as inundation, cloudburst and natural fire.
➔ The average sum insured per hectare has increased from Rs. 15,100 during the pre-PMFBY Schemes to Rs.
40,700 under PMFBY.
➔ The scheme completed 5 successful years of implementation on 13th January, 2021.
➔ As an endeavour to constantly improve, the scheme was made voluntary for all farmers, post its revamp
in February 2020.
➔ States have also been provided flexibility to rationalize the sum insured so that adequate benefits can
be availed by farmers.
Keyword: Livestock
According to the Livestock Census of 1982 in India, the ratio of the cattle population to the buffalo pop-
ulation was approximately.
a) 1 : 2
b) 1 : 3
c) 2 : 3
d) 3 : 1
➔ As per estimates of National Accounts Statistics (NAS) 2020, contribution of livestock in total agriculture and
allied sector GVA (at constant prices) has increased from 24.32 % (2014-15) to 28.63 % (2018-19)
➔ India continues to be the largest producer of milk in the world.
➔ Upon budget announcement on inclusion of livestock sector in KCC in February 2020, 1.5 crores dairy
farmers of milk cooperatives and milk producer companies were targeted to provide Kisan Credit Cards (KCC)
as part of Prime Minister’s Atma Nirbhar Bharat Package.
Industry and Infrastructure 117
Keyword: Index of Industrial Production

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In India the overall Index of Industrial Production, the Indices of Eighth Core Industries have combined
weight of 37.90%. Which of the following are among those Eight Core Industries?
1. Cement
2. Fertilizers
3. Natural Gas
4. Refinery products
5. Textiles
Select the correct answer using the codes given below:
a) 1 and 5 only
b) 2, 3 and 4 only
c) 1, 2, 3 and 4 only
d) 1, 2, 3, 4 and 5
➔ The various subcomponents of Index of Industrial Production (IIP) and eight-core index have experienced a
V-shaped recovery with consistent movement being seen towards the pre-crisis levels.
➔ The eight-core index recorded its all-time low growth of (-) 37.9 due to COVID-19 led nation-wide lock-
down (April-2020).
➔ The overall IIP broadly follows the eight-core index. The IIP attained a growth of (-) 1.9 % in November-2020
as compared to 2.1 % in November-2019
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➔ Industrial activities recovered sharply except the mining sector.

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➔ The bulk of FDI equity flow is in the non-manufacturing sector leading to a reduction in the share of
manufacturing in the FDI flows.
Services
Keyword: FDI
The largest share of Foreign Direct Investment (1997-2000) went to
a) Food and food product sector

b) Engineering sector
c) Electronics and electric equipment sector
d) Service sector
➔ India improved its position from 12th in 2018 to 9th in 2019 in the list of the world’s largest FDI
recipients according to the latest World Investment Report 2020 by UNCTAD.
➔ FDI into India recorded almost 17 % jump during April-September 2020 over the corresponding period
last year, despite the global slowdown.
➔ Services sector, being the largest recipient of FDI in India, witnessed a strong growth during April-Septem-
ber 2020.
➔ The jump in FDI equity inflows was driven by strong inflows into the ‘Computer Software & Hardware’ sub-
sector.
➔ With contraction in global demand and implementation of COVID-19 induced lockdown measures, services
exports declined by 7.87 % in H1 of FY2020-21.
➔ India’s services imports exhibited sharper decline of 13.95 % in H1 of FY2020-21 in comparison with ser-
vices exports.
➔ Sharper decline in services imports over exports led to an increase in net services receipts by 2.1% in
Q1 of 2020-21 over the previous year.
➔ Sharp contraction in merchandise trade deficit and a stable net services receipts led to a current ac-
count surplus of 3.9 % of GDP in Q1 of 2020-21.
Social Infrastructure, Employment and Human Development:

119
Keyword: Human Development

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Human Development Index comprises literacy rates, life expectancy at birth and
a) Gross Domestic Product per head in US dollars

b) Gross Domestic Product per head at real purchasing power
c) Gross National Product in US dollars
d) National Income per head in US dollars
➔ India’s rank in Human Development Index (HDI) was 131 in 2019, compared to 129 in 2018, out of a total
189 countries according to UNDP Human Development Report, 2020.
➔ If a country puts no pressure on the planet, its PHDI and HDI would be equal, but the PHDI falls below
the HDI as pressure rises. PHDI values are very close to HDI values for countries with an HDI value of 0.7 or
lower.
Keyword: Rural Employment
Among the following who are eligible to benefit from the “Mahatma Gandhi national rural employment
guarantee act”?
a) Adult members of only the scheduled caste and scheduled tribe households.
b) Adult members of below poverty line (BPL) households.’
c) Adult members of households of all backward communities.
d) Adult members of any household
➔ Wages under Mahatma Gandhi NREGA was increased by Rs. 20 from Rs. 182 to Rs. 202 w.e.f. 1st April, 2020,
which would provide an additional amount of Rs. 2000 annually to a worker.
➔ 311.92 crore person-days generated in FY 2020-21 (as on 21.01.2021) which is an all-time high.
➔ 2018-19 witnessed as a good year for employment generation. About 1.64 crore additional employment
created during this period consisting of 1.22 cr in rural area and 0.42 cr in urban area.
➔ Female LFPR increased to 18.6 % in 2018- 19 from 17.6 % in 2017-18.
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NextGenIAS Economic Survey Vol II 2020 21 Highlights

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Economic Survey 2020-21 Highlights by Teju, NextGen IAS

Chapter 1: State of the Economy 2020-21 - A Macro View ...........................................................................................7

Demand-side Shock: ...............................................................................................................................................7

Impact on Employment: ....................................................................................................................................... 11

Agriculture Sector: ............................................................................................................................................... 14

Services Sector: .................................................................................................................................................... 16

Bank Credit: ......................................................................................................................................................... 17

Govt. Bonds: ........................................................................................................................................................ 17

Global Output: ..................................................................................................................................................... 18

Major Drivers of India’s GDP in 2020-21: ............................................................................................................... 19

Chapter 2: Fiscal Developments ................................................................................................................................ 20

Impact of PANDEMIC: ........................................................................................................................................... 20

Fiscal policy response of the Government of India to the pandemic: ...................................................................... 21

Fiscal Situation and Response to Covid Pandemic: ................................................................................................. 23

Counter-cyclical expansionary fiscal policy ............................................................................................................ 24

Reforms in Tax Administration: ............................................................................................................................ 25

Transfer to States: ................................................................................................................................................ 30

Central Govt. + State Govt. Finances ..................................................................................................................... 33

Chapter 3: External Sector ........................................................................................................................................ 33

Back to Basics: 1929 Great Depression ......................................................................................................................... 34

Global Economic Environment: ............................................................................................................................. 34

Merchandise Trade .............................................................................................................................................. 37

Chapter 4 - Monetary Management and Financial Intermediation ............................................................................. 41

Monetary Developments during 2020-21: ............................................................................................................. 41

Liquidity conditions and its management: ............................................................................................................. 44

Regulatory Measures in Banking Sector: ...................................................................................................................... 49

Non-Banking Financial Companies (NBFC) Sector: ................................................................................................. 50

Developments in Capital Markets ......................................................................................................................... 50

Chapter 5: Prices and Inflation.................................................................................................................................. 52

Back to Basics: ............................................................................................................................................................... 52

Current trends in inflation: ................................................................................................................................... 53

Drivers of Inflation: .............................................................................................................................................. 53

Inflation in States: ................................................................................................................................................ 54

Essential Commodities Act, 1955: ......................................................................................................................... 56

Chapter 6: Sustainable Development and Climate Change ......................................................................................... 56

Climate Risk Insurance: ........................................................................................................................................ 62

IMPORTANT FEATURES OF INDIA'S NDCs (Data point): .......................................................................................... 62

Chapter 7: Agriculture and Food Management .......................................................................................................... 63

Back to Basics: What is Gross Value Added? ................................................................................................................ 63

Agriculture Infrastructure Fund: ........................................................................................................................... 66

Pradhan Mantri Fasal Bima Yojana (PMFBY).......................................................................................................... 66

Food processing sector: ........................................................................................................................................ 69

Food Management: .............................................................................................................................................. 70

Chapter 8: Industry and Infrastructure ...................................................................................................................... 71

Measure of relief and support to the Indian Economy: .......................................................................................... 72

Overview of Industrial Sector: .............................................................................................................................. 74

Foreign Direct Investment (FDI): ........................................................................................................................... 77

MSME Sector: ...................................................................................................................................................... 79

Textile and Apparels Industry: .............................................................................................................................. 80

Mining Sector: ...................................................................................................................................................... 84

Chapter 9: Services Sector ........................................................................................................................................ 87

Contact-intensity of final demand: ........................................................................................................................ 87

Service sector share at the State and UT level: ...................................................................................................... 87

Chapter 10: Social Infrastructure, Employment and Human Development ................................................................. 89

Back to Basics: Pradhan Mantri Garib Kalyan Yojana (PMGKY) .................................................................................... 89

Trends in Social Sector Expenditure: ..................................................................................................................... 90

Quality Education for All:...................................................................................................................................... 91

Skill Development: ............................................................................................................................................... 92