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 Economics
Fundamental concepts of Economy
1) Economics & Economy 2) Factors of Production 3)Sectors of Economy
4) Braches of Economy 5) Types of Economy 6) Charactertics of Indian Economy
7) Cash flow of Income
Economics

1) Economics can be studied at microeconomic (individuals and firms) and

macroeconomic (aggregate economy) levels.
2) Economics is a field of study pursued by researchers, scholars, and students.

3) Economics involves developing theories, models, and frameworks to explain economic

phenomena.
Economy
1) Economy encompasses the entire economic system of a country or region.
2) Economy is the practical manifestation of economic principles in the real world.
3) Economy involves the actual implementation of economic systems and policies.
Factors of Production
1) Factors of production are the inputs needed for creating a good or service.

2) In capitalism, the factors of production are most often controlled by business owners
and investors. In socialist systems, the government (or community) often exerts greater
control over the factors of production.
3) The four production factors are:
a) Land
b) Labour
c) Capital
d) Enterpreneurship
1) Land

It refers to all natural resources. All natural resources either on the surface of the earth or
below the surface of the earth or above the surface of the earth is Land.
One uses the land to produces goods. It is the primary and natural factor of production.
''The payment for land is rent''.

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Characteristics of Land as a Factor of Production
1) The land is a free gift of nature.
2) The land has no cost of production.
3) It is immobile.
4) The land is fixed and limited in supply.
Types of Land
Residential, Commercial, Recreation, Cultivation, Extraction & Uninhabitable
2) Labor

All human effort that assists in production is labour. This effort can be mental or physical. It
is a human factor of production. It is the worker who applies their efforts, abilities, and skills
to produce.
''The payment for labour is the wage.'
Characteristics of Labour as a Factor of Production
1) It is a human factor.
2) One cannot store labour.
3) No two types of labour are the same.
Types of Labour
Unskilled, Semi-skilled, Skilled & Professional
3) Capital
Capital denotes all tools humans use to produce goods and services. For example, a stethoscope
is the capital of a doctor. Physical capital can be broadly divided into two categories – Fixed
Capital and Working Capital.

- Tools, machines, buildings etc that can be used in production over many years are called fixed
capital.

- Raw materials and money in hand are called working capital. Unlike tools, machines and
buildings, these are used up in production.

''The payment for capital is interest.''

Characteristics of Capital as a Factor of Production

1) Capital is a manmade factor of production.

2) It is mobile.

3) It is a passive factor of production.

Types of Capital
Fixed, Working & Venture

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4) Entrepreneur
An entrepreneur is a person who brings other factors of production in one place. He uses
them for the production process. He is the person who decides
- What to produce
- Where to produce
- How to produce
''The payment for Enterpreneur is profit''
Characteristics of Entrepreneur as a Factor of Production
- He has imagination.
- He has great administrative power.
- An entrepreneur must be a man of action.
- An entrepreneur must have the ability to organize.
- He should be a knowledgeable person.
- He must have a professional approach.

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Primary Sector

- In Primary sector of economy, activities are undertaken by directly using natural resources.
Agriculture, Mining, Fishing, Forestry, Dairy etc. are some examples of this sector.

- It is called so because it forms the base for all other products. Since most of the natural products
we get are from agriculture, dairy, forestry, fishing, it is also called Agriculture and allied sector.

- People engaged in primary activities are called Red-Collar Workers due to the outdoor nature of
their work.

Secondary Sector

- Includes all economic activities that involve the processing of raw materials extracted from the
primary sector also called industrial sector.

- Manufacturing, one of its sub-sectors, has proven to be the largest employer in the Western
developed economies.

- An industrial economy is one, in which, the secondary sector generates at least half of a
country‘s national GDP and employment.

- People engaged in secondary activities are called blue collar workers.

8 Core industries of manufacturing sector:

Refinery,Products,Electricity,Steel,Coal,Crude oil,Natural gas & Cement

Tertiary Sector/Service Sector

- This sector includes all economic activities that produce services, such as education,
healthcare, banking, communication, and so on.

- A service-based economy exists when this sector generates at least half of a country‘s
national income and livelihood
- This sector jobs are called White Collar Jobs.

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-Along with these 3 main sectors, the quaternary and quinary sectors have been
introduced. In a broader they are tertiary sector sub sectors
Quaternary Activities
-This Sector covers knowledge-based industries
- Includes activities such as teaching, research, and development.
- Most important in assessing the strength of an economy‘s human resources.
- The intellectual aspect of the economy is represented by the quaternary sector.

- This group includes: Employees in office buildings, Elementary schools and university
classrooms, Hospitals and physicians‘ offices, Theatres, Accountancy and Brokerage
businesses, and so on.
Quinary Sector
-Includes activities in which key choices are made.

- Includes the highest level of decision makers in governments (including their

bureaucracy) and the private corporate sector.
- The number of people participating in this sector is quite small, yet they are regarded the
“brain” behind an economy’s Socio-Economic performance.
-Gold collar professions.

- This group includes occupations such as Senior company executives, Government

officials, Research scientists, Financial and legal advisors and others.
SUNRISE SECTOR OF INDIAN ECONOMY
A sunrise sector is one that is still in its infancy, but has the potential for significant growth.
CHARACTERISTICS:
- strong growth rates,
- a high degree of innovation,

- a high level of public awareness, with investors attracted to its long-term growth
prospects.

Existing Indian industries that may be categorised as Sunrise sectors are likely to benefit
the economy in terms of job creation and business growth, in the future.
GDP CONTRIBUTION OF DIFFERENT SECTORS

-By the late 1990s: India had transitioned from agricultural dominance to services
supremacy, with services accounting for over half of its national GDP.
a) The agriculture sector – 18% of total GDP.
b) The services sector – more than 55%

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c) secondary sector – 27%, with only 14% coming from the manufacturing sector.

Note - Indian economy was agro-based in 1947 whereas after 1991, the service sector
became predominant, due to which the secondary / industrial sector could not develop
properly, so Make in India was started in 2014.

Organised and unorganised sector

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 Public and Private sector

Branches of Economics
Microeconomics:- Microeconomics studies how individual people and businesses function in
specific situations

zation

Macroeconomics:-Macroeconomics studies how the entire economy of a nation, or even of the

world, functions.

Key components of Microeconomics

1) Consumer behavior theory :-In this, it is studied how a consumer allocates his income among
various components so that maximum satisfaction / happiness can be earned.

2) Production Theory:-This principle is the study of how goods and services are created or
manufactured

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3) Costs of Production :-According to this theory, the price of goods or services is determined by
the cost of the resources used during production.

Key components of Macroeconomics

1) Principles related to employment

2) Fiscal policy

3) Monetary policy

4) Inflation and Deflation

5) Government budget

6) Money supply and credit creation

7) Exchange rate, balance of payments

Capital Based Economy

like King

.
Social Based Economy

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 Competition

- Soviet Union, China, Vietnam, Cuba, North Korea etc

Mixed Economy

etc.

NOTE:-It is important to note that the economy of the developed countries of the world
grew in a phased manner, ie after agriculture, in the direction of industrial development
and after that, the process of development leading to the service sector was known as
the phase of growth. In the Indian economy Talking about it, the second phase did not

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come here, but here, in the third phase, it was knocked out altogether, then the
equanimity of these steps is not seen in India
1) Reduction in the implementation of the properly
mixed economy after independence.
2) Encourage private entrepreneurship from socialist leanings in the early years.
3) BPO (Business Processing Outsourcing) Hub due to cheap labor after 1991.
Ten basic characteristics of India as a developing economy:-
1) Low per capita income
2) Agro-Based Economy
3) Heavy population pressure
4) Unemployment and under-employment
5) Need for a steady improvement in the rate of capital formation
6) Inequal distribution of wealth and/or assets
7) Poor quality of human capital
8) Prevalence of low levels of technology
9) Backward Society
10) Poor Infrastructural Development
1) Low per capita income
- Low Per Capita Income (PCI)

According to the International Monetary Fund‘s Report, in 2017, India‘s PCI was $ 1983 and was
ranked 140 out of 188 countries.

- Further, according to the World Bank‘s Report, in 2017, India‘s PCI was $ 1940 and was ranked
138 out of 184 countries.

- Therefore, we can conclude that the per capita income of an Indian resident is lower than most
countries in the world.

2) Agro-Based Economy:
- India as a developing economy is that it is majorly primary producing. Majority of the population
is engaged in agriculture (around 52 percent).

- However, in 2011-12, the contribution of agriculture to the national income was only 13.9
percent.

- The reason behind this difference is that agriculture is a low income earning sector. Also,
productivity per person engaged in agriculture is very low.

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3) Population Pressure

- It is 1.36 billion – the population of India as on January 17, 2019. We are the most populated
country in the world and our population is equivalent to around 17.74% of the total world
population.

- In India, the high levels of illiteracy lead to a high level of birth rates. Further, improvement in
medical facilities has increased the average life of an Indian citizen and led to a decline in the
death rates too.

4) Unemployment in India

-Due to the deficiency of capital in India, it is difficult to engage the entire population in gainful
employment.

-Therefore, a cheap labor force is available in abundance. As a result, there is unemployment in

our country.

5) Steady Improvement in the Rate of Capital Formation

- In 2017, the population growth rate in India was 1.13%. Therefore, the economy needed a high
amount of investment to offset the additional burden imposed by the rising population.

- Otherwise, there is a risk that we could achieve growth only at the expense of unacceptable
inflation.

6) Inequality in Wealth/Asset Distribution

- Unequal asset distribution is the primary cause of inequality in income distribution in rural areas.

- This inequality also highlights the fact that the resource base of 50 percent of households in India
is weak.

- It is so weak that it can barely provide them with anything above the subsistence level of
income.

7) Poor Human Capital Quality

It is a simple equation. Underdeveloped countries have millions of illiterate citizens. Also, illiteracy
retards growth since an individual needs a minimum level of education to acquire skills and/or
understand social issues.

8) Low-levels of Technology

- India is a country of eclectic mixes. One one side, a company uses one of the most modern
technologies while another company from the same industry uses the most primitive one.

- Unfortunately, according to modern scientific standards, the majority of products are made with
the help of inferior technologies.

- If you take a simple look at the productivity of a developed and underdeveloped nation, then
the developed nation has better productivity since it uses superior technologies.

9) Backward Society:

Indian social orders are caught in the scourge of communalism, male-dominated society, odd
notions, caste system framework, and so forth. The above factors are the significant limitation of
the development of the Indian economy.

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10) Poor Infrastructural Development

According to a new report, around 25% of Indian families can‘t acquire electricity, and 97 million
individuals can‘t acquire safe drinking water. Sanitation administrations can‘t be acquired by 840
million individuals. India requires 100 million dollars to dispose of this infrastructural abnormality.

Circular flow of income

It represents how money flows through the different sectors in an economy.

The circular flow of income and expenditure with three types of economy, namely – two-sector
economy, three-sector economy and four-sector economy.Typically, there are 3 phases of the
circular flow of income in a simple economy or closed economy –

1) Production Phase: It is primarily concerned with income generation.

2) Income Phase: It includes movement of factor income like rent, wage, interest and profits from
production firms to households.

3) Expenditure Phase: In this phase, the income generated through factors of production is spent
mostly on goods and services which are produced by firms.

Two-sector economy
Assumption

1) There are only two sectors in economy- Firms & Housholds (there is no government or external
sector)

2) There is no savings

* Firms spends all their profits on factor services

* Household spend all their expedite on factor payments.

3) It is closed economy (no dealing with outside country)

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Tri-cyclical flow of income
The circular flow of income in a three-sector economy includes households, firms, and the
government sector. The government of a country acts as both a firm and a consumer. As a firm or
producer, the government produces goods and services for the economy.

NEFT (National Electronic Funds Transfer)

- NEFT is a centralised nationwide payment method owned and controlled by the Reserve Bank of
India ( RBI). It easily transfers money between banks across India.

-A bank branch should be NEFT enabled to permit a customer to transfer the funds to another
party.

- Once you opt for this transfer, the amount is not immediately transferred, but is done in the next
settlement cycle. NEFT has settlement cycles running through the day.

- If the transfer is initiated beyond the cut-off time specified by RBI, the funds are typically settled
on the next working

1) Transaction Limits:

a) Minimum Amount: Rs.1

b) Maximum Amount: No limit

- Settlement Mechanism: Batches

- Transfer Speed: 2 hours (subject to cut-off timings and batches)

2) Service Availability:

Weekdays: 12 batches (8:00 a.m. - 6:30 p.m.)

Saturday: 6 batches (8:00 a.m. - 1:00 p.m.)

Sunday, bank holidays: Unavailable

3) Transfer Charges:

Up to Rs.10,000 - Rs.2.50

From Rs.10,000 to Rs.1 lakh - Rs.5

From Rs.1 lakh to Rs.2 lakh - Rs.15

From Rs.2 lakh to Rs.5 lakh - Rs.25

From Rs.5 lakh to Rs.10 lakh - Rs.50

4) Payment Options: Offline (Bank Branch) and Online

RTGS (Real Time Gross Settlement)

om the funds are transferred gets it credited into his or her bank account in 30
minutes.

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Minimum Amount: Rs 2 lakh

Maximum Amount: No limit

: One-on-one Transfer Speed: Instantly

Weekdays: 8:00a.m. - 4 p.m.

Saturday: 9:00a.m. - 4:30p.m

Sunday, bank holidays: Unavailable

From Rs.2 lakh to Rs.5 lakh - Rs.25

From Rs.5 lakh to Rs.10 lakh - Rs.50

: Offline (Bank Branch) and Online

IMPS (Immediate Payment Service)

SMS-based IMPS service to mobile banking users.

Minimum Amount: Rs.1

Maximum Amount: Rs 2 lakh

ement Mechanism: One-on-one Transfer Speed: Instant

: 24 X7

Up to Rs.10,000 - Rs.2.50

From Rs.10,000 to Rs.1 lakh - Rs.5

From Rs.1 lakh to Rs.2 lakh - Rs.15

: Online

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Demand and Supply
1) The law of supply and demand is a theory that explains the interaction between the sellers of a
resource and the buyers for that resource.

2) The theory defines the relationship between the price of a given good or product and the
willingness of people to either buy or sell it. Generally, as price increases, people are willing to
supply more.

3) The theory is based on two separate ―laws‖, as follows:

a) Law of demand

b) Law of supply

Laws of demand
1) The law of demand states that if all other factors remain equal, the higher the price of a good,
the fewer people will demand that good.

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2) The amount of a good that buyers purchase at a higher price is less because as the price of a
good goes up, so does the opportunity cost of buying that good.

3) As a result, people will naturally avoid buying a product that will force them to forgo the
consumption of something else they value more.

Laws of supply
1) The law of supply
demonstrates the
quantities sold at a
specific price.

2) This means that

the higher the price,
the higher the
quantity supplied.

3) Producers supply
more at a higher
price because the
higher selling price
justifies the higher
opportunity cost of
each additional unit
sold.

Supply and Demand Curves

- At any given point in time, the supply of
a good brought to market is fixed.

- In other words, the supply curve, in this

case, is a vertical line, while the demand
curve is always downward sloping due to
the law of diminishing marginal utility.

- Sellers can charge no more than the

market will bear based on consumer
demand at that point in time.

- Over longer intervals of time, however,

suppliers can increase or decrease the
quantity they supply to the market based
on the price they expect to charge.

- So over time, the supply curve slopes

upward; the more suppliers expect to
charge, the more they will be willing to
produce and bring to market.

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Equilibrium Price
- Also called a market-clearing price, the equilibrium price is the price at which the producer can
sell all the units he wants to produce, and the buyer can buy all the units he wants.

- With an upward-sloping supply curve and a downward-sloping demand curve, it is easy to

visualize that the two will intersect at some point.

- At this point, the market price is sufficient to induce suppliers to bring to market the same
quantity of goods that consumers will be willing to pay for at that price. Here, Supply and demand
are balanced or in equilibrium.

- The exact price and amount where this occurs depend on the shape and position of the
respective supply and demand curves, each of which can be influenced by several factors.

Factors Affecting Supply

Supply is largely a function of production costs, including:

1) Labour and materials

2) The physical technology available to combine inputs

3) The number of sellers and their total productive capacity over the given time frame

4) Taxes, regulations, or additional institutional costs of production.

5) Competitors and Supply chains

Factors Affecting Demand :These include:

- Consumer preferences among different goods

- The existence and prices of other consumer goods

- Changes in conditions that influence consumer preferences

- Changes in incomes can also be important in either increasing or decreasing the quantity
demanded.

Elasticity:-Elasticity measures how changes in one variable affect a change in another variable.
The four types are price elasticity of demand, price elasticity of supply, cross elasticity of
supply/demand, and income elasticity of demand.

Price Elasticity of Demand:-Price elasticity of demand focuses on how percentage changes in

price affect the percentage change in demand.

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Price Elasticity of Demand

To determine whether a product is elastic or inelastic, you must compare the % change in
price vs the % change in demand on an absolute basis. As you can see below, there are
two types of elasticity to understand:

Elastic (>1): Occurs when the % change in price is less than the % change in demand. For
example, if the company implements a 10% price increase, then the % change in
demand will decrease by more than 10%. This suggests that consumer behavior is heavily
impacted by price.

Inelastic (<1): Occurs when the % change in price is greater than the % change in
demand. For example, if the company implements a 10% price increase, then the %
change in demand will decrease by less than 10%. This suggest that consumer behavior
isn‘t heavily impacted by price.
Price Elasticity of Demand
Elastic goods: Elastic goods typically have substitutes and are considered a luxury good
rather than a necessity. A few examples of elastic goods include watches, cars, and
clothes.

Inelastic goods: Inelastic goods typically don‘t have substitutes and are considered a
necessity rather than a luxury. A few examples of inelastic goods include gas, salt,
medicine (especially prescription), and corn (or other fruits and vegetables).
Price Elasticity of Demand Price elasticity of demand example:

Let‘s say that Big Mountain Gas currently sells 100,000 gallons of gas at $10 per gallon. Big
Mountain Gas decides to increase the price per gallon by 10%, which brings the price per
gallon up to $11. As a result, demand drops by 5%. However, since the gas is inelastic and
the % chance in price is greater than the % change in demand, then total revenue for Big
Mountain Gas increases by $45,000!

To calculate the elasticity, we would divide 5% by 10%, which equals 0.5. Since 0.5 is less
than 1, that confirms that the gas is inelastic.
Relationship between price changes and total revenue

How changes in price can impact a company‘s revenues and profitability. Ultimately, a
company will need to assess whether the goods they sell are elastic or inelastic as that will
influence their pricing strategy.

Elastic: If a product is elastic, price and revenue are inversely related. A price increase will
decrease revenue and a price decrease will increase revenue.

Inelastic: If a product is inelastic, price and revenue are directly related. A price increase
will increase revenue and a price decrease will decrease revenue.
Unit elastic: If a product has unit elasticity, then there is no impact of revenue from a
change in price. Unit elasticity occurs when price and demand are perfectly aligned. This
is very rare, which is why we have a unicorn in the visual!

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Price Elasticity of Supply

Price elasticity of supply focuses on how percentage changes in price affect the
percentage change in supply. The formula for calculating elasticity is:

Elastic (>1): Occurs when the % change in price is less than the % change in supply. For
example, if the company implements a 10% price increase, then the % change in supply
will decrease by more than 10%. This suggests supply is impacted by changes in price.

Inelastic (<1): Occurs

when the % change in
price is greater than the
% change in demand. For
example, if the company
implements a 10% price
increase, then the %
change in supply will
decrease by less than
10%. This suggest that quantity supplied isn‘t impacted by price changes.

Planning Commission
- The Planning Commission was reporting directly to the Prime Minister of India. It was established
on 15 March 1950, with Prime Minister Jawaharlal Nehru as the chairman. The Planning
Commission did not derive its creation from either the Constitution or statute but was an arm of
the Central/Union Government.

- Planning Commission was assigned the responsibility of assessing all the resources of the country,
enhancing scarce resources, drafting plans for the most productive and balanced usage of
resources and ascertaining priorities. Pandit Nehru was the first Chairman of the Planning
Commission.

Transforming India) to replace planning commission.

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Note- Deputy Chairperson of Planning Commission- First- Gulzarilal Nanda (1953-63)

Last- Montek Singh Ahluwalia (2004-14)

NITI Aayog :- The NITI Aayog was formed on January 1, 2015. In Sanskrit, the word ―NITI‖ means
morality, behaviour, guidance, etc. But, in the present context, it means policy and the NITI stands
for ―National Institution for Transforming India‖. It is the country‘s premier policy-making institution
that is expected to bolster the economic growth of the country. It aims to construct a strong state
that will help to create a dynamic and strong nation. This helps India to emerge as a major
economy in the world.

Two hubs fall under NITI Aayog, namely:

1) Team India: It is in charge of leading Indian states‘ participation and the central government.

2) Knowledge and Innovation Hub: This develops the thinking capabilities for the nation.

Note- NITI Aayog is building itself as a state-of-art Resource Centre with all necessary resources to
speed up and advance the government’s research and innovation powers to help it manage
unforeseen problems.

Composition of NITI Aayog

- Chairperson: Prime Minister

- Vice-Chairperson: To be appointed by Prime-Minister

- Governing Council: Chief Ministers of all states and Lt. Governors of Union Territories.

- Regional Council: To address specific regional issues, Comprising Chief Ministers and Lt.
Governors Chaired by Prime Minister or his nominee.

- Adhoc Membership: 2 member in ex-officio capacity from leading Research institutions on

rotational basis.

- Ex-Officio membership: Maximum four from Union council of ministers to be nominated by Prime
minister.

- Chief Executive Officer: Appointed by Prime-minister for a fixed tenure, in rank of Secretary to
Government of India.

- Special Invitees: Experts, Specialists with domain knowledge nominated by Prime-minister.

The 7 Pillars of NITI Aayog

NITI Aayog has been built upon 7 pillars of effective governance. They are as follows:
1) Pro-people: It accomplishes the needs of society and its people.
2) Pro-activity: It is active in its anticipation and response to the needs of citizens.
3) Participation: It involves the participation of all citizens.
4) Empowering: It empowers the citizens, especially women, in all spheres.
5) Inclusion of all: It includes all citizens, irrespective of their gender, race, or caste.
6) Equality: It provides equal opportunity to all, especially to the youth of the country.

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7) Transparency: It aims to make the government visible and responsive to all citizens.

15 Years Vision Document

The 1st 15 year vision document come into effect from 2017-18 after the end of the 12th
five year plan. It will be formulated with centre objective of eradication of poverty. These
will be framed keeping in mind the country's social goals and the sustainable
development agenda. According to NITI Aayog, the issue was discussed at length and a
decision was taken at the highest level. 15 year Vision Documents divided into two parts:

1. 7-years National Development Agenda- The first 15-year vision document started from
2017-18, along with a 7-year National Development Agenda which will lay down the
schemes, programmes and strategies to achieve the long-term vision.

2. 3-years National Development Agenda- The long vision documents comprise of three
year mass economic framework. National Development Agenda will be reviewed after a
gap of every three years to ensure that it was aligned with

financial needs and requirements. For the first Development Agenda the review is done in
2019-20, in line with the termination year of the 14th Finance Commission.
2017-18 to 2032-33 Vision Document.
2017-18 to 2024-25 National Development Agenda
2017-18 to 2019-20 Review of Development Agenda (to be repeated after every three
years)

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National Development Council (NDC)

NDC is neither a constitutional body nor statutory body. The NDC was constituted on 6th
August, 1952, with Prime Minister as the Ex-officio Chairman and the Secretary of the
Planning Commission as the Ex-officio Secretary of the NDC. Chief Minister of all the states
and the members of the Planning Commission, Lieutenant Governors and Administrator of
Union Territories are the members of the NDC.
National Development Council – Structure and Appointment

The Prime Minister, the Chief Ministers of States, and members of the Planning Commission
(now NITI Aayog) are part of the National Development Council.
The members of the NDC are as follows:
1) The Prime Minister of India (who serves as its Chairman/Head).
2) The Union Cabinet
3) All state‘s chief ministers.
4) All Union Territories‘ chief ministers and administrators.
5) The members of the NITI Aayog.
New Role of National Development Council (NDC)

- NITI Aayog was established in 2015 to replace the Planning Commission. The NDC has
been given a new role in the form of the Governing Council of the NITI Aayog.

- The NDC now serves as a platform for cooperative federalism in India. It brings together
the PM, CMs of all states and UTs, and other senior officials to discuss and coordinate
national development priorities.
Its key functions include:
1) identifying key policy priorities and goals,
2) reviewing and monitoring the progress of ongoing schemes and programs, and
3) Providing guidance and recommendations on policy and development-related issues

- The NDC also plays a critical role in ensuring key government schemes and initiatives are
effectively implemented.

- The new role of the NDC is seen as a step towards strengthening the federal structure of
the country.
a) It promotes greater collaboration between the central and state governments.
b) It also ensures a more inclusive and participatory approach to national development.

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STRATEGIES OF PLANNING
1) Harrod-Domar Strategy

the one hand increases the national income (demand side role) and on the other hand
increases the production capacity (supply side role).
2) Nehru-Mahalanobis Strategy

sector and capital good sector.

ent in heavy industry to achieve industrialisation for

rapid economic development.
3) Gandhian Strategy

objective of the Gandhian Model is to raise the material as well as cultural level of the
masses so as to provide basic standard of life.
4) LPG Strategy

by the Finance Minister of that time, Dr Manmohan Singh under Narsimha Rao
Government. The strategy ended the 'license permit raj' and opened the hitherto areas
reserved for the public sector to private sector.
5) PURA Strategy

Abdul Kalam.

-physical, electronic, knowledge and

thereby leading to economic connectivity to enhance the prosperity of cluster of villages
in rural areas

Poverty
- Poverty is a social phenomenon where few section of society is unable to fulfil even
basic necessities of life.

- Planning Commission (Now, NITI Aayog) is the authority, which publishes the poverty
estimates based on various rounds of National Sample Survey Organisation (NSSO) on
monthly per capita consumption expenditure. In India, traditionally the poverty line was
defined on the basis of calorie intake. According to this, 2100 calories a day has been
fixed for urban areas and 2400 calories in rural areas.

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- However, this methodology was
changed considering other
requirements of the poor such as
housing, clothing and education etc.
The current estimation of poverty are
based upon the recommendation of
Suresh Tendulkar Committee

(2005) that recommended to shift

away from the calorie based model.

- It stipulated a benchmark daily per

capita expenditure of 27 and 33 in
rural and urban areas respectively to arrive at a poverty line.
Two types of Poverty :-
1) Causes of Rural Poverty

ementation of PDS (Public Distribution System)

2) Causes of Urban Poverty

Poverty and its Study in India

Various economists and organisations have studied the extent of poverty in India. Some of
them are as follows:

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1) Dandekar and Rath's Study of Poverty in India:

2250
calories as the desired minimum level of nutrition.

-69 about 40% of the rural population and a little more than
50% of the urban population lived below the poverty line.

2) Montek Singh Ahluwalia's Study of Rural Poverty (1977):

1956-57 to 1973-74. He used the concept of poverty line, i.e. an expenditure level of 15 in
1960-61 for rural areas and 20 per person for urban areas.
3) Estimate of Poverty by the Seventh Finance Commission (1978):

The Seventh Finance Commission made an attempt to have a more inclusive concept of
poverty line. Since, the NSS data cover only household consumer expenditure, thus, to get
a more inclusive measure of welfare or deprivation, an estimate of the benefit of public
expenditure was added to private consumer expenditure norm for calculating the
augmented poverty line.
4) Tendulkar Committee Report:

This committee moved away from just calorie criterion definition to a broader definition of
poverty that also includes expenditure on health, education, clothing in addition to food.
According to this report, 41.8% population in rural areas and 25.7% population in urban
areas was living below poverty line.
5) Rangarajan Report on Poverty:

The expert group under the Chairmanship of Dr C Rangarajan to review the Methodology
for measurement of poverty in the country constituted by the Planning Commission in
June, 2012 has submitted its report on 30th June, 2014. The report retained consumption
expenditure estimates of NSSO as the basis for determining poverty. On the basis of this, it
pegged the total number of poor in India at 363 million or 29.6% of the population. This is
higher than 269.8 million poor people or 21.9% pegged by the Suresh Tendulkar
Committee.
Highlights of the Report
1. The daily per capita expenditure is pegged at ₹ 32 for the rural poor and at ₹47 for the
urban poor.
2. Poverty line based on the average monthly per capita expenditure is pegged at ₹972
for rural areas and ₹ 1407 for urban areas.

3. The percentage of people below the poverty line in 2011-12 was 30.95 in rural areas
and 26.4 in urban areas.

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Poverty Alleviation Programs in India
1) Integrated Rural Development Programme (IRDP):

It was introduced in 1978-79 and universalized from 2nd October, 1980, aimed at
providing assistance to the rural poor in the form of subsidy and bank credit for productive
employment opportunities through successive plan periods.

2) Jawahar Rozgar Yojana/Jawahar Gram Samridhi Yojana: The JRY was meant to
generate meaningful employment opportunities for the unemployed and
underemployed in rural areas through the creation of economic infrastructure and
community and social assets.
3) Rural Housing – Indira Awaas Yojana:

The Indira Awaas Yojana (IAY) programme aims at providing free housing to Below
Poverty Line (BPL) families in rural areas and main targets would be the households of
SC/STs.
4) Food for Work Programme:

It aims at enhancing food security through wage employment. Food grains are supplied
to states free of cost, however, the supply of food grains from the Food Corporation of
India (FCI) godowns has been slow.
5) National Old Age Pension Scheme (NOAPS):

This pension is given by the central government. The job of implementation of this scheme
in states and union territories is given to panchayats and municipalities. The states
contribution may vary depending on the state. The amount of old age pension is ₹200 per
month for applicants aged 60–79. For applicants aged above 80 years, the amount has
been revised to ₹500 a month according to the 2011–2012 Budget. It is a successful
venture.

6) Sampoorna Gramin Rozgar Yojana (SGRY): The main objective of the scheme
continues to be the generation of wage employment, creation of durable economic
infrastructure in rural areas and provision of food and nutrition security for the poor.
7) Annapurna Scheme:

This scheme was started by the government in 1999–2000 to provide food to senior
citizens who cannot take care of themselves and are not under the National Old Age
Pension Scheme (NOAPS), and who have no one to take care of them in their village. This
scheme would provide 10 kg of free food grains a month for the eligible senior citizens.
They mostly target groups of ‗poorest of the poor‘ and ‗indigent senior citizens‘.
8) Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) 2005:
The Act provides 100 days assured employment every year to every rural household. One-
third of the proposed jobs would be reserved for women. The central government will also
establish National Employment Guarantee Funds. Similarly, state governments will
establish State Employment Guarantee Funds for implementation of the scheme. Under

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the programme, if an applicant is not provided employment within 15 days he/she will be
entitled to a daily unemployment allowance.

9) National Rural Livelihood Mission: Aajeevika (2011): It evolves out the need to diversify
the needs of the rural poor and provide them jobs with regular income on a monthly
basis. Self Help groups are formed at the village level to help the needy.

10) National Urban Livelihood Mission: The NULM focuses on organizing urban poor in Self
Help Groups, creating opportunities for skill development leading to market-based
employment and helping them to set up self-employment ventures by ensuring easy
access to credit.

11) Pradhan Mantri Kaushal Vikas Yojana: It will focus on fresh entrant to the labour
market, especially labour market and class X and XII dropouts.

12) Pradhan Mantri Jan Dhan Yojana: It aimed at direct benefit transfer of subsidy,
pension, insurance etc. and attained the target of opening 1.5 crore bank accounts. The
scheme particularly targets the unbanked poor.

Important Points
* The Integrated Rural Development Programme (IRDP)
6th five-year plan.
Centre:State share- 50:50

* The National Food for Work Programme was launched in India during the 5th Five Year
Plan. It was renamed as National Rural Employment Programme in October 1980 by the
then Prime Minister Indira Gandhi
* Jawahar Rozgar Yojana was launched in the Seventh Five Year Plan.

* On September 25, 2001, the Sampoorna Grameen Rozgar Yojana was established,
combining the provisions of the Employment Assurance Scheme (EAS) and the Jawahar
Gram Samridhi Yojana.
Implemented through Panchayati Raj Institutions.
Centre:State share- 75:25 (By former PM Atal Bihari Vajpayee in 9th Five Year Plan).
Payment-
Minimum of 5 kg of food grains
At least 25% of wages will be paid in cash
Indira awaas yojana- 7th five-year plan, by Rajiv Gandhi
Ministry of rural development is the ministry responsible for governing Indira awaas yojana.
"AWAAS Soft" is software to assist in improved administration of this scheme.
MNREGA was, however, launched in 2005 and hence was part of the tenth five year plan

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 Unemployment
Unemployment in India:
Unemployment refers to a situation,when a person is able and willing to work at the
prevailing wage rate, but doesn't get the opportunity to work. Unemployment is often
used as a measure of the health of the economy. The most frequently cited measure of
unemployment is unemployment rate. That is the number of unemployed persons divided
by the number of people in the labour force.
Estimation of Unemployment:

B Bhagwati Committee on unemployment estimates (1973) set-up by the Planning

Commission gave three estimates of unemployment. These are as follows: .

Usual Principal Status (UPS): Persons who remained unemployed for a major part of the
year. This is also called 'open unemployment'.

A person is considered to be employed if he or she

pursues any one or more of the gainful activities for at least one hour on any day of the
reference week.

aily Status (CDS): Persons who did not find work on a day or some days during
the survey week. This is the comprehensive measure of unemployment, including chronic
as well as underemployment.

TYPES OF UNEMPLOYMENT:
Voluntary Unemployment: This type of unemployment is on account of people not
interested to take the employment i.e. jobs are available but the persons are not
interested in being employed. It is psychological in nature. Therefore, such types of
persons are not included in the category of unemployed.

Involuntary Unemployment: It refers to a situation in which the persons are interested to

work but the jobs are not available. Such persons are included in the categories of
unemployed persons. It is also called open unemployment.

Cyclical Unemployment: This type of unemployment is due to the recession in the

economy. During recession, there is less requirement of man-power on account of the
decrease in the level of economic activities and thus causes cyclical unemployment. This
type of unemployment is prevalent in the developed countries. This is also known as
Keynesian Unemployment.

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 Frictional Unemployment:
This type of unemployment is
caused by people taking
time out of work, being
between jobs or looking for a
job. The one cause of its
evolution is decline of one
industry and rise of the other
and labour take some time
before moving to the other
industry. This type of
unemployment is short-term
in nature.

Seasonal Unemployment: It
is an account of the seasonal
nature of the productive
activities, i.e., some productive activities are carried out only for certain duration of a
year. Therefore, the persons employed in such activities are unemployed during off-
season. This, generally, occurs in agro-based industries.

Disguised Unemployment: It is a situation, in which more persons are employed to do a

job which can be done with equal efficiency by less number of workers.

It occurs due to fundamental changes in the economy, such

as technological advancements or shifts in industries, which lead to a mismatch between
available jobs and the skills of the workforce. It is often prolonged and requires workers to
adapt or acquire new skills & can be reduced by Education & Innovation.
Technological Unemployment: Technology has always displaced some work and jobs.
Thus, technological unemployment is a term used to describe the lack or loss of jobs due
to technological changes or innovations. This type of unemployment typically comes from
workers either being replaced by machines or having their jobs made easier and require
fewer workers to accomplish the same task. It is one of the reasons of jobless growth.

Employment Generation Programmes

Swarna Jayanti Gram Swarozgar Yojana: (SJGSY) (Set-up in 1999)

and Children in Rural Areas (DWCRA), Ganga Kalyan Yojana (GKY) (1997), Million Well
Scheme (MWS) (1989) and Supply of Improved Toolkits to Rural Artisans (SITRA), (1992).

For eliminating rural poverty and unemployment and promoting self employment
through establishing micro enterprises in rural areas.
Prime Minister's Employment Generation Programme: (Set-up in 2008) To generate
employment opportunities in rural as well as urban areas through setting up of new self-
employment ventures/ projects/micro enterprises.

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Van Dhan Internship Programme: Union Minister of Tribal Affairs launched the Van Dhan
Internship programme on 16th October, 2019. It was organised by the TRIFED under the
Ministry of Tribal Affairs. The programme will help the tribal population to become self
reliant and entrepreneurs.

Swarna Jayanti Shahari Rozgar Yojana: (SJSRY) (Set-up in 1997)

To provide gainful employment to urban unemployed and under employed poor

through self employment or wage employment.

Employment Assurance Scheme (EAS):

as and also to create

durable economic and social assets.

Mahatma Gandhi Rural Employment Guarantee Act: (MGNREGA, launched on 2nd

February, 2006) The National Rural Employment Guarantee Act (NREGA) 2005, envisages
securing the livelihood of people in rural areas. The main provisions of the act are:

year to adult members of any rural household willing to do public work-related unskilled
manual work at the statutory minimum wage of 120 per day. If employment is not
provided within 15 days, daily unemployment allowance in cash has to be paid.

least one-third beneficiaries have to be women.

FLAGSHIP PROGRAMMES OF GOVERNMENT OF INDIA

The flagship programmes were launched by the Government of India, to bridge
education, health, employment and infrastructure divides. The ultimate objective of the
flagship programme is to achieve broad-based improvement in the living standards of our
people.

New Social Welfare Schemes

 One Nation, One Ration Card: This scheme is scheduled to implemented by 1st
June, 2020. The scheme allows the beneficiaries can avail of the benefits across
India, that is, poor migrant workers can buy subsidised rice and wheat from any
ration shop in the country.

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 Atal Bhujal Yojana: Atal Bhujal Yojana (or Atal Jal) is groundwater management
scheme launched by PM Modi on 25th December, 2019. It improve groundwater
management scheme in seven states i.e. Gujarat, Haryana, Karnataka, Madhya
Pradesh, Maharashtra, Rajasthan and Uttar Pradesh under the Jal Jeevan Mission.

 Laghu Vyapari Mann Dhan Scheme: This scheme was launched on 19th
August, 2019. This pension scheme for small traders functions under the Ministry of
Labour and Employment. Under the scheme, traders aged between 18 to 40 who
have an annual turnover of less then 1.5 crore are eligible. Traders should contribute
a monthly amount than they turning 60, the subscribers will get ₹ 3000 monthly
pension.

 Pradhan Mantri Kisan Maan Dhan Yojana:

Launched in 2019, it is a pension scheme for

small and marginal farmers. Under this,
a monthly pension of ₹ 3000 will be
provided to the farmers who attains the
age of 60 years. The farmers will have to
make a monthly contribution of 55 to
200, depending on their age of entry.

 Pradhan Mantri Shram Yogi Maan Dhan Yojana: Similar to PM Kisan Maan
Dhan Yojana, it is also a pension scheme launched in 2019 for unorganised sector
workers with monthly income upto ₹ 15000 per month . They will get assured pension
of ₹ 3000 per month after attaining the age of 60 years.

 Pradhan Mantri Krishi Sinchayee Yojana: (PMKSY) (set-up in July, 2015) The
scheme is aimed to give assured irrigation to farmers.

 Swachh Bharat Abhiyan (SBA): (Set-up in 2nd October, 2015) Total sanitation
by 2019, was the slogan of this programme. It is successfully ended in 2019. The year
2019 also marks the 150th Birth anniversary of Mahatma Gandhi.

 Soil Health Card Scheme: for Every Farmer (SHCS) (Set-up in February, 2015) The
government will initiate to provide every farmer a soil health card in a mission
mode. A sum of ₹ 100 crore is allotted.

 Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY): (set up in July, 2015)

Its long-term aim was to provide 24 x 7 uninterrupted power supply to all homes. It is
successfully ended in 2018 with the electrification of Leisang Village in Manipur.

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 Van Bandhu Kalyan Yojana (VBKY): (Set-up in March, 2015) For the welfare of the
tribal people 'Van Bandhu Kalyan Yojana' is being launched with an initial allocation of ₹
100 crore.

 Shyama Prasad Mukherji Rurban Mission (SPMRM): (Set-up in September,

2015) The scheme will include development of economic activities and skill
development. The preferred mode of delivery would be through PPPs while using
various scheme funds.

 Pradhan Mantri Jan Dhan Yojana: (PMJDY) (Set-up in August, 2014)

 Pradhan Mantri Jan Dhan Yojana is a scheme for comprehensive financial
inclusion launched by the Prime Minister of India, Narendra Modi in August,
2014.
 Account holders will be provided zero-balance bank account with Rupay
debit card, in addition to accidental insurance cover of ₹ 2 lakh.

 National Social Assistance Programme (NSAP): (Set-up in August, 1995)

The pension schemes under NSAP are Indira Gandhi National Old Age Pension Scheme,
Indira Gandhi National Widow Pension Scheme, Indira Gandhi National Disability Pension
Scheme, provide a sum as pension to old aged, widowed and disabled.
 Beti Bachao, Beti Padhao Yojana:
 It was introduced for generating awareness and improving the efficiency of
delivery of welfare services meant for women with an initial corpus of ₹ 100
crore. The government would focus on campaigns to sensitise people of this
country to wards the concerns of the girl child and women. The process of
sensitisation must begin early and therefore the school curriculum must have
a separate chapter on gender main streaming.

 Neeranchal: To give an added impetus to watershed development in the country a

new programme called Neeranchal with an initial outlay of ₹ 2142 crores has been
launched.

 USTAD Scheme: Union Minister Najma Heptullah launched a welfare scheme

Upgradation of Skills and Training in Ancestral Arts/Crafts for Development (USTAD) in May,
2015 which aims at upgrading and promoting the skills of artisans from the minority
community.

 Deendayal Upadhyay Antyodaya, Yojana: This Yojana replaced the

National Rural Livelihood Mission (Ajeevika) and National Urban Livelihood Mission. It

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 is an overeaching scheme for uplift of urban and rural poor through enhancement
of livelihood opportunities through skill development and other means.

 Pradhan Mantri Kaushal Vikas Yojana:

 It is a demand-driven, reward-based skill training scheme. PMKVY is formed to
provide skill training to class 10 and 12 dropout youths across the country.
 Under the scheme, besides assessing and certifying 10 lakh youth for the skills they
already possess, around 24 lakh youth will be skilled over the next year.

 Atal Pension Yojana: The Atal Pension Yojana (APY) will focus on all citizen in the
unorganised sector who join the National Pension System (NPS) administered by the
Pension Fund Regulatory and Development Authority (PERDA) and who are not members
of any statutory social security scheme. It is available to people between 18 and 40 year of
age with bank accounts. The subscribers are required to opt for a monthly pension from
₹ 1000 to ₹ 5000.

 Pradhan Mantri Jeevan Jyoti Bima Yojana: The PMJJBY is available to people in
the age group of 18 to 50 and having a bank account people who join the scheme before
completing 50 years can, however, continue to have the risk of life over upto the age of 55
years subject to payment of premium Aadhar would be the primary Know Your Customers
(KYC) for his bank account. Life insurance of ₹ 2 lakh with a premium of 330 per year.

 Pradhan Mantri Suraksha Bima Yojana: The scheme will be a one-year cover,
renewable from year to year. It is available to people between 18 and 70 year of age with
bank accounts. It has an annual premium of ₹ 12 for ₹ 2 lakh accidental and ₹ 1 lakh full
disability.

 Start-up Stand-up India: Startup India is a revolutionary scheme that has been
started on August, 2015 to help the people who wish to start their own business. Stand-up
India Scheme facilitates bank loan between ₹ 10 lakh and ₹ 1 crore to at least one
Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and at least one woman borrower
per bank branch for setting up a greenfield enterprise.

 Pradhan Mantri Krishi Sinchai Yojana: The primary objectives of PMKSY are to
attract investments in irrigation system at field level, develop and expand cultivable land in
the country. The primary objective is to enhance rain water use in order to minimise
wastage of water, enhance crop per drop by implementing water saving technologies
and precision irrigation.

 Pradhan Mantri Ujjwala Yojana:

 Prime Minister Narendra Modi has launched Pradhan Mantri Ujjwal Yojana on 1st
May, 2016 (Labour Day) at Ballia (UP) by providing cooking gas connections to 10
women.
 The objective of the scheme is to provide cooking gas connections to 5 million
beneficiaries below the poverty line in the next 3 years (till the year 2019).

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 Ujala Yojana: It was launched by Union Minister for State (IC) for Power, Coal and
Renewable Energy Piyush Goyal in Bhopal, Madhya Pradesh on 30th April, 2016.
 The main motive of this policy is energy efficiency inthe country. Consumers can buy
the bulbs from distributor by showing any identification card.

 Pradhan Mantri Fasal Bima Yojana: It is the new crop damage insurance scheme
started on 18 Feb, 2016. It will replace the existing two crop insurance schemes National
Agricultural Insurance Scheme (NAIS) and Modified NAIS.

 Pradhan Mantri Sahaj Bijli Har Ghar Yojana: The scheme aims for electrifying all
the households in rural and urban areas which are still living without power.

 Rashtriya Vayoshri Yojana: To offer free-living assertive devices to senior citizens

belong to BPL families.

 UDAN Scheme: Udey Desh ka Aam Nagrik aims at regional air connectivity.

 Kisan Samman Nidhi Scheme: It was launched in 2019 to provide 6000 per year
financial assistance to those farmers have cultivable area upto 2 hectare. 6000 per year will
be paid in three instalments.

Employment Generation Programmes

 Van Dhan Internship Programme:
 Union Minister of Tribal Affairs launched the Van Dhan Internship programme
on 16th October, 2019. It was organised by the TRIFED under the Ministry of
Tribal Affairs. The programme will help the tribal population to become self-
reliant and entrepreneurs.

 Swarna Jayanti Shahari Rozgar Yojana: (SJSRY) (Set-up in 1997)

 To provide gainful employment to urban unemployed and under employed
poor through self employment or wage employment.
 It has been revamped with effect from April, 2009.

 Swarna Jayanti Gram Swarozgar Yojana: (SJGSY) (Set-up in 1999)

 It replaced Integrated Rural Development Programme (IRDP), Development
of Women and Children in Rural Areas (DWCRA), Ganga Kalyan Yojana
(GKY) (1997), Million Well Scheme (MWS) (1989) and Supply of Improved Tool-
kits to Rural Artisans (SITRA), (1992).

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  For eliminating rural poverty and unemployment and promoting self
employment through establishing micro enterprises in rural areas.

 Employment Assurance Scheme (EAS): Jawahar Gram Samridhi Yojana

(JGSY) merged into it.
 To provide wage employment and food security in rural areas and also to
create durable economic and social assets.

 Mahatma Gandhi Rural Employment Guarantee Act:(MGNREGA, launched

on 2nd February, 2006) The National Rural Employment Guarantee Act (NREGA)
2005, envisages securing the livelihood of people in rural areas. The main provisions
of the act are:
 Employment to be given within 15 days of application for work.
 The scheme provides a legal guara- ntee for 100 days of employment in
every financial year to adult members of any rural household willing to do
public work-related unskilled manual work at the statutory minimum wage of
120 per day. If employment is not provided within 15 days, daily
unemployment allowance in cash has to be paid.
 Employment within 5 km radius, else extra wages to be paid.
 At least one-third beneficiaries have to be women.

 Prime Minister's Employment Generation Programme: (Set-up in 2008) To

generate employment opportunities in rural as well as urban areas through setting
up of new self-employment ventures/ projects/micro enterprises.

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 Rural Development Programmes
 National Broadband Mission: The government has launched the National
Broadband Mission on 17th December, 2019. The mission aim to provide broadband access
to all villages by 2022.

 Total Sanitation Campaign (TSC): (Set-up in April 1999) It follows a community led
and people-centred approach and places emphasis on Information, Communication and
Education (ICE) for demand generation of sanitation facilities.

 Indira Awas Yojana: (IAY, launched in 1999) Indira Awas Yojana (IAY) is a social
welfare programme to provide housing for rural poor in India.
 This scheme, operating since 1985, provides subsidies and cash assistance to people
in villages to construct their houses themselves.

 Pradhan Mantri Gram Sadak Yojana: (PMGSY) (Set-up in 2000) To line all villages
with pakka road having population of 500 and above in general areas and 250 and above
in tribal and general areas.

 Annapurna Scheme:(Set-up in 2000) To ensure food security for all, create a hunger
free India in the next five years and to serve the poorest of the poor.

 Nirmal Gram Puruskar: (Set-up in October 2003) It is an incentive scheme to

encourage PRIS to take up sanitation promotion.

 Bharat Nirman Yojana: It was launched on 16th December, 2005, with the aim of
developing rural infrastructure. The duration of implementing this scheme has been fixed for
4 years.

 Rajiv Gandhi Grameen Vidyutikaran Yojana: (RGGVY launched in 2005) Aims

at providing electricity in all villages and habitations and access to electricity to all rural
households. Connections to BPL families are given free of cost. 90% cost of the scheme is
released as grant where as 10% as loan.

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 Rajiv Awas Yojana (RAY) (Set-up in 2010) It aims at slum-free India in next five years.

 Sansad Adarsh Gram Yojana: It is a rural development and cleanliness programme

broadly focusing upon the development in the villages which includes social
developmentand cultural development. It was launched in October 2014.

Urban Development Programme

 Housing for All by 2022 Government has proposed to set up a Mission on Low Cost
Affordable Housing to be anchored in the National Housing Bank with a view to increase
the flow of cheaper credit for affordable housing to the urban poor/EWS/LIG segment.

 The Narendra Modi Government has renewed the 10 years old Jawaharlal Nehru National
Urban Renewal Mission (JNURM) and named it after the first BJP Prime Minister. The
renewed scheme is known as Atal Mission for Rejuvenation and Urban Transformation
(AMRUT). AMRUT for 500 Tier 2 and Tier 3 cities will also be launched alongwith smart city
project.
 The Ministry of Housing and Urban Affairs has now extended the mission by two years till
March, 2022.

 National Heritage City Development and Augmentation Yojana

(HRIDAY): (Set-up in January, 2015) The programme called Heritage City Development
and Augmentation Yojana (HRIDAY) is to be launched for conserving and preserving the
heritage characters of these cities.

Women Empowerment Programmes

 Indira Gandhi Matritva Sanyog Yojana (IGMSY) 2010: To improve the health
and nutritional status of pregnant, lactating women and infants.

 Ujjwala (Set-up in December, 2007): A comprehensive scheme for prevention of

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

 Dhan Laxmi (Set-up in March, 2008): Conditional cash transfer scheme for the girl
child to encourage families to educate girl children and to prevent child marriage.

 National Mission for Empowerment of Women (NMEW) (Set-up in 2010):

To achieve empowerment of women socially, economically and educationally by securing
convergence of schemes.

 Rajiv Gandhi Scheme for Empowerment of Adolescent Girls (RGSEAG):

'Sabla (Set-up in November, 2010) It aims at empowering adolescent girls of 11 to 18 years

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 by improving their nutritional and health status, upgradation of home skills, life skills and
vocational skills.
 Beti Bachao Beti Padhao (BBBP) Scheme:
(Set-up in January, 2015) It is a key scheme
that aims to address the dipping
child sex ratio and empower the
girl child in India.
 Sukanya Samriddhi Yojana:
(Set-up in January, 2015) This scheme
encompasses all the girls besides their
economic strata can open Sukanya
Samridhi Account in Post office and
in the banks. It is launched along BBBP
Yojana Campaign.

 Pradhan Mantri Matru Vandana Yojna: It is a maternity benefit programme

being implemented in all districts of the country with effect from 1st January. 2017.
Cash incentive of 5000 will be provided in three instalments to all pregnant women
and lactating mothers

Education Oriented Programmes

 Atal Innovation Mission: The Government has set up the Atal Innovation Mission
at NITI Aayog in March, 2020. It encourages the school to provide exposure to
science and technology to student. The main objective is to create scientific
character and innovative thoughts among the young minds of the country
(students between grade 6th to 10th).

 Mid Day Meal: (MDM, launched in 1995) Under

the scheme, hot cooked meal of a minimum
300 calories and 8-12 gms of protein is being
provided to children studying in primary
schools/Education Guarantee Scheme (EGS)
/Alternative and Innovative Education
(AIE) centres.

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 Sarva Shiksha Abhiyan: (SSA, launched in 2001) The main objective of this
programme was to provide educational facility to all children of 6-14 age group in the
state, to complete the primary education by 2007 and upper primary education by 2010,
of all enrolled children and to ensure universal stay of all children up to the year 2010.

 Kasturba Gandhi Balika Vidyalayas: (KGBVS) (Set-up in 2004) To set-up residential

schools at upper primary level for girls belonging to SC/ST/OBC/Minority communities.

 The scheme is being implemented in rural areas and urban areas with female
literacy below 30% and national average respectively.
 Rashtriya Madhyamik Shiksha Abhiyan (RMSA) or Scheme: for
Universalisation of Access for Secondary Education (SUCCESS) (Set up in March, 2009) Aims
at raising the enrollment rate at secondary stage from 52.26% in 2005-06, to 75% in next 5
years by providing a secondary school within, reasonable distance of 5 km of any
habitation; ensure universal access by 2017 and universal retention by 2020.

 Saakshar Bharat (Set-up in September, 2009): National Literacy Mission has been
recalled as Saakshar Bharat. The aim is to cover all adults in the age group of 15 and
above, with its primary focus on women.

Health Oriented Programmes

 SUMAN Scheme: The government launched the Surakshit Matritva Aashwasan
(SUMAN) scheme on 10th October, 2019. Pregnant women, mother upto 6th months after
delivery and all sick newborns will be able to free healthcare benefits under this scheme.

 Bharatiya Poshan Krishi Kosh: The Union Government has launched Bharatiya
Poshan Krishi Kosh with aim of reducing malnutrition in India on 18th November, 2019. It
aims to reduce malnutrition among women and children across the country, through a
multi-sectoral resutls-based framework, including agriculture.

 Integrated Child Development Scheme: (ICDS, launched in 1975) The 1

Integrated Child Development Services (ICDSS) Scheme aims at enhancing the health,
nutrition and learning opportunities of infants, young children (0-6 years) and their mothers.

 National Rural Health Mission: (NRHM) (Set-up in April, 2005) To provide effective
healthcare to rural population with special focus on 18 states with weak health
indices/infrastructure; to raise public spending on health from 0.9% of GDP to 2.3% of GDP:
reduction of IMR and MMR and universal access to healthcare with emphasis on women.

 National Urban Health Mission: (NUHM 2013) The Union Cabinet gave its approval
to launch a National Urban Health Mission (NUHM) as a new E sub-mission on May, 2013
under the overarching. National Health Mission (NHM)

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  Centre-State funding pattern will be 75:25 except for North-Eastern states and other
special States of Jammu and Kashmir, Himachal Pradesh and Uttarakhand for whom
the funding pattern will be 90:10.

 National Ayush Mission: (NAM) (Set-up in September, 2014) Ayurveda, Yoga, Unani
Siddha and Homeopathy (AYUSH). This mission is aimed at addressing the gaps in health
services particularly in vulnerable and far-off areas of India.

 Mission Indradhanush: Launched in 2014, this mission is launched to achieve full

immunisation coverage for all children by 2020.

 Ayushman Bharat Yojana: It was launched in 2018 to provide 5 lakh health

insurance to 10 crore poor families.

 Food Security Programme : National Food Security Act (NFSA) 2013: It aims to
provide food and nutritional security to the whole India. It provide access to adequate
quality food at affordable prices to people and a life with dignity.

AGRICULTURE
 IMPORTANCE OF AGRICULTURE
 Agriculture is the primary industry in India. The agriculture sector of India has
occupied almost 43% of India's geographical area and 58% of the rural households
depend on agriculture as their principal means of livelihood.
 Its importance to the Indian economy can be gauged from the following facts.

 Contribution to GDP: According to the new series of national income released by CSO
at 2011-12 prices, the share of agriculture in total GDP is 17% (Approx) in 2017-18.

 Contribution to Employment:
 Agriculture provides livelihood to than half of the population.
 In 2019, it contributed around 52% to the total employment in the country.
 Contribution to Trade
 Although, the share of agricultural products in total trade of India is declining due to
export diversification.
 Agriculture sector plays a crucial role in inclusive growth by directly attacking
poverty and containing inflation. It is also an important source of raw material for a
vast segment of industry.

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 Agriculture and Five Year Plans:
 The highest outlay on agriculture was during the First Plan, it was 31%.
 The Intensive Agricultural District Programme (IADP) followed by High Yielding Variety
Programme (HYVP) was introduced during the Third Plan. First and Fifth Plan were the
only plans, which achieved the set targets.
 Tenth Plan did not set any targets for crop production.
 The growth rate of agriculture during the Ninth and Tenth Plan were 2.44% and 2.02%
respectively.

 Agriculture in Eleventh Five Year Plan

 Eleventh Plan (2007-12), recognising the importance of agriculture in promoting
inclusive growth, fixed the agriculture growth rate of 4%. Actual outlay in the
Eleventh Plan is estimated to be 18.5% of the total plan outlay. Contract farming was
encouraged in fruits, vegetables and other crops.
 The average annual growth rate of GDP in agriculture and allied sectors during 11th
plan was 3.7 per centa gainst the targetted rate of 4%.
 The averages economic growth rate to 9 percent from 7.6 percent recorded during
the Tenth Plan.
 The total outlay of the Eleventh Plan had been placed at Rs. 3644718 crore.
 In 11th 5 year plan agriculture growth rate was highest.

 Agriculture in Twelfth Five Year Plan

 The approach paper aims at growth rate of 4% per annum in agriculture sector, with
food grains growing at about 2% per year and non-food grains growing at 5.6%.
 The approach paper has emphasised on technology as the main vehicle for
improving productivity in agriculture as natural resources are fixed. Severely indicting
the public sector research in agriculture the Twelfth Plan encourages Public Private
Partnership (PPP) in agriculture so as to bridge the gap in dryland areas and rapidly
diversify agriculture.

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  It emphasises on greater road connectivity, development of horticulture, dairying
and other animal husbandry to further improve the market access to the farmers.

 Green Revolution: The Green revolution in India refers to a period when agriculture in
India improved due to the adoption of novel methods and technology in agriculture in the
1960s and 1970s.

 The key leadership role played by the Indian Agricultural Scientist, M.S Swaminathan
together with many others, earned him the popularly used title 'Father of Green
Revolution of India'.

 Three Basic elements of Green Revolution were

(i) Use of chemical fertilisers and pesticides
(ii) Use of High Yielding Varieties (HYV) seeds
(iii) Irrigation facility

 Second Green Revolution:

The First Green Revolution was to ensure
food security as there was severe scarcity
of food in the country. The Second Green
Revolution aims at creating sustainable
agriculture by leveraging advancements
in technology.

Other Agricultural Revolution

Revolutions Productions
Brown Revolution Leather /Non-conventional
(India)/Cocoa Production
Golden fibre Revolution Jute Production
Golden Revolution Overall Horticulture
Development/Honey Production bet
Green Revolution Food grains (cereals, wheat and
leguminous plant) Production

Grey Revolution Fertiliser Revolution

Pink Revolution Onion production/Pharmaceutical

(India)/Prawn Production

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 Red Revolution Meat and Tomato Production
Round Revolution Potato Production

Silver Fibre Revolution Cotton Production

Silver Revolution Egg/Poultry Production
White Revolution Milk Production

Yellow Revolution Oil Seeds Production

Blue Revolution Fishery Production

 Evergreen Revolution
 Concept given by renowned agricultural scientist Dr MS Swaminathan.
 The concept emphasises on 'organic agriculture' and 'green agriculture' with the
help of integrated pest management, integrated nutrient supply and integrated
Natural resource management.
 The core of the evergreen revolution is 'sustainability'.

 White Revolution
 White revolution is relates to phenomenal growth in milk production. To increase the
pace of White Revolution, the operation flood was started. The father of operation
flood was Dr Verghese Kurien. Operation flood was started by National Dairy
Development Board in 1970.
 India ranks first in the world in milk production, accounting for 20% of world
production. Milk production in India has been increasing steadily over the years at
an average annual growth rate of 4.5%.

 Fisheries Sector: India is the third largest producer of fish and second largest producer
of inland fish in the world.

 Tricolour Revolution: The reference to a Tricolour Revolution was made by Prime

Minister Narendra Modi. This phrase has three components. These are as follows
 Saffron Energy Revolution for promotion and better utilisation of solar energy.
 White Revolution to ensure cattle welfare and further the goals of White Revolution.
 Blue Revolution for fishermen's welfare, cleansing rivers and sea and conserving
water.

Food Security in India

 The need for food self-sufficiency was borne out on account of the experience
gained from the PL-480 programme of the USA in the year 1966.
 Food security implies access by all people at all times to sufficient quantities of food
to lead an active and healthy life. Essentially, it involves
 quantitative dimension in term of food self-sufficiency;

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  qualitative dimension in form of nutritional requirement; and
 purchasing power dimension so as to ensure access to through employment
generation programmes.

Public Distribution System (PDS)

 PDS the food procured by the FCI is distributed through government regulated
ration shops among the poorer section of the society is called PDS.
 PDS was envisaged in 1967 to act as a price support programme for the consumer
during the periods of food shortage of the 1960's.
 The basic aim was to provide essential commodities such as rice, wheat, sugar,
edible oil, soft coke and kerosene at subsidised prices. PDS is the largest distribution
network of its kind in the world.
 Following the criticism of PDS, the government in June, 1997 replaced the PDS with
Targeted Public Distribution System (TPDS). The system envisaged issuing special
cards to BPL families and selling food grains to them at subsidised prices
 As of date, there are about 5.5 lakh Fair Price Shops (FPS) across India.

 National Food Security

This Act, 2013 This act was notified with the objective to provide food and nutritional
security in human life cycle approach, by ensuring access to adequate quantity of
quality food at affordable prices to people. The act provide for coverage of upto 75% of
the rural population and upto 50% of the urban population for receiving subsidised
foodgrains under TPDS.

The eligible persons will be entitled to receive 5 kgs of foodgrains per person per month at
subsidised prices of 3/2/1 per kg. for rice/wheat/coarse grains. The existing Antyodaya
Anna Yojana (AAY) households, which constitute the poorest of the poor, will continue to
receive 35 kgs of food grains per household per month.

Agricultural Price Policy (APP)

 APP of the government seeks to ensure remunerative prices to the producers so as
to encourage higher interest and production on the one hand, on the other, it
safeguards the consumers interest by making food available at reasonable prices.
 To achieve this government announces Minimum Support Prices (MSPs) for 25
agricultural crops taking into accounts the recommendation of the Commission for
Agricultural Cost and Prices (CACP). MSP is that price, at which government is
ready to purchase the crop from the farmers directly, if crop price falls below the
MSP
 Commission for Agricultural Costs and Prices (CACPs) was set-up in 1965 with the
name Agricultural Price Commission and was renamed as CACP in 1985.

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  Market Intervention Scheme (MIS) is implemented for horticultural and agricultural
commodities, generally perishable in nature and not covered under the Price
Support Scheme (PSS).
 Economic cost is composed of three components; viz MSP procurement incidentals
and cost of distributing food grains.
 Agriculture Credit
 Agriculture credit is considered as one of the most basic inputs for conducting all
agricultural development programmes.
 There are two sources of credit available to farmers, viz institutional and private.
 Institutional Credit covers cooperative societies and banks, commercial banks, RRB
and NABARD.
 Non-Institutional/Private sources of credit are moneylenders, traders and
commission agents, relatives and landlords.
 Lead Bank Scheme (LBS) based on area approach was launched in 1969 on the
recommendation of Dr Gadgil Committee and Narasimham Committee.
 Under the LBS, all the 14 nationalised banks and a few private sector banks were
alloted specific districts and were asked to play the lead role in coordinating credit
deployment.

 Agriculture Insurance Company of India Limited (AIC)

 AIC was incorporated under the Companies Act, 1956 on 20th December, 2002 as
a specialised insurer with the capital participation from GIC, four public sector
General Insurance Companies and NABARD.
 The other specialised insurer is Export Credit Guarantee Corporation (ECGC). It was
established in 1957.
 Regional Rural Banks (RRBs)
 RRBS formally launched in 2nd October, 1975 at Moradabad and Gorakhpur (Uttar
Pradesh), Bhiwani (Haryana), Jaipur (Rajasthan) and Malda (West Bengal).
 The objective of the RRB was to provide credit and other facilities particularly to small and
marginal farmers, agricultural labourers etc so as to develop agriculture.
 RRB's mobilise financial resource from rural/semi urban areas.
 It is jointly owned by Gol, the and concerned State Government sponsor banks.
 Commodity Future Market
The commodity future market facilitates the price discovery process and provides a platform for
price risk management in commodities. The market comprises 21 commodity futures exchanges,
which include 5 national and 16 (commodity specific) regional commodity exchanges.

 Commodity Markets in India

 Commodity Exchange, Mumbai
 National Commodity and Derivatives Exchange, Mumbai
 Multi Commodity Exchange, Mumbai

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  ACE Derivatives and Commodity Exchange Limited, Ahmedabad
 Food Processing Industry
 India is the third largest producer of food in the world after China and the US.
 Food processing industry is the fifth largest industry in India in terms of production,
consumption, exports and expected growth.

 Mega Food Park Scheme

Mega Food Park Scheme was launched in 2008 that aims at providing a mechanism to
link agricultural production to the market by bringing together farmers, processors and
retailers so as to ensure maximising value addition, minimising wastage, increasing
farmers' income and creating employment opportunities particularly in rural sector.
Government provide financial assistance to set up modern infrastructure facilities for food
processing. The 12th paln has targeted to set up 50 mega food parks during the plan
period.

 Important Portal and App

 The 'Participatory Guarantee System' portal will help small and marginal farmers
engaged in organic farming to secure certification after checks for compliance to
standards are carried out.
 The 'Soil Health Card' portal has been developed to register soil sample and record
tests results along with fertiliser recommendations to create a national database on
soil health for future use in research.
 The Fertiliser Quality Control System portal will collate results of draw samples of
imported fertilisers helping both consumers and importers with analysis reports.

 Mobile app "AgriMarket Mobile"

This app has been developed with an aim to keep them abreast with crop prices
around them. AgriMarket Mobile App can be used to get the market price of crops
in the markets within 50 km of the device's location.

 Mobile app "Crop Insurance"

It will help the farmers not only to find out complete details about insurance cover
available in their area, but also to calculate the insurance premium for notified
crops, coverage amount and loan amount in case of a loaned farmer.
 National Agriculture Market or eNAM
It is an online trading platform for agricultural commodities in India. eNAM provides
inter-connectivity to e-mandis, in order to enable farmers get better prices of their
produce.

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 Soil Health Card Scheme
In February 2015, the Narendra Modi government had launched the Soil Health
Card Scheme. Under this programme, the government plans to issue soil card to
farmers to help them get a good harvest by studying the quality of soil. The Soil
Health Card studies and reviews the health of soil or rather we can say a complete
evaluation of the quality of soil right from its functional characteristics, to water and
nutrients content and other biological properties. Under this scheme Centre plans
to target over 14 crore farmers in the next three years.

INDUSTRY

 Industry refers to an economic activity concerned with the processing of raw

materials and manufacture of goods in factories.
 At present, industry sector is the backbone of the Indian economy and
contributing around 54.3% of the Indian GDP in 2018-19.
 The long-term average annual growth of industries during the post-reform
period between 1991-92 to 2011-12, averaged 6.7%.

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 Industrial Policies
 Industrial Policies were launched in 1948, 1956, 1977, 1980 and 1991.
 The Industrial Policy Resolution of 1948 marked the beginning of the evolution of the
Indian Industrial Policy.
 The IPR 1956 called the Economic Constitution of India, gave the public sector a
strategic role in the economy.
 The objective of the IPR 1956 was establishment of socialistic pattern of the society
in the country.

 New Industrial Policy, 1991

 Formed the basis for the economic reforms in India, which proved to be a
watershed in the history of Indian economy.
 The main aim of the new industrial policy 1991 was to unshackle the Indian industries
from the cobweb of unnecessary bureaucratic control; to introduce liberalisation
with a view to integrate Indian economy with the world economy; to remove
restrictions on FDI and to abolish MRTP Act, 1969; and

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 To shed the load of the public enterprises.

 Disinvestment Policy
 The Industrial Policy Statement of 24th July, 1991 outlined the disinvestment of
selected PSES. Disinvestment is a process, through which privatisation could take
place.
 The objective of pursuing disinvestment in India were unlocking resources trapped in
non-strategic PSES; reducing public debt and transferring commercial risk to the
private sector.
 First Disinvestment Commission was set-up in 1996, under the Chairmanship of Mr EV
in July, 2001, under Dr RH Patil. Ramkrishna, which was later reconstituted

 Public Sector Enterprises

 As on 31st March, 2015, there were 300 Central Public Sector Enterprises (CPSES).
Out of 300 CPSES, 238 were in operation and 60 were under construction.
 To measure the performance of management of PSES at the end of the year in an
objective and transparent manner, the concept of Memorandum of the

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 Understanding (MoU), on recommendation of Arjun Sengupta Committee (1988),
was started in 1991.
 New Company Bill, 2013
 Six Decades Old Company Act, 1956 will be replaced by this act. In this act, it
has been made mandatory for the companies to include provisions for social
welfare. Till date, in the 54 years Old Company Act, 1956 has been amended
25 times.
 For companies having an annual turn over above 10 lakh, it has been made
mandatory to appoint one third independent directors and at least
appointment of one female director.

 MAHARATNA
 In 2009, the government established the Maharatna status, which raised the PSES
investment ceiling from ₹ 1000 crore to ₹ 5000 crore.
 The Maharatnas firm can now decide on investments of upto 15% of their net worth.

 Criteria for Maharatna

The six criteria for eligibility of Maharatna are as follows:

₹ 25,000 crore during the last three years.

₹ 15,000 crore during the last three years; an
average annual net profit after tax of more than 5000 crore during the last 3 years and
should have significant global presence
- As of 2023, India has 13 Maharatna companies. Oil India Limited was elevated as to the
Maharatna status on recommendation from the Finance ministry of Indian government on
3 August 2023. Bharat Heavy Electricals Limited(BHEL) is an engineering and manufacturing
company.
- The Rural Electrification Corporation (REC) has been given the designation of a
"Maharatna" Central Public Sector Enterprise (CPSE) by an order from the Department of
Public Enterprises, which is part of the Ministry of Finance, dated September 22, 2022
 List of Maharatna
1. Bharat Heavy Electricals Limited

2. Bharat Petroleum Corporation Limited

3. Coal India Limited

4. GAIL India Limited

5. Hindustan Petroleum Corporation Limited

6. Indian Oil Corporation Limited

7. NTPC Limited

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8. Oil & Natural Gas Corporation Limited,

9. Power Finance Corporation

10. Power Grid Corporation of India Limited

11. Steel Authority of India Limited

12. Rural Electrification Corporation Limited

13. Oil India Ltd

 NAVRATNA

manpower cost to total cost of production, Profit Before Depreciation, Interest and
Taxes (PBDIT) to capital employed, PBDIT to turnover, earning per share and
intersectoral performance.
-I and must have four independent
directors on its board. The Navratna status empowers a company to invest upto
1000 crore or 15% of their net worth overseas without government approval.

 List of Navratna
1. Bharat Electronics Limited

2. Container Corporation of India Limited

3. Engineers India Limited

4. Hindustan Aeronautics Limited

5. Mahanagar Telephone Nigam Limited

6. National Aluminium Company Limited

7. National Buildings Construction Corporation Limited

8. Neyveli Lignite Corporation Limited

9. NMDC Limited

10. Rashtriya Ispat Nigam Limited

11. Shipping Corporation of India Limited

12. Rail Vikas Nigam Limited

13. ONGC Videsh Ltd

14. Rashtriya Chemicals & Fertilizers Limited

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 MINIRATNA

These companies should have made a profit in the last three years
continuously, and their pre-tax profit should be at least Rs. 30 crore
in at least one of those years or the average annual turnover
should be at least Rs. 120 crore during the last three years.At
present, there are 60 Miniratna I

These companies should have made a profit in the last three years
continuously, and their pre-tax profit should be at least Rs. 20 crore
in at least one of those years or the average annual turnover
should be at least Rs. 80 crore during the last three years. At
present, there are 11 Miniratna II.
 Small-Scale Industries
 A new thrust in favour of small scale industries was given in the Industrial Policy
Resolution of 1977.
 With effect from 2nd October, 2006, government enacted the Micro, Small
and Medium Enterprises Development Act.
 The MSMED Act, 2006, clearly defines, for the first time, not only the medium
enterprises but also extends it to the services sector too.
 According to the Fourth Census (2009)of the MSME sector, 67% are
manufacturing and 33% services enterprises.
 MSME sector contributes around 30% to the GDP 34% to the manufactured
output, 45% to the exports and provides employment to 110 million people.
 SIDBI (Small Industries Development Bank of India) is a independent financial
institution to finance the growth of MSME's.
 Abid Hussain Committee was set up to look into the problems of small-scale
industries.

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 Micro, Small and Medium Enterprises Policy, 2012
 The policy was notified in March, 2012. The policy envisages that every
Central Ministry/ PSU shall set an annual goal for procurement from the MSE
sector with the objective of achieving minimum 20% of the total annual
purchase from MSES in a period of 3 years.
 The Micro, Small and Medium Enterprises Development (Amendment) Bill,
2018 proposes to reclassify all MSMES weather they are manufacturing or
service providing enterprises on the basis of their annual turn over.

LARGE SCALE INDUSTRIES

 Iron and Steel Industry
 First steel industry at Kulti, West Bengal Iron Works Company was established in 1870.
 First large scale steel plant-TISCO at Jamshedpur (1907) was followed by IISCO at
Burnpur (1919).
 The first public owned steel plant was Rourkela Integrated Steel Plant set-up in 1954
with the help of German Kmpp-Demag.
 India is the 2nd largest producer of crude steel in the world after China.
 India is the largest producer of sponge iron since, 2002.
 Steel Authority of India Limited (SAIL) was established in 1974 for the development of
the steel industry.

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 Iron and Steel Plants in India
Location Assistance
Rourkela (Odisha) Germany
Bhilai (Chhattisgarh) Russia
Durgapur (West Bengal) Britain
Bokaro (Jharkhand) Russia
Vishakhapatnam (Andhra Pradesh) Russia

 Textile Industry
 It is the largest industry in India accounting for about 7% of industrial output,
provides employment to more than 35 million persons and contributes around 15%
to total export earnings. The first Indian modernised cotton cloth mill was
established in 1818 at fort Gloster near Kolkata, but this was unsuccessful.
 The second mill was established in 1854 at Bombay by KGN Daber.
 The organised textile industry comprises of (1) spinning mills, (11) coarse and
medium composite mills and (iii) fine and superfine composite mills.
 In Global Textiles Exports, India now stands at 2nd position.

 Jute Industry
 It was started in 1855 at Rishra and India is the largest producer and second
largest exporter of jute in the world. Jute Technology Mission was launched
2nd June, 2006. World's leading jute producing countries are India,
Bangladesh, China and Thailand.
 Government has enacted Jute Packing Materials (compulsory use in packing
commodities) Act, 1987 to broaden the usage of jute.

 Gems and Jewellery

 It is an important emerging sector in the Indian economy. According to the data
released by the World Gold Council (WGC). India is the 2nd largest consumer of
gold.
 India (especially, Surat and Mumbai) ranks among the 'big four' diamond cutting
centres of the world, the other three being, Belgium (Antwerp), the USA (New York)
and Israel (Ramat Gan).
 Silk Industry
 India is the second largest (after China) silk manufacturer contributing to 18% of the
total raw silk production.
 The majority of silk is produced mainly in Bhoodan Pochampally (also known as silk
city), Kanchipuram, Dharamvaram and Mysore.

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 Sugar Industry
 India is the largest producer of sugar in the world with a 22% share.
 It is the second largest agro-based industry in the country.
 BB Mahajan Committee was setup to study the sugar industry.
 The Sugar Development Fund was set-up in 1982, under the Sugar Cess Act.
 Dual price mechanism with partial control is applied to sugar industry. Under this, the
government fixes the ratio of and free sale sugar quota in the ratio 28:72.
 Cement Industry
 The foundation of stable Indian cement industry was laid in 1914, when the Indian
Cement Company Limited manufactured cement at Porbandar in Gujarat.
 India is the second largest producer of cement in the world.
 The per capita consumption of cement in India is just 68 kg.

 Automotive Industry
 India is the largest manufacturer of motorcycle and 4th largest manufacturer of
commercial vehicles in the world. In 2009, India was the fourth largest exporter of
passenger cars after Japan, South Korea and Thailand.
 India is the largest manufacturer of tractors in the world. India is the ninth largest car
manufacturer in the world.

 Unorganised Sector and Informal Economy

 Unorganise informal workers refer to workers, who are not covered under any social
security benefits irrespective of whether they work in organised or unorganised
sector. 94% of the total workforce were in the unorganised sector in 2018.
 To look into the problems of unorganised sector, National Commission for Enterprises
in the Unorganised Sector was set-up under the Chairmanship of Dr Arjun Sengupta.
 In accordance with the recommendation of the NCEUS, the Government of India
enacted the Unorganised Workers Social Security Act, 2008.
 The act came into effect from 16th May, 2009. The act among other things provides
for constitution of a National Social Security Board and State Social Security Board to
recommend Social Security Schemes
 Constitution of record keeping functions by the district administration.
 Constitution of a workers facilitation centre.
 A National Social Security Fund (NSSF) with initial allocation of 1000 crore for the
unorganised sector workers has been set-up.
 A National Social Security Board (NSSB) has been constituted in 2009.

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  National Manufacturing Policy (NMP)
 The NMP was released by the government on 4th November, 2011 to bring about a
qualitative and quantitative change with following objectives
 The policy is based on the principle of industrial growth in partnership with states.
 Increase manufacturing growth to 12-14% over the medium term;
 Enable manufacturing to contribute at least 25% of GDP by 2022;
 Create 100 million additional jobs in the manufacturing sector by 2022;
 Provides for National Investment and Manufacturing Zone (NIMZ) on lands, which
are degraded and uncultivable.

What are NIMZs?

The NIMZs are envisaged as integrated industrial townships with state-of-the-art
infrastructure; land use on the basis of zoning; clean and energy-efficient technology;
necessary social
infrastructure; skill
development facilities etc.
to provide a productive
environment for persons
transitioning from the
primary to the secondary
and tertiary sectors.

The main objective of

Special Economic Zones is
for the advancement of
exports. While NIMZ is based
on the idea of industrial
growth that involves
collaboration with the local
government. NIMZ is also
different from SEZ in other
aspects such as level of
infrastructure planning, and
regulatory procedure.

 National Policy on Electronics (NPE), 2011

 NPE was released on 3rd October, 2011 providing for a roadmap for the
development of the electronics sector in the country. The main objectives are
as follow:
 To achieve a turnover of about US $ 400 billion by 2020;
 To create employment opportunities of around 28 million;

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  To increase export from US $ 5.5 billion to US $ 80 billion 2020.

 Make in India
Indian Prime Minister Narendra Modi on 25th September, 2014 launched the 'Make
in India' (MIN) campaign with a high-pitch event held at New Delhi's Vigyan
Bhawan. The campaign aims at reviving the job-creating manufacturing sector,
which is being seen as the key to taking the Indian economy on a sustainable high
growth path. Make in India' aims to take manufacturing sector, which is being seen
as the key to taking the Indian economy on a sustainable high path. 'Make in India'
aims to take manufacturing growth to 10% on a sustainable basis.

 Digital India
Digital India is a major flagship programme
of the Government of India, launched in
August, 2014 aimed at transforming the
country into a digitally empowered social
and knowledge economy, as well as to
revive the state of governance in the country.
It is an Umbrella Programme weaving
together many existing schemes under
multiple ministries and departments to ensure that its services are available to
citizens electronically.

FOREIGN TRADE
Trade between two or more nations is called foreign trade or international trade. With the
liberalisation of the economy in 1991 and adoption of export promotion policy measures has led
to substantial growth in exports and diversification of our exports.

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As per the World Trade Organisation (WTO), India's share in global export and imports increase
from 1.7% and 2.5% respectively in 2013 to 2.1% and 2.6% respectively in 2017. Its ranking in terms
of leading exporters and importers is 14 and 11 respectively in 2021 and the number 41 in most
complex economy according to the Economic Complexity Index (ECI).

 Balance of Payments (BOP)

Balance of Payments (BoP) statistics systematically summarise, for a specific period, the economic
transactions of an economy with the rest of the world.The compilation and dissemination of BoP
data is the prime responsibility of RBI.

BoP comprises of current account, capital account and omissions and changes in foreign
exchange reserves.India‘s Balance of Payments (BoP) position witnessed great improvement since
liberalization in 1991.India‘s foreign reserves stood at US$ 598 billion as on September 2023 (It is
variable, so changes very frquently).

Foreign Exchange (Forex) Reserves include Foreign Currency Assets, Gold, Special Drawing Rights
(SDRs), and Reserve Position in the IMF (Gold Tranche or Reserve Tranche).

BoP = net credit in (Current Account + Capital Account and Financial Account).

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Trade Surplus-If exports of country are more than import, it is called Trade Surplus.
Trade Deficit-If imports of a country are more than export, it is called Trade Deficit.
Here, we consider only goods not services

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What is current account surplus/Deficit?
In a current account , there are 3 types of income
1- Net export of goods (Export-Import of goods)
2- Net Export of services (Export-Import of services)
3-Unilateral Transfers
If total of all 3 is positive, it is a current account Surplus.
If total of all 3 negative, it is a current account deficit.
Can a country have trade deficit and current account surplus?
=Yes

A Country may have import of goods more than exports, Hence trade deficit. However, if may
have positive invisibles (Net export of services and transfer income) to have Current Account
Surplus.

E.g.,

Net export of Goods (Export-Import of Goods)= -5000 (Trade deficit)

Net export of Services (Export-Import of Services)= 6000

Unilateral Transfers = 1000

Current account surplus= 2000

 Current Account
 Current account transactions are
classified into merchandise
(exports and imports) and invisibles.
Invisibles Invisible transactions are
classified into three categories
namely
1. Services travel
2. Income
3. Transfers

 Capital Account
 Under capital account, capital
inflows can be classified by
instrument (debt/ equity) and
maturity (short/long-term).
 The main component of capital
account include foreign
investment, loans and banking
capital.

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 Non-Debt Liabilities
Includes FDI and portfolio investment comprising of FIIS, ADRs/GDRs.
Debt Liabilities Includes External assistance, External Commercial Borrowings (ECBS), trade
credit and banking capital (NRIS deposits).

 Balance of Trade (BoT)

1. Balanced BOT i.e. Exports = Imports
2. Adverse BOT i.e. Exports < Imports
3. Favourable BOT, i.e. Exports > Imports
 Foreign Exchange Reserves in India
These are the main Foreign Exchange Reserves in India
 Foreign Currency Assets (FCAs);
 Gold Stock of RBI;
 Special Drawing Rights (SDRs); and
 Reserve Tranche Position (RTP) in the IME

 FERA (Foreign Exchange Regulation Act), was enacted in 1973, to consolidate and
regulate dealings in foreign exchange, so as to conserve the foreign exchange and
utilise it to promote economic development.
 FEMA (Foreign Exchange Management Act) was enacted in 1999 to replace
existing FERA. This act seeks to make offences related to foreign exchange a civil
offence.

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  Special Economic Zone (SEZ)
 A Special Economic Zone (SEZ) is a geographical region that has economic and
other laws that are more free-market oriented than a country's typical national laws.
Asia's first Export Processing Zone (EPZ) was set-up in Kandla, India in 1965. The first SEZ
policy was announced in April, 2000, to make SEZ an engine of growth supported by
quality infrastructure backed by attractive fiscal package.
 To overcome the short comings experienced on account of the multiplicity of
controls and clearances and an unstable fiscal regime and with a view to attract
foreign investments in India, SEZ Act, 2005 was enacted with effect from 10th
February, 2006.
 As per the provisions of the SEZ Act, 2005, 100% FDI is allowed in SEZ through the
automatic route.

 Foreign Trade Policy (FTP), (2015-20)

-2020 (‗FTP‘) was finally announced by the Hon‘ble
Minister of Commerce and Industry, Smt. Nirmala Sitharaman on April 1, 2015. The FTP has
been announced in the backdrop of several measures initiated by the Government of
India such as ‗Make in India‘, ‗Digital India‘ and ‗Skills India‘, among others.

with a special emphasis on improving the 'Ease of doing Business' and India to be made a
significant participant in world trade by 2020.

services, viz. Merchandise Export from India Scheme (‗MEIS‘) and Service Export from India
Scheme (‗SEIS‘).

SEIS
- SEIS available to ―Service Providers located in India‖ as against the existing
Served From India Scheme available to ―Indian Service Providers‖; and
- SEIS reward rates (3%/5%) specified for export of notified services and would
be based on net foreign exchange earned.
Features of FTP (2015-20)

specific markets Foreign Trade Policy.

Focus Product Scheme, Focus Market Scheme, Agri. Infrastructure Incentive Scrip,
VKGUY; and MEIS reward rates (2%/3%/5%) specified for export of notified goods to
notified markets [categorized into 3 groups, viz. Country Group A, B and C] as a
percentage of realized FOB value in free foreign exchange.

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 ld reduce export obligations by 25% and give boost to domestic
manufacturing. FTP benefits from both MEIS and SEIS will be extended to units located in
SEZs.

(Export Obligation reduced from 90% to 75% for domestic procurement under EPCG
scheme to boost the ‗Make in India‘ initiative; Higher reward under MEIS for products with
high domestic content and more value addition in India)

Ease of doing business and Emerging Areas

FOREIGN DIRECT INVESTMENT (FDI)

 FDI is a type of investment that involves the injection of foreign funds into an
enterprises that operates in a different country of origin from the investor. FDI play
an extraordinary and growing role in global business. It can provide a firm with new
markets and marketing channels, cheaper production facilities, access to new
technology, products, skill and financing.
 FDI occurs when a company invests in a business that is located in another country
and it is investing not less than 10% of shares belonging to the foreign company. It is
a non-debt capital flow. FII (Foreign Institutional Investment). Foreign portfolio
investment occurs, when foreign investment in the form of shares, equities and
bonds, is made by a foreign company.
 The three main institutions that handle FDI related issues in India are the Foreign
Investment Promotion Board (FIPB), the Foreign Investment Implementation
Authority (FIIA) and the Secretariat for Industrial Assistance (SIA) activities/ sectors
not opened to private sector, viz railways and atomic energy.
 Since, 20th May, 2011 FDI in Limited Liability Partnership (LLP) has been allowed.

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For the period of last 6 years (2014-15 to 2019-20):-
Total FDI inflow grew by 55%, i.e. from US$ 231.37 billion in 2008-14 to US$ 358.29 billion in 2014-20.

FDI equity inflow also increased by 57% from US$ 160.46 billion during 2008-14 to US$ 252.42 billion
(2014-20).

Financial Year 2020-21 (April to August, 2020):-

During April to August, 2020, total FDI inflow of US$ 35.73 billion is received. It is the highest ever for
first 5 months of a financial year and 13% higher as compared to first five months of 2019-20 (US$
31.60 billion).

FDI equity inflow received during F.Y. 2020-21 (April to August, 2020) is US$ 27.10 billion. It is also the
highest ever for first 5 months of a financial year and 16% more compared to first five months of
2019-20 (US$ 23.35 billion).

FDI status of India in 2022 to 2023-

1) FDI inflows on a gross basis stood at USD 71 billion in FY23, reflecting a decline of 16% compared
to the previous fiscal year (i.e. 84.8 billion USD in 2022), marking the first decrease in FDI inflows in
the country in the past decade.

2) According to the World Investment Report 2022, India has ranked 7th among the top 20 host
economies for 2021.

3) Country-wise FDI Equity Inflow FY-2021-22:

Singapore (27.01%), USA (17.94%), Mauritius (15.98%), Netherland (7.86%) and Switzerland (7.31%)
emerge as top 5 countries for FDI equity inflows.

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4) Challenges Related to FDI inflows in India:

a) Taxation and Regulatory Compliance- Frequent changes in tax laws, multiple layers of taxation,
and disputes over tax assessments create challenges for foreign investors.

b) Competition from Other Emerging Markets: India faces competition from other emerging
markets, such as China, Vietnam, and Indonesia, in attracting FDI.

c) Infrastructure Deficit: Despite ongoing efforts to improve infrastructure, India still faces significant
gaps in areas such as transportation, logistics, power, and telecommunications.

FDI Routes in India:-

Foreign investment was introduced in 1991 under Foreign Exchange Management Act (FEMA),
driven by then Finance Minister Manmohan Singh.

There are three routes through which FDI flows into India. They are described in the following table:

Automatic route: By this route, FDI is allowed without prior approval by Government or RBI.

Government route: Prior approval by the government is needed via this route. The
application needs to be made through Foreign Investment Facilitation Portal, which will
facilitate the single-window clearance of FDI application under Approval Route.

FDI Limits in Various Sectors

Sector/Activity Per cent of Entry Route
FDI/Equity
Defense Sector 74% 74%Automatic route, govt. route is
100%
Telecom Services 100% Automatic up to 49% government
route beyond 49% and up to 100%
Tea Plantation, Animal Husbandry 100% Automatic up to 49% government
route beyond 49% and up to 100%
Asset Reconstruction Company 100% Automatic up to 49% government
route beyond 49% and up to 100%
Petroleum and Natural Gas 49% Automatic route
Commodity Exchanges 49% Automatic route
Power Exchanges 49% Automatic route
Stock Exchanges/Clearing 49% Automatic route
Corporations
Credit Information Companies, 74% Automatic route
Pharma
Courier Services, e-commerce 100% Automatic route
Single Brand Product Retail trading, 100% Automatic up to 49% government

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Multi Brand (food) route beyond 49% and up to 100%
Insurance Sector 74% Earlier it was 49% now it is
changed to 74%, Automatic route
Airlines 100% 100% FDI in scheduled airlines and
up to 49% FDI airlines through
automatic route.
Industrial Parks 100% Automatic
Private Security 74% Automatic
Agencies

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CURRENCY and related Policies
Who is involved in the Design and Issuance of Indian Bank Notes and Coins?
- The Reserve Bank of India (RBI) and the Central Government decide the changes in the design
and form of bank notes and coins.

- Any change in design of a currency note has to be approved by the RBI‘s Central Board and the
central government.

- Changes in the design of coins are the prerogative of the central government.

Role of RBI in Issuing Notes:

Section 22 of The Reserve Bank of India Act, 1934, gives RBI the ―sole right‖ to issue banknotes in
India.The central bank internally works out a design, which is put before the RBI‘s Central Board.

Section 25 states that ―the design, form, and material of bank notes shall be such as may be
approved by the Central Government after consideration of the recommendations made by the
RBI‘s Central Board‖.

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- The RBI‘s Department of Currency Management, currently headed by Deputy Governor, has the
responsibility of administering the core function of currency management.

- If the design of a currency note has to change, the Department works on the design and submits
it to RBI, which recommends it to the central government. The government gives the final
approval.

Role of Central Government in minting of coins:

- The Coinage Act, 2011 gives the central government the power to design and mint coins in
various denominations.

- The role of the RBI is limited to the distribution of coins that are supplied by the central
government.

- The government decides on the quantity of coins to be minted on the basis of indents received
from the RBI on a yearly basis.

Coins are minted in four mints owned by the Government of India in Mumbai, Hyderabad, Kolkata
and Noida.

What is RBI’s Currency Management System?

- RBI, in consultation with the central Government and other stakeholders, estimates the quantity
of banknotes that are likely to be needed denomination-wise in a year, and places indents with
the various currency printing presses for their supply.

- Two of India‘s currency note printing presses (Nasik and Dewas) are owned by the Government
of India; two others (Mysore and Salboni) are owned by the RBI through its wholly owned
subsidiary, Bharatiya Reserve Bank Note Mudran Ltd (BRBNML).

Notes that are received back from circulation are examined, after which those fit for circulation
are reissued, while the soiled and mutilated notes are destroyed.

What are the Types of Notes Issued so far?

Ashoka Pillar Banknotes: The first
Re 1 note was introduced on
November 30, 1917 but it was not
printed in India (printed in England).

The first banknote issued in

Independent India was the Re 1
note issued in 1949. While retaining
the existing design, the new
banknotes replaced the portrait of
King George VI with the symbol of
the Lion Capital of the Ashoka Pillar
at Sarnath in the watermark
window.

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Mahatma Gandhi (MG) Series, 1996: All the banknotes of this series bear the portrait of
Mahatma Gandhi on the obverse (front) side, in place of the symbol of Lion Capital of Ashoka
Pillar, which was moved to the left, next to the watermark window. These banknotes contain both
the Mahatma Gandhi watermark as well as Mahatma Gandhi‘s portrait.

Dimensions of Old Indian Currency

Features of Old Indian Currency

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 Features of New Indian Currency

What are the Types of Notes Issued so far?

Mahatma Gandhi Series, 2005: The ―MG series 2005‖ notes were issued in denominations of Rs
10, Rs 20, Rs 50, Rs 100, Rs 500, and Rs 1,000. They contain some additional/new security
features as compared to the 1996 MG series. The Rs 500 and Rs 1,000 notes of this series were
withdrawn w.e.f. the midnight of November 8, 2016.

Mahatma Gandhi (New) Series, 2016: The ―MGNS‖ notes highlight the cultural heritage and
scientific achievements of the country. Being of reduced dimensions, these notes are more
wallet friendly, and are expected to incur less wear and tear. The colour scheme is sharp and
vivid.

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THE INDIAN CURRENCY SYSTEM

is managed by the RBI. The present currency system is based on minimum reserve
system of note issue. It was adopted in 1957, under the minimum reserve system,
minimum of gold and foreign securities to the extent of 200 crore of which gold should
be of value 115 crore and the balance in rupee securities is maintained.

ing Group on Money Supply headed by YV Reddy recommended for

dropping of post office saving deposits. Accordingly, there were only three monetary
aggregates, viz M₁, M2, and M3. The revised monetary measure are as follow:

M1= Coins and Notes + Demand Deposits +Other deposits with RBI.
M₂ = M₁ + Time liabilities portion of saving deposits with banks + Certificates of deposits
issued by banks + Term deposit maturing within a year.
M3 = M₁ +terms deposit with banks with maturity over 1 year + call/term borrowing of
the banking system.

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 Types of Money
Money is defined as a generally accepted medium of exchange for goods and
services and is studied in the macroeconomics section of economics. Money serves as
a medium of exchange, enabling individuals and organisations to get the things they
require to survive and prosper. Before the invention of money, one method of
exchange used by people was bartering.Under macroeconomics, there are 4 major
types of money, such as:

1) Commodity Money: Whenever a commodity is used for exchange, the commodity

becomes equal to money and is called commodity money. It is the simplest type of
money used in a barter system where valuable resources perform the functions of
money.

2) Fiduciary Money: The value of money depends on the belief that it will be generally
accepted as a medium of exchange. Whenever a bank gives an assurance to the
customers to pay various types of money, and the customer sells the promise or
transfers it to someone else, it is called fiduciary money. Payment of fiduciary money is
usually made in gold, silver, or paper currency.

3) Fiat Money: The value of fiat money is derived from a government order. Fiat
currency is a type of money that has no intrinsic value and cannot be converted into a
valuable resource. The value of fiat money is determined by government orders which
makes it a legal instrument for all transaction purposes. Fiat money is the basis of all
modern money systems.

4) Commercial Bank Money: Commercial bank money is described as claims against

financial institutions that can be used to purchase goods or services. It represents that
part of a currency that is made up of loans generated by commercial banks.
Commercial bank money mainly consists of deposit balances that can be transferred
either through paper orders or electronically.

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M0= Circulating Currency + Bankers‘ savings in the accounts of the RBI + Other
deposits with the RBI

M1= Currency & Coins held by the public + Banking system‘s Demand Deposits + Other
Deposits with the RBI
M2= M1 + Savings deposits of Post Office Savings Banks
M3= M1 + Time Deposits with the banking system
M4= M3 + All deposits with the Post Office Savings Banks

Note:
Demand Deposits= Current Account Deposits+ Saving Account Deposits in a Bank
Time Deposits= FD+RD+ any other fixed deposit

Broad Money Supply

Broad money supply refers to the total amount of money in circulation in an economy,
including all physical currency, demand deposits, time deposits, and other types of
deposits held by commercial banks and other financial institutions.

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It is also known as M3 in some countries and includes all the components of M1 and M2
along with additional types of deposits such as savings deposits, certificates of deposit,
and other time deposits. The Broad Money supply is a key indicator of the overall level
of economic activity in an economy and is closely monitored by central banks and
other monetary authorities.

Narrow Money Supply

Narrow money supply, also known as M1, refers to the total amount of physical
currency in circulation in an economy, along with demand deposits held by
commercial banks and other financial institutions. It includes all the liquid assets that
can be used as a medium of exchange, such as cash and checking account
balances.

A Narrow Money supply is a key indicator of the level of short-term liquidity in an

economy and is closely monitored by central banks and other monetary authorities as
it impacts inflation, interest rates, and other important economic indicators.

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Money & Types in terms of Supply (M1, M2, and M3…)
M0 and M1, also referred to as narrow money, include coins and notes in circulation
and other equivalent money that are easily convertible into liquid cash. M2
encapsulates M1 in addition to short-term time deposits in the banks and 24-hour
money market funds.
Reserve Money (M0)

Circulating Currency + Bankers‘ savings in the accounts of the RBI + Other deposits with
the RBI = Net RBI loans given to the government + RBI credit to the commercial sector
+ RBI‘s debits on banks + RBI‘s net in foreign assets + government‘s currency debts to
the public – RBI‘s net non-monetary liabilities

M1: Currency held by the public + Banking system‘s demand deposits + Other deposits
with the RBI.

M2: M2 is a wider classification of money as compared to M1, it includes assets that

are highly liquid, excluding cash.
And M2= M1 + Savings deposits of Post Office saving Banks

M3: It is a quantity of the money supply in addition with M2 as well as institutional

money market funds, large time deposits, short-term repurchase agreements, and
other larger liquid assets.

M3= M1 + Time deposits in the banking sector = net bank credit to the central/ state
government + Bank credit to the commercial sector + net foreign holdings of the
banking system + government‘s currency debts to the public – net monetary debts of
the banking sector

M4: M3 + Entire deposits with post office savings banks (excluding National Savings
Certificates)

Devaluation of Currency

exports cheaper and imports costlier and overcome balance of payments deficit. In
India, devaluation has been resorted to four times.
1. First Devaluation In June, 1949 (by 30.5%) (Finance Minister Dr John Mathai).
2. Second Devaluation In June, 1966 (by 57%) (Finance Minister Sachindra Chaudhry).
3. Third Devaluation On 1st July, 1991 (by 9%) (Finance Minister Dr Manmohan Singh).

4. Fourth Devaluation On 3rd July, 1991 (by 11%) (Finance Minister Dr Manmohan
Singh).

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 Demonetisation
Currency demonetisation is a radical financial step in which a particular currency's
status as a legal tender is declared invalid. Demonetisation can cause unrest in an
economy or it can help in stabilizing the economy from existing problems.
Demonetisation is usually taken by a country for various reasons.
Objectives of Demonetisation
- To stop the circulation of black money in the market.
- To help in reducing the interest rates of the prevalent banking system
- To help in creation of cashless economy
- To formalise the informal Indian Economy.
- To remove counterfeit notes from the market.
- To help reduce anti-social activities and their finances.

This concludes the concept of demonetisation which helps in stabilising the economy
and curb the spread of black money in the market.

Demonetisation in India has taken place three times till now, namely in the years of
1946, 1978 and 2016.
Demonetisation 1946

The first demonetisation event happened in 1946, at that time the denominations of
Rs.1000 and Rs.10000 were removed from circulation. There was a visibly low impact of
the demonetisation as the higher denomination currencies were not available to the
common people. In 1954, these notes were again introduced with an additional
denomination of 5000.
Demonetisation in 1978

The second demonetisation in India took place in 1978, at that time the Prime Minister
was Morarji Desai. During the second demonetisation the denominations of 1000, 5000
and 10000 were taken out of circulation. The whole purpose of demonetisation was to
reduce the circulation of black money in the country. The announcement was made
by Morarji Desai over the radio.
Demonetisation in 2016
Currency demonetisation is a radical financial step in which a particular currency's status as a
legal tender is declared invalid. On 8th November, 2016, Reserve Bank of India withdrew the
old 500 and 1000 notes as official mode of payment. The reason for this move given was that it
will help to tackle black money, help to eliminate fake currency and to lower cash circulation
in the country. It was announced by PM Narendra Modi.

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 Inflation
inflation is a rise in the price level in an economy which results in a sudden drop in the
purchasing power of money. It is a loss of real value in the medium of exchange. The
measure of inflation is the inflation rate and is measured in percentage. The purchasing
power of currency decreases as goods and services become dearer. This impacts the
cost of living and this cost gets higher. However, a certain level of inflation is required in
the economy
Causes of Inflation

Effects of Inflation
It is economically disastrous for lenders. Balance of trade can become unfavourable.
Severely impacts the common man by reducing their real income. Persistent high level
of inflation leads to economic stagnation.

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Measures to Control Inflation

ge rates of the domestic currency.

specially food grains and infrastructure.

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What is the Consumer Price Index?
1- It is the instrument to measure inflation.

2- It measures price changes from the perspective of a retail buyer. It is released by the
National Statistical Office (NSO).

3- It is used to estimate the average variation between two given periods in the prices
of products consumed by households.

4- The CPI calculates the difference in the price of commodities and services such as
food, medical care, education, electronics etc, which Indian consumers buy for use.

5- The CPI has several sub-groups including food and beverages, fuel and light,
housing and clothing, bedding and footwear.

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Four types of CPI are as follows:
1) CPI for Industrial Workers (IW).
2) CPI for Agricultural Labourer (AL).
3) CPI for Rural Labourer (RL).
4) CPI (Rural/Urban/Combined).

Of these, the first three are compiled by the Labour Bureau in the Ministry of Labour
and Employment. Fourth is compiled by the NSO in the Ministry of Statistics and
Programme Implementation.
Base Year for CPI is 2012.

Recently, the Ministry of Labour and Employment released the new series of Consumer
Price Index for Industrial Worker (CPI-IW) with base year 2016.

The Monetary Policy Committee (MPC) uses CPI data to control inflation. In April 2014,
the Reserve Bank of India (RBI) had adopted the CPI as its key measure of inflation.
How is CPI calculated?
The Consumer Price Index or CPI assesses the changes in the price of a common
basket of goods and services by comparing with the prices that are prevalent during
the same period in a previous year.
The formula for calculating CPI is

CPI = (Cost of market basket in a given year / Cost of market basket in base year) x
100
Importance of CPI

- CPI is a widely used measure for determining inflation in an economy. Rising inflation
results in the diminishing standard of living for the residents of a nation. Over a period
of time, it will result in an increase in the cost of living.

- A high inflation rate will result in increase in prices of goods and as a result there will
be less manufacturing, which will result in loss of jobs.

What is the Wholesale Price Index?

- It measures the changes in the prices of goods sold and traded in bulk by wholesale
businesses to other businesses.
- Published by the Office of Economic Adviser, Ministry of Commerce and Industry.
- It is the most widely used inflation indicator in India.
- Major criticism for this index is that the general public does not buy products at
wholesale price.
- The base year of All-India WPI has been revised from 2004-05 to 2011-12 in 2017.

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What is the difference between CPI and WPI?

1) WPI tracks inflation at the producer level and CPI captures changes in prices levels
at the consumer level.
2) WPI does not capture changes in the prices of services, which CPI does.

3) In WPI, more weightage is given to manufactured goods, while in CPI, more

weightage is given to food items.

Evolution Of Banking In India

Banking has its prevalence in India since Vedic times. But here ,we can categorize the
History of Banking in India into 3 stages:
1. Pre-Independence Stage – Before 1947
2. Banking History II Phase – 1947 to 1991
3. Banking History III Phase – 1991 & beyond
Pre-Independence Stage (Before 1947)
• More than 600 banks were present at that phase.

• The first bank of India was established in 1770 thus marking the Banking system in
India with the foundation of the Bank of Hindustan.

• Top three banks were merge during this phase – Bank of Bengal, Bank of Bombay &
Bank of Madras and came into being as Imperial Bank, which was later taken over by
SBI in 1955

• Some other banks were also established during this period like Allahabad Bank 1865,
Punjab National Bank 1894, Bank of India 1906, Bank of Baroda 1908, Central Bank of
India 1911.
Post Independence Stage (From 1947 to 1991)
• Nationalization of the Bank took place during this period.
• Central bank of India was also nationalised during this period on 1st January 1949.

• With the recommendation of Narsimha committee, Regional Rural Banks were

formed on 2nd October 1975.
History of Banking In India: Beyond 1991

• Liberalized economic policies were formed to mark the progress of banks in the year
1991.

• This phase was know was the phase of expansion, consolidation, and increment in
many ways.

• RBI also gave license to 10 private entities which include – ICICI, Axis Bank, HDFC,
DCB, Indusland Bank.

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 Nationalization & Its Impacts
Nationalization is termed to be the public sector assets transferring to be channelized
or owned by the State or Central level Government.
1) The masses present in the banks elevated their confidence.
2) Banking system became more authorized and eccentric.

3) Small scale organizations started growing and their economic growth became
legalized with proper monetary values.
4) Banking services encircled its presence mostly in the rural areas.
5) Goods supply became enormous and stabilization of funding became essential.
6) Banking performance also got streamlined and efficient.

Listing out the banks that were nationalized formerly

Listing out the banks that have reserves more that the amount of Rs. 200 crore and were
nationalized on 15 April 1980:
1) Corporation Bank
2) Andhra Bank
3) New Bank of India

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4) Punjab and Sind Bank
5) Oriental Bank of Commerce
6) Vijaya Bank
Listed banks there are 7 subsidiaries of the SBI which were nationalized during 1959.
- State Bank of Hyderabad
- State Bank of Patiala
- State Bank of Mysore
- State Bank of Bikaner and Jaipur
- State Bank of Travancore
- State Bank of Indore
- State Bank of Saurashtra.

Note-
These following banks were merged with the SBI later during 2017. The Bank of Saurashtra
merged with the SBI during 2008.

First In Indian Banking System

 First bank in India - Bank of Hindustan (1770)
 First Bank managed by Indians - Oudh Commercial Bank
 First Bank with Indian Capital - Punjab National Bank (Founder of the Bank is Lala
Lajpat Rai)
 First Foreign Bank in India - HSBC
 First bank to get ISO certificate -Canara Bank
 First Indian bank outside India - Bank of India
 First Bank to introduce ATM - HSBC (1987, Mumbai)
 First Bank to have a joint-stock public bank (Oldest) - Allahabad Bank
 First Universal bank - ICICI (Industrial Credit and Investment Corporation of India)
 First bank to introduce saving account - Presidency Bank (1833)
 First Bank to Introduce Cheque system - Bengal Bank (1833)
 First bank to give internet banking facility -ICICI
 First bank to sell mutual funds - State Bank of India
 First bank to issue credit cards - Central Bank of India
 First Digital Bank - Digibank
 First Rural Regional Bank (Grameen Bank) - Prathama Bank (sponsored by Syndicate Bank)
 First bank to get ‗in principle‘ banking license - IDFC and Bandhan Bank
 First Bank to introduce merchant banking in India - Grindlays bank
 First bank to introduce blockchain technology - ICICI
 First bank to introduce voice biometric - Citi Bank
 First bank to introduce robot in banking service - HDFC

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 Banking in India
established in 1881. Subsequently, PNB was established in 1894.

of India followed by formation of its 7 associates in 1959.

on 19th July, 1969. Six more Commercial Banks were nationalised on 15th August, 1980.

as passed in February, 1949, which was subsequently

amended to read as Banking Regulations Act, 1949

Reserve Bank of India (RBI)

-up on the basis of Hilton Young Commission recommendation in April, 1935 with the
enactment of RBI Act, 1934. Its first Governor was Sir Osborne Smith.

was to separate currency and credit

from Gol.

its first Indian Governor was CD

Deshmukh.

Administration

Deputy Governors and one Government Official.

– Shakti kanta Das

Functions:
The main functions of the RBI includes:

d settlement system.

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These are as follows:
1. Economic growth
2. Inflation control

Credit Control Instruments: Instrument of credit control can be divided into two namely-
Qualitative/Selective credit control and Quantitative credit control.
Quantitative/General Credit Control

- Quantitative credit control are used to control the volume of credit and indirectly to
control the inflationary and deflationary pressures caused by expansion and contraction
of credit.

- Quantitative tools control the extent of money supply by changing the Cash Reserve
Ratio (CRR), or bank rate or open market operations.

- Qualitative tools include persuasion by the Central bank in order to make commercial
banks discourage or encourage lending which is done through moral suasion, margin
requirement, etc.
The quantitative credit control consists of :-

It is also called the rediscount rate. It is the rate, at which the RBI gives
finance to Commercial Banks. It is currently at 9% (variable).

It refers to buying and selling of bonds issued by the Government in the open market.
OMO is one of the quantitative tools that RBI uses to smoothen the liquidity conditions
through the year and minimise its impact on the interest rate and inflation rate levels.

- When RBI buys a Government bond in the open market, it pays for it by giving a cheque.
This cheque increases the total amount of reserves in the economy and thus increases the
money supply.

- Selling of a bond by RBI (to private individuals or institutions) leads to reduction in

quantity of reserves and hence the money supply.

- Cash Reserve Ratio (CRR) was introduced in the year 1950 for the very first time, as a
measure to ensure safety and liquidity of bank deposits. It specifies the fraction of the
total deposits of banks that they are obliged to keep with the RBI.

- Since 1962, the RBI has been empowered to vary the CRR requirement between 3% and
15% of the total demand and time deposits.

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- Therefore, if the RBI wants to raise the supply of money in the system, it will reduce the
rate of CRR while, if RBI seeks to decrease the money supply in the market then it will
increase the rate of CRR.

Statutory Liquidity Ratio (SLR): It is the ratio of liquid asset, which all Commercial Banks
have to keep in the form of cash, gold or government approved securities before
providing credit to its customers. SLR rate is determined and maintained by RBI in order to
control the expansion of the bank credit.

- The rate of SLR is decided by the Central bank, i.e. the Reserve Bank of India so as to
control the expansion of bank credit. This means that SLR can increase or decrease the
expansion of bank credit just by changing the rates of Statutory Liquidity Ratio.

- So a higher SLR reflects that banks will have less money for commercial transactions and
extension of credit.
- The central bank is authorized to increase this rate up to 40%.

- Therefore, this will lead to a rise in the interest rate of loans and advances. And when the
SLR falls, there will be a fall in the rate of interest of loans and advances.

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Quantitative/General Credit Control
Repo Rate: It was introduced in December 1992. It is the rate, at which RBI lends short-
term money to the banks against securities.

Reverse Repo Rate: It is the rate, at which banks park short-term excess liquidity with the
RBI. Reverse Repo Rate withdraws liquidity from the market. This is always on 100 base
point 1% less than Repo rate.

Qualitative/Selective/ Direct Credit Control

- Qualitative methods control the use and direction of credit and discriminate between
various sectors of the economy.
- They direct the credit flow for particular end use and particular sectors of the economy.

- Unlike quantitative tools which have a direct effect on the entire economy‘s money
supply, qualitative tools are selective tools that have an effect on the money supply of a
specific sector of the economy.

Note- The repo rate is always higher than the reverse repo rate. Repo Rate is used to
control inflation and Reverse Repo Rate is used to control the money supply.

-Under credit rationing, RBI fixes a ceiling (maximum limit) on loans and advances of
various categories, which the commercial banks cannot exceed.

-This controls the amount of credit for certain sectors and ensures that all sectors get
adequate credit. This is required for inclusive growth of all sectors of the economy.

-Consumer credit refers to loans taken by the public for purchase of goods and services.

-RBI regulates this by either fixing a minimum time frame for repayment or increasing down
payment required for availing loan.
Suasion:

- RBI uses persuasion and request, giving suggestions and advice to commercial banks to
undertake certain actions in the economic interests of the country.
- The advice is morally binding, but not mandatory for the banks.
irements:

-Margin is the amount that has to be contributed by the borrower for availing any loan.
The full amount of the loan is not given; rather the borrower has to contribute some sum
as margin. If the margin is high, then off-take of the loan is low and vice-versa.
-RBI controls credit by fixing high margins. This is aimed to restrict the use of credit for
purchasing securities by speculators.

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 SCHEDULED BANKS
-They are listed in the second schedule of the RBI Act 1934.
- These have a paid up capital of Rs. 5 lakhs or more and comply with all the requirements
of the RBI.

- They maintain a cash reserve ratio

with RBI.

- They are authorized to borrow funds

from the Reserve Bank of India.

- They are comparatively more

financially stable.

Non-Scheduled Bank
- They are not listed in the second
schedule of the RBI Act.

- There is no such condition that needs

to be fulfilled for it to be considered a
non-scheduled bank.
- They maintain the CRR amount with themselves.
-The reserve capital of these banks is less than 5 lakh rupees. These banks are riskier.

Commercial Banks
Commercial Banks primarily works on a ‗Profit Basis‘ and is engaged in the business of
accepting deposits for the purpose of advances/loans. We can categorize scheduled
commercial banks into four types:

• Public Sector Banks: These are those entities which are owned by Govt. having more
than 51% stake in the capital.

• Private Sector Banks: Private Banks are those entities which are owned by private
individuals/institutions and these are registered under the Companies Act 1956 as Limited
Companies.

• Regional Rural Banks (RRBs): These entities are completely under government and work
for the betterment of the rural sector of the society.

Cooperative bank-
- Co-operative Banks are divided into two categories – Urban and Rural.
- Rural cooperative credit institutions could either be short-term or long-term in nature.

- Short-term cooperative credit institutions are further sub-divided into State Co-operative
Banks, District - Central Co-operative Banks, Primary Agricultural Credit Societies.

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- The long-term institutions are either State Cooperative Agriculture and Rural
Development Banks (SCARDBs) or Primary Cooperative Agriculture and Rural
Development Banks (PCARDBs).

- On the other hand, Urban Co-operative Banks (UBBs) are either scheduled or non-
scheduled banks.
Co-operative Banks Regulation and Management
- Cooperative banks are registered under the States Cooperative Societies Act.

- They are registered and regulated by the Registrar of Co-operative Societies of the
respective State governments and by the Central Registrar of Co-operative Societies if
these entities function in more than one State.

- These banks also come under the regulatory ambit of the Reserve Bank of India (RBI)
under two laws, namely, the Banking Regulation Act 1949 and the Banking Laws (Co-
operative Societies) Act, 1955.
- Cooperative banks operate on the principle of "no profit, no loss."
- Anyonya Co-operative Bank Limited (ACBL) is India's first co-operative bank,
headquartered in Vadodara, Gujarat.

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Structure of Banking System in India

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 PRIVATE SECTOR BANKS IN INDIA

of a private sector bank was the Bank of Sweden, founded in 1668. Private individuals
created this bank to finance trade and other commercial activities.

bank. Before that, the government-owned and controlled all banks in India. Later in 1993,
the Reserve Bank of India issued guidelines to establish new private banks in India.

shareholders and not by the government are called private sector banks.

the entry of new private sector banks in the Indian banking sector; the objective was to

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instil greater competition in the banking system to increase productivity and efficiency.
Top Five Private Sector Banks
1. ICICI Bank, 1994 Vadodara
2. HDFC Bank, 1994 Mumbai
3. Axis Bank, 1994 Ahmedabad
4. Kotak Mahindra Bank, 1985 Mumbai
5. Yes Bank, 2004 Mumbai

Mega Bank Merger List 2023

1. Punjab National Bank (PNB) will take over Oriental Bank of Commerce (OBC) and
United Bank of India (UBI) to become the country‘s largest lender after the State Bank of
India (SBI) in terms of business.
2. Canara Bank will subsume Syndicate Bank;
3. Andhra Bank and Corporation Bank will merge with Union Bank of India; and
4. Allahabad Bank will become part of the Indian Bank.
5. Six Merged Banks are:
a) SBI (State Bank of India),
b) Bank of Baroda,
c) Punjab National Bank (PNB),
d) Canara Bank,
e) Union Bank of India,
f) Indian Bank

History of State Bank of India

Calcutta in Calcutta on 2 June 1806.

-designed as the Bank of
Bengal (2 January 1809).

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 nt-stock bank of British
India sponsored by the Government of
Bengal. The Bank of Bombay (15 April 1840)
and the Bank of Madras (1 July 1843)
followed the Bank of Bengal

called Imperial Bank of India in 27 January

1921, which was created by amalgamation
of 3 presidency banks viz Bank of Bengal,
Bank of Bombay and Bank of Madras.

Bhartiya Mahila Bank were merged in State

Bank of India. With this merger, SBI
becomes one of the top 50 global banks.

Logo of State Bank of India

of India when it was founded on July 1st,

1955. The Banyan Tree in the logo says
that the bank has strong roots and is
capable of propagating and growing in
all directions.

of India is a blue circle with a small cut at

the bottom. It was designed by Shekhar
Kamat, an alumnus of the National
Institute of Design, Ahmedabad. The logo
was unveiled on October 1, 1971, on the
day of the inauguration of the SBI Central
Office building at Backbay Reclamation,
Bombay.

interpretations one of them is that The

small circle and the vertical line with the
blue background suggest a keyhole —
the symbol of safety, security, and strength. It is also said the inspiration for this design
came from Ahmedabad city‘s Kankaria Lake.

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 Interesting Facts About State Bank of India
1) John Mathai was the first chairman of SBI.
2) State Bank of India is the country‘s largest public sector bank in India.

3) SBI is the only bank to have its payment aggregation solution – SBIePay which provides
the following benefits.
a) Quick & Easy payment facility to customers on Merchant site.
b) Diversified and cost-effective payment options to Merchants.
c) Various value-added services such as detailed MIS, user-controlled merchant panel.

4) SBI has been rated as the ―Best Transaction Bank in India‖ & ―Best Payment Bank in
India‖ by The Asian Banker under their Business Achievement Awards 2019.

5) In 2017, the State Bank of India has launched a unified integrated app called YONO
(You Need Only One) that offers financial and lifestyle products.
6) SBI has over 22,000 branches, 58,500 ATMs and 66,000 BC outlets.

Banking Sector Reforms Since 1991

Narsimha Committee -I
- Committee was Headed by M. Narasimham, former RBI Governor.

- The committee suggested measures to strengthen the banking system, including reducing
government interference, increasing the role of the RBI in supervising banks, and enhancing
transparency.

- It recommended the reduction of statutory liquidity ratio (SLR) and cash reserve ratio (CRR),
which were high reserve requirements for banks, to improve their liquidity.

- The committee also recommended the recapitalization of weak banks, the strengthening of
bank management, and the introduction of prudential norms.

H. Khan Committee
- Headed by R. H. Khan, former Deputy Governor of the Reserve Bank of India (RBI), this
committee examined the financial system‘s effectiveness for the small-scale sector and the role of
primary dealers.

- The committee made recommendations to improve credit delivery to the small-scale sector and
enhance the functioning of primary dealers.

Narsimham Committee II
- This committee was a follow-up to Narsimham Committee I and aimed to review the progress of
reforms.

- The committee emphasized the need for structural reforms, consolidation of the banking sector,
and the establishment of strong and autonomous regulatory bodies.

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- It recommended reducing the government‘s stake in public sector banks (PSBs) to less than 33%
and enhancing corporate governance standards in PSBs.

Raghuram Rajan Committee

- Chaired by Raghuram Rajan, former Chief Economist of the International Monetary Fund (IMF),
this committee was appointed to examine the financial sector reforms in India.

- The committee provided recommendations to strengthen the banking system, enhance

financial inclusion, and promote financial stability.

Financial Sector Legislative Reforms Commission (FSLRC)

The FSLRC was headed by Justice B. N. Srikrishna and tasked with reviewing and restructuring the
legal and regulatory framework of the financial sector in India. It aimed to consolidate and
streamline the laws governing the financial sector, including banking, insurance, securities, and
pensions.

PJ Nayak Committee

- Led by P. J. Nayak, this committee was constituted to examine the governance of PSBs.

- The committee highlighted the need for reforms in the governance structure, such as
strengthening the board‘s role, empowering bank management, and professionalizing the
appointment process of top executives.

- It suggested reducing government interference and advocated for a greater role of the board
in key decisions, including appointments and capital allocation.

Nachiket Mor Committee

- This committee, headed by Nachiket Mor, was formed to examine the Comprehensive Financial
Services for Small Businesses and Low-Income Households.

- The committee recommended measures to increase financial inclusion, such as the

establishment of payment banks, small finance banks, and the creation of a universal electronic
bank account (Jan Dhan Yojana).

- It proposed the concept of ―payment banks‖ to provide basic banking services, including
payments and remittances, to underserved sections of society

Indradhanush Framework

The Indradhanush framework was introduced in 2015 by the Government of India to revitalize and
reform public sector banks (PSBs) in the country. The Indradhanush framework aimed to improve
the efficiency, transparency, and governance of PSBs and strengthen their ability to support
economic growth. The framework aimed to address key areas of banking sector reforms,
encapsulated by the seven pillars of Indradhanush, which are:

1) Enhancing the selection process of top management positions in PSBs to attract skilled
professionals.

2) Setting up the BBB as an autonomous body to provide guidance and enhance governance in
PSBs.

3) Injecting capital into PSBs to strengthen their balance sheets and enable them to meet Basel III
capital adequacy norms.

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4) Implementing measures to address the issue of non-performing assets (NPAs) and stressed
assets in PSBs.

5) Granting more autonomy to bank boards and empowering them with greater decision-making
authority.

6) Framework of Accountability: Introducing a framework to hold the management of PSBs

accountable for their performance.

7) Enhancing transparency, risk management, and governance practices in PSBs

HR Khan Committee

- Led by H. R. Khan, former Deputy Governor of RBI, this committee was formed to examine the
existing framework for monetary policy in India.

- The committee made recommendations on issues such as inflation targeting, monetary policy
transmission, and improving the decision-making process of the RBI‘s Monetary Policy Committee
(MPC)

4R Framework

The 4R framework was introduced in 2017 as part of the government‘s strategy to address the
issue of mounting bad loans in the banking system. The framework focused on four key elements:

1) Recognition: Prompt identification and classification of stressed assets as NPAs to accurately

assess the extent of the problem.

2) Recapitalization: Injecting capital into banks to improve their financial health and enhance
their lending capacity.

3) Resolution: Establishing mechanisms for the timely resolution of stressed assets through processes
like the Insolvency and Bankruptcy Code (IBC) and other resolution frameworks.

4) Reforms: Undertaking structural reforms to improve the governance, risk management, and
operational efficiency of banks.

The 4R framework aimed to address the issue of stressed assets, promote transparency and
accountability, and strengthen the resilience of the banking sector

Bimal Jalan Committee

- Chaired by Bimal Jalan, this committee was constituted to review the economic capital
framework of the Reserve Bank of India. The committee recommended transferring a portion of
RBI‘s surplus reserves to the government and revising the framework for determining RBI‘s capital
requirements.

- It aimed to strike a balance between the central bank‘s need for capital buffers and the
government‘s fiscal requirements.

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 Bank Board Bureau
- The Bank Board Bureau (BBB) is constituted on 28th February, 2016. BBB starts its work from 1st
April, 2016. The Bureau is mandated to play a critical role in reforming the

troubled public sector banks by recommending appointments to leadership positions and boards
in those banks, and advise them on ways to raise funds and how to go ahead with mergers and
acquisitions.

- Vinod Rai, former comptroller and Auditor General of India, was named the first Chairman of the
Banks Board Bureau.

- Banks Board Bureau is a self-governing autonomous body of the Central Government. It is an

advisory authority comprising eminent professionals and officials to improve the management of
Public sector banks.

- Banks Board Bureau headquarter is at the Central Office of Reserve Bank of India, Mumbai and
started its functioning on April 1, 2016.

- BBB was a part of the seven-point strategy of the Indradhanush Mission aimed at revamping the
Public Sector Banks.

RBI Guidelines for New Bank Licensing

While preparing guidelines, RBI recognises the need for an explicit policy on banking structure in
India keeping in view the recommendations of the Narsimham Committee, Raghuram Rajan
Committee and others view points.

New Bank
These new banks will be provided license under the Banking Regulation Act, 1949 (Section 22(1)).

Bandhan Finance- It is a microfinance company, based in West Bengal. It is headed by Shri

Chandra Shekhar Ghosh and has a net worth of ₹ 1100 crore. About 45% of its branches in the
rural areas. Bandhan Bank received the in principle approval of the RBI in April 2014, the banking
regulator gave its final nod in June, 2015.

IDFC -The Infrastructure Development and Finance Corporation is based in Mumbai. It is originally
an investment finance company, headed by Shri Rajiv Lal. IDFC has the net worth of 21000 crore,
but with a lower rural presence. IDFC started operating banking services on 1st October 2015
under RBI Banking licence.

Bharatiya Mahila Banks -India's first all women bank, Bharatiya Mahila Bank was inaugurated in
Mumbai on 19th November, 2013. The main objective of the bank was to focus on the banking
needs of women and to promote their economic empowerment.

Usha Anantha Subramanian was appointed as the first Chairperson and Managing Director of
public sector Bharatiya Mahila Bank (BMB). The BMB was based on the principle of: 'Women
empowerment in India'. It has been merged with State Bank of India in 2017. With this merger, SBI
becomes one of top 50 global banks.

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MUDRA Bank

Micro Units Development and Refinance Agency Bank (or MUDRA Bank) was launched on 8th
April, 2015 with a corpus of 20000 crore and a credit guarantee corpus of 3000 crore. It is a public
sector financial institution in India. It provides loans at low rates to small entrepreneurs. MUDRA
Bank will be setup through a statutory enactment. It is a 100% subsidiary of SIDBÍ.

Basel Norms

prescribes for a set of minimum capital requirement for banks. 55 countries Central Banks are
members of the BIS.

4. In India Basel norms were introduced in 1988 by

the RBI.

-I and Basel-II have been implemented in India and third i.e.,

Basel-III norms became operational from 1st January, 2013. RBI issued guidelines in 1992 to
maintain a capital adequacy ratio of 9% as mandatory for every Scheduled Commercial Banks
(SCBS). Capital adequacy ratio is that ratio of the total capital of a bank to its risk weighted assets,
which ensure's strength and stability of a bank to withstand reasonable degree of losses.

Basel Norms Types

The Basel Committee has issued the following sets of regulations.

1. Basel I: Basel I was introduced in 1988. This Basel norm focused on credit risk. Credit risk arises
when a borrower fails to repay a loan or meet contractual obligations. This norm defined the
capital and structure of risk weights for banks. The minimum capital requirement was set as 8% of
risk-weighted assets. Risk-weighted assets mean a bank's assets are weighted according to risk.

2. Basel II: Basel II guidelines were issued in 2004. These norms were refined versions of Basel-I
norms. These norms were based on the following three parameters.

a) Banks should retain a minimum capital adequacy requirement of 8% of risk assets.

b) Banks were advised to develop and use better risk management techniques.

c) Banks must disclose their capital adequacy requirement and risk exposure to the central bank.

3. Basel III: Basel III guidelines were issued in 2010. These norms were introduced in response to the
financial crisis of 2008. A need was felt to strengthen the banking system across the globe. It was
also felt that the quantity and quality of capital under Basel II were considered insufficient.

Basel Regulations
1) Increasing capital requirements ensures that banks are strong enough to combat losses.

2) Improving the quality of bank regulatory capital in the form of Common Equity Tier 1 capital.

3) Specifying a minimum leverage ratio requirement to curb excess leverage in the banking
system.

4) Introducing capital buffers that are maintained in good times and can be used in times of crisis.

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The Basel Committee also introduced an international framework for mitigating excessive liquidity
risk through the Liquidity Coverage Ratio.

Note-
- Minimum Total Capital Ratio remains at 8%. The addition of the capital conservation buffer
increases the total amount of capital a financial institution must hold to 10.5% of risk-
weighted assets, of which 8.5% must be tier 1 capital.
- Basel III established a 3% minimum requirement for the Tier 1 Leverage Ratio.

NABARD(National Bank for Agriculture and Rural

Development)
* (NABARD) celebrated its 42nd Foundation Day on July 12, 2023. Webinar was addressed by the
Union Minister of Agriculture and Farmers‘ Welfare, Shri Narendra Singh Tomar

* Theme of ―NABARD: 42 Years of Rural Transformation.‖

NABARD was established in 1982 to provide financial and developmental support to the
agricultural and rural sectors.

* Significance of NABARD- To increase the agricultural production, improve rural infrastructure,

and promote financial inclusion in rural areas.

* It is the apex institution for the entire rural credit system in India.

* It has two main functions: financial and developmental.

* It is governed by a board of directors.

* Its authorised capital has been increased from Rs. 5,000 crore to Rs. 30,000 crore.

Insurance sector
 Insurance industry includes two sectors- Life Insurance and General Insurance.
 Life insurance in India was introduced by Britishers.
A British firm in 1818 established the
Oriental Life Insurance Company at
Calcutta now Kolkata.
 Since the opening up, the number of
participants in the Insurance Industry
has gone up from 7 insurers (including
LIC, four public sector general insurers,
one specialised insurer and the GIC

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 as the national re-insurer) in 2000 to
49 insurers as on 30th September, 2011.

 Life Insurance Corporation (LIC)

 LIC was established on 1st September, 1956, which set the pace for
nationalisation of life insurance under the Stewardship of CD Deshmukh.
It has head office at Mumbai and eight zonal offices the most recent
being at Patna.
 LIC is also operating internationally through branch offices in Fiji,
Mauritius and UK and through joint venture companies in Bahrain,
Nepal, Sri Lanka, Kenya and Saudi Arabia. In 2008, its wholly and
subsidiary was opened in Singapore.
 As of 2019 Life Insurance Corporation of India had total life fund of 28.3
trillion.

 General Insurance Corporation (GIC)

 GIC was established on 1st January, 1973, with its four subsidiaries, viz,
1. National Insurance Company Limited, Kolkata:
2. The New India Insurance Company Limited, Mumbai;
3. The Oriental Fire and General Insurance Company Limited New Delhi; and
4. United India General Insurance Company Limited, Chennai.
 On 3rd November, 2000 GIC was renamed as GIC Re and approved as
Indian Reinsurer and the four subsidiaries of GIC were separated from GIC
and are functioning independently under Public Sector General Insurance
Companies (GIPSA).
 GIC Reinsurer (Re) has branch offices in Dubai and London and a
representative office in Moscow.

 Insurance Regulatory and Development Authority of India (IRDAI)

 The Insurance Regulatory and Development Authority (IRDA) has changed its
name to Insurance Regulatory and Development Athority of India (IRDAI). The
change of name was effected in the Insurance Laws (Amendment)
Ordinance, 2014 was promulgated by the President of India on 26th
December, 2014.

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  The ordinance contains certain amendments to the Insurance Regulation
and Development Act, 1999 and inserted the words of India' after
development authority. Insurance Regulatory and Development Authority of
India (IRDA) is an autonomous apex statutory body which regulates and
develops the insurance industry in India.
 It was constituted by a Parliament of India act called Insurance Regulatory
and Development Authority Act, 1999 and duly passed by the Government
of India. The agency operates from its headquarters at Hyderabad,
Telangana where it shifted from Delhi in 2001.

 Pension Sector
 New Pension System launched on 1st January, 2004.
 The NPS covers all employees of the Central Government and Central autonomous
bodies, except armed forces 27 States have notified and joined the NPS.
 With effect from 1st November, 2009 the NPS was opened to all citizens.
 NPS-Lite is the lower cost version of NPS.
 Swavalamban Scheme was announced in the budget 2010. It is an incentive
scheme for the NPS.
 Under this, any citizen in the unorganised sector, who fairs NPS in 2010-11 with a
minimal annual contribution of annual 1000 and maximum of 12000 will receive a
government contribution of 1000 in his NPS account.
 The National Securities Depositories Limited (NSDL) has been appointed as the
Central Record Keeping Agency, for the NPS.
 The revised guidelines for NPS has raised the age from 55 years to 60 years. The
Pension Fund Regulatory Development Authority was established on 23rd August,
2003.

Indian Financial System

 Financial system refers to the borrowing and lending of funds for the demand and
supply of funds of all individuals institutions, companies and of the government.
 The Indian Financial System consists of two parts, viz, Indian money market and the
Indian capital market.

 MONEY MARKET
 This is a market for 'near money' or it is the market for borrowing and lending of
short-term funds.
 The money market is a key component of the financial system, as it is the function
of monetary operations conducted by the Central Bank in its pursuit of monetary
policy objectives.

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 Instruments of Money Market
 T-Bills or treasury bills are the government bonds, which are used to raise funds from
the money market.
 91 Days Treasury Bills (T-bills) used by the government to raise funds from the market
for short periods nothing but short-term government bond.
 182 Days T-bills introduced on the recommendation of Vaghul working groups, are
variable interest bills sold through fortnightly auctions.
 364 Days T-bills introduced on the recommendation of Vaghul working group are
long-dated bills, whose yields reflects the market conditions.
 14 Days T-bills introduced in April, 1997 by the RBI at a discount rate equivalent to
the rate of interest on Ways and Means Advance (WMA) to the Government of
India.
 Dated Government Securities are also type of treasury bills recommended by
Chakravarty Committee on Monetary System (1988). These are 5 years and 10 years
maturity government securities sold on an auction basis.
 Certificate of Deposits It is the certificate issued by bank/financial institute to other
banks or financial institute, who give funds on short-term basis. Commercial Banks
are a saving certificate entitling the bearer to receive interest. The maturity of a
CoD varies from 3 months to 1 year.
 Commercial Papers It is an instrument to raise short-term funds by the corporate
sector.
 It can be issued by a listed company with a working capital of almost 5 crore. The
CP is issued in multiples of ₹ 25 lakh subject to a minimum issue of 1 crore. The
maturity of CP is between 3 to 6 months.
 Money Market Index is an index, which helps investors to decide how much and
where to invest in money market through providing information about prevailing
market ratio.
 Bankers Acceptance Rate is the rate, at which the banker's acceptance is traded
in secondary market.
 LIBOR / MIBOR London Inter-Bank Offered Rate/Mumbai Inter-Bank Offered Rate is
the interest rate, at which bank borrows fund from other banks.

 CAPITAL MARKET
 Capital market is concerned with provision of raising long-term funds.
 Capital market can be classified into debt market and equity market.
 In debt market, a company can acquire funds only by incurring debt and lender is
guaranteed of a fixed repayment e.g. bond.
 Equity Market Here, funds can be raised without incurring debt those, who finance
the enterprise by purchasing equity instrument like shares.

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 SEBI
SEBI (Securities and Exchange Board of India) was set up in 1988 and made a statutory
body in 1992. Main Functions of SEBI are as follows:
 To regulate the business of the stock market and other securities market.
 To promote and regulate the self-regulatory organisations.
 To prohibit fraudulent and unfair trade practices in securities market.
 To promote awareness among investors and training of intermediaries about safety
of market.
 To prohibit insider trading in securities market.
 To regulate huge acquisition of shares and takeover of companies.

New Law of SEBI

 In August 2014, the Securities Laws (Amendment) Act, 2014, gave SEBI additional powers,
including to order the arrest of violators and seek call data records of individuals under
investigation.
 The new law gave SEBI the powers to search and obtain information, including call records,
about any suspected entity from within or outside the firm.
 Stock Exchange in India
 Stock exchange or share market deals in shares, debentures and financial
securities.
 There are 22 stock exchanges in India. Among them two are national level
stock exchange namely Bombay Stock Exchange (BSE) and National Stock
Exchange (NSE). The rest 20 are Regional Stock Exchanges (RSE).

 Bombay Stock Exchange (BSE)

 It is a stock exchange located on Dalal Street, Mumbai, Maharashtra. It is the
10th largest stock exchange in the world by market capitalisation of more
than $2.2 billion on as of April, 2018.
 Established in 1875, BSE Ltd (formerly known as Bombay Stock Exchange Ltd.).
is the India's oldest Stock Exchange, one of Asia's oldest stock exchange and
one of India's leading exchange groups.
 Over the past 137 years, BSE has facilitated the growth of the Indian
corporate sector by providing it an efficient capital-raising platform. Popularly
known as BSE, the bourse was established as The Native Share and Stock
Brokers' Association" in 1875.

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 National Stock Exchange (NSE)
 It is the country's leading stock exchange located in the financial capital of Mumbai, India.
National Stock Exchange (NSE) was established in the mid 1992s as a demutualised
electronic exchange.
 The NSE was established in 1994 as the first materialised electronic exchange in the country.
 NSE provides a modern, fully automated screen-based trading system, which offered easy
trading terminals, through which investors in every nook and corner of India can trade.
 NSE has played a critical role in reforming the Indian securities market and in bringing
unparalleled transparency, efficiency and market integrity. NSE has a market capitalisation
of more than US$2.27 trillion making it the world's 11th largest stock exchange as of April
2018.
 MCX SX Stock Exchange
 It is a private stock exchange head quartered in Mumbai, which was founded in
2008. Now it is a MCX-SX Full Fledged Stock Exchange.
 Securities and Exchange Board of India (SEBI) on 10th July, 2012 granted permission
to MCX Stock Exchange (MCX-SX) to operate as full-fledged stock exchange.
 MCX-SX would be able to offer additional asset classes, such as equity and equity F
and O (Futures and Options) interest rate futures and wholesale debt segments .

Important Share Price Indexes of India

 BSE SENSEX This is the most sensitive share index of the Mumbai Stock Exchange. This
is the representative index of 30 main shares. Its base year is 1978-79. BSE is the
oldest stock exchange of India, founded in 1875.
 The barometer of Indian capital market. BSE sensitive index also referred to as BSE-
30 is a free-float market capitali-sations-weighted stock market index of 30 well
established and financially sound companies listed on Bombay Stock Exchange.
 The free-float market capitalisation of a company is determined by multiplying the
price of its stocks by the number of shares issued by a company which is readily
available for trading on the stock exchange. The base year/ period of SENSEX is
1978-79.
 NSE-50 From 28th July, 1998, its name is S and P CNX Nifty. National Stock Exchange
launched a new share Price Index, NSE-50 in place of NSE-100 in April, 1996. NSE-50
includes 50 companies shares. This stock exchanges was founded on Ferwani
Committees's recommendation in 1994.
 The CNX Nifty covers 22 sectors of the Indian economy and offers investment
managers exposure to the Indian market in one portfolio. The CNX Nifty index is a
free float market capitalisation weighted index.
 The CNX Nifty Index was developed by Ajay Shah and Susan Thomas.
 Credit Rating Agencies
 It is a company that assigns credit ratings for issuers of certain type of debt
obligation as well as the debt instrument, example of issuers are companies, State
and Central Government etc.

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  The credit rating represents the credit rating agency's evaluation of qualitative and
quantitative information for a company or government; including non-public
information obtained by the credit rating agencies analysts. The credit rating is
used by individuals and entities that purchase the bonds issued by companies and
governments to determine the likelihood that the government or company will pay
its bond obligations
 CRISIL set-up in 1988, is a credit rating agency. It undertakes the rating fixed deposit
programmes, convertible and non-convertible debentures and also credit
assessment of companies.
 CRISIL 500 is the net share Price Index introduced by Credit Rating Agency. The
'Credit Rating Information Services of India Limited (CRISIL) on 18th January, 1996.

INDIAN FISCAL SYSTEM

It refers to the management of revenue and capital expenditure finances of the state.
Hence, Fiscal system includes budgetary activities of the government that is revenue
raising, borrowing and spending activities.

 FISCAL POLICY
The fiscal policy is concerned with the raising of government revenue and Government Budget by
increasing expenditure. To generate revenue and to increase expenditures, the government
finance or policy called Budgeting policy or fiscal policy.

The major fiscal measures are:

1) Public Expenditure – Government spends money on a wide variety of things, from the military
and police to services like education and health care, as well as transfer payments such as
welfare benefits.

2) Taxation – Government imposes new taxes and change the rate of current taxes. The
expenditure of government is funded by the imposition of taxes.

3) Public Borrowing – Government also raises money from the population or from abroad through
bonds, NSC, Kisan Vikas Patra, etc.

4. Other Measure – Other measures adopted by the government are:

(a) Rationing and price control

(b) Regulation of wages

(c) Increase the production of goods and services

Note- Fiscal policy in India is formulated by the Ministry of Finance in India. This policy was
implemented in the year 2003.

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Types of Fiscal Policy
1. Expansionary Fiscal Policy

These involve the decisions made by the governments to invest more money in the economy
itself. Thus, it creates more services and many products. And also increases the job opportunities;
thus, due to all increases, it also increases the profit of the people as well as the government.

2. Contractionary Fiscal Policy

This is the second type of fiscal policy. This is used when the condition of an economic boom
arises. However, sometimes the high growth of the economy can also be dangerous. In this case,
the government tries to slow back the condition of the economic boom. This helps in the control
of the economic growth as well as it has control over inflation.

3. Neutral Fiscal Policy

This fiscal policy is used when the country's economic condition is in equilibrium. It means going
well, with lows and highs in the economy. It includes the government's spending, funded by tax
revenue collected from the people, companies, or industries. And will not be having any influence
on the country‘s economic conditions.

Main objectives of Fiscal Policy in India

1) Economic growth: It helps to maintain the economy‘s growth rate so that certain economic
goals can be achieved.

2) Price stability: It controls the price level in the country so that when the inflation is too high,
prices can be regulated.

3) Full employment: It aims to achieve full employment, or near full employment, as a tool to
recover from low economic activity.

FRBM Act
The Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) is an Act of the Parliament
of India to institutionalize financial discipline, reduce India‘s fiscal deficit, improve
macroeconomic management and the overall management of the public funds by moving
towards a balanced budget.

Objectives
- Reduction of fiscal deficit and revenue deficit;

- To achieve inter-generational equity in fiscal management by reducing the debt burden of the
future generation;

- Achieving long-term macroeconomic stability;

- Better coordination between fiscal and monetary policy;

- Transparency in fiscal operations of the Government.

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 Public Debt
 Internal Debt It comprises loans raised from the open market treasury bills issued to
the RBI, Commercial Banks etc.
 External Debt It consists of loans taken from World Bank, IMF ADB and individual
countries.

Demands for Grants

 According to Article 113 of the Constitution, estimates of expenditure from the
Consolidated Fund are presented to the Lok Sabha in the form of Demand for
Grants. In contemporary democracies, it is widely accepted that no money may be
taken out of the country‘s coffers without the government‘s consent.
 Demands for Grants Constitutional Provision.

1) Article 113-Demand for Grants

The Annual Financial Statement‘s expenditure estimates from the Consolidated Fund
of India are needed. It must be presented as Demands for Grants and put to the Lok
Sabha‘s vote. No demand for funds may be filed in the Lok Sabha without the
President of India‘s prior consent, according to Article 113(iii).

2) Article 112-Annual Financial Statement (Budget)

It represents the government of India‘s projected receipts and outlays. The Annual
Financial Statement distinguishes between expenditures on the revenue account
and other accounts. The Revenue and Capital components are therefore

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combined to form the Union Budget. The three sections of the receipts and
outgoings are Consolidated Fund of India, Contingency Fund of India, and Public
Account of India.

3) Article 114-Appropriation bill

The Lok Sabha receives the introduction of the Appropriations Bill, which includes a
vote on all grant requests and charges for their expenses. The Consolidated Fund of
India can only be accessed through an Appropriation Bill approved by Parliament.

Note: The Appropriation Bill, 2023 passed in Lok Sabha on 23/03/2023 & passed in
Rajya Sabha on 27/03/2023

4) Article 110-Money bill

The imposition, elimination, remission, modification, or restriction of any tax is
covered in Article 110. Under Article 110, the Union government‘s ability to borrow
money is regulated. In accordance with Article 110 (1)(a) of the Constitution, a
Finance Bill detailing the imposition, repeal, remission, adjustment, or regulation of
taxes proposed in the Budget is submitted to Parliament concurrently with the
Annual Financial Statement.

5) Articles 117 and Article 274

The Lok Sabha must also have a presidential recommendation before a money bill is
introduced. The Finance Bill is accompanied by the yearly financial statement and a
certificate signed by the President.

Measures of Government Deficit

There are various measures that capture government Deficit:
1) Revenue Deficit: It refers to the excess of government‘s revenue expenditure over
revenue receipts.
- Revenue Deficit = Revenue expenditure – Revenue receipts
- The revenue Deficit includes only such transactions that affect the current income
and expenditure of the government.
- When the government incurs a revenue deficit, it implies that the government is
dissaving and is using up the savings of the other sectors of the economy to finance
a part of its consumption expenditure.

2) Fiscal Deficit:
It is the gap between the government‘s expenditure requirements and its receipts.
This equals the money the government needs to borrow during the
year. A surplus arises if receipts are more than expenditure.
- Fiscal Deficit = Total expenditure – (Revenue receipts + Non-debt creating
capital receipts).
- It indicates the total borrowing requirements of the government from all
sources.
- From the financing side: Gross fiscal deficit = Net borrowing at home +
Borrowing from RBI + Borrowing from abroad.

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 - The gross fiscal deficit is a key variable in judging the financial health of the
public sector and the stability of the economy.

3) Primary Deficit:
Primary deficit equals fiscal deficit minus interest payments. This indicates the
gap between the government‘s expenditure requirements and its receipts,
not taking into account the expenditure incurred on interest payments on
loans taken during the previous years.
Primary deficit = Fiscal deficit – Interest payments

 Primary Deficit
Amount by which a government's total expenditure exceeds its total revenue, excluding
interest payments on its debt.

Primary deficit = Fiscal deficit - Interest payments.

Budget
The Budget, which will be tabled in Parliament by the Finance Minister on 1st February is likely to
address concerns around growth, inflation and spending.

- Budget is the government‘s blueprint on expenditure, taxes it plans to levy, and other
transactions which affect the economy and lives of citizens.

- According to Article 112 of the Indian Constitution, the Union Budget of a year is referred to as
the Annual Financial Statement (AFS).

- The Budget Division of the Department of Economic Affairs in the Finance Ministry is the nodal
body responsible for preparing the Budget.

- The first Budget of Independent India was presented in 1947.

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1) Revenue Budget– It consists of the Revenue Expenditure and Revenue Receipts.
a) Revenue Receipts are receipts which do not have a direct impact on the assets and liabilities
of the government. It consists of the money earned by the government through tax (such as
excise duty, income tax) and non-tax sources (such as dividend income, profits, interest receipts).

b) Revenue Expenditure is the expenditure by the government which does not impact its assets or
liabilities. For example, this includes salaries, interest payments, pension, and administrative
expenses.

2) Capital Budget– It includes the Capital Receipts and Capital Expenditure.

a) Capital Receipts indicate the receipts which lead to a decrease in assets or an increase in
liabilities of the government. It consists of:

(i) the money earned by selling assets (or disinvestment) such as shares of public enterprises,

(ii) the money received in the form of borrowings or repayment of loans by states.

b) Capital expenditure is used to create assets or to reduce liabilities. It consists of:

(i) the long-term investments by the government on creating assets such as roads and hospitals,
and

(ii) the money given by the government in the form of loans to states or repayment of its
borrowings.

Types of Budget
The budget has been divided into three types

1) Balanced budget,

2) Surplus budget, and

3) Deficit budget.

1) Balanced Budget: A balanced budget is one in which the revenues match its expenditure. It is
a balanced budget that the government seeks to come up with.

Total Budgeted Receipt = Total Budgeted Expenditure

2) Surplus Budget: If the estimated government receipt is more than the estimated expenditure for
a fiscal year, the budget is said to be surplus.

Total Budgeted Receipts > Total Budgeted Expenditure

3) Deficit Budget: A budget is a deficit budget if the estimated revenue is less than the expenses to
be made. India‘s budget has mostly been a deficit budget, just like any other democracy in the
world.

Total Budgeted Receipts < Total Budgeted Expenditure

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 Balanced Budget Unbalanced Budget
1. In case of unbalanced budget, the
1. In case of balanced budget, the
proposed expenditure and the
proposed govt. expenditure is equal
estimated receipt are unequal
to the estimated govt. receipts in the
during the budget year.
budget year.
2. Unbalanced (deficit) budget helps
2. Balanced budget reduces
the govt. to incur unproductive and
unproductive and extravagant
extravagant expenditure.
expenditure of the govt.
3. It is effective during economic
3. It is ineffective during economic
instability (surplus during inflation
instability
and deficit during deflation).
4. Unbalanced (deficit) budget is a
4. It fails to achieve full employment
powerful instrument to achieve full
from under-employment
employment.
equilibrium.
5. Unbalanced (deficit) budget is a
5. It cannot solve the problems of
powerful instrument of resource
under-developed countries (UDCs).
mobilisation for economic
development of UDCs.

4. Traditional or General Budget:

- The main aim of the General Budget is to set up financial control over the Executive and the
Legislature.

- This Budget contains the details of the expenditure in different sectors done by the Government
of India. However, the result of this expenditure is not explained in this Budget. Thus, the main idea
behind the traditional budget is to solve the problems of independent India and to achieve the
developmental targets which were not fulfilled.

- As a result, the need and importance of drafting a ‗Performance Budget' was accepted and it
was presented as a complimentary budget to the earlier Traditional Budget.

5. Performance Budget:
- When the outcome of any activity is taken as the base of any budget, such a budget is known
as ‗Performance Budget‘.

- For the first time in the world, the performance budget was made in the USA. An Administrative
Reforms Commission was set up in 1949 in America under Sir Hooper. This commission
recommended making a ‗Performance Budget‘ in the USA.

- In the Performance Budget, it is the compulsion of the government to tell that 'what is done',
'how much is done' by it for the betterment of the people. In India, the Performance Budget is also
known as the ‗Outcome Budget‘.

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6. Zero Based Budget:
There are two primary reasons for adopting this type of Budget in India.

(i) The continuous revenue deficit in the budget of the country.

(ii) Poor implementation of the Performance Budget.

- In the zero-based budget, neither expenses incurred during the previous financial years are
considered nor the expenditure of the last financial year used for the coming years.

- Under Zero-based budgets, every activity is decided based on a Zero basis i.e. the previous
expenditures are not considered. This budget is also known as the ‗Sun Set Budget‘ which means
the finance department has to present the zero-based budget before the end of the financial
year.

- Peter Pyre is known as the father of ‗Zero-Based Budgeting‘ who presented this sort of budget in
1970. This system of budgeting was first used in the Georgia State of USA by its Governor Jimmy
Carter. Later in 1979, The National Budget of America adopted this strategy.

- In India, Zero Based Budgeting was introduced by the mainstream Research organization,
Council of Scientific and Industrial Research and the Central Government adopted the same in
1987-88.

7. Outcome Budget:
In India, development-related schemes such as MGNREGA, NRHM, Mid Day Meal, PMGSY, Digital
India, Prime Minister Skill Development Council, etc. are launched every year and a large sum of
money is spent on these schemes. However, at present, the government doesn‘t have any
parameters to measure the results of these schemes.

Sometimes, the delay in the implementation of the schemes causes an increase in the cost of
these schemes. Therefore, in order to reduce this cost, the Government of India introduced the
Outcome Budget in 2005.

Outcome Budget acts as a pathfinder for all the Ministries and Departments which helps in
improving Services, the performance of the programmes.

8) Gender Budgeting:
The gender-budgeting is defined as ―gender-based assessment of Budgets, incorporating a
gender perspective at all levels of the budgetary process and restructuring revenues and
expenditures in order to promote gender equality‖. It is actually budgeting for gender equity.

Through Gender Budget, the Government declares an amount to be spent over the
development, Welfare, Empowerment schemes and programmes for Females.

 Difference between Surplus and Deficit budget:

 Surplus budget is a situation when government spends less than what it has earned
as income in form of taxes etc.
 On the contrary, a Deficit budget is a situation when government's expenditure
more than it's revenue.

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 TAX STRUCTURE IN INDIA
Taxation is the process by which a government collects funds from individuals and organizations
and spends them on things like education, health care, and defense. Direct taxes and indirect
taxes are the two sorts of taxes.

Swaran Singh Committee recommended Duty to Pay taxes to be added in the Fundamental
Duty–Article 51A.

But duty to pay taxes was not part of the fundamental duties of an Indian citizen. The Swaran
Singh Committee‘s was set up in 1976 by the Congress party to make changes in the fundamental
duties and add what felt necessary during the internal emergency.So, Duty to Pay taxes is not a
Fundamental Duty.

FEATURES OF A GOOD TAXATION SYSTEM

1) FAIRNESS– both in terms of Horizontal equity and Vertical equity. Individuals in identical
or similar situations paying identical or similar taxes is known as horizontal equity. When
people in higher tax brackets people pay more taxes, it is known as vertical equity.

2) EFFICIENCY- should be able to raise resources via taxes with least amount of difficulty to
the taxpayers.

3) SIMPLICITY– in terms of understanding the tax structure, computing, filing and paying of
taxes. This will increase Tax compliance among the masses and in turn increase the
revenue resource of the government.
4) FLEXIBLE-should be able to change according to the needs of the time.

5) TRANSPARENT– The individual assessment of taxes, the total collection, the amount
spent on public goods using those resources etc should be in a transparent manner.

METHODS OF TAXATION
1) PROGRESSIVE TAX– As Income increases the tax increases. E.g.-Income Tax.

2) REGRESSIVE TAX-The tax rate decreases as the amount subject to taxation increases. It
is applied uniformly so it takes a larger percentage of income from low-income earners
than from high-income earners and hence considered regressive in nature. e.g.- Sales Tax

3) PROPORTIONAL TAX– where the same percentage tax is levied on everyone regardless
of income.

4) RETROSPECTIVE TAXATION– It allows a country to pass a rule on taxing certain products,

items or services and deals and charge companies from time behind the date on which
the law is passed. Countries use this route to correct any anomalies in their taxation
policies that have, in the past, allowed companies to take advantage of such loopholes.

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State Taxes
Taxes levied and collected by the states vary from state to state. These are levied and
collected by the state governments.
Some examples of state taxes are:

1) Professional tax: This tax is levied on any individual who earns income by means of
profession.

2) Stamp duty: It is levied on official documents like registration of marriage and the
amount of this tax depends on the value of transaction.

3) Entertainment tax: This tax is usually levied on movie tickets, exhibition or amusement
parks.

4) Luxury Tax: It is levied by the hotels or any establishments that engage in providing
accommodation to the individuals.

Central Taxes
Taxes levied by the central government are called central taxes.These taxes may be
wholly attributed to the central government or divided between the central and the state
governments.
Examples of central taxes are:
1) Excise duties: These are levied on goods manufactured in India.
2) Gift tax: It is levied on gifts whose value exceed Rs 50,000.
3) Income tax: It is levied on the income of the individual.

TYPES OF TAXATION
DIRECT TAX-
Direct tax is a type of tax where the incidence and impact of taxation fall on the same
entity. Incidence = Impact. e.g.- Income Tax, Corporation Tax.

INDIRECT TAX-
where the incidence and impact of taxation does not fall on the same entity. Taxes that
can be shifted from one individual to another like sales tax, entertainment tax, excise
duty. Incidence ≠ Impact.

DIRECT TAX CODE (DTC)

- The Task Force, initially headed by former CBDT Member (Legislation) Arbind Modi and
later on by Akhilesh Ranjan,was constituted in November 2017 in order to review the
Income-tax Act and to draft a new Direct Tax Law.

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- The proposals in the draft code are aimed at bringing more certainty to taxation of
personal and corporate income and capital gains, and at bringing the gist of numerous
judicial pronouncements made since 1961, when the current tax law came into force, in
one place for easy reference.
Share of taxes in descending order according to Budget 2020:
GST > Corporation Tax > Income Tax > Union Excise Duty, Customs Duty

MAT
MAT is calculated at 15% on the book profit (the profit shown in the profit and loss account) or at
the usual corporate rates, and whichever is higher is payable as tax. All companies in India,
whether domestic or foreign, fall under this provision. MAT was later extended to cover non-
corporate entities as well.

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Note- In the course of review, the Finance Minister was briefed on the final revenue
achievement in total Indirect Tax collections for 2022-23 which stood at Rs. 13.82 lakh crore [as
against Rs. 12.89 Lakh Crore in 2021-22].

Goods and service Tax(GST)

mplementation on 1st
July 2017.

(One Hundred and First Amendment) Act, 2016

-based single tax. Tax slabs are 0%, 5%, 12%, 18%, 28%

and Betting are also taxable under the Goods and Services Tax (GST) Act,
2017

Types of Goods and service tax

COMMODITIES OUTSIDE GST

1) Alcohol for human consumption,

2) Petroleum products,

3) Electricity, The supply of goods to the SEZ,

4) Supply of goods that come under zero rate

5) Fresh vegetables, fresh milk, cereals meat etc.

6) Raw materials.

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Different Types of GST Rates in India
There are four different types of GST rates slabs categorized based on goods and services, as
proposed by the Government:

5%: Under this slab, household items are included like sweets, sugar, spices, tea, coffee, coal,
edible oil, etc.

12%: Under this slab, computers and processed foods are included like cheese, ghee, ayurvedic
medicines, cell phones, and fertilizers, etc. Services like work contracts, business-class air tickets,
and non-ac hotels are also included.

18%: This slab qualifies for toothpaste, soaps, hair oil, etc. as well as capital goods and industrial
intermediaries.

28%: This slab involves luxurious items such as premium cars, consumer durables – AC,
Refrigerators, etc.

Goods and service Tax(GST)

 GST is an indirect tax which has replaced many indirect taxes like SAT,VAT etc in
India.
 GST act was passed in Parliament on 29th March 2017, and it became
implementation on 1st July 2017.
 The beauty of GST is that, it applies on same parameter for entire country.

Value Added Tax

Raw material VAT Manufacture VAT Wholesalers

VAT

Customer VAT Retailers

Journey of GST
 2000: Mr PM Atal Bihari Bajpai made a committee to draft GST law
 2004: A task force concludes GST must be implemented to improve tax structure.
 2006: Finance Minister said, GST will be introduced from 1ª April 2010.
 2007: Rates reduced from 3% - 4%, and GST got out from scenario.

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  2010: A project introduced to computerise commercial taxes but GST
implementation postponed.
 2011: Constitution Amendment for Bill to enable GST introduced
 2012: Committee begins discussion on GST.
 2013: Committee tables its report on GST.
 2014: GST bill reintroduced in Parliament by Finance Minister.
 2015: GST bill passed in Lok Sabha but not passed in Rajya Sabha.
 2016: GSTN goes live. (Goods and service Tax Network is a non profit, non-
government organization which manages the entire IT system of the GST portal.
 2016: Amended model GST law passed in both Houses.
 2017: Final GST implemented on 1st July 2017.

Advantages of GST
 Removing Cascading tax effect
 Online simpler procedure under GST
 Lesser compliance
 Defined treatment for e-commerce
 Regulating the unauthorised sector.
 Increased efficiency in logistics

Important Facts about GST

- Alankit, as one of the leading top GST Suvidha Providers (GSPs) offers prominent GST
services to taxpayers for the ease of all the stakeholders in the GST regime.

- GSP (GST Suvidha Provider) is a top-notch entity authorized to enable a platform for GST
compliances.

- The Company serves as a one-stop solution for all GST compliance related services. For
smooth implementation process of businesses, Alankit has introduced web or mobile-
based GST accounting software:
a) GST Muneemji Software (Secure and Integrated cloud-based compliance software)
b) E-Raahi (E-way bill generating Application)
Saarthi(A Point of Sale (PoS) device for billing and business accounting)
c) Platinum Gateway: API services to companies; connecting your ASP solution to GSTN

To achieve compliance in the GST regime, the company has introduced one-of-its-kind e-
Way billing software to generate bills in a hassle-free, affordable manner.

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EVOLUTION OF TAX IN INDEPENDENT INDIA

Indirect Taxes

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 Centre-State Relations
-All legislative, executive and financial powers are divided between the centre and the
states according to the Indian constitution in the context of Centre-State Relations.

1) Legislative Relations- Article 245 to 255 of the constitution deals with the legislative
relation between the centre and states

2) Administrative Relations-Article 256 to 263 of the constitution deals with the

administrative relation between the Centre and States.

3) Financial Relations- Article 268 to 293 of the constitution deals with Centre-State
Financial Relations.

Financial Relations Between Centre and States

Allocation of Taxing Power
-Taxation of the subjects on the Union list is the sole responsibility of Parliament.
-Taxation on the things included in the state list may only be done by the state legislature.
-The items on the concurrent list are subject to taxation by both the state and the union.
- The residuary power to tax belongs to the Parliament

The Constitutional Restriction on The State’s Taxation Power

- Sales and purchases made outside of the states are exempt from taxation
- Sales or purchases done during the import or export process are exempt from taxation.

- No tax may be levied on a transaction or purchase made during interstate trade or

commerce.

- A tax imposed on goods sold or bought that the Parliament has determined are of
particular importance to interstate trade and commerce is subject to the limitations and
specifications set forth by the Parliament.

-Electricity used by or sold to the centre, as well as electricity used in the building,
upkeep, or operation of any railway by or sold to the railway company for the same
purpose, are exempt from state taxes.

A state may charge a price for the water or electricity it sells to an interstate river authority
that Parliament established to manage and develop the river. On the other hand, a law
that receives the approval of the President may enact such an imposition.

Q) Consider the following statements with reference to the Freedom of trade, commerce
and intercourse within India:
1. Article 301 declares that trade, commerce and intercourse throughout the territory of
India shall be free.
2. Parliament can impose restrictions on the freedom of trade, commerce and

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intercourse between the states or within a state in the public interest.
3. The freedom under this provision is not confined to interstate trade, commerce
and intercourse but also extends to intra-state trade, commerce and intercourse.
Which of the following statements is/are correct?
1. 1 and 3 only 2. 2 and 3 only
3. 3 only 4. 1, 2 and 3
INTER-STATE TRADE AND COMMERCE
Articles 301 to 307 in Part XIII of the Constitution deal with the trade, commerce and
intercourse within the territory of India.
Article 301 declares that trade, commerce and intercourse throughout the territory of
India shall be free.
The object of this provision is to break down the border barriers between the states
and to create one unit with a view to encouraging the free flow of trade, commerce
and intercourse in the country.

Grants-in-Aid to the states

State grants-in-aid are permitted by the Constitution to come from the federal
government. The two types of grants-in-aid are:-
1) Statutory grants and
2) Discretionary grants.

STATUTORY GRANTS:
- The parliament is empowered by Article 275 of the Constitution to provide grants to
states that specifically require them rather than to all states.

- These amounts may vary for various states. These funds are levied annually to the
Consolidated Fund of India.

- Depending on the Finance Commission‘s recommendations, these are given to the

states.

DISCRETIONARY GRANTS:
- Article 282 gives both the federal government and the states the authority to provide
grants for any public purpose, even if it is not within their purview.
- The choice is entirely up to the centre, which is under no obligation to offer these
subsidies.

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Other grants:
- A one-time donation for a particular cause was permitted by the Constitution. For the
states of Assam, Bihar, Odisha, and West Bengal, grants on jute and jute products could
be used in place of export taxes.

- These funds were to be given out for ten years starting at the time the constitution was
adopted, per the recommendation of the Finance Commission.

Goods and Services Tax Council

- Article 279 – A empowered the President to constitute a GST Council.

- The Council is a joint forum of the Centre and the States. It is required to make
recommendations to the Centre and the States on the following matters :

a) The taxes, cesses and surcharges levied by the Centre, the States and the local bodies
would get merged into GST.
b) The goods and services that may be subjected to GST or exempted from GST.

c) Model GST Laws, principles of levy, apportionment of GST levied on supplies in the
course of inter-state trade or commerce and the principles that govern the place of
supply.

d) The threshold limit of turnover below which goods and services may be exempted from
GST.
e) The rates include floor rates with bands of GST.

f) Any special rate or rates for a specified period to raise additional resources during any
natural calamity or disaster.

Finance Commission
- It is a constitutional body constituted every 5 years by the President of India under Article
280 of the Indian Constitution to make recommendations on the distribution of financial
resources between the Union and the states.

- The First Commission was established in 1951 under The Finance Commission
(Miscellaneous Provisions) Act, 1951.
- Recommendations cover three main aspects:
1) Vertical Devolution:
The share of states in the divisible pool of central taxes.
2) Horizontal Distribution:
The allocation of resources among states based on a formula that reflects their fiscal
needs, capacities and performance.

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3) Grants-in-aid:

- The additional transfers to specific states or sectors that are in need of assistance or
reform. For eg.,

Among the grants made by the 13th FC, two important ones were justice delivery and
the statistical system.

- Similarly, for equitable horizontal distribution, the measurement of cost disabilities is

important, and the cost of services varies across states due to a large number of factors.
Q) Consider the following statements:
1. Vertical devolution is the devolution of funds between centre
and States/union territories.
2. Horizontal Devolution is the division of funds amongst states.
Which of the above is/are correct ?
A) None of the above
B) 1 only
C) 2 only
D) Both 1 and 2

Eligibility of Members of the Finance Commission

Aside from the chairman, the four other members of the Finance Commission must meet
the following requirements:
1) A judge of the high court who is qualified enough in the field of finance or experienced
in financial matters is eligible to be appointed.

2) A member is eligible to be part of the finance committee if he has specialized

knowledge of finances and handling accounts for the government.

3) A person having broad knowledge and experience in financial and economic matters
along with the administration.

The membership of a member can be disqualified from the finance committee if he or

she is found mentally unfit or involved in any unethical activity. Remember, all of the
members are appointed by the President of India; hence he can disqualify the
candidates or reappoint the members.

NOTE- The 73rd Constitutional Amendment of the Indian Constitution in 1992 allowed
the State Government to establish a Finance Commission every five years to determine
the allocation of resources between the State Government and the Panchayat Authority
at all level.

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15th Finance Commission
Recommendations made by the 15th Finance Commission have been mentioned below:
- It is recommended that 41% of the net proceeds go to the Centre and the States.

- Created with the goal of enhancing cooperative federalism, enhancing the standard of
public spending, and assisting in preserving budgetary stability.

- It was necessary to examine how the 14th Commission‘s recommendation would affect
the Center‘s financial standing.
- The effect of GST on the economy needed to be studied.

- It is necessary to suggest performance-based rewards for the states based on their

initiatives to manage the population, advance business-friendliness, and restrain spending
on populist measures, among other things.

Finance Commission Members

The members of the Finance Commission of India consist of a chairman and four
members. The chairman takes control of the commission and monitors its activities.
Currently, the chairperson of the Finance Commission of India is Nand Kishore Singh. The
other four members of the Finance Commission are as follows.
1) Ajay Narayan Jha
2) Ashok Lahari
3) Anup Singh
4) Dr. Ramesh Chand
The secretary of the Finance Commission is Shri Arvind Mehta.
Finance Commission Articles

The provision of the Finance Commission of India was drafted in early 1920 to consolidate
the dominating businesses of Britishers in India. As part of his efforts to rectify the
inequalities, Dr. BR Ambedkar, then minister of law, established the first Finance
Commission in 1952 under the chairmanship of K.C. Neogy.

16th Finance Commission Chairman

The last and most recent commission constituted was the 15th Finance Commission in
November 2017, which was chaired by NK Singh, who was formerly a member of the
Planning Commission of India. The 16 Finance Commission Chairman will be appointed
soon by the President, who will take over the reins after Shri N.K. Singh.

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Recently, Ajay Narayan Jha joined the 15th Finance Commission as a member and
replaced Shri Shaktikant Das, who resigned as a commission member and was appointed
as the Governor of the Reserve Bank of India.

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 INTERNATIONAL ECONOMIC ORGANISATIONS
- The International Telecommunication Union was the earliest and oldest
international organization, having been established under a treaty and creating a
permanent secretariat with a global membership (founded in 1865).
A) Bretton Woods System
- The Bretton Woods System was the first system to control the exchange rate of
currencies between countries. It meant that each country had to maintain a
monetary policy that kept its currency's exchange rate within a predetermined
range in terms of gold—plus or minus one percent.
- The IMF and the World Bank were designated as Bretton Woods Institutions under
the Bretton Woods Agreement.
- Both organizations were initially founded in December 1945 and have served as
significant pillars for international capital financing and trade activities ever

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since.Finance Commission is constituted to define financial relations between the
centre and the state. Under the provision of Article 280 of the Constitution, the
President appoint a Finance Commission for the specific purpose of devolution of
non-plan revenue resources.
The functions of the commission are to make recommendations to the President in
respect of the distribution of net proceeds of taxes to be shared between the union
and the states and the allocation of share of such proceeds among the states.

The principles, which should govern the payment of grants-in-aid by the centre to
the states. any other matter concerning financial relations between the centre and
the states.
INTERNATIONAL MONETARY FUND (IMF)
-IMF was conceived on 22nd July, 1944 and came into existence on 27th December, 1945,
when 29 countries signed the agreement. It originally had 45 members. India is the
founding member.
- IMF at present has 189 members and headquartered at Washington DC. The capital
resources of the IMF comprise Special Drawing Rights (SDRs) and currencies that member
pay under quotas calculated for them when they join the IMF.
- The quotas determine the amount of foreign exchange, a member may borrow from the
IMF and its voting power on IMF policy matters. Quotas are denominated in SDRS.
- IMF important decisions need to be passed with 85% majority. USA has 16.52% voting
power so it can effectively block/veto it.
- 2020,May: IMF wanted to issue $500 billion fresh Special Drawing Rights (SDR) to help
member countries combat the corona crisis. But USA blocked it. India also supported the
USA. India has 2.6% voting rights.
- The member with largest quotas is USA followed by Japan and China. Tuvalu is the
member with smallest quota. India with a quota share of 2.76% is now placed eighth largest
quota holding country at the IMF
- Based on noting share, India (together with Bangladesh) Bhutan and Sri Lanka are ranked
22nd in the list of 24 constituencies.
- For India, Finance Minister is the Ex-officio Governor of the Board of Governors of the IMF
Governor of the RBI, is India's alternate Governor

Special Drawing Rights (SDRs) is the IMF’s unit of

account and not a currency.
- The currency value of the SDR is determined by summing the values in U.S. dollars, based
on market exchange rates, of a SDR basket of currencies
- The SDR is an international reserve asset, created by the IMF in 1969 to supplement its
member countries' official reserves.
- To date, a total of SDR 660.7 billion (equivalent to about US$943 billion) have been
allocated.This includes the largest-ever allocation of about SDR 456 billion approved on
August 2, 2021 (effective on August 23, 2021).

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- This was to address the long-term global need for reserves, and help countries cope with
the impact of the Covid-19 pandemic.
- The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the
Chinese renminbi, the Japanese yen, and the British pound sterling.
- The SDR basket is reviewed every five years.
During the last review concluded in November 2015, the Board decided that the Chinese
renminbi (RMB) met the criteria for SDR basket inclusion.
- Quotas are denominated (expressed) in SDRs.
SDRs represent a claim to currency held by IMF member countries for which they may be
exchanged.

WORLD BANK (WB)

- World Bank is the institution created at the Bretton Woods Conference in 1944. Along with
the IMF, it constitutes 'twin-sister' of Bretton Woods.
- World Bank has 189 members and is headquartered in Washington DC.
-The World Bank provides loans to developing countries for capital programme and its
official goal is reduction of poverty. The World Bank Group consists of five development
institutions.
1) International Finance Corporation (IFC) was established in 1956, to provide loans to
private industries of developing nations.
2) International Development Association (IDA), known as the soft loan window of the
World Bank was established on 24th September, 1960.
3) International Centre for Settlement of Investment - Disputes (ICSID) was established in
1966, to settles investment-disputes between investors and countries. It has 158 members.
4) Multilateral Investment Guarantee Agency (MIGA) was founded in 1988 to promote
foreign direct investment into developing countries. It has 182 members.
5) International Bank for Reconstruction and Development (IBRD) founded in 1944 provides
loans, credits, and grants.

Difference Between the WB and the IMF:

While the World Bank provides support to developing countries, the IMF aims to stabilize the
international monetary system and monitors the world‘s currencies.

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 WORLD TRADE ORGANISATION
- It was constituted on 1st January, 1995, under the Marrakesh Agreement and took the
place of GATT (General Agreement on Trade and Tariff) as an
effective formal organisation. GATT was an informal organisation, which regulated world
trade since, 1948.
- It is headquartered at Geneva. At present, it has 164 members. (Afghanistan has become
the 164th WTO member).

Functions of WTO

for negotiations.
ovide a dispute settlement mechanism.
To provide facilities for implementation, administration and operation of multilateral and
bilateral agreements of the world trade.
- The WTO is currently endeavouring to persist
with a trade negotiation called Doha Development Agenda (DDA). which was launched in
2001, to enhance equitable participation of poor countries, which
represent a majority of the world's population.
- Singapore Issues refer to transparency in government procurement, trade facilitation,
trade and investment and trade and competition.
- Swiss Formula relates to NAMA (Non-Agricultural Market Access).

ASIAN DEVELOPMENT BANK (ADB)

development in Asia and Pacific region. It is headquartered at Manila, Philippines.
the
Asian Development Fund affiliated with the ADB extends soft loans from special fund
resources with concessional conditions.

tion of shares at 15.67%. The United

States hols 15.66%, China holds 6.47%, India holds 6.35% and Australia holds 5.81%. It has 67
member countries

Asian Infrastructure Investment Bank (AIIB)

- It was established by a multilateral treaty in 2015 and began operations in 2016. Chinese
President Xi Jinping and Premier Li Keqiang announced the AIIB initiative during their
respective visits to South-East Asian countries in October 2013.
- It is a multilateral development bank headquartered in Beijing.
-It is mission is to improve social and economic outcomes in Asia and aims to connect
services, markets, and people by investing in sustainable infrastructure and other sectors
-AIIB began operations in 2016 with 57 founding Members (37 regional and 20 non-
regional). By the end of 2020, it had103 approved Members representing approximately
79% of the global population and 65% of global GDP.
- India was among the AIIB‘s 57 founding members in 2016

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 - China is the largest contributor to the Bank, contributing USD 50 billion, half of the initial
subscribed capital.
- Indiais the second-largest shareholder, contributing USD 8.4 billion.
- Voting Rights:-
China is the largest shareholder with 26.61% voting shares in the bank followed by India
(7.6%), Russia (6.01%) and Germany (4.2 %).
The regional members hold 75% of the total voting power in the Bank.

History of Estimation of National Income in India

 In 1868, Dadabhai Naoroji wrote a book ‘Poverty and Un British Rule in India.’ It was the first
attempt at the calculation of National Income.
 The first person to estimate National Income scientifically was Dr. V. K. R. V. Rao, who
estimated national income for 1925-29.
 After Independence, the National Income committee was formed in 1949 under the chairmanship
of P.C. Mahalanobis. And Central Statistical Organisation (CSO) was formed 2 May 1951.
 Recently cabinet approved the merger of CSO and NSSO into the National Statistics Office.

National Income
National Income is defined as the sum total of the monetary value of all final goods and services produced
in a country, i.e., the incomes earned by the citizens of the country in a particular period (generally, one
year).

There are 5 measures of the national income-

1) GDP (Gross Domestic Product): The total monetary value of all final goods and services provided or
manufactured within the geographical demarcation of the country during a particular period (Generally

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 one year). In GDP, we consider all goods/ services produced by both resident citizens and foreign
nationals who reside in India and the income of Indians abroad are excluded.
2) GNP (Gross National Product): The net value of the final commodities and services produced by
Indians in India and abroad during a particular period. GNP includes the value of goods produced by
resident and non-resident citizens of a country, whereas the income of foreigners who reside in India is
excluded.
3) Net National Product (NNP): It is calculated by deducting depreciation from Gross National Product
(GNP), i.e., NNP = GNP – Depreciation.
4) Personal income (P.I.): The sum of all the income received by the people of the country in one year.
Personal Income = National Income – (Undistributed Corporate Profits+ Corporate Taxes + Social
Security Contribution) + (Transfer Payments). Transfer Payments are payments that are not against
any productive work. (Example- Old Age Pension, Unemployment compensation etc.).
5) Disposable Personal Income (DPI): Income available to individuals after deducting direct taxes.
Disposable Personal Income = Personal Income – Direct Taxes.

Measurement of National Income

Three methods of measuring national income are given below-

1) Income Method- The National income is made conclusion by estimating by adding the mixed income of
self-employed and all the production factors like profit, interest, wages, rents, etc. Almost 1/3rd of the
Indian population is self-employed. Thus, the self-employed income is considered the domestic income,
which is related to production within the country’s border. It is also known as the Factor Income
method, which includes adding the trading surplus of the public sector corporations and undistributed
benefits of the private Sector.

Total National Income= GDP - Sales Taxes - Depreciation - Net Foreign Factor Income

2) Production (Value-Added) Method- In this, the National income is made conclusion by estimating the
value added by all the firms. The value added is equal to the difference between the Value of Output
and the Value of (non-factor) inputs. The production method gives the Gross Domestic Product at the
Market Price. This is considered one of the best methods for the measurement of national income.

To calculate the National Income,

 Add Net Factor Income from Abroad: GNP at M.P. = GDP at M.P. + NFIA
 Subtract Depreciation: NNP at M.P. = GNP at M.P. – Depreciation
 Subtract Net Indirect Taxes: NNP at F.C. = NNP at M.P. – NIT

National Income= GDP at M.P. + NFIA – Depreciation – NIT+ Subsidies

#M.P.= Market Price, #F.C.= Factor Cost

3) Expenditure Method- is used to measure the domestic economic expenditure and consists of two
elements, i.e., Investment expenditure and Consumption expenditure. According to the expenditure, the
method to measure national income by:

Y= C + I + G + (X – M)

Here, X – M = Net Exports, X = Exports, M = Imports, I = Investment or Capital Formation, G = Govt’s

expenditure on final consumer goods, C = Private Sector’s Expenditure on final consumer goods,
and Y = GDP at M.P.

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The investment expenditure is the expenditure on the construction of fixed capital like buildings, machinery,
etc., while the Consumption expenditure includes goods and services.

Important Questions on National Income

Q1) The only difference between GNP and GDP is that GDP does not include income from ______.

1. Domestic production 2. Abroad 3. Steel production 4. Secondary sector

Explanation- GNP = GDP + Factor income earned by the domestic factors of production employed in the
rest of the world - Factor income earned by the factors of production of the rest of the world employed in
the domestic economy

Q2) According to the Output Method, GDP is calculated as:

1. GDP at Constant Prices - Taxes + Subsidies 2. GDP at Constant Prices + Subsidies

3. GDP at Constant Prices – Taxes 4. GDP at Constant Prices + Taxes –

Subsidies

Explanation- According to the Output Method, GDP is calculated as GDP at Constant Prices -
Taxes + Subsidies. The GDP Output Method measures the monetary or market value of all the
goods and services produced within the borders of the country. In order to avoid a distorted
measure of GDP due to price level changes, GDP at constant prices or Real GDP is computed.

Q3) GDP is the standard measure of the value added created through the production of
goods and services in a country __________.

1. during times of emergency 2. every five years

3. every alternate year 4. every one year

Explanation- GDP = private consumption + gross investment + government investment +

government spending + (exports-imports) in One Year.

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 Q4) What is Nominal Gross Domestic Product (GDP)?

1. The Gross Domestic Product (GDP) that is calculated by taking a base year as a
determinant.

2. The Gross Domestic Product (GDP) that excludes all exports and imports in the calculation.

3. The Gross Domestic Product (GDP) that is calculated at the current market price.

4. The Gross Domestic Product (GDP) is calculated in terms of cryptocurrency.

 Explanation- GDP is the final value of all the goods and services produced in a country
in a given year.
 Nominal gross domestic product is the gross domestic product (GDP) evaluated at
current market prices.
 Real GDP, on the other hand, is calculated by taking a base year as a determinant.
 Real GDP adjusts for price changes due to inflation/deflation.
 The main difference between nominal GDP and real GDP is the adjustment for inflation

Q4) The value of the Gross Domestic Product (GDP) of India is published by PIB in _____

1. US Dollar 2. Yen 3. Yuan 4. Indian Rupee

Q5) The GDP estimation method measuring the aggregate value of goods and services produced
by the firms is called _______.

1. expenditure method 2. consumption method 3. income method 4. product method

Explanation - Product Method: Product or value added method is a way of computing the
national income of a country. This system is also known as output or inventory method. This
method calculates national income by adding value to a product at every stage of its
production.

Consumption Method: These consumption inventory methods offer a radically different method of
accounting for a community's contribution to greenhouse gas emissions. Traditional inventories
evaluate the emissions associated with a diverse set of activities within a geographic area.

Q6) Which of the following organisation calculates Gross Domestic Product (GDP) in India?

1. National Statistical Office 2. Ministry of Commerce and Industry

3. Reserve Bank of India 4. None of the above

Explanation- The National Sample Survey Office became the National Statistical Office (NSO).
Recently cabinet approved the merger of CSO and NSSO into the National Statistics Office. The
Ministry of Statistics and Programme Implementation approved the merging of the Central
Statistics Office (CSO) and National Sample Survey Office (NSSO) into a single statistics wing,
which will be known as the National Statistical Office (NSO).

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Q7) Gross Domestic Product (GDP) of a country is….

1. Total value of tradable goods produced in a year.

2. Total value of monetary and non-monetary goods and services within a year.

3. Total value of economic transactions done within a country within a year.

4. None of the above

 Explanation- Gross Domestic Product (GDP) is the total money value of final goods and
services produced in the economic territories of a country in a given year. Hence,
statement 1 is not correct.
 Non-monetary goods and services (e.g. cooking by housewife) are not included in GDP
calculation. Hence, statement 2 is not correct.
 Economic transactions virtually include everything economic in the country. For e.g., if a
stockbroker sells and purchases the same stock worth Rs. 1000 five times in a day, it does
not increase the GDP of the country by Rs. 5000. Economic transactions may also include
buying and selling of bonds, FII inflows, and outflows, etc. Hence, statement 3 is not correct.
GDP includes the value of all goods and services produced within a country within a year.

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