Indian Economy
Indian Economy
Indian Economy
Introduction: -
Meaning of Economics : The term ‘economic’ comes from the Greek term
Oikonomous( oikos- house & nomous- custom or law), that means “Rules of
Household”. Economic is the social science that deals with economic activities in
the process of production, consumption & distribution of goods & services in
the society.
Branches: Traditionally two main branches( Micro & Macro) .
Micro – Individual level
Macro- Overall economy .Ex- State, nation, country & world levels.
Types of Economies : Depends on the Govt. involvement, it has been categorized. Some
are as mentioned below-
i. Traditional- Govt. involvement ( little). Ex- Ethnic/Tribal society ,Economic
activities are family/community based for communal economic gain than
individual.
ii. Free market Economy- Govt. interference(Less). ex- Local market situation with
private ownership/firms. They decide their sailing price according to customer’s
wills & profits.
iii. Command economy- Completely under govt. control.
iv. Mixed Economy- Combination of public sector &private sector units. Here Govt.
is the decision maker for public sector & individuals. Business men make
decisions for private sector. Ex- India, Russia& UK.
v. Open Economy- Market is free from trade barriers, is said to be open. Govt. has
the freedom to pursue it’s own economic policies.
vi. Closed Economy- No trade or trade area connection. Govt decides /facilitates
everything.
vii. Capitalist Economy- based on private or corporate ownership/competition.
Govt. does not interfere much.
viii. Socialist Economy- Production are socially owned/ by a cooperative group just
to meet their needs not profit , a type of communism. Ex- china & Cuba.
Sectors of an Economy : Traditionally divided into three:-
i. Primary :- Exam-Agriculture / Farming, mining, forestry, fishing , hunting
sectors etc( Production of raw materials/ basic foods /goods by extraction
or collection of natural resources.
ii. Secondary :- Production of finished goods (ex- Sugar from sugarcane,
manufacturing, textile, shipbuilding, construction etc.) , also called
industrial sector
iii. Tertiary :- Service sector ( provides service to the general population & to
the business). Ex- Teachers, doctors, farmers, washermen, barbers,
cobblers, lawyers, call centres, banking, tourism, transportation,
entertainment , software companies etc.
Comparing the 3 sectors:
The value of final goods & service produced in each sector during a particular
year provides the total production of the sector for that year.
The sum of production in the three sectors gives GDP(Gross Domestic Product)
of a country. So, GDP is the value of all final goods & services produced within
the geographical boundaries of a country during a particular year.
Measuring GDP is by Union Govt. Now it is Rs. 148.2 lakh crore (2021).Ministry
of Statistics & programme implementation is responsible for GDP calculation.
Formula of GDP: C+I+G+NX( C-consumption, I-Investment, G-Government
Spending, NX- Net Export / Exports- Imports)
GDP- Countries economic health.
GNP-Gross National Product(It is the market value of all products and service
produced in one year of a country. GNP= GDP + X-M( x- Export, M- Import)
Difference: In GDP , Goods & Services produced in a country by the residents &
foreigners . Whereas in GNP, the production of foreigners is not included ,
while the production of national outside the country is included.)
Other sectors-
i. Quaternary( Intellectuals & knowledge based activities. Ex- research
&development
ii. Quinary( Highest levels of decision making –Ex – top officials of govt., universities
etc.
Classification of countries based on Economic Activities : i. Developed country( High
GDP & HDI etc, ii. Developing country ( low GDP& HDI etc)& iii. Least developed country
(Lowest HDI according to UNO).
UNDP – United Nations Development Programme introduced the HDI in it’s first Human
Development Report(HDR) under the supervision of Mahbub-Ul-Haq in 1990.It
constituted three factors; 1. Life Expectancy Index 2. Educational Attainment Index & 3.
Standard of Living Index.
Other Index have been taken into action by UNDP; GII(Ge nder Inequality Index),
GDI( Gender Development Index) ,MPI(Multidimensional Poverty Index), Gross National
Happiness (GNH by Bhutan King Jigme Singye Wangchuck), GHI(Global Hunger INDEX) ,
Green GDP( index of economic growth with the environment) , SDI( Sustainable
Development Index) , Millennium Development Goals 2020 (8 MDGs - Eradicate
extreme poverty & hunger, Universal Primary Education, Gender equality & empowering
women, reduce
Child mortality, Improve maternal health, Combat HIV/AIDs , malaria, & other
diseases & Ensure Environmental sustainability).
1948 – The Industrial Policies( Resolution of 1948 was made for promoting of
Indian goods/ controlling of Export& Import values)
1950- The planning commission set up with the PM as it’s Chairperson.
Under this a Five year plan was planned with specific goals ; i. growth, ii.
modernization, iii. self reliance and; iv. equity. It is a non-political & non-
constitutional body which makes recommendations to the govt.
1952- National Development Council(NDC)- Is only concerned for approval of
Five Year Plan, headed by PM and consisted of the central ministers, Chief
Ministers, Lt.Governers of UTIs, Members of Planning Commission. Secretary
of PC is acts as the Secretary of NDC.
LPG Strategy- During PM Narasimha Rao time, then Finance Minister
Dr.Manmohan Singh introduced this( Liberalization, Privatization &
Globalisation).Allowed FDI to boost economic growth.
23rd January 2003- India Vision2020 ( Presented by Mr.Shyam Prasad Gupta)a
member of Planning Commission.
01st January 2015 - NITI( National institution for Transforming India) Aayog
was established by Govt to replace Planning Commission. Chairman –PM and
Vice Chairman( Arvind Panagasiya).
Sub –group of NITI Aayog : PM Narendra Modi formed a sub-group, taking
all Chief Ministers under this group & suggested for rationalization of 66
centrally funded schemes.
Also set up sub-groups on skill development & Swachh Bharat Abhiyan.
Formulation of Fifteen Year Plan/ NITI Aayog - Based on the reports of
steering committees, working groups, the States & Central Ministries, The NDC
approves & then recommends the plans. PM has directed it’s member to
formulate a fifteen year programme road map of NITI Aayog. A thinktank
that will advise Govt. in planning policy.
Chair person – PM Modi, VC – Arvind Panagaria ,Governing Council – CM of
all States , Minister of State for planning –Rao Inderjit Singh , CEO, Members –
3
Aspirational districts – A total 117 Aspirational districts have been identified
based upon composite indicators of Health & Nutrition, Education,
Agriculture, water resources, Financial inclusion, & skill development & basic
infrastructure which have an impact on HDI.
* RBI has given four new monetary measures; M0,M1,M2,M3,M4 & three
liquidity measures L1,L2& L3.
* M1= liquid portion of money supply / physical Currency, coins & assets/
checks, check deposits etc can be converted to cash.
M2= M1+ Saving deposits of post office savings( near money which
cannot be converted to currency as quickly.
M3= M1 + M2 + Time deposits with banking system.( near money
M4= M3 + office savings of Banks (near money)
L1= M3+ all deposits with post office savings Banks(excluding NSC)
L2= L1+ FIs+ Tearm borrowing
L3= L2+ public deposits of non-banking Financial companies
Indian Currency Symbol ( ₹ ): This new symbol was designed D Udaya Kumar,
a Post Graduate of IIT Mumbai , on 15th July 2010.
The new symbol is derived from Devanagari script “Ra” & the Roman “
R“.
Indian Money Market : Deals ( Organized banking Sector, Unorganized
banking Sector ( ex- Chit funds, money lenders) & sub markets.
Regulatory Body :
SEBI(Securities & Exchange Board of India under SEBI Act,1992 functions as
controlling agency for Stock markets & others.
Call Money Market - Call or notice money is an amount borrowed or lent on
demands for a very short period.
MMMFs(Money Market Mutual Funds )- Scheme introduced by RBI in
April,1992.
CPITAL Market- It is one of the most important segments of the Indian
financial system. It is the market available to the companies to meet their
demands on long –term funds.
Primary market - Example-fresh capitals in form of shares & debentures(fixed
rate of interests).
Secondary market- Stock market( stock exchanges) Ex – Bombay Stock
Exchange(BSE) is the oldest stock exchange in Asia was established in 1875.
NSE( National Stock Exchange)-Nov1992 was incorporated.
Gilt-Edged Market- refers to govt & semi govt securities backed by RBI.
QFI- Qualified Foreign Investor Ex- A person who is residing in a country and
the member of the FATF (Financial Action Task F)
Bank System:
Three types ( Core banking : group of net worked banks, Retail Banking:
transaction directly with consumers & Narrow Banking: also known as safe
banking, it restricts bank to hold liquids.)
1st Bank- Bank of Bengal (1806)
1st commercial Bank ( Awadh Commercial Bank, 1881)
1895- Punjab National Bank, Lahore
State Bank of India (SBI):-
* It was created in Jan ,1921 by amalgamation of three Presidency Banks;
Bank of Bengal, Bank of Bombay & Bank of Madras & named as “ Imperial
Bank” of India.
* After nationalization in 1955, it’s name was changed to State bank Of India.
*It is the biggest commercial bank in public sector of India.
* It has the largest number of branches( more than 13,000) in the world.
SBI has 06 subsidiaries.
Reserve Bank of India:-
It is the central bank of the country.
It was set up on April 1, 1935 with a capital of Rs.5 crore, on the basis of
Hitong Ypung Commission recommendation with the enactment of RBI
Act , 1934.
It was continued to serve as Central bank to Pakistan , till June,1948.
It was nationalized on Jan1,1949 it’s first Indian Governer was CD
Desmukh..
Functions:-
Issuing of notes
Bankers to the Govt.
Controller of Credit
Custodians of Foreign Reserves
Formulates& administers the monetary policy.
It represents India at the IMF & WB levels.
Regulator &supervisor
Role of RBI:- RBI has the sole authority to issue currency notes other than
Rs.1 or coins & coins of smaller denomination. After 20 years in Nov1994,
printing of Rs.1 note has been stopped due to high cost & free capacity to
print currency of higher denomination.
In November 1994, printing of Rs.1 note was mainly due to highest cost
Signature of RB I Governor on new 20 Rs.note by Shaktikant Dash.
New 500 Rs & 2000/- notes ( 08 Nov2016).
Demonetization- on 08 Nov 2016 Govt. announced demonetization of all
500 & 1000 /- notes of Mahatma Gandhi series.
Issues of new 500/- & 2000/- notes.
One rupee note- Except one rupee note RBI has sole right to issue other
currency notes under section22 of the RBI Act.
The one rupee note is issued by the Ministry of Finance & it bears the
signature of Finance secretary while other notes bear the signature of
RBI Governor. The reason being that this note belongs to the Republic of
India & not to RBI.
Nationalization of banks:-
* In order to have control over banks,14 large commercial banks with turn
over more than Rs.50 crore , were nationalized on July19,1969. The banks
were –
1.The Central Bank of India 2. Bank of India 3. PNB 4. Canara Bank 5. United
Commercial bank 6. Syndicate Bank 7. Bank of Baroda 8.United Bank of India
9. Union bank of India 10. Dena Bank 11. Allahabad Bank 12. Indian Bank 13.
IOB 14. Bank of Maharashtra
* 15th April, 1980 : 06 private sectors banks whose reserves were more than
R200 crore , each were nationalized. These were-
1. Andhra Bank 2. Punjab &Sind Bank 3. New Bank of India 4. Vijaya bank
5. Corporate Bank 6. Oriental bank of Commerce
In September 1993, the New bank of India was merged with the PNB.
These nationalized banks , together with Regional Rural Banka(RRBs) ,
came under the category of Public Sector Commercial Banks. The other
kind of commercial banks are Private Sector Commercial banks.
At present there are19 nationalized banks besides the RBI.
Export-Import(EXIM)Bank-
Banks Board Bureau(BBB)- Started April2016, acts as a holding company for
state run banks.
New Gold Investment Schemes (5th November ,2015)- The bond is for 08
years.The main objective is to reduce the physical demand of gold. Gold bonds
are issued by RBI on behalf of Govt. of India in rupees & denominated in
grams of gold which are sold to Indians . The minimum & maximum
investment limits are2grams& 500 grms with 2.75% per annum.
Gold Monetisation scheme- BIS(Bureau of Indian Standards certified Collection
Purity Testing Centres(CPTC) to collect the gold from the customer on behalf
of the banks.
Indradhanush ( Rainbow) : To revamp the PSU(Public Sector Units) banks , the
Govt. has launched a seven –point plan for setting up BBB(Bank of Board
Bereau) for overall monitoring of banking & governance.
Insurance
Insurance industry includes two sectors; Life Insurance & General Insurance.
LIC : Initially introduced by Britishers. But was Established- Sept 1,1956 .
Head Office-Mumbai .
Zonal offices – 07( Mumbai, Kolkata,Delhi, Chennai, Kanpur, Hyderabad &
Bhopal)
Oriental Life insurance company was established by a British firm in 1818 at
Calcutta(Kolkata).
Function- The insurance companies collect the little savings of the investors &
then reinvest those savings in the market.
Inflation:
Refers to persistent rise in the general price level in the country over a period
of time. It could be monetary or price inflation. During periods of inflation,
there is an increase of money supply. It is caused due to mismatch between
demand & supply. There are three standard measures of inflations-
WP(wholesale Price Index- goods average price change)ex- retailer
stage /no consumer involvement
Consumer Price Index(CPI –ex- industrial sector- retail inflation/ goods &
services bought by consumers)
GDP deflator-measures the prices of the final goods & services
domestically produced.
Effects - It’s effect is different on different communities. When price
rises or the value of money falls, some group of society gain, some loss &
some stand in between.
Income tax slab- Th e different income tax group based on different income
tax , is called Income tax slab.
Major Central Taxes: Income Tax, Central Goods & Services tax( CGST),,
Custom Duty, Integrated Goods & Services Tax(IGST –charged when
movement of goods & services from one State to other state & revenue is
shared between state Govt & Central Govt )corporation tax, Estate duty,
Terminal taxes on goods & passengers , carried by railway, air/sea, transaction
in stock exchange
Major State Taxes: State Goods & services Tax(SGST) , Stamp Duty &
Registration.
Direct Taxes - Include e taxes on income & property, personal income tax,
corporate tax , estate duty & wealth tax , Gift Tax, land revenue, agriculture
income, estate duty, alchoholic liquors, electricity,
Indirect Tax- Are tho se taxes have their primary burden or impact on one
person, but the final or the real burden has to be borne by a third person.
Examples- sales tax, excise duty ( goods produced within the country), custom
duty ( on commodities of export & imported goods) , VAT ( sales tax of states,
first imposed by Haryana , 1st April20 03) .
Benefits :
Simplify tax structure.
Beneficial to the Corporate, Exporter, Industrial sector, individuals &
companies.
Increase in Tax Revenues both to the Centre& state.
Miscellaneous terms :
Finance Year - March 31st- April 1st
Budget- The budget is an extensive account of the Govt. finances.
Zero – based budgeting( all budgetary allocations are set to nil at the
beginning of a financial year.
Gender Budgeting- 2004-05( to contribute towards women empowerment.
1st budget – In 1950 by John Mathai during the creation of planning
commission.
2nd - in 1956 by TT Krisnamachari . Finance Minister Morarji Desai
presented maximum( 10) times followed by P.Chidambaram(09 budgets). Mrs.
Gandhi was the first PM & FM to present budget in 1978.
Deficit : A deficit is an amount by which a sum falls short of some amounts.
They are ; Revenue , Fiscal , Budget deficit, Monetized , Gross Fiscal Deficit,
NFD, Primary Deficit & GPD.
Special Economic Zone( SEZ)- Asia’s 1st was set up in Kandla, India 1965. Agri
Export Zone(AEZ)
GATT( General Agreement on Traffic & Trade . It regulates international
trade. First signed on 1947.
WTO – 75 GATT members& the European Communities became the founding
members of the WTO on 1st Jan,1955.
MFPS( Mega Food Park Scheme) in 2008- There are 13 MFPS working.
Policy of Navaratna- Nine public sector enterprises, identified by the Govt.
MSMES( The Micro ,Small & Medium Enterprises)- policy ,2012
Make in India –
Aims at reviving the job creating sector & manufacturing growth to 10 %.
Aims to attract foreign companies.
To create 10 million new jobs annually.
25 key sectors have been identified ; automobiles,
chemicals,IT,pharmaceuticals, textiles, ports, aviations,leather,tourism,
hospitality, railway etc.
A dedicated new portal (www.makeinindia.com), has been created to
address the queries.
Indian embassies around the world became part of this campaign.
Digital India –*Aims at transforming the country into 4 digital empowered
social & knowledge economy.
* It is an umbrella program *Digital locker system aims to minimize the
document into e- document process. *Swachh Bharat Mission (SBM), * e-sign
frame work with Aadhaar authentication.
* Digitize India Platform (DIP) for a large-scale digitation of records in the
country. Bharat Net, a high-speed digital highway to connect all 2.5 lakh GPs
of country.
Start-up –Standup India (Signed by PM Modi). Launched on 16th Jan, 2016. The
Startup India, Standup India initiatives unveil the govt. action plan to support
early-stage start-ups. It celebrates the entrepreneurship spirit of country’s
youth.
Standup India Scheme –
To promote entrepreneurship among SC &ST youths & women on 6th
jan20016.
Pay Commission - 7th pay commission (900 –page report headed by Justice AK
Mathur was presented to Finance Minister, already implemented in 2016.
Types of Budgeting- Zero based Budgeting & Gender budgeting.
Deficit – Revenue deficit & Financial deficit.
GDP = C+I+G+NX ( C- consumption, I- Investment, G-
Govt. Expenditure , NX- Net Export)
Market Price – Actually customers pay or MP= FC+ Indirect Tax- subsidies (FC-
factor cost)
GNP= It is the market value of all products & services produced in one year of
a country . GNP=GDP+X-M .
PCI (Per Capita Income)Is earned per person per area,
Per –capital income of a country = National Income/ Population of a country
Demography
Demography: Demography is a statistical study of human population. Theory
of Demographic transition was given by Frank W Notestein in 1945. India
comes next to China as regards to the size of population, but is seventh in the
world as regards to area. Thomas Robert Malthus was the first economist to
give a systematic theory of population in his book “ Essay on Principle of
Population”.
1st Census- 1871 during the period of Lord Mayo .Since then census is held
after every 10 years.
Census 2011- Is the 15th National Census Survey.. Mr. C Chandramouli was the
commissioner 7 Registrar .The NCS was conducted in 2 phases- house listing &
population.
India is the second largest population of older(60+) persons in the world.
NPR( national Population Register) is the register of residents of India so,
that all the Govt, benefits & security will be maintained.
Aadhar is a12 digit unique number, which is the Unique Identification
Authority of India(UADAI) ,is to be issued to all Indians on a voluntary
basis. It is attached to Planning commission/ NITI Aayog. The first
Chairman is mr. nandan Nilekani.