3468 Uy

A Must for Civil Services (Pre) Examination,
State PCS & Other Competitive Exams
INDIAN
ECONOMY
Coverage of Important Facts
from NCERT Books (Class 6-12)
A Must for Civil Services (Pre) Examination,
State PCS & Other Competitive Exams
INDIAN
ECONOMY
Coverage of Important Facts
from NCERT Books (Class 6-12)
Authored By
Rakesh Kumar Roshan
1. Introduction to Economics 1-4 MCX-SX (MCX Stock Exchange Limited)
Meaning of Economics Over The Counter Exchange of India (OTCEI)
Types of Economies Other Investment Agents
Sectors of an Economy Banking in India
Other Sectors of Economy Reserve Bank of India (RBI)
Methods of Credit Control
2. National Income 5-9 Scheduled Commercial Banks
National Income State Bank of India
Real National Income (RNI) Private Banks
Calculating National Income Foreign Banks
Gross Fixed Capital Formation (GFCF) Regional Rural Banks
Indian Organisations Related to National Scheduled Co-operative Banks
Income Accounts Types of Banking System
National Income's Trend in Growth and Structure Inter-Bank Transfer
Banking Sector Reforms
3. Economic Growth and Development 10-16 Basel Norms
Economic Growth Banking Ombudsman
Economic Development Development Financial Institutions
Measurement of Economic Development Insurance Companies
Physical Quality of Life Index (PQLI)
Millennium Development Goals (MDGs) 6. Inflation 48-52
Different Levels of Economic Development Types of Inflation
Economy and Environment Causes of Inflation
Environmental Taxes Effects of Inflation
12th Five Year Plan and Sustainability Measures of Inflation
Change in Reporting of Inflation
4. Economic Planning in India 17-25 Measures to Check Inflation
Meaning of Economic Planning
Strategies of Planning 7. Public Finance 53-64
History of Planning in India Public Revenue
National Institution for Transforming India (NITI) Aayog Types of Tax
Planning Commission Direct Tax Code (DTC)
National Development Council (NDC) Sources of Revenue
Five Year Plans in India Debt Management Strategy
Twelfth Five Year Plan (2012-2017) Finance Commission
Three Year Action Agenda (2017-18 to 2019-20) Fiscal Policy
India Vision 2020 Fiscal Responsibility and Budget Management Act,
(FRBM) 2003
5. Money and Banking 26-47 Union Budget
Money Deficit
Measures of Money Supply in India
Financial Sector 8. India’s Balance of Payments 65-71
Financial Markets Balance of Payments (BoP)
Regulatory Framework Foreign Capital
Reforms in Capital Market of India Foreign Exchange
Qualified Foreign Investor (QFI) Capital Account Convertibility in India
Stock Exchanges in India India’s External Debt
National Stock Exchange (NSE) NRI Deposits
Bombay Stock Exchange (BSE)
TOPICS FOCUS &
TREND OF QUESTIONS
INTRODUCTION AND NATIONAL INCOME

This chapter provides an overview of various important sectors of Indian economy and its specific
features. Important ceoncepts of this chapter are GDP, GNP, GDP deflator and other such
statistical tools as a measure of economic growth. The changed pattern of UPSC demands a
deeper understanding of their meaning and importance as well as how they are calculated and
their trends in recent years, which has also been asked in previous exams.
INFLATION
Important topics from examination point of view are causes of supply side and demand side
inflation, role of Monetary Policy and Fiscal Policy in inflation management, its ill effects on
economy and other related concepts such as deflation, hyper-inflation and stagflation. Questions
asked in previous year exams include causes of inflation, effect of liquidity on inflation, impact of
inflation on bond yield and debtors etc.
ECONOMIC GROWTH AND DEVELOPMENT

This chapter covers the important and relevant concepts and issues of growth and development.
Other important topics dealt here are difference between growth and development, various
measures of development, human development and HDI, sustainable development, MDGs etc.
Most of the questions asked in previous exams from this section are regarding factors
contributing to economic growth, constituents of HDI etc. Trends in savings and investment,
capital-output ratio, etc.
ECONOMIC PLANNING IN INDIA

This chapter discusses meaning, evolution and strategies of planning. From examination
perspective, the important focus areas are role of Planning Commission and NDC, objectives and
achievements of various Five Year Plans and planning in liberalised economy. Previous years’
questions asked in examination includes topics such as mobilisation of resources, approach of
planning in India, structure and functions of NDC and Planning Commission.
DEMOGRAPHIC PROFILE
This chapter assumes greater significance in the background of demographic dividend in India.
Key concepts such as demographic transition theory, birth and death rates, age structure,
population density, sex ratio and literacy are pertinent from examination point of view. Further
questions can also be asked from census data, Population Policy and family welfare programmes.
Earlier questions asked in competitive exams include how demographic dividend can be reaped,
age structure-composition of India etc.
INDUSTRIAL SECTOR
From an examination perspective, important topics are New Industrial Policy, MSMEs, PSEs,
industrial sickness, Disinvestment Policy, role of CCI, National Manufacturing Policy, NIMZs, and
recent trends in industrial growth. Questions have been asked in previous exams regarding skill
development, labour laws and reforms, measures to promote MSMEs, Index of Industrial
Production, core sectors of manufacturing etc.
SERVICES SECTOR
Significant topics in this chapter are performance and trends of various services sectors such as IT
and ITeS, real estate, communications, construction, tourism sectors etc, issue of FDI and
liberalisation of services sector and services employment in India. East years examination have
focused on Contitution and performance of services sector in economic growth.
INFRASTRUCTURE
Important topics in this chapter are classification and significance of infrastructure, problems in
infrastructure development, issue of investment and financing, PPPs and their advantages,
performance of energy sector and reforms therein, urban infrastructure and transport, critical
infrastructure.
NATURAL RESOURCES
This chapter deals with minerals, water, land and forest resources. Essential topics in this chapter
are concerned with mineral resource’s distribution, use, conservation and management. Pertinent
to this is issue of environment management and climate change. Trends of previous Years exams
suggests questions about watershed management, land use policy, national mining policy, social
and agro forestry, application of S and T in conservation and management climate change
negotiations etc.
POVERTY AND UNEMPLOYMENT

Important topics in this chapter are concepts of absolute and relative poverty, methodology of
poverty calculation, various committees and their recommendations, poverty alleviation
schemes, types of unemployment and methodology of calculating unemployment, MNREGA and
other employment generation schemes.
INCLUSIVE DEVELOPMENT
This chapter is a recent addition in economy section and significant weightage has been given in
the examination. The important topics are related to concept, need and strategies of inclusive
growth. Important government policies and schemes relating to health and sanitation, education,
skill development, rural development, women and child development etc are important from
examination point of view.
Chapter one
Introduction to Economics
Meaning of Economics
“Economics is a social The term ‘economics’ comes from the Greek term Oikonomos, which is composed of
oikos (house) and nomos (custom or law), meaning Rules of the Household.
science, which tries to
Economics is the social science that studies economic activities to gain an
study how to achieve the understanding of the processes that govern the production, distribution and
maximum benefits using consumption of goods and services in an economy.
limited resources. Initially, the study of economics concentrated mainly on wealth by concentrating on
factors of production and consumption. This emphasis on wealth excluded from its
Understanding
study, those who were not directly connected with the formal economic system. Thus,
economics is important the needs of poor, senior citizens, children etc. were neglected. It was corrected with
to provide for the the emergence of welfare economics, which focused on welfare needs of the whole
maximum welfare of society instead of just the production of wealth.
society using the Branches of Economics

resources available.” Traditionally, economics has been divided into the two main branches :
Micro Economics
It examines the economic behaviour of individual actor at the level of the individual
economic entity — the individual firm, the individual consumer and the individual
worker.
It is concerned with how supply and demand interact in individual market and how
these interactions determine the price level of goods and services.
Macro Economics
It studies the economy as a whole and its features like national income, employment,
poverty, balance of payments and inflation.
It is concerned with how the overall economy works. It studies such things as
employment, Gross Domestic Product (GDP) and inflation.
Some Other Branches of Economics

Development Economics
It is a branch of economics, which deals with the economic aspects of the
development process in low income countries.
The goal of development economics is to determine how poor countries can be
transformed into prosperous ones.
Behavioral Economics
This branch studies the effects of social, cognitive and emotional factors on the
economic decisions of individuals and their consequences for market prices, returns
and resource allocation.
Magbook ~ Introduction to Economics 3
Sectors of an Economy Other Sectors of Economy

A nation’s economy can be broadly divided into various Quaternary Sector
sectors to define the proportion of people engaged in a This sector consists of the intellectual and knowledge based
particular sector. This categorisation is generally seen as a
activities. Examples of activities associated with this sector
continuum of the distance from the natural environment.
are research and development, culture, information
Traditionally, economies are divided into the following three
technology, consulting, financial planning, education etc.
sectors :
Quinary Sector
(i) Primary Sector
This sector consists of the highest levels of decision-making
This sector is involved in the extraction or harvesting of
in a country. This includes the top officials of government,
products from the Earth. It includes the production of raw
media, universities etc.
materials and basic foods. Some of the activities included in
this sector are agriculture, mining, forestry, fishing, quarrying
etc. Classification of Countries
The packaging and processing of raw materials is also by the World Bank
considered as a part of this sector. As an economy develops The World Bank prepares the World Development Report (WDR).
the share of primary sector in total production and
The WDR as on 1st July, 2021, classified the different countries on
employment goes down.
the basis of their per capita income.
(ii) Secondary Sector Categories Based on Per Capita Income
The secondary sector of the economy is involved in the ◆
High income countries — $ 12,695 and above
production of finished goods. All manufacturing, processing
and construction activities lie in this sector (in India,
◆
Upper middle income countries — Above $ 4,096 to $ 12,695
construction sometimes considered as part of the services or ◆
Lower middle income countries — Above $ 1,046 to $ 4,096
tertiary sector). ◆
Low income countries — $ 1,046 and less.
Some of the activities in this sector are metal working, Source World Bank Report, 2021
automobile manufacturing, textile, production, shipbuilding
etc. Most economies in their process of development go
through the middle phase, where the secondary sector Classification of Countries Based
becomes the largest sector of the economy in terms of
production and employment with the reduction in importance on Economical Activities
of the primary sector. Developed Country
India is an exception, where we have directly moved to It refers to a country with a relatively high level of economic
services sector development, without first improving the
growth and security. A country’s degree of development is
manufacturing capabilities.
evaluated on the basis of per capita income or GDP, level of
(iii) Tertiary Sector industrialisation, general standard of living and the amount
The tertiary sector of the economy is also called as the of widespread infrastructure.
services sector. This sector provides services to the general Developing Country
population and to business. Some of the activities which are It is also called a less developed country with lower living
part of this sector are retail, transportation, entertainment, standard, underdeveloped industrial base and low Human
tourism and banking etc. In the advanced developed Development Index (HDI).
economies, the tertiary sector is the largest in terms of
production and employment. Least Developed Country
Sometimes, two more sectors, i.e. quaternary and quinary are
According to the United Nations, countries having lowest
defined separately, even though these can also be considered indicator of socio-economic development with the lowest
as part of the services sector itself. HDI ratings are called as least developed countries.
Magbook ~ National Income 5
Chapter two
National Income
National Income Market Price

National Income is defined as the total
Market price is the price that customers
National Income is an
actually pay. It includes the component
net earnings from the production of
uncertain term which is goods and services in a country over a of indirect taxes and of subsidies.
used interchangeably with period of time, usually one year and Accordingly, when indirect taxes are
consisting essentially of wages, salaries, deducted and subside added to the
national dividend, national market price, we get values of National
rent, profits and interest.
output and national Income at factor cost
National Income = C + I + G + (X − M)
expenditure. On this basis, MP = FC + Indirect taxes – Subsidies
national income National income is considered as NNP at Or MP = FC + Net indirect taxes
factor cost.
accounting records the
Where,
GDP (Gross Domestic Product)
level of activity in accounts
C = Total Consumption Expenditure It is the monetary value of all final goods
such as total revenues
I = Total Investment Expenditure and services produced with a country’s
earned by domestic G = Total Government Expenditure border in a specific time.
corporation, wages paid to X = Export GDP = C + I + G + NX
foreign works and amount M = Import Where C = Consumption
spend on sales and It can be measured by Gross National I = Investment
Product (GNP), Gross Domestic G = Government expenditure
income taxes by Product (GDP), Gross National Income NX = Net Export
corporations and (GNI), Net National Product (NNP), Net
GDP at FC and MP
individuals outsiding in the National Income (NNI) and Per-Capita
Income (PCI). GDPMP = GNPMP − (X −M)
country.
GDPFC = GNPFC − (X − M)
National Income and Where, X is the export and M is import of a
country.
its Related Aggregates
Various National Income aggregates are
Nominal GDP
estimated either at factor cost or at It is the market value (money-value) of all
market price. final goods and services produced within
the country.
Factor Cost
Factor cost refers to cost of factors of
Real GDP
production viz., rent of land, interest of The adjustment transforms the nominal
land, interest of capital wages for GDP into an index for quantity of total
compensation of employees for labour output. It is a measurement of the value
and profit for entrepreneurship of output economy, adjusted for price
FC = MP − Indirect taxes + Subsidies changes.
Magbook ~ National Income 7
as a whole is not based on accurate reporting and — Challenges like difficulties in getting information, especially
hence, national income is underestimated. those related to underground economy.
Double Counting It is also a hurdle to accurate GDP
estimates. Though, there are some corrective measures, Gross Fixed Capital Formation
but it is difficult to eliminate it. (GFCF)
Estimation of National It refers to net additions of capital stock such as
equipment, buildings and other intermediate goods.
Income in India The term fixed signifies that only fixed capital is counted
The first attempt to calculate National Income of India and financial assets, stocks of inventories etc are excluded.
was made by Dadabhai Naoroji in 1867-68, who GFCF also excludes land sales and purchases.
estimated Per-Capita Income to be ` 20.
Incremental Capital Output Ratio (ICOR)
The first scientific method was made by Professor VKRV
Rao in 1931-32, but was not very satisfactory. ICOR is used to assess a country’s level of production
efficiency. ICOR equals Annual Investment or Annual
The first official attempt was made by National Income
Increase in GDP. Higher levels of ICOR means that capital
Committee headed by Professor PC Mahalanobis in
is not being used efficiently to increase production.
1949.
Generally, for most countries ICOR is at around 3.
According to the National Income Committee Report
(1954), National Income of India was ` 8710 crore and Indian Organisations Related to
Per-Capita Income was ` 225 in 1948-49.
In India, the National Statistical Office (NSO) under
National Income Accounts
Ministry of Statistics and Programme Implementation is Ministry of Statistics and Programme
responsible for estimation and publication of National Implementation
Income.
The Ministry of Statistics and Programme Implementation
Limitations in the Measurement (MOSPI) is a ministry of Government of India concerned with
of National Incomes coverage and quality aspects of statistics released. The surveys
conducted by the Ministry are based on scientific sampling
Whilst measuring National Income, we need to be aware methods. The Ministry of Statistics and Programme
of some of the following limitations, challenges, problems
Implementation (MOSPI) came into existence as an Independent
which are discussed below
Ministry on 15th October, 1999 after the merger of the
— National Income measures domestic economic
performance, not social welfare, but there should be a Department of Statistics and the Department of Programme
strong positive correlation. Implementation.
— National Income understates social welfare, non-market
transactions like home-makers service and do-it-yourself
National Statistical Office
projects are not counted. The government has merged the Central Statistical Office (CSO)
— National Income does not measure an increase in leisure or and National Sample Survey Office (NSSO) under the Ministry of
work satisfaction changes in product quality.
Statistics and Programme Implementation (MOSPI) into a single
— National Income does not accurately reflect changes in
entity on 23rd May, 2019. The new merged entity has been
environment like oil spills clean-up is measured as positive
output, but increased in pollution is not measured as named the National Statistical Office (NSO) and will continue to
negative. be headed by the secretary of MOSPI.
— Per-Capital Income is a more meaningful measure of living
standards than total National Income. The National Statistical Office (NSO) headed by a Director
— Problem of double counting, however, problem of double General is responsible for conduct of large scale sample surveys
counting could be avoided by utilising the value added in diverse fields on All India basis.
approach.
The NSO has four divisions :
— Problems of depreciation estimation.
Survey Design and Research Division (SDRD) : This division,
— Different methods of calculating or estimating depreciation.
— Arbitrary definition.
located at Kolkata is responsible for technical planning of
surveys, formulation of concepts and definitions, sampling
— Inclusion or exclusion of certain items in National Income
accounting can cause confusion. design, designing in inquiry schedules, drawing up of
tabulation plan, analysis and presentation of survey results.
Self Check
Build Your Confidence
1. The term National Income represents [IAS 2001] 7. Which one of the following sectors is the major
(a) Gross National Product (GNP) at market prices minus contribution towards the Gross Domestic Saving in
depreciation India in recent time?
(b) Gross National Product (GNP) at market prices minus (a) Public Sector (b) Private Sector
depreciation plus net factor income from abroad (c) Corporate Sector (d) Household Sector
(c) Gross National Product (GNP) at market prices minus
8. Which one of the following the most appropriate method
depreciation and indirect taxes plus subsidies
to measure the economic growth of a country?
(d) Gross National Product (GNP) at market prices minus net
factor income from abroad (a) National Income
(b) Net National Product
2. Consider the following statements (c) Gross Capital Formation
1. GDP is a better measure of national income than GNP. (d) Gross Domestic Product
2. GNP is always higher than GDP.
9. Consider the following statements with reference to
Which of the statement(s) given above is/are correct? Indian economy. [UPSC 2015]
(a) Only 1 (b) Only 2
1. The rate of growth of Real Gross Domestic Product has
(c) Both 1 and 2 (d) Neither 1 nor 2
steadily increased in the last decade.
3. Which of the following is not included in the estimates 2. The Gross Domestic Product at Market Price (in rupees)
of National Income? has steadily increased in the last decade.
(a) Sale of collector’s item
Which of the statement(s) given above is/are correct?
(b) Addition to inventory, but not sale of the company’s
(a) Only 1
products
(b) Both 1 and 2
(c) Market rent of self owned house
(c) Only 2
(d) Cost of government services
(d) Neither 1 nor 2
4. Consider the following statements with reference to
10. The National Income of a country for a given period is
Indian economy. [IAS 2010]
equal to the [UPSC 2013]
1. The GDP has increased by four times in the last 10 years. (a) total value of goods and services produced by the
2. The percentage share of public sector in GDP has nationals
declined in last 10 years. (b) sum of the total consumption and investment
Which of the statement(s) given above is/are correct? expenditure
(a) Only 1 (b) Only 2 (c) sum of personal income of all individuals
(c) Both 1 and 2 (d) Neither 1 nor 2 (d) money value of final goods and services produced
5. Consider the following statements 11. In which of the following sectors, growth in GDP
1. National Income is same as Net National Product at continuously decreasing from 2013-14?
factor price. (a) Agriculture, forestry and fishing
2. The National Income of India is estimated mainly through (b) Industry
production and income methods. (c) Manufacturing
Which of the statement (s) given above is/are correct? (d) Financing, real estate, professional services etc.
(a) Only 1 (b) Only 2 12. The government has merged the CSO and NSSO under
(c) Both 1 and 2 (d) Neither 1 nor 2 the MOSPI into a single entity from May, 2019. The new
6. Which one of the following institution prepares the merged entity has been named
National Income estimates in India? [UPPCS 2006] (a) National Statistical Office
(a) Planning Commission (b) Survey Design Office
(b) Reserve Bank of India (c) National Sample Office
(c) Central Statistical Organisation (d) National Statistical Office.
(d) India Statistics Institute
1. (c) 2. (d) 3. (a) 4. (b) 5. (c) 6. (c) 7. (d) 8. (d) 9. (b) 10. (d)
11. (a) 12. (a)
Magbook ~ Economic Growth and Development 11
Measurement of Economic Human Development Index

(HDI)
Development The United Nations Development Programme
To measure economic development is a complex process. (UNDP) introduced the HDI in its first Human
Economists have used various yardsticks for measuring economic Development Report (HDR) prepared under the
development. stewardship of Mahbub-ul-Haq in 1990.
Life Expectancy Index (LEI) Educational
National Income and Per Capita
Attainment Index (EAI) and Standard of Living
Income Index (SLI) are the indicators of HDI.
This is the traditional approach to measure economic Life expectancy refers to life expectancy at birth,
development. World Bank uses the concept of per capita Gross not at age 1.
National Income (GNI) as a measure for comparing and classifying Educational Attainment Index (EAI) is a
countries based on their stage of economic development. combination of adult literacy rate and combined
World Development Report (WDR), 2015 (sub-titled Gender enrolment ratio.
Equality and Development) classifies countries category wise Standard of Living Index (SLI) is represented
based on per capita GNI. here by the concept of Purchasing Power Parity
Since official exchange rate is used in the international comparison (PPP). Per capita income is converted into PPP
of GNI, therefore, they do not give a correct picture for two reasons in terms of US dollar.
They are :
(i) Purchasing power capacity of a country ignored. Human Development Report
(ii) Official exchange rate does not reflect the value of non-traded (HDR), 2020
goods. The United Nation’s Human Development Report,
In order to overcome this problem, following the work of IB Kravis was released in December 2020 with the theme
and others ‘‘International comparisons of real product and ‘Human Development and the Anthropocene’.
purchasing power’’ (1978), the UN International Comparison In the 2020 report, India with a score of 0.645
Programme gave the Purchasing Power Parity (PPP) method. has been ranked 131 out of 189 countries in
terms of HDI. In 2019 report, India was ranked
Purchasing Power Parity (PPP) 129 out of 189 countries.
PPP approach was given by economist Gustav Casell in 1918. The HDR report is a composite indices covering five
concept is based on the law of one price, wherein the absence of trade sub-indexes including Human Development,
and non-trade barriers, identical goods will have same price in different Inequality Adjusted Human Development, Gender
countries, when the prices are expressed in the same currency. PPP Development, Gender Inequality and
exchange rates are calculated by comparing the prices of the same basket Multidimensional Poverty Index.
of goods are services indifferent countries. Human Development Group
PPP was first used by International Monetary fund (IMF) in 1988 for
measuring standard of living in different countries. Indian Economy is the Group Index Value
third largest economy in term of PPP. Very high human development 0.800 and above
High human development 0.700 and 0.799
The PPP is defined as the number of units of a country’s currency required
Medium human development 0.550 and 0.699
to buy the same amount of goods and services in the domestic market as
Low human development 0.352 and 0.549
$ 1 would buy in the United States. e.g. if we have to spend ` 30 for
purchasing the same amount of goods and services as are purchased in
spending $ 1 in USA, then the exchange rate in PPP approach is $1= ` 30. Inequality-Adjusted Human
Development Index (IHDI)
Physical Quality of Life Index (PQLI) IHDI adjusts the Human Development Index
(HDI) for inequality in distribution of each
PQLI was the first attempt towards providing comprehensive dimension across the population. The IHDI
measure of economic development. It was developed by Morris accounts for inequalities in HDI dimensions by
David Morris in the mid-1970s. ‘discounting’ each dimension’s average value
PQLI is the average of three values, viz, life expectancy, basic literacy according to its level of inequality.
rate and infant mortality rate. Each value was scaled on 1 to 100,
where 1 represents the worst and 100 represents the best.
(ii) Improvement in the quality of life.

GHI Index, 2021 (iii) Use of cultural heritage based on a value system in each
GHI 2020 was published in October 2021. It comprehensively area of life.
measures and track hunger at the global, regional and country Former President APJ Abdul Kalam said that the country’s
level. It was prepared jointly by global NGOs namely, Concern economic growth should always be guided by ‘National
Worldwide (Ireland) and Welt Hunger Hilfe (Germany). Prosperity Index’ that includes components like improvement
In order to reflect the multi-dimensional nature of the hunger, the of quality of life and adoption of a value system derived from
GHI 2021 combines the following four components/indicators our ancient civilisation besides GDP. SAARC prosperity Index
into one index. idea is given by Abdul Kalam on the basis of NPI.
1. Undernourishment (Insufficient calorie intake)
2. Child wasting (Low weight for their height) Human Capital Index Report 2020
3. Child stunting (Low height for their age) World Bank released the report titled “The Human Capital
Index 2020 Update: Human Capital in the Time of COVID-19” in
4. Child mortality (Under the age of five)
September, 2020. The Human Capital Index (HCI) 2020 is a
India with a score of 27.5 in this index ranked 101 out of 107 collaboration between the Human Development Practice Group
countries. Hunger level in India has been characterised as and the Development Economics Group of the World Bank.
serious’. India has been ranked at the 116th position among 174
countries in the Human Capital Index 2020. Last year India was
Green Gross Domestic Product (Green GDP) ranked 115 out of 157 countries. The country of Singapore
Green GDP is an index of economic growth with the topped the score with 0.88 followed by Hong Kong and Japan
environmental consequences of that growth factored in. in this index of 2020.
Green GDP monetises the loss of biodiversity and accounts
for costs caused by climate change. Some environmental Millennium Development
experts prefer physical indicators (such as waste per capita
or carbon dioxide emissions per year), which may be
Goals (MDGs)
aggregated to indices such as the Sustainable MDGs were eventuated at the UNs Millennium Summit,
Development Index. 2000, where the world leaders of 189 UN Member States
(193 currently) agreed on a set of quantifiable and
Sustainable Development monitorable goals for development and poverty eradication to
be achieved by 2015.
Index (SDI)
The sustainable development is defined as the MDGs Report, 2015
development to achieve the needs of present generation UN released the Global Report on MDGs. NITI Aayog
without compromising future generations need. released the Asia-Pacific MDGs Report, 2015. India has
Sustainable development ensures the well-being of individual managed to reduce its extreme poverty incidence to a half
by integrating social development, economic development from 49.4% in 1994 to 24.7% in 2011. The report set the
and environmental conservation and protection. limit for extreme poverty as those living on $ 1.25 or less a
The challenges of sustainable development are population, day.
poverty, inequality, the shortage of drinking water, human New Global Goals
health, consumption of energy, deforestation and petrol
The United Nations General Assembly (UNGA) formally
consumption.
adopted the 2030 Agenda for sustainable development on
26th September, 2015, along with a set of bold new Global
Human Sustainable Development Goals. The 193 members GA adopted the new framework,
Index (HSDI) ‘‘Transforming Our World: the 2030 Agenda for Sustainable
HSDI was developed in 2010, by independent economists. Development,’’ composed of 17Goals and 169 targets to wipe
HSDI attempts to measure the overall quality of life by out poverty, fight inequality and tackle climate change over
factoring in a fourth parameter-per capita carbon emission the next 15 years. Ambitious 17 goals are–no poverty, zero
to the existing HDI. According to HSDI, the top five hunger, good health and well-being, quality education,
countries are Norway, followed by New Zealand, Sweden, gender equality, clean water and sanitation, affordable and
Switzerland and France. clean energy, decent work and economic growth, industry,
innovation and infrastructure, reduced inequality.
National Prosperity Index (NPI) Sustainable cities and communities, responsible
consumption and production, climate action, life below
NPI is a standard measure of social and economic water, life on land, peace, justice and strong institution and
development. Its three components are as follows partnership for the goals.
(i) GDP growth rate
Environmental Taxes 12th Five Year Plan and

As against the command and control approach to Sustainability
management of the environment, the economic or
The 12th Five Year Plan was the first time Five Year Plan has
Market Based Instruments (MBIs) approach sends
sustainability as a prominent focus and appreciates its
economic signals to the polluters to modify their
emphasis on low carbon growth strategies.
behaviour.
The approach normally involves financial transfers Monitorable Targets
between polluters and the community and affects
relative prices. But the polluters have freedom to for the 12th Plan
respond and adjust, in the manner they want. They To increase forest and free cover by 5% points.
can, thus, choose the least cost option to meet the To improve forest production and maintain biodiversity.
requirements.
To clean all critically polluted rivers by 2020.
Hence, it is considered to be an efficient approach
To reduce 20-25% energy use per unit of GDP by 2020.
compared to the approach based on standards and
regulations. The MBIs, therefore, have the benefit of To reclaim wetlands/island lakes/ponds by 2017.
being flexible and cost effective providing incentives
for dynamic efficiency and resource transfer 12th
Five Year Plan and sustainability.
Green Accounting
Green accounting is focused on addressing deficiencies in
Carbon Tax conventional accounts with respect to the environment.
Integrated environment and economic (green) accounting,
India has cut subsidies and increased taxes on fossil
therefore, attempts at accounting for both socio-economic
fuels (Petrol and Diesel) turning a carbon subsidy
performance and its environmental effects and integrating
regime into one of carbon taxation. This has
environmental concerns into mainstream economic planning
significantly increased petrol and diesel price while
and policies.
reducing annual CO2 emissions. Excise duties on
petrol or diesel also act as an implicit carbon tax by Such integrated accounts can be useful in assessing the
putting an effecting price on emissions. The sustainability of economic growth and also the structural
Government of India revised its coal cess from ` 50 distortion of the economy by environmentally unsound
per ton to ` 100 per ton. production and consumption patterns.
Chapter four
Economic Planning
in India
Meaning of Strategies of
Economic Planning Planning
Planning involves Economic planning refers to the path Harrod Domar Strategy
of actions in terms of policy measures The first Five Year Plan (1951-56) was
acceptance of a clearly to be followed in future, in pursuance

based on this strategy. This strategy
defined set of objectives in of pre-determined objectives. emphasised the role of capital
terms of which to frame Planning Commission (now NITI accumulation’s dual character, which on
overall policies, formulation Aayog) defines economic planning as the one hand, increases the national
the utilisation of country’s resources income (demand side role) and on the
of a strategy for promoting
for developmental activities in other hand, increases the production
the realisation of the ends accordance with national priorities. It is capacity (supply side role).
defined and working out a a consciously and judiciously carried According to this growth model, the rate
rational solution to out process for optimum utilisation of of economic growth in an economy is
problems—an attempt to existing resources in order to fulfil dependent on the level of savings and
some well defined objectives. capital output ratio.
coordinate means
and ends.
Objectives of Nehru-Mahalanobis
Planning Strategy
The broad objectives of Five Year Plans in This strategy was a two sector model,
that is, consumer good sector and capital
India are as follows:
good sector. The strategy emphasised
A high rate of growth with a view to investment in heavy industry to achieve
improvement in standard of living. industrialisation for rapid economic
Modernisation of economy in terms of development. It was based on the
adoption of new technologies and Russian experience.
social outlook. The objective was to become self-reliant
Economic self-reliance meaning and overcome capital constraint. This
avoiding import which can be strategy was adopted in the Second Five
produced in India. Year Plan (1956-61) and with minor
Equity implying equitable distribution modifications, up to the Fifth Plan. It was
of wealth with social justice. a long-term strategy.
Economic stability, which means It is also referred as planning by
controlling inflation and inducement as against imperative
unemployment. planning.
Magbook ~ Economic Planning in India 19
vision. The long vision document (Perspective plan) will

Planning Commission comprise three year mass economic framework.
After independence in 1950, the Planning commission was 2017-18 to 2032-33 Vision Document
set-up under the Chairmanship of Pt Jawaharlal Nehru. It 2017-18 to 2024-25 National Development Agenda
was to formulate plans for the economic development of the
2017-18 to 2019-20 Three Year Action Agenda (to be
country on the basis of the available physical, capital and
repeated after every three year)
human resources.
The Planning commission was essentially a non-political
and non-constitutional advisory body, which makes National Development
recommendations to the government. It was set-up through Council (NDC)
an executive order of the Union Government on
The National Development Council (NDC) is neither a
15th March, 1950.
constitutional body nor a statutory body. Union Cabinet
Differences between NITI set-up NDC in 1952, through an executive order.
Aayog and Planning Commission National Development Council (NDC) is mainly
Parameter NITI Aayog Planning Commission concerned with approval of Five Year Plans. The NDC is
headed by the Prime Minister and consists of the Central
Financial To be an advisory body or a Enjoyed the powers to
Clout think-tank. The powers to allocate funds to
Ministers, Chief Ministers of the State and Lt Governors,
allocate funds might be ministries and State Administrators of Union Territories and Members of the
vested in the Finance Governments. Planning commission.
ministry. The Secretary of the Planning commission acts as the
Full-time The number of full-time The last commission had Secretary of the Council. From a strictly legal point of
Members members could be fewer eight full-time members. view, NDC is essentially an advisory body.
than Planning commission.
States Role State Government are
expected to play a more
States role was limited to
the National Development
Five Year Plans in India
significant role than they did council and annual After independence, India launched a programme of
in the Planning commission. interaction during plan Five Year Plans to make the optimum use of country’s
meetings. available resources and to achieve rapid economic
Member To be known at the CEO and Secretaries or Member development.
Secretary to be appointed by the Secretaries were In India, development plans were formulated and
Prime Minister. appointed through the carried out within the framework of the mixed economy.
usual process.
In India, Economic planning was adopted in the form of
Part-time To have a number of Full Planning commission
Members part-time members, had no provision for Five Year Plans and was seen as a development tool on
depending on the need from part-time members. account of various reasons.
time- to- time. These are:
—Limitations of market mechanism in view of the existing
15 Years Vision Document in economic backwardness of India at the time of

independence.
Place of Five Year Plan —The need for social justice as experience of the past five
and-a-half decades suggests that in a free enterprise
The newly elected NDA government in 2014 decided to economy, economic gains do not necessarily trickle down.
discontinue the Five Year Plan and replace it with 15 Year —Judicious mobilisation and allocation of resources in the
Vision Document. The first 15 Year Vision Document will context of overall development programme in the light of the
come into effect from 2017-18 after the end of the 12th resource constraint in India.
Five Year Plan. It will be formulated with central objective of So far, Twelfth Five Year plans have been formulated since,
eradication of poverty. It will come alongwith a 7 year the year 1951. Twelfth Five Year Plan (2012-2017), came
National Development Agenda which will lay down the into force once it was approved by the NDC on 27th
programmes, schemes and strategies to achieve a long term December, 2012.
Plans Objectives Facts Assessments

Annual Plan Due to the unfortunate failure of the Third Plan, the production in various sectors of the economy became stagnant.
(1966-69) In 1966, the Government of India declared the devaluation of rupee, with a view to increase the exports of the
country. So, the Fourth Plan was postponed and 3 Annual Plans were implemented. Some of the economists called
this period, i.e. from 1966 to 1969, Plan Holiday.
Fourth Plan Objective was growth with stability and progressive First 2 years of the plan were successful with record
(1969-74) achievement of self-reliance. foodgrain production on account of Green Revolution.
Laid special emphasis on improving the condition of Adoption of import-substitution policy and
under privileged and weaker sections. export-promotion policy widened the industrial base.
Food security in gold was also one of its main goal. Targeted growth 5.7% however, achieved growth 3.3%.
The objective is of correcting the earlier trend of The plan was failure on account of runaway inflation (due
increased concentration of wealth and economic to 1972 oil crisis or supply shock); huge influx of refugees
power. from Bangladesh post 1972 Indo-Pak War.
Fifth Plan Original approach to plan prepared by Targeted growth 4.4% and achieved growth 4.8%.
(1974-79) C Subramaniam, who proposed economic growth Fifth Plan cost calculations based on 1971-72, prices
alongwith direct attack on poverty. proved to be wrong.
However, final draft prepared by DP Dhar with Fifth Plan terminated 1 year before the plan period in
objectives of removal of poverty (Garibi Hatao) and March, 1978.
attainment of self-reliance. Brought to the fore problem associated with coalition
To step-up domestic rate of saving. government making a mockery of formulation of Five Year
Introduction of minimum needs programme. Plan.
Rolling Plan Rolling plan (Gunnar Myrdal) was brought out by Janata Party Government under Morarji Desai in 1978. The focus of
(1978-80) the plan was enlargement of the employment potential in agriculture and allied activities to raise the income of the
lowest income classes through minimum needs programme. Annual Plan period was 1979-80.
Sixth Plan Removal of poverty through strengthening of Indian economy made an all round progress and most of
(1980-85) infrastructure for both agriculture and industry. the targets fixed by the plan was achieved.
The emphasis was laid on greater management, Targeted growth 5.2%.
efficiency and monitoring of various schemes. Achieved growth 5.4%.
Involvement of people in formulating schemes of
development at local level.
Seventh Plan To accelerate foodgrains production. Foodgrain production grew by 3.23% as compared to a
(1985-90) To increase employment opportunities. long-term growth rate of 2.68% between 1967-68 and
To raise productivity. 1988-89.
Outward looking strategy with gradual liberalisation
The Indian economy finally crossed the barrier of the
over of economy. Hindu rate of growth of 3% given by Professor Raj
Krishna.
Average annual growth rate was 6.0% as against the
targeted 5.0% and average of 3.5 % in the previous plans.
It saw the beginning of liberalisation of Indian economy.
Annual Plan The Eighth Plan could not take off due to fast changing political situations at the centre. Therefore, from 1990-92,
(1990-92) Annual plans were formulated.
Eighth Plan Process of fiscal reforms and economic reforms Higher economic growth rate of 6.8% achieved as against
(1992-97) initiated by Narasimha Rao Government to prevent the targeted 5.6%.
another major economic crisis. Improvement in trade and current account deficit.
To increase the average industrial growth rate to Significant reduction in fiscal deficit.
7.5%. Agriculture growth and industrial growth increased.
To provide a new dynamism of the economy and Unshackled private sector and foreign investment control
improve the quality of life of the common man. was the prime reason for high growth.
Also called as Rao-Manmohan Singh model. Overall socio-economic development indicators low.
First indicative plan. The growth became jobless and fruitless.
Base line of child sex ratio in the 0-6 year age group was 914 and Annual GVA growth in tertiary sector of FY
achievement was 919 (2015-16) as per NITI Aayog. 2012-13 to 2016-17 were 8.3% (2012-13), 7.7%
(2013-14), 9.8% (2014-15), 9.4% (2015-16) and
Annual Growth Rate of GVA by Economic 8.5% (2016-17).
Activity at constant (2011-12) Basic Prices of FY 2012-13 to
Share of primary sector in GVA at current prices
2016-17
from FY 2012-13 to FY 2016-17 were 21.3%,
Sl. Item 2012-13 2013-14 2014-15 2015-16 2016-17 21.4%, 20.9% 20.1% and 20.4% respectively.
No. Share of secondary sector in GVA at current
1. Agriculture, 1.5 4.2 -0.2 0.8 6.3 prices from FY 2013-13 to FY 2016-17 were
forestry and 28.7%, 27.9%, 27.3%, 27.6% and 27%
fishing respectively.
2. Mining and -0.5 3.0 10.8 12.3 13.0
Share of Tertiary sector in GVA at current prices
quarrying
from FY 2012-13 to FY 2016-17 were 50%,
3. Manufacturing 6.0 5.6 5.5 10.6 7.9
50.6%, 51.8%, 52.3% and 52.6% respectively.
4. Electricity, gas 2.8 4.7 8.0 5.1 9.2
& water supply,
& other utility Three Year Action
services
5. Construction 0.6 4.6 4.4 2.8 1.3 Agenda (2017-18 to 2019-20)
6. Trade, hotels, 9.7 7.8 9.8 10.7 7.2 The first Three Year Action Agenda, a NITI Aayog
transports, document, is based on extensive discussions with
communication and inputs from the Central ministries and State
and services governments on 23rd April 2017.
related to
broadcasting The Agenda is a part of a longer-term 15-year
7. Financial 9.5 10.1 10.6 10.8 6.0 Vision and 7-year Strategy outlined in a separate
services, real document. The Action Agenda proposes a path to
estate, achieve all-round development of India and its
ownership of people. The objective of eliminating poverty in all
dwellings and its dimensions such that every citizen has access
professional to a minimum standard of food, education,
services
health, clothing, shelter, transportation and
8. Public 4.1 4.5 10.7 6.9 10.7
energy has been at the heart of India’s
administration
and defence and development efforts since Independence.
other services Farmers make up nearly half of India’ workforce.
Total GVA at 5.4 6.1 7.2 8.1 7.1 Therefore, for India to flourish, its farmers and
Basic Prices the farm economy must prosper. It is against this
Industry (2-5) 3.6 5.0 5.9 7.4 7.5 background that the Prime Minister has called for
Services (6-8) 8.1 7.8 10.3 8.9 8.4 doubling farmer’s income by 2022.
Water demand for irrigation, drinking and
industrial use has been increasing with growth in
Sector Wise Growth and Share in 12th incomes and population under this agenda.
Five Year Plan Digital connectively has become an important
Annual GVA growth data in all sectors of 12th five year plan i.e. driver of economic growth. The Action Agenda
2012-13 to 2016-17 were based upon 2011-12 prices at constant discusses the Digital India campaign and the
prices. actions related to enhancing digital connectivity.
Annual GVA growth during Financial Year (FY) 2012-13 to 2016-17 Important aim of the Action Agenda is education,
in Primary Sector were 1.4% (2012-13), 4.8% (2013-14), 1.2% skill development, health and reducing issues
(2014-15), 2.6% (2015-16) and 7.4% (2016-17) respectively. facing specific groups such as Scheduled Castes,
In secondary sector; Annual GVA growth during FY 2012-13 to Scheduled Tribes, women, children, differently
2016-17 were 3.6% (2011-12), 4.2% (2013-14), 6.7% (2014-15), abled and senior citizens.
9.4% (2015-16) and 7.5% (2016-17) respectively.
Self Check
1. Consider the following statements 7. Consider the following statements

1. NITI Aayog is structured to promote cooperative 1. NITI Aayog or National Institution for transforming India
federalism. Aayog is policy think-tank of government, that replaces
2. NITI Aayog is to centralise the planning process in Planning commission.
response to scarcity of resources. 2. NITI Aayog will provide strategic and technical advice to
Which of the statement(s) given above is/are correct? the State Government.
(a) Only 1 (b) Only 2 Which of the statement(s) given above is/are correct?
(c) Both 1 and 2 (d) Neither 1 nor 2 (a) Only 1 (b) Only 2
2. The main objective of the Twelfth Five Year Plan is
(a) inclusive growth and poverty reduction [UPSC 2014] 8. The term ‘Hindu rate of growth’ refers to the 3.70% per
(b) inclusive and sustainable growth annum growth rate achieved by the Indian economy over
(c) sustainable and inclusive growth to reduce unemployment the First Six Five Year Plans’. The term was coined by
(d) faster, sustainable and more inclusive growth (a) JN Bhagwati (b) KN Raj
(c) Raj Krishna (d) Sukhamoy Chakravarty
3. Consider the following statements
1. First Five Year Plan was based on Harrod Domar strategy. 9. Which one among the following Five Year Plan of India
2. Second Five Year Plan was based on Nehru-Mahalanobis economy diversified the planning shifting focus from
strategy. heary and basic industries to new sunrise industries like
telecommunication, computers, electronic?
(a) Only 1 (b) Only 2 (a) Second Five Year Plan (b) Fourth Five Year Plan
(c) Both 1 and 2 (d) Neither 1 nor 2 (c) Seventh Five Year Plan (d) Ninth Five Year Plan
4. In recent plans, certain words/phrases were used in the 10. Match the following
title of the plan along with ‘Growth’. They are List I List II
1. Inclusive, 2. Faster, (Plan Model) (Proposer)
3. More Inclusive, 4. Sustainable, A. Bombay plan 1. Jai Prakash Narayan
5. More sustainable. B. Gandhian plan 2. MN Roy
Which combination is true of the Twelfth Five Year plan? C. People’s plan 3. Sriman Narayana
(a) 1, 2 and 3 (b) 1, 4 and 5 D. Sarvodaya plan 4. Birla and Tata Group
(c) 2, 3 and 4 (d) 1, 2 and 4
Codes
5. Inclusive growth as enunciated in the Eleventh Five Year
A B C D A B C D
Plan does not include which one of the following? (a) 4 3 2 1 (b) 1 2 3 4
(a) Reduction of poverty (c) 3 2 4 1 (d) 1 4 2 3
(b) Extension of employment opportunities
(c) Reduction of gender inequality 11. The Rolling Plan concept in Nation planning was
(d) Strengthening of capital market introduced by [BPSC 2008]
(a) Indira Gandhi government
6. Consider the following statements (b) The National government
1. In the Eleventh Five Year Plan, the agriculture sector (c) The Janata Party government
contributed more than 25% in the overall GDP of the India. (d) Rajiv Gandhi government
2. In the Twelfth Five Year Plan the growth rate of the
agriculture sector was above 4%.
12. The Government of India has established NITI Aayog to
replace the [UPSC 2015]
(a) Human Rights Commission
(a) Only 1
(b) Finance Commission
(b) Only 2
(c) Law Commission
(c) Both 1 and 2
(d) Planning Commission
(d) Neither 1 nor 2
1. (a) 2. (d) 3. (c) 4. (c) 5. (a) 6. (d) 7. (a) 8. (c) 9. (c) 10. (a)
11. (c) 12. (d)
Magbook ~ Money and Banking 27
Liquidity Aggregates It is a market for short-term funds with maturity ranging

from overnight to 1 year and includes financial
L 1 = M 3 + All Deposits with the Post Office Savings
instruments that are deemed to be close substitutes of
Banks (excluding National Savings Certificates).
money.
L 2 = L 1 + Term Deposits with Term Lending Institutions
and Refinancing Institutions (FIs) + Term Borrowing Functions of Money Market
by FIs + Certificates of Deposit issued by FIs; and The money market performs three broad functions are as
L 3 = L 2 + Public Deposits of Non-Banking follows
Financial Companies. (i) It provides an equilibrating mechanism for demand and
supply of short-term funds.
Financial Sector (ii) It enables borrowers and lenders of short-term funds to
fulfil their borrowing and investment requirements at an
Financial Sector of a country is one of the important
efficient market clearing price.
determining factors of the level of economic development.
(iii) It provides an avenue for Central Bank intervention in
Sound financial system induces the level of savings and
influencing both quantum and cost of liquidity in the
investment, thus, working as a stimulant for the
financial system, thereby transmitting monetary policy
development variables.
impulses to the real economy.
Weak financial structure certainly hinders the tempo of
development process by discouraging the developmental Efficient functioning of the money market is important for
variables. Thus, rapid economic development requires a the effectiveness of monetary policy.
sound financial system with adequate availability of finance
Regulation of Indian Money Market
and a strong system of associated financial and investment
institutions. Indian money market is broadly divided into two
parts-organised and unorganised.
Financial sector in India comprises of Financial Intermediaries or
Financial Institutions are as follows: The RBI is the Apex Organisation in the Indian Money
—Financial Institutions are the institutions, which are primarily Market. It carries out regulation and development of the
engaged in the collection and mobilisation of savings and Indian money market through instruments such as call ,
convert into investment. Financial institutions include all banks notice or term money market, repo market, certificate of
and non-banking financial institutions. deposit, commercial paper and Collateralised Borrowing
—Financial Markets are the markets, which are engaged in the and Lending Obligation (CBLO).
collection of savings from the surplus units of the economy and
lending to the deficit units of the economy for the investment Organised Money Market
and other purposes. Financial market consists of money market
and capital market. Call Money Market
—Financial Assets include unit shares, debentures, certificate of The call or notice money market forms an important
deposits, life insurance policies etc. These are the instruments segment of the Indian money market.
traded in the financial markets through financial intermediaries. Call or notice money is an amount borrowed or lent on
demand for a very short period. If the period is greater
Financial Markets than 1 day and up to 14 days, it is called the notice
Financial market is an important part of financial sector. money; otherwise the amount is known as call money.
Financial market is that market, where financial transactions No collateral security is needed to cover these
take place. On the basis of short-term and long-term transactions.
transactions, such markets are classified as into money —The call market enables the banks and institutions to even
market and capital market. out their day-to-day deficits and surpluses of money.
Cooperative Banks, Commercial Banks and primary
Money Market dealers are allowed to borrow and lend in this market for
The cluster of financial institutions that deal in short-term adjusting their cash reserve requirements.
securities and loans, gold and foreign exchange are termed as —This is a completely inter-bank market. Interest rates are
money market. Money has a time value and therefore, the use market determined. In view of the short tenure of these
transactions, both borrowers and lenders are required to
of it, is bought and sold against payment of interest.
have current accounts with Reserve Bank of India.
Short-term money is bought and sold on the money market
and long-term money on the capital market. Banker’s Acceptance Market
Neither the money market nor the capital market exists in A Banker’s Acceptance (BA) is a short-term credit
one physical location. The money market is a key investment created by a non-financial firm and
component of the financial system, as it is the function of guaranteed by a bank to make a payment. Acceptances
monetary operations conducted by the Central Bank in its are traded at discounts from face value in the secondary
pursuit of monetary policy objectives. market.
Unorganised Money Market Besides helping diversify funding sources, the cost of
borrowing could also turn out to be lower than domestic
The sector consists of unregulated non-bank financial
markets. In 2013, the first masala bonds were issued
intermediaries such as money lenders Chit funds, Nidhis etc.
by the International Finance Corporation (IFC), an arm
Chit funds are savings institutions. They are of various types
of the World Bank. IFC then named them Masala bonds
and don’t have any standardised form. Chit funds have
to give a local flavour by calling to mind Indian culture
regular members, who make periodic contributions.
and cuisine.
At periodic intervals funds are given to a member based on Masala bond will help the Indian corporates to reduce
a pre determined criterion, usually on the basis of bids or
its interest cost burden on the debt amount on its
draw of lots. All members are assured of their turn before
balance sheet. The more of foreign funds can be used
the round ends.
for infrastructural development in the country. Overall,
Chit funds are prevalent in almost all states, but Kerala and the development of a Masala bond market would be
Tamil Nadu account for the major part. They exist in both positive for Indian firms, opening up potentially
organised and unorganised form. significant new sources of funding over External
Organised Chit funds are regulated by registrar of Chit funds Commercial Borrowings (ECBs).
and the relevant legislation in this regard is the Chit Funds
Act, 1982. There is however, regulatory confusion since Capital Market
Collective Investment Schemes (CIS) are to be registered It is one of the most important segments of the Indian
and regulated by SEBI. Many Chit funds take advantage of financial system. It is the market available to the
the regulatory loopholes. companies for meeting their requirements of the
Nidhis are a kind of mutual benefit funds. Their dealings are long-term funds. These are markets for buying and
restricted to members only and they operate in the selling equity and debt instruments.
unregulated credit market. The market consists of a number of individuals and
Deposits mobilised by them are not much. Their principal institutions (including the government) that channelise
source of funds is from the members and they provide loans the supply and demand for long -term capital and
to members at relatively reasonable rates and are secured. claims on it.
Money lenders and loan companies are present all across The demand for long-term capital comes predominantly
the country. They generally give loans to wholesale traders, from private sector manufacturing industries,
artisans and other self-employed persons. They charge high agriculture sector, trade and the government agencies,
rates of interest from 26% to 48% and 50 people who while the supply of funds for the capital market comes
approach them are generally unable to get loans from largely from individual and corporate savings, banks,
Commercial Banks. insurance companies, specialised financing agencies
Promissory Note and the surplus of governments. The Indian capital
market is broadly divided into the Industrial Securities
It is a legal document between a lender and a borrower,
Market and Gilt-edged Market.
whereby the latter agrees to certain conditions for the
repayment of the sum of money borrowed.
(i) Industrial Securities Market
Promissory note is signed when one borrows from a
The industrial securities market refers to the market,
Commercial Bank.
which deals in equities and debentures of the
Particular forms of promissory notes, known as commercial corporates. It is further divided into primary market and
paper, can be bought and sold. secondary market.
Dated Government Securities Primary Market
These are securities issued by the Government of India and Primary market (new issue market) deals with new
State Governments. The date of maturity is specified in the securities, i.e. securities, which were not previously
securities, therefore, they are known as dated securities. available and are offered to the investing public for the
Masala Bond first time. It is the market for raising fresh capital in the
form of shares and debentures.
Masala bonds are rupee denominated overseas bonds.
Masala bonds will help to internationalise the Indian rupee It provides the issuing company with additional funds
and also deepen the Indian financial system( Public and for starting a new enterprise or for either expansion or
Private Sector). By issuing bonds in rupees, an Indian diversification of an existing one and thus, its
company is shielded against the risk of currency fluctuation, contribution to company financing is direct. The new
typically associated with borrowing in foreign currency. offerings by the companies are made either as an Initial
Public Offering (IPO) or rights issue.
—Growing Mutual Fund Industry The growing of mutual funds in India Secondary Market
has certainly helped the capital market to grow. A big diversification in
Rajiv Gandhi Equity Savings Scheme On 23rd
terms of schemes, maturity etc has taken place in mutual funds in
India. It has given a wide choice for the common investors to enter the November, 2012, the government notified a new
capital market. tax saving scheme called the Rajiv Gandhi Equity
—Growing Stock Exchanges Initially, the BSE was the main exchange, but Savings Scheme (RGESS) exclusively for first-time
now after the setting up of the NSE and the OTCEI, stock exchanges retail investors in the securities market.
have spread across the country. Recently, a new Inter-connected Stock The scheme provides a 50% deduction of
Exchange of India has joined the existing stock exchanges. amount invested during the year, upto a
—Investor’s Protection Under the purview of the SEBI, the Central maximum investment of ` 50,000 per financial
Government of India has set-up the Investors Education and Protection year, from his/her taxable income for that year, for
Fund (IEPF) in 2001. It works in educating and guiding investors and to three consecutive assesment years.
protect the interest of the small investors from frauds and also
malpractices in the capital market.
—Growth of Derivative Transactions Since, June 2000, the NSE has Qualified Foreign
introduced the derivatives trading in the equities. These
innovative products have given various options for investment leading to
Investor (QFI)
the expansion of the capital market. QFIs shall mean a person who fulfills the following
criteria are as follows:
New Law of SEBI Resident in a country that is a member of the
In August 2014, the Securities Laws (Amendment) Act, 2014, gave Financial Action Task Force (FATF) or a country
SEBI additional powers, including to order the arrest of violators that is a member of a group which is a member
and seek call data records of individuals under investigation. of FATF.
The new law gave SEBI the powers to search and obtain Resident in a country that is a signatory to
information, including call records, about any suspected entity IOSCOs MoU (Appendix a Signatories) or a
from within or outside the firm. signatory of a bilateral MoU with Securities and
Exchange Board of India (SEBI). A QFI should
Merger of Forward Markets Commission with SEBI
neither be a person resident in India nor should
The government notified on 1st September, 2015 the merger of be registered with the SEBI as a Foreign
commodities market regulator Forward Markets Commission (FMC) Institutional Investor sub-account or Foreign
with SEBI with effect 28th September, 2015. Venture Capital Investor. A QFI should be set-up
As a result, of this notification Foreign Contribution Regulation Act, with a SEBI registered Qualified Depository
1952 will get repealed and regulation of commodity derivatives Participant (QDP) to commence activities. The
market will shift to the Securities and Exchange Board of India QDP shall provide inter alia custody services.
(SEBI) under Securities Contracts Regulation Act (SCRA) 1956
Recent Initiatives for Further Development of
with effect from 28th September, 2015.
Corporate Bond Markets
The commission allows commodity trading in 22 exchange in
To permit banks to take limited membership in
India, of which 6 are national. Currently, there are three national
SEBI-approved stock exchanges for the purpose
and six regional bourses for commodity futures in the country.
of undertaking proprietary transactions in the
corporate bond markets.
New Policy Initiatives To enhance liquidity in the corporate bond
In the overall context of the evolving macro-economic situation in markets the Insurance Regulatory and
the country and global financial developments, the government in Development Authority of India (IRDAI) has
close collaboration with the RBI and SEBI has recently taken a permitted insurance companies to participate in
number of initiatives to meet the growing capital needs of the Indian the repo market. The IRDAI has also permitted
economy. insurance companies to become users of Credit
Some of the initiatives are as follows: Default Swap (CDS).
Primary Market Mutual funds have been permitted to participate
in CDS in corporate debt securities, as users.
SEBI (Alternative Investment Funds) Regulations, 2012 With a
view to extending the reach of regulation to unregulated funds, Revised guidelines on CDS for corporate bonds
ensuring systemic stability, increasing market efficiency, by the RBI provide that in addition to listed
encouraging new capital formation and providing investor corporate bonds, CDS shall also be permitted on
protection, SEBI has notified new regulations covering Alternate unlisted, but rated corporate bonds even for
Investment Funds (AIFs). issues other than infrastructure companies.
—Delays in communication, late payments and the

malpractices prevailing in the traditional trading mechanism Stock Market Indices
can be done away with greater operational efficiency and A Stock Market Index is created by selecting a group of stock that
informational transparency in the stock market operations
are representative of the whole market of a specified sector or
with the support of total computerised network.
segment of the market. An index is calculated with reference to a
base period and a base index value. An index is used to give
Bombay Stock Exchange (BSE) information about the price movements of products in the financial
Established in 1875, BSE Limited (formerly known as commodities or any other markets. Financial indexes are
Bombay Stock Exchange Limited), is Asia’s first stock constructed to measure price movements of stocks, bonds, T-bills
exchange and one of India’s leading exchange groups. and other forms of investments. Stock market indexes are meant to
Over the past 137 years, BSE has facilitated the growth capture the overall behaviour of equity markets. Stock market
of the Indian corporate sector by providing it an efficient indices are useful for a variety of reasons. Some of them are
capital raising platform.
They provide a historical comparison of returns on money invested
Some indices of BSE are given below: in the stock market against other forms of investments such as gold
—SENSEX —MIDCAP or debt.
—SMLCAP —BSE-100 ◆
They can be used as a standard, against which to compare the
—BSE-200 —BSE-500 performance of an equity fund.
Around 5000 companies are listed on BSE making it ◆
It is a lead indicator to the performance of the overall economy or
world’s number one exchange in terms of listed members. a sector of the economy.
BSE limited is world’s 5th most active exchange in terms ◆
Stock indexes reflect highly up to date information.
of number of transactions handled through its electronic ◆
Modern financial applications such as Index funds, index futures,
trading system. It is also one of the world’s leading
index options play an important role in financial investment and
exchange (5th largest in May, 2012) for Index options
risk management.
trading (Source-World Federation of Exchanges).
BSE is the first exchange in India and second in the

world to obtain an ISO 9001:2000 certification.
SENSEX
BSE’s popular equity index the SENSEX is India’s most
(The Barometer of Indian Capital Market)
widely tracked stock market benchmark index. It is traded BSE sensitive index also referred to as BSE-30 is a free float
internationally on the EUREX as well as leading market capitalisation-weighted stock market index of 30
exchanges of the BRCS nations (Brazil, Russia, China and well established and financially sound companies listed in
South Africa). Bombay Stock Exchange.
The Bombay Stock Exchange launched BSE Carbonex, The free float market capitalisation of a company is
the first carbon based thematic index in the country. determined by multiplying, the price of its stocks by the
Which takes a strategic view of organisational number of shares issued by a company, which is readily
commitment to climate change mitigation. This index available for trading on the stock exchange.
has been launched with the aim of creating a The base year or period of SENSEX was 1978 − 79 = 100.
benchmark and increasing awareness about the risks The calculation of SENSEX involves dividing the free float
posed by climate change. market capitalisation of 30 companies in the index by a
number called the index divisor.
It will enable investors to track performance of the
constituent companies of BSE-100 index regarding their
commitment to greenhouse gases emission reduction. Over The Counter Exchange of
India (OTCEI)
MCX-SX Traditionally, trading in stock exchanges in India followed a
(MCX Stock Exchange Limited) conventional style, where people used to gather at the
exchange offices and bids and offers were made by open
It is a private stock exchange headquartered in Mumbai,
outcry. This old-age trading mechanism in the Indian Stock
which was founded in 2008. It offers currency futures
Markets used to create many functional inefficiencies.
contracts for US Dollar-Rupee, Euro-Rupee, British
Pound-Rupee, Japanese Yen-Rupee.
Lack of liquidity and transparency, long settlement periods
and benami transactions are a few examples that adversely
It offers electronic trading platform in currency futures
affected investors. In order to overcome these inefficiencies,
contracts. The exchange received permissions to deal in
OTCEI was incorporated in 1990, under the Companies Act,
interest rate derivatives, equity, futures and options on
1956. OTCEI is the first screen based Nationwide Stock
equity and wholesale debt segment, video SEBI’s letter
Exchange in India. It is no longer a functional exchange from
dated 10th July, 2012.
March 2015.
i.e. playing a leading role in developing a sound financial
Banking in India system so that it can discharge its regulatory function
efficiently.
History of Indian banking goes back to 19th century it
—Ensuring that credit allocation by the financial system
failed. First successful bank in India was Bank of Bengal
broadly reflect the national economic priorities and societal
set-up in 1806. First Commercial Bank in country was concerns.
Awadh Commercial Bank established in 1881.
—Regulating the overall volume of money and credit in the
In 1921, Imperial Bank, of limited liability of India was economy with a view to ensuring a reasonable degree of
set-up. There were two important steps in the banking sector price stability.
after independence in 1949. Nationalisation of Reserve Bank
of India and the Banking Regulation Act, which empowered
Role of the RBI
RBI to regulate banking sector in country. RBI plays the following roles in the Indian banking and
The Punjab National Bank, established in Lahore in 1895, financial system are as follows:
has survived to the present and is now one of the largest Note Issuing Authority
banks in India. RBI has had the sole authoring to issue currency notes
The largest bank-Imperial Bank of India was nationalised in other than ` 1 notes or coins and coins of smaller
1955 and renamed as State Bank of India followed by denominations since, its inception. ` 1 notes or coins and
formation of its 7 associates in 1959. coins of smaller denomination are issued by the Central
The step toward social banking was taken with the Government, but are put into circulation through the
nationalisation of 14 Commercial Banks on 19th July, RBI.
1969. Six more Commercial Banks were nationalised on RBI can issue notes against the securing of coins or
15th August, 1980. bullion, foreign securities, rupee coins, Government of
Banking crisis during 1913-1917 and failure of 588 banks in India securities as such bills of exchange (promissory
various parts of the country during the decade ended 1949 notes as are eligible for purchase by it. The Reserve
underlined the need for regulating and controlling Bank has adopted Minimum Reserve System for the note
Commercial Banks. The Banking Companies Act was passed issue. Since 1957, it maintains gold and foreign
in February, 1949, which was subsequently amended to read exchange reserves of ` 200 crore of which atleast ` 115
as Banking Regulation Act, 1949. This Act provided the legal crore should by in gold.
framework for regulation of the banking system in India.
Printing of Securities and Minting in India
Now, the Indian Banks have overseas presence in the form
of physical branches, representative offices, joint ventures Security Press Station Related by
and subsidiaries. Currency Notes Press (1928) Nasik Bank notes from
` 1 to 100
Security Paper (Established Hoshangabad Banks and
Reserve Bank of India (RBI) 1967-68) currency notes
The RBI was set-up on the basis of Hilton Young paper
Commission recommendation in April, 1935, with the Bank Notes Press (1974) Dewas Bank notes of
enactment of RBI Act, 1934. ` 20, 50, 200,
100, 500 and
The RBI continued to serve as the Central Bank to Burma
2000
(Myanmar), until Japanese occupation of Myanmar in
Security Notes Printing Hyderabad Union excise duty
April, 1947.
Press (Established 1982) stamps
The RBI also continued to serve as Central Bank to
India Security Press(1992) Nasik Postal material
Pakistan, until June, 1948.
postal stamps etc
The RBI was nationalised in 1949 and its First Indian Modernised Currency Notes Mysore (Karnataka)
Governor was CD Deshmukh. Press (1995) Sarbani (West Bengal)
Main functions of RBI are as follows: Coins are minted at four places viz, Mumbai, Kolkata,
—Maintaining monetary stability so that business and economic life Hyderabad and Noida.
can deliver welfare gains of a properly functioning mixed
economy. ` 1 note released after 20 years
—Maintaining financial stability and ensuring sound financial In November 1994, printing of ` 1 note was stopped
institutions so that monetary policy can be safely pursued and mainly due to highest cost and for freeing capacity to
economic units can conduct their business with confidence.
print currency notes of higher denomination.
—Maintaining a stable payments system so that financial
Printing of ` 2 and 5 notes were discontinued in 1995.
transaction can be safely and efficiently executed.
—Promoting the development of financial infrastructure in terms
Notes of ` 1 to be issued would be legal tender as
of markets and systems and to enable it to operate efficiently, provided in the Coinage Act, 2011.
—Other banking operation activities are Marginal Standing
Facility Rate (MSFR), Net Demand and Time Liabilities etc.
Market Stabilisation Scheme
It is used by the RBI in times of volatility in exchange rate.
Marginal Standing Facility (MSF) Here, RBI right release or buy foreign exchange in the
market to stabilise the exchange rate.
◆
MSF scheme came into effect in 2011. It is a very short-term
borrowing scheme for Scheduled Commercial Banks. MSF
Under MSS, RBI issues bonds on behalf of the government.
rate is the rate at which these banks can borrow funds
overnight from RBI against government securities. Qualitative Credit Control
◆
Banks can use MSF during severe cash shortage or acute Qualitative credit control is used by RBI for the selective
shortage of liquidity. MSF reduces volatility in the overnight purposes, some of which are as follows:
lending rates in the inter-bank market and enables smooth —Margin Requirements This refers to difference between the
transmission of monetary policy. Under MSF, Banks can securities offered and amount borrowed by the banks.
borrow upto 2% of the Net Demand and Time Liabilities —Consumer Credit Regulations This refers to issuing rules
(NDTL). regarding down payments and maximum maturities of
instalment credit for purchase of goods.
—RBI Guidelines RBI issues oral or written statements, appeals,
MCLR guidelines, warnings etc to the banks.
—Rationing of Credit The RBI controls the credit granted or
The Reserve Bank of India has brought a new
allocated by Commercial Banks.
methodology of setting lending rate by commercial banks
Moral suasion an application of pressure, but not force to
under the name Marginal Cost of Funds based Lending
get members to adhere to a policy RBI gives advices and
Rate (MCLR). It has modified the existing base rate system
suggestions to the bankers to follow the instructions given
from April 2016 onwards.
by it.
As per the new guidelines by the RBI, banks have to
prepare Marginal Cost of Funds based Lending Rate RBI Controls, Inflation and Growth
(MCLR) which will be the internal benchmark lending RBI can influence inflation and growth in the economy to a
rates. large extent through its instruments of control. If RBI
Based upon this MCLR, interest rate for different types of squeeses out liquidity from the economy by selling
customers should be fixed in accordance with their securities, increasing repo rates, increasing CRR etc, then
riskiness. The base rate will be now determined on the the demand in the economy is reduced and inflation is
basis of the MCLR calculation. The MCLR should be brought under control.
revised monthly by considering some new factors However, in case inflation is due to supply side shortages,
including the repo rate and other borrowing rates. RBI controls have less influence. Similarly, increasing
Specifically the repo rate and other borrowing rates that liquidity in economy means that households have more
were not explicitly considered under the base rate money to consume, industries have more money to invest
system. in plant and machinery etc, all of which lead to increase in
economic activity. Thus, it can be seen that measures
Quantitative Easing taken by RBI, which control inflation can hurt growth and
It refers to an extreme form of monetary easing through measures which boost growth, can cause inflation.
which the Central Bank floods the financial system with RBI Guideline for Small Banking
liquidity.
The RBI issued draft guidelines for those sealing a license to
It is done to induce bank lending to productive sectors of set-up a payments banks or small banks, as a part of its efforts
the economy and thus, promote growth during times to expand banking services to more businesses and poor
when banks are overcautious to lend the money due to household.
prevailing situation of recession or depression.
The minimum paid capital required for both categories of
bank licenses would have to contributes atleast 40% initially.
Liquidity Adjustment Facility (LAF)
Repo rate and reverse Repo rate are the parts of Liquidity
Adjustment Facility (LAF) of RBI.
Scheduled Commercial Banks
LAF allows the RBI to manage market liquiding on a daily
All banks which are mentioned in the Second Schedule of
RBI Act, 1934 are known as Scheduled Banks.
basis and to send interest rate signals to the market.
These banks comprise Scheduled Commercial Banks and
LAF operates through repo and reverse repo auctions.
Scheduled Cooperative Banks. Advances, deposits, money
It has now becomes the principal operating instrument of
at call, short notice etc. are included in the assets of
monetary policy. commercial Bank of India. Scheduled Commercial Banks
IDFC Bank was granted a universal banking license in A Regional Rural Bank seeking permission of the Reserve
July, 2015 by the Reserve Bank of India (RBI). It was Bank for opening branches has to obtain the
selected along with micro-lender Bandhan in the last recommendation of NABARD.
round of award of licenses. RRB (Amendment) Bill, 2014 this amendment to raise
Bandhan Bank the authorised capital of the RRBs from ` 5 crore to
` 2000 crore. The bill also provides that the authorised
Bandhan Bank Limited appointed its Chairman and Board
capital of any RRB shall not be reduced below ` 1 crore.
of Directors on July 9, 2015. The bank started its
operations in India from August 23, 2015. It is the first Lead Bank Scheme
bank established in Eastern India post Independence. Lead Bank Scheme based on area approach was
Former Chief Economic Adviser to the Indian government launched in 1969, on the recommendation of Dr Gadgil
Ashok Kumar Lahiri has been appointed as the Chairman. Committee and Narasimham Committee. Under the LBS,
Chandra Shekhar Ghosh, founder of Bandhan Financial all the 12 Nationalised Banks and a few Private Sector
Services Limited, was appointed as the Managing Director Banks were allotted specific districts and were asked to
and Chief Executive Officer (MD & CEO) of the bank. They play the lead role in coordinating credit deployment. The
both will be in the board of directors as well. services area approach was implemented under the
purview of lead Bank scheme.
Foreign Banks
Foreign Banks are allowed to operate in India through Scheduled Co-operative Banks
branches and representative offices. A new Foreign Bank Co-operative Banks have also played a limited, but important
desirous of opening a branch in India is required to apply role in the banking system of the country. Scheduled
Reserve Bank of India giving relevant information about its Co-operative Banks consist of Scheduled State Co-operative
shareholders, financial position and the dealings with Banks and Scheduled Urban Co-operative Banks.
Indian parties.
The request is examined keeping in view the financial State Co-operative Banks (SCBs)
soundness of the bank, international and home country State Co-operative Bank means the Principal co-operative
ranking, international presence, economic and trade society in a state, the primary object of which is the
relations between the two countries and supervisory financing of other co-operative societies in the state.
standards in the home country etc. The Banking Ombudsman Scheme, 1995 notified by RBI
on 14th June, 1995 was in terms of powers conferred on
Regional Rural Banks the bank by Section 35A of the Banking Regulation Act,
1949 (10 of 1949) to provide for a system of redressal of
In 1976, the Parliament enacted the Regional Rural
grievances against banks.
Banks Act, 1976 to provide for the incorporation,
regulation and winding up of Regional Rural Banks. The Urban Co-operative Banks (UCBs)
Act has been made effective from the 26th September,
1975. The UCBs are registered under the Co-operative Societies
Acts of the respective State Governments. UCBs having a
The equity of the RRBs is contributed by the Central
Government, concerned State Government and the multi-state presence are registered under the Multi-state
sponsor bank in the proportion of 50:15:35. There are 43 Co-operative Societies Act and regulated by the Central
RRBs in India (March, 2020). Government.
The objective of the RRBs is to develop the rural economy Besides, the Reserve Bank also has regulatory and
by providing; for the purpose of development of supervisory authority for bank related operations under
agriculture, trade, commerce, industry and other certain provisions of the Banking Regulation Act, 1949 (as
productive activities in the rural areas, credit and other applicable to Co-operative Societies).
facilities, particularly to the small and marginal farmers,
agricultural labourers, artisans and small entrepreneurs
Banking Regulation (Amendment)
and for matters connected there with and incidental there Bill, 2020
to. The bill proposes amendments to the Banking Regulation Act,
Besides, the Reserve Bank which is the regulatory 1949 and will replace the Banking Regulation (Amendment)
authority for the RRBs in accordance with the provisions Ordinance, 2020. The bill aims to bring co-operative banks
of the Banking Regulations Act, 1949, the Banking under the supervision of the Reserve Bank of India (RBI). The
Regulations Act empowers NABARD (National Bank for bill will also permit the RBI to initiate a scheme for
Agriculture and Rural Development) to undertake the reconstruction or amalgamation of a stressed lender without
inspection of RRBs. imposing a moratorium.
Minimum or Maximum account for RTGS or NEFT. Transactions (RBI) after the Finance Ministry wanted the Central
under Retail and Corporate Internet Banking. Bank to follow global best practices and transfer more
surplus to the government. In the past, the issue of
Types Retails Corporate
the ideal size of the Reserve Bank of India reserves
Minimum Maximum Minimum Maximum was examined by the three committees- V
RTGS ` 2 Lakhs ` 10 Lakhs Saral ` 10 Lakhs Saral ` 10 Lakhs Subrahmanyam in 1997, Usha Thorat in 2004 and
Vyapaar ` 50 Lakhs Vyaapar – No limit Y H Malegam in 2013.
Vistaar ` 2000 Crore Vistaar – No limit
VG Kannan Committee
NEFT No Minimum ` 10 Lakhs Saral ` 10 Lakhs Saral ` 10 Lakhs
The RBI has set up a six-member committee in 2019,
Vyaapar ` 50 Lakhs Vyaapar – No limit
headed by VG Kannan, Chief Executive, Indian
Vistaar ` 2000 Crore Vistaar – No limit
Banks’ Association, to review the ATM interchange
fee structure. It aims for giving a fillip to ATM
Banking Sector Reforms deployment in unbanked areas.
Narasimham Committee
Swabhiman
Recommendation ◆
A major financial inclusion initiative was formally
Deregulation of interest rate. launched as ‘Swabhiman’ on 10th February, 2011,
Reduction in reserve requirement. which aims at providing branchless banking through
Prudential norms. the use of technology. Banks will provide basic
Supervision of Commercial Banks. services like deposits, withdrawal and remittances
Measures to improve the competitive efficiency in banking sector. using the services of Business Correspondents.
◆
The initiative enables government subsidies and
Narasimham-I social security benefits to be directly credited to the
accounts of the beneficiaries, enabling them to draw
The purpose of the Narasimham-I Committee was to study all
the money from the business correspondents in their
aspects relating to the structure, organisation, functions and
village itself.
procedures of the financial systems and to recommend
improvements in their efficiency and productivity.
The committee submitted its report to the Finance Minister in Khandelwal Committee Report
November, 1991. Government constituted a Committee on Human
Resources issues of Public Sector Banks (PSBs)
Narasimham-II under the Chairmanship of Dr AK Khandelwal,
The Narasimham-II Committee was tasked with the progress who has submitted its report.
review of the implementation of the banking reforms since, 1992 The committee made 105 recommendations on
with the aim of further strengthening the financial institutions of matters related to Manpower and Recruitment
India. Planning, Training, Career Planning, Performance
Management, Reward Management, Succession
It focussed on issues like size of banks and capital adequacy ratio
Planning and Leadership Development,
among other things. M Narasimham, Chairman, submitted the
Motivation, Professionalisation of HR, Wages,
report of the committee in April, 1998.
Service Conditions and Welfare etc.
As 49 recommendations required further
Damodaran Committee
deliberations, the remaining 56 recommendations
The committee, headed by former SEBI Chairman M Damodaran, were forwarded to PSBs with the request that an
was set-up by the Central Bank to look into the issues of customer HR Plan for each bank be prepared and got
services and evaluate the existing system of grievance redressal approved by the respective Board of Directors.
mechanism prevalent in banks, its structure and efficacy and
recommend measures for expeditious resolution of complaints. Nachiket Mor Committee
Recommendations The RBI appointed committee on comprehensive
Bank should offer no-frill savings accounts with certain basic financial services for small business and low income
facilities such as cheque book and ATM card without prescribing under the Chairmanship of Sri Nachiket Mor.
any minimum balance. Recommendation of committee are as follows:
—Every adult (above 18 years) of over country should
Bimal Jalan Committee have a bank account by 1st January, 2016. This
The Bimal Jalan Committee constituted in 2019 to review the account will be known as Universal Electronic Bank
Economic Capital Framework (ECF) for the Reserve Bank of India Account (UEBA).
These institutions have been playing a crucial role in
Basel III
channelising credit to the needy sectors and
It seek to strengthen the existing capital requirements and addressing the challenges or issues faced by them.
introduce a global liquidity standard to enable the banks to The four financial institutions - EXIM Bank, National
weather financial storms. It mandates the banks to increase the
Bank for Agriculture and Rural Development
loss absorbing capital from 2% to 4.5% by January, 2015. Also,
(NABARD), National Housing Bank (NHB) and Small
banks will be required to hold a capital conservation buffer of 2.5%
Industries Development Bank of India (SIDBI) are under
of withstand future period of stress.
full-fledged regulation and supervision of the Reserve
Bank.
Basel III Guidelines, 2015 As in the case of Commercial Banks, prudential norms
The Reserve Bank of India (RBI) released on 28th May, relating to income recognition, asset classification and
2015, the draft guidelines on the Net Stable Funding Ratio provisioning and capital adequacy ratio are applicable
(NSFR) under Basel III framework on liquidity standards of to these financial institutions as well. These institutions
banks. also are subject to on-site inspection as well as off-site
The NFSR is defined as the amount of available stable surveillance.
funding relative to the amount of required stable funding. Since, all the banks are directly or indirectly
In draft guidelines released, the Central Bank said that banks contributing to the development works in the country,
will have to maintain Net Stable Funding Ratio (NSFR) from thus, all are development financial institutions.
March 2019, but in the view of the corona virus, the National Investment and Infrastructure Fund (NIIF),
implementation of Basel-III norms for banking services has established in 2015 is the first Sovereign Wealth Fund
been deferred by 1 January, 2023. of India. It manages three separate funds, namely
Basel III norms define the capital of the banks in different Master Fund, Fund of Funds and strategic Fund. They
ways. It consider common equity and retained earnings as primarily aimed for investing in infra-related projects of
the predominant component of capital, but restrict the the country through formation of capital from both
inclusion of items such as-deferred tax assets, mortgage domestic and international investors.
service rights and investments in financial institutions to no The Union Government through the Budget 2021
more than 15% of the common equity component. announced creation of Development Financial
Institution with an initial capital infusion of ` 20,000
Banking Ombudsman crores. The government expects to rope in marquee
pension funds, sovereign funds to come in through
Banking Ombudsman Scheme was introduced by the RBI in DFI to fund infrastructure projects in the country.
1995 under the Banking Regulation Act, 1949. It is a senior
official appointed by the RBI to redress customer complaints Financial Stability and
against deficiency in certain banking services. Development Council (FSDC)
Decision of Banking Ombudsman can be appealed against to Financial Stability and Development Council is an
the appellate authority (vested in a Deputy Governor of RBI).
apex-level body constituted by the Government of
Banking Ombudsman can award compensation to the India. The idea to create such a super regulatory body
complainant. In this, it takes into account the loss of the was first mooted by the Raghuram Rajan Committee in
complainant’s time, expenses incurred and the harassment 2008. Finally in 2010, the then Finance Minister of
and mental anguish suffered. India, Pranab Mukherjee, decided to set-up such an
It has jurisdiction over all Commercial Banks, RRBs, autonomous body dealing with macroprudential and
Scheduled primary co-operative banks, NBFCs etc. It deals financial regularities in the entire financial sector of
with matters less than or equal to ` 10 lakh. India. The council is headed by the Finance Minister
and has the Reserve Bank of India (RBI) Governor and
Development Financial chairpersons of the Securities and Exchange Board of
India, Insurance Regulatory and Development
Institutions (DFI) Authority and Pension Fund Regulatory and
Development Authority as other members alongwith
Financial institutions are an important part of the Indian
finance ministry officials.
financial system as they provide medium to long-term finance
to different sectors of the economy. FSDC will perform following roles
The institutions have been set-up to meet the growing To engage in macroprudential supervision of the
demands of particular segments, such as export, rural housing economy, including the functioning of large financial
and small industries. conglomerates and address inter-regulatory
coordination issues.
Formation of MUDRA Bank So, MUDRA can be seen as an initiative to reach the last
mile for underfinanced small scale units that could not
The MUDRA banks will be set-up under the Pradhan
benefit from insitutional sources of finance.
Mantri MUDRA Yojana Scheme. The bank will intially
function as a non-banking financial company and a
subsidiary of the Small Industries Development Bank of
Industrial Investment Bank of
India. Later, it will be made into a separate company. India Limited (IIBI)
It will also serve as a regulator for other Micro-Finance It was set-up in 1985 under the Industrial Reconstruction
Institutions (MFIs) and provide them refinancing Bank of India Act, 1984, as the principal credit and
servies. It will provide guidelines for MFIs and give reconstruction agency for sick industrial units. It was
them ratings. converted into IIBI on 17th March, 1997, as a full-fledged
The bank would partner with state level/regional level development financial institution. It assists industry mainly in
co-ordinators to provide finance to Last Mile Financer medium and large sector through wide ranging products and
of small/micro business enterprises. services. Besides project finance, IIBI also provides short
duration non-project asset-backed financing in the form of
Objectives of MUDRA Bank underwriting or direct subscription, deferred payment
The objectives of the MUDRA Bank are as follows: guarantees and working capital or other short-term loans to
Regulate the lender and the borrower of microfinance companies to meet their fund requirements.
and brings stability to the microfinance system through
regulation and inclusive participation.
Export-Import (EXIM) Bank
Extend finance and credit support to Microfinance ◆
Recognising the important role of exports in maintaining the
Institutions (MFI) and agencies that lend money to
viability of external sector and in generating employment, the
small businesses, retailers, self-help groups and
Reserve Bank had sought to ensure adequate availability of
individuals.
Concessional Bank credit to exporters. It took the lead role in
Register all MFIs and introduce a system of setting up the Export Import Bank of India (EXIM Bank) in
performance rating and accreditation for the first time. January, 1982.
This will help last mile borrowers of finance to evaluate ◆
In recent years, with the liberalisation of real and financial
and approach the MFI that meets their requirement sectors of the economy, interest rates on export credit have been
best and whose past record is most satisfactory. This rationalised within the overall monetary and credit policy
will also introduce an element of competitiveness framework.
among the MFIs. The ultimate beneficiary will be the ◆
In order to provide adequate credit to exporters on a priority
borrower. basis, the Reserve Bank has also prescribed a minimum
Differences Between SIDBI and proportion of banks’ adjusted net bank credit to be lent to
exporters by Foreign Banks.
MUDRA Bank
It is very important to understand certain
things/context/facts and differences between SIDBI and New Gold Investment Schemes
MUDRA.
The Government had launched Sovereign Gold Bonds and Gold
Difference between SIDBI and MUDRA bank are as Monetisation Schemes on 5th November, 2015. The main
follows: objective of the schemes is to reduce the demand for physical
SIDBI is an apex small units development bank where gold and shift a part of the gold imported every year for
MUDRA will initially be started as a department of investment purposes into financial savings.
SIDBI.
Sovereign Gold Bonds
The role of SIDBI remains to promote and finance the
small scale sector, implement government plans and These are issued by the RBI on behalf of the Government of
co-ordinate with other organisations while the role of India in rupees and denominated in grams of gold and
MUDRA has been conceived more in the context of restricted for sale to the resident Indian entities only both in
present state of microfinance sector. demat and paper form.
Over a period of time, MUDRA, replacing RBI, may The minimum investment in this scheme is one gram with a
emerge as a regulatory body for Microfinance sector maximum limit of subscription of 4 kg for individual, 4 kg for
housed by emerging NBFC-MFIs. (This is vehemently HUFS and 20 kg for trusts and similar entities notified by the
protested by MFIs who wish to function under government from time to time per fiscal year from April to
regulatory powers of RBI.) March. The rate of interest for the year 2020-21 is 2.50%
per annum, payable on a half yearly basis.
MUDRA may refinance other MFIs to finance SHGs
(Self Helf Groups) to promote micro entrepreneurship.
Self Check
1. Consider the following statements Which of the statement(s) given above is/are
1. Indian depository receipt is an instrument denominated in Indian correct?
Rupees in the form of a depository receipt created by the (a) Only 1 (b) Only 2
custodian of securities registered with the Securities and (c) Both 1 and 2 (d) Neither 1 nor 2
Exchange Board of India against the underlying equity of issuing 7. What is ‘NIKKEI’? [BPSC 2000]
company. (a) Share Price Index of Tokyo Share Market
2. Standard Chartered PLC became the first global company to file for (b) Name of Japanese Central Bank
an issue of Indian depository receipts in India. (c) Japanese Name of Country’s Planning
Which of the statement(s) given above is/are correct? Commission
(a) Only 1 (b) Only 2 (d) Foreign Exchange Market of Japan
8. The minimum and maximum investment limits
2. ‘Basel III Accord’ after seen in the news, seeks to [UPSC 2015] under sovereign gold bonds are  gm and 
(a) Develop national strategies for the conservation of biological gm of gold per person per fiscal year
diversity respectively.
(b) Improve banking Sector’s ability to deal with financial risk (a) 5 and 200 (b) 2 and 500
management (c) 15 and 700 (d) 50 and 800
(c) reduce the green house gas emisssions
(d) Transfer technology from developed countries to poor countries
9. Consider the following statements [IAS 2004]
1. The National Housing Bank (NHB), the apex
3. With reference to Indian Capital market, consider the following institution of housing finance in India, was set-up
statements as a wholly-owned subsidiary of the RBI.
1. CRISIL was set-up in the 8th Five Year Plan. 2. The Small Industrial Development Bank of
2. CRISIL rates the debt instruments of the public sectors. India (SIDBI) was established as a wholly-owned
Which of the statement(s) given above is/are correct? subsidiary of the Industrial Development Bank of
(a) Only 1 (b) Only 2 India (IDBI).
(c) Both 1 and 2 (d) Neither 1 nor 2 Which of the statement(s) given above is/are
correct?
4. Which one of the following Companies is eligible for the (a) Only 1 (b) Only 2
financial assistance and loans from the Industrial Finance
Corporation of India (IFCI)?
(a) Limited Public Companies (b) Public Co-operatives 10. A rise in SENSEX means [IAS 2000]
(c) Private Limited Companies (d) All of these (a) a rise in prices of shares of all companies
registered with Bombay Stock Exchange
(b) a rise in prices of shares of all companies
1. A committee, under the chairmanship of former RBI Governor registered with National Stock Exchange
Bimal Jalan, was constituted to scrutinise the application for new (c) a rise in prices of shares of all companies
Banks in India. belonging to group of companies registered
2. The committee recommended to give banking licenses to with Bombay Stock Exchange
Bandhan Micro Finance and Infrastructure Development and (d) None of the above
Finance Corporation (IDFC).
11. Consider the following with policy reference to
Indian Economy [UPSC 2015]
(c) Both 1 and 2 (d) Neither 1 nor 2 1. Policy rate
2. Open market operations
6. Consider the following statements about the Indian Capital
3. Public debt
Market
4. Public reverse
1. The Security Exchange Board of India (SEBI) was set-up in the 7th
Which of the policies given above is/are components
Five Year Plan.
of monetary policy are correct?
2. The Capital Issue (Control) Act, 1947 was repealed and replaced
(a) Only 1 (b) 2, 3 and 4
by the SEBI.
(c) 1 and 2 (d) 1, 3 and 4
1. (c) 2. (b) 3. (b) 4. (d) 5. (c) 6. (c) 7. (a) 8. (b) 9. (c) 10. (c)
11. (c)
Magbook ~ Inflation 49
—Rise in the prices of crude oil, fertilizers etc.
—Rise in labour costs.
—Higher costs of imported materials.
Other Inflation Related Concepts
—Higher costs of capital due to squeezing of credit by the Deflation A general decline in prices, often caused by a
Central Bank. reduction in the supply of money or credit. Deflation can be
—Cartelisation by a few big suppliers to fix prices arbitrarily to also caused by a decrease in government, personal or
make undue profits. investment spending. The opposite of inflation, deflation has
—Monopoly of a single supplier in the market, enabling him to the side effect of increased unemployment since, there is a
set arbitrary prices. lower level of demand in the economy, which can lead to an
—Pushing up of profits by the management of a company by economic depression.
increasing the prices also leads to inflation. Stagflation When you have a slow economy with high inflation
—It has to be understood that it is not always easy to rates and unemployment, stagflation is usually the result.
differentiate between demand and supply side inflation and an When the economy does not grow and prices continue to rise
example from the demand side can also be explained from the
you have a stagflation cycle in the economy.
supply side and vice-versa.
Disinflation This is a reduction in the rate of inflation over time,
even though inflation itself may be positive.
Effects of Inflation Reflation It is an attempt to bring back inflation in an economy,
The effect of inflation is different on different communities. which is in deflation so as to induce growth.
When price rises or the value of money falls, some groups
of the society gain, some lose and some stand in between.
Let us discuss the effects of inflation on distribution of
income and wealth, production on the society as a whole Measures of Inflation
Inflation refers to the changes in general price level in the
On Business Community
country over a period of time. There are three standard
Inflation is welcomed by entrepreneurs and businessmen measures of inflation, viz
because they stand to profit by rising prices. (i) Wholesale Price Index (WPI)
They find that the value of their inventories and stock of (ii) Consumer Price Index (CPI)
goods is rising in money terms. They also find that prices (iii) GDP deflator.
are rising faster than the costs of production, so that their In India, to measure the price level, the Wholesale Price
profit is greatly enhanced. Index (WPI) and the Consumer Price Index (CPI) are used.
On Fixed Income Groups Wholesale Price Index (WPI)

Inflation hits wage-earners and salaried people very hard. It measures the change in wholesale prices on weekly
Although wage-earners, by the grace of trade unions, can basis. On the basis of weekly indices, average annual WPI
chase galloping prices, they seldom win the race. is worked out. Average annual wholesale prices of the
Since, wages do not rise at the same rate and at the same current year are related to average annual wholesale
time as the general price level, the cost of living index prices of the base year (assumed as 100).
rises and the real income of the wage earner decreases. New Series WPI
On Farmers The new series of the WPI has 697 items as compared to 676
items in old series. New vegetables and fruits such as radish,
Farmers usually gain during inflation, because they can carrot, cucumber, bitter gourd, mosambi (sweet lime),
get better prices for their harvest during inflation. pomegranate, jackfruit and pear have been added to the list
of primary articles. In the mineral group, items like copper
On Investors concentrate, lead concentrate and garnet have been added
Those, who invest in debentures and fixed-interest bearing and other items like copper concentrate, lead, dolomite and
magnesite have been removed.
securities, bonds etc lose during inflation. However,
investors in equities benefit because more dividend is Natural gas has been added as a new item. In the
manufacturing items list, around 173 new items including
yielded on account of high profit made by joint-stock
conveyer belt, rubber tread, steel cables, tissues paper and
companies during inflation.
wooden splint have been added, while 135 items like
Inflation will lead to deterioration of gross domestic savings khandsari (unrefind raw white sugar), poppadom and video
and less capital formation in the economy and less CD players have been removed. 2011-12 is chosen as the
long-term economic growth rate of the economy. base year for WPI.
Magbook ~ Inflation 51
Core Inflation Measures to Check Inflation

Another way to analyse inflation data is by looking at core The handling of India’s inflation challenge consists of a
inflation, which is generally a chosen measure of inflation careful combination of effort on the part of the RBI and
that excludes the more volatile categories like food and government, including the Ministry of Finance and several
energy prices. The main argument, here is that the other ministries, alongwith advisory support by the
Central Bank should effectively be responding to the Inter-Ministerial Group (IMG) on inflation.
movements in permanent component of the price level
The IMG on inflation recommended several steps for
rather than temporary deviations. It is, therefore, a
improving supply chains from the farmer to the consumer.
preferred tool for framing long-term policy.
It recommended amending the Agricultural Produce
Difference between WPI and CPI Marketing Committee (APMC) Acts in order to cut down
on the large middleman price margin. It also
Parameters for WPI CPI
recommended that one way to improve the supply chain
comparison
and benefit farmers is to allow FDI in multi-brand retail.
Targeted group Whole sellers and Retail users and
Businesses general public The IMG argued that if this was permitted within a
Publishing agency Office of Economic National Statistics carefully crafted regulatory framework, there could be
Advisor (Ministry of Office (Ministry of large gains for farmers and also for ordinary consumers.
Commerce and Statistics and The fiscal measure, the administrative measure and the
Industry) Programme
Implementation and monetary measure are the three different ways to contain
Labour Bureau) inflation.
Weightage of food 18.8% 50% Keeping these issues in mind, government in 2020
Number of indices One Four separate brought three Legislations empowering farmers to sell
categories agricultural produce directly in the market and establish
Measures prices of Goods only Goods and services
contract farming agreements with the private players. The
both
Base year 2011-12 2012 and 2016
essential Commodities Act, 1955 was amended to increase
(CPI-IW) the private sector participation in food processing sector.
Utility For producers CPI (Combined) is
used as measure for Fiscal Measures
inflation by RBI since
Fiscal policy can be effectively employed to check
2014
inflation. Manipulation of public expenditure, taxation and
public debt can be used for this purpose.
Change in Reporting of Government can spend more money in the developmental
Inflation sphere to increase supply by improving productivity. Tax
incentives can also be used to improve the supply
At present, the WPI for all commodities including
situation.
manufactured products is released only on a monthly
basis. However, until recently WPI for primary articles and
the fuel group was also being released on a weekly basis.
Administrative Measures
But, it was observed over a period of time that, there was The authority to take decisions on this front is with the
a tendency for upward revisions in the indices reported executive branch of the government. Under this measure,
once the final numbers were later released. they:
The higher frequency weekly reporting was thus, prone to —remove levy obligations in respect of imported materials.
more statistical noise and sometimes provided a —ban export of constrained materials.
misleading picture, so the trade-off was between the more —maintain the central issue price, particularly for rice and
wheat.
frequent and less reliable data and less frequent, but
—suspend future trading.
more reliable data. International practice for reporting CPI
—allot rice and wheat under Open Market Sale Scheme (OMSS)
inflation is also on a monthly basis.
and many more.
In view of this, the Cabinet Committee on Economic
Affairs (CCEA) in its meeting held on 24th January, 2011, Monetary Measures
agreed to discontinue the weekly release of WPI for the
commodities. Items under the groups primary articles and
Monetary measures come under the purview of Reserve
fuel and power with immediate effect. WPI shall, Bank of India (RBI). Through, the Monetary Policy review,
henceforth, be released on a monthly basis only. RBI tries to control price rise and maintain economic
growth and financial stability.
Chapter seven
Public Finance
without any contractual obligations to
Public Finance the payee. It includes taxes, fines and
Public finance is the The study of government’s revenue and forfeitures, special assessment levies,
expenditure is called as public finance. escheats, gifts and grants etc.
study of the financial
The boundary of public finance in modern Sources of public revenue can also be
health of State time is not limited to ways and means of classified into Tax and Non-Tax
Government and local government income and expenditure only, revenue.
bodies in India. Public but it also studies public debt, financial
Tax Revenue
administration and Fiscal policy of the
finance assesses the Tax is a compulsory payment by the
economy. So, we can say that public
government revenue finance studies revenue and expenditure citizens to the government to meet the
and government of government of an economy and all the public expenditure. It is legally imposed
activities related to it. Public finance can by the government on the taxpayer and
expenditure of the in no case taxpayer can deny to pay
be divided into five sections which are as
public authorities and follows : taxes to the government.
one or the other to (i) Public revenue Types of Tax
achieve desirable effects (ii) Public expenditure Tax can be direct or indirect : income
and avoid undesirable (iii) Public debt tax, wealth tax, gift tax etc are the
ones. (iv) Fiscal policy and examples of direct taxes and sales taxes,
(v) Financial administration excise duty, customs duty etc are the
examples of indirect taxes.
Public Revenue Direct Tax
Public revenue, an indispensable organ of A direct tax is that, which is borne by
public finance operation, includes all the person on whom it is levied. A direct
income and receipts of the government tax cannot be shifted to other person.
through various sources. Different means Direct as well as indirect money burden
of revenue to the government are called of the direct tax is on the person on
sources of public revenue. Sources of whom the tax is imposed. Impact of the
public revenue can be broadly divided into tax as well as incidence of the tax is on
two categories such as : the same person.
(i) Earned Revenue is the kind of revenue, As a proportion of gross tax revenue,
which is received from certain assured direct taxes have been accounting for
sources kept under the complete over a half of total tax revenue since
disposal of governmental ownership. It 2007-08.
includes public domain like rent, Some of the direct taxes are as follows :
royalties, sales of forest products etc Personal Income Tax It is the tax levied
and commercial revenues like profits of directly on the income of individuals by
public sector enterprises, public utility the Central Government. Income sources
services etc. is added for taxation.
(ii) Unearned Revenue is that revenue, Corporate Tax It is levied on the profit of
which is mobilised by the government the companies or corporations. Now, the
Magbook ~ Public Finance 55
It is an integrated scheme of taxation that does not GST, (IGST) levied on international commodities and
discriminate between goods and services and is a part of services. It is imposed and recovered by the Central
the proposed tax reforms that centre on evolving an Government.
efficient and harmonised consumption tax system in the The amount of taxes received under this tax is distributed
country. Key features of the GST are as follows : to the state for the loss of revenue generated to the States.
(i) Two components one levied by the centre (referred to as Union Territory GST (UTGST) Arrangement or provision
Central GST) and the other levied by the states (referred under the UTGST and Tax system is for the Union
to as State GST), rates for which would be prescribed Territory where they do not have their own Legislative
appropriately. Assemblies, such as Andaman and Nicobar Islands,
(ii) The Central GST and the State GST would be applicable Dadra and Nagar Haveli and Daman and Diu (DNHDD)
to all transactions of goods and services except the and Ladakh etc. These Union Territories have the
exempted goods and services. provision to and collect taxes by the Central Government.
(iii) The Empowered committee has decided to adopt a Taxes Out of GST
two-rate structure a lower rate for necessary items and
goods of basic importance and a standard rate for goods
◆
Taxes that are not included in any of the provision of the GST,
in general. There will also be a special rate for precious they contain alcohol, real estate, crude oil, petrol, natural gas
metals and a list of exempted items. and the fuel for turbine. All these items will be out of GST
provision and the current taxation system will be applicable on
(iv) The GST will be levied on import of goods and services
them.
into the country.
(v) The administration of the Central GST to the Centre and Direct Tax Code (DTC)
for State GST to the states would be given.
DTC was proposed by the United Progressive Alliance
(vi) Central Taxes replaced by GST Central Excise Duty,
(UPA) Government to consolidate the law relating to the
Additional Duties of Excise and Customs, Special
direct taxes. The bill seek to replace the Income Tax Act,
Additional Duty of Customs (SAD), Service Tax and
1961 and Wealth Tax Act, 1957. The bill, in its original
Cesses and Surcharges on supply of goods and
form, widened the tax slabs and lowers corporate tax
services.
rates. It also removed a number of exemptions and grant
(vii) State Taxes Subsumed in the GST VAT, Central Sales for some other. DTC provision introduced in the Budget
Tax, Purchase Tax, Luxury Tax, Entry Tax, 2012-13 are as follows :
Entertainment Tax, Taxes on advertisements, lotteries, —General Anti- Avoidance Rule (GAAR).
betting, gambling and State Cesses and Surcharges. —Advance Pricing Agreement (APA).
Types of GST —Income tax exemption limit rose to ` 2 lakh.
Under the GST form, four types of GST are —Upper limit of 20% tax slab rose to ` 10 lakh.
Central GST (CGST) Under the CGST, there is a provision —20% cut in Securities Transaction Tax (STT).
to impose tax on the supply of goods and services by the
Central government. Earlier, Central Excise, Excise (Drugs GAAR
and Toilet construction), Excise duties on the taxes The General Anti-Avoidance Rule (GAAR) was proposed in
imposed by the Central Government, (Goods of special mid-March as a hart of budget for fiscal year 2013.
importance), additional duty of custom duty (known under GAAR was scheduled to come into effect from 1st April,
CVD), Special Duty of Custom Duty (SAD), Service tax and 2013. In the Budget 2013-14, it was announced that a
gratuity surcharge related to the supply of goods or modified version of GAAR provisions will come into effect
services were separate taxes. All these included in CGST. from April, 2016.
State GST (SGST) Taxes imposed and collected by the
GAAR aims to target tax evaders partly by stopping Indian
State government on goods and services are levied under companies and investors from routing investment to
State GST system. Earlier, State governments pay VAT Mauritius or other tax heavens for sole purpose of
under State taxes, purchase tax, entry tax, entertainment avoiding tax.
tax, advertisement tax including State excise and
GAAR was scheduled to come into effect from 1st April,
surcharge related to State sub-tax and imposition, lottery
2013. In the Budget 2013-14, it was announced that a
taxes, tax on speculation and gambling. All these taxes
modified version of General Anti-Avoidance Rule (GAAR)
now included in SGST.
provisions will come into effect from April, 2016. A
Integrated GST (IGST, State Indemnification) The
number of representation were received against GAAR
proposed Goods and Services tax provides an integrated provisions introduced in the last budget.
Duties Levied by the Union, but Collected and Transfer Pricing It is the price at which divisions of a company
Appropriated by the States (Article 268) transact with each other. Transactions may include trade of
Stamp duties and duties of excise on medicinal and supplies or labour. It is used when individual entities of a larger
toilet preparations (those mentioned in the Union firm are treated as separately run entities.
list) shall be levied by the Government of India but Specific Duty Tax is levied based on weight or quantity.
shall be collected. Ad Valorem Tax is levied based on value and not an weight or
—In the case, where such duties are leviable within any quantity.
Union Territory, by the Government of India. Withholding Tax It means withholding tax of certain payments
—In other cases, by the States within which such duties such as salary to employees, payments to contractors, interest
are respectively leviable.
etc. It is the same as Tax Deducted at Source (TDS).
Taxes Levied and Collected by the Union, but Assigned Capital Gains Tax It is the tax on gains made from buying and
to the States (Article 269) selling assets such as land, shares etc. Gain made on assets
Duties in respect of succession to property other held for over three years (one year for shares) is called
than agricultural land. long-term capital gain.
Estate duty in respect of property other than Base Erosion and Profit Shifting (BEPS) It is of major
agricultural land. significance for developing countries due to their heavy reliance
Taxes on railway fares and freights. on corporate income tax, particularly from multinational
Taxes other than stamps duties on transactions in enterprises. BEPS refers to tax planning strategies that exploit
stock exchanges and future markets. gaps and mismatches in tax rules to artificially shift profits to low
or no-tax locations where there is little or no economic activity.
Taxes on the sale or purchase of newspapers and
on advertisements published therein.
Tax Related Primary Concepts
Terminal taxes on goods or passengers carried by
railways, sea or air. Tax Evasion It is the illegal evasion of taxes by individuals,
Taxes on the sale or purchase of goods other than
corporations and trusts. Tax evasion often entails taxpayers
deliberately misrepresenting the true state of their affairs to the
newspapers where such sale or purchase takes
tax authorities to reduce their tax liability and includes dishonest
place in the course of inter-state trade or commerce.
tax reporting, such as declaring less income, profits or gains
Taxes which are Levied and Collected by the Union, than the amounts actually earned or overstating deductions.
but which may be distributed between the Union and Tax Shifting Transferring some or all of a tax burden of an entity
the States (Articles 270 and 272) (such as a subsidiary) to another (such as the parent firm) is tax
—Taxes on income other than agricultural income. shifting. Tax shift or tax swap is a change in taxation that
—Union duties of excise other than duties and taxes eliminates or reduces one or several taxes and establishes or
referred to in Articles 268, 268A and 269. increases others while keeping the overall revenue unchange.
Taxes on income does not include corporation tax. Tax Avoidance It is the legal usage of tax regime to one’s own
The distribution of income tax proceeds between the advantage to reduce the amount of tax that is payable by means
union and the states is made on the basis of the that are within the law. Tax shattering is very similar term and
recommendations of the Finance commission. tax havens are jurisdictions which facilitate reduced taxes. The
term tax mitigation is sometimes used, its original use was by
Important Terms Related to tax advisers as an alternative to the pejorative term tax
Taxation avoidance.
Tax Haven It is a country or territory where certain Fiscal Space It is a relatively new term that refers to the
taxes are levied at a low rate or not at all. Tax haven flexibility of a government in its spending choices and more
lead to loss of revenue for governments, money generally, to the financial well-being of a government. Peter
laundering etc. Cayman islands, Gibraltar, Haller (2005) defined it ‘‘as room in a government’s budget that
Liechtenstein etc are some of the tax havens. allows it to provide resources for a desired purpose without
jeopardising the sustainability of its financial position or the
Pigouvian Tax It is a tax, which is imposed on
stability of the economy.’’
bodies having negative externalities. An example of
pigouvian tax is the carbon tax levied in some
* Higher fiscal deficits usually lead to rising public debt.
countries for causing pollution. India’s Central Government liabilities GDP ratio has
infact come down since 2002-03.
Tobin Tax It is a tax levied on foreign exchange
* The government appointed a committee headed by
transactions both when foreign capital enters a
Dr Vijay Kelkar to check out a roadmap for fiscal
country and when it leaves. It is meant to check
consolidation.
speculative flows.
The other members of the commission, which is

Finance Commission
required to submit its report by October 2019, are
According to Article 280 of Constitution, the President former economic affairs secretary Shaktikanta Das and
appoints a Finance commission after every 5 years. This former chief economic adviser Ashok Lahiri, NITI
Aayog member Ramesh Chand and Georgetown
provision is also a Fundamental feature of Indian Constitution,
University professor Anoop Singh.
which is not found in any other Constitution. The Finance
The commission will review the current status of the
commission was appointed 2 years after the implementation
finance, deficit, debt levels, cash balances and fiscal
of the Constitution and every 5 years thereafter. discipline efforts of the union and the states.
The President has the power to appoint a new Finance Union Government extended the term of proposal of
commission even before the expiry of 5 years, if he deems it 15th Finance Commission by 11 months to 30th
necessary. In other words, the appointment of the Finance October, 2020.
commission is a continuous process according to our The duration of the 15th finance commission was
Constitution. supposed to be from 1st April, 2020 to 31st March,
Finance commission, generally, presents its recommendations 2025 but it is 2021-26 for the full set of
regarding the allocation of revenue between the centre and recommendation.
the state, so that, there is no discord between the centre and
the states. Recommendations of 15th Finance
Main objective of the Finance commission is to assess the Commission
financial requirements of the states to determine amount of The commission has reduced the vertical devolution-
grants- in-aid to be given to various states and to strengthen the share of tax revenues that the central shares with
the federal financial system. the states from 42% to 41%.
Objectives of Finance Commission The 1% decrease is to provide for the newly formed
union territories of Jammu and Kashmir and Ladakh
To determine the basis for the allocation of funds collected from the resources of the central government.
from the taxes, which are divisible between the centre and the The previous FC used both the 1971 and the 2011
states.
populations to calculate the state’s shares, giving
To formulate the principles regarding the grants to the states greater weight to the 1971 population (17.5%) as
from the centre. compared to the 2011 population (10%).
To continue the agreements made between the Government of
India and the states or to recommend changes in them.
Tax effort has been used to reward states with higher
tax collection efficiency. It has been computed as the
To consider any other financial matter in the interest of the
ratio of the average per capita own tax revenue and
country, on being notified by the President to do so.
the average per capital state GDP during the
On the basis of this arrangement, 15th Finance Commissions three-year period between 2014-15 and 2016-17.
have been set-up so far : The commission highlighted some challenges with the
Finance Finance implementation of the Goods and Services Tax (GST).
Chairman Chairman
Commission Commission
14th Finance Commission
1st (1951) Mr KC Neogy 9th (1987) Mr NKP Salve
The 14th Finance commission, headed by former RBI
2nd (1956) Mr K Santhanam 10th (1992) Shri KC Pant
Governor YV Reddy, has endorsed the compensation
3rd (1960) Mr AK Chanda 11th (1998) Prof AM Khusro road map for the goods and services tax finalised by
4th (1964) Mr R V Rajamannar 12th (2002) Dr C Rangarajan the Centre, but has called for an autonomous and
5th (1968) Mr Mahaveer Tyagi 13th (2007) Dr Vijay L Kelkar independent GST compensation fund.
6th (1972) Mr Brahmananda Reddy 14th (2013) YV Reddy Members of the 14th Finance Commission YV Reddy,
Abhijit Sen, M Govinda Rao, Sushama Nath and
7th (1977) Mr JM Shelat 15th (2017) N K Singh
Sudipto Mundle. The Government of India on 24th
8th (1983) Mr YB Chavan February, 2015 accepted recommendations of the
14th Finance commission for increasing share of
15th Finance Commission states in central taxes to 42%.
Former Planning Commission member N K Singh was The commission recommended increase in the share
appointed as the chairman of the 15th Finance Commission, of states in the centre’s tax revenue from the current
which has been asked to look into the impact of the Goods 32% to 42%, the single largest increase ever
and Services Tax (GST) on finances of both the centre and the recommended.
states.
Fiscal Responsibility and Budget Union Budget

Management Act, (FRBM) 2003 The budget is an extensive account of the
government’s finances, in which revenues
FRBM Act, 2003 was passed by the Union Government to provide a
from all sources and expenses of all activities
legislative control over the fiscal situation of the country, which had
undertaken are aggregated.
deteriorated earlier. It was meant to bring fiscal discipline, increase
plan expenditure, leave the RBI with autonomy as far as money Union budget is an expression of the Fiscal
creation was concerned, meet the consumption expenditure of the Policy of the Government.
government from its own resources etc. The Finance Minister presents the Union
The Fiscal Responsibility and Budget Management Act, 2003 (FRBM budget every year in the Parliament that
Act) has been amended as part of the Finance Bill, 2012. It has contains the Government of India’s revenue
introduced two concepts to reform the expenditure aspect of the fiscal and expenditure for 1 fiscal year, which runs
policy. from 1st April to 31st March.
These are :
—Effective Revenue Deficit It excludes from the conventional revenue deficit,
Historical Preview
grants for the creation of capital assets. This is an important development The term budget is actually derived from a
for the reason that while the revenue deficit of the consolidated general French word Bougette, which means a sack
government fully reflects total capital expenditure incurred, in the accounts or pouch. It was first used in France in 1803.
of the centre, these transfers are shown as reserve expenditure. In the Constitution of India, the term budget is
Therefore, the mandate of eliminating the conventional revenue deficit of nowhere used.
the centre becomes problematic. With this amendment, the endeavour of
It is rather mentioned as Annual Financial
the government under the FRBM Act, 2003 would be to eliminate the
effective revenue deficit.
statement under Article 112 comprising the
Revenue budget, Capital budget and also the
—Medium-term Expenditure Framework Statement It will set forth a
estimates for the next fiscal year called
three-year rolling target for expenditure indicators. It would help in
undertaking a de-novo exercise for allocating resources for prioritised
budgeted estimates.
schemes and weeding out others that have outlived their utility. As per the British legacy, the Union Budget of
India used to be presented on the evening of
NK Singh Committee last working day of the month of February to
follow the British budget.
The FRBM Review Committee headed by former Revenue Secretary,
During the NDA regime, then Finance Minister
NK Singh was appointed by the government to review the
Yashwant Sinha was the first to present the
implementation of FRBM. In its report submitted in January 2017,
budget on 28th February, 2001 at 11 am.
titled, ‘The Committee suggested that a rule based fiscal policy by
(The budget has to be passed by the Lok
limiting government debt, fiscal deficit and revenue deficits to certain
Sabha before it can come into effect on
targets is good for fiscal consolidation in India.
1st April.)
Its members included RBI Governor Urjit Patel, Chief Economic
Advisor Arvind Subramanian, former Finance Secretary Sumit Bose, Preparation of Budget
and National Institute of Public Finance and Policy Director
Rathin Roy. The budget is prepared by the budget division
Review Committee Report has recommended a debt to GDP ratio of of Department of Economic affairs in the
60% for the general (combined) government by 2023, comprising Ministry of Finance (MoF), after consulting
40% for the Central Government and 20% for the State Governments. with other ministries and the Planning
As per the Constitution of India, it is mandatory for a State to take the Commission.
Central Government’s consent for raising any loan if the former owes The process majorly includes following steps
any outstanding liabilities to the latter. which may be sequential or overlapping too.
Overall Budget
Financial Administration Overall budget are available for more than 1
All financial activities involving issues of financial administration fiscal year but are not distributed to individual
including public budget, its passing, auditing and similar other fiscal year. It is a hierarchical and structure
matters. Without a extensive study of relevant dimensions of financial containing budget structure elements (budget
administration the subject of public finance remains incomplete. hierarchy).
Fiscal Deficit It is the difference between what the Government budget deficit that is deficit spending.
government earns and its total expenditure. Primary deficit, the pure deficit derived after deducting
◆
Fiscal Deficit = Difference between country’s expenditures and the interest payments and structural and cyclical deficit
earnings. part of the public sector deficit.
◆
Fiscal Deficit = Revenue Receipts (Net tax revenue + Non-tax Income deficit (the difference between family income and
revenue) + Capital Receipts (only recoveries of loans and other the poverty threshold).
receipts) – Total expenditure (Plan and Non-plan) Trade deficit ( when the value of imports exceed the value
of exports).
Budget Deficit It considers only the difference between
the total budgeted receipt and the expenditure. It was Introduction of new schemes would entail more spending
abolished in 1997. and it goes just opposite to what we are trying to do, i.e.
reduce deficit. Import duty is a tax collected on imports
Monetised Deficit It is the borrowing made from the RBI,
and some exports by the customs authorities of a country.
through printing fresh currency. It is resorted to, when
It is usually based on the value of the goods that are
government cannot borrow from market.
imported. There are two distinct goals to import duties :
Gross Fiscal Deficit The Gross Fiscal Deficit (GFD) of to raise income for Local Government, and to give a
government is the excess of its total expenditure, current market advantage to locally grown or produced goods that
and capital, including loans net of recovery, over revenue are not subject to import duties.
receipts (including external grants) and non-debt capital
receipts.
—Gross Fiscal Deficit = Total Expenditure – (Revenue Receipts Financial Stability and
+ Non-debt Creating Capital Receipts). Development Council
Net Fiscal Deficit The Net Fiscal Deficit (NFD) is the gross
It is an apex-level body constituted by Government of
fiscal deficit reduced by net lending by government.
India, which was first mooted by Raghuram Rajan
Primary Deficit Amount by which a Government’s total
committee in 2008. It envisages to strengthen and
expenditure exceeds, its total revenue, excluding interest
institutionalise the mechanism of maintaining financial
payments on its debt.
stability, financial sector development, inter-regulatory
—Primary deficit = Fiscal deficit – Interest payments.
coordination alongwith monitoring macro-prudential
Gross Primary Deficit The Gross Primary (GFD) Deficit
regulation of economy.
(GPD) is the Gross Fiscal Deficit less interest payment
while the primary revenue deficit is the revenue deficit Financial Sector Legislative Reform
less interest payments. Commission
Action of the Government to It is a body set-up of Ministry of Finance by Government
of India to review and rewrite the legal-institutional
Reduce the Deficit architecture of the Indian financial sector, which is
A deficit is the amount by which a sum falls short of some chaired by a former judge of the Supreme Court of India
reference amount. In economics, a deficit is an excess of and have an electric mixer of expert members drawn
expenditures over revenue in a given time period. In more from the fields of finance, economics, public
specific cases, it may refer to administration, law etc.
Balance of Payments (BOP) deficit, when the Balance of
Payments is negative.
Chapter eight
India’s Balance of
Payments
Components of Capital Account
Balance of There are the principle forms of capital account
India’s balance of
Payments (BoP) transactions :
When the difference in the value of —Foreign Investment It has two sub-components
payments has been which are as follows:
imports and exports of all the three
under increasing items i.e. visible, invisible and (i) Foreign Direct Investment (FDI) referring to
stress recently. Exports capital transfers, is taken into the purchase of assets in the rest of the
account, it is called Balance of world, which allows control over that assets.
have declined while e.g. purchase of a firm by TATA in the rest of
Payments (BoP).
imports have not the world.
Thus, an overall record of all
fallen significantly, (ii) Portfolio Investment referring to purchase of
economic transactions of a country
resulting in increasing an asset in the rest of the world, without any
in a given period, with rest of the
control over that asset. Portfolio investment
trade and current world. into India also consists of Foreign Institutional
account deficits. Balance of Payments (BoP) account Investment (FII).
India’s growing broadly comprises of the following e.g. purchase of the some shares of a
components: company by TATA in the rest of the world.
external exposures
Current Account of Balance of —Loans It has two sub-components which are as follows:
can also be attributed Payments consist of all transactions (i) Commercial Borrowings referring to
to the increasing relating to goods, services and borrowing by a country (including
integration of India’s income. It is functionally classified government and the private sector) from the
into merchandise or visible and international money market. This involves
economy with the rest
invisibles. Current account deficit is market rate of interest without considerations
of the world. the situation where payments on of any concession.
the current account out of the (ii) Borrowings as External Assistance referring
country are more than the to borrowing by a country with considerations
payments into the country. In of assistance. It involves lower rate of interest
current account surplus, there is a compared to that prevailing in the open market.
net inward payment into the —Banking Capital Transactions referring to transactions
country on the current account. of external financial assets and liabilities of
Commercial Banks and Cooperative Banks operating
Capital account is that account
as authorised dealers in foreign exchange. These
which records all such transactions include NRI deposits.
transactions between residents of
—Reserve Account The official reserve account records
a country and rest of the world, the change in stock of reserve assets (also known as
which causes a change in the foreign exchange reserves) at the country’s monetary
asset or liability status of the authority.
residents of a country or its —Net Errors and Omissions This is the last component
government. Investments (FDI and of the Balance of Payments and principally exists to
FII) and Borrowings External correct any possible errors made in accounting for the
Commercial Borrowing (ECB) are three other accounts. They are often referred to as
part of the capital account. balancing items.
Magbook ~ India’s Balance of Payments 67
Sectors which are Open to FDI FIPB is Abolished
Most sectors are at least partially open to FDI, subject to a cap and The Union Cabinet has approved the abolition of 25
year old FIPB. Henceforth, concerned ministries will
specific conditions. There are two entry routes for FDI in India.
be responsible for direct approval of foreign
In sectors where FDI is allowed up to 100%, FDI enters under the
investment proposals. The decision falls in line with
automatic route, subject to sectoral regulations and other
Finance Minister Arun Jaitley’s proposal to scrap
conditions.
FIPB 2016-2017 Union Budget. FIPB was
In this instance, no approval is required from the Reserve Bank of constituted in the mid-nineties under the Prime
India (RBI) or the government however, the investment must be Minister’s office following economic liberalisation.
notified to the RBI’s regional office within 30 days. Rationale behind this move is that over 90% of the
In sectors, where FDI is allowed under the government route, prior FDI inflows in value terms enters through automatic
approval from the Foreign Investment Promotion Board (FIPB) was route. The government expects that scrapping of
required. FIPB would help in ease of doing business.
Key Changes in FDI Limits Foreign Institutional

Sector/Activity % of Entry Route
Investment (FII)
FDI/Equity A foreign institutional investor is one which is
Defense Sector 100% (Automatic route increased from registered in a country outside of the one, in
49% to 74%) which it is investing. In India, it is used to refer to
Telecom Services 100% Automatic upto 49% government companies which invest in the country’s financial
route beyond 49% markets.
Tea Plantation 100% Automatic upto 49% government In 2013, India accepted the internationally, laid
route beyond 49%
down definition of FII to remove the ambiguity
Asset Reconstruction 100% Automatic upto 49% government
between FII and FDI. Now, when an investor has
Company route beyond 49%
a stake of less than 10% in a company, it will be
Petroleum and Natural 100% Automatic route
Gas (Exploration) treated as FII and where and investor has a stake
Petroleum and Natural 49% Automatic
of more than 10%, it will be treated as FDI.
Gas (PSUs) FIIs may invest in securities in both the primary
Commodity Exchange 49% Automatic route and secondary market in shares, debentures and
Power Exchanges 49% Automatic route warrants of listed or unlisted companies.
Pension sector 49% Automatic route Some of the entities eligible to be treated as FII
Stock Exchanges/Clearing 49% Automatic route in India are pension funds, mutual funds, banks,
Corporations investment trusts, sovereign wealth funds,
Credit Information 100% Automatic route Foreign Central Banks etc.
Companies FIIs can invest in securities in the primary and
Courier Services 100% Automatic route
secondary markets dated government securities,
Single Brand Product 100% Automatic upto 49% government commercial paper, derivatives, units of schemes
Retail Trading route beyond 49%
floated by domestic mutual funds (including UTI),
Insurance Sector 74% Automatic route
Indian depository receipts and security receipts.
Pharmaceuticals 100% Automatic route
Animal Husbandry 100% Automatic route Means of FII Investment
Food item 100% Automatic route FIIs can invest through a registered broker on
e-Commerce 100% Automatic route recognised Indian stock exchanges. They can
purchase shares or convertible debentures
Sectors where FDI is prohibited
either through private placement or through offer
Atomic energy generation for sale.
Investments in Chit Funds FIIs can also invest through a sub-account (a
Cigars, cigarettes, or any related tobacco Industry person outside India on whose behalf
Gambling or Betting businesses investments are proposed to be made).
Housing and Real estate (except townships, commercial projects etc.) FIIs can also issue Offshore Derivative
Lotteries (online, private, government, etc) Instruments (ODIs) to persons who are regulated
by an appropriate foreign regulatory authority and
Trading in Transferable Development Rights (TDRs)
after compliance with KYC norms.
Railway operations (other than permitted activities)
Magbook ~ India’s Balance of Payments 69
The foreign Exchange Regulation Act (FERA) was

Present Exchange Rate Policy
legislation passed by the Indian Parliament in 1973 and
India has transited from fixed exchange rate policy to a come into force on 1st January, 1974.
market determined exchange rate. It is broadly a floating FERA imposed stringent regulation on certain kinds of
rate regime with the central intervening only for reducing
payments. It deals with foreign exchange and securities
excess volatility, preventing the emergence of destabilising
and the transactions which had an impact on the foreign
speculative activities, maintaining adequate reserves and
exchange and import and export of currency.
developing on orderly foreign exchange market.
The Foreign Exchange Management Act (FEMA) was an
At present, the exchange rate policy is guided by the
act passed in the winter session of parliament in 1999
broad principles of careful monitoring and management
which replaced foreign exchange Regulation Act.
of exchange rates with flexibility, while allowing the
FEMA has brought a new management regime of foreign
underlying demand and supply conditions to determine
exchange consistent with the emerging frame work of the
exchange rate movements over a period in an orderly
World Trade Organisation (WTO).
manner.
Policy Options with RBI to Manage Main Features of FEMA

Exchange Rate Activities such as payments made to any person outside
India or receipts from them, alongwith the deals in foreign
Using Policy Rates RBI can use policy rates (repo, CRR,
security is restricted. It is FEMA that gives the Central
SLR etc) to manage the exchange rate. By lowering
Government the power to impose the restrictions.
interest rates, supply of rupee’s increased in the market
leading to depreciation of the currency. Increasing Restrictions are imposed on people living in India, who
interest rates on the other hand, takes out rupee from the carry out transactions in foreign exchange, foreign security
system leading to shortage of rupee supply and thus, or who own or hold immovable properties abroad.
appreciation of the rupee. Without general or specific permission of the Reserve
Using Forex Reserves RBI can sell forex reserves and Bank of India, FEMA restricts the transactions involving
buy Indian rupees leading to demand for rupee. Based on foreign exchange or foreign security and payments from
weekly forex reserves data, RBI seems to be selling forex outside the country to India the transactions should be by
reserves selectively to support rupee. Its intervention has an authorised person.
been limited as liquidity in money markets has remained Deals in foreign exchange under the current account by an
tight and further intervention only tightens liquidity authorised person can be restricted by the Central
further. Government, based on public interest. Although, selling or
drawing of foreign exchange is done through an authorised
Easing Capital Controls Capital controls could be eased to
person, the RBI is empowered by this act to subject the
allow more capital inflows. “Resisting currency
capital transactions to a number of restrictions.
depreciation is best done by increasing the supply of
foreign currency by expanding market participation.” This People living in India will be permitted to carry out
in essence, has been RBI’s response to depreciating transactions in foreign exchange, foreign security or to own
rupee. or hold immovable property abroad, if the currency,
security or property was owned or acquired, when he or
FERA and FEMA she was living outside India or when it was inherited to
FERA, (Foreign Exchange Regulation Act) in place since, him or her by someone living outside India.
1974 did not succeed in restricting activities such as the Exporters are needed to furnish their export details to RBI.
expansion of Trans National Corporations (TNCs). After To ensure that the transactions are carried out properly,
the Amendment of FERA in 1993, it was decided that the RBI may ask the exporters to comply to its necessary
act would become the FEMA (Foreign Exchange requirements.
Management Act).
This was done in order to relax the controls on foreign Capital Account
exchange in India, as a result of economic liberalisation. Convertibility in India
FEMA served to make transactions for external trade Capital Account Convertibility (CAC) for Indian Economy
(exports and imports) easier. Involving current account for refers to the abolition of all limitations with respect to the
external trade no longer required RBI’s permission. movement of capital from India to different countries across
The deals in foreign exchange were to be ‘managed’ the globe. According to the Tarapore Committee, Capital
instead of ‘regulated’. The switch to FEMA shows the Account Convertibility refers to the freedom to convert local
change on the part of the government in terms of foreign financial assets into foreign financial assets and vice-versa
capital. at market determined rates of exchange.
Self Check
1. BOP (Balance of Payment) refers to than 10% of the post issue paid up equity capital of a
(a) transactions in the flow of capital. company shall be treated as FPI.
(b) transactions relating to receipts and payment of invisible. (d) On NRI investors, the committee recommended treating
(c) transactions relating only to exports and imports. non-repartriable investment as FDI.
(d) systematic record of all its economic transaction with the 6. Which one of the following countries is the largest
rest of the world. source of the Foreign Direct Investment in the Indian
2. Which of the following does not form part of current Economy?
account of Balance of Payments? (a) United States (b) Switzerland
(a) Export and import of goods (c) Singapore (d) Mauritius
(b) Export and import of services 7. Which of the following is/are not FDI policy changes
(c) Income receipts and payments after 2010? [NDA 2016]
(d) Capital receipts and payments
1. Permission of 100% FDI in automotive sector.
3. Which one of the following is the investment in 2. Permitting foreign airlines to make FDI upto 49%.
securities that is intended for financial gain only and 3. Permission of upto 51% FDI under the government
does not create a lasting interest in or effective approval route in multi-brand retailing, subject to
management control over an enterprise? specified conditions.
(a) Foreign Direct Investment 4. Amendment of policy on FDI in single-brand product
(b) Portfolio Investment retail trading for aligning with global practices.
(c) Equity Direct Investment Select the correct answer using the code given below
(d) Both ‘a’ and ‘c’ (a) Only 1 (b) 2 and 4
4. In which of the following years was the trade balance (c) 1 and 2 (d) 1, 2 and 3
favourable to India? [BPSC 2015] 8. Which one of the following factors is taken account to
(a) 1970-71 and 1974-75 calculate the Balance of Payment (BOP) of a country?
(b) 1972-73 and 1976-77 (a) Current Account
(c) 1972-73 and 1975-76 (b) Changes in the Foreign Exchange Reserves
(d) 1971-72 and 1976-77 (c) Error and Omissions
(d) All of the above
5. Which of the following is not the recommendation of
the Arvind Mayaram Committee on rationalising the 9. Which one of the following is not correct in the context of
FDI/FPI definition (June, 2014)? balance of payments of India during 2013-14?
(a) Foreign investment of 10% or more in a listed company (a) India’s exports were less than its imports
will be treated as Foreign Direct Investment. (b) Trade balance was negative
(b) In a particular company, an investor can hold the (c) Net invisibles were positive
investments either under the FPI route or under the FDI (d) Capital account balance was negative
route, but not both.
(c) Any investment by way of equity shares, compulsorily
convertible preference shares/debentures which is less
1. (d) 2. (b) 3. (b) 4. (b) 5. (d) 6. (c) 7. (a) 8. (d) 9. (d)

Magbook ~ India’s Foreign Trade 73
Service Exports from India Scheme Top Export Destinations (2019-20 in % Share)
(SEIS) United States 16.95%
Served from India Scheme (SFIS) has been United Arab Emirates 9.21%
replaced with Service Exports from India Scheme China 5.3%
(SEIS). Now, all service providers located in India Hong Kong 3.5%
and earning foreign exchange, regardless of the Singapore 2.85%
Constitution or profile of the service provider, who is UK 2.8 %
exporting notified services, would be eligible for the Netherlands 2.67%
benefits at the rate of 3% or 5% of net foreign Germany 2.65%
exchange earnings. Bangladesh 2.62%
The reward issued as Duty Credit Scrip under this Nepal 2.29 %
scheme and goods imported by using this scrip will
Indian Imports
be freely transferable and usable for all types of
goods/services for payment of custom duty, excise An import is any good or service brought into one country from
duty and service tax. Incentives (MEIS and SEIS) another country in a legitimate fashion, typically for use in trade.
now are available to units located in SEZs also. Import goods or services are provided to domestic consumers by
foreign producers.
India’s Foreign Trade Position An import in the receiving country is an export to the sending
India’s participation in foreign trade was continuously country. Import of goods normally requires involvement of the
declining till 1980. Since 2001, it has continually custom authorities in both the country of import and the country
improved. As per the current ranking (2018), India is of export and is often subject to import quotas, tariffs and trade
the 16th largest exporter and 11th largest importer of agreements.
foreign trade. Imports in India are reported by the Directorate General of
According to Economic Survey 2020-21, among India’s Commerce. Among the major items of import, the value of
trading partners, the top 5 countries with which India Petroleum, Oil and Lubricants (POL) grew in the financial year of
has negative bilateral trade balance are China, 2019-20. The other major items of import are gold, pearl/stones,
Switzertand, Saudi Arabia, Iraq and South Korea while petroleum products, coal/coke, telecom instruments, iron and
the top 5 countries with which it has surplus trade steel in the financial year of 2019-20. Capital goods is the other
balance are USA, UAE, Bangladesh, Nepal and UK. major import category.
India has the highest trade deficit with China. In 2020-21, Indian imports were valued at $ 388.92 billion, an
18% drop from 2019-20, when the country imported goods and
India’s Trading services worth $ 474.71 billion.
India’s overall exports (Merchandise and Services Top Import Destinations (2019-20 in % Share)
Combined) in 2019-20 are estimated to be USD$ China 13.7%
528.45 billion. Overall imports in April, 2019-March United States 7.5%
2020 are estimated to be USD$ 598.61 billion. United Arab Emirates 6.3%
Saudi Arabia 5.6%
Indian Exports Iraq 5%
Exports measure the amount of goods or services that Hong Kong 3.5%
domestic producers provide to foreign consumers. It is Switzerland 3.5%
good that is sent to another country for sale. In the past, South Korea 3.3%
export of commercial quantities of goods normally Indonesia 3.1%
required involvement of the custom authorities in both Singapore 3.1%
the country of export and the country of import.
More recently, with the advent of small trades over the Trade Composition
internet such as through Amazon and E-bay, exports Export Composition
have largely by passed the involvement of customs in
The commodity composition of India’s trade has undergone
many countries due to the low individual values of these
many changes since liberalisation and has been driven by trade
trades. Nonetheless, these small exports are still
subject to legal restrictions applied by the country of policy, movements in international prices, and the changing
export. pattern of domestic demand.
Indian exports averaged 246.76 INR billion from 1978 Trade Composition Exports
until 2013. India is also one of Asia’s largest refined The merchandise export stood at US$ 314.31 billion in
product exporters with petroleum accounting for around
2019-20. The estimated value of services export for 2019-20
18% of total exports.
stood at US$ 214.14 billion. Petroleum products, precious
Magbook ~ India’s Foreign Trade 75
The central government has sanctianed 60 AEZs

Export Processing Zone (EPZ)
comprising about 40 agricultural cammodities. AEZs is
A Free Trade Zone (FTZ) or Export Processing Zone (EPZ), spread across 20 states in the country.
also called foreign-trade zone, formerly free port, is an His objective of setting up AEZs is to coverage the efforts
area within which goods may be landed, handled, made hitherto by various central and state government
manufactured or reconfigured and re-exported without the departments for increasing exports of agricultural
intervention of the customs authorities. commodities from India.
Only when the goods are moved to consumers within the
country, in which the zone is located do they become
subject to the prevailing customs duties.
General Agreement on
Free-trade zones are organised around major seaports,
Tariffs and Trade
international airports and national frontiers-areas with many The General Agreement of Tariffs and Trade (GATT) was a
geographic advantages for trade. It is a region where a multilateral agreement regulations international trade.
group of countries has agreed to reduce or eliminate trade According to its preamble, its purpose was the
barriers. Free trade zones can be defined as labour intensive “Substantial reduction of tariffs and other trade barriers
manufacturing centres that involve the import of raw and the elimination of preferences, on a reciprocal and
materials or components and the export of factory products. mutually advantageous basis.”
It was negotiated during the United Nations Conference
Special Economic Zone (SEZ) on Trade and Employment and was the outcome of the
Asia’s first Export Processing Zone (EPZ), was set-up in failure of negotiating governments to create the
Kandla, India in 1965. The first SEZ Policy was announced International Trade Organisation (ITO).
in April 2000, which inter-alia provided for to make SEZ an GATT was signed in 1947 and lasted until 1994, when it
engine of growth supported by quality infrastructure was replaced by the World Trade Organisation in 1995.
backed up by attractive fiscal package. The original GATT text (GATT 1947) is still in effect under
To import stability to the SEZ regime, SEZ Act, 2005 the WTO framework, subject to the modifications of GATT
was enacted and which came into effect from 10th 1994.
February, 2006. As per the provisions of the SEZ Act,
2005 100% FDI is allowed in SEZs through the automatic GATT and the World Trade
route. Incentives The act offers a highly attractive fiscal Organisation (Uruguay Round)
incentive package, which ensures In 1993, the GATT was updated (GATT 1994) to include
—Exemption from custom duties, central excise duties, service new obligations upon its signatories. One of the most
tax, central sales taxes and securities transaction tax to both
significant changes was the creation of the World Trade
the developers and the units.
Organisation (WTO).
—Tax holidays for 15 years (currently the units enjoy a 7 years
tax holiday), i.e. 100% tax exemption for 5 years, 50% for the The 75 existing GATT members and the European
next 5 years and 50% for the ploughed back export profits for Communities became the founding members of the WTO
the next 5 years. on 1st January, 1995.
—100% income tax exemption for 10 years in a block period of
The other GATT members rejoined the WTO in the
15 years for SEZ developers.
following 2 years (the last being Congo in 1997). Since,
Infrastructure Provisions have been made for
the founding of the WTO, 21 new non-GATT members
—The establishment of free trade and warehousing zones to
have joined and 29 are currently negotiating membership.
create world class trade-related infrastructure to facilitate
import and export of goods aimed at making India a global There are total of 164 member countries in the WTO.
trading hub. The setting up of offshore banking units and units Afghanistan became the new member as on 29th July,
in an International Financial Service Centre in SEZs. 2016. Russia and Vanuatu became members in 2012 but
—The public private participation in infrastructure development. Syria and SFR Yugoslavia have not rejoined the WTO.
The setting up of a ‘SEZ authority’ in each Central
Government SEZ for developing new infrastructure and Black Money
strengthening the existing one. Black money is unaccounted for and untaxed cash
generated by dealings in black economy. Black money
Agri Export Zones (AEZ) proceeds are usually received in cash from underground
With the prime objective of boosting agricultural exports economic activity and, as such, is not taxed.
from India in March 2001, Government of India Recipients of black money hide it, spend it only in the
announced a policy of setting up the Agri Export Zones underground economy, or attempt to give it the
(AEZs) across the country. appearance of legitimacy through money laundering.
Chapter ten
Demographic Profile of India
These four stages have been described below:
Demography
India comes next only to Demography is a statistical study of First Stage
China as regards to the human population. It studies a variety of Stage of high birth rate and high death
size of its population, but variables related to population like size, rate.
growth, distribution, density, composition Birth and death rates are both high,
is seventh in the world
and their spatial and temporal variations. population growth is slow and fluctuating.
as regards to the area. A broader study of demography also
Thus, on 2.4% of world’s includes the relationship between the Second Stage
area and with 1.8% of aforementioned variables and the (Early Expanding)
world’s income, India is economic, social, cultural and other
Stage of high birth rate and low death rate:
factors.
maintaining 18% of —Birth rate remains high death rate falls.
Demographics are the quantifiable Population begins to rise rapidly.
world's population. It statistics of the given population based
clearly indicates that on the study of demography. Third Stage (Late Expanding)
there is excessive burden Stage of declining birth rate and low death
of population Theory of Demographic rate:
in India. Transition —This stage is characterised by decline in birth
The Demographic Transition theory is a rate, low death rate and low population
generalised description of the changing growth (growth rate of population declines).
pattern of mortality fertility and growth —Birth rate starts to fall; death rate continues
to fall. Population continues to rise.
rates as societies move from one
demographic regime to another.
Theory of Demographic Transition is
Fourth Stage (Low Fluctuating)
Stage of low birth rate and low death rate:
credited to Frank W Notestein, who
—In the fourth stage of demographic transition,
gave his theory in 1945. This theory
a low birth rate and low death rate lead to a
was based on the data from Western stationary or declining population.
countries, which experienced a —It is called a stage of stationary population.
transition in demography from the stage —Birth and death rates both are low.
of high birth rates and high mortality to Population is steady or declining as in many
a stage of low birth rates and low Western European nations at present.
mortality with a consequent declining
population.
According to this theory, all
Optimum Theory of
countries pass through stages of Population
demographic transition, which is This theory states that in every country,
accompanied by industrialisation and there is an optimum level of population.
economic development. While Notestein “The optimum population is that, which
gave three stages of demographic gives the maximum income per head.” If
transition, later demographers the population exceeds the optimum level,
expanded it into four stages. there is the problem of over population.
Magbook ~ Demographic Profile of India 79
India’s physiological density is much lower compared to Two Main causes of rise in urban population in India are
many other countries due to the availability of large arable as follows:
land.
Migration Effect
Rural life in India, suffers from many difficulties, such as
Census 2011 less opportunities of employment, low level of income,
◆
The Census 2011 is the 15th National Census survey lack of educational and training facilities, lack of health
conducted by the Census Organisation of India. and medical facilities etc. In order to get rid of these
◆
Mr C Chandramouli is the Commissioner and Registrar difficulties, rural people migrate to urban areas.
General of the Indian 2011 Census. Industrialisation Effect The industrial revolution brought
◆
The 2011, Indian National census has been conducted in about new production techniques. By this manufacturing
2 phases – house listing and population. has created more jobs opportunities in urban areas.
◆
The National Census survey covered all the 28 States of
the country and 7 Union Territories including 640 Age Structure/Composition
districts, 497 cities, 5767 Tehsils and over 6 lakh Age structure of the population of a country indicates the
villages. extent, to which the population of that country is productive
from the economic point of view.
Rural-Urban Population Population in the age group of 15-60 years is known as
Ratio of urban population to the total population of a working population. Population in the age group of 0-14
country is an index of the level of industrialisation of that years and above 60 years is known as non-working or
country. As industries gather momentum in a country, ratio dependent population. Higher proportion of working
of urban population goes on rising. population is beneficial for the economic development of
the country.
India is an agricultural country, so ratio of urban
population is less than the rural population. In India, percentage of population in the age group of
0-14 years is still high. In India, percentage of population
Important Facts Related to Rural/Urban above 60 years is increasing. That indicates higher life
Population (2011 Census) expectancy and reduction in death rate.
In the decade from 2001 to 2011, rural population
increased by 90.47 million, while urban population Demographic Dividend
increased by 91 million. For the first time, increase in It refers to an opportunity before a country with a high
urban population has outpaced the growth in rural share of population between the ages of 15 and 64, to
population. In percentage terms, the increase in rural and boost economic growth. This stage is reached when the
urban population was 12.18% and 31.80% respectively. country experiences lower fertility rates, which means that
the dependent population below the age of 15 years is low.
Himachal Pradesh (89.96%) has the largest proportion of
rural population, while Delhi (97.5%) has the highest The population above 64 years of age is also low due to
proportion of urban population. the lower life expectancies of the older generations. On
the other hand, the population between 15-64 is high,
Sex ratio in the country improved by 7 points, from 933 in
due to the higher birth rates in the previous generation.
2001 to 940 in 2011. The improvement in rural areas was
This reduces the dependency ratio (share of population
of one point from 946 to 947, while in urban areas, it
not engaged in productive employment and dependent on
improved by 26 points from 900 to 926. Kerala has the
others) and thus, boosts the economic growth.
highest sex ratio in total (1084), rural (1077) and urban
(1091) population. A larger working population also means that the domestic
savings rate is high (since, the dependent population
Child sex ratio (0-6 age group) has dropped in the country
does not increase savings, but reduces them) and thus,
by 13 points between 2001 and 2011 (927 to 914). In
investment and economic growth is higher. Many East
rural areas, the fell was higher at 15 points (934-919),
Asian countries were able to achieve high economic
while in urban areas, it fell by 4 points (906-902).
growth rates by utilising their demographic dividend.
Andaman and Nicobar Islands has the highest child sex
ratio in rural areas (975), while Nagaland has the highest Demographic dividend can only be useful, if it is
in urban areas (979). accompanied by supportive national policies, which
improve literacy, provide employment, health care etc.
Literacy rate for the country as a whole was 74.04% and
High share of young population in a country can also
was 68.91% in rural areas and 84.98% in urban areas.
have negative consequences like social unrest, crime and
The increase in literacy rates was 9.21 points (total), 10.17
high divorce rates etc.
points (rural) and 5.06 points (urban).
Socio-Economic and Caste Census (SECC) Percentage of Elderly Persons to

The first post-independence, socio-economic and caste Total Population (India)
census was carried out by the Government in 2011. It will Total Population % of Elderly
be carried out by the State Governments with the financial Years
(in million) Persons
and technical support of the Government of India.
2001 70.69 6.90
The census will identify poor households based on certain
2006 83.58 7.50
automatic inclusion criterias, automatic exclusion criterias
2011 98.47 8.30
and deprivation indicators.
2016 118.10 9.30
Census, 2011 Old Age People 2021 143.24 10.70
India has the second largest population of older (60+) 2026 84.62 12.40
persons in the world. The number of older persons in the
population is expected to increase from 71 million in 2001 Religion Based Census Report
to 173 million in 2026. The Census 2011 data on Population by Religious
A majority (80%) of the elderly population in India is in the Communities, released by the Registrar General of India
rural areas, thus, making service delivery to them a on August 25, 2015. It showed that the percentage of
challenge and there are a large number of 80+ persons in Hindus dipped by 0.7 Percentage Points (PP) in the
the country. decade 2001 to 2011, pulling it for the first time
below 80%.
National Population Register (NPR)
The distribution is total population by six major religious
The Government of India has decided to create a National
communities namely, Hindu, Muslim, Christian, Sikh,
Population Register (NPR) for the country.
Buddhist, Jain besides ‘Other Religions and Persuasions’
NPR will be a register of the usual residents of the and ‘Religion not stated’.
country. It is compulsory for every citizen of the country to
register in a National Register of Indian Citizens (NRIC). Population by Religious Communities
NRIC will be prepared from NPR after verification of based on Census 2011
citizenship. Religion Population
The data collected from NPR will be sent to UIDAI, for
Hindus 96.63 crore (79.8%)
de-duplication and issue of Aadhar number. A person,
who has already registered with UIDAI will have to enrol Muslims 17.22 crore (14.2%)
again in the NPR. Christians 2.78 crore (2.3%)
Sikhs 2.08 crore (1.7%)
Aadhar Buddhists 0.84 crore (0.7%)
Aadhar is a 12 digit unique number, which the Unique
Jains 0.45 crore (0.4%)
Identification Authority of India (UIDAI) will issue to
residents of India on a voluntary basis. Other Religions & Persuasions 0.79 crore (0.7%)
The number will be generated randomly and will not be Religion Not Stated 0.29 crore (0.2%)
based on any classification. The numbers will be linked to
the basic biometric information of the person, including Population by Religious Communities in India
photograph, iris and fingerprints.
Religious Community Person Male Female
UIDAI All Religious
1028610328 532156772 496453556
(Unique Identification Authority of India) Communities
UIDAI is an attached office under the Planning Commission Hindus 827578868 428678554 398900314
of India, which was set-up in January, 2009, to issue unique Muslims 138188240 71374134 66814106
identify numbers to people in the country and own and
Christians 24080016 11984663 12095353
operate the Aadhar number database on an on-going
basis.The agency will issue only the number and not the Sikhs 19215730 10152298 9063432
smart cards. Buddhists 7955207 4074155 3881052
The agency is headed by a chairman, who holds a cabinet Jains 4225053 2177398 2047655
rank. The first Chairman of UIDAI is Nandan Nilekani, Other Communities 6639626 3332551 3307075
former co-chairman of Infosys technologies.
Self Check
1. The present demographic transition of India is Codes
indicative of (a) 1, 2, 3 (b) 1, 3, 2
(a) high population growth potential but low actual growth. (c) 3, 1, 2 (d) 2, 1, 3
(b) high population growth potential and high actual growth.
7. Which of the following statements is/are correct?
(c) Partial industrialised economy.
(d) typically increasing urbanisation.
1. As per the 2011 census, the population of India has more
than tripled since independence.
2. Arrange the following states in decreasing order of their 2. India’s 2011 census showed that the country’s population
respective literacy rates. had grown by 181 million people in the prior decade.
1. Goa 2. Mizoram Which of the statement(s) given below is/are correct?
3. Kerala 4. Lakshadweep (a) Only 1
(a) 3, 1, 2, 4 (b) 3, 2, 1, 4 (b) Only 2
(c) 4, 3, 1, 2 (d) 3, 4, 2, 1 (c) Both 1 and 2
(d) Neither 1 nor 2
3. Consider the following statements regarding census of
India. 8. Which of the following statement deals with the benefit
1. Census is held all places in India simultaneously. of National Population Register?
2. Census, 2011 shows decline in population for the first (a) Strengthen security of the country and improve planning
time in history of India. and prevent indentity theft
Which of the statement(s) given above is/are correct? (b) Gives the basic biometric information
(a) Only 1 (b) Only 2 (c) Estimated the community based population
(c) Both 1 and 2 (d) None of these (d) Provision for population education in educational
institution
4. Which of the following causes are major hurdle in
tapping demographic dividend in India? 9. What percentage of the total population of the world
1. Appropriate labour policy of India. resides in India, as estimated in 2011? [UPPCS 2012]
2. Less female practice pation in workforce. (a)15 (b) 17.5
(c) 20 (d) 22.5
3. Migration.
4. Low inclusiveness and less employment generation. 10. During which decade did the population record a
Which of the following statements is/are correct? negative growth rate in India? [UPPCS 2012]
(a) 1 and 2 (b) 2 and 3 (a) 1921-1931 (b) 1911-1921
(c) 1, 2 and 4 (d) All of these (c) 1941-1951 (d) 1941
5. Factors affecting population change are 11. Which of the following statements is/are correct?
(a) Births, migration and deaths. 1. Share of population of 0 to 14 years is low in 2011 but
(b) Births and deaths only. high in 1961, as a percentage of total population.
(c) Births, deaths and marriage. 2. According to 2011 census, sex ratio in India was 940
(d) Births, deaths and life expectancy. females to 1000 males.
6. Which arrangement of following would show the correct 3. Child sex ratio (0-6 age group) has dropped in the country
sequence of demographic transition as typically by 13 points between 2001 and 2011.
associated with economic development? [UPSC 2013] Which of the statement(s) given below is/are correct?
1. High birth rate with high death rate. (a) Only 2
(b) 1 and 2
2. Low birth rate with low death rate.
(c) 1, 2 and 3
3. High birth rate with low death rate.
(d) 2 and 3
1. (d) 2. (d) 3. (a) 4. (d) 5. (a) 6. (b) 7. (c) 8. (a) 9. (b) 10. (b)
11. (c)
Magbook ~ Agriculture 85
4th Plan (1969-74) This plan aimed at systematic

application of science and technology to improve
Green Revolution in India
agricultural practices. The allocation to agriculture sector The introduction of high-yielding varieties of seeds after
was 15% of the total plan outlay. Agricultural growth 1965 and the increased use of fertilizers and irrigation are
reached a level of 4.16% during this plan. known collectively as the Green Revolution, which
5th Plan (1974-79) The 5th Plan was the only period, provided the increase in production needed to make India
when the actual foodgrain production exceeded the self-sufficient in foodgrains.
targeted production.The agricultural growth under this The term ‘Green Revolution’ is a general one that is
plan was 3.28%. applied to successful agricultural experiments in many
6th Plan (1980-85) Agriculture growth rate in this plan third world countries. It is not specific to India, but it was
was 4.3% as against the targeted 3.8% . The year most successful in India.
1983-84, of the plan is hailed as the Second Green There were three basic elements in the method of the
Revolution. Agricultural sector during this plan made a Green Revolution:
growth of 2.52%. It was the result of expansion in (i) Continued expansion of farming areas.
supplies of inputs and services to farmers, agricultural (ii) Double-cropping existing farmland.
extension and better management. (iii) Using seeds with improved yields.
7th Plan (1985-90) Total plan outlay on agriculture was
6% and except cotton, none of the targets fixed for Drawbacks of First Green
various sectors was achieved. During this plan agricultural
growth was 3.47%.
Revolution
While the first Green Revolution achieved many
8th Plan (1992-97) Agriculture growth rate in this plan
successes, there were also many flaws in its strategy,
was 2.44% on account of weather and climate conditions
which were not envisaged at that time. These flaws
being favourable.The agricultural sector registered an
include, negative impact on environment and health due
impressive growth rate of 4.68%.
to excessive use of fertilizers and pesticides; depletion of
9th Plan (1997-2002) Agriculture growth rate in this plan
soil nutrients; depletion of water resources including
was 2.44%. All the set targets were not achieved and ground water; higher costs of input etc.
hence, 9th Plan was a failure on agriculture front. In this
plan, the agricultural growth fell to 2.02%.
Bringing Green Revolution in
10th Plan (2002-07) This plan adopted the prescription of
the National Agricultural Policy (NAP), 2000 and
Eastern India Programme (BGREI)
therefore, envisaged better management of resources, soil The BGREI was launched in 2010-11, as a part of the Rashtriya
and water, so as to promote sustainable and inclusive Krishi Vikas Yojana. It was implemented in the Eastern region of
agricultural growth. The agricultural sector grow at 2.3%. the country. It focused on resource allocation and utilisation. It
11th Plan (2007–12) This Plan witnessed an average has resulted in a robust increase in foodgrain production,
annual growth of 3.6% in the Gross Domestic Product growth rate being estimated at 11.9% during 2011-12 as
(GDP) from agricultural and allied sector against a target against the overall growth rate of 2.2% of the country as a
of 4.0%. While it may appear that the performance of the whole. The Indian state of West Bengal, Assam, Bihar,
agriculture and allied sector has fallen short of the target, Chattisgarh, Jharkhand, Odisha and Eastern Utter Pradesh are
production has improved remarkably, growing twice as getting the benefits of BGREI. Based on the past experiences
fast as population. and performance of 12th Five Year Plan, it has been decided to
continue the centrally sponsored scheme of BGREI beyond 12th
Agriculture in the 12th Plan (2012-17) Plan i.e. 2015-16 to 2019-20.
As against the 12th Five Year Plan (2012-17) target 4%
growth for the agriculture and allied sectors, the growth Certain other conditions have also emerged after the first
registered was 1.5% in 2012-13, 4.2% in 2013-14, -0.2% Green Revolution, which are having a negative impact on
in 2014-15 1.2% in 2015-16, and 4.9% in 2016-17. agriculture like, land constraints due to diversion of land
Some of the challenges faced by agriculture during the to other economic areas; climate change; diversion of
12th Plan include a shrinking land base, dwindling water crops to bio-diesel; fragmentation of land holdings making
resources, adverse impact of climate change, shortage of farming unviable.
farm labour and increasing costs and uncertainties For these reasons and to ensure the food security of the
associated with volatility in international markets. The 12th country, there is a need for a Second Green Revolution in
Plan targeted an average annual growth of 4% in the country, which would address all the problems.
agriculture.
—The Protection of Plant Varieties and Farmers’ Rights (PPV and The total irrigation potential in the country has
FRs) authority established in November 2005, at New Delhi, has increased from 81.1 million hectare in 1991-92 to
been mandated to implement provisions of the PPV and FR Act, about 139.9 million hectare in 2018-19.
2001.
—PPV and FR Act has been passed within the context of Sui Initiation of the Accelerated Irrigation
Generis System of the WTO, so as to effectively block the efforts Benefit Programme (AIBP)
of MNCs to capture the seed market by getting patents in their
favour and gradually buying out small seed growers in the
From 1996-97, to extend assistance for the completion
country. of incomplete irrigation schemes. Under this
programme, projects approved by the Planning
Sui Generis System Commission (Now NITI Aayog) are eligible for
TRIPS Agreement offers three options for plant varieties and assistance. Monitoring of the projects covered under
their protection, viz, Patent System, Sui Generis Systems and the AIBP is periodically done by the Central Water
combination of two. Commission.
Under Sui Generis System, farmer has the right to save, use, National Mission on Micro Irrigation
exchange share or sell the farm produce including seeds. (NMMI)
However, farmer cannot sell the branded seeds. Irrigation consumes more than 80% of the water
Seed Bank resources of the country. Availability of adequate
quantity and quality of water is the key to achieve
A scheme for the establishment and maintenance of a seed
higher productivity levels.
bank has been in operation since, 1999-2000.
This mission will result in 2.85 million hectare to be
The basic objective of the scheme is to make available seeds
brought under micro irrigation; savings in use of
for meeting contingent requirements and also develop
irrigation water, fertilizer and electricity; increase in
infrastructure for production and distribution of seeds.
production and productivity of crops; convergence with
The scheme is being implemented through National Seed other on going schemes of Department of Agriculture
Corporation of India and 12 State Seeds Corporations of and Cooperation (DAC) and other ministries on creation
various states. of water harvesting structures and linking the same with
Micro Irrigation System for higher water use efficiency
Fertilizers and enhanced return to the farmers.
India is meeting 85% of its urea requirement through
indigenous production, but depends heavily on imports for its
Pradhan Mantri Krishi Sinchai Yojana
phosphatic and potash (P and K) fertilizer requirements. (PMKSY)
Fertilizer Subsidy
With an eye on improving farm productivity, the
government has decided to spend ` 50,000 crore over
Fertilizer subsidy is borne by the Union Government. The two the next 5 years under the Pradhan Mantri Krishi
objectives of providing fertilizer subsidy are as follows: Sinchai Yojana (PMKSY) launched in 2015.
(i) Making fertilizers available to the farmers at affordable The major objective of the PMKSY is to achieve
prices so as to encourage intensive cultivation. convergence of investments in irrigation at the field
(ii) Attracting more investment to the domestic fertilizer level expand cultivable area under assured irrigation
industry. improve on farm water use efficiency to reduce
Since 2010, government is implementing a Nutrient Based wastage of water, enhance adoption of precision
Subsidy Scheme (NBS) in which a fixed subsidy is irrigation and other water saving technologies.
announced on per kg of nutrient annually. Additional subsidy
is given to micro-nutrients. The prices of urea however,
Neeranchal Watershed Yojana
remain under statutory price control. The project is implemented by the Union Ministry of
Rural Development over a six-year period (2016-21) to
Irrigation achieve objectives of PMKSY on 7th October, 2015. It
will support the Pradhan Mantri Krishi Sinchayee
It is one of the most important inputs for enhancing
Yojana (PMKSY) in hydrology and water management,
productivity and is required at different critical stages of plant
agricultural production systems, capacity building and
growth of various crops. The Government of India has taken
monitoring, and evaluation. It seeks to ensure access to
up irrigation potential creation through public funding and is
irrigation to every farmland (Har Khet Ko Pani) and for
assisting farmers to create potential on their own farms.
efficient use of water (Per Drop More Crop).
Targeted Public Distribution States may choose to provide additional subsidy to the
beneficiaries by reducing prices below CIP.
System (TPDS) Price support through MSP and procurement prices is
The TPDS as it operated earlier had been widely criticised extended only for specific crops. This has led to a change
for its failure to serve the population below the poverty in cropping pattern in the country towards certain specific
line. Therefore, on the basis of the recommendations of crops such as rice and wheat whose MSP has increased a
the Chief Ministers Conference held in July, 1996, an lot. It has also benefitted farmers in those states where
effort was made to streamline the PDS, through the such crops are produced in a larger number.
introduction of the Targeted Public Distribution System
(TPDS) in June, 1997. Decentralised Procurement Scheme
This system follows a 2 tier subsidised pricing structure In view of a this, a decentralised procurement scheme
for families, Below Poverty Line (BPL) and for those Above was started in 1997, under which State Governments
Poverty Line (APL). themselves procure and distribute foodgrains. The
The identification of poor under the scheme is done by difference between the economic cost fixed for the State
the states as per the state-wise poverty estimates of and the Central Issue Price (CIP) is passed on to the
Planning Commission. states as subsidy.
In order to make the TPDS more focused and targeted The objectives of this scheme are to cover more farmers
towards the poor, the Antyodaya Anna Yojana was under MSP operations, improving efficiency of PDS,
launched in December 2000. providing foodgrains suited to local tastes and reducing
transportation costs.
The scheme contemplates identification of 10 million poor
families and providing them with 25 kg of foodgrains per
family per month at a low price of ` 2 per kg for wheat
National Food Security Act 2013,
and ` 3 per kg for rice. (NFSA)
NFSA is the biggest intervention of its kind in the world in
Agricultural Prices and the realm of food security. If implemented property this
Procurement law can improve the lives of millions in this country.
The Government of India undertakes an agricultural Some of the highlights of this act are as follows:
pricing policy and procurement programme to provide —It extends to the whole of India.
reasonable returns to the farmers and instil certainty and —Priority households are entitled to 5 kgs of food grains per
confidence in them. person per month and Antyodaya households to 35 kgs per
household per month.
The procurement programme is also essential to the
—Combined coverage of priority and Antyodaya households will
functioning of the Public Distribution System (PDS). extend to 75% of the rural population and 50% of the urban
Price Fixation population.
—PDS issue prices will be 3/2/11 per kg for rice/wheat/millets.
Another method of intervention in the market mechanism These may be revised after 3 years.
has been the announcement of different administered —For children in the age group 6 months to 6 years, an age-
prices viz minimum support prices statutory minimum appropriate meal will be provided through the local Anganwadi.
prices procurement prices issue prices. —For children aged 6-14 years, one free mid-day meal in all
These prices are announced for different agricultural government and government aided schools up to class VII.
crops by the Government of India on the —For children below 6 months ‘exclusive breast feeding will be
recommendations of Commission for Agricultural Costs promoted’.
and Prices (CACP). —Every pregnant and lactating mother is entitled to a free meal
Minimum Supports Prices (MSP) These are in the nature at the local Anganwadi (during pregnancy and 6 months after)
and maternity benefits of ` 6000 t o b e p a i d i n i n s t a l l m e n t s .
of a guarantee to the producers in that prices paid to the
farmers cannot be lower than the MSP. —The act does not specify criteria for identification of eligible
households. Central Government will determine state-wise
Procurement Prices These are higher than the MSP and coverage and states will then identify the beneficiaries.
are the prices at which government buys from farmers. In —State food commissions will be created to monitor
recent years, government has been announcing endless implementation of the act.
procurement so, that farmers have been selling to the —Grievance Redressal System consists of the district.
government at procurement prices. Grievance Redressal officer and the State Food Commission.
Central Issues Prices (CIP) It indicate the prices at which —Transparency provisions include placing PDS records in the
government supplies produce to the fair price shops and public domain, conducting periodic social audits, use of
ration depots. Wheat and rice are issued to the State information and communication technology and setting up of
Governments/UTs at CIP for distribution through the PDS. vigilance committees.
country, the Co-operative Credit Institutions, both in short Banking Regulations Act, 1949, the Banking
and long-term structure, are the main institutional agencies Regulations Act empowers NABARD (National Bank for
for the dispensation of agricultural credit. Agriculture and Rural Development) to undertake the
After nationalisation, Commercial Banks have also started inspection of RRBs.
giving loans for farming operations. Regional Rural Banks Area of RRBs is limited to a specified region comprising
and farmer service societies also strengthen the rural credit one or more districts of a state. They grant direct loans
programmes. and advances only to small and marginal farmers, rural
National Bank for Agriculture and Rural Development artisans, agricultural labourers and others of small
(NABARD) has been established as an apex agricultural means for productive purposes. Lending rates of RRBs
finance institution. cannot be higher than those of co-operative societies in
any particular state.
Co-operative Credit Societies RRB (Amendment) Act, 2015
Rural co-operative credit institutions in India have been
organised into short-term and long-term structures. The Regional Rural Banks (Amendment) Act seeks to
amend the existing Act so as to increase the authorised
The short-term co-operative credit structure consists of
capital of each Regional Rural Bank (RRB) from ` 5
three-tiers–Primary Agricultural Credit Societies (PACS) at the
crore to ` 2000 crore divided into ` 200 crore of fully
village level, District Central Co-operative Banks (DCCB) at
paid shares of ` 10 each.
the district level and State Co-operative Banks (SCB)
organised at the state level. The bill also provides that the authorised capital of any
Regional Rural Bank shall not be reduced below `
For long-term credit requirements of the farmers long-term
1crore and shares in all cases to be fully paid up
credit co-operatives have been set-up. These are organised
shares of ` 10 each. It also provides that the issued
at two levels and differ from state to state. Generally they are
capital of each rural bank shall not be less than
of four types which are as follows
` 1crore.
(i) Unitary structure in which State Co-operative Agricultural
At present, there are 43 RRBs and they are doing well.
and Rural Development Banks (SCARDBs) operate at state
The amendment to raise the authorised capital of the
level through their branches and have direct membership
RRBs from ` 5 crore to ` 2000 crore, will strengthen
of individuals.
these institutions and further deepen financial inclusion.
(ii) Federal structure in which Primary Co-operative
Agricultural and Rural Development Banks (PCARDBs) Kisan Credit Card (KCC) Scheme
operate as independent units at the primary level and Kisan Credit Cards were started by the Government of
federate themselves into SCARDS at the state level. India, Reserve Bank of India (RBI) and National Bank
(iii) Mix of federal and unitary types. for Agricultural and Rural Development (NABARD) in
(iv) No separate banks exist and long-term credit is provided August 1998, to help the farmers access timely and
by the long-term section of State Co-operative Banks adequate credit. Since 1998, about 10.78 crore KCCs
(SCBs) co-operatives accounted for 17.2% of institutional had been issued up to October 2011.
agricultural credit in 2011-12. The scheme includes reasonable components of
consumption credit and investment credit within the
Commercial Banks and Rural overall credit limit sanctioned to the borrowers, to
Credit provide adequate and timely credit support to the
Share of commercial banks in rural credit was meagre just after farmers for their cultivation needs. Budget 2012-13,
independence. has expanded the scope of KCCs as now they can be
used as smart cards and ATMs. The card is valid for 3
Regional Rural Banks (RRBs) years and subject to annual renewals.
RRBs were set-up to supplement the efforts of co-operatives
and commercial banks. NABARD : An Overview
In 1976, the Parliament enacted the Regional Rural Banks NABARD was set-up by the Government of India as a
Act, 1976 to provide for the incorporation, regulation and development bank with the mandate of facilitating
winding up of Regional Rural Banks. The Act has been made credit flow for promotion and development of
effective from the 26th September, 1975. agriculture and integrated rural development.
The equity of the RRBs is contributed by the Central The mandate also covers supporting all other allied
Government, concerned State Government and the sponsor economic activities in rural areas, promoting
bank in the proportion of 50:15:35. sustainable rural development and ushering in
Besides the Reserve Bank, which is the regulatory authority prosperity in the rural areas.
for the RRBs in accordance with the provisions of the
Agriculture Insurance In 2015 FMC was merged with Securities and Exchange
Board of India (SEBI) which became single regulator of
There are various major crop insurance schemes under stock and commodity market in India.
implementation in the country:
National Agricultural Insurance Scheme

Major Schemes of Agriculture
(NAIS) There are various major scheme related to agriculture,
which is given below:
The NAIS was a government sponsored central sector crop
insurance scheme being implemented in the country since Pradhan Mantri Kisan Maan Dhan Yojana
1999-2000, season with the objective of providing financial The Pradhan Mantri Kisan Maan Dhan Yojana (PM-KMY) was
support to farmers in the event of failure of crops as a result launched at Ranchi, Jharkhand by the Prime Minister
of natural calamities, pests and diseases. The Agriculture Narendra Modi on 12th September 2019. PM-KMY Scheme
Insurance Company of India Limited is the implementing in India is a central sector scheme for the farmers aged
agency for the scheme. between 18 to 40 years.
The beneficiary can become a member of the PM-KMY
Modified NAIS (MNAIS) Scheme by registering under the Pension Fund managed
With the aim of further improving crop insurance schemes, by the Life Insurance Corporation of India (LIC). The
the MNAIS is under implementation on pilot basis in 50 members are thus required to make a monthly
districts in the country from rabi 2010-11 season. Both the contribution to the Pension Fund between ` 55/- to
Agri-insurance scheme NAIS and modified NAIS have been ` 200/-, depending on their age with the provision of
replaced with a unified and comprehensive scheme; equal contribution by the Central Government. This
Pradhan Mantri Fasal Bima Yojana. scheme is applicable for all the small and marginal
farmers.
Agriculture Insurance Company of India
Limited PM Kisan Samman Nidhi Yojana
AICIL was incorporated under the Companies Act, 1956 The Government with a view to augment the income of
in 2002 as a specialised participation from General the farm families is implementing a Central Sector
Insurance Company four public sector GICs and NABARD. Scheme, namely Pradhan Mantri Kisan Samman Nidhi
Yojana. PM Kisan Nidhi Yojana is for small and marginal
Pilot Weather Based Crop Insurance farmers for helping in financial condition for purchase of
Scheme (PWBCIS) seed, fertilizers etc.
Similarly, the WBCIS is also being implemented as a This scheme was started on 24th February, 2019 from
central-sector scheme from kharif 2007 season. The Gorakhpur (UP). Under this scheme total amount of
scheme is intended to provide insurance protection to ` 6000 is transferred to bank accounts of farmer in
farmers against adverse weather incidence such as deficit 3 equal installments in every four months. The scheme is
and excess rainfall, high or low temperature and humidity expected to cover around 14.5 crore farmers for year
that are deemed to adversely impact crop production. 2019-20. All landholding farmer’s families, which have
cultivable landholding in their names are eligible to get
benefit under the scheme upto 2 hectares.
Commodity Futures Market
The commodity futures market facilitates the price KUSUM Scheme
discovery process and provides a platform for price risk The Union Government has announced ` 1.4 lakh crore
management in commodities. Currently, 113 commodities Kisan Urja Suraksha evam Utthaan Mahaabhiyan
are notified for futures trading of which 51 are actively (KUSUM) scheme for promoting solar farming i.e.
traded in 5 national and 16 regional commodity specific decentralised solar power production of upto 28,250 MW
exchanges. to help farmers. The Union Budget 2018-19 has allocated
Forward Markets Commission ` 48,000 crore for the scheme for the ten-year period.
The Forward Markets Commission (FMC) was the Government will provide 60% subsidy on solar pumps to
regulator for commodity futures trading, which it regulates farmers. It will be shared between Centre and States while
under the provisions of the Forward Contracts (Regulation) 30% will be provided through bank loans. The balance
Act, 1952. cost will be borne by farmers.
As of 1st August, 2021, there are 22 Mega Food Parks (iv) NFSM-Coarse cereals and (v) NFSM-Commercial
functioning in the country. crops.
Objectives of the Mega Food Park Scheme are as follows:
National Horticulture Mission (NHM)
—To provide state of the art infrastructure for food processing in
the country on a pre-identified cluster basis. It was launched in 2005-06 for the holistic development of
—To ensure value addition of agricultural commodities. the horticulture sector through ensuring forward and
—To establish a sustainable raw material supply chain for each backward linkages and with the active participation of all
cluster. To facilitate induction of latest technology. the stakeholders.
—Quality assurance through better process control and capacity 18 States and the 3 Union territories of Andaman and
building. Nicobar Islands Lakshadweep and Puducherry are
covered under the mission and the mission covers 372
National Mission on Food districts.
Processing (NMFP) National Bamboo Mission (NBM)
NMFP has been launched under the 12th Plan for a
decentralised implementation of various schemes under The NBM is a Centrally Sponsored Scheme which was
the ministry of food processing with the help of State launched in 2006 -07 for harnessing the potential of the
Governments. bamboo crop in the country. At present, it is being
It consists of the following main schemes technology up implemented in 27 States with a total outlay of ` 568.23
gradation of food processing industries, cold chain crore. ` 1200 crore have been allotted for this mission in
facilities for non-horticultural produces, modernisation of the budget of 2018-19.
abattoirs, primary processing centres/collection centres in
rural areas, upgradation of quality of street food etc. Horticulture Mission for North-East and
Himalayan States (HMNEH)
National Food Processing The technology mission for North-Eastern states including
Development Council (NFPDC) Sikkim, aimed at the holistic development of all the
horticulture crops, has now been renamed as HMNEH.
NFPDC has been set-up to provide guidance to all schemes of
the ministry of food processing including NMFP. It will comprise The main objective of the mission is to set-up nurseries
the Agriculture Minister as Chairman, representatives of State for production and distribution of quality planting
Government, industry associations and related government materials.
officials.
Rashtriya Krishi Vikas Yojana (RKVY)
The RKVY was launched in 2007-08, with an outlay of
National Food Security Mission
` 25000 crore in the 11th Plan for incentivising states to

(NFSM) enhance public investment to achieve a 9% growth rate in
It was launched in rabi 2007-08. The mission aims to agriculture and allied sectors.
increase production through area expansion and
The RKVY permits taking up national priorities as
productivity; create employment opportunities and
sub-schemes allowing flexibility in project selection and
enhance the farm level economy to restore confidence of
implementation.
farmers.
The sub-scheme under RKVY are as follows:
To intensify the pulses production programme, since
2010-11, two additional programmes have been adopted —Bringing Green Revolution to Eastern region - Uttar Pradesh,
Jharkhand, Bihar, West Bengal, Assam, Odisha and
under NFSM. These are as follows:
Chhattisgarh introduced in 2010-11.
—Merging of the pulse component of the Integrated Scheme of —Integrated development of 60000 pulses and oilseeds villages
Oilseeds, Pulses, Oil Palm and Maize (ISOPOM) with the in rainfed areas introduced in 2010-11.
NFSM. Jharkhand and Assam have also been included under —Promotion of Oil Palm.
the programme. —Initiative on village clusters.
—Accelerated Pulse Production Programme (APPP) was —Nutri-cereals.
initiated to boost the production of pulses by active promotion —National Mission for protein supplements.
of technologies in 1000 clusters of 100 hectare each. —Accelerated Fodder Development Programme.
The National Food Security Mission (NFSM) during the —Rainfed Area Development Programme and
12th Five Year plan will have 5 components —National Mission on saffron-economic revival of Jammu and
Kashmir saffron introduced in 2010-11.
(i) NFSM-Rice (ii) NFSM-Wheat (iii) NFSM-Pules
Livestock Insurance Generation of additional 55 lakhs direct and indirect

gainful employment opportunities in the fisheries sector
A centrally sponsored scheme for livestock insurance is and allied activities.
being implemented in all the states with the twin
objectives of providing protection mechanism to farmers National Fisheries Policy, 2020
and cattle bearers against any eventual loss of their
animals due to death and to demonstrate the benefit of
In order to accelerate development of fisheries sector, the
the insurance of livestock and popularise it with the government will formulate fisheries management and
ultimate goal of attaining qualitative improvement in fisheries spatial plan.
livestock and its products. To provide overall guideliness for the implementation of
the policy and to review its objectives and progress a
The scheme benefits farmers and cattle bearer with
National Fisheries Development Council will be
indigenous/cross-breed milch cattle and buffaloes in 300
established.
selected districts. The benefit of subsidy is to be restricted
to two animals per beneficiary per household. To increase the fishermen’s income and boost exports, a
clustered approach for development of aquaculture will be
Poultry followed.
Four regional Central Poultry Development Organisations India’s Position in World Agriculture Production
located at Chandigarh, Bhubaneshwar, Mumbai and
Hessarghatta are focusing on production of stocks suitable Produce Global Rank (2020)
for backyard rearing, training to the farmers to upgrade Wheat 2nd
their technical skills. Rice/Paddy 2nd
The Poultry Development Scheme comprising three Total Pulses 1st
components, namely Assistance to State Poultry Farms,
Rural Backyard Poultry Development and Poultry Estates is Groundnut (in shell) 2nd
being implemented. Vegetables (with melons) 2nd
Fruits (excluding melons) 2nd
Fisheries
Sugarcane 2nd
Fish is an important source of and also an important
source of livelihood, production of fish, both marines and Tea 3rd
inland , has gone up from 5.6 million tonnes in 2000-01 Jute and Jute like fibres 1st
to 13.7 million tonnes in 2018-19. The marine exports Cotton (lint) 2nd
stand at about 5% of total exports of India and constitutes
19.23% of Agri-exports. India is second largest producer Total Milk 1st
in fishery sector. Total Eggs 3rd
Total Meat 5th
Pradhan Mantri Matsya Sampada
Yojana
On 10th September, 2020 Prime Minister Narendra Modi has Mobile Apps for Farmers
officially launched the Pradhan Mantri Matsya Sampada
Union Agriculture and Farmers Wealth Minister, Shri
Yojana through video conferencing. During the period
Radha Mohan Singh launched two mobile apps for the
2020-2021 to 2024-2025, estimated investment of ` 20,050
farmers on 23rd December, 2015.
crore are going to be done by the Government for this
scheme. Out of this, ` 12,340 crore is proposed for
beneficiary-oriented actvities in marine, inland fisheries and Mobile app ‘Crop Insurance’
aquaculture and about ` 7,710 crore for fisheries It will help the farmers not only to find out complete
infrastructure. The major aim of the government behind the details about insurance cover available in their area, but
scheme is also to calculate the insurance premium for notified crops,
Enhancing fish production by an additional 70 lakh tonne coverage amount and loan amount in case of a loaned
till 2024-25. farmer.
Increasing fisheries export earnings to ` 1,00,000 crore.
Doubling of incomes of fishers and fish.

Mobile app ‘Agrimarket Mobile’
This app automatically captures the location of person
Reducing post-harvest losses from 20-25% to about 10%.
using mobile GPS and fetches the market prices of crops
in those markets which fall within the range of 50 km.
Self Check
1. The Government of India fixes the Minimum Support 7. Consider the following statements
Prices after taking into account the recommendations 1. Agriculture and allied sectors contribute more than 15% of
of which among the following bodies? Gross Domestic Product of India.
(a) Ministry of Consumer Affairs, Food and Public Distribution 2. Share in total employment by agriculture as high as
(b) Cabinet Committee of Economic Affairs 48.9%.
(c) Planning Commission Which of the statement(s) given above is/are correct?
(d) Commission for Agricultural Costs and Prices (a) Only 1 (b) Only 2
2. Consider the following statements. (c) Both 1 and 2 (d) Neither 1 nor 2
1. The concept Evergreen Revolution was given by 8. Consider the following statements.
renowned agricultural scientist Norman Borlaug. 1. The accelerated Irrigation Benefits Programme was
2. Evergreen Revolution emphasises on organic agriculture launched during 1996-97 to provide loan assistance to
and green agriculture with the help of integrated post poor farmers.
management, integrated nutrient supply and integrated 2. The Command Area Development Programmes was
natural resource management. launched in 1974-75 for the development of water use
Which of the statement(s) given above is/are correct? efficiency.
(a) Only 1 (b) Only 2 Which of the statement (s) given above is /are correct?
(c) Both 1 and 2 (d) Neither 1 nor 2 (a) Only 1 (b) Only 2
3. Government of India established TRIFED in August (c) Both 1 and 2 (d) Neither 1 nor 2
1987, with an objective to save tribals from exploitation 9. National Horticulture Mission was launched in which of
by private traders. Which among the following is the the following Five Year Plans?
precise full form of TRIFED?
(a) Ninth Five Year Plan (b) Tenth Five Year Plan
(a) Tribal Federation of India Limited (c) Eleventh Five Year Plan (d) None of these
(b) Tribal Marketing Development Federation of India Limited
(c) Tribal Co-operative Marketing Development Federation of
10. The National Food Security Mission (NFSM) aims to
India Limited
enhance the production of
(d) Tribal Co-operative Federation of India Limited 1. Rice 2. Wheat
3. Pulses 4. Coarse Cereals
4. The importance of agriculture in Indian economy is
indicated by its contribution to which of the following? 5. vegetables.
Select the correct answer using the codes given below
(a) National income and employment [UPPCS 2006]
(a) 1, 2 and 3 (b) 1, 2 and 5
(b) Industrial development and international trade
(c) 2, 3 and 4 (d) 1, 2, 3 and 4
(c) Supply of foodgrains
(d) All of the above 11. Bringing Green Revolution to Eastern India in a sub
5. The Green Revolution in India has contributed to scheme of
(a) inter-regional inequality [WBPCS 2007]
(a) National Mission on Agriculture Extension and Technology
(b) inter-class inequality
(b) National Mission for Sustainable Agriculture
(c) inter-crop inequality
(c) Rashtriya Krishi Vikas Yojana
(d) All of the above
(d) It is not a sub-scheme.
6. The price at which the government purchases foodgrains 12. Consider the following statements about the National
for maintaining the Public Distribution System and for Agricultural Insurance Scheme (NAIS).
building up buffer Stocks are known as [IAS 2001] 1. The Scheme has been implemented from Rabi 1999-2000
(a) Minimum Support Prices
season.
(b) Procurement Prices 2. The scheme is available non-loanee farmers only.
(c) Issue Prices Which of the statement(s) given above is/are correct?
(d) Ceiling Prices (a) Only 1 (b) Only 2
1. (d) 2. (b) 3. (c) 4. (d) 5. (d) 6. (b) 7. (b) 8. (c) 9. (b) 10. (d)
11. (d) 12. (c)
Magbook ~ Indian Industry 101
The main aims of the industrial licensing policy were the
Industrial Policy Resolution,
development and control of industrial investment and
1948 (IPR) production as per national priorities, checking the concentration
The 1st Industrial Policy was announced in April 1948, by of industries and ensuring balanced regional development.
then Industrial Minister, Late SP Mukherjee. Its historic However, from time-to-time, many deficiencies in the
importance lies in the fact that it ushered in the system of licensing system came to light. The government set-up
‘Mixed Economy’ in the country i.e. it entrusted the task of several committees for the study of the licensing system and
industrial development on both private and public sectors. giving suggestions for its improvement.
Salient Features of IPR, 1948 Such committees included RK Hazari Committee, 1964 and
Dr Subimal Dutt Committee, 1967. On the basis of Subimal
Development of mixed economy.
Dutt Committee recommendation, government enacted the
State programmes for the development of industries. Monopolies and Restrictive Trade Practises (MRTP) Act, 1969.
Promotion of small-scale and cottage industries.
Foreign investment was allowed, but effective control Monopolies and Restrictive Trade
should be with Indians. Practises Act, 1969 (MRTP)
Industries classified into four categories: ◆
MRTP Act was enacted in 1969 and MRTP Commission was
(i) Public Sector
constituted in 1970, to prevent the concentration of economic
(ii) Mixed Sector power and to prohibit restrictive or unfair trade practices.
(iii) Controlled Private Sector ◆
Under the act, companies having assets beyond the threshold limit
(iv) Private and Co-operative Sector
(i.e. ` 20 crores in 1985) were placed under the purview of the act.
Certain restrictions are imposed on such companies like prior
Industrial Policy Resolution,
◆
approval of the MRTP. Commission for establishment of new

1956 undertakings, expansion of undertakings, mergers and
IPR, 1956 was the most comprehensive industrial policy, acquisitions.
which was formulated in the backdrop of the adoption of
the Constitution and the socio-economic goals. Industrial Policy Statement, 1977
The policy may be described as the ‘Economic The thrust of the policy was on decentralisation of the
Constitution’ of India, as it is not only outlined the basic
industries and the promotion of small-scale and cottage
framework of the future industrial policies (especially upto
industries. It introduced the concept of tiny sector within the
1991), but also of the general economic policies.
small-scale sector.
Its main objectives were to accelerate the rate of
economic growth and to speed up industrialisation for Industrial Policy Statement, 1980
achieving a socialistic pattern of society.
The policy emphasised the optimum utilisation of installed
Salient Features (IPR 1956) capacity, technological upgradation and modernisation.
The policy industries divided into three categories: The policy selectively liberalised the industrial sector i.e.
(i) Schedule A (Public Sector) Seventeen industries MRTP Act was liberalised, scope of licensing was reduced,
were exclusively reserved for the public sector. simplified the procedure for regularisation of unauthorised
(ii) Schedule B (Mixed Sector) Twelve industries were excess capacity etc.
placed in the mixed sector of public and private
enterprise. These were to be progressively An Evaluation of Industrial
state-owned and in which state would generally
set-up new units. Policy Before 1991
(iii) Schedule C (Private Sector) All the remaining Several official committees as well as other experts bring to
industries and their future development would, in light the major deficiencies of the industrial policies before
general be left to the initiative and enterprise of the 1991. Some of the important criticism are as follows:
private sector. —The objective of the licensing policy was to ensure capacity
creation according to the priorities decided in the Five Year Plan.
Industrial Licensing But due to inherent demerits of the licensing system, in some
The Industries (Development and Regulation) Act, 1951, areas excess capacity was created and there was under
empowered the government to issue licenses for the utilisation of capacity while at same time, despite availability of
setting-up of new industries, expansion of existing ones licenses, private players deliberately under produced goods,
and for diversification of products. which helped develop monopoly and monopolistic conditions in
the economy.
Dormant Company The Act 2013 states that a company development in the public sector became imperative.
can be classified as dormant when it is formed and The expansion of public sector in the field of industries
registered under this Act 2013 for a future project or to took place in a big way with the launching of the Second
hold an asset or intellectual property and has no Plan (1956-61), which gave top priority to the industrial
significant accounting transaction. growth of the country.
National Financial Reporting Authority (NFRA) The Act
2013 requires the Constitution of NFRA, which has been Objectives of the Public Sector
bestowed with significant powers not only in issuing the ◆
To capture commanding heights of the economy i.e. to take up
authoritative pronouncements, but also in regulating the strategic role in the industrialisation of the country.
audit profession. ◆
To accelerate the rate of economic growth through creation of
Serious Fraud Investigation Office (SFIO) The Act 2013 basic infrastructure.
has bestowed legal status to SFIO. ◆
To generate employment.
Corporate Social Responsibility The Act 2013 makes an ◆
To promote balanced regional development.
effort to introduce the culture of Corporate Social ◆
To generate surplus resources for development.
Responsibility (CSR). In Indian corporates by requiring ◆
To promote exports and to develop import substitution industries.
companies to formulate a corporate social responsibility
policy and atleast incur a given minimum expenditure on
◆
To check concentration of economic power.
social activities.
Expansion of Public Sector
The Companies (Amed.) Act, 2015 There were only five Central Public Sector Enterprises
(CPSEs) in 1951, with investment of ` 29 crore. The
and 2019 number of CPSEs (excluding financial institutions) has
Important point related to Companies Act, 2015 are as increased to 348 by March, 2019.
follows: There were over 800 state level public enterprises with
Omitting requirement for minimum paid-up share capital total investment in public sector in the entire country (i.e.
and consequential changes. The minimum paid-up share Centre + States) stood at over ` 6 lakh crore.
capital requirement of INR 1,00,000 (in case of a private
company) and INR 5,00,000 (in case of a public company) Contribution of Public Sector
under the Company Act, 2013 has been done away with. The public sector was instrumental in the creation of
Making common seal optional and consequential changes infrastructure and the development of basic industrial
for authorisation for execution of documents. structure of the country.
Doing away with the requirement for filling a declaration PSUs did a commendable job in the promotion of strategic
by a company before commencement of business or and key industries like atomic energy, armaments and
exercising its borrowing powers. ammunition, aircrafts, heavy machinery, iron and steel, coal,
Prohibiting public inspection of board resolutions field in drugs, fertilizers etc.
the registry. The public sector provided employment to about 70% of
Empowering Audit Committee to give omnibus approvals the workers employed in the organised sector. Presently,
for related party transaction on annual basis. public sector contributes about 24% to the GDP and
accounts for over 20% of the Gross Domestic Capital
Replacing ‘special resolution with resolution’ for approval
Formation (investment).
of related party transactions by non-related shareholders.
Further, Amendment to this Act in 2019, enlarged the Problems of the Public Sector
scope of issuance of dematerialised shares to certain The return on capital invested in PSUs has been deplorably
classes of unlisted companies and provided provisions for
low due to low profitability and losses of some PSUs.
transfer of any unspent annual CSR fund to PM Relief Fund.
Problems related with the Price Policy i.e. Administered
Prices of the products of PSUs were deliberately kept
Public Sector lower than the market prices.
At the time of independence, the country was Lack of autonomy to the management of the PSUs due to
predominantly agrarian and lacked basic industries and excessive political interference.
infrastructure facilities. The economy needed a big push. Low efficiency due to lack of incentives for better
The push could not come from the Indian private sector, performance.
which was starved of funds and lacked technical and Excessive overheads especially in providing housing and
managerial abilities. Further, it was incapable of taking risk other amenities to the employees e.g. townships.
involved in long gestation investments. So, the Over staffing inflated the wage bills.
Navratna CPSEs Objectives of Disinvestment
Bharat Electronics Limited
To transfer the resources from non-strategic sector to the
Hindustan Aeronautics Limited
strategic sector, which is much higher on social priority such as
Mahanagar Telephone Nigam Limited basic health, family welfare, primary education etc.
National Aluminium Company Limited To raise funds to cover up the fiscal deficit of the government.
NMDC Limited To improve efficiency of the public sector by inducing private
Oil India Limited initiative and competition.
Container Corporation of India Limited To enhance accountability of the PSUs by exposing them to
Engineers India Limited the capital market. To reduce political interference by
National Buildings Construction Corporation Limited imparting market orientation to the enterprise.
Rashtriya Ispat Nigam Limited Bring down government equity in all non- strategic PSUs to
Rural Electrification Corporation Limited 26% or lower, if necessary.
Shipping Corporation of India Limited Restructure and revive potentially viable PSUs.
Neyveli Lignite Corporation Limited
Close down PSUs, which can not be revived.
Fully protect the interest of workers.
Policy of Miniratnas Disinvestment vs Privatisation

The government has also accorded the status of
Miniratna to some profit making PSEs. There are two Disinvestment refers to selling of equity of a PSU to a private
types of Miniratnas — organisation or to general public. Privatisation refers to providing for
Category I and Category II. larger role for private capital and enterprise in the functioning of an
economy. Privatisation is a wider term than disinvestment.
Category-I Miniratna Disinvestment is one of the means for achieving privatisation.
These are companies, which have made a profit in Privatisation may result from any of the following
each of last 3 years and earned a profit of ` 30 crore ◆
Disinvestment
in atleast one of the 3 years. ◆
Denationalisation (i.e. complete sell off of a PSUs)
They are allowed to incur capital expenditure without
◆
Transfer of management and control of a PSUs to the private sector
government approval upto ` 500 crore or equal to their ◆
Dereservation of areas reserved for the public sector etc.
net worth whichever is lower. There are 62 Miniratnas
of this category at present {June 2020}. The Disinvestment Process
Category-II Miniratna In 1992, government constituted a committee on the
These are companies, which have made profits for the disinvestment of shares in PSE’s headed by Dr C Rangarajan
last 3 years continuously and have a positive net to recommend on the policy of disinvestment. The committee
worth. They can incur capital expenditure upto ` 300 recommended that upto 49% equity of the PSUs under the
crores or 50% of their net worth whichever is lower. exclusive participation of the state could be disinvested but for
There are presently (June 2020) 12 such category-II rest of the industries disinvestment can be allowed upto 74%.
Miniratnas. Further, the government constituted a 5 member
Disinvestment Commission, under the chairmanship of Shri GV
Disinvestment Ramakrishnan in August, 1996, to draw up a comprehensive
policy for the long-term disinvestment programme.
The New Industrial Policy, 1991, envisaged The commission was mandated to advise the government on
disinvestment of a part of government shareholdings in the extent, methodology, strategy and timing of disinvestment.
selected PSUs as an important element of public sector
In May 2004, the government adopted National Common
reforms. In pursuit of this, the process of disinvestment
Minimum Programme, which outlined the policy of the
began in 1991-92, with the sale of minority stakes in
government with respect to the public sector as follows:
some PSUs.
—In general, profit making PSU’s will not be privatised.
The primary aim of disinvestment in this phase was to
—In case of privatisation of profitable PSU’s, government will retain
raise non-inflationary finance to plug budgetary deficit.
at least 51% of the equity and the management control of the
But the focus of disinvestment shifted to strategic sale enterprise.
since 1999, in which substantial chunk of government
—Navratnas PSUs will be retained under the public sector.
equity is sold to private sector enterprises with an
—Chronically, loss-making companies will be either sold-off or
objective to improve the performance of the PSUs and closed, after all workers get their legitimate dues and
to reorient public investment. compensation.
Small industry sector has performed exceedingly well and

Cottage and Village Industries
enabled the country to achieve a wide measure of
Cottage Industries industrial growth and diversification.
This type of industry is run by family members on full or
part time basis. It has negligible capital investment. Problems of Small-Scale
There is hand made production using own tools and Industries
materials.
These industries are not able to get raw material of
Village Industries adequate quality. The raw material they get, is also high
The industries established in rural area having population in price.
below 10000 and having less than 15000 as fixed capital They are not able to get regular power supply.
investment per worker are termed as village industries. They are not able to get loans, since, they cannot offer
good security.
Differences Between Cottage and
Small-Scale Industries Due to old methods of production, the goods are many
times of poor quality. They lack marketing support due to
Cottage industries are mostly in rural areas, while small
lack of funds.
industries are mostly in urban areas.
Their cost of production is high due to expensive raw
Cottage industries are run by family members, while small
material.
industries have hired labourers.
They have mostly focussed on producing artistic goods,
Cottage industries have very little capital investment, while
whose demand is limited and so production cannot be
small industries can have upto ` 5 crore invested.
increased beyond a point.
Cottage industries produce mostly traditional goods, while
They have to compete with large-scale industries in many
small industries produce many modern goods also.
areas. Large industries are able to achieve low costs of
Cottage industries are located in the homes of workers,
production due to economies of scale.
while small industries are not located in homes.
Contribution of Small-Scale Government Measures to

Industries in Indian Economy Promote Small-Scale Industries
Government initiated several measures for the promotion
The small-Scale sector accounts for over 80% of the
of small-scale and cottage industries immediately after
manufacturing sector’s employment. Total 120 million
independence. The importance of these industries was
people employed in this sector.
recognised in the very first Industrial Policy Resolution of
It contributed significantly towards the economic growth of 1948 and reiterated in all future industrial policy
the nation, with over 39% of the industrial production. statements.
The small-scale accounts for over 34% of the total exports Steps taken by the government for the development of
and about 45% of the manufacturing exports. Further, over these industries can be categorised as organisational,
90% of exports of the SSls consists of non-traditional items financial, fiscal, technical etc.
like sports goods, readymade garments, processed foods,
chemicals etc. Organisational Measures
SSIs are conducive for the economic development of Establishment of Boards Government constituted
underdeveloped countries like India. Such industries are several boards at all India level to provide an
relatively labour intensive, so they make economical use of organisational structure, through which the promotional
the scarce capital. efforts were to be carried out. These boards include
Cottage Industries Board, Handloom Board, Handicraft
Small-scale industries are instrumental in reducing the
Board, Khadi and Village Industries Board etc.
inequalities in wealth. In these industries, capital is widely
distributed in small quantities and the surplus of these
Industrial Estates The policy of setting-up Industrial
Estates was initiated in 1955, for the construction of
industries is distributed among large number of people.
factory premises and to provide basic facilities like power,
Small-scale industries brings about regional dispersal of water, roads etc.
industries and alleviates regional imbalances.
District Industries Centre (DIC) The concept of DIC was
Small-scale industries, make use of local resources introduced in the Industrial Policy Statement of 1977.
including the capital and entrepreneurial skills, which This programme was initiated in 1979, to cater to all the
would have remained unused for want of such industries. requirements of small-scale and village industries, under
one roof.
The detailed recommendations cover 6 major thematic
Procurement Policy
areas, namely credit, marketing, labour, rehabilitation
Government has approved a public procurement policy for and exit policy, infrastructure, technology and skill
Micro and Small Enterprises , which mandates that Central development and taxation as also special measures for
Ministries, Departments or PSUs have to procure minimum the North-Eastern region and Jammu and Kashmir.
20% of their total annual purchases from MSEs. Out of this
20%, a share of 4% has to be earmarked for the MSEs owned Abid Hussain Committee
by SC/ST entrepreneurs.
Central Ministries, Departments or PSUs will prepare their
Report
annual plan for setting of goal of 20% procurement and will The Abid Hussain Committee is appointed by the
mention in their annual reports. The policy will help to Government of India to suggest measures to improve
promote MSEs by improving their market access and the performance of small-scale industries. The
competitiveness through increased participation by MSEs in committee submitted its report in January 1997.
government purchases and encouraging linkages between
MSEs and large enterprises. Industrial Sickness
The government defined the industrial sickness for the
Credit Linked Capital Subsidy
first time in the Sick Industrial Companies (Special
Scheme for Micro and Small Provisions) Act, 1985. According to this act, a
Enterprises medium or large (i.e. non-SSI) company was defined
as sick if
The scheme aims at facilitating technology up-gradation of
Micro and Small Enterprises (MSEs) by providing 15% capital —It was registered for atleast 7 years (later reduced to 5
years).
subsidy (limited to maximum ` 15 lakhs) for purchase of Plant
—It incurred cash losses in the current year and the preceding
and Machinery.
year.
Reservation of Items for SSIs —Its entire net worth (i.e. paid-up capital and reserves)
was eroded.
The policy to reserve certain items for the small-scale sector A company is regarded, as weak or incipiently sick on
was introduced in 1967. It aims to promote the SSIs by the erosion of 50% of its peak net worth during any of
protecting them from competition with the large-scale units. preceding five financial years. Industrial sickness has
In April 1967, there were only 47 items in the reserved category, been covered in the Companies (Second Amendment)
which were increased in several phases to 873 in 1984. Act, 2002 and Companies Act, 2012.
New Small Enterprise Policy, 1991
Causes of Industrial Sickness
Government announced a separate industrial policy for the The causes of industries sickness can be classified
small enterprise sector on 6th August, 1991. It was titled as, into two categories i.e. internal and external causes.
“Policy Measures for Promoting and Strengthening Small, Tiny
and Village Enterprises”. Internal Causes
Salient Features Originate within the unit, so they can be controlled by
the unit. These include
The ceiling of investment for the ‘tiny sector’ was raised from
—faults at planning and construction stage
` 2 lakh to ` 5 lakh.
—inappropriate plant and machinery
Large units including foreign firms were allowed to purchase —management problems
upto 24% equity (shares) of the small-scale industries. Scope —entrepreneurial problems
of tiny sector was enlarged to include all industry related —labour problems
service and business enterprises. —financial problems etc
Introduction of a new legal form of business organisation,
limited partnership. In this form, the liability of atleast one
External Causes
partner is unlimited whereas other partners have their liability Supposed to originate outside the unit, so are not
limited to the invested capital. under the control of the unit.
Such factors include
Current Policy on SSIs —erratic supply of inputs
The report of the Task Force on micro, small and medium —power cuts
enterprises, presented to the Honorable PM on 30th —demand and credit constraints
January, 2010, provides a roadmap for the development and —changes in government policies etc
promotion of MSMEs.
The Index of Industrial Production (IIP) with 2004-05 as India, compared with 34% in China and 40% in Thailand.
base is the leading indicator for industrial performance in The slow pace of growth in the manufacturing sector
the country. Compiled on a monthly basis, the current IIP at this stage of India’s development is not an
series based on 399 products or product groups is acceptable outcome. Manufacturing must provide a
aggregated into three broad groups of mining, large portion of the additional employment
manufacturing and electricity. The IIP as an index shows opportunities as opposed to agriculture, for India’s
both the level of production and growth. increasing number of youth.
The Central Statistics Office (CSO) of the Ministry of The challenges to developing and implementing a
Statistics and Programme Implementation (MoSPI) cohesive manufacturing strategy :
released the new series of the IIP with 2004-05, as its new —There is a multiplicity of ministries dealing with different aspects
base on 10th June, 2011, replacing the IIP series with of industry e.g. commerce, labour, environment, science,
1993-94 as base. finance etc. The states have a major role in facilitating the
growth of manufacturing in terms of provision of infrastructure,
Core Sector management of various local regulations and managing labour
◆
The Core Sector consists of eight core industries in the related laws.
economy having a weightage of 40.27% in the IIP. These —Industry associations lobbying for their members’
eight sectors are Coal, Crude Oil, Natural Gas, Petroleum (often conflicting) interests are important stakeholders.
Refinery Products, Fertilizers, Steel, Cement and Electricity. —Other stakeholder groups, who must be involved in the
consultations in a more systematic and productive way are
The weightage of Core Industries as follows
unions, land owners etc.
◆
Natural Gas (8.98%). —There are many over-sight bodies and committees, perhaps
◆
Fertilizers (2.63%). too many. There is need to sharpen their roles and improve
◆
Steel (17.92%). co-ordination amongst them.
◆
Crude Oil (6.88%).
National Manufacturing Plan as
◆
Coal (10.33%). Suggested by the 12th Plan
◆
Refinery Products (28.04%).
India’s strategic objectives for the manufacturing sector
◆
Cement (5.37%). in the next 15 years should be to bring about a
◆
Electricity (19.85%) quantitative and qualitative change through a set of
policies and plans with the following five objectives.
Purchasing Managers Index (PMI) (i) Increase manufacturing sector growth to 12-14%,
The PMI is a composite index of 5 ‘sub-indicators’, which over the medium term to make it the engine of
are extracted though surveys of purchasing managers form growth for the economy.
around the country, chosen for their geographic and (ii) The 2-4% differential over the medium term growth
industry diversification benefits. rate of the overall economy will enable manufacturing
In India, the most widely followed PMI is the one prepared to contribute at least 25% of GDP by 2025.
by HSBC called the India Manufacturing PMI. (iii) Increase the rate of job creation in manufacturing
to create 100 million additional jobs by the year
The five sub-indexes in this system and their weightage are
2025. Emphasis should be given to creation of
as follows:
appropriate skill sets among the rural migrant and
(i) New orders-0.3, (ii) output-0.25, (iii) employment 0.2, (iv) urban poor to make growth inclusive.
suppliers delivery times 00.15, (v) stock of items (iv) Increase domestic value addition and technological
purchased 00.1. ‘depth’ in manufacturing.
A PMI of more than 50, represents expansion of the (v) Enhance global competitiveness of Indian
manufacturing sector, compared to the previous manufacturing through appropriate policy support.
month. A reading under 50, represents a contraction,
Ensure sustainability of growth, particularly with regard to
while a reading at 50 indicates no change.
the environment.
India’s Manufacturing Sector National Manufacturing Policy,

The 11th Plan had targeted growth in manufacturing at 2011 (NMP)
10-11%, but actual performance was only about 7.7%. It is a
The major objectives of the National Manufacturing Policy
matter of concern that the manufacturing sector has not
are as follows:
shared in the dynamism of the economy not just in the
—to increase the sectoral share of manufacturing in GDP to
11th Plan, but even in preceding plan periods. As a result, atleast 25% by the year 2022;
the share of the manufacturing sector in GDP is only 15% in
India is the fourth largest producer of the Crude Steel Commission for Agricultural Costs and Prices (CACP) and after
in the world after China, Japan and the USA in 2010. consulting the State Governments, Association of Sugar
In 2019, India was ranked 2nd. India is the largest Industry and cane growers.
producer of Sponge Iron since, 2002. Dual price mechanism with partial control is applied to sugar
industry. Under this, the government fixes the ratio levy and
Cotton and Synthetic Textile free sale sugar quota in the ratio 28 : 72. The levy sugar is
Industry sold to consumers through fair price shops at lower price and
free sale sugar quota is sold by sugar factories at higher
It is the largest industry in India, accounting for about
prices in the open market.
20% of industrial output, provides employment to
20 million persons and contributes 33% to total export
Cement Industry
earnings.
The foundation of stable Indian Cement Industry was laid in
The Indian Textile Industry is predominantly cotton based
1914, when the Indian Cement Company Limited started
with 65%.
manufacturing of cement at Porbandar in Gujarat.
The organised Textile Industry comprises of (i) spinning India is the second largest producer of cement in the world.
mills; (ii) coarse and medium composite mills and (iii) The per capita consumption of cement in India is just 68 kg.
fine and superfine composite mills.
Average per capita consumption of cloth has increased Petrochemical Industry
steadily since eighties. It stood at 39 m in 2008-09. The real thrust to this industry came with the establishment
Textile Export Promotion Council (TEXPROCIL) was of Indian Petrochemical Corporation Limited at Baroda.
established by the government to strengthen and Petrochemical industry mainly, comprises synthetic fibres,
facilitate the textiles exports. polymers, elastomers, synthetic detergents and performance
The Scheme for Integrated Textile Park (SITP) was plastics. The main source of feedstock and fuel to this
launched in July 2005, merging two schemes, i.e. Apparel industry are natural gas and naptha.
Parks for Export Scheme (APES) and Textile Centre National Policy on Petrochemicals was announced in 2007 with
Infrastructure Development Scheme (TCIDS). the objective of increasing investment, demand and achieve
environmentally sustainable growth.
In Global Textiles Exports (2019), India now stands at
2nd position. Fertilizer Industry
India’s share in Global Textiles has increased by 25% The first fertilizer industry was set-up in 1906 in Ranipat near
in the year 2019. Chennai.
India meets 85% of its requirement through indigenous
Jute Industry production, but is largely import dependent for meeting the
Jute industry was started in 1885 and India is the phosphorus and potassium fertilizer.
largest producer and second largest exporter of jute in India is the second largest producer of fertilizer after China
the world. and second largest consumer after China.
Jute Technology Mission was launched on 2nd June, NPK (Nitrogen, Phosphorus, Potassium) consumption ratio in
2006. 2008-09 was 4.6:2:1. The ideal ratio is 4:2:1.
The revival package of National Jute Manufactures Urea is the only fertilizer under statutory price control.
Corporation (NJMC) envisages operationalisation of With effect from 1st April, 2010, Nutrients Based Subsidy
three jute mills viz. Kinnison and Khardah in West
(NBS) Policy is implemented. The nutrients covered are NPK
Bengal and Rai Bahadur Hadrut Mill, Katihar (Bihar).
and Sulphur.
Government has enacted Jute Packaging Materials
(compulsory use in packing commodities) Act, 1997 to
broaden the usage of jute.
Automotive Industry
India is the 2nd largest manufacturer of motorcycle and fifth
Sugar Industry largest manufacturer of commercial vehicles in the world.
India is the largest producer of sugar in the world with
In 2009, India was the forth largest exporter of passenger
a 22% share. cars after Japan, South Korea and Thailand.
It is the second largest agro-based industry in the
Automotive industry was delicensed in July 1991, however,
country. Statutory Minimum Price (SMP) of sugar is passenger cars industry was delicensed in 1993. India is the
fixed by the government on the recommendation of largest manufactures of tractor in the world.
modernisation. Investment limit of tiny industries or micro Measures Adopted for Globalisation
enterprises has also been increased to ` 25 lakh. Under economic reforms, limit of foreign capital
Under the policy of liberalisation, Indian industries will be free investment has been raised. In many industries,
to buy machines and raw materials from abroad in order to foreign direct investment to the extent of 100% has
expand and modernise themselves. been allowed without any restriction and red-tapism.
Earlier, for regulating foreign exchange transactions, To achieve the objective of globalisation, partial
government had enacted Foreign Exchange Regulation convertibility of Indian rupee was allowed. It was in
Act—FERA. This act was very restrictive in nature. It involved conformity with economic reforms.
various checks and controls on transactions involving foreign This convertibility is valid for the following transactions
exchange. —import and export of goods and services;
Privatisation —payment of interest or dividend on investment;
“Privatisation is the general process of involving the private —remittances to meet family expenses.
sector in the ownership or operation of a state owned It is called partial convertibility because It does not
enterprise.” It implies parting with government ownership or cover capital transactions.
management of the public sector enterprises. All restrictions and controls on foreign trade have been
It may happen in two ways: removed. Open competition has been encouraged.
(i) outright sale of the government enterprises to the private Administrative controls have also been minimised.
entrepreneurs or. Custom duties and tariffs imposed on imports and
(ii) withdrawal of the government ownership and exports are being reduced gradually.
management from the mixed enterprises (the
enterprises jointly owned and managed by the
government and the private entrepreneurs).
Make in India
Make in India compaign aims at reviving the job
Measures Adopted for Privatisation creating manufacturing sector, which is being seen as
Number of industries reserved for the public sector has been the key to taking the Indian economy on a sustainable
reduced from 17 to 3 only. high growth path. It is being seen as the key to taking
Public sector industrial units are treated in the same way as the Indian Economy on a sustainable high path. It
sick industries of private sector. In this respect, Sick Industrial aims to take manufacturing growth to 10% on a
Companies Act, 1985, has been amended in December sustainable basis.
1991. Some of the important features of make in India are as
With a view to improve the working of public sector follows:
enterprises, a system of MoU has been introduced. Under it, —It aims to attract foreign companies to set-up factories in
management of public sector enterprises will be given more India and invest in the country’s infrastructure.
freedom and they will be accountable for the results. —It aims to transform the economy from the services-driven
National Renewal Fund was established for protecting the growth model to labour-intensive manufacturing-drive
interest of employees on account of privatisation. The growth. This is expected to create over 10 million new
jobs annually.
employees were offered Voluntary Retirement under this
scheme. Upto March 2009, more than 6 lakh employees —25 key sectors have been identified, in which India has
the potential of becoming a world leader. These include
had sought voluntary retirement from public sector units.
automobiles, chemicals, IT, pharmaceuticals, textiles,
This fund is even used for providing social security
ports, aviation, leather, tourism and hospitality, wellness,
measures to retrenched employees of PSUs. railways etc.
Globalisation —A dedicated new portal (www.makeinindia. com )has been
especially created to answer queries from business
Globalisation means integrating the economy of a country with
entities.
the economies of other countries in an environment of free flow
—Top executives from 3000 top companies and
of goods and services across the borders.
corporations world wide were invited to be part of the
It is a process, associated with increasing openness, campaign.
growing economic inter-dependence and deepening —Indian embassies around the world also became part of
economic integration with the world economy. this global campaign.
Owing to globalisation, it was expected that capital and —The Department of Industrial Policy and Promotion (DIPP)
technology will flow from developed countries of the world into constituted an eight-member expert panel to redress
India. Accordingly, India would have access to the fruits of grievances and queries and handle queries of global and
global growth. domestic investors within 24 hours.
Self Check
1. Which one of the following committees recommended 7. Consider the following statements
the abolition of reservation of item of small-scale sector 1. Startup India initiative aims to celebrate the country’s
in industry? [UPPCS 2006] entrepreneurial spirit.
(a) Abid Hussain Committee 2. Income tax has been exempted for 3 years in Startup
(b) Narsimhan Committee India Scheme.
(c) Nayak Committee Which of the statement(s) given above is/are correct?
(d) Rakesh Mohan Committee (a) Only 1 (b) Only 2
2. Which one of the following Industrial Policies has
abolished (with a few exception) the Industrial 8. Consider the following statements
Licensing? 1. World Investment Report is published by World Bank.
(a) Industrial Policy, 1970 (b) Industrial Policy, 1980
2. Bokaro Steel Limited was established with the assistance
(c) Industrial Policy, 1991 (d) Industrial Policy, 1985
of Soviet Union.
3. A labour intensive industry is one that [UPPCS 2006] Which of the statement given above is/are correct?
(a) require hard manual labour (a) Only 1 (b) Only 2
(b) pay adequate wages to the labour (c) Both 1 and 2 (d) Neither 1 nor 2
(c) employs more hands 9. Consider the following statements
(d) provide facilities to labour
1. The first cement industry in India was the Indian Cement
4. Why is Government of India disinvesting its equity in the Company Limited.
central public sector enterprises? 2. The per capita consumption of cement in India is one of
1. The government intends to use the revenue earned from the highest in world.
the disinvestment mainly to pay back the external debt. Which of the statement(s) given above is/are correct?
2. The government no longer intends to retain the (a) Only 1 (b) Only 2
management control of the CPSEs. (c) Both 1 and 2 (d) Neither 1 nor 2
Select the correct answer using the codes given below 10. Consider the following statements
1. India had no iron and steel industry at independence.
2. The first iron and steel industry in independent India was
5. What is/are the recent policy initiatives of Government set-up in Raurkela.
of India to promote the growth of manufacturing sector? Which of the statement(s) given above is/are correct?
1. Setting-up National Investment and Manufacturing (a) Only 1 (b) Only 2
Zones. (c) Both 1 and 2 (d) Neither 1 nor 2
2. Providing benefits of single window clearance. 11. The Companies Act, 2013 introduces a new type of
3. Establishing the Technology Acquisition and entity to existing list i.e. apart from forming a public or
Development Fund. private limited company. The 2013 Act enables the
Select the correct answer using the codes given below formation of a new entity is
(a) 2 and 3 (b) 1 and 3 (a) one person company
(c) 1 and 2 (d) All of these (b) two person company
6. Consider the following statements (c) more than five person company
(d) None of the above
1. Privatisation of public sector units occurs, when
government sells 5% of its share. 12. In the ‘Index of Core Industries’, which one of the
2. Abid Hussain Committee recommended the abolition of following is given the highest weight overlapping?
reservation of items of small-scale sector in industry. (a) Coal Production [UPSC 2015]
Which of the statement(s) given above is/are correct? (b) Electricity Generation
(a) Only 1 (b) Only 2 (c) Fertilizers Production
(c) Both 1 and 2 (d) Neither 1 nor 2 (d) Steel Production
1. (a) 2. (c) 3. (c) 4. (d) 5. (d) 6. (b) 7. (c) 8. (b) 9. (c) 10. (a)
11. (a) 12. (b)
Magbook ~ Services Sector 119
This sector has been pulling up the growth of the Indian

economy with a great amount of stability.
Tourism
India ranked 22nd in the world in terms of international
As per the new method of India’s National Accounts tourist arrivals in 2018, improving from the 26th position
statistics, the service sector accounting for 55.3% of in 2017. India now accounts for 1.24% of world’s
India’s Gross Value Added (GVA) at basic prices (current international tourist arrivals and 5 per cent of Asia and
prices) in 2019-20. Pacific’s international tourist arrivals. India ranks 13th in
the world and 7th in Asia and Pacific in terms of tourism
Growth of India’s Services Sector foreign exchange earnings, accounting for close to 2 per
(GVA at Basic Price) cent of the world’s tourism foreign exchange earnings.
2019-20 2020-21 Looking at tourism trends at the state level, the top five
states attracting domestic tourists are Tamil Nadu, Uttar
Total Services 6.9 8.8%
Pradesh, Karnataka, Andhra Pradesh and Maharashtra,
Trade, hotels, transport 5.9 21.4% accounting for nearly 65 per cent of the total domestic
and communication tourist visits in the country in 2018. The top five states
Financial Services 6.4 3.68% attracting foreign tourists are Tamil Nadu, Maharashtra,
Uttar Pradesh, Delhi and Rajasthan, accounting for about
Construction 1.3 12.6%
67 per cent of the total foreign tourist visits in the country
Total GVA/GFC in 2018.
Various initiatives have been taken by the government to
FDI in India’s Services Sector promote tourism include
the introduction of the e-Visa facility under three
Though there is ambiguity in the classification of FDI in
categories of Tourist,
services, it is the combined FDI share of the top 10
service sectors such as financial and non-financial
Medical and Business for the citizens of 163 countries;
services falling under the Department of Industrial Policy launch of Global Media Campaign on various Channels;
and Promotion (DIPP)’s services sectors definition; as well launch of ‘The Heritage trails to promote the World
as telecommunications; trading; computer hardware and Heritage Sites in India;
software; construction; hotels and tourism; hospital and launch of International Media Campaign on various
diagnostic centres; consultancy services; sea transport; international TV channels;
and infromation and broadcasting that can be taken as the Celebration of ‘Paryatan Parv’ having 3 components
best estimate of services FDI. FDI inflows into the services namely ‘Dekho Apna Desh’ to encourage Indians to visit
sector increased by 34 per cent year on year during their own country,
April-September 2020 to reach US $ 23.61 billion. ‘Tourism for All’ with tourism events at sites across all
states in the country, and
Two Phases of Growth Rate ‘Tourism and Governance’ with interactive sessions and
of Exports of Services workshops with stakeholders on varied themes.
The growth rates exports services of India and the world show Hotels and Restaurants
two distinct phases, the first till 1996, when the two growths
had a scissor-like movement and the second phase after 1996,
Tourism is a major engine of economic growth, an
important source of foreign exchange earnings and a
when the growth of India’s services exports was higher than that
generator of employment of diverse kinds in many
of the world in almost all the years except 2009. In this second
countries including India.
phase, the former was much above the latter in upswings, but
almost converged with the latter during downswings. According to the World Travel and Tourism Council
(WTTC), the total contribution of travel and tourism to
world GDP was US $ 8.9 trillion (10.3% of GDP) in 2019.
Some Major Services of India The latest World Tourism Barometer of the United
Nation's World Tourism Organisation (UNWTO) also shows
The service sector is a vital cog in the wheel of Indian
that international tourist arrivals reached 1.2 billion in
economy. The sector accounting for 55.2% of the GVA. The
2015, a 4.4% increase over the previous year, and for
government has taken many initiatives in the different
2016 the forecast is a 3.5-4.5% increase.
services which include digitisation, e-visas, infrastructure
status to Logistics, Start-up India, Schemes for the housing
India’s share in ITAs is a paltry 0.7% compared to 7.4% of
sector, etc. which could give a further fillip to the Services France, 6.6% of the USA, 5.7% of Spain and 4.9% of China.
Sector. Major Services’ Sector-wise performance and some According to Indian Tourist Statistics released by Ministry
recent government policies to boost the growth of the sector of Tourism in October 2020, Uttar Pradesh attracted
are as follows: maximum number of domestic tourists followed by
Tamil Nadu and Andhra Pradesh.
Magbook ~ Services Sector 121
Buoyed by the government’s support which includes the US and other countries and encouraging setting up of
important schemes of different Ministries/Departments, back offices of foreign firms in India. Tie-ups of domestic
the R&D sector in India is all set to witness robust growth firms with foreign firms can help to gain expertise and
in the coming years. According to a study, engineering markets, which would otherwise not be individually
R&D market in India is estimated to grow at a CAGR of available for small domestic accountancy firms.
14% to reach US$ 42 billion by 2020. India is also This would also need relaxation in some domestic
expected to witness strong growth in its agriculture and regulations and obtaining due recognition to Indian
pharmaceutical sectors as the government is investing qualifications through Mutual Recognition Agreements
large sums to set up dedicated research centres for R&D (MRAs). As with legal services, FDI in accounting services
in these sectors. will help to improve the competitiveness of the Indian
market and link it better to global markets.
Space
India spent about US$ 1.8 billion on space programmes Communication Services
in 2019-20. However, India's government space Telecom and Related Services
expenditure still lags behind that of the major players in
Telecom services is another sunrise sector, in which India
the space sector, such as USA,which spent about 10
has made a mark with the second largest telephone
times more than India in the space sector in 2019-20.
network in the world, after only China.
China, which has become a key player in the space sector
in the recent years, also spent about six times more than 12th Plan targets for the telecommunication sector–
India in 2018. Provision of 1200 million connections by 2017, Broad
band connection of 175 million by 2017, Mobile access to
India has launched around 5-7 satellites per year in the
all villages and increase rural teledensity to 70% by 2017,
recent years with no failures, barring one in 2017. On the
To increase domestic manufactured products in telecom
other hand, Russia, USA and China dominate the satellite
network to the extent of 60% with value addition of 45%
launching services with 20, 31 and 39 satellites
by 2017.
respectively in 2018. The global space economy for 2018
tallied about US$ 360 billion, which includes space Postal Services
systems manufacturing and space-based services. India Post is the largest postal network in the world and
provides access to affordable postal services to all citizens
Legal Services in the country through its vast network. Out of 1.55 lakh
Legal services have been growing at a steady rate of 8.2% post.offices, 1.39 lakh are in rural areas and the
in each of the years from 2005-06 to 2011-12. The Indian remaining 15736 in urban areas.
legal profession today consists of approximately 1.2 million The Department of Posts plays a crucial role in disbursing
registered advocates. wages to Mahatma Gandhi National Rural Employment
Though, India’s rankings are better than most of the South Guarantee Scheme (MGNREGS) beneficiaries. Nearly 6.92
Asian and some South-East Asian countries in all the three crore MGNREGS accounts have been opened in post
parameters, there is a need for further improvement offices up to December, 2015.
particularly in speeding up disposal of cases. Towards financial inclusion, the number of Post Office
The National Legal Services Authority (NALSA) has been Savings Bank (POSB) accounts has increased from 30.86
constituted under the Legal Services Authorities Act, 1987, to crore to 33.97 crore and total deposits in POSB accounts
monitor and evaluate implementation of legal aid and cash certificates to ` 6.53 lakh crore in the last one
programmes and to lay down policies and principles for year.
making legal services available under the act. More than 80 lakh Sukanya Samriddhi Yojana accounts
have been opened with a cumulative investment of more
than
Accounting and Audit Services ` 2900 crore since the launch of the scheme on 22nd
The accountancy service providers in India are January, 2015.
self-regulated through a combination of statutory bodies More than 1.84 crore Kisan Vikas Patras have been sold,
like the Institute of Chartered Accountants of India (ICAI), attracting an investment of more than ` 16,429 crore
the Institute of Cost and Work Accountants of India and since launch on 18th November, 2014.
the Institute of Company Secretaries of India (ICSI). The Pradhan Mantri Suraksha Bima Yojana, Pradhan
Tapping the outsourcing market of the US and other Mantri Jeewan Jyoti Yojana and Atal Pension Yojana were
developing countries in niche areas like actuarial and rolled out for POSB account holders in Core Banking
accountancy services would depend on the availability of Solution (CBS) post offices. So, far more than 1,35,000
high quality experts in tax, insurance and pension laws of policies have been sold to POSB customers.
Self Check
1. Which one of the following sub-sector of the services 6. Which one of the following services is included in the
sector in India has contributed the highest per cent in services sector of Indian Economy? [UPPCS 2008]
the annual growth rate of the GDP? [MPPCS 2000] (a) Transport, storage and communication
(a) Real estate, ownership of dwellings and business (b) Financing, insurance, real estate and business services
services (c) Community, social and personal services
(b) Community, social and personal services (d) All of the above
(c) Transport, storage and communication
(d) Trade, hotels and restaurants
1. In last decade, India is to China, in developing countries in
2. Consider the following statements the terms of Compounded Annual Growth Rate (CAGR) in
1. Software is one sector, in which India has achieved a services sector.
remarkable global brand identity. 2. In the last decade, Russia had higher Compounded Annual
2. The contribution of the services sector to the national Growth Rate (CAGR) in services sector than India.
economy both in terms of value addition and Which of the statement(s) given above is/are correct?
employment generation is growing over the year. (a) Only 1 (b) Only 2
Which of the statement(s) given above is/are correct? (c) Both 1 and 2 (d) Neither 1 nor 2
8. Which one of the following percentage of Foreign Direct
Investment (FDI) is allowed in the Indian entities
3. Consider the following statements publishing newspapers and periodicals dealing with news
1. When a country progresses further the manufacturing and current affairs? [IAS 2005]
sector takes a back seat and give a way to service (a) 26% (b) 49%
sector in terms of both output and employment. (c) 74% (d) 100%
2. When a country progresses further manufacturing
9. Which one of the following service of the Indian Economy
sector become increasingly service sector.
has the highest percentage of share in the services sector
Which of the statement(s) given above is/are correct? export?
(a) Computer software (b) Financial and non-financial
(c) Computer hardware (d) Legal consultancy
10. Consider the following statements regarding IT sector of
1. Computer software has the highest percentage of India.
share in service sector export in India.
1. India has achieved brand identity in this sector.
2. Communication services has highest growth rate in
2. Besides it’s impact on growth, it is also a provider of skill
service sector in 11th Five Year Plan.
employment both in India and abroad.
Which of the statement (s) given above is/are correct?
(a) Only 1
(b) Only 2
5. Various initiatives have been taken by the (c) Both 1 and 2
government to promote tourism include (d) Neither 1 nor 2
1. the introduction of e-visa facility under three 11. In the Index of Eight Core Industries, which one of the
categories of tourism. following is has the highest weight?
2. Medical and business for the citizens of 163 countries. (a) Coal production
Which of the statement(s) given above is/are correct? (b) Electricity generation
(a) Only 1 (b) Only 2 (c) Fertilizer production
(c) Both 1 and 2 (d) Neither 1 nor 2 (d) Steel production
1. (d) 2. (c) 3. (c) 4. (c) 5. (c) 6. (d) 7. (a) 8. (a) 9. (a) 10. (c)
11. (d)
Magbook ~ Infrastructure 125
Connect all villages with all weather roads by the end of * India Infrastructure Project Development Fund
12th Five Year Plan. Upgrade National and State Highways (IIPDF) was announced in Budget, 2007-08. The
to the minimum two-lane standard by the end of 12th Five IIPD fund will contribute up to 75% of the
Year Plan. preparatory expenditure in the form of interest free
Complete Eastern and Western dedicated Freight corridors loans that will be recovered from the successful
bidder. It has been set-up in Department of
by the end of 12th Five Year Plan.
Economic Affairs.
Increase rural teledensity to 70% by the end of 12th Five
Year Plan. Ensure 50% of rural population has access to Infrastructure Debt Funds (IDFs)
55 LPCD (litres per capita per day) piped drinking water Infrastructure Debt Fund was launched on 5th March,
supply and 50% of Gram Panchayats achieve the Nirmal
2012 by the government, though the announcement for it
Gram Status by the end of 12th Five Year Plan.
was made in the Union Budget 2011-12. It is a $ 2
billion fund to catalyse long-term lending to core sectors.
Funding of Infrastructure IDFs are investment vehicles which can be sponsored by
Public Private Partnerships in commercial banks and NBFCs in India, in which
Infrastructure domestic/offshon institutional investors, specially
The Planning Commission of India (now NITI Aayog) has insurance and pension fund can invest, through units
defined PPP in a generic term ‘‘the PPP is a mode of and bonds issued by the IDFs.
implementing government programmes/schemes in The fund would seek to raise debt capital from domestic
partnership with the private sector. It provides an and foreign resources in the form of long-term pension,
opportunity for private sector participation in financing, insurance funds and sovereign wealth funds.
designing, construction, operation and maintenance of
public sector programme and projects’’. Transport System in India
PPPs are expected to augment resource availability as well
as improve efficiency of infrastructure service delivery. Time Modes of transport include air, rail, road and water.
and cost over run in construction of PPP projects are also Transportation in India is a large and varied sector of the
expected to be lower compared to traditional public economy.
procurement. The government has also been emphasising
the need to explore the scope for PPPs in the development Road Transport
of the social sectors like health and education. India has the second largest road network in the world.
Some of the major PPP projects undertaken, thus so far The road network comprises of National Highways (NHs),
are Delhi, Mumbai, Hyderabad and Bengaluru airports; 4 State Highways, major/other district roads and
ultra-mega power projects, container terminals at Mumbai, village/rural roads.
Chennai and Tuticorin ports. The share of road traffic in total traffic has grown from
12% freight and 31.6% passenger traffic in 1950-51, to
Viability Gap Funding Scheme an estimated 60% freight and 87% passenger traffic
during the 10th Five Year Plan period.
With a view to support the infrastructure projects, the
viability Gap Funding Scheme for support to PPPs in
infrastructure announced in 2004 and the modalities to National Highways
operationalise it put is place by 2005. National Highways comprise only 2% of the total length
It provides financial support in the form of grants, one time of roads, but they carry over 40% of the total traffic
or deferred to infrastructure project undertaken through across the country.
public private partnership with a view to make them Development and maintenance work of NHs is carried
commercially viable. out through 3 agencies, viz National Highways Authority
VGF Scheme provides total viability gap funding up to 20% of India (NHAI), State Public Works Departments (PWDs)
of the total project cost. and Border Road Organisation (BRO).
The government or statutory entity that owns the project National Highway Development Project (NHDP)
may, if it so decides, provide additional grants out of its It is the largest highway project undertaken in the country
budget up to further 20% of the total project cost. and is being implemented by NHAI in Phase I to VII. It is
* On 24th July, 2007, India’s first infrastructure a project to upgrade, rehabilitate and widen major
index series FTSE-IDFC launched. The series is highways in India to a higher standard.
aimed at bringing broad range of investors Phase I and II of NHDP Comprises Golden quadrilateral;
including retail investors into listed companies
North-South corridor and East-West corridor.
involved in the business of infrastructure.
In terms of route length, Indian Railway system is the (vi) Mumbai Rail Vikas Nigam Limited (MRVNL)
4th largest after USA, Russia and China. (vii) Indian Railway Catering and Tourism Corporation
Of the two main segments, freights and passengers of the Limited (IRCTC)
Indian Railways, the freight segment accounts for roughly (viii) Railtel Corporation of Indian Limited (Rail Tel)
two-third of revenues. (ix) Rail Vikas Nigam Limited (RVNL)
Railway Budget was separated from the Union Budget in (x) Dedicated Freight Corridor Corporation of India Limited
the year 1921, on the recommendation of Acworth (DFCCIL)
Committee. However, the government in 2016 decided to (xi) Bharat Wagon and Engineering Corporation of India
merge them on the recommendations of Shankar Limited (BWEL)
Acharaya Committee. (xii) Burn Standard Company Limited (BSCL)
The railway network is divided into 17 zones. Divisions are (xiii) Braithwaite and Company Limited (BCL)
the basic operating units.
Rolling Stock and their Places
The 17 zones and their respective headquarters are as under:
Rolling Stock Places
Zonal Railway Headquarters Zonal Railway Headquarters
Diesel Locomotive Works Varanasi
Central Mumbai North-Western Jaipur
Chittaranjan Locomotive Works Chittaranjan
Eastern Kolkata Southern Chennai
East-Coast Bhubaneshwar South-Central Secunderabad Rail Coach Factory Kapurthala
East-Central Hajipur South-Eastern Kolkata Integral Coach Factory Perambudur (Chennai)
Northern New Delhi South-East Bilaspur Rail Wheel Factory Bengaluru
Central Diesel Loco Modernisation Works Patiala
North-Central Allahabad South-Western Hubli Research, Design and Standard Organisation Lucknow
North-Eastern Gorakhpur Western Mumbai
North-Frontier Maligaon, West-Central Jabalpur Rail Coach Factory (RCF), rolled out the first proto type air
Guwahati conditioned Double Decker Coach in March, 2010.
Metro Railway Kolkata Dedicated Freight Corridor (DFC)
With the present growth rate in GDP of over 8%, the
Types of Railway Lines Indian railways expects to carry 85 million tonnes of
There are four gauges in India. These are as follows: incremental traffic per year and about 1100 million tonnes
(i) Broad Gauge (1676 mm) This is the widest gauge in revenue earning freight traffic by the end of 11th Five Year
regular use. It is wider than the 1435 mm standard Plan. It has, thus, become necessary to augment the
gauge and also called Indian Gauge. freight carrying capacity of the railways.
(ii) Metre Gauge (1000 mm) It is one metre broad. About Railways and the 12th Plan
14500 route km of railway lines are metre gauge in
The 12th Five Year Plan (2012-17) has envisaged an
2009. The metre gauge network is especially dense in
integrated approach for the transport sector as a whole.
the West.
The vision for transport is to be guided by a modal mix
(iii) Narrow Gauge (762 mm). The rationale for the narrow
that will lead to an efficient, sustainable, economic, safe,
gauges was economy in building the lines. It considered
reliable, environment friendly and regionally balanced
that narrow gauge lines would act as feeder lines to the
transport system, in line with the objectives of the plan.
broad and metre gauges. The most well known line is
probably the Kalka-Shimla route. Indian Railway aims at developing a strategy to build up
(iv) Narrow Gauge (610 mm) A few places in India have even the rail network to be part of an effective multi-modal
narrow 2-feet (610 mm) gauge e.g. New Jalpaiguri, transport system.
Darjeeling, Neral Matheran and the Gwalior branch lines. 5-digit Train Numbers
The Public Undertakings of the Railways It came into effect from 20th December, 2010.
Accordingly, all the Superfast, Mail/Express Rajdhani,
There are thirteen undertakings under the administrative
Garib Rath passenger trains and others have now uniform
control of the Ministry of Railways:
5 digit numbers, i.e. digit 1 has been prefixed to the
(i) Rail India Technical and Economic Services Limited,
existing 4 digit numbers.
(RITES)
(ii) Indian Railway Construction (IRCON) International Limited Railway Vision 2020 Highlights
(iii) Indian Railway Finance Corporation Limited (IRFC) It envisages increasing the railway sector’s share in the
(iv) Container Corporation of India Limited (CONCOR) GDP from the existing level of 1% to about 3% and its
(v) Konkan Railway Corporation Limited (KRCL) revenue to grow by 10% annually over the next 10 years.
High Level Safety Review Committee The first line of the metro in Chennai is opened in June,
(Railways) 2015. In the North, a metro in Jaipur also started in
June 2015. The long awaited first phase of Mumbai’s
The committee under Dr Anil Kakodkar recently presented
metro launched to the public in 2014.
its report. The total financial implication of the
recommendations over 5 years would be `100000 crore. Its In 2015, a new line for Bengaluru’s Metro was launched.
key recommendations and observations are as follows: Metros in Kochi in Kerala and in Hyderabad is opened in
—Indian Railways is at the brink of collapse unless some concrete 2017.
measures are taken. There are also metro systems planned for many other
—There is need for independent mechanism for safety regulation. cities like Ahmedabad in Gujarat, Pune in Maharashtra,
A statutory Railway Safety Authority needs to be created. Kanpur in Uttar Pradesh, Patna in Bihar etc.
—A Railway Research and Development Council needs to be
set-up. Rapid Rail
—An advanced signaling system should be adopted for the entire National Capital Region Planning Board (NCRPB)
route length within 5 years. created a spearate entity – National Capital Region
—All level crossing (manned and unmanned) should be Transport Company (NCRTC) in 2013. Aim of this entity
eliminated over 5 years. to provide fast, safe and comfortable rapid transit in
—Switch over from ICF design coaches to LHB design coaches. NCR. It is possible by Regional Rapid Transit System
(RRTS). The RRTS are expected to have design speed of
Some Other Committees on 180 kmph with high acceleration and deceleration.
Railway Safety Bullet Train
◆
Shahnawaj Committee (1954) Bullet train project is an initiative by Indian Government
◆
Kunjaru Committee (1962) to build a high speed bullet train that would connect
◆
Wanchu Committee (1968) Mumbai to Ahmedabad. This project expected to nearly
◆
Sikari Committee (1978) 18.6 billion dollars and should be operational in about
◆
Khanna Committee (1998) seven years.
Water Transport
Metro Rail Projects There are two kinds of water transport inland water
The metro railway system and service are operational in 10 transport or river transport and shipping which includes
cities in India. These are Kolkata, Delhi, Bengaluru, coastal shipping and overseas shipping.
Gurugram, Mumbai, Chennai, Jaipur, Kochi, Hyderabad
and Lucknow. The Kolkata Metro rail is the oldest (1984) Inland Water Transport (IWT)
metro service in the country. India has over 14500 km of navigable waterways. Inland
The Delhi metro is rapid transit system serving Delhi, Water Transport (IWT), has certain inherent advantages
Gurgaon, Noida and Ghaziabad in the NCR. The network namely: fuel efficiency, environment friendliness, cost
consist of Eight lanes with a total length of 296 Kilometres effectiveness and decongestion of road etc.
with 214 stations. —Inland Waterways Authority of India (IWAI), was set-up in
Delhi metro is being built and operated by the Delhi Metro 1986, for regulation and development of inland waterways
for the purpose of shipping and navigation.
Rail Corporation (DMRC), which is a joint company of
—Out of total transport IWT accounts for 32% in Bangladesh,
Government of India and the Government of Delhi. After the
20% in Germany, 14% in the US, 9% in China and only
Phase IV total length of Delhi metro will be 413 km. It is the 0.15% in India.
second oldest metro in India after the Kolkata metro. —IWT is best suited for the movement of bulk cargo,
Metro Railways Amendment Act, 2010, with effect from overdivisional cargo and hazardous goods. It is also an
September, 2009, provides an umbrella ‘statutory’ safety environmentally friendly made.
cover for metro rail work in all the metro cities of India.
Shipping
The act was extended to National Capital Region,
Shipping plays an important role in the transport sector
Bengaluru, Mumbai and Chennai metropolitan areas with
of India’s economy. Approximately, 95% of the country’s
effect from 16th October, 2009.
trade volume (68% in terms of value) is moved by the
Metro rail projects have also been taken up on PPP basis in sea.
Mumbai for Versova-Andheri-Ghatkopar (11.07 km), —India has one of the largest merchant shipping fleet among
Charkhup to Mankhurd via Bandra (31.87 km) and the developing countries and ranks 16th amongst the
Hyderabad metro (71.16 km) with viability gap funding countries with the largest cargo carrying fleet.
support from the Government of India.
Coal, petroleum products, natural gas and electricity

are the important components of commercial energy.
Major Schemes
These goods are largely used for commercial purposes UDAY Scheme
in the factories and farms. They command a price and The Union Cabinet chaired by Prime Minister Narendra Modi
have an established market of sale and purchase. approved the Ujwal Discom Assurance Yojana (UDAY)
scheme on November 5, 2015 that aimed at bailing out debt
Conventional and Non-Conventional
ridden State-run power distribution companies (discoms).
Sources of Energy
The financial restructuring package is launched to financially
Conventional sources of energy are those, which are
turn around discoms that have been severely indebted and
known as to us and which are popularly in use since a
make them strong.
very long time. Examples are coal, petroleum, natural
gas and electricity. Non-conventional sources of According to the package, States can take over by March,
energy are those sources, which have been discovered 2016, 75% of the discoms’ debts up to September, 2015, by
or explored only in the recent past and which are yet issuing special bonds at a price determined by the Reserve
to gain popularity for their use. Examples are solar Bank at G-Sec rates plus 5%.
energy, wind energy, biomass etc. Share of different UJALA YOJANA
sources in Total Energy Production (Supply) (in
It was launched by Union Minister for State (IC) for Power,
percentage)
Coal and Renewable Energy Piyush Goyal in Bhopal Madhya
Pradesh on 30th April, 2016.
Electricity
The UJALA scheme is being implemented by Energy
Electricity is the most useful and convenient source of Efficiency Services Limited (EESL), a joint venture of PSUs
energy in India. Three main sources of electricity in India under the Union Ministry of Power.
are as follows:
The scheme will help to reduce electricity bills of consumers,
(i) Thermal Power Stations Generation of electricity by contribute to the energy security of India and also help in
using coal is known as Thermoelectricity. It is an environment protection. The main motive of this policy is
important source of electricity in India, generating energy efficiency in the country. Consumers can buy the
nearly two third of the total electricity. Now, there are
bulbs from distributor by showing any identification card.
more than 318 thermal power plants in India.
(ii) Hydroelectricity Stations Generation of electricity Urban Flagship Programme
using water is known as Hydroelectricity. Whatever, Government’s flagship Pradhan Mantri Awas Yojana (PMAY)
water is available in India for generation of electricity, housing scheme, alongwith its long-planned Smart Cities
we are not able to utilise 50% of it. The share of Mission and the Atal Mission for Rejuvenation and Urban
hydroelectricity is only one-fourth of the total Transformation (AMRUT) is an urban renewal initiative
electricity generated. Some important hydroelectric started on 25th June, 2015.
power stations are Koyna, Bhakra Nangal, Beas,
Hirakud, Kosi, Nagarjuna Sagar, Malaprabha etc. AMRUT for 500 Cities
(iii) Atomic Power Stations In the modern times, atomic The Narendra Modi Government has renewed the 10 years
energy or nuclear energy is used all over the world as old Jawaharlal Nehru National Urban Renewal Mission
a source of energy. Its sources are uranium and (JNNURM) and named it after the first BJP Prime Minister.
thorium. It is a new and cheap source of energy. The renewed scheme is known as Atal Mission for
Atomic Energy Commission of India is engaged in the Rejuvenation and Urban Transformation (AMRUT). AMRUT
research of atomic energy. for 500 Tier 2 and Tier 3 cities will also be launched
In India, first atomic power station was established at alongwith smart city project.
Tarapur in Bombay in 1969. Subsequently, many For AMRUT as well, states have been asked to recommend
nuclear power plants were established in India cities which can be included under this scheme. Uttar
including Kalpakkam in Tamil Nadu, Narora in Uttar Pradesh leads the pack, as it can nominate 64 cities under
Pradesh, Surat in Gujarat etc. this project. Here is the breakdown for different states
The nuclear power generation has been increasing in —Tamil Nadu (33) —Maharashtra (37)
India. But, the safety parameters of atomic power —Gujarat (31) —Karnataka (21)
plants has, now to be re-devised considering the —Andhra Pradesh (31) —Rajasthan (30)
Fukushima episode. This is why, people are now more —West Bengal (28) —Bihar (27)
worried regarding proposed Jaitapur Power Plant in —Odisha (19) —Haryana (19)
Maharashtra. —Kerala (18) —Punjab (17)
—Telangana (15) —Chhattisgarh (10)
Self Check
1. Among other things which one of the following was the 6. With what purpose is the Government of India promoting
purpose for which Deepak Parekh Committee was the concept of ‘Mega Food Park'? [UPSC 2011]
constituted? [IAS 2009] 1. To provide good infrastructure facilities for the food
(a) To study the current socio-economic conditions of processing industry.
certain minority communities 2. To increase the processing of perishable items and
(b) To suggest measures for financing the development of reduce wastage.
infrastructure
3. To provide emerging and eco-friendly food processing
(c) To frame a policy on the genetically modified organisms
technologies to entrepreneurs.
(d) To suggest measures to reduce the fiscal deficit in the
Union budget Select the correct answer using the codes given below
(a) Only 1 (b) 1 and 2
2. There has been a persistent deficit budget year after (c) 2 and 3 (d) All of these
year. Which of the following actions can be taken by the
government to reduce the deficit? 7. Name the scheme under which accidental death
1. Reducing revenue expenditure insurance cover for up to ` 2 lakh will be provided to the
2. Introducing new welfare schemes people of age group of 18-70 years?
3. Rationalising subsidies (a) Atal Jeevan Bima Yojana
(b) Pradhan Mantri Suraksha Bima Yojana
4. Expanding industries
(c) Pradhan Mantri Jeevan Jyoti Bima Yojana
Select the correct answer using the codes given below:
(d) Atal Pension Yojana
(a) 1 and 3
(b) 2 and 3 8. Consider the following statements
(c) Only 1 1. Golden Quadrilateral is a National Highway Development
(d) 1, 2, 3 and 4 Project connecting Delhi, Pune, Chennai and Kolkata.
3. Consider the following components 2. North-South Corridor which comprises 4-laning of
1. Bring an additional one crore hectares under assured National Highways connecting-Salem.
irrigation. Which of the statement(s) given above is/are correct?
2. To provide road connectivity to all villages that has a (a) Only 1 (b) Only 2
population of 2000. (c) Both 1 and 2 (d) Neither 1 nor 2
3. To give telephone connectivity to the remaining villages. 9. Which kind of the power accounts for the largest share
Which of the component(s) given above is/are included in the of power generation in India? [UPPCS 2008]
in the Bharat Nirman Scheme? (a) Nuclear
(a) 1, 2 and 3 (b) 1 and 3 (b) Hydro-electricity
(c) 2 and 3 (d) Only 2 (c) Thermal
4. Which one of the following is not a nuclear power (d) Solar
centre? 10. Which one of the following statement is correct?
(a) Narora (b) Kakrapara [UPPCS 2008]
(c) Chamera (d) Kota (a) Singrsauli mines are located in Andhra Pradesh
(b) In India, majority of domestic coal supply comes from
5. Ten year old JNNURM Scheme named as
open cost mines
(a) AMRUT
(c) Reliance is the only private sector refinery in India
(b) Housing for all
(d) None of the above
(c) HRIDAY
(d) UDAN Scheme
Chapter fifteen
Poverty and Unemployment
—Calorie Criteria The energy that an individual gets from
Poverty the food that he eats everyday is measured in terms
of calories. In India, Planning Commission was
Poverty is a social phenomenon,
“Goal of sustained of the opinion that an individual in rural area
wherein a section of society is unable to must get 2400 Kilo calories and in urban area,
poverty reduction cannot fulfill even its basic necessities of life. 2100 calories per day.
be achieved unless The UN Human Rights Council has —Minimum Consumption Expenditure Criteria
equality of opportunity defined poverty as a human condition An Expert Committee was appointed in
characterised by the sustained or 1962, by the Planning Commission to
and access to basic determine poverty line, by adopting
chronic deprivation of the resources,
services is ensured. Goal Minimum Consumption Expenditure
capabilities, choices, security and power
Criteria. As per this committee, those
of reducing inequality necessary for the enjoyment of an people will be treated as living below the
adequate standard of living and other poverty line, whose per-capita consumption
must be explicitly
civil, cultural, economic, political and expenditure at 2004, prices is below
incorporated in policies social rights. ` 368 per month in rural areas and below
and programmes aimed ` 559 per month in urban areas.
Global poverty had dropped at the rate
at poverty reduction.” of around 1 per cent point per year Relative Poverty
between 1990 and 2015. The World Relative poverty refers to poverty on the
Bank had developed $ 1.90 per day as basis of comparison of per-capita income
criteria for deciding International of different countries. The country, whose
Poverty Line. per-capita income is quite less in
According to UNDP’s Multidimensional comparison to other countries is treated
as relatively poor nation.
Poverty Index 2019, India was able to
lift 271 million people out of poverty In poor nations, that part of population,
between 2006 to 2016. However, still which is living at the bottom (whose
365.55 million poor people resides in income is less), is unable to fulfill the basic
requirements of life. In addition to the
the country.
$ 1.90 per-day international poverty line,
the World Bank measures poverty lines
Types of Poverty of $ 3.20 and $ 5,50, reflecting national
The poverty has two aspects: poverty lines in lower-middle income and
upper-middle income countries.
Absolute Poverty
It is a situation, in which the
consumption or income level of people
Poverty in India
There is substantial decline in poverty
is less than some minimum level ratios in India from about 45% in
necessary to meet basic needs as per 1993-94 to about 21.9% in 2011-12.
the national standards. It is expressed India lifted 271 million people out of
in terms of a poverty line. poverty between 2006 and 2016. If the
Economists have given many definitions trend continues, people below poverty line
of poverty in this regard, but in a large may come down to less than 20% in the
number of countries poverty has been next few years.
defined in the context of per capita In a given year in India, official poverty
intake of calories and minimum level of lines finds higher in some states than in
per capita consumption expenditure. others because price levels vary from
state to state.
Magbook ~ Poverty and Unemployment 137
Two methods of poverty estimation on the basis of

Expert Groups for consumption:
Estimating Poverty Uniform Recall Period (URP)
Here, consumption data is asked for a 30 days recall period
Lakdawala Committee
for all items. The updated poverty estimates of the Tendulkar
It was constituted in 1989 by the Planning Commission to Committee have lowered the poverty line from ` 32 a day to
consider methodological and computational aspects of ` 28.
estimation of proportion and number of poor in India.
The report of this committee was submitted in July, 1993.
Mixed Recall Period (MRP)
It suggested that the consumption expenditure should be Here, consumption expenditure is asked for five
calculated based on caloric consumption as earlier. frequently used items clothing, footwear durable goods,
It also suggested that state specific poverty lines should be education and institutional medical expenses for a 365
constructed and these should be updated using CPI – days recall period and other items are asked for a 30
Industrial workers in urban areas and CPI–Agricultural days recall period.
labour in rural areas.
NC Saxena Committee
Tendulkar Committee Report (For BPL Families in Rural Areas)
Tendulkar Committee headed by Prime Minister’s Economic To review the Methodology for conducting BPL Census in
Advisor, Mr Suresh Tendulkar was set-up in March, 2009 to Rural Areas. An expert group headed by Dr NC Saxena
look into the methodology of estimating poverty in India. was constituted by the Ministry of Rural Development to
Tendulkar Committee submitted its report in recommend a suitable methodology for identification of
December, 2009 to the Planning Commission. BPL families in rural areas.
In its findings, this committee has moved away from just The expert group submitted its report in August, 2009
calorie criterion definition to a broader definition of poverty and recommended doing away with score-based ranking
that also includes expenditure on health, education, of rural households followed for the BPL Census, 2002.
clothing in addition to food. The committee has recommended automatic exclusion
Using this approach, new poverty line for the year of some privileged sections and automatic inclusion of
2004-05, has been raised from ` 356 percapita per certain deprived and vulnerable sections of society and a
month to ` 447 percapita per month in rural areas and survey for the remaining population to rank them on a
from ` 539 per capita per month to ` 579 percapita per scale of 10.
month in urban areas. In daily terms, poverty line has Based on the above methodology, the committee
been raised from ` 12 to `15 percapita per day in rural estimated the population below the poverty line at 50%
areas and from ` 18 percapita per day to ` 19 percapita of the total population.
per day in urban areas.
As per Tendulkar Committee Report, 37.2% of Indian SR Hashim Committee
population is living below poverty line using ‘uniform
(For BPL Families in Urban Areas)
recall period consumption’ in the year 2004-05, against
the official estimate of 27.5%. According to this report, On the methodology for identification of BPL families in
41.8% population in rural areas and 25.7% population in urban areas, according to the expert group headed by
urban areas is living below poverty line. renowned economist.
The new, updated data released by the commission based SR Hashim to suggest methodology for identifying urban
on the price indices computed from the 66th Round NSS poor, households having three of the four items like
(2009-10) data on Household Consumer Expenditure refrigerator, motorised two-wheelers, landline telephone
Survey, say anyone who has ` 28 to spend daily is out of or washing machines should not be treated as poor.
poverty. The panel has suggested that the government should
It has estimated the poverty lines at all India level as MPCE use three-stage approach-automatic exclusion, automatic
(Monthly Per-Capita Consumption Expenditure) of ` 673 for inclusion and scoring index to identify urban poor.
rural areas and ` 860 for urban areas in 2009-10. Planning Commission had constituted the expert group
Based on these cut-offs, the percentage of people living to recommend the detailed methodology for the
below the poverty line in the country has declined from identification of families living below poverty line in the
37.2% in 2004-05 to 21.92 in 2011-12. urban areas on 13th May, 2010.
Magbook ~ Poverty and Unemployment 139
—there are around 120 crore extremely poor persons in Lorenz Curve of Income Distribution
the world today.
Cumulative income share (%)

—between 1981-2010, the developing countries have 100
witnessed a decline in poverty rate from 50% to 21%. 90
80
—despite development in Africa, poverty is still
70
widespread.
60
50 A
Inequality 40
30 B
Inequality often refers to the income gap between 20
the rich and poor of society. The greater the gap the 10
greater the inequality. It essentially refers to 0
10 20 30 40 50 60 70 80 90100
disparities in the distribution of economic assets and
Cumulative population share (%)
income among individuals and groups within a
nation and nations.
It may result from the operation of the economic Inequality in India
system, access to assets, education and skills,
Both overall GDP and per capita GDP have increased rapidly in
social factors like caste and gender etc.
the economic reform period. The number of poor as the
percentage of population have also come down. However,
Adverse Impacts of Inequality inequality in the reform period has increased.
Growing inequalities can dampen growth due to According to Inequality Virus Report, 2021 released by Oxfam,
potential instability; weaken social cohesion. the wealth of Indian billionaries increased by 35% during the
Urban-dominated growth in India has caused social lockdown, while millions lost their job and saw reduction in their
friction as a result of the high levels of migration to income level in 2020.
cities and a shortage of foreign investment in more Gini co-efficient increased from 0.27 to 0.28 in rural areas and
isolated areas. from 0.35 to 0.39 in urban areas between 2004-05 and
In societies, where wealth is concentrated in the 2009-10. The Gini co-efficient of wealth in India in 2017 is at
hands of a few, there is danger of policy levers 0.83, which puts India among the highest inequality countries.
being captured by the rich for their own benefit and Top 10% wage earners make 12 times more than the bottom
a weakening of the institutional foundations of the 10% compared to 6 times 20 years ago.
growth process. * Trickle Down theory says that let business flourish, since
their profits ultimately trickle down to lower income
Gini Co-efficient individuals and the ease of the economy.
The Gini co-efficient (also known as the Gini index * Typically, India used the Consumer Price Index for
or Gini ratio) is a measure of statistical dispersion Agricultural Labour (CPIAL) and CPIIW for industrial
developed by the Italian statistician and sociologist labour.
Corrado Gini, it measures the inequality among
values of a frequency distribution (e.g. levels of Employment and Unemployment
income).
Gini co-efficient is commonly used as a measure of Employment
inequality of income or wealth. A Gini co-efficient of Employment refers to the capacity in which a worker pursues
zero expresses perfect equality, where all values are
gainful activity during the referece period. According to their
the same (e.g. where everyone has an exactly equal
status of employment, there are three types of employed
income).
workers, self employed workers, casual wage and regular wage
A Gini co-efficient of one (100 on the percentile employees.
scale) expresses maximal inequality among values
(e.g. where only one person has all the income). Unemployment
The Gini co-efficient is usually defined
Unemployment refers to a situation, when a person is able and
mathematically based on the Lorenz curve, which
willing to work at the prevailing wage rate, but does not get the
plots the proportion of the total income of the opportunity to work. The term unemployment is directly related
population (y axis) that is cumulatively earned by with the concept of labour force, because the people, who are
the bottom x% of the population (see diagram). The not included in labour force cannot be regarded as unemployed.
line at 45 degrees Gini, thus, represents perfect
Labour force includes all people in the working age group
equality of incomes.
(15-59 years), who are able and willing to work. Labour force

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A Must for Civil Services (Pre) Examination,

State PCS & Other Competitive Exams

INTRODUCTION AND NATIONAL INCOME

ECONOMIC GROWTH AND DEVELOPMENT

ECONOMIC PLANNING IN INDIA

POVERTY AND UNEMPLOYMENT

society using the Branches of Economics

Some Other Branches of Economics

Sectors of an Economy Other Sectors of Economy

National Income Market Price

Measurement of Economic Human Development Index

(ii) Improvement in the quality of life.

Environmental Taxes 12th Five Year Plan and

vision. The long vision document (Perspective plan) will

15 Years Vision Document in economic backwardness of India at the time of

Plans Objectives Facts Assessments

1. Consider the following statements 7. Consider the following statements

Liquidity Aggregates  It is a market for short-term funds with maturity ranging

—Delays in communication, late payments and the

On Fixed Income Groups Wholesale Price Index (WPI)

Core Inflation Measures to Check Inflation

The other members of the commission, which is

Fiscal Responsibility and Budget Union Budget

Key Changes in FDI Limits Foreign Institutional

The foreign Exchange Regulation Act (FERA) was

Policy Options with RBI to Manage Main Features of FEMA

1. (d) 2. (b) 3. (b) 4. (b) 5. (d) 6. (c) 7. (a) 8. (d) 9. (d)

The central government has sanctianed 60 AEZs

Socio-Economic and Caste Census (SECC) Percentage of Elderly Persons to

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

National Agricultural Insurance Scheme

` 25000 crore in the 11th Plan for incentivising states to

Livestock Insurance  Generation of additional 55 lakhs direct and indirect

 Doubling of incomes of fishers and fish.

approval of the MRTP. Commission for establishment of new

Policy of Miniratnas Disinvestment vs Privatisation

Small industry sector has performed exceedingly well and

Contribution of Small-Scale Government Measures to

India’s Manufacturing Sector National Manufacturing Policy,

Coal, petroleum products, natural gas and electricity

Two methods of poverty estimation on the basis of

Cumulative income share (%)

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Liquidity Aggregates It is a market for short-term funds with maturity ranging

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

Livestock Insurance Generation of additional 55 lakhs direct and indirect

Doubling of incomes of fishers and fish.