ARJUN BATCH 2.

O
ENGLISH MEDIUM

MPPSC PRE
GS
UNIT-6 (B)
INDIAN ECONOMY

FULL NOTES
@I-magnus
www.imagnus.in
By:-Dr.Kuldeep Sir
 Economics
UNIT-6 Part-B
Growth
• Quantitative change in the economy is called growth.
• It is measured in national income, per capita income etc.

Gross Domestic Product/GDP

• The monetary value of final goods and services produced within the domestic border in a
year
• Political boundaries within domestic territory, territorial waters, embassies abroad, ships,
aircraft.

Not Included In Gross Domestic Product

1. Intermediate goods
2. Illegal goods and services
3. Unpaid work such as housewife's services
4. Buying and selling of second hand items
5. Subsidy (Transfer Payment)
Slow down
• Reduction in GPD growth rate is called slow down.

Contraction
• If there is a decrease in the size of GDP or the phenomenon of GDP is called contraction.

Recession
• If there is contraction in two consecutive quarters then it is called recession.
•
• Net Domestic Product / NDP = Gross Domestic Product - Value Depreciation
• Gross National Product /GNP = Gross Domestic Product - Production by foreigners within
domestic borders + Production by Indians abroad
• Net National Product / NNP = Gross National Product - Value Depreciation
• Net National Product at Factor Cost / NNPFC= National Product at Market Price $
Subsidies – Indirect Taxes
• Net National Product at factor cost at constant prices = National Income

𝐍𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐈𝐧𝐜𝐨𝐦𝐞
Per capita income = l total populationk
• For constant prices, the year 2011-12 has been considered as the base year.

• GDP at current prices is called monetary GDP.

𝐌𝐨𝐧𝐞𝐭𝐚𝐫𝐲 𝐆𝐃𝐏
Inflation = 𝐑𝐞𝐚𝐥 𝐆𝐃𝐏
Gross value added
• The value addition to the price of a good or service by an industry, region, etc., is called
gross value addition.
• Gross Value Added = Gross Production – Intermediate Consumption
Area Contribution to total GDP Contribution to GVA
Primary
Secondary
Tertiary
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 Economics
• Growth rate of GVA in agriculture sector 3.5 percent (2022-23)
• Growth rate of GVA in industry sector – 4.1% (2022-23)
• Growth rate of GVA in services sector -9.1% (2022-23)
Development
• Qualitative change in the economy is called development.
• This includes education, health, skills etc.
• In 1972, the Club of Rome published a report titled Limits to Growth.
• According to this, the earth has a limit, which is called carrying capacity, hence we have to
emphasize on sustainable development instead of development.

Sustainable development
• Sustainable development means using resources in such a way that they can be handed over
to the next generation in the same form.

Human Development Index

• The Human Development Index was developed by Pakistani economist Mehboob-ul-Haq
and Indian economist Amartya Sen in 1990.
• It is calculated by UNDP.
• HDI new method is being followed since 2010.
• Disparity adjusted, gender adjusted BCP were started from 2010 itself.
Three indicators are used to calculate HDI.
1. Life Expectancy
2. Education Index (average years of school life and expected years of school life)
3. Income
Human Development Index State of human development
< 0.550 Low human development
0.550 – 0.699 Moderate human development
0.700 – 0.799 Higher human development
> 0.800 Higher human development

HDI 2021.22
• Switzerland ranked first (0.962)
• South Sudan ranked last (191) (0.385)
• India ranked 132nd (0.633)
Poverty
• The socio-economic condition of a person in which he is not able to fulfill his basic needs is
called poverty.
• It has the following two types-

• Absolute poverty:- There is a feeling of deprivation in this poverty.

• Relative poverty:- It shows the disparity in the income level of two people.

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 Economics
Measurement of poverty in India
Poverty line
Dadabhai Naoroji In the book Poverty and UnBritish Rs 16-35 per year
Rule in India in 1867-68
Jawaharlal Nehru In 1938 the National Organizing Rs 15-25 per month
Committee
bombay plan 1944 Rs 75 per year
Special Task Force on in 1962
Poverty
YK. Alag committee In 1979,
Lakdawala Committee in 1993
Suresh Tendulkar Formed in the year 2005, submitted • Rs 27/day in rural
Committee its report in 2009. areas and Rs 33/day in
Along with energy, education, health urban areas
and other things were also included. • Poverty 21.9 percent in
2011
Rangarajan Committee • Formed in 2012 and submitted its • Rs 32/day in rural
report in 2014 areas, and Rs 47/day in
• Use of modified mixed reference urban areas
periods of 7 days, 30 days and 1 • Poverty 29.5 percent in
year. 2011
world Bank • On the basis of purchasing power $1.9 per day
parity of 2011
Asian Development Bank $1.5 per day
united nations development • Year 2010 Poverty 14.96 percent in
program • Multidimensional Poverty Index 2021

• In India, a poverty line is determined. On the basis of consumption (expenditure) in India,

the number of people falling below this line will be counted, this is called Head Count Ratio.

Lorenz curve
• An economist named Lorenz used a graph to demonstrate income inequality.
• According to Lorenz, if the distribution of wealth in any country is equal then the line of
complete equality is obtained at 450.
• The greater the deviation from the line of perfect equality in any country, the greater will be
the income inequalities in that country.
Perfect equality line
Property
450

population
Gini coefficient
• If there is equality of price distribution in India, then the India line will be shifted to the line
𝑨
of complete equality due to which the value of A will become zero. Gini coefficient =
𝑨+𝑩
𝟎
𝑨 =𝟎0= =𝟎
𝟎+𝑩

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 Economics
• If the entire wealth of India comes to one person then the value of थ will become zero. Then
𝑨
the Gini coefficient is =
𝑨+𝑩
𝑨 𝑨
𝑩 = 𝟎0= = =𝟏
𝑨+𝟎 𝑨

• Thus the value of Gini coefficient will be between zero to 1 (0-1).

Gender based development index

• It was developed by UNDP in 1995. It includes rights to health, education and property.
• gender disparity index
• (GII) Gender inequality index½ was developed by UNDP in 2010. It includes factors like
reproductive health, empowerment and workforce participation.
• poverty alleviation schemes

Poverty Alleviation Schemes

Plan Start year Provision

MANREGA Started in the • In this, any person will be given 100 days of
name of unskilled employment within 15 days within
NREGA on 2 5KM from the limits of his Gram
February 2006 Panchayat.
• There is a provision to provide 150 days of
employment in drought affected areas.
Mahatma Gandhi National Its name will be • Coarse grain is given at Rs 1 per kg, wheat
Rural Employment MNREGA on 2 at Rs 2 per kg and rice at Rs 3 per kg.
Guarantee Act, 2005 October 2009. • 50% urban population and 75% rural
population (comprising 67% of the total
population of India)
Food Security Mission 2013 • First started in Tamil Nadu and
implemented in entire India since 2005
midday meal scheme 2005 • Started in place of Swarna Jayanti Gram
Now Swarozgar Yojana [SGSY started in 1999]
POSHAN Scheme • Replaced by Deendayal Atyodaya Yojana in
2015
National Rural Livelihood 2011 • Launched in place of Swarna Jayanti Urban
Mission Employment Scheme (SJSRY started in
1999)
National Urban Livelihood 2011 • 18-70 years Rs 12/per year
Mission
Pradhan Mantri Suraksha 9 May 2015 • 18-50 years Rs 330/year
Bima Yojana
Pradhan Mantri Jeevan 9 May 2015 •
Jyoti Yojana
Atal Pension Yojana 9 May 2015 • 6 components included
• Irrigation, roads, housing, drinking water,
electrification, telecommunication
Bharat Nirman Yojana 16 December • for rural areas
2005
Indira Housing Scheme 1985 • for urban areas
Rajiv Awas Yojana 2009 • Merger of Indira Awas Yojana and Rajiv

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Awas Yojana.
• Construction of 20 million houses by 2022

National Social Assistance Program

• This program was started in 1995, currently 5 schemes are being run under it.
1. Indira Gandhi National Old Age Pension Scheme
• Under this, assistance of Rs 400/month is provided to BPL people above 60 years of age and
Rs 500/month is provided to those above 80 years of age.
2. Indira Gandhi National Disability Pension Scheme
• Under this, assistance of Rs 300/month is provided to BPL disabled people in the age group
of 18-59.
3. Indira Gandhi National Widow Pension Scheme
• Under this, BPL widows aged 40-59 years are given a pension of Rs 300/month.
• National Family Benefit Scheme
• On the death of the head of a family aged between 18-64 years, a lump sum assistance of Rs
20,000 is provided to the family.
4. Annapurna Yojana
• BPL elders who do not get pension are given 10KG rice every month.
• Note:- All the above schemes are only for the people living below poverty.

Unemployment
• The situation of a capable person aged 18-64 years who is willing to work and not getting
work when asked for it is called unemployment and such a person is called unemployed.
• People engaged in employment are called work force and the sum of employed and
unemployed is called labor force, while all able-bodied persons of 18-64 years of age are
called labor force.

Types of unemployment
Seasonal unemployment • Employment in a particular season, unemployment for the rest of
the time
Invisible • John Robinson
unemployment/disguised • Employing more people than required for a task
unemployment • Marginal productivity is zero or negative.
• Visible in rural areas especially in agricultural area
Cyclical unemployment • Visible in developed countries
• Unemployment increases during economic recession, whereas
unemployment decreases during economic growth.
Structural • When there is a change in the form of the economy or the
unemployment productive process, a large number of people become unemployed.
Frictional • The unemployment that occurs between leaving one job and getting
unemployment another job is called frictional unemployment.
Underemployment • When a person with higher qualifications is employed in a job with
lower qualifications
Educated • When an educated person refuses to do a job with low
unemployment qualifications
Open unemployment • Sum of all types of unemployment

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 Economics
Measurement Of Unemployment

• Unemployment is measured by NSO. It measures unemployment on the basis of three methods

suggested by the Bhagwati Committee.

Normal condition If a person gets employment for more than half the days of the year,
he will be considered employed.
Current Weekly Status If a person gets employment even for one hour in a week, he will be
considered employed.
Current daily status If a person gets employment for more than 4 hours a day then it will
be called full day employment.

• In India, about 52% people are self-employed, 30% are in temporary employment and 18%
are in permanent employment.
• 49% people get employment from agriculture sector, 24% people get employment from
industries and 27% people get employment from service sector.
Philip curve
• According to this curve, as inflation increases, the unemployment rate decreases.

Unemployment

Less
Inflation (will increase)

Workforce
• All the people who are working are called work force.
• Currently there is 524 million workforce in India.
• 66 percent of the total male population while 8.8 percent of the total female population are
included in the work force.

Labour Force
• The total number of people working and the number of jobs they want to do is called labor
force.
Labor force participation rate
• Work force (total proportion in population aged 15-64)
• The labor force participation rate is 34.5 percent of the total population.

Nature of employment in India

• Self employment 52 percent
• Temporary employment 30 percent
• Permanent employment 18 percent
• About 85 percent people are engaged in the unorganized sector.
• 43.96 percent of total employment comes from agriculture sector, 25.34 percent from industry
sector and 30.7 percent from service sector.
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Inflation
Inflation
• Inflation means an increase in the prices of goods or a decrease in the purchasing power of the
currency (Consumer Price Index).
Inflation factors

Demond pull Cost push

Demand pull Cost push

• Population growth • Deterioration of infrastructure.
• Money earned by doing dishonest things • Increase in indirect taxes.
• Increase in people's income • Increase in prices of petrol and diesel.
• Increase in government spending • Technical backwardness.
• Reduction in direct taxes • Increase in indirect taxes.
• Cheap loan • Increase in Minimum Support Price MSP.

Inflation Calculation
• In India, inflation is measured on the basis of year to year or point to point method.
• In this method the prices in a month of this year are compared with the same month of the
previous year.
• In India, the inflation target is kept at 4 Point to Point.
• The task of controlling inflation in India was entrusted to RBI (Reserve Bank of India).

Wholesale Price Index

• Wholesale price index is determined on the basis of wholesale prices of commodities.
• Items included – 697 items in which manufactured goods account for 65 percent.
• Calculation - By the Economic Advisory Department of the Ministry of Commerce and
Industry
• Its data for primary commodities and fuel is released every week while data for other
commodities is released every month.
• Before 2014, the Government of India used the Wholesale Price Index but its use has been
stopped due to the following reasons.
1. The public has nothing to do with wholesale prices.
2. Barriers between wholesalers and the public Unable to identify.
3. Services are not included in it.

CPI (consumer price index)

• Retail prices are included in this.
• Items included – 260 items
• Base year - 2012
• Calculation – By NSSO

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 Economics
• Inflation for rural workers/agricultural workers and industrial workers is calculated by the
Ministry of Labor.
• CPI has been used to calculate inflation since 2014.

Types Of Inflation
Headline Infiation The prices of all items are included.
Core Inflation In this, inflation is detected by excluding food items and fuel.

Stagflation When a situation of unemployment arises along with inflation

Deflation when the prices of goods go down
Disinflation When the inflation rate decreases
Creeping Inflation - If the inflation rate is less than 3%.
Walking inflation If the inflation rate is between 3-10%
Galloping Inflation If the inflation rate is more than 10%.

The major principle

Vicious circle of • Provided by Regner Nurkse
poverty • The poor have negligible savings, hence they lack of capital for
investment, due to which all possibilities of increasing their income
are lost and they get trapped in the vicious cycle of poverty.
Principle of laissez • Adam Smith (Father of Economics) Provided by Bentham and
faire Spencer
• policy of laissez-faire or free trade
Gresham's law • A bad currency drives a good currency out of circulation.
Kuznets curve • According to former American President Kuznets, when there is
economic development in a country, initially the disparity between
the rich and the poor will increase but after some time this disparity
will reduce.
Principle of • According to this principle, if benefits are provided to the upper
seepage/leakage/trickle class people, that benefit will trickle down to the lower class.
down
Phillips curve • According to this theory, unemployment decreases when inflation
increases.
laffer curve • According to this curve, increasing the tax rates increases the
revenue for a period of time but after that the revenue starts
decreasing.
Say's law of Market • According to this rule, supply creates its own demand. According to
/law of supply this rule, the market balances all economic conditions.
Keynes' employment • After the Great Depression of 1929, the classical theory was proved
law wrong. According to Keynes' law, the market alone cannot balance
the economy.
• Therefore, state intervention is mandatory. According to this rule, as
the income of the nation increases, employment also increases.
Elasticity of demand • The demand for luxury goods like A, C phones, cars, liquor etc. is
greatly influenced by their prices, that is, their elasticity of demand
is high.
• Prices of essential commodities like flour, salt, etc., have little impact
on their demand, that is, their elasticity of demand is almost zero.
Giffin objects • Such inferior goods whose demand also decreases when their price
decreases are called Giffin goods.
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 Economics
• Every Giffin thing is bad but not every bad thing is a Giffin.
Joint Goods • When increase in demand of a commodity also increases the demand
of another commodity related to it, then these are called combined
goods.
• Such as toothbrush and toothpaste, printer and ink, copy and pen.
Snob effect When the price of a commodity falls, some people reduce the demand
for that commodity to differentiate themselves.
Beblen effect If the price of a product falls, its demand decreases because people feel
that its quality has decreased.
Bandwagon effect Demand for a product increases because people follow others.
Principle of According to this theory, the wealth of rich people belongs to the
trusteeship common people. The rich person is only the trustee of that property.

Industrial Development
Industrial Policy 1948
• The first industrial policy was announced on 6 April 1948 by the Union Industries Minister
Syama Prasad Mukherjee.
• Under this policy, industries were divided into four parts.

Strategic industries 3 • Arms manufacturing and munitions

Fully government sector • Nuclear power production and control
• Ownership and management of rail traffic
Key Industries 6 • Coal, iron and steel, aircraft manufacturing,
Government-cum-Private shipbuilding, telephone and mineral oil.
Sector • The industrial units related to these industries
which are currently in the private sector were
allowed to remain in the private sector for the
next 10 years, but the right to establish new
industrial units related to this was completely
handed over to the government sector.
Government controlled 18 •
private sector
Other areas •

Industrial Policy 1956

• This industrial policy was declared on 30 April 1956.

Schedule A 17
Schedule B 12
Schedule C

Industrial Policy 1977

• Presented by Industry Minister George Fernandes in Parliament on 23 December 1977.
• Small and cottage industries got top priority, small sectors were created, industries
developed and districts became industrial centres, Khadi and rural industries also increased
etc.
Industrial Policy 1980

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 Economics
Industrial Policy 1985
• Important announcements and decisions were made in the year 1985 with a view to speed up
the process of economic development in the country, increase industrial production and
maximum utilization of national resources.
• The main objective of this industrial policy was to remove the obstacles to economic
development, create a dynamic industrial environment, accelerate the pace of development,
investment and production.

Economic Crisis Of 1991

• As of January 1, 1991, India's foreign exchange reserves were $1.2 billion, which could
barely meet 3 weeks of imports.
• At this time the consumer price index was 13.88%.
• The following were the reasons behind the balance of payments crisis of 1991

Reason Explanation
Dissolution of the soviet • Soviet Union did foreign trade with India in Indian Rupees,
union hence there was no problem of foreign exchange.
• India's exports to Eastern European countries declined from
19.3% to 10.3%.
Iraq–kuwait war (1990) • The price of crude oil increased from $15 to $35 per barrel
and India's crude oil import bill increased by 60 percent.
Financial indiscipline • The gross fiscal deficit was 4% of GDP in the 1970s, which
increased to 6% in the 1980s and to more than 8% in 1985.
Political instability • Between November 1989 and May 1991, three coalition
governments and three Prime Ministers were formed at the
Centre. Due to this political instability
a. Delay in dealing with balance of payments problem
b. loss of investor confidence
Downgrading of india's • Due to current account deficit, credit rating agencies reduced
rating by credit rating India's rating and investors started withdrawing from the
agencies market.
Increase in foreign debt • The current account deficit was financed through foreign
borrowing due to which foreign debt increased from Rs 194
crore in 1980-81 to Rs 1229 crore in 1990.

• Under the above circumstances, India took a loan of 7 billion dollars from the World Bank
and the International Monetary Fund.
• These institutions imposed some conditions on the Government of India and announced a
new economic policy in India.
• Through this, economic reforms (liberalization, privatization and globalization) were
implemented.

Economic reforms of 1991

Financial reform
• For this, efforts were made to reduce expenses and increase income.
• To reduce expenditure, agricultural, food and other social subsidies were reduced.
• Income increased through disinvestment and tax reforms
• As a result, fiscal deficit reduced from 8.4% to 6.5%.

A. Liberalization

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Area Liberalization
monetary area • Reduction in Statutory Liquidity Ratio and Cash Reserve Ratio
• Simplification of opening and closing of bank branches
• Banking sector opened to private banks to increase competition
• Classification of Banks' Assets
Industrial Area • The number of areas reserved for the public sector was reduced from
17 to eight.
• Abolition of Monopolies and Restrictive Trade Act (MRTP Act)
• License system abolished in remaining industries except 18 industries
• License still required for the following industries
(a) Transport and Railways
(b) Mining of atomic minerals
(c) Nuclear energy

B. Privatization
• Privatization is the process in which the ownership of Public Sector Units (PSUs) in the
private sector is transferred to private hands.

Steps taken for privatization

1. Sale of shares
• The Government of India sold shares of public sector undertakings to public and financial
institutions, for example the government sold shares of Maruti Udyog Limited.

2. Disinvestment in PSU
• The government had started the process of disinvestment in those PSUs which were
incurring losses.
• The government sold enterprises worth Rs 30,000 crore to the private sector.

3. Reduction of public sector

(a) Transport and Railways
(e) Mining of nuclear minerals
(b) Nuclear energy

C. Globalization
• Globalization means connecting the domestic economy with the rest of the world in terms of
foreign investment, trade, production and financial matters.

Steps taken for globalization

(a) Reduction in import rates

• Customs duties on imports were imposed and duties on exports were gradually reduced to
make India's economy attractive to global investors.

(b) Long term trade policy

• Foreign trade policy was implemented for a long period

(c) Liberal policy

• All types of controls on foreign trade were removed and a negative list of 71 items was
created.
• Partial convertibility of currency
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 Economics
• Tariffs were reduced
• Quantitative restrictions were abolished
• Trading House
• Increase in equity limit of foreign investment: In many sectors the limit of foreign capital
investment has been increased from 40 to 100 percent.
• 100 percent Foreign Direct Investment (FDI) allowed in 47 high priority industries without
any restrictions.

Industrial production index

• 8 basic industries included
Industry Weight (in percent)
1. Petroleum Refinery 28.04
2. Electricity 19.85
3. Steel 17.92
4. Coal 10.33
5. Crude oil 8.98
6. Natural gas 6.88
7. Cement 5.33
8. Fertilizer 2.63

Major Industries
Industry Establishment in India
clothing industry An unsuccessful attempt to establish a court blaster in Calcutta in
1918
jute industry Successful attempt of establishment by Kabasji Dabur in Mumbai
in 1854
iron steel industry In 1855 in Risra (Calcutta)
aluminum industry Established in Kulti in 1874
cement industry Established in 1837 at Jaiknagar (West Bengal)
fertilizer industry Established in Chennai in 1904
shipping industry Super Phosphate Plant at Ranipet (Tamil Nadu) in 1906
paper industry Hindustan Shipyard established in Visakhapatnam in 1941
woolen textile Failed attempt in Serampore, West Bengal
industry

Cotton Textile Industry

• 2.3% contribution to the country's GDP
• 13% of industrial production
• 12% of exports
• Indian cotton textile industry provides employment to 6 crore people.
• Target:- Cotton textile production worth 250 billion dollars and export worth 100 billion
dollars by 2030.
• Second place in the world in cotton consumption
• India ranks second in cotton production (22% of total).
• India's rank in cotton export - 3rd (10.2% of total)
• Major importing countries of cotton – Bangladesh, China, Vietnam
• Top position in cotton production – Gujarat, Maharashtra
• Top states in jute production – West Bengal, Bihar, Assam

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Maharatna Companies
Company year of establishment
Oil and Natural Gas Corporation 1956
Bharat & Heavy Electrical Limited 1964
Bharat Petroleum Corporation Limited 1976
Coal India India Limited 1975
Gas Authority of India 1984
Hindustan Petroleum Corporation Limited 1974
Indian Oil Corporation Limited 1959
National Thermal Power Corporation 1975
Power Grid Corporation of India 1989
Power Finance Corporation Limited 1986
Rural Electrification Corporation Limited 1969
Steel Authority of India 1973
Oil India Limited 1959

Category Establishment Average annual turnover Average net worth Average profit
Maharatna 2010 25 thousand crores 15 thousand crores 5 thousand crores
Navratna 1997
Mini ratna 1997
30 crores

Institutions responsible for industrial development

Industrial Development Institute 1999

Industrial Finance Corporation of India 1948
Industrial Development Corporation of India 1964
Industrial Credit and Investment 1955
Corporation of India
Unit Trust of India 1964

Corporate social responsibility

• Eligible companies will have to spend 2 percent of the average net profit of 3 years on social
welfare.
• Eligibility – Profit Rs 5 crore or more, Networth – Rs 500 crore or more, Turnover – Rs
1000 crore

New classification of MSME (1 July 2020)

Industry Maximum limit (investment in machinery) Maximum Limit (Annual Turnover)
Micro 1 crore rupees 5 crore rupees
Small 10 crore rupees 50 crore rupees
medium 50 crore rupees Rs 250 crore

Full name -
Objective – To promote modern technology in MSME
Exim Bank (Import-Export Bank)
Foreign trade
❖ Closed economy
• The system in which there is no import and export is called closed economy.
❖ Open economy
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 Economics
• Such a system in which import and export take place is called open economy.
❖ FDI(Foreign Direct Investment)
• When more than 10 percent of a company is made abroad, it is called TPP.
• It is for ownership (owner) and management.
• It is of two types.
❖ GREEN FDI
• When a new company is established through foreign investment, it is called Green FDI.
❖ BROWN FDI
• When foreign investment comes into an already established company, it is called Brown
FDI.
❖ Foreign Institutional Investment
• When less than 10 percent foreign investment is made in a company, it is called FII.

Export and Import 2022-23

export Import
447-46 714
Service 322-72 177-94
Total 770 892
trade balance & 122

Export And Import ¼2022&23½

Share in world merchandise exports 1.8%
Share in world service exports 4%
Share in total world exports 2.2%
Share in world commodity imports 2.5%
Participating in the World Service Dimension 3.5%
Share in total world imports 2.7%
Rank in commodity exports 21
Rank in commodity imports 14
Rank in Services Exports 7
Rank in service, import 10

• Growth in India's exports - 13.84% (2022-23)

• Highest increase in exports - edible oil (55%)
• Maximum decrease in imports – edible and unrefined iron piglets (28%)

Indian Institute of Foreign Trade

• Establishment – 2 May 1963
• Deemed University status temporarily in 2002 and permanently in 2012.
Most Exported Services
• Telecommunication

Most Exported Items

Most Imported Items (2022)

• Crude oil – 20%
• Gold - 8
• Petroleum products
• Coal

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Export Destination
1. United States (18%)
2. United Arab Emirates (6%)

Import Destination
1. China (15%)
2. United Arab Emirates (7%)
3. United States of America

Export Promotion Council year of establishment

Apparel Export Promotion Council 1978

Cotton Textile Export Promotion Council 1954

The Synthetic and Rayon Textile Export Promotion Council 1954

Wool and Woolen Textiles Export Promotion Council

Indian Silk Export Promotion Council 1983

Carpet Export Promotion Council 1982

Handicrafts Export Promotion Council 1986-87

Agricultural and Processed Food Products Development Authority

Logistics Performance Index 2023

• Issuer - World Bank
• India's rank - 38/139

foreign trade policy 2023

• Target – $2 trillion exports by 2030
• E-commerce worth $300 billion by 2030
• Cities of Export Excellence – Total 43
• Export Centers – 700 districts (Rs. 10,000 crore)
• Scheme for exemption from duties and taxes on exported products
• Start – 1 January 2021

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 Economics
G.S PAPER 1
UNIT-6, CHAPTER-8
Reserve Bank of India
• It was on the recommendation of Hilton Young that RBI was established on April 1, 1935 by
the RBI Act 1934.
• Its first governor was Osborne Smith (1935-37).
• At the time of independence, RBI Governor was C.D. Deshmukh.
• Currently Shaktikanta Das is the 25th Governor of RBI
• The central office of the Reserve Bank was initially established in Kolkata and was
permanently shifted to Mumbai in 1937.
• Initially it was privately owned, after nationalization in 1949 it is completely owned by the
Government of India.
Central board
• The functioning of the Reserve Bank is governed by the Central Board of Directors.
• The Government of India appoints this Board in accordance with the Reserve Bank of India
Act.
Appointment/nomination
• It is for four years

Build
a. Government director
(i) Whole-time: Governor and not more than four Deputy Governors.
b. Non-official director
(i) Nominated by the Government – ten directors and two government officials from different
sectors.
(ii) Others – Four Directors – one from each of the four Local Boards.

Local board
• Constituted for Western Zone, Eastern Zone, Northern Zone and Southern Zone.
• Five members each.
• Members appointed by the Central Government. Members will hold office for a term of four
years.

Board for Financial Supervision (BFS)

• This Board was established in November 1994 as a committee of the Central Board of
Directors of the Reserve Bank of India.

Objective
• The primary objective of the Board of Financial Supervision (BFS) is to provide integrated
supervision of the financial sector including commercial banks, financial institutions and non-
banking financial institutions.

Build
• This Board has been constituted by including four directors of the Central Board as co-opted
members for a period of two years and the Governor is its Chairman.
• The Deputy Governor of the Reserve Bank is its ex-officio member.
• A Deputy Governor, usually the Deputy Governor in charge of banking regulation and
supervision, is designated as the Vice-Chairman of the Board.

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 Economics
BFS meetings
• Board meeting is generally required to be held once a month.

Work
1. Formulation of monetary policy
• Monetary policy means achieving the following economic objectives by controlling the
availability, cost and use of money and credit through various instruments by the central bank.
1. Low and stable inflation
2. development
3. Employment
4. Increase in foreign exchange reserves

Inflation targeting
• Earlier the monetary policy was formulated by the Reserve Bank on the advice of the
Technical Advisory Committee, currently this work is being done by the Monetary Policy
Committee.
• The first Monetary Policy Committee (MPC) was constituted on September 29, 2016.

Monetary policy committee

1. 6 member committee
2. The Governor of the Reserve Bank of India – ex officio Chairman;
3. Deputy Governor in charge of Monetary Policy, Reserve Bank of India – Ex-officio Member
4. An officer of the Reserve Bank of India to be nominated by the Central Board – ex officio
member
5. Member nominated by the Government of India
6. Members nominated by the Government of India
7. Member nominated by the Government of India

Current inflation target

• Consumer Price Index (CPI) inflation of 4 per cent with an upper tolerance limit of 6 per cent
and lower tolerance limit of 2 per cent was notified as the target for the period from August 5,
2016 to March 31, 2021.
• On March 31, 2021, the Central Government retained the inflation target and tolerance range
for the next five years, i.e., the period from April 1, 2021 to March 31, 2026.

Monetary policy instruments

Monetary Policy Instruments

Quantitative Qualitative

Ratio Rates ➢ Minimum Margin

➢ Credit approval
• CRR ➢ Credit rationing
Bank rate SDF
• CLR LAF base rate MSF ➢ Primary sector
cSad nj ➢ moral pressure

repo rate reverse repo rate

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Quantitative

CRR [Cash Reserve ratio]

• The share of net demand and time liabilities that banks have to maintain as cash balances with
the Reserve Bank
• Initially its minimum limit was 3% and maximum limit was 15% but this limit was abolished
by the 20th Amendment Bill 2006.
• CRR Bank does not get any interest.

SLR [Statuary Liquidity ratio]

• In this, banks have to keep a part of their total deposited capital with themselves in the form of
gold, foreign currency or bonds.
• Changes in SLR often affect the availability of resources in the banking system for lending to
the private sector.
LAF(Liquidity Adjustment facility)
• In 1998, on the recommendation of the Second Narasimhan Committee on Banking Reforms,
Liquidity Adjustment Facility was started from the year 2000, under which repo and reverse
repo rates were included. In the year 2011, MSF was also included in it.

Repo Rate
• The fixed interest rate at which the Reserve Bank provides short-term (1-14 days) money to
banks under the Liquidity Adjustment Facility (LAF) against government collateral and other
approved securities.

Reverse repo rate

• The prescribed interest rate at which the Reserve Bank absorbs currency from banks under
the Liquidity Adjustment Facility (LAF), against the collateral of eligible government
securities.
• Currently the repo rate is percent and reverse repo rate is percent.
Standing deposit facility
• Starting in 2022
• Under this, all the banks deposit their surplus currency with the Reserve Bank.
• In this, the Reserve Bank does not have to keep any collateral or security deposited with the
banks.
• Presently Ad-hoc Deposit Facility is being used in LAF Corridor in place of Reverse Repo
Rate.
Marginal standing facility
• A facility under which scheduled commercial banks can borrow currency overnight from the
Reserve Bank.
• This is the highest rate.

Bank rate
• It is the rate at which the Reserve Bank is ready to buy, exchange or discount bills of
exchange or other commercial papers from banks.
Base rate
• This is the minimum rate at which a bank can give loan to its customers.
• It was introduced in 2010 to replace the prime lending rate.
• Prime lending rate is the rate at which a bank lends to its most reliable customers.

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Open Market Operation
• These include outright purchase/sale of government securities, injection/absorption of currency
into the economy.
• This cash is used for government expenses.

Market Stabilization Scheme (MSS)

• This tool for monetary management was introduced in 2004.
• The money generated from large capital inflows is absorbed through the sale of short-term
government securities and treasury bills.
• The cash raised is kept in a separate government account with the Reserve Bank.
• This cash cannot be used for government expenses.
A- Selective or Qualitative Measures
• Under this, instead of the quantity or quantity of credit, its flow and purpose are controlled.
1½ Margin Requirements
• The difference between the value of a security and the credit or loan issued on its basis is called
margin.
• The amount of liquidity can be controlled by changing it.
2½ Moral Suasion
• The Governor and Deputy Governor of the Reserve Bank exert moral pressure on the banks
through their speeches and appeals.
3½ Credit Authorisation Scheme
• Under this, before giving loan to any one party above a certain limit, the commercial bank had
to take approval from the Reserve Bank.
• It was abolished by the Reserve Bank in 1988, but to maintain financial discipline, the Reserve
Bank has started a new scheme Credit Monitoring Arrangement in 1988.
• Through this, the Reserve Bank keeps an eye on the loans given by commercial banks.

4½ Rationing of Credit
• Rationing means the determination of the maximum limit of credit for different sectors by the
Central Bank.
Credit Control to Priority Sector
• According to the instructions of the Reserve Bank, banks have to provide at least 40 percent of
their loans to the priority sector and 18 percent to agriculture. The Reserve Bank can also take
appropriate action against those banks who are unable to meet this target.
• A target of 32 percent has been set for priority sector by foreign banks.

Other functions of RBI

Printing currency
• According to Section 22 of the Reserve Bank of India Act
• Till 1956, R.B.I. Notes were printed on the basis of proportional system in which notes were
printed in the ratio of gold.
• RBI since 1956 The notes are being printed as per the minimum reserve system in which RBI
A reserve of Rs 200 crore is required.
• This includes gold worth Rs 115 crore and SDR worth Rs 85 crore. Or must be foreign bonds.
• In India, the work of printing notes/coins is done under the following 2 institutions.

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 Economics
SPMCIL BRBNMPL
Security Printing and Minting Corporation of Bhartiya Reserve Bank Note Mudran Private
India Ltd . Ltd.
Established in 2006 Established in 1995
Under Government of India Under RBI
Headquarters→ New-Delhi Headquarters → Bangalore
• 1 rupee note is issued by the Finance Ministry which is signed by the Finance Secretary, the
rest of the notes are signed by the RBI Governor.
• In 1936, the portrait of George VI was placed on the notes in place of George V.
• Ashoka Pillar notes were introduced in 1947.
• From 1957 the system was abolished and new money based on the decimal system was
introduced.
• The money system was continued by removing the new word from 1964.
• Mahatma Gandhi series was started from 1966.
• From 1982, new money started being called paisa.
• In 1987, notes with Mahatma Gandhi's picture were printed.
• The Indian currency symbol was created by Uday Kumar of Mumbai.
• It prints all the notes except Rs 1 note.
• Presently notes are printed in Dewas and Nashik.
• Coins are minted in Mumbai, Kolkata, Hyderabad and Noida.
• Security papers are printed in Hoshangabad.

Note Shape Colour

1 rupee bombay high pink-green
2 rupees Aryabhatta Satellite pink
5 rupees farmer plowing the field Green
10 rupees Konark Sun Temple brown
20 rupees ellora caves Yellow
50 rupees Hampi Chariot place
100 rupees queen's stepwell lavender(light purple)
200 rupees Sanchi Stupa orange
500 rupees Red Fort stone gray
2000 rupees Mangalyaan magenta
• R.B.I. Acts as a government bank and raises money for the government by selling government
bonds through OMO (Open market operation) as per the Government Securities Act 2006.
• R.B.I. Acts as a bank of banks, that is, it provides finance to banks.
• R.B.I. Controls the monetary market i.e. banking system.
• R.B.I. The main function of is to control inflation.
• To ensure the economic growth of the country, like it provides funds to NABARD for the
development of agriculture.
• Regulates foreign exchange reserves.

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 Economics
UDGAM

Origin
• Full Name - Unclaimed Deposito Gateway to Access Information
• Web portal released by RBI

Fiscal deficit = 6.4% (2022-23)

Foreign exchange reserves = 563 billion dollars
The budget estimates GDP growth at 6.5% in fiscal year 2024.
Call money market
• In this, one bank takes loan from another bank for a short time, this rate is called Inter bank
offer rate [IBOR].
1. Notice - 2.14 days.
2. Term - 15 days-365 (less than 1 year)
• All transactions in the currency market are done at a single rate which is called Inter bank
offer rate.
Like- MIBOR (Mumbai Inter Bank Offer Rate)
National Stock Exchange (NSE) calculates MIBOR.
Treasury Bills (T-Bills)
1. The Central Government issues treasury bills for short duration.
2. These are issued for 14 days, 91 days, 182, 364 days.
3. Their buying and selling is done by RBI.
4. State government cannot issue treasury bills.
Certificate of deposit
• All banks except RRB and Local Area Bank issue CDS to raise capital.
• It should be at least Rs 1 lakh.
• They give discount on face value.
Descending order of liquidity
M1 – Cash with the Public + Demand Deposits (in banks)
M2 - M1 + saving in Post office
M3 - M1 + timedeposit in cSadksa
M4 - M3 + Post office
R.B.I. subsidiaries of
1. National Housing Bank
2. Reserve Bank of India Note Printing Private Limited
3. NABARD
4. Deposit [Depositive insurance and credit guarantee Corporation] DICGC
• CFB insures up to Rs 5 lakh per account

Classification of banks in India

Scheduled Bank
• These banks come under the Second Schedule of the Act 1934.
A. Commercial Banks (BWUMTBPNS)
B. Co-operative Bank
• State Bank
• Private bank
• Foreign bank
• Regional rural bank (RRB)
Non-Scheduled Bank
These come under Banking Regulation Act 1949
EX- LOCAL AREA BANK

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 Economics
Nationalized Bank
It refers to a bank in which the Government of India holds more than 50 percent stake, it is also
called a public sector bank.

History of Nationalized Banks

• The First World War was fought from 1914-1918 due to which all the European countries and
banks went bankrupt.
• To avoid this situation in India, Imperial Bank was established in 1921 by merging Bank of
Bengal, Bank of Bombay, and Bank of Madras.
• When the economic depression occurred in 1929-30, Dr. Ambedkar wrote “The problem of the
Rupee; Wrote a book titled “its Origin and Its Solution”.
• On the basis of this book, Hilton Young Commission (Royal Commission) was formed.
• On the basis of the recommendations of this commission, RBI was established in 1935 under
the RBI Pact 1934.
• RBI was nationalized in 1949
• In 1952, All India Rural Credit Survey was formed under the chairmanship of A.D. Gorwala.
• By nationalizing the Imperial Bank in 1955 A.D. Stent Bank of India was established on the
recommendation of the Gorwala Committee.
• In 1959, 8 associate banks of SBI were nationalized.
• Nationalization of 14 big private banks (deposit capital Rs 50 crore) in 1969
• Lead Bank Scheme was started in 1969 itself on the recommendation of Gadgil Committee,
according to which there is a Lead Bank in every district.
• In 1980, 6 private banks which had minimum deposits of Rs 200 crore were nationalized.
1. Andhra bank
2. Cooperation bank
3. New bank of india
4. Oriental bank of commerce
5. Punjab and Sindh Bank
6. Vijay bank
• The first Narasimhan Committee related to banks was formed in 1991.
• In 1993, New Bank of India was merged with PNB, leaving 19 nationalized banks apart from
SBI and its associate banks.
• On April 1, 2017, all five associate banks of SBI were merged.
P - Bank of Patiala
M -Bank of Mysore
T - Bank of Trawankor
H – Bank of Hyderabad
B – Bank of Bikaner and Jaipur and Indian
• This merger became effective from 1 October 2017
• Bharatiya Mahila Bank was also merged with SBI.
• In 2019, four big banks will be created by merging ten banks.
1. Cenara bank+ Syndicate Bank
2. Union bank + Andhra bank + Corporate bank
3. PNB + OBC + United bank of India
4- Indian bank + Allahabad bank.

Major Nationalized Banks

1. State Bank of India
• It was the royal bank of India which was nationalized and its name was changed to State
Bank of India in July 1955.
• It is the largest public sector bank of India.
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 Economics
2. Punjab National Bank
• P.N.B. India's first indigenous bank was established in Lahore in April 1895 to help
Indians.
• Headquartered in Delhi, India.
• Nationalized in 1969.
3. Bank of Baroda
• Established in about 1908 by Maharaj Sayajirao Gaekwad III PP.
• Headquartered in Baroda and nationalized in 1969.
4. Bank of Maharashtra
• Founded by – V.G Kale and B.K. Sathe in 1955
• Headquarter in Purna
5. Canara Bank
• Canara Bank is one of the oldest government banks in India.
• Established in 1906.
6. Central Bank of India
• Established in 1911 by Sir Sorabji Pochkhanawala
• Headquarter in Mumbai
7. Indian Bank
• Headquartered in Chennai
8. Indian Overseas Bank
• Established in 1937 by ‘Thiru M. Chidambaram Chettiar’.
9. Punjab and Sindh Bank
• Established in 1908 – Headquartered in Delhi
• Nationalized in 1980
10. UCO Bank
• Established in 1943 by ‘Ghanshyam Das’ Birla.
11. Union Bank of India
• Established in 1919 and inaugurated by Mahatma Gandhi.
• Headquarter in Mumbai
12. Bank of India
• Established in Mumbai
• 1906
• Commercial banks (commercial banks) give maximum loans to agriculture.

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 Economics
Treasury Policy

Treasury policy

Income Expense

Revenue income capital income

Revenue Income capital income

Tax non tax ➢ Loan ➢ Paying interest ➢ investment

➢ Disinvestment ➢ Paying wages and ➢ Copyright
salaries
direct ➢ Fine ➢ Insurance
Indirect
➢ dividend ➢ to pay tax
➢ Interest ➢ Maintenance
➢ Income Tax GST
➢ service tax ➢ Paying rent
➢ Company
➢ License fee
Tax

• Revenue deficit = Revenue income - Revenue expenditure

• Capital deficit = Capital income – Capital expenditure
• Fiscal deficit = Total income – Total expenditure

Or
• Fiscal deficit = Revenue deficit – Capital deficit
• Primary fiscal deficit = Fiscal deficit – Interest payments
• Budget deficit = Fiscal deficit – Borrowing
• The Government of India has to print notes equal to the budget deficit, which is called deficit
management.
Types of budget
(i) Line Item Budget (Traditional Budget)
• In this type of budget, the previous year's budget is kept in mind.
(ii) Performance budget
• It was implemented in USA in 1951 on the recommendation of Hopper Commission.
• It has been implemented in India since 1968.
• This budget is taken into account on the basis of the performance of the previous budget.
(iii) Outcome Budget
• It was implemented in 2005. This budget also takes into account the performance of the
previous year's budget.
(iv) Zerobase budget
• It was implemented in USA in 1973 on the recommendation of Peter and Pierre.
• It was implemented in India in 1987.
• Was first implemented in Andhra Pradesh.
• Every scheme is reconsidered in this budget.
Gender Budget
• It was implemented in Australia in 1984.
• It was implemented in India in 2005.
FRBM (2003) (fiscal responsibility and budget management)-
The Government of India had set the following goals through this law.
1. Revenue deficit should be zero by 31 March 2009.
2. Fiscal deficit till March 31, 2008 G.D. Should be less than 3 percent of P.
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 Economics
3. The total debt of the Government of India should be eliminated by purchasing government
bonds by GDP.
4. But due to the recession of 2007-08, the Government of India could not achieve these goals.
5. In 2016, the Government of India appointed N.K. to review the FRBM Act. singh (15th
Finance Commission's fiscal stream should be less than 3 percent of GDP by March 31, 2020.
6. Fiscal deficit should be less than 2.8 percent of GDP by 2021.
7. Fiscal deficit should be less than 2.5 percent of GPD by 2023.

Capital Market/Stock Market

• The market where capital is raised for more than 1 year is called capital market.
• This includes stock market, debt market, mutual funds etc.
• There are two types of markets in the stock market.
1. Primary market
• When a company enters the stock market for the first time, it is called primary market and
those shares are called IPO (Initial public offer) or new issue.
• IPO listing time limit reduced from 6 days to 3 days. (Mandatory from 1 December 2023)
• Since the price of each share is the same, it is also called equity.
2. Secondary market
• From the time the shares are floated in the primary market. They are bought and sold again in
the secondary market.
• There are two types of companies.
1. Pvt. Ltd. Company
• Shareholders have limited liability when they buy shares in these companies.
• If the company sinks, only their shares sink, they do not participate in the ownership of
the company.
2. Non. Ltd.Companies
• In these companies the shareholders have unlimited liability.
• If the company sinks, not only the shares sink but also the debt of the company is also
taken into account.
• Every company sells two types of shares.
Equity share Prefrential share
Dividend not mandatory dividend mandatory
If the company closes, the money is They will get the money first if the company is
received later. closed
Voting rights. No voting rights.
Participate in the management of the Cannot participate in the management of the
company. company.

Bull
• People who expect the stock market to rise are called bulls.
Bear
• Those who fear a recession in the stock market are called bears.
Stock Market In India
• The concept of shares in the world was started by the High East India Company in 1602 AD,
which is called 'Amsterdam Stock Exchange.
Meltdown
• Rapid fall of stock markets is called Meltdown.
Stock Exchange Of India
(i) Bombay Stock Exchange
• It was established in 1867
• It is the oldest stock exchange in Asia
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 Economics
• In this, an index called Sensex has been created based on the performance of top 30 companies.
• Another index Dollex-30 was developed in the year 2001.
• Its base price was kept at Rs 100 on 1 April 1967.
• Its base year is 1978-79.
• Today (currently) it is Rs 36,560. It is located in Dalal Street, Mumbai.

(ii) National Stock Exchange (NSE)

• It was established in 1992 on the recommendation of the Pherwani Committee.
• It was recognized as a stock exchange in 1993.
• Its base year is 1995 and base price is Rs 1000.
• Nifty has been developed by including top 50 companies.
Future
• Agreements regarding purchase and sale of shares at a fixed price on some future date are
called futures.
Option
• To reduce the risk of futures, buyer buys call option and seller buys put option.
SEBI (securities and exchange board of Indian)
• It was established in 1988 but was given legal status in 1992.
• It controls the stock market and futures market.
• Its first chairman S.K. Was Ndubey.
• Presently Ajay Tyagi is its chairman.
Right Issue
• Those shares of the company which are bought by the shareholders of the company are called
right issue.
FPO-(Follow public offer)
• When a company sells shares to the public again after IPO, it is called FP. O says.
Insider Trading
• If shares are bought and sold when company information is leaked, then it is called
Insidertrading.
Guild End Market The market where government bonds are sold.

Blue Chips
• Those companies which are performing well are called Blue chips companies.
Note- Dow Jones is America's stock market.

➢ Social Stock Exchange- To collect money for social needs.

Such as,
• For clean water and sanitation,
• Regulation by service.

➢ NBFC
• Registered under the Companies Act 1956 and engaged in the following activities
1. Loan
2. Insurance
3. Loans, Stocks, Bonds, Debentures, Government Securities
4. Leaching
5. Chit business

➢ 50-50 norm
1. More than 50% of the total assets of an NBFC should be of financial nature.
2. More than 50% of the total income of the NBFC must be of financial nature.

Gwalior Branch :Infront of Bank of Baroda, Near Sai Baba Mandir, Phoolbagh Gwl (M.P.) | Cont. us – 7524821440, 7000360672
Indore Branch : 3rd Floor, Sundaram Complex, Bhawar Kuan Indore (M.P.) cont. us 9893442214, 7970002214 26 |P a g e
 Economics

N.B.F.C. and bank difference

Base Bank NBFC
Registration Banking Regulation Act 1949 company act 1956
deposit acceptance demand and time Only time
payment and settlement system Inclusive not included
foreign investment 74% up to 100%
reserve ratio Mandatory Not compulsory
deposit insurance facility available unavailable

Important NBFCs
Whose asset size is more than Rs 500 crore
Regulatory bodies of NBFCs other than RBI
regulatory NBFCs
National Housing Bank Housing Finance Companies
SEBI Merchant Bank, Bencher Capital
Fund Company, Stock Brokers
irda Insurance company
state government chit fund company
Ministry of Industrial Affairs Nidhi Companies
Lokpal Scheme for Non-Banking Financial Companies, 2018 (Scheme)
• There is a speedy and cost-free apex level mechanism for resolution of complaints of customers
of NBFCs relating to certain services provided by NBFCs.

Gwalior Branch :Infront of Bank of Baroda, Near Sai Baba Mandir, Phoolbagh Gwl (M.P.) | Cont. us – 7524821440, 7000360672
Indore Branch : 3rd Floor, Sundaram Complex, Bhawar Kuan Indore (M.P.) cont. us 9893442214, 7970002214 27 |P a g e