Clasmate Economy 1

Economy
Macro Economics
Micro Economics
18 June 2014
www.classmateacademy.com
Macro Economics
18 June 2014
Some Basic Definitions :

Economics :It is the social science that analyses the production, distribution and
consumption of goods and services .
The study of how we work together to transform scarce resources into goods and
services to satisfy the most pressing of our infinite wants and how we distribute these
goods and services among ourselves.
Micro Economics: which examines the behaviour of firm, consumers and the role of
government.
Macro Economics: which deals with Inflation, unemployment, Industrial production
and the role of government.
18 June 2014
Micro Economics :
Product pricing
Consumer behaviour
Factor pricing
Economic conditions of section of people
Study of firms
Location of a industry
Macro Economics :
National income and output

General price level
Balance of trade and payments
External value of money
Saving and investment
Employment and growth.
18 June 2014
Types of Economy:
Capitalist Economy: It is characterised by existence of private enterprise and
ownership of all important sectors.
Socialist Economy: It is characterized by existence of public enterprises or

state ownership of capital in all important spheres of economic activity.
Mixed Economy : In this system, public and private sectors co-exist,India
economy is a mixed economy.
18 June 2014
Economic growth : It can be defined as a sustained increase in the real per capita
income of a country.it is quantitative in nature.
Economic Development: It is a phenomena where growth is accompanied by

redistribution of resources in favor of the relatively worse off.
Sustainable Development: It is the development process which allows for development
of the present generation without compromising the capacity of future generation to
meet their development needs.
Physical quality of Life Index: Morris David
His Indicators were : Life Expectancy, Infant Mortality, Basic Literacy.
Human development report (HDR,1990):

Mahboob-ul-Haq
Human Development Index:
Per capita -Income-as measured by real GDP per capita (PPP)
Longevity -Life expectancy at Birth
Literacy levels-Adult Literacy (2/3 weight)+ combined primary, secondary and tertiary
enrollment ratio (1/3 weight).
18 June 2014
Gender related Development Index(GDI): same as HDI, taking in to account only

gender related indicators.
Gender Empowerment Measure: captures Gender equality in three different areas
Political participation measured by women's and men's share in parliamentary
seats.
Economic participation :measured by women and men's percentage shares of
position as legislators, senior officers and managers and women and men's
percentage shares of professionals and technical positions.
Power over economic resources as measured by women's and men's estimated
earned income.
Green GDP: Environmentally adjusted GDP.

Green GDP = GDP-Depreciation of natural Capital.
18 June 2014
National Income: Measurement

Gross domestic Product(GDP):It is the value of all final goods and services
produced in the economy during an year.
Gross National Product(GNP):it refers to the money value of total output or
production of final goods and services produced by nationals of a country during a
given period of time generally a year.
Unlike the GNP,GDP does not include the net factor income from abroad.
GNP=GDP+X-M
X=Income received from abroad by the nationals .
M= income paid to the foreign nationals with in our country.
Net Domestic Product (NDP):It is obtained by subtracting depreciation value from
the GDP.
Net National Product(NNP):It is obtained by subtracting depreciation value from

GNP.
18 June 2014
Factors of Production : Land, Labor ,Capital, Entrepreneurship

Factor Cost +Indirect Taxes =Market Price.
Factor Cost subsidy=Market price.
Net National Product at market Prices = GDP at factor cost +Net indirect TaxesSubsidy.
Net National Product at Factor cost = NNP at market Prices Net Indirect Taxes+
Subsidy.
NNP at FC =National Income
18 June 2014
Measuring National Income :
Three methods:
Product Method /Value added method
eg. Agriculture,Forestry,mining.
Income Method
eg.Banking,Insurance.
Expenditure Method.
eg. construction
CSO(1950) estimates National Income India.

Dadabhai Naoroji
VKRV Rao made the first scientific estimates in 1925-29
First official estimates in year ,1949 Ministry of commerce.
Now CSO is under MoSPI.
18 June 2014
Capital goods :They are defined as all the goods produced for use in future
productive process. Eg. machinery, equipment, roads and bridges.
ICOR: It is the ratio of investment to change in output.
Sectors of Economy:
Primary sectors : The primary sector of the economy makes direct use of national
resources .eg agriculture,fishing,mining.
Secondary sector: This sector generally takes the output od the primary sectors
and manufacturing finished goods. All industrial production comes under this.
Tertiary sector: It involves providing intangible goods like services. Eg. Financial
services, management,consultancy, and It are good examples of service sectors
18 June 2014
Share in GDP :
Primary
Secondary
Tertiary
1951
56
16
28
2011
13.9
27
59
Distribution of working population :
18 June 2014
Primary
Secondary
Tertiary
1951
72
10.7
17.2
2011
53.5
20.9
25.6
Classification of Economy :
Agriculture sector: Agriculture ,Fisheries, Forestry.
Industrial Sector : Mining ,Manufacturing ,Construction,Electricity, Gas and
water.
Services Sector: Transport,Storage and Communication,Hotel,Finance ,Real

estate,Public adminstration etc.
Primary sector: Agriculture Sector +Mining.

Secondary Sector: Industrial Sector -Mining
18 June 2014
18 June 2014
S.No
Category
Global ranking
Area
Population
Labour Force
GDP(nominal)
10
GDP(PPP)
GDP(nominal) per
capita
138
HDI
134
Poverty and Unemployment

Short Term Unemployment :
Cyclical unemployment: Unemployment due to down turn in the economy which

is cyclical fluctuation in any economy, is called unemployment
Phase of increasing growth rates

Deflation or disinflation phase
Recession
Reflation
Frictional Unemployment: Unemployment caused due to short term obstacles in

the economy like change in technology is known as frictional unemployment.
18 June 2014
Seasonal unemployment :Reoccurrence of unemployment in a certain period

of the year on a regular basis.
Disguised unemployment : when marginal productivity of surplus work force
is negligible due to engagement of work force more than required is known
as disguised unemployment.
Under employment: If a person is not employed according to ones
qualifications or full period is known as underemployment.
Structural unemployment: surplus of labour force in one sector of the

economy and at the same time there is short supply of work force in the
other sector .
Voluntary Unemployment:
Labour Force : All those who are willing to work
Work Force : Demand for labour
18 June 2014
Short term Schemes: Temporary solution.

JRY---->JGSY------->SGRY(JGSY+EAS)----->MNREGA
Long term schemes: Permanent solution.
IRDP,DWCRA,TRYSEM,SITRA
1999,all of IRDP,TRYSEM,DWCRA,SITRA merged to SGSY.
Now referred to as NRLM.
Montek Singh Ahluwalia Committe,2001
SP Gupta commmittee,2001:target 10 million oppurtunities
18 June 2014
Poverty :
Absolute Poverty: it is a level of income which is not sufficient to fulfill the basic
needs of a person.
Relative poverty: It is related with the unequal distribution of income in the

country.
Lorenz curve: it is a curve which shows the inequality in distribution like
inequality in income.
Gini coefficient: It is a co-efficient which shows the inequality in distribution like
inequality in income.The value of Co-efficient varies between 0 and 100(in %
terms)The value of the coefficient increases with increase in inequality.
Gini coefficient =area between lorenz curve &45 line/area of below 45 line.
Check the schemes
18 June 2014
Poverty line:
Defined on the level of nutrition-2400 cal/2100 cal
Converted to poverty line basket(monetary terms)
It is based on the consumption income in India.
Tendulkar Committee:
Rs32 in urban areas.
Rs25 in rural areas.
Poverty rate now is 22 %(approx).
World Bank Definition:$ 1.25 per person perday.
18 June 2014
Poverty alleviation schemes:

Pradhanmantri Gram sadak Yojana: PMGSY a centrally sponsored
scheme to provide all-weather connectivity to all the eligible
unconnected habitations in the rural areas.
Indira Awaas Yojana: To provide Financial assistance for construction of

houses to BPL rural households belonging to SC &ST etc.
NREGA: 100 days job guarantee scheme.
SwarnaJayanthi Gram swarozgar Yojana: The only self-empolyment

Programme for the rural areas now called the NRLM.
Swarna Jayanthi Shahari Rozgaar Yojana:It includes both selfemployment and wage employment aimed at urban poverty areas.
18 June 2014
Bharath Nirman:
Irrigation: To ensure irrigation for additional one crore hectare land by
2009.
Roads: To link all villages of 1000 population with main roads and also to
link all ST and hilly villages up to 500 population with roads.
Housing : Construction of additional 60 lakh houses for the poor.
Water supply : To ensure drinking water to all remaining 74,000 villages.
Electrification: To supply electricity to all remaining 1,25,000 villages and
to provide electricity connections to 2.3 cr houses.
Rural Communication :To provide telephone facilities to all remaining

66,000(approx) villages.
18 June 2014
Education:
RTE
Sarva Shiksha Abhiyan : Implemented since 2000 tp address the needs of
children in the age group 6-14.
National programme Education of Girls at Elementary Level:NPEGEL,

Implemented in rural areas where the level of rural female literacy is less than
the national national average.(educationally backward blocks).
National Programme for Mid-day Meals:since 1995 one of the worlds largest
scheme.
Kasturba Gandhi Balika Vidyalaya: These are residential schools at the upper
primary level for girls belonging predominantly to SC,ST,OBC and minority
communities.
18 June 2014
Health :
National Rural Health Mission: A scheme that operates through out the
country with speicial focus on 18 states which include 8 Empowered action
group of states(Bihar,Jh,MP,Ch,UP,Orissa& Raj).
ASHA (Accredited Social Health Activist).
Pradhan Mantri Swasthaya Suraksha Yojana : To reduce the regional

imbalances in the availability of affordable and reliable tertiary health care
services.
Setting up of 6 AIIMS like institutions .
Upgrading 13 existing government medical college institutions.
18 June 2014
Population: Human resource

Birth rate : Number of births per thousand population in a year .
Death rate: Number of death per one thousand population in a year.
Natural growth rate :The difference between birth rate and death rate is called
Natural growth rate of population.
Neo-Natal Mortality rate: Number of death of children below one month of age per
thousand live births.
Infant mortality Rate :Number of deaths of children below one year of age per one
thousand live births.
Child Mortality: Number of deaths of children below five years of age per thousand
infants.
Maternal Mortality rate: Number of maternal deaths one lakh live births.
Life expectany at birth:The average expected life of children born in a given period .
18 June 2014
Literacy rate: The percentage of population in the age group of 7 years and above who can
read,write and understand at least one language.
TFR(Total fertility Rate)-Number of births per woman is called TFR.

Gross fertility Rate (No. of Births)/(Female population 15-49).
Sex ratio: number of women per 1000 men.
Best state Kerala
Worst state : Haryana, Punjab
Population Theories:
Malthusian Theory-An Essay on Principle of Population,1798
Optimum population Theory
Demographic transition theory
Demographic Transition Theory:
First Phase------------------(phase of stagnation 1901-1921):
Second Phase --------------(Phase of steady growth 1921-1951):
Third Phase------------------(Phase of rapid Population growth 1951-81):
18 June 2014
Fourth
Phase-----------------(Phase ofwww.classmateacademy.com
high but decelerating growth 1981-01):
18 June 2014
18 June 2014
Earliest references of census are found in :

'Rig-Veda' reveals that some kind of population count was maintained in
during 800-600 BC in India.
Kautilyas Arthashastra(321-296 BC) and later, in
Abul Fazls Ain-Akbari (1595-96)
First census:1872
Second Census:1881
The 1901 Census: Herbert Risley, The People of India(Inclusion of caste)
National Population Policy:2001

TFR 2.1 by 2010.
Long term population stabilization by 2045.
National Population Stabilization Fund
Established in 2003,under ministry of health.
Age classification:
0-14 yrs : Dependent Population
15-59 yrs : working age population
60+ yrs : Dependent Population
Demographic Dividend:
18 June 2014
Census
Year
Total Population DecadalGrowth Average Annual

(in crore)
Rate (in %)
Growth Rate (in%)
1901
1911
1921
1931
1941
1951
1961
1971
1981
1991
2001
2011
23.84
25.21
25.13
27.90
31.87
36.11
43.92
54.82
68.33
84.64
102.87
121.02
18 June 2014
+5.75
-0.31
+11.00
+14.22
+13.31
+21.64
+24.80
+24.66
+23.87
+21.54
+17.64
+0.11
+0.56
-0.03
+1.04
+1.33
+1.25
+1.96
+2.20
+2.22
+2.16
+1.97
+1.64
High Growth Rate :
Dadra and Nagar Haveli
55.88 %
Daman and Diu
53.76 %
Puducherry
28.08 %
Meghalaya
27.95 %
Arunachal Pradesh
26.03 %
Population Density:
2001-324
2011-382
Total Population :
1
Uttar Pradesh
199,812,341
Maharashtra
112,374,333
Bihar
104,099,452
West Bengal
91,276,115
Andhra Pradesh
84,580,777
18 June 2014
Sex Ratio :
Census Year
1901
1911
1921
1931
1941
1951
1961
1971
1981
1991
2001
2011
18 June 2014
Sex Ratio
972
964
955
950
945
946
941
931
934
927
933
943
Sex Ratio :
18 June 2014
S.No.
Census Year
Total (%)
1901
5.35
9.83
0.60
1911
5.92
10.56
1.05
1921
7.16
12.21
1.81
1931
9.50
15.59
2.93
1941
16.10
24.90
7.30
1951
16.67
24.95
9.45
1961
24.02
34.44
12.95
1971
29.45
39.45
18.69
1981
36.23
46.89
24.82
10
1991
42.84
52.74
32.17
11
2001
64.83
75.26
53.67
12
2011
74.04
82.14
65.46
Male (%)
Female (%)
Sex ratio :
1
Kerala
1084
Puducherry
1037
Tamil Nadu
996
Andhra Pradesh
993
Manipur
992
Population Density :
1
Bihar
1106
West Bengal
1028
Kerala
860
Uttar Pradesh
829
Haryana
573
18 June 2014
Union Territories : Density

1
Delhi
11,320
Chandigarh
9,258
Puducherry
2,547
Daman and Diu
2,191
Lakshadweep
2,149
Decadal Growth rate :
Meghalaya
27.95
Arunachal Pradesh
26.03
Bihar
25.42
J&K
23.64
Mizoram
23.48
18 June 2014
Variation on religious level Jains

94.1% (highest literate)
Christians
80.3%
Buddhists
72.7%
Sikhs
69.4%
Hindus
65.1%
Muslims
59.1%
States of India (in descending order) having highest literacy rate
Kerala-94.00%
Mizoram -91.33%
Goa- 88.70%
Tripura-87.22%
H.P-82.80 %
States of India (in ascending order) having lowest literacy rate
Bihar (61.80%)
Arunachal Pradesh (65.38%)
Rajasthan (66.11%)
Jharkhand (66.41%)
Jammu & Kashmir (67.16%)
Uttar Pradesh (67.68%)
18 June 2014
Union territories of India (in descending order) having highest literacy rate
Lakshadweep (91.85%)
Daman and Diu (87.10%)
Andaman& Nicobar Islands (86.63%)
Delhi (86.21%)
Chandigarh (86.05%)
Union territories of India (in ascending order) having least literacy rate
Dadra and Nagar Haveli (76.24%)
Puducherry (85.85%)
Chandigarh (86.05%)
Kerala has the highest male literacy followed by Mizoram, Goa and
Maharashtra.
Kerala has also the highest female literacy followed by Mizoram, Goa and
Himachal Pradesh.
Among union territories, Lakshadweep stands first both in male and female
literacy.
18 June 2014
Life expectancy (at the time of birth) (20012006):

Total
65.3 years
Male
63.87 years
Female 66.91 years
Religious Group
18 June 2014
Percent
Hindus
80.45
Muslims
13.43
Christians
2.34
Sikhs
1.87
Buddhists
0.77
Jains
0.41
Religious Composition.
Hindus:(80.45%)
Himachal Pradesh-95.4%
Mizoram-3.6%.
Muslims:(13.5%)
UP,WB
J&K-66.9%
Assam-30.9%
West Bengal -25.2%
Kerala-24.7%
Mizoram -1.14%
Lakshadweep-94.3%
18 June 2014
Christians(2.34%):
Kerala
Nagaland -90%
Mizoram -87%,
Meghalaya-70%
Manipur- 32.2%
Goa -26.7%
Sikhs(1.87%):
Punjab-70 % of population.
Punjab-59.91%
Chandigarh-16.1%,
Haryana -5.54%.
Delhi-4.01%
Jammu & Kashmir -2.04%
Rajasthan-1.45%
BuddhistsMaharashtra-73.4%
Sikkim -28%
Arunachal Pradesh
Mizoram
Tripura.
Ladakh (Jammu and Kashmir) and
Dharmshala (Himachal Pradesh)
JainsMaharashtra
Rajasthan
Gujarat
Delhi.
ParsisMaharashtra (mainly in Mumbai)

and Gujarat.
18 June 2014
Urban Habitat:
Definition:
All the places with Muncipalities,Municipal corporations,Cantonments and
Notifies urban areas.
Census Definition
Minimum population-5000
Minimum Population Density-400 per sq km.
Minimum 75% of the male working population whould engage in non-agricultural
activities.
Classification of cities in India :
Group 1 --------1,00,000 and above Population
Group 2---------50,000 -99,999
Group 3 ---------20,000-49,999
Group 4 ----------10,000-19,999
Group 5 ----------5000-9,999
Group 6 ----------Less than 5,000
18 June 2014
Highest population in Group 1,Highest number of cities is in Group-4.

Slum population :MH,AP,UP,WB,TN,Del
Cities :Mumbai,Delhi,Calcutta,Chennai,Nagpur,Hyderabad,Pune.
18 June 2014
Indian Planning:1950- up to now

Economic Planning is a development strategy taking into consideration limited
resources to achieve long term objective in the economy.
Types of Planning:
Planning on the basis of role of STATE:
Imperative Planning: All the economic decisions are taken by single central
authority ,usually known as central Planning Authority.
Indicative Planning :Planning by incentive/inducement.The state interference is
limited to making policy and adopting indirect control. Government takes help
of private sector in plan formulating a plan .The ways of achieving such targets
is left to private sectors.
Planning by Inducement: It is a feature of mixed economy.The government sets
broad objectives and targets of development ,but instruments used are not like
in a Planning by command,but use indirect methods like Tax benefits
18 June 2014
Planning on the basis of plan formulation and implementation:

Centralised Planning: It is similar to planning by command .The process of plan
formulation lies at the hand of a central authority usually central planning
Authority.
Decentralised Planning: Planning from below.The plan is formulated a various

levels ,like in India centre,state, local levels and amalgamated and a Plan is
formulated at National Level.
Planning on the basis of time period of plans:
Prespective Planning :It is called a long term Plan .Under this system the plan is
formulated for a longer period say 15-20 yrs
Medium Plan :Planning for a limited period say 5 years ,targets are set for five
years.
Annual Plan: All the perspective and medium plans may have annual targets
specified for a fixed plan.
18 June 2014
Flexibility or rigidity of plan :

Fixed Plan: Such are formulated time period of 5 years and 10 years. Targets are fixed
for a fixed period .
Rolling Plans: This Plan contains 3 plans .Annual Plan,Five year Plan and long term
plan.
History of Planning in India:
M .Vishveshvarya(1934):Planned Economy for India.

National Planning Committee (1938):J Nehru.
Bombay Plan(1944):Industrailists
Sriman Narayan :Gandhi Plan
People Plan (1945):M.N.Roy
Jay Prakash Narayana(1950):Sarvodaya Plan.
Planning Commission(1950)
NDC(1952)
18 June 2014
Indian Planning : the changes

Phase 1:1950-51 to 1965-66---Nehruvian Era
Phase 2:1965-66 to 1979-80---Indira Gandhi era
Phase 3 1979-80 to 1991-92---Structural Change Beginning of liberalisation
Phase 4:1991-92 to 2013-14---LPG
First five year Plan(1951-56):Development of Agriculture
Harrold-Domar Model.
CDP
Second five year plan(1956-61):Rapid Industrialisation.
Mahalanobis Model.
Influenced by soviet model.
Rapid industrialisation.
Third Plan(1961-1966):Self reliance and Self sustained economy
Import Substitution
Gadgil Yojana
Two wars &Political Instability
Officially declared failure
18 June 2014
Plan Holiday:1966-69
Three Annual Plans
Fourth Plan(1969-1974):Self reliance in growth with stability
Growth with Justice and Garibi hatao.
Aggressive policies
FERA,1973To use forex reserves properly
Bank Nationalisation,1969
MRTP,1969---To prevent the emergence of Monopoly.
1971-74:Inflation(>10%),1971 war,Oil shock.
Fifth Plan(1974-79):Poverty Eradication.
National emergency,1975.
20 Point Programme.
Food for work programme started.
18 June 2014
Rolling Plan(1978-1980):
Every year performance of the plan would be assessed and a new plan would be
based on such an assessment would be made for the subsequent year.
Sixth Plan(1980-85):Employment Generation(Perspective Planning)

PC--Structural changes in the economy
Liberal licensing
Eg. Agro based industries
More Poverty Eradication Programmes
Seventh Plan(1985-90):Modernisation Towards 21 century
Continued sixth plan,Liberalisation
in Industries like Electronics,Food Processing etc
Technology missions like Oilseeds etc.
More investments in PSU,modernisation.
More Schemes like JRY
1990s severe economic crisis,Gulf war,Credit rating agencies down graded India,NRI
also with draw money from India.
Plan Holiday (1990-92):Annual Plans
24,July,1991 Liberlisation New Industrial Policy
18 June 2014
Eighth Plan (1992-97):Human Resource Development

John Miller
Employment,Education and Public Health
Economic growth 6.7%
Privatization : Privatization is to increase participation of private sector in the public

sector companies by capital investment or by management or both or to hand over a
public sector unit to a private company .
Liberalization :It is the process by which government control is relaxed or abolished.
Globalization :The process of amalgamation of Economy with the world economy is
called Globalization . It is signified by lower duties on import and export.
Disinvestment: To reduce the government share in the public sector is called
disinvestment.
Ninth Plan(1997-2002):Growth with Social justice and Equity
Focus on agriculture and rural development to eradicate poverty.
Problems in International level
18 June 2014
Tenth Plan (2002-2007): Growth, equality & employment generation
Eleventh Plan(2007-2012):Towards faster and more inclusive Growth

Twelfth Plan(2012-2017):Faster,More Inclusive and sustainable Growth
1. Economic Growth
Real GDP Growth Rate of 8.0 per cent.
Agriculture Growth Rate of 4.0 per cent.
Manufacturing Growth Rate of 10.0 per cent.
2. Poverty and employment

Poverty to be reduced by 10%
Generate 50million additional Employment opportunities in non-farm
sector and provide skill certification to equivalent numbers.
3. Education
Mean years of schooling to be seven years
Enhance acess to higher education by creating additional 2 Million seats
Eliminate gender and social gap
in school education
18 June 2014
(girls,SC,ST,Muslims,etc)
4.Health
IMR-25,MMR-1,CSR(950)
TFR-2.1
Reduce under Nutrition among children by half among 0-3 yrs children.
5.Infrastructure Including rural Infrastrucure:
All weather road connectivity
Two laning of state highways
Teledensity-70%
6.Environment and sustainability
Green cover 1 million hectares
30,000 MW renewable energy
Reduce emission intensity by 20-25%,reduction over 2005 levels by 2020.
7.Service Delivery
90% financial Inclusion.
Subsidies be given through DTC.
18 June 2014
Agriculture :The Back bone to Indian Economy

50% of work force and 14 % GDP.
Land Reforms:
Abolition of intermediaries
Tenancy reforms
Regulation of rent
Security of tenure
Ownership rights to tenants
Land ceilings.
Green Revolution
Production =Productivity*area
Increase in production through productivity is known as Green revolution
Inputs: Irrigation,HYV,Fertilizers and pesticides.

IAAP
HYVP,1966
18 June 2014
HYV:
IACR: Crop specific Institutes responsible for developing the seeds.
Chemical Fertilizers:
NPK(ideally 4:2:1)
N-Urea
P-DAP,SSP
K-MOP
Micro Nutrients: Boron,Zinc
Subsidized:
APM-Adminstered Price Mechanism.
Deregulation of Phosphatic and Potash fertilizers in 1992
Now to reduce subsidy ,NBS nutrient based subsidy
Irrigation:
Of the total area under food grains, only 48.3% area is irrigated .
60% irrigation is tube wells,30%-canals.
Command Area Development Programme(CADP),1974-75

AIBP,1996-97
Drought Prone Area Programme(DPAP),1973
Desert Development Programme(DDP),1977
18 June 2014
Pricing in Agriculture:
Minimum Support Price(MSP):
It is fixed before sowing i.e start of the season.
24 crops are under MSP
CACP,1965
Procurement Price: It is the price at which the government procures foodgrains for
buffer stock and PDS.
Issue Price : It is the price at which the government sells the agricultural produce
from its stocks.
PDS : FCI keeps stock of food grains for the government .
Food Subsidy-Consumer Subsidy + Buffer Subsidy.
Consumer subsidy: the difference of procurement price and issue price.
Buffer subsidy : it is the cost incurred between the point of purchase and point of
sale
1997-TPDS(APL+BPL)
2000-AAY(Poorest of the poor)
NFSA-National Food security Act.
Ever green revolution,Second Green Revolution,Rainbow Revolution.
18 June 2014
Agriculture finance:27% institutional sources,22%--non institutional

sources,51% unable to get any loan.
Short Term: 0-15 months
Medium Term:15-5 Years
Long term:
5> years
Cooperatives:
Started in 1904
Three Tier Structure :Primary Credit Societies,DCCB,SCB
Commercial Banks:
After Nationalisation,60% credit through Commercial banks.
RRB,1975:set up by lead banks at district level with primary objective of

branch expansion and lending to rural areas.
9% lending.
KCC,Kisan Credit Card Scheme:Issued by commercial banks,cooperatives and
RRB. Commercial banks have issued maximum no of KCC
NABARD,1982
Priority Sector Lending: Decided by RBI, Indian Banks-40%,Foreign Banks32% (Agriculture)
18 June 2014
Agriculture Insurance:
NAIS,1999:To protect Banks
MNAIS-Modified NAIS
WBCIS-Weather based Insurance scheme,2007
Pvt Companies-IFFCO-TOKYO,ICICI-LOMBARD
CPISAgriculture Insurance Company of India Limited: GIC(35%),NABARD(30%),
remaining by Four PSU
Micro Finance:
Started in 1992,MFIs
RKVY-Rashtriya Krishi Vikas Yojana
NHM-National horticulture mission
NBM-National Bamboo Mission.
NFSM
NCM,2004-MS Swaminathan
National Policy For farmers,2007
RIDF-rural Infrastructure Development Funds,1996
18 June 2014
Industry: Its Development

Industrial Policy-1948:
Public sector emphasized
Private sector given limited role(lack of capacity + willingness)
Industrial development act ,1951
Industrial Policy ,1956
Role of Public sector expanded.
Schedule A-17 Public sector.
Schedule B -12 Public+private
Industrial Policy,1973:
Joint Sector was allowed in important and export oriented Industries.
Eg.Maruti,Vespa,HeroHonda.
Industrial Policy,1980:
Beginning of Gradual Liberalisation process in the country
Agro based industries,backward areas and export oreinted industries
18 June 2014
Liberalization :It is the Process by which government control is relaxed or

abolished.
Privatization :Privatization is to increase the participation of private sector
in the public sector companies by capital investment or by management or
both or to hand over a public sector unit to private compnay.
Globalization: The process of amalgamation of an economy with world
economy is called Globalization. It is signified by lower duties on import
and export .
Disinvestment: To reduce the government share in the public sector is

called disinvestment.
New Industrial Policy,1991:
Except 18 industries all other were freed from compulsory licensing in
1991,now only 3 (Atomic energy,Atomic minerals and railways)
MRTP,1969 is replaced by competition act,2002
FERA,1973 replaced by FEMA,2000.
18 June 2014
Public sector: Changes

Now only Three reserved Atomic energy, atomic minerals and railways.
Policy of recommending sick PSUs to BIFR.
Policy of MOU-Arjunsen Gupta Committee

PSU granted more managerial and financial autonomy .
Beginning of
Navratna,Maharatna,Mini-ratna.(1,2)
Policy of disinvestment.
BRPSE,(2004)-Board of Reconstruction of Public Sector Enterprises-to revive sick
PSU units.
VRS-Golden Handshake.
National Investment Fund(2005):
18 June 2014
Maharatna CPSEs
Bharat Heavy Electricals Limited
Coal India Limited
GAIL (India) Limited
Indian Oil Corporation Limited
NTPC Limited
Oil & Natural Gas Corporation Limited
Steel Authority of India Limited
Navratna CPSEs
Bharat Electronics Limited
Bharat Petroleum Corporation Limited
Hindustan Aeronautics Limited
Hindustan Petroleum Corporation Limited
Mahanagar Telephone Nigam Limited
National Aluminium Company Limited
NMDC Limited
Neyveli Lignite Corporation Limited
Oil India Limited
Power Finance Corporation Limited
Power Grid Corporation of India Limited
Rashtriya Ispat Nigam Limited
Rural Electrification Corporation Limited
Shipping Corporation of India Limited
18 June 2014
Foreign Sector:
After 1991, Policy is to promote foreign investment in India.
FDI, allowed in some sectors up to 100%
FIIs allowed to invest in Indian Capital Market.
Indian Companies allowed to raise ADR/GDR
Classification of Industries:
No of Employees
Organised(>10), Unorganised(10<)
Turnover criteria
Small sector
Small Scale sector:
Since 2006 MSME Act
Manufacturing
Micro
25 lakh
Small
5 cr
Medium
10 cr
18 June 2014
Services
10 Lakh
2 cr
5 cr
SIDBI-Small Industries Development Bank of India,1990

Recent Measures:
Credit Linked capital subsidy scheme:
SMERA(Small and Medium Enterprises Rating Agency)
Some Important Committees of small scale sector
Abid Hussian Committee: Small Scale Sector.
Meera Seth Committee: Handloom Sector.

M.L Kapoor Committee: Better Credit facility to Small scale sector .
IIP- Index of Industrial of Production(now base 2004-05,Base=100):
682 items
Mining:
14.17%
Basic Goods:
Manufacturing: 75..53%
Capital Goods:
Electricity :
10.32%
Intermediate Goods:
Consumer Goods:
18 June 2014
Financial System in India

Financial System------------Money Market +Capital Market
Money market: Short term ,up to 1 year
Capital market : more than 1 year.
Money market Instruments:
Call Money market
Treasury Bill market
Commercial Bill market
Certificate of Deposit
Commercial Paper Market
Treasury Bill markets:
Repo Rate : It is the rate at which RBI provides short term loan to the banks.
Reverse Repo Rate: It is the rate at which the banks park their funds with RBI for
short term
18 June 2014
Capital Market : Internal+External

Internal Source: Shares + Debentures+ Reinvestment of Profit
External Sources: Banks + Financial Institutions.
Shares: they are associated with a company, all shares have equal value hence called
as equity shares.
Ordinary : They are normal shares.
Preference : They have some preference over ordinary shares. Eg dividend ,compnay
is winded up .
Debenture: It is an instrument used by companies to get a loan.

Convertible: Convertible to share on maturity.
Non- Convertible: Principle is paid on maturity.
Buy back of shares: Usually done by promoters.

Splitting of shares :Conversion of shares in to more shares of less denomination.
IPO: Initial Public Offer.
FPO: Forward Public offer.
18 June 2014
BSE: Bombay stock exchange ,oldest stock exchange in India ,1875

NSE: Established on recommendation of Pherwani Committee ,started in 1994
Depository system : In this system there is no physical transfer of securities change

in ownership is done through electronic ledger entry transfer.
MCX-SX: Third Stock exchange of the country.
United Stock Exchange of India : The Fourth stock exchange at the national level.
BSE-30,BSE-50,NSE-50,NSE-500.
Bull: These are he investors who buy at low prices and after some time sell at
higher prices.
Bear: These are the investor who first sell at higher price and after some time
purchase at lower prices.
Gilt Edged Security: Government security.
18 June 2014
Merchant Bank : These are not Banks ,they are financial intermediaries which
provide various financial services like management of the new issue , arrangement
of loans financial advice etc.
Venture Capital Fund: For new or specialised areas funding is provided.
Derivatives: Purchasing of an item for Future Trading.
Forward Market Commission(FMC):It is the agency to regulate commodity futures
in India.
Commodity Futures market in India :
MCX : Multi Commodity Exchange ,Mumbai.
NCDEX : National Commodity and Derivatives Exchange ,Mumbai.
NPS: New Pension Scheme,2004

The NPS was made mandatory for central government employees from Apr 1 ,2004
18 June 2014
SEBI: Established in 1992,as a regulator of capital market.

It the autonomous regulatory authority of the capital market with wide spread
powers .
Insider Trading : Getting information about the company which is other wise not
available in all.
PLR : Prime Lending Rate
It is the rate applicable to more credit worthy borrower (safest loan).
If lending is less than PLR it is called Sub-PLR.
Base Rate : It is the minimum rate of lending of the bank.

BASEL -3:To be Introduced in India from 2017-2018
CAR/CRAR: Capital Adequacy ratio. Ratio of capital and Risk assets.
18 June 2014
Monetary Sector : Money and Inflation.

Money :Its a medium of exchange. Its legal tender .
Inflation : is a sustained increase in the general price level of goods and services in
an economy over a period of time.
Deflation : A reduction in the level of national income and output usually
accompanied by reduction in price level.
Stagflation :Is a term used in economics to describe a situation where the inflation
rate is high, the economic growth rate slows down, and unemployment remains
steadily high.
Measurement of Inflation : In India we use different indices for different purposes.

WPI(2004-05)-Base 100(676 commodities):
Primary articles(20.11%),Fuel & Power(14.91%),Manufactured goods(64.97%)
Food articles(24.27%)
CPI-AL : It is used for revision of minimum wages of agricultural workers.
CPI-RL :
CPI-IW: It is used for wage revision of industrial workers.
CPI-UNME: It is used by services sector like revision of DA by government.
18 June 2014
CPI-UNME: is published by CSO ,rest by Ministry of labour.

Headline Inflation vs Core Inflation : Head line inflation rate is about total inflation in
the economy while core inflation excludes food and energy prices.
New CPI series : 2011
CPI(Urban),CPI(Rural),CPI(Combined)(Base 2010-100)
310-Towns,1181-Villages.
Reasons for inflation :
Demand Pull
Cost Push
Effects:
Supply side
Demand side
Savings
Imports/Exports
18 June 2014
RBI-Reserve Bank Of India

Functions:
Normal Central Bank Functions:

Issue of currency notes:
Banker to the Government
Bankers Bank
Regulation of Foreign Exchange
Collection and Publication of Data
Instruments of credit Control:
Bank Rate : The rate at which RBI lends loans to the banks.
CRR : The ratio of demand and term deposits with the banks that they have to
keep with the RBI.
SLR : The ratio of demand and term deposit with the banks that they have to
keep in liquid form i.e cash , gold and permitted securities
OMO: Sale and Purchase of securities by the RBI is termed as open market
operations
18 June 2014
Fiscal Sector: Taxes, Centre-state, Budget

Progressive Taxation : The tax system in which tax rates increase with increase in
tax base i.e income tax in India.
Regressive Taxation: The tax system in which tax rates decrease with in crease in
tax base .
Proportional Tax system : The tax system in which there is no change with change
in tax base , eg .corporate tax, customs duties, central excise .
Direct Tax : The tax in which the impact and incidence of tax is one the same
entity; i.e income tax, corporate tax. In case of direct tax the burden of tax cannot
be shifted.
Indirect Tax : The tax in which the impact and incidence of tax is on different
entities. i.e service tax ,custom duties etc.
Ad valorem Tax : if the tax is levied on the basis of value of the product or service
in percentage terms.
18 June 2014
Countervailing Duty : The duty imposed on imported goods equivalent to the

domestic taxes on domestic products.
Dumping Duty :This duty is imposed on imported goods if the exporting country is
exporting the products on the price which is less than the domestic price of the
product.
Securities Transaction Tax (STT):The tax imposed on transaction of securities in
capital market in India since 2004-2005.it varies from 0.017% -0.125%
Tobin Tax :The tax Imposed on International Transactions of Currencies.
Commodity Transaction Tax : It is just like STT but is imposed on commodities in
the futures market.
Service tax : This tax was first imposed in India in 1994-95,on three services,at the
rate of 5 %.But now a negative list of 17 services exits in India,since 2013
MAT: This tax is levied from those companies which are zero tax companies
because of various rebates and exemptions.
18 June 2014
Centre State : Financial Relations

Federal Structure ----Division of powers between Centre and states
.
Unitary Bias----more powers to centre.
Centre ----------------> State(gives money to states).
Share in taxes decided by finance Commission.(Art-280).
Grants-in-Aid(one part reco F.C +Discretionary Grants).
Loans (Planning Commission ).
18 June 2014
Division of Taxes:
Taxes
Right to
Impose
Right to
Collect
Right to
Use
Income Tax, Corporate Tax, Service Tax,Central excise
Centre
Centre
Centre
and
states
Sales Tax, State Excise Tax , Entertainment Tax ,Land

revenue, Tax on agricultural Income
States
States
States
Estate duty on all except agricultural land, tax on rail

fare and freight ,terminal tax on rail, sea and air travel
and transport ,tax on sale of news papers and
advertisements
Centre
Centre
States
Stamp duty, Excise Duty on medicines and cosmetics
Centre
States
States
Finance Commission : K.C.Neogi(First),Vijay Kelkar (13 Finance Commission.)

Share of States to be 32 %
18 June 2014
VAT: In this tax system, tax is imposed on every stage of production or sale of goods
and services on the basis of value addition in each stage.
1981, Manufactured VAT
L.N Jha Committee led to introduction of 1986,Mod VAT
2000, CENVAT
Goods
Centre
CENVAT
State
VAT/ST
Services
Service Tax
-
Vijay Kelkar Committee,2002 :Recommended the implementation of

VAT at state level also.
Haryana(First state ,2003)UP was the last state now all states follow
this system.
GST proposal since 2006 .
115 Amendment Bill ,GST.
Empowered Committee under Asim Dasgupta (First), Sushil Modi
(Second)
18 June 2014
Grant in- Aid :

One part recommendation by FC
Discretionary grants
These are given based on the Gadgil Formula(1969),Mukherjee Formula
(1991).
Service tax In India:

Started by Union Government in 1994-95,Telephone,General Insurance &
Stock Broking.
Now a Negative list of 17 Commodities Exist .
92 Amendment act ,Service tax may be levied by Centre but Collected and
appropriated by Centre and State.
Contribution from Different Taxes:
Corporation Tax
Income Tax
Union Excise tax
Customs Tax
Service Tax
DTC,1961 to be changed
18 June 2014
Fiscal Sector :
Union
Budget
Revenue
Revenue
Account
Tax on
income
18 June 2014
Capital
Account
Tax
Non Tax
Tax on
property
Tax on
services
Expenditure
Plan
Expenditure
Fiscal &
other
services
Non-Planned
Expenditure
Revenue
Capital
Dividend
and profits
Interest
receipts
Budget : It is always an estimate of Receipts & Expenditure.

Receipts:
Revenue receipts
Tax revenue
Non-tax revenue(Interest,dividend,fines )
Capital receipts
Repayment of loans
Other receipts
Loans and Other Liabilities
Revenue: Income which is to be received in the present year.
Capital : Income which will be received in the Future(more than a
year) or spent as part of repayment of previous obligation.
18 June 2014
Expenditure:
Planned
Expenditure in the budget on the recommendation of PC.
Non-Planned
Interest Payment
Subsidies
Defence
Public Administration
Expenditure on Revenue Account :
Those consumed in the present year.
e.g : maintenance of canal , Rent of buildings, Salaries of Government Officials etc.
Expenditure on Capital Account :
Those that create Capital assets.
e.G : Constructing canals , new buildings etc.
18 June 2014
Revenue Deficit: Excess of revenue expenditure over revenue receipts .

Revenue receipts = Tax revenue +non-tax revenue.
Revenue expenditure=Plan+ Non-Plan.
Budget Deficit :It is the excess of total expenditure over total receipts.
Total expenditure = Revenue expenditure+ capital expenditure.

Total revenue = Revenue receipts + Capital receipts .
Fiscal Deficit : Total expenditure Total receipts (but the receipt component does
not include borrowings and other liabilities).
Deficit Financing : It is the difference between expenditure and receipts .
FRBM,Act : Fiscal Responsibility and Budget Management act,2003
Initial targets :
Revenue deficit -0 %
Fiscal deficit -3% by 2008-09
Due to recession now targets changed to 2016-17 on the recommendation of
Rangarajan Committee.
18 June 2014
Fiscal Policy : It is the use of government revenue collection (taxation) and

expenditure (spending) to influence the economy.
Fiscal Stimulus: An increase in Public Spending or a reduction in the level of taxation
that might be performed by a government in order to encourage and support
economic growth. Most government bail out package form part of fiscal stimulus.
Laffer Curve :
Chelliah Committee : Related to Direct tax reforms ,1991

18 June 2014
Foreign Sector:
After Independence : The immediate policy was based on import restrictions.
Quantitative Restrictions (QRs):
Negative list NO Import is allowed.
Canalised Import only of essential items but through specified agencies.
OGL- Open general license .
Tariff barrier: High rates if Import.
Non-Tariff barrier: Restrictions of import on the ground of Technology level, human
health ,environment etc.
e.g: No car of less than E-IV standards is allowed ,Banning certain chemicals in Food.
During 1970s SE Asian countries proved that aggressive policies can be used to
increase the exports.
In 1980s we started export Promotion policy .
1985 : First Export Import Policy (EXIM Policy started ) ,3 years
18 June 2014
1992: First five year EXIM policy which was co-terminus with Five Year Plan.
Due the reforms of 1991,

Imports : Procedures for imports were simplified, QRs removed, Tariff rates reduced
now stand at 10% for most of the goods.
Exports : More Emphasis and new schemes to increase the exports from India.
e.g
EPCG: Export Promotion of Capital goods Scheme.
SEZ,Act 2005 :
Started in India ,Asia First EPZ-Kandla,1965.

AEZ: Agriculture Export Zones, Nodal Agency APEDA (Min Of Commerce)
AEZ-Chillies-Guntur
AEZ-Mangoes-Vijayawada
AEZ-Hyderabad-Grapes,Mangoes
18 June 2014
Exim Policy 2002 -2007 ,

Focus Africa .
Reviving relations with CIS Countries.
FTP-2004
Introduction of many schemes:
Focus Market Scheme:
Focus Product Scheme:
Vishesh Krishi Upaj Yojana :
Served From India :
Other Policies :
Look East Policy: To diversify the direction of our trade,Today the trade with Asia is
50-55 % of our Total Trade.
Free Trade Area(FTA) : It is an agreement between two countries or a group of
countries for concessional Import duty rates.(Only Goods)
Comprehensive Economic Cooperation Agreement (CECA/CEPA) :This includes not
only goods but also services, investments, recognition of degrees etc.
18 June 2014
Negative List : The duty concessions will not be available on the goods included in the
negative list .
The whole negotiation is about negative list .
Rule of Origin(ROO) :It should be originated from the country .If at least 35 % of value
addition is in the region.
Positive List : Concession will be available only to the items in this list . E.g
SAFTA.(2006).
Composition of TradeImports
POL
Capital Goods
Electronic Goods
Gold & Silver
Chemicals
Pearls & Stones
18 June 2014
Exports
1.Engineering Goods
2.POL
3.Gems & Jewellery
4. Agriculture and allied
5.Textiles
6.Chemicals
Balance of Payments: BOP

Bop is an account of transactions between a country and rest of the world.
Part 1 Accounts Current Account :
Imports-Imports of goods (services not included)
Exports
Balance of Trade =Export-Import
Invisibles(Net): Services, remittances .
Current Account Balance : BoT+Invisibles.
Part 2 Capital Account :

Capital Account (Net):
Investment (Net)-FDI,FII
Loan(Net)-ECB etc.
Banking-NRI deposit etc.
Over all BOP: Current + Capital .
This should be positive.
Increase in BOP ,so this surplus is shifted to forex reserves.
18 June 2014
Convertibility Of Rupee :
Convertibility: Permission to convert domestic currency into foreign currency
and foreign currency into domestic currency.
Rupee made Convertible on Trade Account in 1993-93
Rupee made Convertible on Current Account in 1994-95
For Capital Account Convertibility , a committee was established in 1997, called
Tarapore Committee
Again in 2006 Same committee was appointed .
Present Status :
Rupee remain Partially convertible in Capital Account.
FDI,FII,ECB there are limits that are specified to each sector with in the limits
they are convertible outside the limits they are not .
18 June 2014
WORLD TRADE ORGANISATION

GATT- General agreement on tariffs and trade
MFN Most favored nation
URUGUAY round of negotiations ---1986-1994

Arthur Dunkel came up with a draft which led to establishment of WTO on 1st Jan 1995
RUSSIA and VANAUTU are the last two countries to join the WTO
making the total membership to 159
Roberto Azevedopresent Director General
18 June 2014
Agreements under WTO
ATC-Agreement on Textiles and Clothing

TRIPS-Trade related intellectual property rights
2001 Doha round of talks:
AOA-Agreement on Agriculture
NAMA- Non Agriculture Market Access
GATS-General agreement on trade and services
18 June 2014
WORLD BANK
International bank for reconstruction and development IBRD, 1944
Also known as WORLD BANK
International Finance Corporation IFC, 1956
International Development Association-IDA, 1960
International Centre for Settlement of Investment Disputes-ICSID, 1966
Multilateral Investment Guarantee Agency-MIGA, 1988
IMF
International Monetary Fund, 1944
SDR-Special Drawing Rights: Official currency of IMF

Voting %
USA 16.75
INDIA- 2.34
CHINA- 3.81
18 June 2014

Clasmate Economy 1

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Clasmate Economy 1

Uploaded by

Copyright:

Available Formats

Economy

Some Basic Definitions :

National income and output

Socialist Economy: It is characterized by existence of public enterprises or

Economic Development: It is a phenomena where growth is accompanied by

Human development report (HDR,1990):

Gender related Development Index(GDI): same as HDI, taking in to account only

Green GDP: Environmentally adjusted GDP.

National Income: Measurement

Net National Product(NNP):It is obtained by subtracting depreciation value from

Factors of Production : Land, Labor ,Capital, Entrepreneurship

Measuring National Income :

CSO(1950) estimates National Income India.

ICOR: It is the ratio of investment to change in output.

Distribution of working population :

Services Sector: Transport,Storage and Communication,Hotel,Finance ,Real

Primary sector: Agriculture Sector +Mining.

Poverty and Unemployment

Cyclical unemployment: Unemployment due to down turn in the economy which

Phase of increasing growth rates

Frictional Unemployment: Unemployment caused due to short term obstacles in

Seasonal unemployment :Reoccurrence of unemployment in a certain period

Structural unemployment: surplus of labour force in one sector of the

Short term Schemes: Temporary solution.

Relative poverty: It is related with the unequal distribution of income in the

World Bank Definition:$ 1.25 per person perday.

Poverty alleviation schemes:

Indira Awaas Yojana: To provide Financial assistance for construction of

SwarnaJayanthi Gram swarozgar Yojana: The only self-empolyment

Rural Communication :To provide telephone facilities to all remaining

National programme Education of Girls at Elementary Level:NPEGEL,

Pradhan Mantri Swasthaya Suraksha Yojana : To reduce the regional

Population: Human resource

TFR(Total fertility Rate)-Number of births per woman is called TFR.

Earliest references of census are found in :

National Population Policy:2001

Total Population DecadalGrowth Average Annual

High Growth Rate :

Dadra and Nagar Haveli

Daman and Diu

Union Territories : Density

Daman and Diu

Decadal Growth rate :

Variation on religious level Jains

Life expectancy (at the time of birth) (20012006):

ParsisMaharashtra (mainly in Mumbai)

Highest population in Group 1,Highest number of cities is in Group-4.

Indian Planning:1950- up to now

Planning on the basis of plan formulation and implementation:

Decentralised Planning: Planning from below.The plan is formulated a various

Flexibility or rigidity of plan :

History of Planning in India:

M .Vishveshvarya(1934):Planned Economy for India.

Indian Planning : the changes

Sixth Plan(1980-85):Employment Generation(Perspective Planning)

Eighth Plan (1992-97):Human Resource Development

Privatization : Privatization is to increase participation of private sector in the public

Tenth Plan (2002-2007): Growth, equality & employment generation

Eleventh Plan(2007-2012):Towards faster and more inclusive Growth

2. Poverty and employment

Agriculture :The Back bone to Indian Economy

Inputs: Irrigation,HYV,Fertilizers and pesticides.

Command Area Development Programme(CADP),1974-75

Agriculture finance:27% institutional sources,22%--non institutional