Complete Indian Economy for UPSC, SSC, Railways, Law Entrance and other competitive Exams

1. BASIC CONCEPTS OF ECONOMICS

Economics: Study of production, distribution, exchange and consumption of goods and services.

Types of Economy

Branches of Economics

• Microeconomics: Individual consumers, firms and markets.

• Macroeconomics: National income, inflation, unemployment and growth.

Basic Economic Problems

1. What to produce?

2. How to produce?

3. For whom to produce?

Sectors of Economy

• Primary + Secondary + Tertiary = Major sectors of economic activity.

• Service sector is also called the tertiary sector.

2. NATIONAL INCOME

National income measures the economic performance of a country.

Important Terms

Important Formulas

• GNP = GDP + NFIA

• NNP = GNP − Depreciation

• NDP = GDP − Depreciation

• Real GDP = GDP measured at constant prices.

• Nominal GDP = GDP measured at current prices.

• GDP Deflator = (Nominal GDP ÷ Real GDP) × 100.

Important Facts

• GDP measures domestic production.

• Real GDP removes the effect of price changes.

• Per capita income indicates average income, not income equality.

• GDP does not directly measure human welfare.

• India’s national income estimates are prepared by NSO (National Statistical Office), under MoSPI.

3. ECONOMIC GROWTH AND DEVELOPMENT

Human Development Index (HDI)

Published by: UNDP.

Three dimensions:

1. Health – Life expectancy.

2. Education – Expected and mean years of schooling.

3. Standard of living – GNI per capita (PPP).

Other Indicators

• GNI: Gross National Income.

• PQLI: Physical Quality of Life Index.

• MPI: Multidimensional Poverty Index.

• Gini Coefficient: Measures income inequality.

• Lorenz Curve: Graphical representation of income inequality.

4. POVERTY AND UNEMPLOYMENT

Types of Poverty

• Absolute Poverty: Inability to meet basic needs.

• Relative Poverty: Poverty compared with other sections of society.

• Multidimensional Poverty: Deprivation in health, education and living standards.

Important Committees on Poverty

• Dandekar and Rath Committee (1971).

• Alagh Committee (1979).

• Lakdawala Committee (1993).

• Tendulkar Committee (2009).

• Rangarajan Committee (2014).

Types of Unemployment

Important Facts

• Disguised unemployment is common in Indian agriculture.

• MGNREGA provides a legal guarantee of 100 days of wage employment per rural household per financial year, subject to eligibility and scheme provisions.

• PLFS (Periodic Labour Force Survey) is conducted by NSO.

5. INFLATION

Inflation means a sustained rise in the general price level.

Types of Inflation

• Demand-Pull: Excess demand over supply.

• Cost-Push: Increase in production costs.

• Creeping: Slow rise in prices.

• Galloping: Very rapid rise in prices.

• Hyperinflation: Extremely high inflation.

• Stagflation: Inflation + stagnant growth + unemployment.

Important Price Indices

Important Facts

• CPI is India’s principal inflation-targeting measure for monetary policy.

• WPI is released by the Office of Economic Adviser, DPIIT.

• CPI is released by NSO.

• Deflation = General fall in price level.

• Disinflation = Reduction in inflation rate.

• Reflation = Policy-induced increase in economic activity and prices.

6. MONETARY POLICY AND RBI

Reserve Bank of India (RBI)

• Established: 1 April 1935.

• Nationalised: 1 January 1949.

• Headquarters: Mumbai.

• Established under: RBI Act, 1934.

• First Governor: Sir Osborne Smith.

• First Indian Governor: C. D. Deshmukh.

• Central bank of India.

Functions of RBI

1. Issues currency notes (except ₹1 notes and coins).

2. Banker to Government.

3. Banker to banks.

4. Controls monetary policy.

5. Manages foreign exchange reserves.

6. Regulates banking system.

7. Maintains financial stability.

Important Monetary Policy Instruments

Impact of Monetary Policy

• Repo rate increases → Borrowing generally becomes costlier → Demand may decrease → Inflationary pressure may reduce.

• Repo rate decreases → Borrowing generally becomes cheaper → Demand and investment may increase.

• CRR increases → Banks have less lendable funds.

• RBI buys government securities → Liquidity generally increases.

• RBI sells government securities → Liquidity generally decreases.

Monetary Policy Committee (MPC)

• Established under the amended RBI Act, 1934.

• Total members: 6.

• RBI Governor is the ex-officio Chairperson.

• Three members from RBI and three appointed by Central Government.

• Inflation target: 4% CPI inflation, with tolerance band of ±2 percentage points (2%–6%) for the notified target period.

7. BANKING SYSTEM IN INDIA

Types of Banks

1. Public Sector Banks.

2. Private Sector Banks.

3. Foreign Banks.

4. Regional Rural Banks (RRBs).

5. Cooperative Banks.

6. Small Finance Banks.

7. Payments Banks.

Important Banking Terms

Important Facts

• RBI regulates banks.

• NABARD was established in 1982.

• SIDBI was established in 1990.

• EXIM Bank was established in 1982.

• DICGC provides deposit insurance up to ₹5 lakh per depositor per bank, including principal and interest, subject to applicable rules.

• UPI was launched in 2016 by NPCI.

• NPCI was established in 2008.

8. FISCAL POLICY AND UNION BUDGET

Fiscal Policy: Government policy relating to taxation, expenditure and borrowing.

Union Budget

• Article 112: Annual Financial Statement.

• Presented by the Union Finance Minister.

• Financial year: 1 April to 31 March.

Types of Budget

• Balanced Budget: Revenue = Expenditure.

• Surplus Budget: Revenue exceeds expenditure.

• Deficit Budget: Expenditure exceeds revenue.

Important Deficits

Important Budget Terms

• Capital Expenditure: Creates assets or reduces liabilities.

• Revenue Expenditure: Routine government expenditure.

• Capital Receipts: Borrowings, recovery of loans, disinvestment proceeds, etc.

• Revenue Receipts: Tax and non-tax revenue.

Constitutional Articles

• Article 110: Money Bill.

• Article 112: Annual Financial Statement.

• Article 113: Demands for Grants.

• Article 114: Appropriation Bill.

• Article 265: No tax without authority of law.

• Article 266: Consolidated Fund and Public Account.

• Article 267: Contingency Fund.

9. TAXATION SYSTEM IN INDIA

Types of Taxes

Goods and Services Tax (GST)

• Implemented: 1 July 2017.

• Constitutional Amendment: 101st Amendment Act, 2016.

• GST Council: Article 279A.

• Chairman: Union Finance Minister.

Types of GST

• CGST: Central GST.

• SGST: State GST.

• IGST: Integrated GST.

• UTGST: Union Territory GST.

Important Facts

• GST is a destination-based consumption tax.

• GST replaced many indirect taxes.

• Alcoholic liquor for human consumption is outside GST.

• Petroleum crude, petrol, diesel, natural gas and ATF are constitutionally provided for GST inclusion from a date recommended by GST Council; they continue under existing tax arrangements until then.

• Customs duty is outside GST.

10. PLANNING IN INDIA

Planning Commission

• Established: 15 March 1950.

• First Chairman: Jawaharlal Nehru.

• First Five-Year Plan: 1951–1956.

• Dissolved: 2014.

NITI Aayog

• Established: 1 January 2015.

• Full form: National Institution for Transforming India.

• Replaced Planning Commission.

• Chairperson: Prime Minister of India.

• Promotes cooperative and competitive federalism.

• It is a policy think tank, not a constitutional body.

Five-Year Plans – Important Highlights

• No Five-Year Plan was implemented after the Twelfth Plan.

• Rolling Plan: 1978–80.

11. AGRICULTURE IN INDIA

Importance

• Provides livelihood to a large population.

• Supplies raw materials to industries.

• Ensures food security.

• Contributes to exports.

Types of Farming

• Subsistence Farming.

• Commercial Farming.

• Plantation Farming.

• Mixed Farming.

• Intensive Farming.

Cropping Seasons

Green Revolution

• Introduced in India during the mid-1960s.

• Associated with high-yielding variety seeds, irrigation and fertilizers.

• Father of Green Revolution in India: M. S. Swaminathan.

• Father of Green Revolution worldwide: Norman Borlaug.

• Initially benefited wheat and rice production significantly.

Important Agricultural Revolutions

Important Institutions

• ICAR: Indian Council of Agricultural Research.

• NABARD: National Bank for Agriculture and Rural Development.

• FCI: Food Corporation of India.

• CACP: Commission for Agricultural Costs and Prices.

• APEDA: Agricultural and Processed Food Products Export Development Authority.

MSP (Minimum Support Price)

• Recommended by CACP.

• Announced by Government of India.

• Intended to provide price support to farmers.

• MSP is announced for 22 mandated crops; Fair and Remunerative Price (FRP) is announced separately for sugarcane.

12. INDUSTRIAL DEVELOPMENT

Important Industrial Policies

LPG Reforms (1991)

• Liberalisation: Reduction of government restrictions.

• Privatisation: Greater private sector participation.

• Globalisation: Integration with world economy.

Important Public Sector Enterprises

• Maharatna.

• Navratna.

• Miniratna.

Important Industries

• Iron and Steel.

• Textile.

• Cement.

• Automobile.

• Information Technology.

• Pharmaceuticals.

13. FOREIGN TRADE AND BALANCE OF PAYMENTS

Balance of Payments (BoP): Record of economic transactions between residents of a country and the rest of the world.

Components

1. Current Account.

2. Capital Account.

3. Financial Account (in detailed modern presentation).

Important Terms

• Balance of Trade: Difference between merchandise exports and imports.

• Trade Surplus: Exports exceed imports.

• Trade Deficit: Imports exceed exports.

• Current Account Deficit (CAD): Current account payments exceed receipts.

• Foreign Exchange Reserves: Foreign currency assets, gold, SDRs and reserve position in IMF.

Exchange Rate

• Appreciation: Increase in currency value.

• Depreciation: Fall in currency value.

• Devaluation: Official reduction in fixed/managed exchange rate.

• Revaluation: Official increase in fixed/managed exchange rate.

Important Organisations

• WTO: World Trade Organization (1995).

• IMF: International Monetary Fund (1944, commenced operations in 1945).

• World Bank: Established at Bretton Woods Conference (1944).

• ADB: Asian Development Bank (1966).

• AIIB: Asian Infrastructure Investment Bank (2016).

14. IMPORTANT ECONOMIC INSTITUTIONS

Regulatory Bodies

• RBI: Banking and monetary policy.

• SEBI: Securities and capital market.

• IRDAI: Insurance sector.

• PFRDA: Pension sector.

• NABARD: Agriculture and rural development finance.

• TRAI: Telecom sector.

• CCI: Competition regulation.

15. CAPITAL MARKET AND FINANCIAL MARKET

Financial Market: Market where financial assets are traded.

Types

1. Money Market – Short-term funds (up to one year).

2. Capital Market – Medium and long-term funds.

Money Market Instruments

• Treasury Bills (T-Bills).

• Commercial Paper (CP).

• Certificate of Deposit (CD).

• Call Money.

• Repo and Reverse Repo transactions.

Capital Market Instruments

• Shares/Equity.

• Debentures.

• Bonds.

• Mutual Funds.

• Exchange Traded Funds (ETFs).

Important Stock Exchanges

• BSE – Established in 1875.

• NSE – Established in 1992.

• Sensex – Index of BSE.

• Nifty 50 – Index of NSE.

Important Terms

• IPO: Initial Public Offering.

• FPO: Follow-on Public Offering.

• Bull Market: Rising market.

• Bear Market: Falling market.

• Dividend: Part of company profits distributed to shareholders.

• Demat Account: Electronic securities holding account.

• SEBI: Regulates securities markets.

16. FINANCIAL INCLUSION AND GOVERNMENT SCHEMES

Important Facts

• PM Jan Dhan Yojana launched: 28 August 2014.

• PM-KISAN launched: 24 February 2019.

• Mudra Yojana launched: 8 April 2015.

• Startup India launched: 16 January 2016.

• Make in India launched: 25 September 2014.

17. DEMOGRAPHY AND POPULATION

Important Terms

• Census: Official population count.

• Birth Rate: Live births per 1,000 population annually.

• Death Rate: Deaths per 1,000 population annually.

• Sex Ratio: Females per 1,000 males.

• Literacy Rate: Percentage of literate population in the specified age group.

• Dependency Ratio: Dependent population relative to working-age population.

• Demographic Dividend: Economic growth potential due to a relatively large working-age population.

Demographic Transition

1. High birth rate and high death rate.

2. High birth rate and declining death rate.

3. Declining birth rate and low death rate.

4. Low birth rate and low death rate.

Important Census 2011 Facts

• Total population: 121.08 crore.

• Population density: 382 persons/sq. km.

• Literacy rate: 74.04%.

• Male literacy: 82.14%.

• Female literacy: 65.46%.

• Sex ratio: 943 females per 1,000 males.

• Child sex ratio (0–6 years): 919.

• Decadal population growth (2001–2011): 17.64%.

18. INFRASTRUCTURE AND ECONOMIC DEVELOPMENT

Infrastructure Types

Important Infrastructure Initiatives

• Bharatmala Pariyojana – Road development.

• Sagarmala Programme – Port-led development.

• UDAN – Regional air connectivity.

• PM Gati Shakti – Integrated infrastructure planning.

• National Infrastructure Pipeline – Infrastructure investment programme.

• Smart Cities Mission – Urban development.

• AMRUT – Urban infrastructure and basic services.

19. INTERNATIONAL ECONOMIC ORGANISATIONS

Important Facts

• IMF: Promotes international monetary cooperation and financial stability.

• World Bank: Provides development finance.

• WTO: Regulates international trade rules.

• ADB: Promotes development in Asia-Pacific.

• NDB: Established by BRICS countries in 2014.

• G20: International forum for major advanced and emerging economies.

20. ECONOMIC REFORMS IN INDIA – 1991

Reasons for 1991 Economic Crisis

• High fiscal deficit.

• Balance of payments crisis.

• Declining foreign exchange reserves.

• High inflation.

• Gulf War and rising oil prices.

• External debt burden.

Major Reforms

Liberalisation

• Removal of industrial licensing in most sectors.

• Reduction in government controls.

• Financial sector reforms.

Privatisation

• Disinvestment of government ownership.

• Increased private participation.

• Greater competition.

Globalisation

• Reduction in trade barriers.

• Encouragement of foreign investment.

• Integration with global markets.

Important Terms

• FDI: Foreign Direct Investment.

• FPI: Foreign Portfolio Investment.

• FII: Foreign Institutional Investor (older terminology).

• Disinvestment: Sale of government stake in public enterprises.

• Privatisation: Transfer of ownership/control to private sector.

21. ENVIRONMENT AND SUSTAINABLE DEVELOPMENT

Sustainable Development: Development that meets present needs without compromising future generations’ ability to meet their needs.

Important Concepts

• Green Economy: Environment-friendly economic growth.

• Carbon Credit: Tradable unit representing an emission reduction/removal under a specified system.

• Carbon Footprint: Total greenhouse gas emissions associated with an activity or entity.

• Renewable Energy: Solar, wind, hydro, biomass.

• Non-renewable Energy: Coal, petroleum, natural gas.

• Circular Economy: Reuse, repair and recycling to minimise waste.

Important Indian Initiatives

• National Solar Mission.

• National Green Hydrogen Mission.

• International Solar Alliance.

• National Action Plan on Climate Change.

• PM-KUSUM.

• FAME India Scheme (electric mobility promotion).

22. IMPORTANT ECONOMIC TERMS – ONE-LINERS

23. MOST IMPORTANT ECONOMIC COMMITTEES

24. IMPORTANT ECONOMIC FIRSTS