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Establishment of Various Financial Institutions Reserve Bank of India 1934 Industrial Finance Corporation of India 1948. Sick financial institution. ICICI 1955 SBI 1955. Nationalized Life Insurance Corporation (LIC) 1956 Industrial Development Bank of India (IDBI) 1964 Unit Trust of India (UTI) 1964 HUDCO 1970 General Insurance Corporation (GIC) 1972 NABARD 1982 SEBI (Replaced Controller of Capital Issue) 1988 Functional in 1992 Small Industries Development Bank of India (SIDBI) 1990. Subsidiary of IDBI IRDA 1999 Various Acts & their Enactment Years Banking Regulation Act Industries (Development & Regulation) Act MRTP Act FERA Negotiable Instrument Act FEMA Competition Act FDI Upper Limit in Various Sectors 1. 2. 3. 4. 5. 6. 7. Print Media Defense Sector Private Sector Banking, Radio (FM) Insurance Telecommunications Trading Power, Drugs & Pharmaceuticals, Road and highways, Ports and harbours, Hotel & Tourism, Advertising, Films, Mass Rapid Transport Systems, Pollution Control & Management, Special Economic Zones, Petroleum Refining(Private Sector) Construction Development, Non Banking Financial Companies. 8. Airports 9. Domestic Airlines 10. Agriculture (including plantation except tea), Atomic Energy, Railways (except Mass Rapid transport system) 11. Tea Plantation 26 % (Recent) 26 % (Recent) 74% 26% 74% 51% 100%

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1949 1951 1969 1973 1981 2000 2002

74% 49% Not Allowed 100%

Ghanshyam Thori

Indian Economy

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Organizations & Their Survey/Reports World Economic & Social Survey U. N World Investment Report UNCTAD Global Competitiveness Report World Economic Forum World Economic Outlook IMF Business Competitive Index World Economic Forum Green Index World Bank Business Confidence Index NCAER Poverty Ratio Planning Commission Economic Survey Ministry of Finance Wholesale Price Index Ministry of Industry National Account Statistics CSO World Development Indicator World Bank Overcoming Human Poverty UNDP Global Development Report World Bank Millenium Development Goals Eradicate extreme poverty and hunger Achieve universal primary education Promote gender equality and empower women Reduce child mortality Improve maternal health Combat HIV/AIDS, malaria, and other diseases Ensure environmental sustainability Develop a global partnership for development

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M1

M2 M3 L1 L2 L3

Components of Money Supply Consists of currency with the public (ie notes & coins in circulation minus cash with the banks) plus demand deposits with the bank (deposits which can be withdrawn without notice) plus other deposits with RBI (usually negligible). Also called narrow money M1 + saving deposits + Certificate of Deposits (CDs) + term deposits maturing within a year. M2 + term deposits with maturity more than a year + term borrowing of banking system. Also known as broad money. M3 + all Deposits with the Post Office Savings Banks (excluding National Savings Certificates) L1 + Term Deposits with Term Lending Institutions and Refinancing Institutions (FIs) + Term Borrowing by FIs+ Certificates of Deposit issued by FIs; and L2 + Public Deposits of Non-Banking Financial Companies Four Modes of Services under GATT Cross border trade, which is defined as delivery of a service from the territory of one country into the territory of other country; Consumption abroad - this mode covers supply of a service of one country to the service consumer of any other country; Commercial presence - which covers services provided by a service supplier of one country in the territory of any other country, and Presence of natural persons - which covers services provided by a service supplier of one country through the presence of natural persons in the territory of any other country

Mode 1 Mode 2 Mode 3 Mode 4

Ghanshyam Thori

Indian Economy

Direct Tax Corporation Tax Income Tax Interest Tax Expenditure Tax Wealth Tax Gift Tax Estate Duty Land Revenue

Direct & Indirect Taxes Indirect Tax Excise Duties Service Tax Central Value Added Tax (Vat) Sales Tax Property Tax Octroi Customs Duties Stamp Duties

Arjun Sen Gupta Committee Rangarajan Committee Malhotra Committee Madhukar Committee L.C. Gupta Committee Naresh Chandra Committee JJ Irani Committee B. Bhattacharya Committee Rakesh Mohan Committee Vijay Kelkar Committee S.P. Gupta Committee Raghvan Committee Eradi Panel M.S. Verma Lakdawala Committee Montek Singh Ahuluwalia Rakesh Mohan Committee Abid Hussain Committee Jha Committee Vasudev Committee Omkar Goswami Committe G.V. Ramakrishna Arvind Virmani Vaghul Committee

Commissions/Committees & Their Purpose Public Sector Enterprise Autonomy Disinvestment of PSUs & Balance of Payments. Insurance Sector & its regulation. Follow up led to setting up of IRDA. Gold exchange traded fund implementation. Derivatives in India Model Corporate Audit & Governance Company Law Committee on pension reforms Small saving & Administered interest rates FRBM (fiscal responsibility & budget management) Act implementation Generation of Employment opportunities in the 10th plan. Replacement of MRTP act by competition act. Industrial Insolvency. Restructuring weak banks Estimating Poverty line in India Power Sector reforms Development of Infrastructure in India Small Scale Sector MODVAT NBFC Industrial Sickness Disinvestment Commission Import Tariff Reform Money Markets India reforms FEMA Violation of FEMA is a civil wrong. Offences under FEMA are compoundable. Penalty is 3 times the sum involved. Stay in India for more than 182 days is the criteria to decide residential status. There are two appellate authorities namely 1. Special Director (Appeals) and 2. Appellate Tribunal for Foreign Exchange.

FERA Violation of FERA was a criminal offence. Offences under FERA were not compoundable. Penalty was 5 times the amount involved. Citizenship was a criteria to determine residential status of a person under FERA. There was only one Appellate Authority namely Foreign Exchange Regulation Appellate Board.

Ghanshyam Thori

Indian Economy

Fiscal Responsibility & Budget Management (FRBM) Act 2003 The revenue deficit as a ratio of GDP should be brought down by 0.5 per cent every year and eliminated by 2007-08; The fiscal deficit as a ratio of GDP should be reduced by 0.3 per cent every year and brought down to 3 per cent by 2007-08; The total liabilities of the Union Government should not rise by more than 9 per cent a year; The Union Government shall not give guarantee to loans raised by PSUs and State governments for more than 0.5 per cent of GDP in the aggregate; Population Policy 2000 The immediate objective of the NPP 2000 is to address the unmet needs for contraception, health care infrastructure, and health personnel, and to provide integrated service delivery forbasic reproductive and child health care. To bring the TFR to replacement levels by 2010. Stable population by 2045 at a level consistent with sustainable economic growth. National Socio-Demographic Goals for 2010 1. Address the unmet needs for basic reproductive and child health services, supplies and infrastructure. 2. Make school education up to age 14 free and compulsory, and reduce drop outs at primary and secondary school levels to below 20 percent for both boys and girls. 3. Reduce infant mortality rate to below 30 per 1000 live births. 4. Reduce maternal mortality ratio to below 100 per 100,000 live births. 5. Achieve universal immunization of children against all vaccine preventable diseases. 6. Promote delayed marriage for girls, not earlier than age 18 and preferably after 20 years of age. 7. Achieve 80 percent institutional deliveries and 100 percent deliveries by trained persons. 8. Achieve universal access to information/counseling, and services for fertility regulation and contraception with a wide basket of choices. 9. Achieve 100 per cent registration of births, deaths, marriage and pregnancy. 10. Contain the spread of Acquired Immunodeficiency Syndrome (AIDS), and promote greater integration between the management of reproductive tract infections (RTI) and sexually transmitted infections (STI) and the National AIDS Control Organisation. 11. Prevent and control communicable diseases. 12. Integrate Indian Systems of Medicine (ISM) in the provision of reproductive and child health services, and in reaching out to households. 13. Promote vigorously the small family norm to achieve replacement levels of TFR. 14. Bring about convergence in implementation of related social sector programs so that family welfare becomes a people centred programme. Selected Terms Difference between revenue expenditure & revenue receipts Difference between total expenditure & revenue receipts Budget deficit plus non debt creating capital receipts Fiscal deficit Interest Payments. Foreign Investment Promotion Council Multilateral Investment Guarantee Agency

Revenue Deficit Budget Deficit Fiscal Deficit Primary Deficit FIPB MIGA

Ghanshyam Thori

Indian Economy

Miscellaneous Facts: 1. Indias GDP per Capita 622 (US $ PPP). It is 684 US $ for Pakistan. 2. The top 3 countries with external debt are Brazil (235 billion $), China (193 billion $) & Russia (175 billion $). India is 9th with 112 billion $. 3. Functional employment occurs when people change from one job to another & there is an interval. This can happen even in a situation of full employment. Structural employment happens when jobs exist for qualified persons but the unemployed do not have the matching qualifications. It also occurs when labour is available, but factors of production are missing. Cyclical unemployment arises out of cycles of recession. Disguised unemployment is when people are employed but their marginal productivity is zero. 4. The CSO is responsible for estimating the national income. It is assisted by the National Sample Survey Organization (NSSO) which conducts large scale surveys. 5. The tenth plan has taken the figure of 26% population below poverty line for planning purposes. Out of the total 75% are in rural areas & 25% in urban areas. Orissa (47.5%) has the highest proportion followed by Bihar (42.6%), M.P & Assam. 6. WPI is a weighted average of indices covering 477 commodities & is a measure of inflation on an economy wide scale. Services do not figure in this. Base year is 1993-94. CPI is computed separately for three groups viz industrial workers (260 commodities), Urban non-manual employees (180 commodities) & agricultural labourers (60 commodities). 7. The GDP deflator is arrived at by dividing the GDP at current prices by GDP at constant prices in terms of base year prices (1993-94). This indicates how much growth in GDP is due to price rise & how much due to increase in output. 8. In WTO terminology, subsidies in general are identified by boxes which are given the colours of traffic lights: green (permitted), amber (slow down i.e. be reduced), red (forbidden). For agriculture, all domestic support measures considered to distort production and trade (with some exceptions) fall into the amber box. In order to qualify for the green box, a subsidy must not distort trade, or at most cause minimal distortion. It includes amount spent on research, disease control, infrastructure & food security. Blue box subsidies are held to be trade distorting & include direct payment to farmers to limit production & certain government assistance to encourage agriculture & rural development in developing countries. 9. Tobin tax is the suggested tax (within 0.1% to 0.25%) on all trade of currency across borders intended to put a penalty on short-term speculation in currencies leading to crisis (Eg. Asian Crisis).

Ghanshyam Thori

Indian Economy

10. In 1972, 107 companies operating in the general insurance business were nationalized into four groups NIC, United India Insurance Company, Oriental Insurance Company & New India Insurance Company with GIC as the holding company. These companies can compete against each other in all areas except aviation & crop insurance which are the monopoly of GIC. 11. IRDA act 1999 has ended the monopoly of LIC/GIC in the insurance sector. 12. The only two national stock exchanges of India are NSE & OTECI (Over the counter exchange of India). BSE is a regional stock exchange. 13. At present the value of SDR is fixed in relation to a basket of five currencies US dollar, German mark, British pound, French frank & Japanese yen. 14. Current Account Convertability the holders of domestic currency have the right to convert the currency into foreign exchange for any current account purpose such as travel, tourism, trade. Transactions like those in assets are not permissible unless there capital account convertability. 15. Ceteris Paribus Other things remaining equal. Ad Valorem means as per value. Laffer Curve hypothesis that when the tax rate is raised the revenue realized tends to fall. Monopsony single buyer as opposite of monopoly where there is a single seller. Lorenz curve shows graphical representation of income distribution. The Phillips curve illustrates the relationship between inflation and unemployment. 16. Bretton Woods Agreement led to the establishment of World Bank & IMF. More developed a country greater would be its dependence on direct tax. 17. MODVAT (modified value added tax) was introduced in India in 1986 (MODVAT was re-named as CENVAT w.e.f. 1-4-2000). Increase in RBI credit to the government during a year represents Monetised deficit. 18. A high fiscal deficit leads to adverse effects on BoP, rise in interest rates & a high cost economy. 19. The reverse repo rate is the rate at which banks park their short-term excess liquidity with the RBI, while the repo rate is the rate at which the RBI pumps in short-term liquidity into the system 20. PNB is the oldest existing commercial bank in India. Indias short term debt is less than 10 % of Indias total debt. 21. The title of World Development Report 2005 is A Better Investment Climate For Everyone. 22. The 12th financial commission recommendation would be applicable for the period 2005-2010. Minimum Alternate Tax is a tax on zero tax companies. 23. Press Note 18 requires that a foreign company in a joint venture with an Indian company cannot get into other wholly owned ventures without the domestic partners permission.

Ghanshyam Thori

Indian Economy

24. Domestic Commercial Banks contribute to the Rural Infrastructure Development fund to the extent of their shortfall in their lending to the priority sector lendings. 25. Capital adequacy ratio affects assets of banks, its share capital & its investment. International Finance Corporation essentially provides loans to boost private sector investment of member countries. 26. Zero-based Budgeting requires that a program be justified from the ground up each fiscal year. ZBB is especially encouraged for Government budgets because expenditures can easily run out of control if it is automatically assumed what was spent last year must be spent this year 27. The main source of revenue for the Union government in ascending order of importance are income tax, custom duties, corporate tax & excise duties. 28. Prevention of Money Laundering act is applicable to drug trafficking, mafia, gun running etc. Maintaining its increasing trend since 1990-91, except in 1998-99, the share of direct taxes in central tax revenues increased from 19.1 per cent in 1990-91 to 43.3 per cent in 2004-05 (RE) and further to 47.9 per cent 2005-06 (BE). 29. Trade Related Investment measures (TRIMS) under WTO apply that no restrictions will be imposed on foreign investment in any sector; all restrictions on foreign companies will be scrapped; Imports of raw materials by foreign companies are to be allowed freely. 30. Participatory Notes (P-Notes) refers to investment in Indian securities by unregulated FIIs & Hedge funds. NCLT will replace the role of Company law board, BIFR & High courts. Fiduciary issue is the paper currency not backed by gold or silver.

Essential Extra Reference: Various Schemes launched by the government Capex in various sectors- telecom etc. Export Import Value with trade in Merchandise

Ghanshyam Thori

Indian Economy

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