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READY RECKONER OF ECONOMY
INDEX
R
E 1. Basic Concepts .................................................................................. 2 to 5
A 2. Planning ............................................................................................ 6 to 8
3. Fiscal Policy ..................................................................................... 9 to 11
D 4. Monetary Policy ............................................................................ 12 to 19
Y 5. Taxation ........................................................................................ 20 to 23
6. Financial Markets .......................................................................... 24 to 29
7. Inflation ........................................................................................ 30 to 32
R 8. Poverty .................................................................................................. 33
9. Unemployment ............................................................................. 34 to 35
E 10. Agriculture .................................................................................... 36 to 39
C 11. Industry ........................................................................................ 40 to 42
12. Balance of Payments ..................................................................... 43 to 45
K 13. Foreign Investment ................................................................................ 46
O 14. Economic Integration .................................................................... 47 to 48
15. WTO ............................................................................................. 49 to 54

N 16. Reports ......................................................................................... 55 to 56
E 17. Basis for Comparison CPI, WPI, IIP, PMI ................................................. 57
18. Important Graphs ......................................................................... 58 to 59

R
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READY RECKONER OF ECONOMY |2|
Economics definition, it’s agents, factors and  Socialists believe larger part of economic resources
should be in government hands to achieve
role of state in an economy
socioeconomic objectives.
Economics is a social science concerned with the  Nehruvian socialism – coexistence of private and
production, distribution and consumption of goods and public sector
services.  Mao’s socialism –Complete dominance of public
sector
Branches of economics: Structural composition of an economy
Major Branches of
Economics
Microeconomics Macroeconomics Mesoeconomics –

– deals with the —deals with the deals with the
behaviour of economy as a intermediate level
individual actors whole and it’s For instance the
like households, features like sectors of the
businesses etc employment, economy –
national income, electronics,  Primary sector: Describes all industries that are
poverty etc infrastructure etc engaged in the extraction of natural resources or the
although it is a production of raw materials.
relative term Ex: Farming, Fishing, Mining etc.
 Secondary sector: It includes all industries that are

Economic agents: individuals or institutions that take concerned with the manufacturing of usable products
economic decisions, may be –Producers, Consumers, or finished goods.
Government, Corporations, Banks etc. Ex: Heavy Industry (steel, chemical, automotive) and
Light Industry (food, apparel, cosmetics) etc.
Role of state in an economy:
 Tertiary sector: Describes all industries that provide
Adam Smith John Liberals services to other businesses or final consumers.
Keynes &Neoliberals Ex: Retail, Healthcare, Insurance etc.
 classical economy Need for Minimal state  Quaternary sector: It includes all industries that are
 if buyers and sellers state intervention concerned with the creation and distribution of
can make decision interventio in an knowledge.
based on Individual n at macro economy Ex: Research and development, Education etc
self interest, it scale Ex: IMF,  Quinary sector:Highest levels of decision making in an
automatically ensures Ex: New world bank economy.
welfare of country. Deal policies
 The state shall not program in Types of goods
intervene in the USA to deal  Intermediate good: An item used by other producers
economy. with Great as material input for production. Ex: Rubber used for
depression tyres.
 Ex: Laissez faire
economies in 17th, 18th  Final goods: An item that is meant for final use and
centuries will not pass through any more stages of production
or transformations. Ex: Car.
 could not address
great depression(1929)  Consumer goods: Goods that are consumed when
purchased by their ultimate consumers. Ex: Clothes
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 Capital goods: Goods which are of durable character  Depreciation: in order to accommodate regular wear
used in the production process like tools, machines . and tear of capital, a subtraction is made from gross
 Luxury good: As income increases, demand for investment.
certain goods increases.Ex: Gold  GDP(Gross Domestic Product) is the total market
 Complementary Goods. Goods which are used value of all final goods and services produced within
together. Ex: TV and DVD player, Pen and refill etc the geographic boundaries of a country during a
 Substitute goods:Goods which are alternatives. Ex: specified period of time, normally a year.
Tea and coffee  Nominal GDP refers to current year production of
 Veblen / Snob good:A good where an increase in final goods and services. It is not corrected for
price encourages people to buy more of it. This is inflation.
because they think more expensive goods are better.  Real GDP refers to current year production of goods
Ex: Diamonds, limited edition cars etc and services valued at base year prices. Real GDP is
 Giffen good: Demand goes up when prices increases. corrected for inflation.
Symbol of status.  Gross National Income(GNI): it is the aggregate
 Public good: Non rival consumption(one’s value of the gross balances of primary income of all
consumption does not diminish them for others)non- resident institutional units.
excludable. Ex: park, defence etc  Base year: it is a year in which prices are constant ,
 Private good: is both rival (ex: club membership) and not much fluctuating.
excludable (if I own a house, others cannot use it)  Market price(MP)refers to actual transacted price
 Merit goods: have positive externalities Ex: health, and includes indirect taxes.
education  Factor cost(FC)refers to actual cost of production it
 Demerit goods: have negative externalities. Ex: includes government grants and subsidies but
Alcohol, cigarettes etc excludes indirect taxes.
Circular flow in a simple economy Factors of production in an economy

Factors of Production are the inputs available
to supply goods and services in an economy
Land Labour
Natural Resources The human input into the
available for production Production Process
Enterprise Capital
Entrepreneurs organise Goods used in the supply
factors of production and of other products e.g. tech
take risks
National income accounting
It refers to a set of rules and techniques that are used to  GDP@fc =GDP@mp– indirect taxes+ subsidies
measure the output of a country.  NDP@fc= GDP@fc– depreciation
Measurement of economic growth  National income- NNP@fc = GNP @mp–
depreciation
 Economic growth is the increase or decrease in the
 GDP@mp=GNP @ mp – net income from
value of goods and services produced in an economy
abroad
 National income is the aggregate money value of all
 GNP @ fc =GNP @ mp – net indirect taxes
incomes earned by individuals and enterprises.
 Gross investment is that part of our final output that  NDP @mp =NNP@mp– net income
comprises of capital goods. from abroad
 Net Investment = Gross investment – Depreciation  NNP @fc=NNP @mp– indirect taxes

 Note: GDP@ mp=GNP @ mp – net income from Difference between GDP and GVA
abroad or income earned from abroad.
Gross domestic product Gross Value Added
 Income earned from abroad includes,
(GDP) (GVA)
1.Trade balance=Exports -Imports (negative)
2.Interest of external loans-Net output wrt interest It the sum of private It provides the rupee
payments (negative) consumption, gross value for the amount of
3.private remittances( positive) investment in the goods and services
Therefore, GNP=GDP+(1+2+3) as 1 and 2 are negative economy, government produced in an economy
GNP=GDP-(1+2+3) ie., GNP< GDP investment, government after deducting the cost
spending and net foreign of inputs and raw
Three methods of national accounting trade (difference materials that have gone
 Expenditure method: Measuring the aggregate value between exports and into the production of
imports) those goods and services.
of spending that the firms receive for the final goods
and services which they produce.
New GDP Series 2011-12
 Product method: Measuring the aggregate value of  Change of base year – 2004-05 to2011-12
final goods and services produced by all the firms.  Change in GDP calculation to using market prices
 Income method :Measuring the sum total of all factor rather than factor costs.
payments.  Adopted the international practice of valuing
Gross value added industry-wise estimates as gross value added (GVA) at
basic prices.
Gross value added (GVA) is an economic productivity
metric that measures the contribution of a corporate 3 METHODS OF CALCULATING NATIONAL INCOME
subsidiary, company or municipality to an economy, INCOME OUT PUT EXPENDITURE
producer, sector or region.
METHODS METHOD METHOD
GDP= GVA+ taxes on products –subsidies on products
Gross Domestic Gross Domestic Gross Domestic
Difference between GDP and GNP
Income product Expenditure
Gross Domestic Gross National Product + + +
Product (GDP) (GNP) Net Income Net Income Net Income from
It is the value of a It is the value of all finished from Overseas from Overseas Overseas and
nation's final domestic goods and services owned by = = Exports
goods and services a country's residents over a Gross National Gross National -
during a specific time period of time. Income Product Imports
period. - - =
GDP: Consumer GNP: GDP+ NR (Net receipts Depreciation Depreciation Gross National
spending + from abroad or inflows from = = Expenditure+
Government spending abroad) – NP (Net payment Subsidies-tax
+ Investments + Net outflow to foreign assets)
exports Gross National
Application: To see the Application: To see how the Expenditure
strength of country’s nationals of a country are -
local economy doing economically Depreciation
GDP is the most GNP is not used much by =
Net National Income = Net National Product = Net National
commonly used by global economies
Expenditure
global economies.

Gross Capital Formation (GCF): Growth vs Development

 The percentage of the investment made each year
out of the total GDP is called Gross Capital Formation
 High GCF denotes higher rate of savings in the
economy which is required for high rate of
production, capital formation, changes in production
techniques
 GCF includes capital formation in public sector,
private sector and also household sector
CSO vs NSSO
Central Statistical National Sample Survey

Office (CSO) Office (NSSO)
Demand and Supply Side Economics
 It is responsible for
coordination of
statistical activities
 It is responsible for
in the country and
conducting socio-of
for evolving and
economic surveys.
maintaining
statistical
standards.
 Its activities
include
 The surveys on
compilation of
Consumer Expenditure,
National Accounts;
Employment –
conduct of Annual
Unemployment, Social
Survey of
Consumption (Health,
Industries and
Education etc.),
Economic
Manufacturing
Censuses,
Enterprises, Service
compilation of
Sector Enterprises are
Index of Industrial
carries out once in 5
Production, as well
years by them.
as Consumer Price
Indices
 It also deals with
various social  The survey of Land and
statistics training, Livestock Holding and
international Debt and Investment
cooperation, are carried out once in
Industrial 10 years.
Classification etc.
RAPID REVISION PROGRAM

OUR
PRELIMS ROUNDUP
UPCOMING MAINS MENTORSHIP PROGRAM
PROGRAMS
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Concepts PROGRAM www.civilsprep.com
GS AND OPTIONAL TEST SERIES
Planning III. This plan was successful and achieved growth rate
of 3.6% (more than its target growth rate 2.1%)
A five year plan formed the most basic unit of planning in Outcomes
India. Efforts towards economic planning in India began  Mettur dam, Hirakud, Bhakra dams were started in
even prior to independence. this period.
National Planning Committee (1938)
 Subhas Chandra Bose set up National Planning 2nd Five year plan (1956 to 1961)
Committee in 1938 under the chairmanship of I. Target Growth: 4.5% Actual Growth: 4.3%
J.Nehru. II. It was based on the P.C. Mahalanobis Model.
III. Its main focus was on the industrial development of
The Bombay Plan (1944)
the country.
 In 1944 Eight Industrialists of Bombay viz. Mr. JRD
IV. This plan was successful
Tata, GD Birla, Purshottamdas Thakurdas,
LalaShriram, Kasturbhai Lalbhai, AD Shroff, Ardeshir
Outcomes of the plan
Dalal, & John Mathai working together prepared what
is known as “Bombay Plan”. It recommended a  As many as five steel plants including the ones in
substantially interventionist state and an economy Durgapur, Jamshedpur as well as Bhilai were set up as
with a sizeable public sector. per the 2nd five year plan
People’s Plan(1945) 3rd five year plan (1961 to 1966)

 People’s Plan (1945) was drafted by MN Roy. It gave
equal importance to both agriculture and industries. I. Target Growth: 5.6% Actual Growth: 2.8%.
This plan was for ten years. It recommended II. This plan is called ‘Gadgil Yojna’ also.
nationalization of all agriculture and production. III. The main target of this plan was to make the
Gandhian Plan (1944) economy independent and to reach self active
position of take off.
 This plan was drafted by Sriman Nayaran, principal of IV. Due to china war and Indo-pak war, this plan could
Wardha Commercial College. It emphasized the not achieve its growth target of 5.6%.
economic decentralization with primacy to rural
development by developing the cottage industries.
Three Annual Plans (1966- 69): Plan Holiday
Sarvodaya Plan (1950) I. Emphasis on agriculture during the Annual Plans.
II. Green revolution strated: Usuage of high-yielding
 Sarvodaya Plan as drafted by Jaiprakash Narayan. This
plan itself was inspired by Gandhian Plan and varieties of seeds, extensive use of fertilizers,
Sarvodaya Idea of Vinoba Bhave. This plan exploitation of irrigation potential and soil
emphasized on agriculture and small and cottage conservation.
industries.
4th five year plan(1969 to 1974)
Five year plans after independence
I. Target Growth: 5.7% Actual Growth: 3.3%
 The concept of economic planning in India is derived
II. There were two main objective of this plan i.e.
from the Russia (then USSR). India has launched 12
five year plans so far. First five year plan was launched growth with stability and progressive achievement
in 1951. of self reliance.
III. During this plan the slogan of “Garibi Hatao” was
1st Five year plan(1951-56)
given by Indira Gandhi.
I. It was based on the Harrod-Domar model.
II. Its main focus was on the agricultural development
of the country.
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5th five year plan (1974-1979) 8th five year plan (1992-1997):
I. Target Growth: 4.4% Actual Growth: 4.8%. I. Target Growth 5.6 % Actual Growth 6.8%.
II. In this plan top priority was given to agriculture, II. In this plan the top priority was given to
next came to industry and mines. development of the human resources i.e.
III. Overall this plan was successful which achieved the employment, education, and public health.
growth of 4.8% against the target of 4.4%. III. During this plan Narasimha Rao Govt. launched
IV. The draft of this plan was prepared and launched New Economic Policy of India.
by the D.P. Dhar. This plan was terminated in 1978
because of Janata government.
Outcomes of the plan
Outcomes I. Rapid economic growth (highest annual growth
 After promulgation of emergency in 1975, the rate so far – 6.8 %).
emphasis shifted to the implementation of Prime II. High growth of agriculture and allied sector and
Ministers 20 Point Programme. manufacturing sector.
Rolling Plan (1978 – 80) III. Growth in exports and imports Improvement in
 This plan was started with an annual plan for 1978-79 trade and current account deficit.
and as a continuation of the terminated fifth year
plan. 9th five year plan (1997-2002):
6th five year plan(1980-1985) I. Target Growth: 6.5% Actual Growth: 5.4%.
I. Target Growth: 5.2% Actual Growth: 5.7%. II. The main focus of this plan was “growth with
II. The basic objective of this plan was poverty justice and equity”.
eradication and technological self-reliance. III. It was launched in the 50th year of independence
III. It was based on investment yojana, infrastructural of India.
changing and trend to growth model. Focus areas of the plan
Outcomes of the plan  It assigned priority to agriculture and rural
I. Economic Liberalization was introduced for the first development with a view to generate adequate
time in India during this period. productive employment and eradicate poverty.
II. Family Planning was implemented for the first time
in India. 10th five year plan (2002-2007):
I. Target Growth rate : 8 % Actual Growth : 7.6 %
7th five year plan (1985-1989):
I. Target Growth: 5.0% Actual Growth: 6.0%. II. This plan aims to double the per capita income of
II. Objectives of this plan include the establishment of India in the next 10 years.
the self- sufficient economy, opportunities for
III. It aims to reduce the poverty ratio 15% by 2012.
productive employment.
III. For the first time the private sector got the priority IV. Taking up of extensive afforestation measures, by
over public sector. planting more trees and enhance the forest and
IV. The plan was a big success. tree areas to 25% by 2007 and 33% by 2012.
Annual Plans: V. Decrease in the Maternal Mortality Ratio (MMR) to

 Eighth five Plan could not take place due to volatile 2 per 1000 live births by 2007.
political situation at the centre.
 So two annual programmes are formed in 1990-91& VI. Access to potable drinking water cleaning of major
1991-92. polluted rivers.

11th five year plan(2007-2012):

I. Target Growth 9 % Actual Growth 8%
II. It was prepared by the C. Rangarajan.
III. Its main theme was “faster and more inclusive
growth”.
Objectives of the plan

I. Reduction in unemployment( to less than 5 %
among educated youth ) and headcount ratio of
poverty ( by 10 %).
II. Improvement in sex ratio, forest & tree cover, air
quality in major cities.
III. Ensuring electricity connection to all villages & BPL
households (by 2009) & reliable power by end of
11th Plan.
IV. Providing broad band connectivity to all villages by
2012.
12th five year plan(2012-2017):

I. Its growth rate target is 8%, real growth rate 7%
II. Its main theme is “Faster, More Inclusive and
Sustainable Growth”.
III. In this plan government embraced 25 monitorable
targets.
NITI Aayog
 Government scrapped Planning commission and in its
place it has introduced NITI Aayog.
NITI Aayog composition

 Prime Minister of India as the Chairperson.
 Vice-chairperson to be appointed by the PM.
 Governing Council comprising the Chief Ministers of
all the States and Lt. Governors of Union Territories.
 Experts, specialists and practitioners with relevant
domain knowledge as special invitees nominated by
the Prime Minister.
 Regional Councils will be formed to address specific
issues and contingencies impacting more than one
state or a region.

Fiscal Policy
Fiscal policy is that part of government policy concerned
with raising revenue through taxation and spending
programs.
Objectives of fiscal policy:
 Growth
 Equity
 Holistic development of all sectors of economy
 Employment
 Export promotion
Types of fiscal policy  Revenue budget: Revenue budgets include income

Expansionary Fiscal Policy and expenditure for the year and those that will be
incurred regularly in the running of businesses. Ex:
Action Effect
sales, purchase, salaries, wages and rent.
Lower Taxes Decreasing tax, savings  Capital budget: A capital budget estimates inflows
increases, available funds for and outflows on account of capital expenses. Capital
spending increases, so expenses means those expenses which will be
consumers and businesses incurred for asset creation. Ex: plant &machinery ,
purchase more. Demand shares , furniture etc
increases.  Revenue receipts: These are recurrent receipts. These
include revenue raised from tax and non-tax sources.
Increase Increasing government Ex: Tax resources: Income tax, corporation tax,
Government spending provides the funds corporation tax, excise duty etc
Spending needed for consumers and  Non-Tax resources: User charges, interest receipts,
businesses to purchase goods interest dividends etc
and service. Demand is  Revenue expenditure: It does not create any assets. It
increased. is incurred on maintenance and consumption of the
Contractionary Fiscal Policy government. Ex: Salaries, interest payments, defence,
Action Effect subsidies
 Capital account receipts: These are money raised
Raise Taxes Increasing tax, expenditures through borrowing (debt) or sale of assets (non-debt)
decreases, money available for Ex: Recoveries of loan; borrowing from India and
spending decreases, so abroad; disinvestment proceeds
consumers and businesses
 Capital account expenditure: Expenditure made for
spend less. Demand is
asset creation. Ex: Loans repaid, asset creation in
decreased.
infrastructure and social areas
Decrease Decreasing government Components of budget

Government spending reduces the funds 1. Annual Financial Statement [Article 112]: This
Spending needed for consumers and document comprises the receipts and expenditures of
businesses to purchase goods the government of current year, previous year and
and services. Demand is budget year in three separate parts viz. Consolidated
decreased. Fund of India, Contingency Fund of India and Public
Account of India.
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2. Demands for Grants [Article 113]: The estimates of centre as a banker to government against
expenditures are presented to Loksabha in the form adhoctreasury bill. There is no collateral but penal
of Demands for Grants. Ministry wise demand for interest rate is charged.
grants are presented to Loksabha.
In case of state government there are two types of
3. Appropriation Bill [Article 114(3)]: The article 114(3)
WMA, normal WMA are unsecured advances
stipulates that no amount can be withdrawn from the
extended at bank rate. While special WMA are
Consolidated Fund of India without enactment of
extended against government securities.
appropriation bill.
4. Finance Bill [Article 110(a)]: It is presented to enact a Fiscal Responsibility and Budget Management act
law for imposition, abolition, remission, alteration or (FRBMA), 2003
regulation of taxes proposed in the Budget.
 Introduction of a transparent system of fiscal
Deficits
management within the country to ensure fiscal
 A deficit occurs when expenses exceed revenues,
stability.
imports exceed exports, or liabilities exceed assets.
 It is mandated by the act that,
 Revenue deficit (RD): It is the difference
between the revenue receipts (RR) and the revenue 1. Macro-Economic Framework Statement: It comprises
expenditure (RE). an assessment of the overall growth prospects of the
RD- RR-RE. economy with specific underlying assumptions.
 Effective Revenue deficit (ERD):It is defined as the 3. Medium Term Fiscal Policy Statement (MTFP): It is a
difference between the revenue deficit and creation statement that is presented in the Parliament under
of capital assets. Section 3(2) of the Fiscal Responsibility and Budget
 Fiscal deficit (FD):It is the difference between what Management (FRBM) Act, 2003.
government earns and its total expenditure (excluding 4. Medium Term Expenditure Framework Statement:
non-debt creating capital expenditure) This document sets forth a three-year rolling target
FD=(Revenue receipts+ non-debt creating capital for the expenditure indicators with specification of
receipts)- Total expenditure underlying assumptions and risks involved.
 Budget deficit: The difference between the total
FRBM ACT, 2003
budgeted receipts and expenditure.
 In the Fiscal Responsibility & Budget Management Act
BD=Budgetary receipt – Budgetary expenditure
made obligatory for the govt. to reduce its RD & FD.
 Primary deficit: It is the difference between fiscal
 Reduction beginning from 2004 – 05.
deficit and interest payments
Yearly reduction from 2004 - 05
PD=FD-interest payment
2008 – 09
Deficit financing:financing of gap between government RD 0.5% of GDP 0
receipts and expenditure. FD 0.3% 3%
By 2016-17 bring down (FRBM amendments) 2016-17
How does the government manage its deficits?
FD 3%
1. Monetised deficit – Borrowings made from RBI RD 1.5%
through printing fresh currency. The printed money is ERD 0
called high power money. FRBM act disallow RBI to
do this under normal conditions
2. Ways and Means Advances (WMA): The Reserve
Bank of India gives temporary loan facilities to the

Fiscal consolidation: It means strengthening of budget. It is the most common method

government finances and includes the following, of budgeting because it is simple and
easy to understand.
Revenue side Activity-based budgeting is a top-down
Activity
 Rationalization of tax exemptions, budgeting approach that determines the
based
 Improving efficiency of tax collections amount of inputs required to support the
budgeting
targets or outputs set by the company.
 Tax stability etc
Value proposition budgeting is really a
Expenditure side Value
mindset about making sure that
 Cutting out non-essential and unproductive activities, proposition
everything that is included in the budget
 Rationalizing subsidies budgeting
delivers value for the business.
 Reduce time and cost overruns etc Zero-based budgeting starts with the
Government Debt: assumption that all department budgets
Various classification of government debt are zero and must be rebuilt from
scratch.
 Government liabilities have been broadly classified as Zero based Zero-based budgeting is very tight,
debt contracted against the Consolidated Fund of budgeting
India (defined as Public Debt) and liabilities in the aiming to avoid any and all expenditures
Public Account, called Other Liabilities. that are not considered absolutely
 Public debt is further classified into internal and essential to the company’s successful
external debt. (profitable) operation.
 Internal debt is debt taken from sources within the
country by selling of Treasury bills, loan from market. Terminologies:
 External debt loan from foreign countries,  Fiscal drag: It is a situation where inflation pushes
international financial institutions, external income into higher tax bracket. The result is increase
commercial borrowings (largest borrowing), NRI in income taxes but no increase in real purchasing
deposits, bilateral and multilateral debt, Trade credit. power
 Rupee debt: refers to that part of India’s total  Fiscal neutrality: When the net effect of taxation and
external debt denominated in Rupees. public spending is neutral
 Other Liabilities include liabilities on account of  Crowding out: Excessive government borrowing can
Provident Funds, Reserve Funds Deposits, Other lead to shrinkage of the liquidity in the market, it
Accounts, etc forces the interest rates to go up which in turn affect
 Government debt as a percent of GDP is used by private investment.
investors to measure country ability to make future  Pump-priming: Deficit financing and spending by the
payments on its debt. It affects borrowing cost and government on public works in an attempt to revive
government bond yields. economy during recession
Masala bonds  Twin deficit: Worsening of both Current Account
 Masala bonds are bonds issued by Indian entities deficit (CAD) and Fiscal deficit (FD) simultaneously in
outside India but denominated in Indian Rupees, not the economy.
foreign currency.  Fiscal cliff: The fiscal cliff refers to a combination of
 The term was used by the International Finance expiring tax cuts and across-the-board government
Corporation (IFC) to evoke the culture and cuisine of spending cuts
India. Note:
 Low cost borrowing, Diversified funds.
 Some reforms related to budget, Budget is
Various Budgeting techniques:
preponed to 1st FEB, railway budget merged with
Incremental Incremental budgeting takes last year’s general budget, no vote on account, plan and non
actual figures and adds or subtracts a
budgeting plan expenditure removed.
percentage to obtain the current year’s

Monetary Policy and Banking

Monetary policy is made by central bank by using interest
rate and other instruments to influence money supply in
the economy to achieve certain macro economic goals.
Objectives:
1. Accelerating economic growth.

2. Price stability.
3. Exchange rate stabilisation.
4. Balancing savings and investment.
5. Employment generation.
Types of monetary policy
 Bank Rate: Rate at which RBI lends long term loan to

commercial banks. It is used for managing money
supply.
 Repo Rate: it is the Fixed interest rate charged by RBI

while extending short term loan on the security of
government bonds. Banks undertake to repurchase
them same at a later date.(RBI lends to banks)
 It is used as Policy rate, which signals to the financial

system to adjust their lending and borrowing
operations.
 Reverse Repo :RBI borrows from the market on the

basis of securities and repurchases them later. Rate
charged by bank is called Reverse repo rate.(banks
lend to RBI). It absorbs excess liquidty.
 Liquidity Adjustment Facility (LAF):LAF are used by

banks for day to day mismatches in liquidity. RBI lends
money at repo rate.
www.laex.in Monetary Policy and Banking www.civilsprep.com

 Marginal Standing Facility (MSF):A window through High interest rates Low interest rates
which commercial banks can borrow from RBI at a Rupee gets stronger Rupee weakens
rate greater than repo rate, which is meant to ease
Encourages saving Encourages spending
liquidity In the market.
Less disposable income More disposable income
 Monetary policy Corridor: The MSF rate and reverse
repo rate determine the corridor for the daily Loan repayments increase Loan repayments
movement in the weighted average call money rate. decrease
 Reserve requirements: fraction of total deposits Savings earn more interest Savings earn less interest
managed by a bank as reserves that are not to be
lent, which is calculated as a percentage of each Higher inflation Low inflation
bank’s net demand and time liabilities (NDTL).  Hawkish stance is when a central bank wants to guard
This are used for, providing loans to the government, against excessive inflation, there by increases interest
safe banking operations, liquidity regulation, rates.
management of interest rates etc. they can be CRR or
 Dovish is the opposite of hawkish, interest rates are
SLR.
reduced to fuel growth.
 Cash Reserve Ratio (CRR):it is the portion of the bank
 Benchmark Prime Lending Rate (BPLR) was the rate
deposits that a bank should keep with the RBI in cash
at which commercial banks can lend to customers
form, with no interest .
who are most credit worthy.
It is used to manage liquidity and inflation.
 Base Rate is the interest rate below which Scheduled
 Statutory Liquidity Ratio (SLR):portion of time and
Commercial Banks (SCBs) will lend no loans to its
demand deposits banks should keep with themselves
customers.
in the form of designated liquid assets like
Government securities, public sector bond, current Base rate is replaced with MCLR (Marginal Cost of
account balances with banks and gold. funds based Lending Rate)
 Open Market Operations (OMOs): These include
both, outright purchase and sale of government
securities, for injection and absorption of liquidity.
Note :
 Tools of liquidity adjustment-CRR, repo and
reverse repo.
 Market Stabilisation Scheme (MSS): Surplus liquidity
 Inflation Targeting :acentral bank has an explicit
of a more enduring nature arising from large capital
target inflation rate range. Government and RBI agree
inflows is absorbed through the sale of short-dated
government securities and treasury bills. on convergence between fiscal and monetary policies.
Urjit Patel Committee 2014:
It is a sterilization effort of the central bank. (RBI
Inflation target 4% +/- 2%
borrows from market absorbing excess liquidity)
Nominal anchor should be defined in terms of
 Interest rates :A rate which is charged or paid for the headline inflation.
use of money. It is often expressed as an annual  Monetary policy committee: covered in Inflation
percentage of the principal.
 Twin Balance Sheet (TBS) challenge deals with
balance sheet of Indian companies and Indian Banks.
1. Overleveraged companies :Debt accumulation on

companies is very high and thus they are unable
to pay interest payments on loans.

2. Bad-loan-encumbered-banks :Non Performing Forex includes- foreign currency assets, gold, IMF-
Assets (NPA) of the banks is 9% for the total SDR (special drawing rights).
banking system of India. It is as high as 12.1% for 8. Supervisory functions:Supervises and control over
Public Sector Banks. As companies fail to pay back commercial and cooperative banks.
principal or interest, banks are also in trouble. 9. Promotional functions: to promote banking habit and
extend banking facilities, it has set up IFCI, SFC,
 Public Sector Asset Rehabilitation Agency (PARA)
IDBetc.
The Public Sector Asset Rehabilitation Agency (PARA)
colloquially called “Bad Bank” is a proposed agency
to assume the Non-Performing Assets (NPA) of public
sector banks in India and to deal with the recovery of
the bad loans.
 Helicopter Money
A helicopter drop, or helicopter money, is a
hypothetical, unconventional tool of monetary policy
that involves printing large sums of money and
distributing it to the public in order to stimulate the
economy.
Reserve bank of India:
It was set up in 1935 (by the RBI Act, 1934). Nationalised
in 1949,governed by Central board of directors. It is the
central bank of India and is regulator and controller of
banking system.
Nationalisation of Banks
It’s functions are as follows,
 SBI Act, 1955 partially nationalised thethree Imperial
1. Bank of issue :It has sole right to issue bank notes of Banks.
all denominations. Distribution of coin and 1rs notes  Partially nationalised eight more private banks via the
is done by RBI on behalf of GOI. SBI (Associates) Act, 1959 and named themas the
2. Banker to Government: Will transact government Associates of the SBI
business, receive and make payments on behalf of  With Banking Nationalisation Act, 1969, the
government. government nationalised
3. Bankers bank and lender of last resort: scheduled (i) 14 banks were nationalised in July 1969.
banks can borrow from RBI by rediscounting bills of (ii) 6 banks were nationalised in April 1980.
exchange. RBI is the lender of last resort.
4. Controller of credit: it has the power to influence the Regional Rural Banks were established under the
volume of credit created by bank in India. provisions of an Ordinance promulgated on the 26th
September 1975 and the RRB Act, 1976 with an objective
5. Agent and advisor of the government :It issues to ensure sufficient institutional credit for agriculture
government bonds, treasury bills, financial adviser to and other rural sectors. The area of operation of RRBs is
government, as an agent of government manages limited to the area as notified by GoI covering one or
public debts. more districts in the State.
6. National clearing house:RBI acts as the clearing
house for settlement of banking transactions. RRBs are jointly owned by GoI, the concerned State
Government and Sponsor Banks (27 scheduled
7. Custodian of foreign reserves: It takes up operation commercial banks and one State Cooperative Bank),the
in forex market to stabilise the exchange rate of rupee issued capital of a RRB is shared by the owners in the
and ensure there is no speculation. proportion of 50%, 15% and 35% respectively.

Cooperative banks : Cooperative banks operate Commercial banks have

 Initially set up to supplant indigenous sources ofrural as federal structure in the structure of a joint
credit, mostly serve the needs of agriculture and India. stock company.
allied activities, rural-based industries and to a lesser
Co-operative Barks are Commercial Banks come
extent, trade and industry in urban centres.
subject to the supervision directly under the
of the state governments, Supervision of the
NABARD and the RBI. Reserve Bank of India.
Banking sector reforms

Narasimham Committee I aimed at:
 Ensuring a degree of operational flexibility.

 Internal autonomy for public sector banks (PSBs) in
their decision making process.
 Greater degree of professionalism in banking
operation.
Co-operative banks have a three tier structure:
(i) Primary Credit Societies-PCSs(agriculture or urban). Narasimhan 2 (1998) recommendations
(ii) District Central Co-Operative Banks- DCCBs. 1. Need of stronger banking system with merger of PSB.
(iii) State Co-Operative Banks-SCBc (at the apex level). 2. Legal framework for loan recovery
3. 3 tier banking structure etc.
Cooperative Banks Commercial Banks
IBC
Commercial banks are
These are Co-operative joint stock companies
Societies governed by the  The Code provides clear, coherent and speedy
they are governed by the process for early identification of financial distress
Co-operative societies Act,
Banking Regulation Act, and resolution of entities if the underlying business is
1904.
1949. found to be viable.
Cooperative Banks Commercial banks  It suggests two options – a restructuring if the firm is
generally provide short, generally provide short viable and liquidation if it is not financially viable.
medium and long term medium and long term
finance to agriculture and finance, to trade, Features of the code,
allied sectors. commerce and industry.
1. The new code will replace existing bankruptcy laws
Commercial banks lend
Cooperative Banks lend and cover companies, limited liability partnerships,
to anyone who is willing partnership firms, other corporate persons, and
finance to their members
to borrow and satisfies individuals, and any other body specified by the
only ,share holders borrow
the conditions of the Government.
from a co-operative bank.
bank. 2. Many erstwhile acts will be substituted/ guided by the
Cooperative Banks operate Their operations are on a Insolvency and Bankruptcy Code on bankruptcy
matters as it consolidates/improves the existing laws.
on a relatively small scale. large scale.
Scope of activities of a co- Commercial banks offers 3. Timeframe: 180 days after the process is initiated,
operate bank is limited to a wide range of financial plus a 90-day extension — for resolving insolvency.
providing different types of assistance and financial 4. Four pillars of IBC,
loans to their members. services.

 Insolvency and Bankruptcy Board of India: is the  Tier 1 capital which can absorb losses without a bank
regulator that will oversee the new entities. being required to cease trading.
 Tier 2 capital absorb losses in the event of winding
 Insolvency Professionals: will conduct the
up, which provide lesser degree of protection to
insolvency resolution process, take over the
depositors.
management of a company, assist creditors in the
collection of relevant information, and manage  Tier 3 capital tertiary capital of banks which are used
the liquidation process, to meet market risk, commodity risk and foreign
currency risk.
 Insolvency Professional Agencies: will examine
and certify the insolvency professionals, and Capital Adequacy Ratio (CAR)
 Information Utilities: collect, collate and  CAR = (Tier I + Tier II Capital)/Risk Weighted Assets
disseminate financial information related to  Expressed as a percentage of a bank’s risk weighted
debtors credit exposures.
5. Creditors and also borrowers can initiate the IBC  Measure of bank’s financial strength to ensure that
proceedings. banks have enough cushions to absorb losses before
becoming insolvent and losing depositors’ funds.
6. NCLT takes up corporate insolvency while DRT takes
up individual insolvency issues.  CAR is required to be 9% by RBI (based on BASEL III
norms), where 7% has to be met by Tier 1 capital
7. The bankruptcy code has provisions to address cross- while the remaining 2% by Tier 2 capital.
border insolvency through bilateral agreements with Basel III Framework
other countries. Major Features of Basel III
8. Workers’ interests are highly protected under the law. 1. Revised Minimum Equity & Tier I Capital
Priority Sector Lending Requirements
2. Better Capital Quality
 Lending programme is to ensure that adequate
institutional credit flows into some of the vulnerable 3. Leverage Ratio
sectors of the economy. 4. Liquidity Ratio
5. Countercyclical Buffer
Indian Banks need to lend 40%
6. Capital Conservation Buffer
 Subtarget- 18% Agriculture,10% weaker  Ratio under consideration
 Sections, and other to housing, education, renewable
CAR = (Tier 1 Capital + Tier 2 Capital)
energy, MSME, sanitation.
Risk Weighted Assets
Foreign Banks (having less than 20 branches) have to fulfil
only 36% (reach 40 in phased manner),sub-targets for the
exports, small and medium enterprises, micro enterprises. Leverage Ratio = ≥ 3%
Basel norms
Liquidity Coverage Ratio =
 Basel Committee on Banking Supervision is an
international committee formed in 1974 to develop ≥ 100%
standards for banking regulation.
 It consists of central bankers from 27 countries and Net Stable Funding Ratio = ≥ 100%
the European Union.
 It is headquartered in the office of Bank for
India and Basel Norms Implementation:
International Settlements (BIS) in Basel, Switzerland.
It developed a series of policy recommendations wrt  Presently Indian banking system follows Basel II
Capital risk, market risk and operational risk known as norms.
BaselAccords.

 Full implementation of the Basel III capital regulations  L2 = L1 + Term deposits with Term Lending
by a year to march 31,2019. Institutions and Refinancing Institutions (FIs) + Term
 The key capital adequacy parameter has been stipulated Borrowing by FIs +Certificates of Deposit issued by FIs
at 9% higher than the international norm of 8%.  L3 = L2 + Public Deposits of Non-Banking Financial
 Recapitalisation: lending to the bank resources Companies.
needed to conform to the capital adequacy norms High powered money: The new currency printed by the
which Stand at 8% today - minimum level. central bank foe deficit financing is called ‘high powered
money’.
Stock of money
Cryptocurrencies: A cryptocurrency is a form of digital
 Reserve Money (M0) = Currency in circulation +
money which is designed to work as a medium of
Bankers’ Deposits with the RBI + ‘Other’ deposits with exchange and uses a cryptography method to keep it
the RBI. secure the transaction.
 Narrow Money (M1) = Currency with the Public +
Cryptocurrency uses the decentralized network. That
Demand Deposits with the Banking System + ‘Other’ means you don’t need any third party server like bank,
deposits with the RBI. government, other authorities to perform any type of
 M2 = M1 + Savings Deposits of Post office Savings transaction with the merchants. Ex: Bitcoin
Banks.
Labels of ATMs
 Broad Money (M3) = M1 + Time Deposits with the
 The automated teller machine (ATM) entered India by
Banking System.
late 1980s and have evolved into three of its types,
 M4 = M3 + All deposits with Post Office Savings Banks
(excluding National Savings Certificates). (i) Bank’s own ATMs: These are owned and operated by
Money Multiplier the concerned bank and carry the bank’s ‘logo’. They are
 It is the ratio of Broad money (M3) divided by Reserve the costliest way to provide such service to bank’s
Money (M0). It representsmoney supply as in, for customers.
each rupee of money of the Central Bank in India,
(ii) Brown Label ATMs (BLAs): These are owned by third
how many rupees get generated in the Indian
party (a non-banking firm). The concerned banks only
Economy.
handle part of the process that is ‘cash handling’ and
Note :Liquidity-As we move from M1 to M4 the
‘back-end server’ connectivity. They carry ‘logo’ of the
liquidity of the money goes on decreasing.
bank which outsources their service.
Two basic changes in the new monetary aggregates.
(iii) White Label ATMs: ‘owned’ and ‘operated’ by a third
Monetary aggregates:
party(a non-banking firm). They do not bear ‘logo’ of the
 NM1 = Currency with the Public + Demand Deposits
banks they serve. In place, they carry logo of the firm
with the Banking System +‘Other’ Deposits with the
RBI. which own them. It serves many banks.
 NM2 = NM1 + Short Term Time Deposits of Residents
Classification of assets
(including the contractual maturity of one year).
 Stressed Assets: It is a broader term and comprises of
 NM3 = NM2 + Long-term Time Deposits of Residents +
NPAs, restructured loans and written off assets.
Call/Term Funding from Financial Institutions.
 Restructured Loans: Assets/loans which have been
Liquidity aggregates: restructured by giving a longer duration for repayment,
 L1 = NM3 + All Deposits with the Post Office Savings lowering interest or by converting them to equity.
Banks .  Written off Assets: Assets/loans which aren’t counted
as dues, but recovery efforts are continued at branch
level – Done by banks to cleanup their balance books.
 Non-performing asset (NPA)

It is a loan or advance for which the principal or  Maintain 25% of  Have 25% of
interest payment remained overdue for a period of 90 deposits in other branches in
days or more. In case of Agriculture/Farm Loans, the banks. unbanked
NPA varies for short duration crop (interest not paid  Have at least 26% areas.
for2 crop seasons) and long duration crops (interest investment by  Maintain
notpaid for 1 Crop season). Indians. reserve
Substandard, Doubtful & Loss assets.  Get listed if net requirements.
worth crosses Rs.  Cap loans to
 Substandard assets: Assets which have remained NPA 500cr. individuals and
for a period less than or equal to 12 months.
 Have 25% of groups at 10%
 Doubtful assets: Assets which have remained inthe and 15% of net
branches in
substandard category for a period of 12 months
unbanked areas. worth.
 Loss assets: Loss asset is considered uncollectibleand
 Be fully  Have a business
of such little value that its continuance as a bankable
networked and correspondent
asset is not warranted, although theremay be some
technology network.
salvage or recovery value.
driven.
Differentiated Banking  Have Rs. 1 lakh
The banks which could be differentiated on the account of cap for deposits
capital requirement, scope of activities and serve the in one a/c.
needs of a certain demographic segment of the What  Offer internet  Sell forex to
population are called as Differentiated Banks or They Can banking customers
NicheBanks. Do  Sell mutual funds,  Sell mutual
 The idea of Differentiated Bank was mooted by insurance, funds,
pensions. insurance,
Nachiket Mor Committee 2014, for Financial
 Offer bill payment pensions.
Inclusion.
service for  Can convert into
 It can be classified as Payment Banks, Small Finance customers Have a full-fledged
Banks, Regional Rural Banks, Local Area Banks ATMs and bank.
Wholesale and Long-Term Finance (WLTF) banks etc. business  Expand across
 Wholesale and long-term finance banks focused correspondents the country.
primarily on lending to infrastructure sector and (BC).
small, medium and corporate businesses.  Can function as
BC of another
Who Can Payments Banks Small Banks bank.
Promote Prepaid card issuers, Individuals/professi What  Offer credit cards.  Extend large
telecom companies, onals with 10 years They Cant  Extend loans. loans
NBFCs, business experience in Do  Handle cross-  Float subsidiaries
correspondent, finance, NBFCs, border  Cannot deal in
supermarket chains, microfinance cos, remittances. sophisticated
corporates, real local area barks.  Accept NRI financial
estate sectorCo- Deposits. products.
OPS& PSUS.
Banking Correspondents
What  Have a minimum  Have a minimum
 They are individuals/entities engaged by a bank in
They capital of Rs capital of Rs
Must Do 100cr. 100cr. India for providing banking services inunbanked /
 Maintain 75% of  Extend 75% of under-banked geographical territories.
deposits in govt. loans to  They work as an agent of the bank and substitutes for
bonds. priority sector. the brick and mortar branch of the bank.

A Non-Banking Financial Company (NBFC) All India financial institution

 Is a company registered under Companies Act that Bank Role
provides financial services without meeting the legal Export–Import Bank of
definition of a bank.
India, established in 1982
 It can engage in the business of loans and advances,
under Export-Import Bank
acquisition of
shares/stocks/bonds/debentures/securities issued by of India Act 1981,a
Exim Bank
Government or local authority or othermarketable catalyst and a key player in
securities, leasing, hire-purchase, insurance business, the promotion of cross
chit business etc. border trade and
 It does not include any institution whose principal investment.
business is that of agriculture activity, industrial
Established on the
activity, purchase/sale of any goods (other
recommendations of B.
thansecurities) and sale/purchase/construction of
immovable property. Sivaraman Committee, on
 It can either be deposit taking (need an RBI National Bank for 12 July 1982, matters
registration) or non-deposit taking. Agriculture and Rural concerning policy,
Development planning and operations in
Basic NBFCs Banks
NABARD the field of credit
They provide for agriculture and other
It is a government
banking
authorized financial economic activities in rural
services to
intermediary which areas in India.
Meaning people
aims at providing Established on April 2,
without
banking services to
holding Bank 1990, through an Act of
the public.
license. Parliament. provide
Regulated Companies Banking Regulation refinance facilities and
under Act 2013 Act 1949 short term lending to
Demand Small Industries
Cannot be industries, and serves as
Can be accepted Development Bank of
Deposit accepted the principal financial
Allowed up to 74% India (SIDBI)
Foreign Allowed up institution in the Micro,
for private-sector Small and Medium
Investment to 100%
banks
Enterprises (MSME)
Payment and
Not a part of An integral Part of sector. SBIis the largest
Settlement
the system. the System. shareholder.
System
Maintenance of Subsidiary of Reserve Bank
Not required Mandatory
Reserve Ratios of India (RBI), was set up
Deposit on 9 July 1988 under the
insurance Not available Available National Housing National Housing Bank
facility Bank (NHB) Act, 1987. a principal
NBFC does agency to promote
Credit Creation not create Banks create credit
housing finance
credit
institutions both at local
Cannot be
Transaction and regional levels and to
provided by Provided by Banks
services provide financial support.
NBFC

Taxation 2. Regressive
 A regressive tax is assessed as a percentage of the
Taxes are involuntary fees levied on individuals item being purchased.
or corporations and enforced by a government entity.  Everyone pays the same percentage, regardless of
earnings, so people with low incomes are hit
much harder than those with large incomes.
Example: Sales tax.
3. Proportional
 Proportional taxes are a flat tax system in
which taxpayers pay a set percentage,
regardless of their income.
Example: Income tax of 10% that does not change
as income rises or falls.
Specific and Ad-valorem tax (another classification of
taxes)
 A Specific tax is a set amount of tax per unit

sold, based on weight/ number etc.
 An Ad valorem tax is a percentage tax based
on the value added by the producer. As the
value added increases, taxes also increase.
Two typesof taxation Ex: Real estate.
Direct Tax Five principles of a good tax system

1. Fairness: horizontal equity and vertical equity.
 A direct tax is paid directly by an individual or
organization to the imposing entity. 2. Efficiency: raise revenue with least cost.
Example: Real property tax, personal property tax,
3. Administrative simplicity : reduce the work required
income tax or taxes on assets.
to collect and pay taxes
Indirect Tax 4. Flexibility : modify when needed

 An indirect tax is collected by one entity in the supply 5. Transparency: where the money is coming from,
chain (usually a producer or retailer) and paid to the where it is going should be open to all.
government, but it is passed on to the consumer as
Various Direct taxes in India
part of the purchase price of a good or service.
Example: Excise, sales tax, etc.,  It is charged directly on the income
1. Income of a person.
Three methods of taxation tax  The rate charged is proportional to
1. Progressive level of Income.
 It is based on the taxpayer's ability to pay.As  Levied on companies who exist as
income increases, taxes increases. High separate entities from their
income earner will pay more tax than low 2. Corporate shareholders
income earner. tax  Foreign companies are taxed on
Ex: Indian income tax income that arises, or is deemed to
arise, in India.
www.laex.in Taxation www.civilsprep.com

 Minimum Alternative Tax (MAT), Features of GST

Fringe Benefit Tax (FBT), Dividend  The GST is a destination based consumption tax
Distribution Tax (DDT), Securities made on value addition.
Transaction Tax (STT) are all levied  GST includes services tax also.
on corporate  Central Value Added Tax, Additional Customs Duty,
 Wealth tax is charged on the Special Additional Duty of Customs, Central Sales Tax,
3. Wealth
benefits derived from property Service Tax, state VAT (Sales tax) are some of the
tax
ownership. taxes that has been merged to form the GST
 Taxed on the income derived from  The GST proposes a four-tier rate structure. The tax
4. Capital the sale of assets or investments slabs are fixed at 5%, 12%, 18% and 28% besides the
gains tax  Capital investments cover homes, 0% tax on essentials.
farms, businesses, works of art, etc  GST is applied when turnover of the business exceeds
Rs 20lakhs per year (Limit is Rs 10lakhs for the North-
Other direct taxes in India Eastern States)
 Input tax credit: Input credit means at the time of
Fringe Benefits Tax (FBT) is a tax payable by
1. FBT paying tax on output, tax paid on Input would be
employers for benefits paid to an employee
deducted.
in place of salary or wages.
 The centre and states will share GST tax revenues at
Dividend distribution tax is the tax imposed
50:50 ratio (except the IGST)
2. DDT by the Indian Government on India  The GST Council has adopted a dual GST with two
companies according to the dividend paid to
components – the Central GST (CGST) and the State
a company's investors/share holders.
GST(SGST).
Minimum Alternative Tax is payable under
 The IGST comes to play when the commodity is
the Income Tax Act. The concept of MAT
produced in one state and is traded to another state
was introduced to target those companies
3. MAT that make huge profits and pay the dividend (interstate trade). In this case, the share of SGST
should go to the consuming state (as the GST is a
to their shareholders but pay no/minimal
destination based tax).
tax under the normal provisions of the
 Composition scheme: Is an easy, low procedure and
Income Tax Act.
compliance friendly tax scheme for small and medium
Securities Transaction Tax is a tax payable in
enterprises (goods and services).
4. STT India on the value of securities (excluding  Less number of tax returns file return on quarterly
commodities and currency) transacted
basis.
through a recognized stock exchange
 Turnover limit for availing this scheme <1.5 crores.
 Available only for intra-state supplies.
Indirect taxes
 No input scheme facility is available
GST-A big bang reform post 1991  Ecommerce firms can’t opt
 Exports are exempted from GST as in the case of the
Definition: It is a comprehensive tax levied on the
previous regime.
manufacture, sale, and consumption of goods and
services.

Advantages of GST TAX PLANNING, TAXAVOIDANCE AND TAX EVASION: The

tax liability of a person can be reduced through Tax
Planning, Tax Avoidance and Tax Evasion
1. Tax  Tax Avoidance basically means
avoidance making use of the loopholes in
the Tax Law to one’s own
advantage to reduce the tax
burden.
 Although Tax Avoidance is 100%
legal, it is not advisable.
2. Tax  Tax evasion involves breaking the
evasion law, not paying one’s taxes
 . Tax evasion is the method by
which a person illegally reduces
his tax burden by either deflating
their income or inflating their
expenses
3. Tax  It is the art of reducing the tax
planning liability by using the various
Goods and services tax council
provisions of Law.
 The GST council is the key decision-making body that  The government provides various
will take all important decisions(tax rate, tax exemption, deductions and exemptions which
the due date of forms, tax laws, and tax deadlines) can be used by a person to reduce
 GST Council will be a joint forum for the Centre and his tax liability. Ex: Investment in
the States. Union finance ministers is its chairman mutual funds, Savings certificates
 The Council will also set up Anti-profiteering etc
screening committees that will make the National
Anti-Profiteering Authority stronger under the GST Steps taken by the government to reduce tax avoidance
law. in India
1. Renegotiating Double taxation avoidance agreement
National anti-profiteering authority
(DTAA)
It is institutional mechanism under GST law to check the  DTAA also referred as Tax Treaty is a bilateral
unfair profit-making activities by the trading community, economic agreement between two nations that
with core function of ensuring tax reduction will be aims to avoid or eliminate double taxation of the
passed on to end customer. same income in two countries.
Goods and Services Tax Network (GSTN)  India has DTAA with 84 nations.
 It not for profit organisationjointly owned by
2. Advanced pricing agreements (APA)
government and private players.
 An APA is a contract, usually for multiple years,
 GSTN has been entrusted with the responsibility of
building Indirect Taxation platform for GST to help between a taxpayer and at least one tax authority
specifying the pricing method that the taxpayer
one prepare, file, rectify returns and make payments
will apply to its related-company transactions
of your indirect tax liabilities.

 APAs gives certainty to taxpayers, reduce  Tax expenditure : revenue forgone as a result of
disputes, avoid tax avoidance. exemptions and concessions given by
government.
3. General Anti Avoidance Rules:  Tax base: volume of goods and services on which
 GAAR usually consists of a set of broad rules tax is imposed.
which are based on general principles to check  Tax buoyancy: % change in tax revenue with
the potential avoidance of the tax in general. growth of national income.
 The government set up a panel under  Transfer pricing: Is the setting of the price for
Parthasarathy Shome to review the proposals goods and services sold between controlled (or
with regards to GAAR. related) legal entities within an enterprise.
 Arms length principle: Arm’s length price, is the
4. Base Erosion and Profit Shifting(BEPS) price at which two unrelated parties will make a
 BEPS refers to tax planning strategies that deal. hence market forces of supply-demand will
exploit gaps and mismatches in tax rules to work.
artificially shift profits to low or no-tax locations  Cess: Tax or additional levy on tax. It is imposed
where there is little or no economic activity. for specific purpose and can be used for
 OECD and G20 countries along with developing designated ends only.
countries that participated in the development of Ex: Education cess
the BEPS Package are establishing a modern  Surcharge: Tax or additional levy on tax. It is
international tax framework under which profits imposed for general purpose and can be used for
are taxed where economic activity and value any purpose.
creation occur.  Tax elasticity: % change in tax revenue wrt
change in tax rate and extension of coverage.
5. Other steps taken by the government in recent times
to prevent tax avoidance and evasion
1. Enactment of the black money (Undisclosed Foreign

Income and Assets) and Imposition of Tax Act, 2015
2. Enactment of the Benami Transactions (Prohibition)
Amendment Act, 2016
3. Quoting of PAN made mandatory for sale or purchase
of any goods/services above Rs. 2 Lakh.
4. Proactively engaging with foreign governments to
enhance the exchange of information (EoI) under tax
treaties
5. India joined a group of 48 countries as early adopters
to new global standards for automatically exchanging
information from 2017
Terminologies related to Taxation

 Tax incidence: entity on whom tax is imposed.
 Tax burden : Those who pay tax.

Financial Markets 2. Government securities

 These are dated securities issued by the
A financial market brings buyers and sellers together to Government of India and state governments,
trade in financial assets such as stocks, bonds, managed by RBI.
commodities, derivatives and currencies. The purpose of a  Treasury-Bills: T-bills are short-term securities that
financial market is to set prices for global trade, raise mature in one year or less from their issue date.
capital, and transfer liquidity and risk. They are issued 91, 182, 364 days of maturity
periods. These are issued at discount and
Classification of financial markets redeemed at par, so no interest rate(zero coupon
instrument). Most secure as it is backed by
Money market Capital market
government. Ensures Short term liquidity.
Money markets Capital markets are more  Banks, insurance companies and Financial
are used by frequently used for long-term institutions participate.
government and assets, which are those with
corporate entities as maturities of greater than one
3. Cash management bills: they are like T-bills but are
a means for year.
borrowing and Capital markets include the issued for maturities less than 91 days, to adjust
lending in the short equity (stock) market and debt temporary mismatches in government cash flow.
term, usually for (bond) market.
assets being held for 4. Certificate of deposits:
up to a year.  These arenegotiable promissory notes, secure and
short term issued by scheduled commercial banks
Money market (>15days to 1 year) and Financial institutions (>1year
Structure of money market to 3year ).
 Regional rural banks and Local area banks cannot
1. Organized money market: Organized structure issue CDs
includes, Reserve bank of India, DFHI (Discount and
 These are also issued at a discount to the face value
Finance House of India),Commercial Banks,
Development bank IDBI, IFCI, ICICI, NABARD, LIC, GIC, to individuals and firm.
UTI etc.
2. The unorganized structure includes: Indigenous 5. Inter corporate deposit market:
banks, Money lenders, Chits andNidhis, Co-operative  It is an unsecured loan extended by one corporate to
Sector another.
Money market instruments 6. Commercial paper

1. Call money market  It is a short term unsecured promissory note issued
 Money borrowed or lent for a very short period of by top rated Corporate and Financial institutions at a
time discounted value on face value for 7days to 1year.
 1-14 days it is called notice money, else it is called  They yield higher returns as compared to T -Bills as
call money they are less secure in comparison to these bills
 No collateralrequired
7. Ready forward contracts (Repo):
 Commercial banks, co-op banks, DFHI participate
Covered in Banking section
both as lenders and borrowers.
 LIC, SEBI participate as only lenders.
 Market determined Interest rates
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8. Commercial bill Common Stock Preferred Stock

1. Common stock 1. Preferred stock pays a
Bills of exchange are negotiable instruments drawn by the
allows its holders predetermined dividend,
seller of goods or services on the buyer of goods for the
to make a profit whereas the dividends paid
value of goods delivered, called as trade bills. through rising to common shareholders
When trade bills are accepted by commercial banks for share prices and tend to vary according to
discounting are called commercial bill. dividend the company's fortunes
payments. 2. Holders of preferred stock
Discount and Finance House of India 2. Holders of do not get a vote on
common stock company matters
1. It was established by RBI in 1988 3. if a company's assets are
have voting
2. Objective: it is to facilitate the smoothening of short liquidated, the preferred
rights
term liquidity imbalances by developing active money stockholders get to redeem
3. If a company
market and integrating various segments of money their shares before
goes bust, they
market. common stockholders
are paid last
Capital markets
 Stock is the capital raised by a corporation
 It refers to market for funds with a maturity of through the sale of shares.
1year. 2. Debentures
 The capital market includes primary and  A debenture is a type of debt instrument that is not
secondary markets. secured by physical assets or collateral.
 The primary market is the part of the capital  Debentures are backed only by the general
market that deals with the issuance and sale of creditworthiness and reputation of the issuer.
equity-backed securities to investors directly by  Both corporations and governments frequently issue
the issuer. this type of bond to secure capital.
 The secondary market is where investors buy and  There are two types of debentures as of 2016:
sell securities they already own. convertible and nonconvertible.
Significance of Capital Markets  Convertible debentures are bonds that can convert
into equity shares of the issuing corporation after a
 Growth of savings.
specific period of time.
 Efficient allocation of investment resources and
 Nonconvertible debentures are regular debentures
Better utilization of the existing resources.
that cannot be converted into equity of the issuing
Capital market instruments corporation
1. Shares
 Shares are units of ownership interest in a 3. Bond
corporation or financial asset that provide for an  Bonds and debentures represent the majority of
equal distribution in any profits, if any are issued debt capital. Although the term bonds and
debentures are often used interchangeably the two
declared, in the form of dividends.
are distinctly different:
 The two main types of shares are common shares  A bond is typically a loan that is secured by a specific
and preferred shares. physical asset. A debenture is secured only by the
issuer’s promise to pay the interest and loan
Difference between common stock and preferred stock principal.

 Bonds have lower interest rates compared to Ex: BSE, NSE

debentures There are three ways in which a company raises capital in
the primary market.
4. Derivatives
 A derivative is a financial security with a value that is  Public Issue
derived from, an underlying asset or group of assets A public offer is open for all Indian citizens, the most
 The most common underlying assets include stocks, broad-based method of raising capital andthe most
bonds, commodities, currencies, interest rates and prestigious.
market indexes.
 Derivatives can either be traded over-the-counter  Rights Issue
(OTC) or on an exchange Raising capital from the existing shareholders of a
company, it means it is a preferential kind of issue
Types of derivatives: restricted to a certain category of the public only.
Futures It is an agreement between two parties
for the purchase and delivery of an asset  Private Placement
at an agreed upon price at a future date Raising capital by selling shares to a select group of
Forward It is a non-standardized contract investors, usually financial institutions (FIs) but may be to
between two parties to buy or to sell an individuals also.
asset at a specified future time at a price
agreed upon today, making it a type of  G-secs(Gilt edged securities): is a tradable
derivative instrument instrument(bond) issued by central / state
Swaps Swaps are another common type of government. They are risk free tradable instruments.
derivative that is often used to swap one Central government issues both short term (Treasury bills)
kind of cash flow with another. For and long term(G-secs), whereas state government can
example, one might use an interest rate issue only long term/ dated securities.
swap to switch from a variable interest
rate loan to a fixed interest rate loan, or Players in the Indian capital market
vice versa. 1. Merchant banks:
Options The key difference between options and It manage and underwrite new issues, provide
futures is that, with an option, the buyer consultancy and corporate advisory services for
is not obligated to "exercise" the option, raising funds and other financial aspects.
while the option seller is obligated to 2. Mutual funds:
either buy or sell the underlying asset if  A mutual fund is a type of financial vehicle made up
the buyer chooses to exercise the of a pool of money collected from many investors to
contract. invest in securities such as stocks, bonds, money
Warrant Longer dated options (>1 year) market instruments, and other assets.
LEAPS The acronym LEAPS means Long-Term
Equity Anticipation Securities. These are Types of mutual funds
options having a maturity of up to three  Open ended funds : an investor can buy or sell as and
years. when they intend to
Stock exchange: A physically existing institutionalised set-  Close-ended funds:usually issue units to investors
up where instruments of security stock market (shares, onlyonce, when they launch an offer, called New Fund
bonds, debentures, securities, etc.) are traded. Offer.

 Exchange-Traded Funds (ETFs): ETFs are a mix of  FIIs, Sub-Accounts and Qualified Foreign Investment
open-ended and close-ended schemes. ETFs, like (QFI) are merged together to form the new investor
close-ended schemes, class, namely Foreign Portfolio Investors, with an
 are listed and traded on a stock exchange on a daily aggregate investment limit of 24% which can be
basis, but the price is usually very close to its raised by the Company up to the applicable sectoral
underlying asset cap.
 They are not permitted to invest in unlisted shares
3. Hedge Funds:A hedge fund is an investment fund that and also in T-bills.
pools capital from accredited investors or institutional
investors and invests in a variety of assets, often with 9. QFI
complex portfolio-construction and risk management  The Qualified Foreign Investor (QFI) is an
techniques individual group or association resident in a
foreign country that is compliant with FATF
4. Venture capital: standards.
 Venture capital is a type of private equity, a form of  They can directly invest in corporate debt,
financing that is provided by firms or funds to small, equities and mutual funds etc.
early-stage, emerging firms that are deemed to have
high growth potential, or which have demonstrated Prominent institutions with respect to securities
high growth. market
1. SEBI
5. Angel investors:  The Securities and Exchange Board of India (SEBI)
 He/she is an affluent individual who provides capital is the regulator for the securities market in India.
for a business start-up usually in exchange for It was established in 1988 and given statutory
convertible debt or ownership of equity. powers on 30 January 1992 through the SEBI Act,
1992
6. Collective investment schemes (CIS)  SEBI has three functions rolled into one body:
 It is an arrangement which pools funds from investors quasi-legislative,quasi-judicial and quasi-
to pool their money for investment in particular asset. executive.
 SEBI regulates players involved in CIS.  Regulate the working of stock exchanges and
intermediaries, accords approvals for mutual fund,
7. Alternative investment Funds (AIF) registers FII who wish to trade in stock markets.
 It is a newly created investment vehicle for real
estate, private equity and hedge funds. 2. FATF
 SEBI regulates AIF in India  It is an intergovernmental organization founded in
 It does not include mutual funds, family trusts, 1989 on the initiative of the G7 to develop
employee stock option or CIS. policies to combat money laundering.
8. Foreign portfolio investor  In 2001 its mandate expanded to include
 FPIs generally participate through the stock markets terrorism financing
and gets in and out of a particular stock at much  The FATF Secretariat is housed at the OECD
faster frequencies. headquarters in Paris
 Globally FPIs are defined as those who hold less than
10% in a company.

3. IOSCO Stock exchanges in India

 It is an association of organisations that regulate
the world’s securities and futures markets.  Most of the trading in the Indian stock market takes
Members are typically primary securities and/or place on its two stock exchanges: the Bombay Stock
futures regulators in a national jurisdiction or the Exchange (BSE) and the National Stock Exchange
main financial regulator from each country. (NSE).
 The BSE has been in existence since 1875, S & P BSE
4. Sustainable stock exchange SENSEX India’s most widely traded benchmark index.
 They provide a unique, high-level platform to 1. The NSE, on the other hand, was founded in 1992
explore how the world's exchanges can work and started trading in 1994. S & P crisil NSE index
together with investors, regulators and 50 or S & P CNX nifty. National Stock Exchange
companies to create more sustainable capital (NSE) had developed and launched the NSE
markets. Mumbai inter-bank bid rate (MIBID) and NSE
 They are designed to analyze, promote and foster Mumbai inter-bank offer rate (MIBOR) for the
communication on stock exchanges’ overnight money market in 1998
sustainability-related activities.
International Stock exchange
External commercial borrowings
 The India International Exchange (INX) is India's
 ECB are loans in India made by non-resident lenders first international stock exchange, opened in
in foreign currency to Indian borrowers. They are 2017.
used widely in India to facilitate access to foreign  It is located in the state of Gujarat
money by Indian corporations and PSUs  It is one of the most advanced stock exchanges in
 Ministry of Finance and RBI regulate the amount of the world
money that can be raised by the players under this
mechanism Demutualization means ownership, management and
 ECB be raised through two routes, Automatic route trading is in the hands of three different sets of people.
and the approval route. The former does not require This concept was first brought in by National Stock
any permission by the authorities while the latter Exchange of India Ltd.
does
BSE SME and NSE Emerge: SME exchange platform to
Stock exchange enable small and medium enterprises to raise funds and
get listed as public entities.
 It is a facility where stock brokers and traders can buy
and sell securities, such as shares of stock and bonds Commodity exchanges:
and other financial instruments.
 It is an independent commodity exchange based in
India. It was established in 2003 and is based in
Mumbai
 Commodities traded include metal, bullion, agro-
commodities, energy etc.

 It was regulated by Forward market commission  NSDL was established according to depositories act,
(Ministry of Consumer affairs), it was merged with 1996.
SEBI in 2015  Nasdaq: is an electronic stock market that uses a
computerized system to provide price quotes to
Terminologies: brokers and dealers.
 Shariah index: The NIFTY Shariah Indices are designed
 Bear: is an investor who believes that market will go to offer investors Shariah-compliant investment
down. solutions. Shariah compliant companies are ones who
 Bull: is an investor who believes that market will go do not deal in alcohol, entertainment, tobacco, pork,
up. meat etc
 Bear market : a sustained period of falling stock
prices. Largest stock exchanges in the world
 Bull market :period characterized by rising prices over
a long period of time.
 Gilt: it is a bond issued by the government which
carries less risk.
 Blue chip Company: shares of the company that are
the most valuable.
 Retail investor: it is an investor whose subscription to
securities if of value less than 2 lakh.
 Negotiated dealing system: it is an electronic
platform for facilitating dealing in government
securities and money market instruments.
 Short selling
 Market capitalization: price per share multiplied by

the total number of shares outstanding.
 Depository: it holds securities (shares, debentures,
bonds) in electronic format
National securities depository limited (NSDL)
 It holds securities in depository accounts, just like
funds in bank in accounts.

Inflation Creeping (General Price Raise By 4%), Trotting (4% To

8%), Galloping (8% To 10%), Runaway(>10% And <
 Inflation is persistent rise in the price of goods 20%),Hyper Inflation(20 Or 30 %)
and services.
Terminologies:
Causes of Inflation
1. Stagflation: A combination of Inflation and
1. Demand-pull inflation: “too much money chasing unemployment (usually in the time of Recession).
too few goods.” As wages increase within an 2. Disinflation: Reduction in the rate of inflation.
economic system, people will have more money 3. Deflation: General fall in the level of prices.
to spend on consumer goods. As a result of the 4. Reflation: Rise in the prices to counter deflation. It is
increased demand, companies will raise prices. when inflation returns after a spell of deflation and
2. Cost-push inflation: when companies are faced recession.
with increased input costs like raw goods, 5. Skewflation: It is a phenomenon in which there is a
materials or wages, they will preserve their price rise of one or a small group of commodities over
profitability by passing this increased cost of sustained period of time
production onto the consumer in the form of 6. Inflation gap: Excess of government spending above
higher prices. national income.
3. Imported inflation: When the exchange rate 7. Deflationary gap: Shortfall in total spending over
suffers such that the Rupee currency has become national income.
less valuable relative to foreign currency, this 8. Inflation tax: Due to price rise, wages increases, as
makes foreign commodities and goods more wage increases taxes on this increases, more revenue
expensive to Indian consumers. for government.
4. Structural inflation: Persistent inflation due to 9. Inflation spiral: wage- price spiral ie., when wages
inadequacies in economy like backward press prices up and prices pull wages down.
agriculture, inefficient storage and distribution 10. Inflation accounting: Firms calculate profit after
network etc. adjusting to inflation.
5. Speculation in commodity exchanges. 11. Inflation premium: Bonus brought by inflation to
6. Cartelization of Producers: producers manipulate borrowers. Real interest rate(nominal IR adjusted to
prices in market for their profit. inflation)<<nominal interest rate(charged on lending)
7. Hoarding: accumulation of huge quantities of 12. Headline inflation: Entire economic inflation.
goods and releasing them into market in condition 13. Core inflation: Excluding primary articles, food etc
of scarcity at higher prices. which induces volatility/short term fluctuations.
Kinds of inflation- based on the rate of inflation Effects of Inflation:

1. Creditors and debtors: Lender suffers and debtors
benefit. lending intuition will suffer.
2. Aggregate demand: High demand, low supply, higher
purchasing power.
3. Investment: short run – boost the investment.
a. High inflation – high demand – more production –
more investment.
b. Inflation lowers rate of interest.
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Long run – saving decreases, purchasing power Business cycle:

decreases, less investment, less demand.
The business cycle describes the rise and fall in production
4. Saving: short run – saving increases
output of goods and services in an economy. Business
Long run – saving decreases
cycles are generally measured using the rise and fall in
5. Tax – 2 distortions
real gross domestic product (GDP) or GDP adjusted for
a. Tax payer suffers.
inflation.
Indirect tax –as value is added cost increases–
more goods in tax bracket (more taxes)
Direct tax – gross income Increases – crosses
lower tax slabs- increases taxes.
b. Tax collection by government – Inflation increases
nominal value of gross tax revenue while real
value suffers.
6. Exchange rate: As Inflation increases currency
depreciates.
7. Export: Increases (depreciation of currency), volume
of exports also increases.
8. Import: foreign goods become costlier as currency Characterized by four stages
depriciates, import substitution measure would be
 Depression
taken.
 Recovery
9. Trade balance: Developed countries– inflation Is
 Boom
favourable. Developing countries – inflation
 Recession
unfavourable.
10. Employment: In short run employment increases, but Depression: Low aggregate demand, Low inflation,
decreases in long run. Unemployment grow fast, forced Labour cuts.
11. Wages: Increases nominal value of wage but real
Ex: The great depression of 1929.
value falls.
Economic recession and economic depression Recovery: Upturn in aggregate demand inturn lead to
increase in production level and new investments.
1. A recession is a significant decline in economic
Increase in inflation, Unemployment rate starts declining.
activity spread across the economy, lasting more
than a few months, normally visible in real GDP, To recover an economy , governments go for tax breaks ,
real income, employment, industrial production, interest cuts, an increase in the salaries etc.
and wholesale-retail sales.
Boom: Accelerate and prolonged increase in the demand,
2. A depression is a sustained, long-term downturn
It exceeds sustainable production, economy heats up and
in economic activity in one or more economies. It
faces structural problems, demand and supply
is a more severe economic downturn than a
Disequilibrium.
recession, which is a slowdown in economic
activity over the course of a normal business Recession: General fall in demand as economic activities
cycle. takes a downturn, lower inflation, unemployment rate
grows, industries resort to price cuts to sustain their
business.

Double-Dip-Depression: A recession followed by a short Base effect and inflation

lived Recovery and followed by another recession. GDP
The base effect relates to inflation in the corresponding
growth sliding back to negative after two positive growth.
period of the previous year, if the inflation rate was too
Inflation indices low in the corresponding period of the previous year,
even a smaller rise in the Price Index will arithmetically
In India, generally, two kinds of indices are used to give a high rate of inflation
measure inflation—Wholesale Price Index (WPI) and
Inflation targeting
Consumer Price Index (CPI).
Inflation targeting is a monetary policy strategy used by
WPI CPI Central Banks for maintaining price level at a certain level
 A wholesale price index  Consumer Price or within a range. It indicates the primacy of price stability
(WPI) is an index that Index is a measure as the key objective of monetary policy.
measures and tracks the of change in retail  The Reserve Bank of India and Government of India
changes in the price of prices of goods and signed a Monetary Policy Framework Agreement
goods in the stages services consumed  RBI would aim to contain consumer price inflation
before the retail level by defined within 6 percent and within 4 percent with a band of
 WPI (base year-2012) is population group in (+/-) 2 percent
composed of three a given area with
reference to a base Monetary policy committee (MPC)
groups: Manufactured
Products (65 percent of year  MPC would be the institutional arrangement at the
total weight), Primary  The CPI (Rural, disposal of RBI for targeting inflation.
Articles like food, etc. Urban, Combined)  The committee comprises six members - three
(20.1 percent), and Fuel on Base 2012=100 is officials of the Reserve Bank of India and three
and Power (14.9 being prepared by external members nominated by the Government of
percent). Ministry of India.
 The WPI is calculated by Statistics and  The Governor of Reserve Bank of India is the
the Ministry of programme chairperson ex officio of the committee.
Commerce and implementation  Decisions are taken by majority with the Governor
Industry.  Food and beverages having the casting vote in case of a tie
are given maximum  The current mandate of the committee is to maintain
weightage under 4% annual inflation until March 31, 2021 with an
CPI-combined upper tolerance of 6% and a lower tolerance of 2%.
GDP deflator and inflation
 The GDP deflator, also called implicit price
deflator, is a measure of inflation.
 GDP deflator= (GDP nominal/GDP real)*100
 The deflator covers the entire range of goods and
services produced in the economy — as against
the limited commodity baskets for the wholesale
or consumer price indices
 GDP deflator is available only on a quarterly basis
along with GDP estimates, whereas CPI and WPI
data are released every month.

Poverty  Changed calorie based estimation to expenditure

based.
Poverty is a social phenomenon in which there is deprivation
 Introduce a new term Poverty Line Basket (PLB) which
of basic human needs.
is the basket of all goods selected to determine
Dimensions: poverty.
Absolute Poverty: it is defined as condition characterized  Consumption quantity fixed the same for both rural
by severe deprivation of basic human needs. and urban people but price differs. Daily per capita
Relative Poverty: it is defined as condition in which expenditure for Rural- Rs. 27, Daily per capita
people lack the minimum amount of income needed in expenditure for Urban- Rs. 33.
order to maintain the average standard of living in the  Estimated that 21.5% of the Indian population as
society in which they live. poor.
Poverty line: it is the level of income below which one Rangarajan Committee:
cannot afford to purchase all resources one requires to
 Adopted the calorie-based approach which was used
live.
in past.
Headcount ratio:Percentage of population below poverty
line to total population.  Monthly consumption expenditure per person or per
household as a tool,Daily per capita expenditure for
Poverty gap: it is difference between the mean income
Rural- Rs. 33 and Daily per capita expenditure for
among the poor and the poverty line.
Urban- Rs. 47
Causes:
 Overall poverty- 29.5 Percent (in the year 2011-12)
Rural- 30.9 Percent (in the year 2011-12)
Urban- 26.4 Percent (in the year 2011-12)
SECC methodology:
To estimate the BPL population, SECC followed a three-
step process:
 Automatic Exclusion.
 Automatic Inclusion.
 Neither automatically included nor automatically
excluded.
After applying above methodology, it was found that the
Committees: percentage of people below the poverty line in 2011-12
was 30.95 percent in rural areas and 26.4 percent in
YK Alagh Committee:
urban areas.
 First to come up with an official poverty line, based on
Components:
calorie intake.
1. Food component
 2100 calorie in Urban areas, 2400 calories in rural areas.
2. Non food component such as, Education Clothing,
Tendulkar Methodology:
Conveyance, Rent, Behaviour related expenditures.
Committee headed by Suresh Tendulkar. India currently
follows this method,
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Unemployment not working, but was willing to work for the major
part of the reference year
Unemployment is a phenomenon that occurs when a
person who is capable of working and is actively Current Weekly Status Unemployment (CWS):
searching for the work is unable to find work.  Here the reference period is one week.A person is
considered unemployed by Current Weekly
Unemployment rate is defined as a number of Status, if he/she had not worked even for one
unemployed people divided by the number of people in hour during the week, but was seeking or was
the labour force. available for work. The Current Weekly Status
approach gives an idea about temporary
Labour Force: unemployment.
 Persons who are either working (or employed) or Current Daily Status Unemployment (CDS):
seeking or available for work (or unemployed)  Here the reference period is each of the 7 days,
during the reference period together constitute preceding the date of survey in each of these
the labour force. days. It records the activity status of a person for
Work force: each day of the 7 days preceding the survey i.e.
persons who did not find work on a day or some
 All people in age group of 15 -59years.
days during the survey week. The Current daily
Work force> labour force
status approach gives a composite or
Employment rate:
comprehensive measure of unemployment, i.e.,
 ratio of employed person to population(15 to 59
it is a measure of chronic unemployment.
years)
Employment elasticity: Types of Unemployment :
 Percentage changes in employment induced by

changes in GDP, which captures responsiveness of
labour market.
Employment intensity:
 Extent to which growth creates employment.
Measure of Unemployment in India

Usual Status Unemployment (US):
 Here the reference period is 365 days. The usual

status gives an idea about long-term employment 1. Voluntary Unemployment :
(or chronic and open employment) during the Voluntary unemployment refers to a situation where
reference year. A person is considered workers are either not seeking for work or are in
unemployed on Usual Status basis, if he/she was transition from one job to another.
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7. Disguised Unemployment:
2. Involuntary Unemployment :  Disguised unemployment is when too many
Involuntary unemployment refers to a situation people are employed than what is required to
where workers are seeking work and are willing to produce efficiently.
work but are unable to get work.  Production does not suffer even if some of the
employed people are withdrawn.
3. Frictional Unemployment :  The key point to remember is that the marginal

 The minimum amount of unemployment that productivity of labourers under disguised
prevails in an economy due to workers quitting unemployment is zero.
their previous jobs and are searching for the new
jobs is called Frictional Unemployment. 8. Under Employment:
 This type of unemployment is of voluntary  Underemployment is the most dangerous kind of
nature. unemployment in an economy. Under
employment is a situation under which People
4. Cyclical Unemployment :
 Cyclical unemployment is due to lack of demand with a higher level of skills are employed in less
in the economy and slowdown of economic productive jobs. It simply means that the Labour
activity. force of the economy is not fully utilised as per
 Cyclical unemployment is a type of
their skills and experience.
unemployment which is related to the cyclical
trends of booms and recessions of the business
cycle.
 This type of unemployment is of involuntary
nature.
5. Structural Unemployment :
 It refers to a situation which arises due to change
in the structure of the economy or mismatch of
skills. Ex: An economy transforms itself from a
Labour intensive economy to a Capital intensive
economy.
6. Seasonal Unemployment :
Seasonal unemployment occurs during certain
seasons of the year. Itoccurs in Agricultural sector,
Tourism sector and in factories producing seasonal
goods.Therefore, they offer employment for only a
certain period of time in a year.
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Agriculture Multiple cropping: Growing more than two crops in a

piece of land in a year in orderly succession
 Agriculture remains the most important sector of
the Indian economy, whether it be the pre- Intercropping: Growing two or more crops simultaneously
with distinct row arrangement on the same field at same
independence or the post-independence periods.
time.
 In the fiscal 1950–51 agriculture accounted for
55.4 per cent of the GDP. Farming Systems
 The Economic Survey 2017-18 states that 1. Wetland farming:Soils flooded or irrigated
agriculture employs more than 50% of total work through lake, pond or canal and land is always in
force and 17-18% share in GDP. submerged condition.
2. Dry land farming:The practice of crop production
 Agriculture is the biggest unorganised sector of
entirely depending upon rainfall and the moisture
the economy accounting for more than 90 per
conserved in the soil.
cent share in the total unorganised labour-force.
3. Rain fed farming:Crop production in areas where
Cropping Seasons: The agricultural crop year in India is rainfall is, more than 750mm (i.e assured rainfall
from July to June. The Indian cropping seasons are areas).
classified in to, 4. Mixed farming:System of farming on a particular
1. Kharif: The kharif cropping season is from July to farm which includes crop production, raising
Octoberduring the South-West Monsoon. livestock, poultry, fisheries, bee keeping etc.
 The kharif crops include Rice, maize, sorghum, Organic farming
pearl millet/bajra, finger millet/ragi (cereals),
 Farming where all kinds of agricultural products
arhar (pulses), soyabean, groundnut (oilseeds), are produced organically i.e, avoids or largely
cotton etc. excludes the use of synthetic fertilizers,
pesticides, growth regulators and livestock feed
2. Rabi: The rabi cropping season is from October to additives.
March during the North-East Monsoon. Integrated farming system
 The rabi crops include wheat, barley, oats  Integration of farm enterprises such as cropping
(cereals), chickpea/gram (pulses), linseed, systems, animal husbandry, fisheries, forestry
mustard (oilseeds) etc. etc.for optimal utilisation of resources bringing
3. Zaid: The crop season between March to prosperity to the farmer.
June.Seasonal fruits and vegetables.
Zero budget natural farming
 Natural farming is “do nothing farming”, no-till,
Cropping no chemical use farming. It is use of locally
available materials: seeds treated with cow dung
Cropping intensity:
and urine; soil rejuvenated with cow dung etc,.
 Number of crops cultivated in a piece of land per  Zero budget refers to the zero net cost of
production of all crops (inter crops, border crops,
annum is cropping intensity.
multi crops).
Cropping pattern:
Revolutions related to agriculture
 The cropping pattern depends on a farm and its
 Green revolution: The Green Revolution,
interactions with farm resources, other farm
spreading over the period from1967/68 to
enterprises, and available technology which
1977/78, changed India’s status from a food-
determine their makeup.
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deficient country to one of the world's leading 1. Abolition of intermediaries

agricultural nations. 2. Tenancy reforms
Use of high yielding variety (HYV) seeds, tractors, 3. Redistribution of land
4. Cooperative farming
irrigation facilities, pesticides, and fertilizers resulted
5. Consolidation of land
in increase in agricultural productivity.
 Except for abolishing the intermediaries all other
 White revolution:Operation Flood started the initiatives have mixed results and certainly not
White Revolution in India and made our country satisfactory which varies from state to state. The
self-sufficient in milk. most successful land reforms happened in WB
 Yellow revolution:The growth, development and and Kerala.
adoption of new varieties of oilseeds to increase
the productivity. 2nd generation land reforms (focused on marketisation)
 Blue revolution:Fish Production 1. Land records modernization/computerization-

 Red revolution: Meat, Tomato production Ex: The National Land Records Modernisation
 Pink revolution: Onions, prawns Programme (NLRMP).
 Round revolution: Potato 2. Appropriate land compensation- Ex: LARR act,
 Silver revolution: Egg production 2013.
 Grey revolution: Fertilizers 3. Land leasing- Ex: Model Agricultural Land Leasing
Act, 2016 (T Haque committee).
 Second Green revolution:The Second Green 4. Contract farming- Ex: Draft Model Contract
Revolution is a change in agricultural production Farming Act, 2018.
widely thought necessary to feed and sustain the 5. Consolidation of land holdings so that huge
growing population on Earth. machineries can be utilized – Ex: by bringing
people out of agriculture.
 Bringing Green Revolution in Eastern India 6. FDI in agricultural sector.
(BGREI): It is about binging similar benefits to 7. Use of land banks (ex: Odisha)and land pooling.
eastern India through green revolution.
Land acquisition, rehabilitation and resettlement
act (LAAR)
Land reforms
 Compensation: four times the market value in
At the time of independence ownership of land was
rural areas and twice the market value in urban
concentrated in the hands of a few. This led to areas.
exploitation of farmers and was a major hurdle in socio-  Rehabilitationand Resettlement: This is the very
economic development of the rural population. first law that links land acquisition and the
Land reforms in India had three objectives, accompanying obligations for resettlement and
1. Removing institutional discrepancies of the rehabilitation
agrarian structure inherited from the past.  Retrospective operation
2. Issue of socioeconomic inequality in the country.  Multiple checks and balances
 Special safeguards for tribal communities and
3. Increasing agricultural production for solving the
other disadvantaged groups: PESA and FRA to be
inter-related problems of poverty, malnutrition followed
and food insecurity.  Displacement only after compensation
st
1 generation land reforms  Compensation for livelihood losers
Steps taken

• Consent: maize and ragi); five pulses (gram, arhar/tur, moong,

In cases where PPP projects are involved or acquisition is urad and lentil); eight oilseeds (groundnut,
taking place for private companies, consent of no less rapeseed/mustard, toria, soyabean, sunflower seed,
sesamum, safflower seed and nigerseed); copra, raw
than 70% and 80% respectively (in both cases) of those
cotton, raw jute and virginia flu cured (VFC) tobacco.
whose land is sought to be acquired.
Market Intervention Scheme (MIS)
• Caps on acquisition of multi-crop and agricultural land:  The Market Intervention Scheme (MIS) is similar to
• Return of unutilized land to the owner or to the State MSP, which is implemented on the request of state
governments for procurement of perishable and
Land Bank.
horticultural commodities in the event of fall in
• Exemption from income tax and stamp duty on amount market prices.
given as compensation Price stabilization Fund (PSF)
• Share in appreciated land value: Where the acquired  It is a Central Sector Scheme to support market
land is sold to a third party for a higher price, 40% of the interventions for price control of perishable agri-
appreciated land value (or profit) will be shared with the horticultural commodities.
original owners.  Pradhan Mantri Annadata Aay Sanrakshan Abhiyan
Agricultural holdings (PM-AASHA): to ensure that poor farmers growing
 The average size of land holding in India is pulses and oilseeds benefit from higher minimum
continuously decreasing due to rapid and high support prices (MSPs).
population growth. Farm Subsidies
 The average landholding size of a household has  Direct farm subsidies: These are the kinds of
shrunk marginally to 1.1 hectare (ha) in 2015-16 from subsidies in which direct cash incentives are paid to
1.16 ha in 2012-13. the farmers in order to make their products more
 The percentage of female operational land holders competitive in the global markets.
increased from 12.79% in 2010-11 to 13.87% in 2015-  Indirect farm subsidies: These are the farm subsidies
16. which are provided in the form of cheaper credit
facilities, farm loan waivers, reduction in irrigation
and electricity bills, fertilizers, seeds and pesticides
 86.21% of India's cultivated farmland is held by small subsidy as well as the investments in agricultural
and marginal farmers with less than two hectares of research, environmental assistance, farmer training,
land, while those with 10 hectares and more account etc.
for just 0.57%.  The World Trade Organization (WTO) has put some
ceilings on the amount of direct and indirect subsidies
being provided by the government.
Minimum Support Price(MSP)
Irrigation
 Minimum Support Price (MSP) is a form of market
 Major Irrigation Schemes: those with cultivable
intervention by the Government of India to insure
command areas (CCA) of more than 10,000
agricultural producers against any sharp fall in farm
hectares.
prices —a guarantee price to save farmers from
 Medium Irrigation Schemes: those with cultivable
distress sale.
command areas (CCA) between 2,000 and 10,000
 The MSPs are announced at the beginning of the
hectares.
sowing season for certain crops on the basis of the
 Minor Irrigation Schemes: those with cultivable
recommendations of the Commission for Agricultural
command area (CCA) up to 2,000 hectares.
Costs and Prices (CACP, 1985).  Rural Infrastructure Development Fund (RIDF):
 MSPs are announced for 24 commodities including With a view to ensuring early completion of
seven cereals (paddy, wheat, barley, jowar, bajra, projects for providing irrigation.

 Accelerated Irrigation Benefits Programme NABARD

(AIBP): loan assistance to the states to help them  Established under NABARD Act of 1981 with an
complete some of the incomplete major/medium objective of providing and regulating credit to
irrigation projects, which were in an advanced farmers, small- scale industries, cottage and village
stage of completion. industries, handicrafts etc in rural areas.
Doubling farm income
 Refinances the financial institutions like state
Government of India has announced a ‘seven-point
cooperative agriculture and rural development banks
strategy’ which aims to double the farm income by 2022.
(SCARDBs), state co-operative banks (SCBs),regional
1. Emphasis on irrigation along with end to end
rural banks (RRBs), commercial banks (CBs) which
solution on creation of resources for ‘More crop finances the rural sector.
per drop'
 Promotes SHG-Bank linkage programme
2. Provision of quality seeds and nutrients according forencouraging banks to lend to SHGs.
to the soil quality of each farm.
3. Large investments in warehouses and cold chains Long Term Irrigation Fund (LTIF):
to prevent Post-harvest losses. it has been established in NABARD during Budget 2016-
17, as apart of PMKSY with an initial corpus of `20,000 cr
4. Promotion of value addition through food
processing. Agri Export Zones
 It was introduced in 2001, through EXIM Policy 1997-
5. Implementation of National Agricultural Markets
and e-platforms (e-NAM) to eliminate 2001,for the purpose of developing and sourcing the
shortcomings of all the 585 centers.
raw-materials, their processing/packaging, leading to
6. To mitigate the risk, introduction of crop
final exports, along with convergence of central and
insurance scheme at a lower cost.
state government schemes. 60 Agri Export Zones
7. Promotion of allied activities such as Dairy-Animal
husbandry, Poultry, Bee-keeping, MedhPerPed, (AEZ)have been notified.
Horticulture, and Fisheries.
Agriculture Census
Climate Smart Agriculture (CSA)
 Agriculture Census in India is conducted at every
Climate-smart agriculture (CSA) is an approach that helps fiveyear intervals to collect data on structural aspects
to guide actions needed to transform and reorient of farm holdings. The basic statistical unit for data
agricultural systems to effectively support development collection is 'Operational Holding'.
and ensure food security in a changing climate.
 The first census was conducted with reference year
1970-71. So far, nine censuses have been done and
CSA aims to tackle three main objectives: this is the 10th in series.
1. Sustainably increasing agricultural productivity  Operational holding has been defined as all land used
and incomes. wholly or partly for agricultural production.
2. Adapting and building resilience to climate
 Total operated area, which includes both cultivated
change.
and uncultivated area provided part of it is put to farm
3. Reducing and/or removing greenhouse gas production during the reference period.
emissions, where possible.

Industry and Infrastructure handed over, which is called as strategic sale and
buyer is called as strategic partner.
Public Sector
Corporatization:
In PSU the majority of the shares is owned by government
 Government units are reogranised on the lines of
directly or indirectly through government institutions.
business.
Departmental undertaking : set up by executive actions,
Buy back :
for specifically defined functions, subject to budgetary,
audit and other controls of government.  Cash rich companies buy back their own shares
from the secondary market to help shareholders
Statutory corporations: set up by the act of legislature,
and share market.
engaged in economic and manufacturing activity. These
are separate legal entities. Financing is not part of the Cross holdings:
budget.  State owned companies buy shares of one
Control boards: they are set up to manage government another as the companies are related and have
projects. synergies.
Cooperative society form: To support cooperative Navratna

movement.
Government introduced in Navratna concept in 1997,it
Last type is companies registered under companies act. granted enhanced autonomy to nine selected PSEs
Post new industrial policy 1991, only 3 industries are referred to as “Navratnas”. These navratnas were subject
reserved, they are, certain guidelines now they have freedom to Incur capital
expenditure decide upon joint ventures set up
1. Atomic energy. subsidiaries/ offices abroad enter into technological and
2. Minerals specified in the schedule to atomic strategic alliances. They can raise funds from capital
energy act. markets (International and Domestic) enjoy
3. Railway passenger transport. substantialoperational and managerial autonomy. Boards
of these PSEs have been board based with induction of
Industries which require compulsory licensing involves:
nonofficial part time professional directors.
1. Drugs and pharmaceuticals.
Invest up to rupees 1000 crores or 15% of their networth
2. Hazardous chemicals.
on single project with out seeking government approval
3. Gun powder, industrial explosives etc.
4. Aerospace and defence related electronics. Miniratna companies
5. Alcohol drinks. Category 1 Miniratna
6. Tobacco, cigarette and related products.
 There are PSEs that have made profits
Disinvestment : continuously for the last 3 years and earned net
profit of rupees 30 crores are more in one of the
 It is the sale of shares of the government to retail
three years. These miniratnas are granted certain
public/ employees etc. there is no change in the
autonomy like incurring capital expenditure
management as government holds the majority
without government approval up to rupees 500
equity. crores or equal to their net worth whichever is
Privatisation : lower. There are 48 miniratnas bridge and roof
Company (India) Limited as added late in 2010.
 The government sells chunk of equity to a single
buyer-26% or 51% to whom management is
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Category II Miniratna Bharath -22

 This category include those PSEs which have  Bharath -22 has 19 central public sector
made profit for the last 3 years continuously and enterprises, government banks and some
should have a positive net worth. Category II holdings of the government investment arm
miniratnas have autonomy to incurring the capital SUUTI.
expenditure without government approval up to
PPP :
rupees 300 crores or upto 50% of their net worth
whichever is lower. There are 14 such miniratnas  Public Private Partnership means an arrangement
Bharat pumps and Compressors Limited was between a
added late in 2010. government/statutoryentity/government owned
Maharatnas entity on one side and a private sector entity on
the other.
 The category of PSEs was created in 2011.
Build Operate Transfer
 To be eligible for the grant of the Maharatna
status the company should have an average (BOT-TOLL and BOT-ANNUITY)
turnover of over RS 25000 crores average, annual 1. Private partner is responsible to design, build, operate
net worth of more than 15000 crores and
(during the contracted period) and transfer back the
average annual net profit of over rupees 5,000
facility to the public sector.
crore during the last 3 years.
2. Role of the private sector partner is to bring the
 Maharatna status it's board would not be finance for the project and take the responsibility to
required to take the government permission for construct and maintain it.
investments up to rupees 5000 crores in a joint 3. In return, the public sector will allow it to collect
venture project or wholly owned subsidiary. For
revenue from the users in BOT –Toll model and
the Navratnacompanies ,the limit is rupees 1000
Government pays an annual fee in BOT- Annuity
crore.
model
NIF-National Investment Fund 4. The national highway projects contracted out by NHAI
 The proceeds from disinvestment of UPUSs will be under PPP mode is a major example for the BOT
channelised into NIFs, Which is to be maintained model.
outside the consolidated Fund of India. Engineer Procure Construct Model (EPC):
 75% of the annual income of finance selected
social sector schemes, which promote education, 1. Under this system the entire project is funded by the
health and employment. The residual 25% of the government.
annual income of the fund will be used to meet 2. The EPC entails the contractor build the project by
the capital investment requirements of profitable designing, installing and procuring necessary labour
and revivable CPSUs that yield adequate returns.
and land to construct the infrastructure, either
Exchange traded fund: directly or by subcontracting.
 It will cumulate the shares of selected PSUs 3. Under EPC model the contractor is legally responsible
proposed for disinvestment under a single fund. to complete the project under some fixed
Then these cumulated shares are divided into predetermined timeline and may also involve scope
different units/shares. The value of one unit for penalty in case of time overrun.
depends upon prices of underlying PSU shares.
4. In EPC as all the clearances, land acquisition and
These units can be listed in the stock exchange as
regulatory norms have to be completed by the
ETF and can be traded like ordinary shares.

government itself and the private players do not have • India Infrastructure Project Development Fund
to get itself involved in these time taking procedures. (IIPDF)- Scheme supports the Central and the State
Governments and local bodies through financial
Hybrid Annuity Model:
support for project development activities ( feasibility
1. In India, the new HAM is a mix of BOT Annuity and reports, project structuring etc) for PPP projects
EPC models.
• IIFCL - long-term debt for financing infrastructure
2. As per the design, the government will contribute to projects that typically involve long gestation periods
40% of the project cost in the first five years through since debt finance for such projects should be of a
annual payments (annuity). Whereas the remaining sufficient.
60% is raised by developer from equity or loan as
• Foreign Direct Investment (FDI) - upto 100% FDI in
variable depending upon the value of assets created.
equity of SPVs in the PPP sector is allowed on the
3. Under HAM, Revenue collection would be the automatic route for most sectors.
responsibility of the National Highways Authority of
India (NHAI).The developer doesn’t have right to
collect revenue.
Swiss Challenge
1. A ‘Swiss Challenge’ is a way to award a project to a
private player on an unsolicited proposal.
2. Such projects may not be in the bouquet of projects
planned by the state or a state-owned agency, but are
considered given the gaps in physical or social
infrastructure that they propose to fill, and the
innovation and enterprise that private players bring.
3. The government may enter into direct negotiations
with a private player who submits a proposal and, if
they cannot agree on the terms of the project,
consider calling for bids from other interested players.
4. In one variant of the Challenge, the government
awards bonus points to the project’s ideate; in
another, it calls for comparative bids, but gives the first
right of refusal to the original player.
The Government has facilitated the PPP sector by
offering:
 Viability Gap Funding (VGF) Means a grant one-time
or deferred, provided to support infrastructure
projects that are economically justified but fall short
of financial viability.VGF subsidy up to 40% of the cost
of the project can be accessed in the form of a capital
grant.

Balance of Payments (BoP)

External Sector
All economic activities of an economy which take place in
foreign currency fall in the external sector such as export,
import, foreign investment, external debt, current
account, capital account, balance of payment, etc.
Closed and open economics
Balance of payments (BoP)

The balance of payments (BoP) is the international
balance sheet of a nation that records all international
transactions in goods, services, and assets over a year.
Balance of payment consist of Balance of trade, balance

of current account and capital account.
The balance of payments divides transactions in two

accounts: the current account and the capital account.
 These are short term implication

transactions
 It includes export and import of
1. Current
goods (trade account) and
account
services, repayments and
dividends from loans, transfers,
investments.
 This involves long term
2. Capital transaction.
account  Deals with investment and
borrowing.
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Depreciation: In foreign exchange market, it is a situation

when domestic currency loses its value in front of a
foreign currency which is market-driven.
Devaluation: In the foreign exchange market when

exchange rate of a domestic currency is lowered by its
government, it is called devaluation. Official depreciation
is devaluation.
Appreciation: In foreign exchange market, if a free

floating domestic currency increases its value against the
value of a foreign currency, it is appreciation.
Revaluation: A term used in foreign exchange market

which means a government increasing the exchange rate
of its currency against any foreign currency. It is official
appreciation.
Exchange rate
An exchange rate is the price at which one currency is
converted into or exchanged for another currency.
Various exchange rate mechanisms:

1. Floating exchange rate: Forces of demand and
supply determine the valuation and role of monetary
authority is nill.
2. Fixed exchange rate: central bank artificially and
arbitrarily fixes the exchange rate irrespective of
market forces.
3. Pegged float exchange rate: A currency
is pegged to international hard currency.
4. Managed float exchange rate: Exchange rate is
largely market determined but the central bank
manages the rate in specific band.
Current account deficit (CAD) Nominal Effective Exchange Rate (NEER): prevailing
Current account deficit=balance of trade(exports – official exchange rate.
Real Effective Exchange Rate (REER): inflation adjusted
imports)+ net factor income(interest, dividends etc)+net
exchange rate.
transfer payment(foreign aid) LERMS(Liberalised Exchange Rate Mechanism System): it
Factors influencing Current Account deficit (CAD) was operationalized in 1993. India delinked its currency
1. Exchange rate (overvalued exchange rate would cause from the fixed currency system and moved into the era of
large deficit). floating exchange-rate system under it.
2. Level of consumer spending (economic growth) and Convertibility
hence import spending. Convertible currencies give freedom to the holder of
3. Capital flows to finance deficit in long-term. currency to convert them freely into other currencies at
4. Saving rates: Influencing level of import spending. the prevailing market rate.
5. Relative inflation/competitiveness.

Current account convertibility: It refers to the freedom to Hot currency: Hot currency is a term of the forex market
convert domestic currency into foreign currency and vice and is a temporary name for any hard currency.
versa for exports and imports, interest payments,
remittances, travel, education etc.
Heated currency: A term used in the forex market to
Capital account convertibility : It refers to the freedom to denote the domestic currency which is under enough
convert domestic currency into foreign currency, which pressure(heat) of depreciation due to a hard currency’s
implies there should be 100% FDI and FII allowed across
high tendency of exiting the economy.
all sectors.
Full convertibility: It refers to the freedom to convert Cheap Currency: If a government starts re-purchasing its
domestic currency into foreign currency, and viceversa for
bonds before their maturities (at full-maturity prices) the
both current and capital account with least restrictions.
money which flows into the economy is known as the
Partial convertibility: the portion allowed by the cheap currency, also called cheap money.
government can be converted into foreign currency for
current and capital purposes.
Dear Currency: when a government issues bonds, the
Convertibility in India money which flows from the public to the government or
Current account is today fully convertible (operationalised the money in the economy in general is called dear
on 19 August, 1994). But in case of capital account currency, also called as dear money.
convertibility India is still following partial current account
convertibility. Real value of rupee: it depends on, Demand and supply,
net capital inflows, performance of economy, forex
Tarapore committee I and II were set up for fuller
reserves, interest rate, CAD, international prices of
convertibility of capital accounts. Advantages of capital commodities, political stability.
account convertibility,
 Foreign capital for investment. Forex reserve: RBI holds foreign exchange reserves which
 FII flows can increase liquidity. are made up of, foreign currency, bank deposits,
 Competition for domestic players. government securities, gold reserves, special drawing
rights of IMF.
 Technology transfer.
 Macro economic discipline.
Capital control: Any measure taken by government /
 India will have wider range of choice for central bank to limit the flow of foreign capital in and out
Investment and borrowing. of the domestic economy. Ex: Tobin tax , quantitative
Extended fund Facility (EFF) restrictions.
It is a service provided by the IMF to its member countries Beggar they neighbor policy: When a country damages its
which authorises them to raise any amount of foreign competitors through a weak currency.
exchange from it to fulfil their BoP crisis, but on the
conditions of structural reforms in the economy put by Weak currency: Cheapens the rate of country’s export,
the body. It is the first agreement of its kind. India had making them more attractive to international buyers.
signed this agreement with the IMF in the financial year Sovereign wealth fund: It is the fund of foreign currency
1981–82.
that is meant to be invested in global assets like, shares,
Hard currency: any globally traded currency which has
bonds, energy assets etc. It diversify the income, secure
global demand, liquid (adequate supply) and stable( does
external account.
not fluctuate)
Internationalization of rupee: A currency used by other
Soft currency: It is basically the opposite term for the
countries banks, firms and citizens as financial security.
hard currency.
Degree of internationalization depends on, traded
actively, liquid and stable.
Ex: US dollar, euro, yen, pound, renminbi.

Foreign Investment  The QFI should be resident in a

foreign country that is compliant
Foreign investment involves capital flows from one
with the standards of Financial
country to another, granting extensive ownership
Action Task Force (FATF).
stakes in domestic companies and assets.
4. FPI In the Indian context, FIIs (along with
Types of Foreign Investment: sub-accounts with FIIs) and QFIs can be
collectively classified as Foreign Portfolio
 Foreign Direct Investment (FDI) Investment (FPI).
 Foreign Institutional Investment (FII)
 Qualified foreign investment (QFI) Investments through Participatory notes(PN), (ADR)
 Foreign Portfolio Investment (FPI) and (GDR)
Participatory notes also referred to as P-Notes, or PNs,

Details on each of the foreign investment type can are financial instruments required by investors or hedge
be found below: funds to invest in Indian securities without having to
1. FDI  Foreign direct investment (FDI) is register with the Securities and Exchange Board of India
when a foreign company or (SEBI).
individual establishes new business ADR(American Depository receipts) and GDR(Global
operations or acquiring business depository receipts)are commonly used by the
assets, including controlling Indian companies to raise funds from the foreign
interests, in an already existing capital market. While ADR is traded on US stock
Indian company exchanges, GDR is traded on European stock
2. FII  FII is when foreign institutional exchanges.
investors invest in the shares of an
Department of Industrial policy and promotion
Indian company, or in bonds offered
(DIPP), Ministry of Commerce and industry
by an Indian company.
 Only institutional investors like The Department of Industrial Policy & Promotion was
Investment companies, Insurance established in 1995 and has been reconstituted in
funds etc. are allowed to invest in the year 2000 with the merger of the Department of
Indian stock market directly. Industrial Development.
 However, if foreign individuals want
Functions:
to invest in India’s markets, they
have to get themselves registered as 1. Formulation of Foreign Direct Investment (FDI)
a sub-account of an FII. Policy and promotion, approval and facilitation of
3. QFI  QFI was introduced in 2002. A FDI.
Qualified Foreign Investor can invest 2. Encouragement to foreign technology collabo-
in India without sub-account. rations at enterprise level and formulating policy
 The Qualified foreign investor (QFI) parameters for the same.
can be an individual, group or an
association.
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Economic Integration
Economic integration refers to trade unification between
different states by the partial or full abolishing of customs
tariffs on trade taking place within the borders of each
state.
Advantages
1. increases the combined economic productivity of
the countries – easier access of goods and
services
2. It increases competitiveness.
3. Economic integration can broaden markets,
boost employment, and spur political coopera- 1.PTA – PREFERENTIAL TRADE AGREEMENT
tion A preferential trade agreement, is a trading bloc that
4. Regions may agree to economic integration to gives preferential access to certain products from the
better serve their citizens. participating countries.
5. Political cooperation among countries can This is done by reducing tariffs but not by abolishing them
improve because of stronger economic ties, completely. A PTA can be established through a trade
which can help resolve conflicts peacefully and pact. It is the first stage of economic integration. For
lead to greater stability. example,
 Asia-Pacific Trade Agreement (APTA): formerly known as
What is a trade agreement?
the Bangkok Agreement, was signed on 31st of July 1975
as an initiative of the United Nations Economic and Social
A trade agreement is a contract/agreement/pact between
Commission for Asia and the Pacific (ESCAP). ESCAP is the
two or more nations that outlines how they will work
regional development arm of the United Nations for the
together to ensure mutual benefit in the field of trade and
Asia-Pacific region.
investment.
 India-Mercosur Preferential Trade Agreement
(PTA): Mercosur is a sub-regional blocs with its member
countries – full members are Argentina, Brazil, Paraguay,
Uruguay and Venezuela.
2.FTA– FREE TRADE AGREEMENT

A free-trade area is a trade bloc whose member countries
have signed a free-trade agreement (FTA), which
eliminates tariffs, import quotas, and preferences on
most (if not all) goods and services traded between them.
For example,
Various levels of Economic integration
www.laex.in Economic Integration www.civilsprep.com

 Evolution of SAPTA to SAFTA (South Asian PTA to 6.ECONOMIC UNION

FTA) An economic union is a type of trade bloc which is
 ASEAN FTA (Trade agreement within the Southeast composed of a common market with a customs
asian nations) union. The participant countries have both common
policies on product regulation, freedom of movement of
3.CECA(Comprehensive Economic Cooperation Agree- goods, services and the factors of production (capital and
ment) / CEPA(Comprehensive Economic partnership labour) and a common external trade policy.
Agreement):
When the countries go beyond FTA and agree for a 7.ECONOMIC AND MONETARY UNION
greater degree of economic integration which extends to When an economic union involves unifying currency it
capital and human resources, and to expand trade and becomes a economic and monetary union. For example
investment, it would result in CECA or CEPA. European union.
CEPA has a bit wider scope than CECA. While CECA comes Few agreements which have been in the news
first with elimination of tariffs, CEPA comes later including recently
trade in services and investments. For example,
Trade Countries Features
 India has signed CECA with Singapore and CEPA with Trans-
The aim of this
South Korea Atlantic
agreement is for
trade and European union
promoting trade
4.CUSTOMS UNION investment and United states
and multilateral
partnership
An agreement among countries to have free trade among economic growth.
(TTIP)
themselves and to adopt common external barriers
Brunei, Cambodia,
against any other country interested in exporting to these It would be the
Indonesia, Laos,
countries. For example, largest economic
Malaysia,
bloc. This
Regional Myanmar,
 Southern Common Market – Mercosur (Argentina; agreement would
comprehensi Philippines,
Bolivia; Brazil; Paraguay; Uruguay; and Venezuela) have Strategic
ve Economic Singapore,
 Gulf Cooperation Council (GCC) – Bahrain, Kuwait, Partnership,
partnership Thailand, Vietnam,
Oman, Qatar, Saudi Arabia, and the United Arab enhance regional
(RCEP) Australia, China,
Emirates connectivity,
India, Japan, South
 East African Community (EAC) – composed of promote trade &
Korea and New
5 countries in the African Great Lakes region in investment
Zealand
eastern Africa: Burundi, Kenya, Rwanda, Tanzania,
It is the third
and Uganda Comprehensi
Australia, Brunei, largest free-trade
ve and
Canada, Chile, area in the world
5.COMMON MARKET Progressive
Japan, Malaysia, by GDP. It
Agreement
A type of custom union where there are common policies Mexico, New removes tariffs on
for Trans-
on product regulation, and free movement of goods and Zealand, Peru, an estimated 95%
Pacific
services, capital and labour. Singapore, and of goods traded
Partnership
Vietnam. between member
(CPTPP)
countries.
www.laex.in Economic Integration www.civilsprep.com

WTO: Evolution and receive the same treatment as domestically

sourced ones.
Contemporary Issues 2. Trade barriers should be dismantled and
international trade should be free.
Background of International Trading Regime after
3. Developing countries should receive preferential
World War II
terms of trade.
In 1947, 23 countries arrived at an agreement, namely,
General Agreement on Tariffs and Trade (GATT). GATT Principles
established a free and fair international regime based on o Purpose: eliminate discriminatory
dismantling of trade barriers --- tariff (high duties regime) policies by members.
and non-tariff (quota regime). The agreement came into o If a member extends special
force in 1948 and India was a founder member. treatment to any nation then
Most
Emergence of World Trade Organisation (WTO) similar treatment must be
Favoured
extended to all.
Uruguay Round of GATT was concluded in 1994 with Nation
o Some Exceptions: a) Differential
Marrakesh Treaty and this treaty laid down the
treatment under Free Trade
foundation of WTO in 1995 by replacing GATT. first round
Agreements is allowed, b) National
was the Doha round which started in 2001 and is yet to
complete. Headquarter is in Geneva, Switzerland. It has Security
164 members as of 2017. Afghanistan became 164th o No discrimination between
National
member in 2016. imported and domestically
Treatment
Difference: WTO v/s GATT produced goods.
Democratic o WTO follows the principle of “One
GATT WTO principle nation, One vote, One value”.
GATT is a treaty WTO is an organisation Special and o Developing countries receive
GATT had no dispute WTO has dispute Differential preferential terms of trade within
settlement mechanism settlement mechanism Treatment WTO framework
GATT was essentially
Governing Structure of WTO
concerned with WTO has much more
Ministerial
traditional trade issues extensive coverage of
Conference o Highest decision making body
such as tariff and non- issues such as IPR, Services
(Highest o Meet twice a year Minister of
tariff issues in among others
Decision Commerce represent India in this
international trade
Making Body body
GATT had small
WTO has a full-fledged – Level I)
secretariat with no
secretariat and o Perform day to day work and
institutional foundation to
implementing agencies General implement MC’s decisions
implement these rules
Council & o General Council also meets as
Dispute Trade policy review body to
Guiding principles of WTO
Settlement undertake trade policy reviews of
Principles guiding the WTO are: Body Members
(Level - 2) o DSB redresses the trade related
1. Non-Discriminatory and rule based trading grievances of WTO members
system where foreign goods and services should
www.laex.in WTO www.civilsprep.com

o There are 3 councils: a) Council for etc. These subsidies are grouped into 3 classes or boxes:
Councils of trade in Goods b) Council for TRIPS Green Box, Blue Box and Amber Box.
Trade (Level - c) Council for trade in services
Green Box includes subsidies on which there are no limits
3) o These councils work under General as they are not considered as trade distorting or they
Council minimally distort the international trade. These subsidies
Director o Head of WTO must be government funded. These subsidies in general
General o Elected by Ministerial Council for 4 are not directed at particular products (unlike MSP) and
years they may include income support that is decoupled from
production level or prices (Ex: Telangana’s Rythu Bandhu
Chronology of Trade Negotiations under WTO Scheme).
1. 1996 – 1st Ministerial conference in Singapore led to Amber Box subsidies cover all domestic support
Birth of “Singapore issues” measures considered to distort production and trade.
2. 2001 – 4th Ministerial conference -Doha Development These are required to be maintained within 5-10% of
Round production value (5% for developed countries and 10% for
3. 9th Ministerial Summit in Bali in 2013 developing countries).
4. 10th Ministerial Summit in Nairobi Blue Box subsidies are direct payments under production
5. 11th Ministerial Summit in Buenos Aires, Argentina in limiting program. There is no limit.
2017 2. Export Subsidies
Agricultural export subsidies are to be limited by
WTO Agreements developed countries either in value or volume terms so
WTO that international prices are not lowered below a point
TRIP
and exports and domestic markets of the developing
Multi Fibre Arra countries are not priced out. Nairobi Ministerial in 2015
ngement on Good Service decided to phase them out.
Textiles
Agreement on Agriculture
Agreement
on Anti- GAT o Green Box: Nonor least market
Tariff Non-Tariff Box System distorting. (Direct income support
related Agreements to farmers or R&D support.)
Agreement
Agreements o Blue Box: Subsidies that support
on
farmers and at the same time
Agriculture General ‘Limit Production’. (Ex: subsidies
Agreement SP TRIM
on Tariff
linked with acreage or number of
and animals.)
SC
Trade o Amber Box: trade distorting, so
Agreement of Agriculture: need to be curbed. (Reduced based
on a formula called “Aggregate
It is aimed to remove trade barriers and to promote Measure of Support”.)
transparent market access and integration of global 3. Market Access
markets. It means that all members countries should throw open
their domestic market to agricultural imports by reduction
It has 3 pillars: Domestic Support, Export Subsidies, of tariff and removal of non-tariff barriers. Hence,
Market Access. members should undertake:
1. Domestic Support refers to domestic subsidies that a 1. Tariffication – to convert non-tariff barriers (like
government provide to a farmer such as fertilizer, power quotas) to tariffs

2. Bind their tariff to agree to a limit that is It is given for creative and
bounded rate and not increase the rates beyond artistic works (e.g., books,
them. movies, music) and gives
Copyright copyright holder the exclusive
Special Products right to control reproduction or
These are agricultural products of particular importance adaptation of such works for a
to farming communities in developing countries for certain period of time.
reasons of food security, livelihood, security and rural It is a distinctive sign which is
development. Under the Doha Development Round, it used to distinguish the products
Trademark
was decided that the Special products would attract lower or services of different
levels of tariff reduction commitment than other businesses
agricultural products so as to protect and enhance It protects the form of
livelihood and food security in domestic economy. appearance, style or design of
Industrial design
an industrial objects (e.g., spare
Special Product regime is a component of WTO’s Special
parts, textile)
and Differential (S&D) provision and is available only to
developing country members of WTO.
Patent is an incentive to innovate and invent and thus
The current discussions over Special Products are mainly sustains R&D. In return for the patent, inventor offers the
focused on:
knowledge with commercial use to be put in public
1. The number of products to be given Special Product domain after the expiry of the patent.
status
2. The modalities to select Special Products Under WTO, patents can be granted for process or
Special Safeguard Mechanism product. Product patent provide for absolute protection
SSM is a trade defence mechanism to essentially counter of product exhausting all processes that may lead to the
the volatility of international commodity prices. product, whereas process patents provide protection in
respect of a specific method of production.
SSM provisions are available to all developing and least
developed country members of WTO. Ministerial Decision Under TRIPS, only product patents must be awarded for
at Nairobi in 2015 recognizes that the developing food, pharmaceuticals and chemicals. These patents
members will have the right to temporarily increase tariffs should be valid for 20 years.
in face of import surges by using an SSM.
From the above discussion, it is clear that product patent
TRIPS Agreement: It lays down legal standards to have the potential to raise prices, safeguards have been
protect intellectual property by way of copyright rights;
built in the TRIPS Agreement called:“Parallel Imports”
geographical indications; industrial designs; integrated
circuit layout-designs; patents; monopolies for and “Compulsory Licensing”.
developers of new plant varieties; trademarks. It also  Parallel Importation is the importation of drugs at a
regulates dispute resolution procedures and
lower price to meet a public health crisis if the
enforcement procedures.
Types of Intellectual company holding the patent is unwilling to provide
Explanations the patented drug at lower price.
Property Rights
It may be granted for a new,  Compulsory Licensing means that the government of
useful, and non-obvious a country facing health crisis can ask for production
invention, and gives patent and sale of drugs in the country at concessional price
Patent holder an exclusive right to based on a compulsory license that it issues. This
commercially exploit the allows generic copies of a patented product to be
invention for a certain period of produced domestically, with compensation paid to
time (typically 20 years) the patent holder.

Anti-Counterfeiting Trade Agreement It is an international treaty under WTO that aims to set
constraints on member state’s policies relating to food
It is a multinational treaty for the purpose of establishing
safety (bacterial, pesticides, inspection and labelling) as
international standards for intellectual property rights
well as animal and plant health (phyto-sanitary) about
enforcement.
imported pests and diseases.
It aims to establish an international legal framework for
General Agreement on Trade in Services (GATS)
targeting counterfeit goods, generics medicines and
It is the set of regulations that governs trade in services
copyright infringement on the Internet, and would create
among WTO members.
a new governing body outside existing forums, such as
WTO, World Intellectual Property Organisation or UN. It GATS cover four modes of supply for the delivery of
was signed in 2011. services in international trade:
Supplier
Sui Generis System Criteria
Presence
TRIPS agreement provides sui generis option regarding Service delivered
patent laws. Sui generis means generating by itself or of within the
itself. It means that they can protect inventions either on Mode – 1: Cross territory of the
the basis of TRIPS pattern of patents or any other Border Supply Member, from
indigenous system (sui generis). the territory of
another member Service
Geographical Indications
Service delivered supplier not
There are some goods that owe their properties (e.g., its
outside the present within
special quality or reputation) to the region in which they
territory of the territory of
originate and are nurtured. Such products are given
Mode – 2: Member, in the the member
Geographical Indications. GI is used to identify agricultural,
Consumption territory of
natural or manufactured goods.
abroad another member,
There are a number of benefits that GI confers on a to a service
particular good: consumer of the
1. It confers legal protection to GI in India. member.
2. Prevents unauthorised use of a Registered Service delivered
Geographical Indication by others. within the
3. It provides legal protection to Indian Geographical Mode–3: territory of the
Indications which in turn boost exports. Commercial member, through
4. It promotes economic prosperity of producers of Presence the commercial
goods produced in a geographical territory. presence of the
supplier Service
GI generally is not awarded to an individual. It is given for
Service delivered supplier
a period of 10 years and may be renewed for another 10
within the present within
years on expiry. GI prevents spurious goods from entering
Mode -4: territory of the the territory of
the market. It helps maintain quality. There is greater
Presence of a member, with the member
accountability, too. It boots exports.
natural person supplier present
Sanitary and Phyto-sanitary Measures as a natural
person

Safeguard Duty: o Market access

o Reductions in Exports subsidies
Under WTO regime, a safeguard is used to restrain Agriculture
o Reductions in domestic support that
international trade in order to protect a certain home distort trade
industry from foreign competition like Dumping, Subsidy Market
that attracts countervailing duty Access for
Non- o Cutting Tariff and Non-Tariff barrier
Countervailing Duty (CVD) Agricultural
Products
Many countries subsidise their products and make them
o Interpretation of TRIPS to supports
cheap to be exported. In such cases, importing country
TRIPS public health — promoting: access of
can take the recourse to CVDs. Thus, CVDs are anti-
medicines and creation of new ones.
subsidy duties. These are import duties to neutralize the
o Non-imposition of customs duties on
negative effects of subsidies. Electronic
electronic transmissions agreed at 2nd
commerce
Director General of Anti-Dumping and Allied Duties MC in 1998 to continue.
o Launch negotiations on relationship
(DGAD) recommends the duty but Finance Ministry
between WTO rules and trade
imposes it.
Trade and obligations under environmental
Anti-Dumping Duty environment agreements. Important issues were:
o Fisheries subsidies and
Dumping is the act of charging a lower price in a foreign environmental G&S
market for a product than the price of the same product Trade
o Negotiate to conclude an agreement
in a domestic market or in a 3rd country market. In simple facilitation
words, it is selling at less than fair value.
Under WTO, dumping is prohibited if it causes or July 2008 Package

threatens to cause injury to a domestic industry in the Aim o To conclude Doha Development
importing country. Otherwise, it is not prohibited. Agenda
Director General of Anti-Dumping and Allied Duties Outcome: Draft could not be finalized due to wide
initiates the imposition of Anti-dumping duty. divergences among members.
Finer points were:
Overview of WTO Ministerial Conferences and Agriculture o Developed countries to end export
Contemporary Issues subsidies by 2013.
o Green Box: Revisions and tighter
Doha Round monitoring.
(Presently, this is the active round of negotiation) o Blue Box: Cap on subsidies provided
o Improve trading prospects of o Negotiate modalities of Special
Aim developing world.(Hence, also called safeguard mechanism.
as Doha Development Agenda) Non- o In 2005 Hong Kong MC, it was
o Started at 4th Ministerial Conference Agricultural decided that Swiss formula would be
in Doha, Qatar, in 2001. Market used for NAMA.
Package Every item was part of an indivisible Access o Different tariff cuts were specified for
package, i.e., “single undertaking”: (NAMA) developed and developing countries
“Nothing is agreed until everything is in 2008.
agreed”. Trade o Developing countries agreed, if
Outcome: Members committed to negotiate on facilitation safeguards are provided.

9th Ministerial summit – “Bali package” (2013) Principle of reciprocity was sidelined: Trade Facilitation
o Negotiate towards concluding Doha Agreement was concluded while developed countries
Aim went back on their promise of permanent solution to
Development Agenda
public stock holding.
o On public stockholding: Interim
Agenda for 11th Ministerial Conference at Buenos Aires,
peace clause was agreed upon and
2017:
permanent solution was to be found
by 2017. Developed Countries Developing Countries
Agriculture o Developing countries will have right Bringing Doha Agenda back
to the table and any
to recourse to Special safeguard
Equal importance to “new negotiation on “new
mechanism but there is no issues” along with contentious issues” (discussed below)
agreement over “implementation ones under Doha Agenda to start after conclusion of
modalities”. Doha Agenda, that too with
SMEs (Small “consensus”
and Medium o Keep negotiating Negotiation on “Domestic
Reforming Agreement on
support” under Agreement on
Enterprise) Agriculture to make it more
Agriculture to phase out
Trade o Negotiations on the agreement were equitable.
trade-distorting subsidies.
Facilitation concluded. Negotiate on Fisheries
Electronic subsidies leading to Securing mandate on
o Keep negotiating overfishing and IUU (Illegal, Special Safeguard
Commerce
10th Ministerial summit – “Nairobi package” (2015) unreported and unregulated) Mechanism.
fishing.
Outcome: No explicit commitment to Doha Development Negotiate applicability of Negotiating
Agenda (DDA). Declaration, recognised divergence in permanent
differential treatment to fast solution to the issue of
viewpoint among members over DDA. growing economies such as
o On public stockholding: Keep Public Stockholding.
India and China.
engaging to arrive at a permanent
solution. [No time-frame specified] Who said what?
o Special safeguard mechanism. [No Developing Countries
Agriculture time-frame specified to finalise the o West provides subsidies amounting to
implementation modalities] billions of dollars under green box.
o Export subsidies: Immediate o Studies have pointed out that green box
Reform of subsidies are trade-distorting. Thus
elimination by developed countries
Agreement 'Green Box' needs to be reformed.
was agreed upon. o Public stockholding subsidies are
on
SMEs (Small calculated at 1986-88 price level and on
Agriculture total production value. 30 year old price
and Medium o Keep negotiating
Enterprise) reference level is unrealistic today and
subsidies must be calculated on quantity
Electronic
o Keep negotiating procured.
Commerce Interim Peace clause in current form is
It has been said that the Doha Agenda lost its relevance Public Stock difficult to invoke because of conditions
after 2008 Ministerial summit because, the issues of Holding attached. Hence, G33 called for “legal
relevance for developing countries were sidelined and certainty”.
new issues which were important to developed world are Special
It needs to be negotiated and agreed upon at
introduced and emphasized. Safeguard
earliest.
Mechanism
This became explicit in Nairobi Declaration which did not
Developed Negotiate “Domestic support” to “reduce”
mention unanimous commitment to Doha Agenda.
subsidies by developing countries without
Countries
any commitment on above issues.

Reports and Indices

Financial Organisation and Report
1. Ease of Doing Business
2. World Development Report
3. Universal Health Coverage Index
4. Remittance Report
World Bank 5. Ease of Living Index
6. India Development Update
7. Global Economic Prospect (GEP) report
8. Global Financial Development Report
9. Logistics Performance Index
1. Global Financial Stability report
International Monetary Fund (IMF)
2. World Economic Outlook
1. The Programme for International Student
Organisation of Economic Development and Cooperation Assessment (PISA)
(OECD) 2. Global Index of Countries
3. Government at a Glance Report
WTO World Trade outlook Indicator
Bank for International Settlements (BIS) Global Financial System Report
Financial Action Task Force (FATF) Global Money Laundering Report
1. Global Information Technology Report
2. Travel and Tourism Competitiveness Report
3. Global Competitiveness Report
4. Enabling Trade Report
5. Global Environment Performance Index
6. World Power Language Index
7. Inclusive Development Index
8. Human Capital Index
World Economic Forum (WEF)
9. Energy Transition Index
10. Global Manufacturing Index
11. Global Gender Gap Index
12. Global Hunger Index, 2017
 Undernourishment
 Child wasting
 Child stunting
 Child mortality
www.laex.in Reports and Indices www.civilsprep.com

UN and its Specialised Agencies
United Nations Development Programme (UNDP) Gender Inequality Index

United Nations Educational, Scientific and Cultural 1. Gender Parity Index
Organization (UNESCO) 2. Global education monitoring Report
UN – Sustainable Development Solutions Network (SDSN) World Happiness Report
1. Actions on Air Quality
United Nations Environment Programme (UNEP) 2. Global Environment Outlook
3. Emission Gap Report
1. World State of Forest Report
FAO
2. Global Food Price Index
1. World Health Statistics
World Health Organization (WHO) 2. World Tuberculosis Report
3. Ambient Air Pollution Report
Non – Profit Organisations
1. Global Corruption Report (GCR)

Transparency International
2. Corruption Perception Index
International Food Policy Research Institute (IFPRI) Global Hunger Index
Gender Inequality Index Global Gender Gap Index Gender Parity Index
 It is published by World Economic
Forum.
 It measures progress towards parity
between men and women in –
1. Economy  It is released by UNESCO.
2. Education  It is a socioeconomic index
 It is computed by United Nations 3. Health & usually designed to measure
Development Programme (UNDP) 4. Political representation. the relative access to
 It uses three dimensions  The index lies between 0 and 1, with education of males and
o Reproductive Health 1 denoting complete parity and 0, females.
o Empowerment & complete inequality.  Ratio of girls to boys in
o Labour Market Participation.  In its recent (2017) report, India has primary, secondary and
 India ranked 131 out of 188 been ranked 108 out of 144 countries tertiary levels of education
countries in 2016. in the recent report. to the number of male
 This is a fall of 21 places from the last students in each level is
year‘s 87, and India's lowest since the taken in to account.
index was developed in 2006.
 The country rankings allow for
effective comparisons across regions
and income groups.
www.laex.in Reports and Indices www.civilsprep.com

Basis for Comparison CPI, WPI, IIP, PMI

Purchasing
Basis for Wholesale Price Consumer Price Index of industrial
Annual survey Industries Managers’ Index
comparison Index Index production
(PMI)
It is an index of
Wholesale Price Consumer Price
Measures the short- the prevailing
Index (WPI), Index (CPI), industrial statistics in India
term changes in the direction of
amounts to the indicates the providing information on
Meaning volume of economic trends
average change average change important characteristics of
production of a in the
in prices of in the prices of registered manufacturing
basket of industrial manufacturing
commodities at commodities, at sector
products. and service
wholesale level. retail level.
sectors.
PMI Data is
published by
Office of Japanese firm
Published by Central central statistical Central Statistics Office (CSO)
Economic Nikkei but
Statistics Office organisation and Industrial Statistics (IS)
Advisor compiled and
constructed by
Market Economics
Manufacturing
Goods and
Covers Goods only Industrial sector Manufacturing sector and services
Services
sectors
Output, New
Orders,
Eight Core Industries
Employment,
Input Costs,
Electricity, steel,
Organised manufacturing Output Prices,
Prices of goods Prices of goods refinery products,
sector data, details of Backlogs of Work,
Focuses on traded between purchased by crude oil, coal,
production, investment, Export Orders,
business houses. consumers. cement, natural gas
employment and costs. Quantity of
and fertilisers.
Purchases, Stocks
of Purchases and
Stocks of Finished
Goods
Base year 2011 -2012 2011-2012 2011-2012 2013 -2014 NA
Manufacturing
(77%) followed by
mining (14.7%) and
electricity (7.9%)
Primary Articles Among the Index of
(22.62% of total eight core industries
Food and
weight), Fuel and under IIP, the sector
beverages have
Share in the Power (13.15%) wise contribution
maximum NA NA
index and are:
weightage
Manufactured Refinery products
under this.
Products (28%), electricity
(64.23%). (19%), Steel (17%),
coal (10%), crude oil
(8%), natural gas
(6%), cement (5%),
Fertilizers (2%)
www.laex.in Basis for Comparison CPI, WPI, IIP, PMI www.civilsprep.com

Important Graphs
 Philips curve shows the trade off between un-
employment and inflation. It indicates that to reduce
un-employment, an economy has to adjust with higher
level of inflation.
 Laffer curve shows the relationship between tax

revenue and tax rate. Its message is that if the tax is
fixed at an optimum (reasonably low levels), tax
revenue will be maximum.
 Kuznets curve explain the relationship between

growth and equality. During the initial stages of
development inequality increases with economic
growth.
 Lorenz curve indicate inequality in an economy. It is a

graphical representation of the distribution of income
or of wealth
 Environmental Kuznets curve explains the

relationship between economic growth and
environmental degradation.
www.laex.in Important Graphs www.civilsprep.com

J curve effect: it is a theory stating that a country’s trade  Indicates increased

deficit will initially worsen after the depreciation of its borrowings
currency, as higher prices on imports will be greater than
 May lead to higher
reduced volume of imports and growth in exports initially.
Increased fiscal inflation
When exports become price competitive and imports are
reduced due to high cost, the BOP turns positive. deficit  Correlated with higher
Interrelations interest rates
Increase in repo rate When inflation is high  Lower sovereign rating of
Decrease in repo rate When inflation is low a country
Increase in reverse Increased external
When inflation is high Leads to loss of sovereignty
repo rate debt
Decrease in reverse Increased overall Leads to higher interest burden
When inflation is low debt for the future
repo rate
When inflation is very high and Increased share of
Indicator of regressive tax
Increase in CRR needs extreme measures to indirect taxes among
regime
control it tax revenue
When inflation is very low and Increased share of
Indicator of progressive tax
Decrease in CRR needs extreme measures to direct taxes among
regime
bring It to healthy levels tax revenue
Bond yields increase As bond prices fall  exports increases as the
Bond prices rise When interest rates fall goods price is less
 inessential imports will
Leads to lower aggregate
Increase in taxes reduce
demand and inflation  more FII
Leads to higher aggregate Rupee depreciation
Decrease in taxes  remittances will increase
demand and inflation  debt servicing would be
Increase in costly
Leads to higher aggregate
government  fiscal deficit increases
demand and inflation
spending  inflation increases
Decrease in govt. Leads to Lower aggregate  Booming economy
spending demand and inflation  Huge FII
Increased  Less cost of imports
Rupee appreciation
government Leads to Crowding out effect  Export suffers
spending  Manage inflation
Reduced government  Brings in competition
Leads to crowding in effect
spending Current account  Net outflow of foreign
 Leads to lower disposable currency
deficit
income  Depletion of forex reserves
 Leads to higher tax  Macro economic instability
collections  Increase in debt
 Is correlated with reduced  Increase in interest
Large Fiscal deficit
Increase in inflation unemployment payments
 Real debt levels fall  BOP crisis
 Competitiveness in  Downgrading rating
external market suffers
 Consequences of
depriciation
www.laex.in Important Graphs www.civilsprep.com

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3. Fiscal Policy ..................................................................................... 9 to 11

D 4. Monetary Policy ............................................................................ 12 to 19

6. Financial Markets .......................................................................... 24 to 29

E 10. Agriculture .................................................................................... 36 to 39

C 11. Industry ........................................................................................ 40 to 42

12. Balance of Payments ..................................................................... 43 to 45

K 13. Foreign Investment ................................................................................ 46

O 14. Economic Integration .................................................................... 47 to 48

15. WTO ............................................................................................. 49 to 54

E 17. Basis for Comparison CPI, WPI, IIP, PMI ................................................. 57

18. Important Graphs ......................................................................... 58 to 59

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Microeconomics Macroeconomics Mesoeconomics –

 Secondary sector: It includes all industries that are

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The Hindu ZoneOfficial

eSandesh (An Indian App)

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Circular flow in a simple economy Factors of production in an economy

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Gross Capital Formation (GCF): Growth vs Development

Central Statistical National Sample Survey

RAPID REVISION PROGRAM

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People’s Plan(1945) 3rd five year plan (1961 to 1966)

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Annual Plans: V. Decrease in the Maternal Mortality Ratio (MMR) to

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11th five year plan(2007-2012):

Objectives of the plan

12th five year plan(2012-2017):

NITI Aayog composition

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Types of fiscal policy  Revenue budget: Revenue budgets include income

Decrease Decreasing government Components of budget

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Fiscal consolidation: It means strengthening of budget. It is the most common method

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Monetary Policy and Banking

1. Accelerating economic growth.

Types of monetary policy

 Bank Rate: Rate at which RBI lends long term loan to

 Repo Rate: it is the Fixed interest rate charged by RBI

 It is used as Policy rate, which signals to the financial

 Reverse Repo :RBI borrows from the market on the

 Liquidity Adjustment Facility (LAF):LAF are used by

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1. Overleveraged companies :Debt accumulation on

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