Micro & Macro Economics Guide

Economy
Micro Economics
Macro Economics
www.classmateacademy.com 1
Macro Economics
Some Basic Definitions :
Economics :It is the social science that analyses the production,

distribution and consumption of goods and services .
The study of how we work together to transform scarce

resources into goods and services to satisfy the most pressing of
our infinite wants and how we distribute these goods and
services among ourselves.
Micro Economics: which examines the behaviour of firm,

consumers and the role of government.
Macro Economics: which deals with Inflation, unemployment,

Industrial production and the role of government.
Micro Economics :
• Product pricing
• Consumer behaviour
• Factor pricing
• Economic conditions of section of people
• Study of firms
• Location of a industry
Macro Economics :
• National income and output

• General price level
• Balance of trade and payments
• External value of money
• Saving and investment
• Employment and growth.
Every society has to answer three questions:
• What goods and services should be produced in the

country?
• How should the goods and services be produced?

Should producers use more human labor or more capital
(machines) for producing things?
• How should the goods and services be distributed among

people?
Types of Economy:
Capitalist Economy: It is characterised by existence of

private enterprise and ownership of all important sectors.
Socialist Economy: It is characterized by existence of

public enterprises or state ownership of capital in all
important spheres of economic activity.
Mixed Economy : In this system, public and private sectors

co-exist, India economy is a mixed economy.
Adam Smith :
• The Theory of Moral Sentiments (1759)
• An Enquiry into the Nature and Cause of the Wealth of
Nations.(1776)
• Market ="the invisible hand"

• laissez-faire (let it be)
• economics(From Mercantilism to Free trade )
Great Depression : 1929,US
John Maynard Keynes :
The end Of laissez -Faire

General Theory of Employment, Interest and Money (1936)
socialism:
Socialism is a social and economic system characterized by social
ownership of the means of production and co-operative
management of the economy.
was created to contrast against the liberal doctrine of

"individualism", which stressed that people act or should act as if
they are in isolation from one another
Utopian Socialism: ((First person)Thomas Moore,book Utopia)

Marx and Engel pointed out that
Saint Simon : Voluntary formation of social groups into large
family like organizations.
From each according to his ability to each according to his need

Saint –simon(France),RobertOwen(england),Fourier (USA)
Robert Owen in 1827, father of the cooperative movement.
Syndicalism (France) inspired in part by the ideas of Pierre Joseph

Proudhon and later by Fernand Pelloutier and Georges Sorel
Factories managed by both Workers and Specialist called Syndicates
Guild Socialism : G. D. H. Cole & William Morris.

The guild socialists "stood for state ownership of industry, combined
with ‘workers’ control’ through delegation of authority to national
guilds organized internally on democratic lines
The Fabian Society' is a British socialist organization which was

established with the purpose of advancing the principles of socialism
via gradualist and reformist means.
Communists :
Karl Marx and Fredrick Angels :

The Communist Manifesto (1848) and Das Kapital (1867–1894).
revolutionary socialism, and state socialism versus libertarian

socialism.
Socialist Economy: It is characterized by existence of public

enterprises or state ownership of capital in all important spheres
of economic activity.
Gross domestic Product(GDP):It is the value of all final goods and
services produced in the economy during an year.
Economic growth : It can be defined as a sustained increase in the

real per capita income of a country.it is quantitative in nature.
Economic Development: It is a phenomena where growth is

accompanied by redistribution of resources in favor of the
relatively worse off.
Sustainable Development: It is the development process which

allows for development of the present generation without
compromising the capacity of future generation to meet their
development needs.
Physical quality of Life Index: Morris David
His Indicators were : Life Expectancy, Infant Mortality, Basic
Literacy.
Human development report (HDR,1990):

Mahboob-ul-Haq & Amartya sen
Human Development Index:

• Per capita -Income-as measured by real GDP per capita (PPP)
• Longevity -Life expectancy at Birth
• Literacy levels-Adult Literacy (2/3 weight)+ combined
primary, secondary and tertiary enrollment ratio
(1/3 weight).
Industrial Revolution :
Carrying capacity : the resource extraction is not above the rate

of regeneration of the resource and the wastes generated are
within the assimilating capacity of the environment.
Absorptive capacity :means the ability of the environment to

absorb degradation.
Fossil Fuels, Green house gases and Global Warming
1972 : Stockholm Conference on the Human Environment
1987 : Go Harlem Burtland Report : Our Common Future
1992 : Earth Summit ,Rio-de-Janerio

Gender related Development Index(GDI): same as HDI, taking
in to account only gender related indicators.
Gender Empowerment Measure: captures Gender equality in

three different areas
• Political participation measured by women's and men's
share in parliamentary seats.
• Economic participation :measured by women and men's
percentage shares of position as legislators, senior officers
and managers and women and men's percentage shares of
professionals and technical positions.
• Power over economic resources as measured by women's

and men's estimated earned income.
Green GDP: Environmentally adjusted GDP.

Green GDP = GDP-Depreciation of natural Capital.
National Income: Measurement
Gross domestic Product(GDP):It is the value of all final goods and services
produced in the economy during an year.
Gross National Product(GNP):it refers to the money value of total output

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

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

from GNP.
Measuring National Income :
Three methods:
• Product Method /Value added method
eg. Agriculture,Forestry,mining.
• Income Method
eg. Banking, Insurance.
• Expenditure Method.
eg. Construction
• CSO(1950) estimates National Income of India.

• Dadabhai Naoroji
• VKRV Rao made the first scientific estimates in 1925-29
• First official estimates in year ,1949 Ministry of commerce.
• Now CSO is under MoSPI.
• Let us suppose that there are only two kinds of producers in the
economy.
• wheat producers (or the farmers) and the bread makers (the bakers)
• Total value of wheat that the farmers have produced is Rs 100.
• Out of this they have sold Rs 50 worth of wheat to the bakers.
• The bakers have used this amount of wheat completely during the
year and have produced Rs 200 worth of bread.
• What is the value of total production in the economy
Product Method:
Expenditure Method :
Income Method :
Factors of Production : Land, Labor ,Capital, Entrepreneurship
Factor Cost +Indirect Taxes =Market Price.

Factor Cost –subsidy=Market price.
Net National Product at market Prices = GDP at factor cost +Net
indirect Taxes-Subsidy.
Net National Product at Factor cost = NNP at market Prices –Net

Indirect Taxes+ Subsidy.
NNP at FC =National Income
Per capita income, also known as income per person, is

the mean income of the people in an economic unit such as a
country or city. It is calculated by taking a measure of all sources
of income in the aggregate ( National income) and dividing it by
the total population.
GDP(at purchasing power parity) per capita, i.e. the purchasing
power parity (PPP) value of all final goods and
services produced within a country in a given year
Rank Country GDP in PPP Year

1 United States 16,768 2013
2 China 16,162 2013
3 India 6,776 2013
4 Japan 4,641 2013
New Estimates :
Base year from 2004-05 to 2011-2012
Growth for 2013-2014 is 6.9 %

• Capital goods :They are defined as all the goods produced
for use in future productive process. Eg. machinery,
equipment, roads and bridges.
• Consumer Goods : Goods like food and clothing that are

consumed when purchased by goods, are consumed when
purchased by their ultimate consumers are called
consumption goods or consumer goods.
• Consumer durables : like television sets, automobiles

or home computers, although they are for ultimate
consumption have one characteristic in common with capital
goods – they are also durable
• ICOR: It is the ratio of investment to change in output.
Sectors of Economy:
Primary sectors : The primary sector of the economy makes

direct use of national resources .eg agriculture,fishing,mining.
Secondary sector: This sector generally takes the output od

the primary sectors and manufacturing finished goods. All
industrial production comes under this.
Tertiary sector: It involves providing intangible goods like

services. Eg. Financial services, management,consultancy, and
It are good examples of service sectors
Country Origin of GDP
Agriculture Industry Services
U.K 0.7% 21.6% 77.6%

U.S.A 1.2% 20.0% 78.0%
JAPAN 1.1% 27.4% 71.5%
THAILAND 12.4% 41.1% 46.5%
PAKISTAN 21.6% 24.9% 53.4%
CHINA 10.0% 46.6% 43.3%
INDIA 17.2% 26.4% 56.4%
Share in GDP :
Primary Secondary Tertiary

1951 56 16 28
2011 13.9 27 59
Distribution of working population :
Primary Secondary Tertiary

1951 72 10.7 17.2
2011 53.5 20.9 25.6
Classification of Economy :
Agriculture sector: Agriculture , Fisheries, Forestry.
IndustrialSector:Mining,Manufacturing,Construction,Electricity,
Gas and water.
Services Sector: Transport, Storage and Communication, Hotel,

Finance ,Real estate, Public administration etc.
Primary sector: Agriculture Sector +Mining.
Secondary Sector: Industrial Sector -Mining
S.No Category Global
ranking
1 Area 7
2 Population 2
3 Labour Force 2
4 GDP(nominal) 10
5 GDP(PPP) 3
6 GDP(nominal) 138
per capita
7 HDI 135
HDI = 135/187 (0.586)

GDI = 132/148 (0.828)
Poverty and Unemployment
Short Term Unemployment :
Cyclical unemployment: Unemployment due to down turn in

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

• Deflation or disinflation phase
• Recession
• Reflation
Frictional Unemployment: Unemployment caused due to

short term obstacles in the economy like change in
technology is known as frictional unemployment.
Seasonal unemployment :Reoccurrence of unemployment in a certain
period of the year on a regular basis.
Disguised unemployment : when marginal productivity of surplus work force

is negligible due to engagement of work force more than required is known
as disguised unemployment.
Under employment: If a person is not employed according to one’s

qualifications or full period is known as underemployment.
Structural unemployment: surplus of labour force in one sector of the

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

Short term Schemes: Temporary solution.
JRY---->JGSY------->SGRY(JGSY+EAS)----->MNREGA
Long term schemes: Permanent solution.

IRDP,DWCRA,TRYSEM,SITRA
1999,all of IRDP,TRYSEM,DWCRA,SITRA merged to SGSY.
Now referred to as NRLM.
Montek Singh Ahluwalia Committe,2001

SP Gupta commmittee,2001:target 10 million oppurtunities
Poverty :
• Absolute Poverty: it is a level of income which is not sufficient to

fulfill the basic needs of a person.
• Relative poverty: It is related with the unequal distribution of

income in the country.
• Lorenz curve: it is a curve which shows the inequality in

distribution like inequality in income.
• Gini coefficient: It is a co-efficient which shows the inequality in

distribution like inequality in income. The value of Co-efficient
varies between 0 and 100(in % terms)The value of the coefficient
increases with increase in inequality.
• Gini coefficient =area between lorenz curve &45 line/area of

below 45 line.
Poverty line:
Defined on the level of nutrition-2400 cal/2100 cal

Converted to poverty line basket(monetary terms)
It is based on the consumption income in India.
Poverty rate now is 22 %(approx).
World Bank Definition:$ 1.25 per person perday.
poverty Urban Rural

Tendulkar(2005) 37.2%(2005) Rs 33 and 25.7% Rs 27 and 41.8%
21.9(2012)
Rangarajan(2012) 29.6% Rs 47 and 30.95% Rs 32 and 26.4%
Tendulkar 2004 2011
Poor % 37.2 21.9
Poor Cr. 41 27
Highest rural poverty Lowest poverty

1.tie: Odisha, MP 1.Kerala (7.1%)
2.Bihar 2.Himachal (8.1%)
3.Assam 3.Punjab (8.3%)
Rural poverty line (Rs) Tendulkar C.Rangarajan

per day per person 27 32
per person per month 816* 972
per family of five, per
4080 4860*
month
Poverty in India: Year 2011

Formula # of BPL in crores
Tendulkar 27
Rangarajan 37
difference 10 crore = 100 million BPL increased
Poverty alleviation schemes:
Basic Needs Short-term Long-term
ICDS,1975 Employment Guarantee TRYSEM(1979),
Scheme of NREP(1980)
Maharashtra(1972)
Food for Work(1977-78) Rural Landless DWCRA(1982)
Employment Guarantee
Programe(1993)
PDS (APL,BPL),1997 Jawahar/Nehru Rozgaar SEEUEY(1984)
Yojana,1989
AAY,2000 SJSRY(1997) SJGSY(1999)
Annapurna Yojana,1999 Sampoorna Grameen NRLM(2011)

10Kg food grains to those Rojgaar Yojana,2001
who do not get pension
MNREGA(2006)-right
based approach
Infrastructure Education Health
CADP(1974) Sarva Shiksha Abhiyan ICDS,1975
(SSA)/Right to Education
(RTE)
DDP(1977) National Programme for MDM,1995
Education of Girls at
Elementary Level (NPEGEL)
IRDP(1980) Kasturba Gandhi Education NRHM,2005
Scheme(1997)
MPLADS(1993) Rashtriya Madhyamik Shiksha PMSSY,
Abhiyan (RMSA) 2009
PMGSSY(2000) Saakshar Bharat (Saakshar
Bharat)
Bharat Nirman,2005 Rashtriya Uchchatar Shiksha
Abhiyan(RUSA)
Bharath Nirman:
• Irrigation: To ensure irrigation for additional one crore hectare land by

2009.
• Roads: To link all villages of 1000 population with main roads and also to
link all ST and hilly villages up to 500 population with roads.
• Housing : Construction of additional 60 lakh houses for the poor.
• Water supply : To ensure drinking water to all remaining 74,000 villages.
• Electrification: To supply electricity to all remaining 1,25,000 villages

and to provide electricity connections to 2.3 cr houses.
• Rural Communication :To provide telephone facilities to all remaining

66,000(approx) villages.
Education:
RTE
Sarva Shiksha Abhiyan : Implemented since 2000 tp address the needs of

children in the age group 6-14.
National programme for Education of Girls at Elementary Level: NPEGEL,

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

imbalances in the availability of affordable and reliable tertiary health care
services.
Setting up of 6 AIIMS like institutions .
Upgrading 13 existing government medical college institutions.
Population: Human resource
Birth rate : Number of births per thousand population in a year .
Death rate: Number of death per one thousand population in a year.
Natural growth rate :The difference between birth rate and death rate is called Natural
growth rate of population.
Neo-Natal Mortality rate: Number of death of children below one month of age per
thousand live births.
Infant mortality Rate :Number of deaths of children below one year of age per one
thousand live births.
Child Mortality: Number of deaths of children below five years of age per thousand infants.
Maternal Mortality rate: Number of maternal deaths one lakh live births.
Life expectany at birth:The average expected life of children born in a given period .
Literacy rate: The percentage of population in the age group of 7 years and above who can
read, write and understand at least one language.
TFR(Total fertility Rate)-Number of births per woman is called TFR.
Gross fertility Rate –(No. of Births)/(Female population 15-49).
Sex ratio: number of women per 1000 men.

Best state –Kerala
Worst state : Haryana, Punjab
Population Theories:
• Malthusian Theory-An Essay on Principle of Population,1798
• Optimum population Theory
• Demographic transition theory
Demographic Transition Theory:

First Phase------------------(phase of stagnation 1901-1921)
Second Phase --------------(Phase of steady growth 1921-1951)
Third Phase------------------(Phase of rapid Population growth 1951-81)
Fourth Phase-----------------(Phase of high but decelerating growth 1981-01)
United States US $53,143
US $ 51,911
Canada
Earliest references of census are found in :
• 'Rig-Veda' reveals that some kind of population count was maintained in
during 800-600 BC in India.
• Kautilya’s ‘Arthashastra’(321-296 BC) and later, in
• Abul Fazl’s ‘Ain-Akbari’ (1595-96)
• First census:1872
• Second Census:1881
• The 1901 Census: Herbert Risley, The People of India(Inclusion of caste)
National Population Policy:2001

• TFR 2.1 by 2010.
• Long term population stabilization by 2045.
• National Population Stabilization Fund
Established in 2003,under ministry of health.
Age classification:
0-14 yrs : Dependent Population
15-59 yrs : working age population
60+ yrs : Dependent Population
Demographic Dividend
Country Infant Mortality Rate
Germany 3.3
U.K 4.4
USA 6.4
Canada 4.9
France 3.4
Australia 4.1
Japan 2.4
China 12.1
India 44
State Birth Rate Death rate IMR
Kerala 14.8 7.0 13
Tamil Nadu 15.9 7.6 24
Andhra 17.9 7.6 46

Pradesh
Maharashtra 17.1 6.5 28
Karnataka 19.2 7.1 38
West Bengal 16.8 6.0 31
Punjab 16.6 7.0 34
State Birth Rate Death rate IMR
Orissa 20.5 8.6 61
Gujarat 21.8 6.7 44
Haryana 22.3 6.6 48
Assam 23.2 8.2 58
Bihar 28.1 6.8 48
MP 27.3 8.3 62
Rajasthan 26.7 6.7 55
U.P 28.3 8.1 61

Janani Suraksha Yojana : 2005
One-time cash incentive to pregnant women for

institutional/home births through skilled assistance
Indira Gandhi Matritva Sahyog Yojana:2010

A cash incentive of Rs. 4000 to women (19 years and above)
for the first two live births
Census Total Population DecadalGrowth Average Annual
Year (in crore) Rate (in %) Growth Rate (in%)
1901 23.84 - +0.11

1911 25.21 +5.75 +0.56
1921 25.13 -0.31 -0.03
1931 27.90 +11.00 +1.04
1941 31.87 +14.22 +1.33
1951 36.11 +13.31 +1.25
1961 43.92 +21.64 +1.96
1971 54.82 +24.80 +2.20
1981 68.33 +24.66 +2.22
1991 84.64 +23.87 +2.16
2001 102.87 +21.54 +1.97
2011 121.02 +17.64 +1.64
TFR : 2.3 (Survey ),women 48 % of population

High Growth Rate :
1 Dadra and Nagar Haveli 55.88 %
2 Daman and Diu 53.76 %
3 Puducherry 28.08 %
4 Meghalaya 27.95 %
5 Arunachal Pradesh 26.03 %
Population Density:
2001-324
2011-382
Total Population :
1 Uttar Pradesh 199,812,341
2 Maharashtra 112,374,333
3 Bihar 104,099,452
4 West Bengal 91,276,115
5 MadhyaPradesh 72,626,809
SEX Ratio
Country 2001 2011
World 986 984
China 944 926
India 933 943
USA 1029 1025
Brazil 1025 1042
Russian Federation 1140 1167

Japan 1041 1055
Sex Ratio :
Census Year Sex Ratio
1901 972
1911 964
1921 955
1931 950
1941 945
1951 946
1961 941
1971 931
1981 934
1991 927
2001 933
2011 943
Sex ratio :
State 2011
Kerala 1084
Tamil Nadu 995
Andhra Pradesh 992
Orissa 978
H.P 974
Gujarat 918
Bihar 916
UP 908
Punjab 893
Haryana 877
Literacy:
S.No. Census Year Total (%) Male (%) Female (%)

1 1901 5.35 9.83 0.60
2 1911 5.92 10.56 1.05
3 1921 7.16 12.21 1.81
4 1931 9.50 15.59 2.93
5 1941 16.10 24.90 7.30
6 1951 16.67 24.95 9.45
7 1961 24.02 34.44 12.95
8 1971 29.45 39.45 18.69
9 1981 36.23 46.89 24.82
10 1991 42.84 52.74 32.17
11 2001 64.83 75.26 53.67
12 2011 74.04 82.14 65.46
Population Density :
1 Bihar 1106
2 West Bengal 1028
3 Kerala 860
4 Uttar Pradesh 829
5 Haryana 573
Union Territories : Density
1 Delhi 11,320
2 Chandigarh 9,258
3 Puducherry 2,547
4 Daman and Diu 2,191
5 Lakshadweep 2,149
Decadal Growth rate :
State %
1 Meghalaya 27.95
2 Arunachal Pradesh 26.03
3 Bihar 25.42
4 J&K 23.64
5 Mizoram 23.48
Variation on religious level-
• Jains - 94.1% (highest literate)
• Christians - 80.3%
• Buddhists - 72.7%
• Sikhs - 69.4%
• Hindus - 65.1%
• Muslims - 59.1%
States of India (in descending order) having highest literacy rate
• Kerala-94.00%
• Mizoram -91.33%
• Goa- 88.70%
• Tripura-87.22%
• H.P-82.80 %
States of India (in ascending order) having lowest literacy rate
• Bihar (61.80%)
• Arunachal Pradesh (65.38%)
• Rajasthan (66.11%)
• Jharkhand (66.41%)
• Jammu & Kashmir (67.16%)
• Uttar Pradesh (67.68%)
Union territories of India (in descending order) having highest literacy rate
• Lakshadweep (91.85%)
• Daman and Diu (87.10%)
• Andaman& Nicobar Islands (86.63%)
• Delhi (86.21%)
• Chandigarh (86.05%)
Union territories of India (in ascending order) having least literacy rate
• Dadra and Nagar Haveli (76.24%)
• Puducherry (85.85%)
• Chandigarh (86.05%)
• Kerala has the highest male literacy followed by Mizoram, Goa and
Maharashtra.
• Kerala has also the highest female literacy followed by Mizoram, Goa and
Himachal Pradesh.
• Among union territories, Lakshadweep stands first both in male and female
literacy.
Life expectancy (at the time of birth) (2001-2006) :
Total - 65.3 years
Male - 63.87 years
Female - 66.91 years
Religious Group Percent(2011)

Hindus 79.5
Muslims 14.2
Christians 2.78
Sikhs 1.7
Buddhists 0.77
Jains 0.41
Christians(2.34%):
Religious Composition. Kerala
Nagaland -90%
Hindus:(80.45%) Mizoram -87%,
Himachal Pradesh-95.4% Meghalaya-70%
Mizoram-3.6%. Manipur- 32.2%
Goa -26.7%
Muslims:(13.5%)
UP,WB Sikhs(1.87%):
J&K-66.9% Punjab-70 % of population.
Assam-30.9% Punjab-59.91%
West Bengal -25.2% Chandigarh-16.1%,
Kerala-24.7% Haryana -5.54%.
Mizoram -1.14% Delhi-4.01%
Jammu & Kashmir -2.04%
Rajasthan-1.45%
Lakshadweep-94.3%
Buddhists-
Maharashtra-73.4%
Sikkim -28%
Arunachal Pradesh
Mizoram
Tripura.
Ladakh (Jammu and Kashmir) and
Dharmshala (Himachal Pradesh)
Jains-
Maharashtra
Rajasthan
Gujarat
Delhi.
Parsis-
Maharashtra (mainly in Mumbai)
and Gujarat.
Age 0-14yrs 15-59 yrs
1971 41.2 % 53.4%
1981 38.1% 56.3%
1991 36.3% 57.7%
2013 28.4% 63.3%
In 2020 avg age ,India =29 yrs Globally ,shortage of

China=37 yrs young population of
USA=37 yrs 56m,India only country
WesternEurope=45yrs with excess of 47 m
Japan=48yrs
Urban Habitat:
Definition:
• All the places with Muncipalities,Municipal corporations,Cantonments and
Notifies urban areas.
• Census Definition
Minimum population-5000
Minimum Population Density-400 per sq km.
Minimum 75% of the male working population whould engage in non-agricultural
activities.
• Classification of cities in India :

Group 1 --------1,00,000 and above Population
Group 2---------50,000 -99,999
Group 3 ---------20,000-49,999
Group 4 ----------10,000-19,999
Group 5 ----------5000-9,999
Group 6 ----------Less than 5,000
Highest population in Group 1,Highest number of cities is in Group-4.
Slum population :MH, AP, UP, WB, TN, Del
Cities :Mumbai, Delhi, Calcutta, Chennai, Nagpur, Hyderabad, Pune.
2011- 31 % Population in India
SMART Cities : 100 Smart cities ,each city to be given 100 Cr.
Atal Mission for Urban Renewal and Transformation (AMRUT) :

500 cities with 1 Lakh and above Population
Housing for All by 2022‘
Shyama Prasad Mukherji Rurban Mission (SPMRM) :

The clusters will be geographically contiguous Gram Panchayats with a population of
about 25000 to 50000 in plain and coastal areas and a population of 5000 to 15000 in
desert, hilly or tribal areas. www.classmateacademy.com 78
While addressing the Constituent Assembly in 1947, Jawaharlal Nehru had said,
“This achievement (Independence) is but a step, an opening of opportunity, to the

great triumphs and achievements that await us…the ending of poverty and ignorance
and disease and inequality of opportunity.”
First Five Year Plan (1951-56),
“the urge to bring economic and social change under present conditions comes from
fact of poverty and inequalities of wealth, income and opportunities.
Second Five year plan :
The benefits of economic development must accrue more and more to the relatively
less privileged classes of society .
Indian Planning:1950- up to now
Economic Planning is a development strategy taking into consideration limited

resources to achieve long term objective in the economy.
Types of Planning:
Planning on the basis of role of STATE:
Imperative Planning: All the economic decisions are taken by single central
authority ,usually known as central Planning Authority.
Indicative Planning :Planning by incentive/inducement.The state interference is

limited to making policy and adopting indirect control. Government takes help
of private sector in plan formulating a plan .The ways of achieving such targets
is left to private sectors.
Planning by Inducement: It is a feature of mixed economy.The government sets

broad objectives and targets of development ,but instruments used are not like
in a Planning by command,but use indirect methods like Tax benefits
Planning on the basis of plan formulation and implementation:
Centralised Planning: It is similar to planning by command .The process of plan
formulation lies at the hand of a central authority usually central planning
Authority.
Decentralised Planning: Planning from below.The plan is formulated a various

levels ,like in India centre,state, local levels and amalgamated and a Plan is
formulated at National Level.
Planning on the basis of time period of plans:
Prespective Planning :It is called a long term Plan .Under this system the plan is
formulated for a longer period say 15-20 yrs
Medium Plan :Planning for a limited period say 5 years ,targets are set for five
years.
Annual Plan: All the perspective and medium plans may have annual targets
specified for a fixed plan.
Flexibility or rigidity of plan :
Fixed Plan: Such are formulated time period of 5 years and 10 years. Targets are fixed
for a fixed period .
Rolling Plans: This Plan contains 3 plans .Annual Plan,Five year Plan and long term
plan.
History of Planning in India:
• M .Vishveshvarya(1934):”Planned Economy for India”.

• National Planning Committee (1938):J Nehru.
• Bombay Plan(1944):Industrailists
• Sriman Narayan :”Gandhi Plan”
• People Plan (1945):M.N.Roy
• Jay Prakash Narayana(1950):Sarvodaya Plan.
• Planning Commission(1950)
• NDC(1952)
Indian Planning : the changes
Phase 1:1950-51 to 1965-66---Nehruvian Era

Phase 2:1965-66 to 1979-80---Indira Gandhi era
Phase 3 1979-80 to 1991-92---Structural Change Beginning of liberalisation
Phase 4:1991-92 to 2013-14---LPG
First five year Plan(1951-56):Development of Agriculture

• Harrold-Domar Model.
• CDP
• Hirakud and Bhakra Nangal
Second five year plan(1956-61):Rapid Industrialisation.

• Mahalanobis Model.
• Influenced by soviet model.
• Rapid industrialisation.
• UGC,IITs
• Steel Plants
• Bhilai(USSR),Durgapur (Britain),Rourkela(Germany)
Industrial Policy Resolution 1956 (IPR 1956):
• exclusively owned by the state;
• private sector could supplement the efforts of the state sector,
• private sector.
Trade Policy : Import Substitution
Protection : Tariffs and Quotas
Industry groups Examples
Basic Industries Steel industry, Aluminium smelters, Cotton

ginning mills, Sulphuric Acid & Caustic
Soda
Capital goods industries Machinery except electric, electric
Machinery, Shipbuilding, Railroad
equipment, Motor vehicles
Intermediate Petroleum refinery , Ferro-Chrome alloy
Consumer goods industries

SCHEDULE A
• Arms and ammunition and allied items of defence equipment
• Atomic energy.
• Iron and steel.
• Heavy castings and forgings of iron and steel.
• Heavy plant and machinery required for iron and steel production, for mining, for
machine tool manufacture and for such other basic industries as may be specified by
the Central Government.
• Heavy electrical plant including large hydraulic and steam turbines.
• Coal and lignite.
• Mineral oils.
• Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond.
• Mining and processing of copper, lead, zinc, tin, molybdenum and wolfram.
• Minerals specified in the Schedule to the Atomic Energy (Control of Production and
Use) Order, 1953.
• Aircraft.
• Air transport
• Railway transport.
• Shipbuilding.
• Telephones and telephone cables, telegraph and wireless apparatus (excluding radio
receiving sets).
• Generation and distribution of electricity.
SCHEDULE B
• All other minerals except "minor minerals" as defined in Section 3

of the Minerals Concession Rules, 1949.
• Aluminium and other non-ferrous metals not included in Schedule
'A'.
• Machine tools.
• Ferro-alloys and tool steels.
• Basic and intermediate products required by chemical industries
such as the manufacture of drugs, dyestuffs and plastics.
• Antibiotics and other essential drugs.
• Fertilizers.
• Synthetic rubber.
• Carbonisation of coal.
• Chemical pulp.
• Road transport.
• Sea transport
Third Plan(1961-1966):Self reliance and Self sustained economy
• Import Substitution
• Gadgil Yojana
• Two wars &Political Instability
• Officially declared failure
Plan Holiday:1966-69
• Three Annual Plans
Fourth Plan(1969-1974):Self reliance in growth with stability

• Growth with Justice and Garibi hatao.
• Aggressive policies
• FERA,1973—To use forex reserves properly
• Bank Nationalisation,1969
• MRTP,1969---To prevent the emergence of Monopoly.
• 1971-74:Inflation(>10%),1971 War,Oil shock.
• Operation Smiling Buddha
Fifth Plan(1974-79):Poverty Eradication.

• National emergency,1975.
• 20 Point Programme.
• Food for work programme started.
Programme Year Obejctive
CDP 1952 Rural development
HYVP 1966-67 To increase productivity of

food grains by adopting
latest varieties of inputs
for crops.
Special Area Programs:

Command Area 1974-75 To ensure better and rapid
Development Program utilization of irrigation
capacities of medium and
large projects.
Desert development 1977-78 For controlling the desert
Program and prevent expansion of
Desert
Programs for specific Sections(Groups):
Small farmer Development 1974-75 Technical and Financial

Agency assistance to small farmers
Training rural youth for self 1979 Program of training rural

employment(TRYSEM) youth for self employment
Development of women 1982 To provide suitable

and children in rural areas opportunities of self-
(DWCRA) employment to the
women belonging to the
rural families who are
living below the poverty
line
Integrated Child 1975 Child Nutrition and Pre-
Development primary education.
Scheme(ICDS)
Rolling Plan(1978-1980):
• Every year performance of the plan would be assessed and a new plan would be
based on such an assessment would be made for the subsequent year.
Sixth Plan(1980-85):Employment Generation(Perspective Planning)

• PC--Structural changes in the economy
• Liberal licensing
Eg. Agro based industries
• More Poverty Eradication Programmes
Seventh Plan(1985-90):Modernisation Towards 21 century

• Continued sixth plan,Liberalisation
in Industries like Electronics, Food Processing etc
Technology missions like Oilseeds etc.
• More investments in PSU,modernisation.
• More Schemes like JRY
1990’s severe economic crisis,Gulf war,Credit rating agencies down graded India,NRI
also with draw money from India.
Plan Holiday (1990-92):Annual Plans

• 24,July,1991 –Liberlisation –”New Industrial Policy”
Milton Friedman:
Chicago School of Economics
Reaganomics and Thatcherism
Trickle-down theory
Neo Right Policy – Privatization, Liberalization
Regulating Body Area year
SEBI(Formerly CCI) Capital Market 1992

IRDA Insurance sector 1999
CCI (MRTP) Competition 2002
TRAI Telecom 1997
PFRDA Pension 2003
FSSAI Food Safety and 2011
Standards Authority of
India
IWAI Inland Waterways 1986

Authority of India
CERC Central electricity 1998

Regulatory Commission
Eighth Plan (1992-97):Human Resource Development
• John Miller
• Employment, Education and Public Health
• Economic growth 6.7%
Privatization : Privatization is to increase participation of private sector in the public

sector companies by capital investment or by management or both or to hand over a
public sector unit to a private company .
Liberalization :It is the process by which government control is relaxed or abolished.
Globalization :The process of amalgamation of Economy with the world economy is

called Globalization . It is signified by lower duties on import and export.
Disinvestment: To reduce the government share in the public sector is called

disinvestment.
Ninth Plan(1997-2002):Growth with Social justice and Equity

• Focus on agriculture and rural development to eradicate poverty.
• Problems in International level
Tenth Plan (2002-2007): Growth, equality & employment generation
Eleventh Plan(2007-2012):Towards faster and more inclusive Growth
Twelfth Plan(2012-2017):Faster,More Inclusive and sustainable Growth
1. Economic Growth
• Real GDP Growth Rate of 8.0 per cent.
• Agriculture Growth Rate of 4.0 per cent.
• Manufacturing Growth Rate of 10.0 per cent.
2. Poverty and employment

• Poverty to be reduced by 10%
• Generate 50million additional Employment opportunities in non-farm sector
and provide skill certification to equivalent numbers.
3. Education
• Mean years of schooling to be seven years
• Enhance access to higher education by creating additional 2 Million seats
• Eliminate gender and social gap in school education (girls,SC,ST,Muslims,etc)
4.Health
• IMR-25,MMR-1,CSR(950)
• TFR-2.1
• Reduce under Nutrition among children by half among 0-3 yrs children.
5. Infrastructure Including rural Infrastrucure:

• All weather road connectivity
• Two laning of state highways
• Teledensity-70%
6. Environment and sustainability

• Green cover 1 million hectares
• 30,000 MW renewable energy
• Reduce emission intensity by 20-25%,reduction over 2005 levels by 2020.
7.Service Delivery
• 90% financial Inclusion.
• Subsidies be given through DTC.
Schemes of New Government :
• Pradhan Mantri Jan Dhan Yojana : 28 Aug,2014 :
• Rupay Debit card
• Accident insurance cover of Rs 1L
• Life insurance cover of Rs30,000to those who opened account before 16,Jan
• 28 Jan : 12.31cr (7.36 in rural areas ,4.95 in urban areas )
• 67.5 % with zero balance
DDUGJY : Deendayal Upadhyaya Gram Jyoti Yojana (Garv : Grameen Vidyutikaran app)
• Separation of agriculture and non-agriculture feeders

• Augmentation of transmission and distribution
• Metering in rural areas
Swach Bharat Mission : 2oct,2014 by 2oct 2019

Awareness,solidwaste,sanitation,
Heritage City Development and Augmentation Yojana(HRIDAY)

Heritage linked urban development(12 cities
Ajmer,Varanasi,Warangal,badami,Puri,Gaya)
Smart City Scheme : 100 cities www.classmateacademy.com 96

J : JanDhan Yojana, 125.5 m JanDhan bank accounts
A : Aadhaar,757m Aadhaar numbers
M : Mobile numbers, 904m mobile phones .
PAHAL : (Pratyaksh Hanstantrit Labh)
01/01/2015 launched throughout the country
ASER report :
Grade 5 -47% could read grade 2
Padhe Bharath Bade Bharath :

focuses on early reading, writing and comprehension and early
grade mathematics.
Deendayal Upadhyaya grameen Koushalya Yojana(Ddu-GKY) :

Training and career
Nai Manzil : Education and skill development of dropouts

without a formal school-leaving certificate to obtain one and find
better employment.
Pandit Madan Mohan Malaviya Mission for Teachers Training:

Dec 25
Atal Pension Yojana : APY is applicable to all citizen of India aged between 18-40 years,
would receive the fixed monthly pension of Rs. 1000 to Rs 5000 at the age of 60 years,
depending on their contributions.
Government would co-contribute 50 per cent of a subscriber’s contribution or Rs 1,000

per annum, whichever is lower to each eligible subscriber account for a period of of 5
years from 2015-16 to 2019-20.
Pradhan Mantri Jeevan Jyoti Bima Yojana:

Eligibility: Available to people in the age group of 18 to 50 and having a bank account.
People who join the scheme before completing 50 years can, however, continue to have
the risk of life cover up to the age of 55 years subject to payment of premium.
Premium: Rs 330 per annum. It will be auto-debited in one installment.
Payment Mode: The payment of premium will be directly auto-debited by the bank from
the subscribers account.
Risk Coverage: Rs. 2 Lakh in case of death for any reason.
Pradhan Mantri Suraksha Bima Yojana:

Eligibility: Available to people in age group 18 to 70 years with bank account.
Premium: Rs 12 per annum.
Payment Mode: The premium will be directly auto-debited by the bank from the
subscribers account. This is the only mode available.
Risk Coverage: For accidental death and full disability – Rs 2 Lakh and for partial
disability – Rs 1 Lakh.
Nai Roshini : Leadership training programme for minority women.
MANAS (Maulana Azad National Academy for Skills)

Upgrading entrepreneurial skill of minority youth for sled employment
Mission Indradhanush (25 dec): To cover all the children who are either
unvaccinated or are partially vaccinated against 7 preventable diseases
Diphtheria,Whooping Cough,Tetanus,Polio,Tuberclosis,Measles
Immunization –From 65% to 90%
Beti Bachao BetiPadhao Programme (BBBP) : 22 Jan,2015 at panipat
,Haryana
First in 100 dist
Haryana-835
Sukanya Samriddhi account" special account for girl child,
Rs1000 at time of birth ,then any amount in multiples of hundred and at 18
yrs,Rs 1,50,000
Sansad Adarsh Gram Yojana(SAGY):

11Oct,2014
One Model village -2016
Two Model Villages -2019
Vanbandhu Kalyan Yojana :

One Block In Tribal areas (schedule 5 states),10 cr for all round
development .
Sugamya Bharat Abhiyan(Accessible India Campaign ) : Is the
nationwide campaign for achieving universal accessibility for all
citizens including Persons with Disabilities, to be able to gain
access and live independently.
DEC-3, International day of Persons with disability.
UDAY : Ujwal Discom Assurance Yojna
• Improving operational efficiencies of discoms,

• Reduction of cost of power,
• Reduction in interest cost of discoms and
• Enforcing financial discipline on discoms through alignment
with state finances.
DELP : Domestic Efficient Lighting Programme

EESL : Efficient Energy Services Limited Pub ltd
Start Up India
• Single Window Clearance even with the help of a mobile application

• 10,000 crore funds of fund
• 80% reduction in patent registration fee
• Modified and more friendly Bankruptcy Code to ensure 90-day exit
window
• Freedom from mystifying inspections for 3 years
• Freedom from Capital Gain Tax for 3 years
• Freedom from tax in profits for 3 years
• Eliminating red tape
• Self-certification compliance
• Innovation hub under Atal Innovation Mission
• Starting with 5 lakh schools to target 10 lakh children for innovation
programme
Stand Up India Scheme to promote entrepreneurship among Scheduled
Caste/Scheduled Tribes (SC/ST) and Women entrepreneurs.
• The Scheme seeks to facilitate at least two such projects on an average

one for each category of entrepreneur per bank branch.
• The Stand-up India is component of Start-up India, Stand up India

slogan anchored by Department of Financial Services (DFS) to
encourage greenfield enterprises by Women and SC/ST entrepreneurs.
• It will refinance window through Small Industries Development Bank

of India (SIDBI) with an initial amount 10,000 crore rupees
• It would provide women and SC/ST entrepreneurs bank loans

repayable up to 7 years. It would be between 10 lakh to 1 crore rupees
for greenfield enterprises in the non-farm sector.
Pradhan Mantri Kaushal Vikas Yojana
• PMKVY is a flagship scheme that would ensure that the

youth undergo skill training under NSDC and this scheme
would affect the skill sets of around 24 lakh individuals
across the length and breadth of the country.
• The National Skill Qualification Framework (NSQF) would be
the benchmark of training programs carried out under the
PM Kaushal Vikas Yojana.
• The scheme would also award monetary rewards to the
successful trainees on completion and the certifications and
assessments would be carried out by third party assessment
bodies.
• The average monetary reward given to each trainee would
be around Rs 8,000
Agriculture :The Back bone to Indian Economy
• 50% of work force and 14 % GDP.
Land Reforms:
• Abolition of intermediaries
• Tenancy reforms
Regulation of rent
Security of tenure
Ownership rights to tenants
• Land ceilings.
• Green Revolution
Production =Productivity*area
Increase in production through productivity is known as Green revolution
Inputs: Irrigation,HYV,Fertilizers and pesticides.

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

• AIBP,1996-97
• Drought Prone Area Programme(DPAP),1973
• Desert Development Programme(DDP),1977
Pricing in Agriculture:
Minimum Support Price(MSP):

It is fixed before sowing i.e start of the season.
24 crops are under MSP
CACP,1965
Procurement Price: It is the price at which the government procures foodgrains for
buffer stock and PDS.
Issue Price : It is the price at which the government sells the agricultural produce
from its stocks.
PDS : FCI keeps stock of food grains for the government .

Food Subsidy-Consumer Subsidy + Buffer Subsidy.
Consumer subsidy: the difference of procurement price and issue price.
Buffer subsidy : it is the cost incurred between the point of purchase and point of
sale
1997-TPDS(APL+BPL)
2000-AAY(Poorest of the poor)
NFSA-National Food security Act.
Ever green revolution,Second Green Revolution,Rainbow Revolution.
Agriculture finance:27% institutional sources,22%--non institutional
sources,51% unable to get any loan.
Short Term: 0-15 months

Medium Term: 15-5 Years
Long term: 5> years
Cooperatives:
Started in 1904
Three Tier Structure : Primary Credit Societies,DCCB,SCB
Commercial Banks:
After Nationalisation,60% credit through Commercial banks.
RRB,1975:set up by lead banks at district level with primary objective of
branch expansion and lending to rural areas.
9% lending.
KCC,Kisan Credit Card Scheme:Issued by commercial banks,cooperatives and
RRB. Commercial banks have issued maximum no of KCC
NABARD,1982
Priority Sector Lending: Decided by RBI, Indian Banks-40%,Foreign Banks-
32% (Agriculture)
Agriculture Insurance:
NAIS,1999:To protect Banks
MNAIS-Modified NAIS
WBCIS-Weather based Insurance scheme,2007
Pvt Companies-IFFCO-TOKYO,ICICI-LOMBARD
CPIS-
Agriculture Insurance Company of India Limited: GIC(35%),NABARD(30%),

remaining by Four PSU
Micro Finance:
Started in 1992,MFIs
RKVY-Rashtriya Krishi Vikas Yojana

NHM-National horticulture mission
NBM-National Bamboo Mission.
NFSM
NCM,2004-MS Swaminathan
National Policy For farmers,2007
RIDF-rural Infrastructure Development Funds,1996
New Schemes :
Pradhan Mantri Krishi Sinchayee Yojana :
Neeranchal National Watershed Project: Integrated

watershed management program (IWMP)
Soil Health Card : Swasth Dharaa. Khet Haraa
Shanta Kumar Committee on FCI
Pradhan Mantri Fasal Bima Yojana :
• premium will be 2 % of the sum insured for Kharif season

crops and 1.5 % for Rabi season crops. The rates are also
applicable for oilseeds.
• The premium rates for commercial crops like cotton and
other horticultural crops will be 5 % of the insurance sum
assured.
Industry: Its Development
Industrial Policy-1948:
• Public sector emphasized
• Private sector given limited role(lack of capacity + willingness)
Industrial development act ,1951
Industrial Policy ,1956

Role of Public sector expanded.
Schedule A-17 Public sector.
Schedule B -12 Public+private
Industrial Policy,1973:
Joint Sector was allowed in important and export oriented Industries.
Eg.Maruti,Vespa,HeroHonda.
Industrial Policy,1980:
Beginning of Gradual Liberalisation process in the country
Agro based industries,backward areas and export oreinted industries
Liberalization :It is the Process by which government control is relaxed or
abolished.
Privatization :Privatization is to increase the participation of private sector

in the public sector companies by capital investment or by management or
both or to hand over a public sector unit to private company.
Globalization: The process of amalgamation of an economy with world

economy is called Globalization. It is signified by lower duties on import
and export .
Disinvestment: To reduce the government share in the public sector is

called disinvestment.
New Industrial Policy,1991:

• Except 18 industries all other were freed from compulsory licensing in
1991,now only 3 (Atomic energy,Atomic minerals and railways)
• MRTP,1969 is replaced by competition act,2002
• FERA,1973 replaced by FEMA,2000.
Public sector: Changes
• Now only Three reserved –Atomic energy, atomic minerals and railways.
• Policy of recommending sick PSUs to BIFR.
Policy of MOU-Arjunsen Gupta Committee

PSU granted more managerial and financial autonomy .
Beginning of
Navratna,Maharatna,Mini-ratna.(1,2)
Policy of disinvestment.
BRPSE,(2004)-Board of Reconstruction of Public Sector Enterprises-to revive
sick PSU units.
VRS-Golden Handshake.
National Investment Fund(2005):
Present status : 290 CPSEs ,234(operational) and 56 (under construction)
Maharatna Navratna Miniratna Category-I Miniratna Category-II
A score of 60 (out of
100), based on six
parameters which
include net profit, net
Three years with an average worth, total
annual net profit of over Rs. manpower cost, total
2500 crore (earlier was cost of production, Have made profits
5,000 Cr), cost of continuously for the Have made profits
OR Average annual Net services, PBDIT last three years or continuously for the
Eligibility worth of Rs. 10,000 crore for (Profit Before earned a net profit of last three years and
3 years (earlier was 15,000 Depreciation, Interest Rs. 30 crore or more should have a
Cr), OR and Taxes), capital in one of the three positive net worth.
Average annual Turnover of employed, etc., ANDA years
Rs. 20,000 crore for 3 years company must first
(earlier was 25,000 Cr) be a Miniratna and
have 4 independent
directors on its board
before it can be made
a Navratna.
up to Rs. 1,000 crore
or 15% of their net
Rs. 1,000 crore - Rs. 5,000 worth on a single up to Rs. 500 crore or up to Rs. 300 crore or
Benefits for crore, or free to decide on project or 30% of equal to their net up to 50% of their net
investment investments up to 15% of their net worth in the worth, whichever is worth, whichever is
their net worth in a project whole year (not lower. lower.
exceeding Rs. 1,000
crores).
Maharatna CPSEs
• Bharat Heavy Electricals Limited
• Coal India Limited
• GAIL (India) Limited
• Indian Oil Corporation Limited
• NTPC Limited
• Oil & Natural Gas Corporation Limited
• Steel Authority of India Limited
Navratna CPSEs
• Bharat Electronics Limited
• Bharat Petroleum Corporation Limited
• Hindustan Aeronautics Limited
• Hindustan Petroleum Corporation Limited
• Mahanagar Telephone Nigam Limited
• National Aluminium Company Limited
• NMDC Limited
• Neyveli Lignite Corporation Limited
• Oil India Limited
• Power Finance Corporation Limited
• Power Grid Corporation of India Limited
• Rashtriya Ispat Nigam Limited
• Rural Electrification Corporation Limited
• Shipping Corporation of India Limited
Foreign Sector:
• After 1991, Policy is to promote foreign investment in India.
• FDI, allowed in some sectors up to 100%
• FIIs allowed to invest in Indian Capital Market.
• Indian Companies allowed to raise ADR/GDR
Classification of Industries:
There are about 460 million
• No of Employees
workers in the country.
Organised(>10), Unorganised(<10)
• Turnover criteria There are about 29 million
• Small sector workers in the formal sector.
Small Scale sector: Definition based on Investment amount .
Since 2006 MSME Act
Manufacturing Services
Micro 25 lakh 10 Lakh
Small 5 cr 2 cr
Medium 10 cr 5 cr
SIDBI-Small Industries Development Bank of India,1990
Recent Measures:
Credit Linked capital subsidy scheme:
SMERA(Small and Medium Enterprises Rating Agency)
Some Important Committees of small scale sector
Abid Hussian Committee: Small Scale Sector.
Meera Seth Committee: Handloom Sector.
M.L Kapoor Committee: Better Credit facility to Small scale sector .
IIP- Index of Industrial of Production(now base 2004-05,Base=100):

682 items
Mining: 14.17% Basic Goods:

Manufacturing: 75..53% Capital Goods:
Electricity : 10.32% Intermediate Goods:
Consumer Goods:
3.61 cr (MSME ),37.5% of GDP
Schemes :
• Prime Ministers employment Generation Programme

• Micro and small Enterprises –Cluster Development
Programme
• Credit Guarantee Fund Scheme for micro and small
Enterprises
• Performance and Credit Rating Scheme
• Assistance to Training Institutions
• Scheme of Fund for Regeneration of Training Industries
Recent Initiatives to boost Industrial growth :
E-Biz project : G2B portal to serve as one stop shop foe delivery of
services ,24*7
Skill development : 31 Industry/employer led Sector Skill Councils and

aligned with 25 sectors of ‘Make In India’.
Labour reforms : Shram Suvidha Portal launched for online registration of

units,filing of self-certified,simplified,single online return .
Mudra Bank : (Micro Units Development Refinance Agency)

5.77 crore small business units
Fund : Rs 20,000 crore.
Loan amount based on stage of business
Shishu : Rs 50,000
Kishor : Rs 50,000-5,00,000
Tarun : Rs 10,00,000
Financial System in India
Financial System------------Money Market +Capital Market
Money market: Short term ,up to 1 year

Capital market : more than 1 year.
Money market Instruments:

• Call Money market
• Treasury Bill market
• Commercial Bill market
• Certificate of Deposit
• Commercial Paper Market
Treasury Bill markets:
Repo Rate : It is the rate at which RBI provides short term loan to the banks.
Reverse Repo Rate: It is the rate at which the banks park their funds with
RBI for short term
Capital Market : Internal + External
Internal Source: Shares + Debentures+ Reinvestment of Profit
External Sources: Banks + Financial Institutions.
Shares: they are associated with a company, all shares have equal value hence called
as equity shares.
Ordinary : They are normal shares.
Preference : They have some preference over ordinary shares. Eg fixed dividend
,company (usually no voting rights )is winded up .
Debenture: It is an instrument used by companies to get a loan.
Convertible: Convertible to share on maturity.

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

Splitting of shares :Conversion of shares in to more shares of less denomination.
IPO: Initial Public Offer.

FPO: Forward Public offer.
BSE: Bombay stock exchange ,oldest stock exchange in India ,1875
NSE: Established on recommendation of Pherwani Committee ,started in

1994
Depository system : In this system there is no physical transfer of securities

change in ownership is done through electronic ledger entry transfer.
MCX-SX: Third Stock exchange of the country.
United Stock Exchange of India : The Fourth stock exchange at the national
level.
BSE-30,BSE-50,NSE-50,NSE-500.
Bull: These are he investors who buy at low prices and after some time sell
at higher prices.
Bear: These are the investor who first sell at higher price and after some
time purchase at lower prices.
Gilt Edged Security: Government security.

Merchant Bank : These are not Banks ,they are financial intermediaries which
provide various financial services like management of the new issue ,
arrangement of loans financial advice etc.
Seed Capital: Seed Capital refers to the cash you need to get your business
started, The term seed suggests that this is a very early investment, meant to
support the business until it can generate cash of its own , or until it is ready
for further investments.
Angel Investor : Is an affluent individual who provides capital for a business

start-up, usually in exchange for convertible debt or ownership equity
Venture Capital Fund: For new or specialised areas funding is provided.
Crowdfunding : It is the practice of funding a project or venture by raising

monetary contributions from a large number of people, typically via the
internet
Derivatives: Purchasing of an item for Future Trading.
Forward Market Commission(FMC):It is the agency to regulate commodity futures in

India.
Commodity Futures market in India :
MCX : Multi Commodity Exchange ,Mumbai.
NCDEX : National Commodity and Derivatives Exchange ,Mumbai.
NPS: New Pension Scheme,2004

The NPS was made mandatory for central government employees from Apr 1 ,2004
SEBI: Established in 1992,as a regulator of capital market.
It the autonomous regulatory authority of the capital market with wide

spread powers .
Insider Trading : Getting information about the company which is other

wise not available in all.
PLR : Prime Lending Rate

• It is the rate applicable to more credit worthy borrower (safest loan).
• If lending is less than PLR it is called Sub-PLR.
Base Rate : It is the minimum rate of lending of the bank.
BASEL -3:To be Introduced in India from 2017-2018

Basel1 : 1988 Basel 2: 2004 Basel 3: 2010
CAR/CRAR: Capital Adequacy ratio.
Ratio of capital and Risk assets.
Monetary Sector : Money and Inflation.
Money :It’s a medium of exchange. Its legal tender .
Inflation : is a sustained increase in the general price level of goods and services in
an economy over a period of time.
Deflation : A reduction in the level of national income and output usually
accompanied by reduction in price level.
Stagflation :Is a term used in economics to describe a situation where the inflation
rate is high, the economic growth rate slows down, and unemployment remains
steadily high.
Measurement of Inflation : In India we use different indices for different purposes.
WPI(2004-05)-Base 100(676 commodities):
• Primary articles(20.11%),Fuel & Power(14.91%),Manufactured goods(64.97%)
Food articles(24.27%)
• CPI-AL : It is used for revision of minimum wages of agricultural workers.
• CPI-RL :
• CPI-IW: It is used for wage revision of industrial workers.

• CPI-UNME: It is used by services sector like revision of DA by government.
CPI-UNME: is published by CSO ,rest by Ministry of labour.
Headline Inflation vs Core Inflation : Head line inflation rate is about total inflation in
the economy while core inflation excludes food and energy prices.
New CPI series : 2011

CPI(Urban),CPI(Rural),CPI(Combined)(Base 2010-100)
310-Towns,1181-Villages.
Reasons for inflation :

• Demand Pull
• Cost Push
Effects:
• Supply side
• Demand side
• Savings
• Imports/Exports
• From April,2014 the RBI had announced its intent to anchor its monetary policy
To headline CPI (combined )
RBI-Reserve Bank Of India
Functions:
Normal Central Bank Functions:
• Issue of currency notes:
• Banker to the Government
• Banker’s Bank
• Regulation of Foreign Exchange
• Collection and Publication of Data
Instruments of credit Control:

Bank Rate : The rate at which RBI lends loans to the banks.
CRR : The ratio of demand and term deposits with the banks that they have to
keep with the RBI.
SLR : The ratio of demand and term deposit with the banks that they have to
keep in liquid form i.e cash , gold and permitted securities
OMO: Sale and Purchase of securities by the RBI is termed as open market
operations
Fiscal Sector: Taxes, Centre-state, Budget
Progressive Taxation : The tax system in which tax rates increase with increase in
tax base i.e income tax in India.
Regressive Taxation: The tax system in which tax rates decrease with in crease in
tax base .
Proportional Tax system : The tax system in which there is no change with change
in tax base , eg .corporate tax, customs duties, central excise .
Direct Tax : The tax in which the impact and incidence of tax is one the same
entity; i.e income tax, corporate tax. In case of direct tax the burden of tax cannot
be shifted.
Indirect Tax : The tax in which the impact and incidence of tax is on different
entities. i.e service tax ,custom duties etc.
Ad valorem Tax : If the tax is levied on the basis of value of the product or service
in percentage terms.
Countervailing Duty : The duty imposed on imported goods equivalent to the
domestic taxes on domestic products.
Dumping Duty :This duty is imposed on imported goods if the exporting country is
exporting the products on the price which is less than the domestic price of the
product.
Securities Transaction Tax (STT):The tax imposed on transaction of securities in

capital market in India since 2004-2005.it varies from 0.017% -0.125%
Tobin Tax :The tax Imposed on International Transactions of Currencies.
Commodity Transaction Tax : It is just like STT but is imposed on commodities in

the futures market.
Service tax : This tax was first imposed in India in 1994-95,on three services,at the
rate of 5 %.But now a negative list of 17 services exits in India,since 2013
MAT: This tax is levied from those companies which are zero tax companies
because of various rebates and exemptions.
Centre –State : Financial Relations
Federal Structure ----Division of powers between Centre and states
Unitary Bias----more powers to centre.
Centre ----------------> State(gives money to states).
• Share in taxes –decided by finance Commission.(Art-280).
• Grants-in-Aid(one part reco –F.C +Discretionary Grants).
• Loans (Planning Commission ).
Division of Taxes:
Taxes Right to Right to Right to
Impose Collect Use
Income Tax, Corporate Tax, Service Tax, Central excise Centre Centre Centre
and
states
Sales Tax, State Excise Tax , Entertainment Tax ,Land States States States
revenue, Tax on agricultural Income
Estate duty on all except agricultural land, tax on rail Centre Centre States
fare and freight ,terminal tax on rail, sea and air travel
and transport ,tax on sale of news papers and
advertisements
Stamp duty, Excise Duty on medicines and cosmetics Centre States States
Finance Commission : K.C.Neogi(First), Vijay Kelkar (13 Finance Commission.)

Y V Reddy (14 Finance Commission.)
• Share of States to be 42%
FFC :
Share of states from divisible pool to 42 %
Fiscal capacity/Income distance :The income distance
criterion was first used by Twelfth FC, measured by per capita
GSDP as a proxy for the distance between states in tax
capacity. When so proxied, the procedure implicitly applies a
single average tax-to GSDP ratio to determine fiscal capacity
distance between states.
Fiscal discipline as a criterion for tax devolution was used by

Eleventh and Twelfth FC to provide an incentive to states
managing their finances prudently
VAT: In this tax system, tax is imposed on every stage of production or sale of goods
and services on the basis of value addition in each stage.
1981, Manufactured VAT

L.N Jha Committee led to introduction of 1986,Mod VAT
2000, CENVAT
Goods Services
Centre CENVAT Service Tax
State VAT/ST -
• Vijay Kelkar Committee,2002 :Recommended the implementation of

VAT at state level also.
• Haryana(First state ,2003)…UP was the last state now all states follow
this system.
• GST proposal since 2006 .
• 122 Amendment Bill ,GST.
• Empowered Committee under –Asim Dasgupta (First), Sushil Modi
(Second)
Grant –in- Aid :
• One part recommendation by FC
• Discretionary grants
These are given based on the Gadgil Formula(1969),Mukherjee Formula

(1991).
Service tax In India:

Started by Union Government in 1994-95,Telephone,General Insurance &
Stock Broking.
Now a Negative list of 17 Commodities Exist .
92 Amendment act ,Service tax may be levied by Centre but Collected and
appropriated by Centre and State.
Contribution from Different Taxes:

• Corporation Tax
• Income Tax
• Union Excise tax
• Customs Tax
• Service Tax
DTC,1961 to be changed
Fiscal Sector :
Union
Budget
Revenue
Expenditure
Revenue Capital Plan Non-Planned

Account Account Expenditure Expenditure
Tax Non Tax Revenue Capital
Fiscal &
Tax on Tax on Tax on Dividend Interest
other
income property services and profits receipts
services
Budget : It is always an estimate of Receipts & Expenditure.
Receipts:
Revenue receipts
• Tax revenue
• Non-tax revenue(Interest,dividend,fines )
Capital receipts
• Repayment of loans
• Other receipts
• Loans and Other Liabilities
• Revenue: Income which is to be received in the present year.
• Capital : Income which will be received in the Future(more

than a year) or spent as part of repayment of previous
obligation.
Expenditure:
Planned
• Expenditure in the budget on the recommendation of PC.
Non-Planned
• Interest Payment
• Subsidies
• Defence
• Public Administration
Expenditure on Revenue Account :
Those consumed in the present year.

e.g : maintenance of canal , Rent of buildings, Salaries of Government
Officials etc.
Expenditure on Capital Account :
Those that create Capital assets.

E.G : Constructing canals , new buildings etc.
Revenue Deficit: Excess of revenue expenditure over revenue
receipts .
Revenue receipts = Tax revenue +non-tax revenue.

Revenue expenditure=Plan+ Non-Plan.
Budget Deficit :It is the excess of total expenditure over total

receipts.
Total expenditure = Revenue expenditure+ capital expenditure.

Total revenue = Revenue receipts + Capital receipts .
Fiscal Deficit : Total expenditure –Total receipts (but the

receipt component does not include borrowings and other
liabilities).
Deficit Financing : It is the difference between expenditure and

receipts . www.classmateacademy.com 146
Fiscal cost of subsidies : Rs 3,78.000 L cr ,4.2 % of GDP
FRBM,Act : Fiscal Responsibility and Budget Management

act,2003
Initial targets :
• Revenue deficit -0 %
• Fiscal deficit -3% by 2008-09
• Due to recession now targets changed to 2016-17 on the

recommendation of Rangarajan Committee.
Main Features of FRBM act ,
1. The Act mandates the central government to take appropriate measures to
reduce fiscal deficit to not more than 3 percent of GDP and to eliminate
the revenue deficit by March 31, 2009 and thereafter build up adequate
revenue surplus.
2. It requires the reduction in fiscal deficit by 0.3 per cent of GDP each
year and the revenue deficit by 0.5 per cent. If this is not achieved through
tax revenues, the necessary adjustment has to come from a reduction
in expenditure.
3. The actual deficits may exceed the targets specified only on grounds of
national security or natural calamity or such other exceptional grounds
as the central government may specify.
4. The central government shall not borrow from the Reserve Bank of India
except by way of advances to meet temporary excess of cash disbursements
over cash receipts.
5. The Reserve Bank of India must not subscribe to the primary issues of
central government securities from the year 2006-07.
6. Measures to be taken to ensure greater transparency in fiscal operations.
7. The central government to lay before both Houses of Parliament three
statements – Medium-term Fiscal Policy Statement, The Fiscal Policy
Strategy Statement, The Macro
Fiscal Policy : It is the use of government revenue collection (taxation) and
expenditure (spending) to influence the economy.
Fiscal Stimulus: An increase in Public Spending or a reduction in the level of taxation

that might be performed by a government in order to encourage and support
economic growth. Most government bail out package form part of fiscal stimulus.
Laffer Curve :
Chelliah Committee : Related to Direct tax reforms ,1991
Foreign Sector:
After Independence : The immediate policy was based on import restrictions.
Quantitative Restrictions (QRs):

• Negative list –NO Import is allowed.
• Canalised –Import only of essential items but through specified agencies.
• OGL- Open general license .
Tariff barrier: High rates if Import.
Non-Tariff barrier: Restrictions of import on the ground of Technology level, human

health ,environment etc.
e.g: No car of less than E-IV standards is allowed ,Banning certain chemicals in Food.
During 1970’s SE Asian countries proved that aggressive policies can be used to
increase the exports.
In 1980s we started export Promotion policy .

1985 : First Export –Import Policy (EXIM Policy started ) ,3 years
1992: First five year EXIM policy which was co-terminus with Five Year Plan.
Due the reforms of 1991,
Imports : Procedures for imports were simplified, QRs removed, Tariff rates
reduced now stand at 10% for most of the goods.
Exports : More Emphasis and new schemes to increase the exports from
India.
e.g
EPCG: Export Promotion of Capital goods Scheme.
SEZ,Act 2005 :
Started in India ,Asia First EPZ-Kandla,1965.
AEZ: Agriculture Export Zones, Nodal Agency –APEDA (Min Of Commerce)
AEZ-Chillies-Guntur
AEZ-Mangoes-Vijayawada
AEZ-Hyderabad-Grapes,Mangoes
Exim Policy 2002 -2007 ,
• Focus Africa .
• Reviving relations with CIS Countries.
FTP-2004
Introduction of many schemes:
• Focus Market Scheme(FMS)
• Focus Product Scheme(FPS)
• Vishesh Krishi Upaj Yojana (VKUY)
• Served From India (SIF)
FTP-2009 :
FPS,FMS,MLFPS,VKGUY,AIIS(Agri Infrastructure Incentive scheme)
Other Policies :
Look East Policy: To diversify the direction of our trade, Today the trade with Asia is
50-55 % of our Total Trade.
Free Trade Area(FTA) : It is an agreement between two countries or a group of

countries for concessional Import duty rates.(Only Goods)
Comprehensive Economic Cooperation Agreement (CECA/CEPA) :This includes not

only goods but also services, investments, recognition of degrees etc.
Negative List : The duty concessions will not be available on the goods included in the
negative list .
The whole negotiation is about negative list .
Rule of Origin(ROO) :It should be originated from the country .If at least 35 % of value
addition is in the region.
Positive List : Concession will be available only to the items in this list . E.g
SAFTA.(2006).
Composition of Trade-
Imports Exports
• POL 1.Engineering Goods
• Capital Goods 2.POL
• Electronic Goods 3.Gems & Jewellery
• Gold & Silver 4. Agriculture and allied
• Chemicals 5.Textiles
• Pearls & Stones 6.Chemicals
Trade :
World level % Exports Imports

2004 0.8% 1.0%
2012 1.7% 2.5 %
Exports :
Region 2004 2013
Europe 23.6% 18.6%
NA 20.1 17.2
Asia 47.9 49.4
Africa 6.7 9.9
Survey :2014
Imports % of Total
China 11.2
UAE 7.6
SA 6.8
USA 5.1
Exports % Total
UAE 11.7
USA 11.6
China 5.3
Singapore 4.5
Balance of Payments: BOP
Bop is an account of transactions between a country and rest of the world.
Part 1 Accounts –Current Account :

• Imports-Imports of goods (services not included)
• Exports
Balance of Trade =Export-Import
• Invisibles(Net): Services, remittances .
• Current Account Balance : BoT+ Invisibles.
Part 2 –Capital Account :

• Capital Account (Net):
Investment (Net)-FDI,FII
Loan(Net)-ECB etc.
Banking-NRI deposit etc.
Over all BOP: Current + Capital .

This should be positive.
Increase in BOP ,so this surplus is shifted to forex reserves.
Country Reserves in Billion
dollars
1 China 3840
2 Japan 1312
3 Switzerland 526.6
4 Russia Federation 388.5
5 Brazil 363.6
6 Korea, Republic of 363.2
7 China, Hongkong 344.6
8 India 320.6
9 Germany 192.7
10 Thailand 163.7
Convertibility Of Rupee :
Convertibility: Permission to convert domestic currency into foreign currency

and foreign currency into domestic currency.
Rupee made Convertible on Trade Account in 1993-93

Rupee made Convertible on Current Account in 1994-95
For Capital Account Convertibility , a committee was established in 1997, called

Tarapore Committee
Again in 2006 Same committee was appointed .
Present Status :
Rupee remain Partially convertible in Capital Account.
FDI,FII,ECB there are limits that are specified to each sector with in the limits
they are convertible outside the limits they are not .
Absolute advantage : The capability to produce more of a given
product using less of a given resource than a competing entity.
Adam Smith : Wealth of Nations
Out -Put Per Day Of Work :
Food Clothing
Country A 6 3
Country B 1 2
Comparative advantage : The ability of a party to produce a particular good
or service at a lower marginal and opportunity cost over another.
David Ricardo :
Out -Put Per Day Of Work:
Food Clothing
Country A 6 3
Country B 1 2
Out-Put after 6 Days :

Food Clothing
Country A 18 9
Country B 3 6
Food Clothing
Country A 36 0
Country B www.classmateacademy.com
12 161
WORLD TRADE ORGANISATION
GATT- General agreement on tariffs and trade
MFN –Most favored nation
URUGUAY round of negotiations ---1986-1994
Arthur Dunkel came up with a draft which led to establishment of WTO on 1st
Jan 1995
RUSSIA and VANAUTU(2012)

Tajikistan(2013),Yemen(2015),Seychelles(2015)(Total -161)
Roberto Azevedo—present Director General
Agreements under WTO
ATC-Agreement on Textiles and Clothing
TRIPS-Trade related intellectual property rights
2001 Doha round of talks:

• AOA-Agreement on Agriculture
• NAMA- Non Agriculture Market Access
• GATS-General agreement on trade and services
• Uruguay Round : maximum support to agriculture

is 10 %
• G-33 proposed a change to this
WORLD BANK
• International bank for reconstruction and development – IBRD, 1944
Also known as WORLD BANK
• International Finance Corporation –IFC, 1956
• International Development Association-IDA, 1960
• International Centre for Settlement of Investment Disputes-ICSID, 1966
• Multilateral Investment Guarantee Agency-MIGA, 1988
• WDR
IMF
• International Monetary Fund, 1944
• SDR-Special Drawing Rights: Official currency of IMF
• The value of the SDR was initially defined as equivalent to 0.888671 grams of fine
gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse
of the Bretton Woods system in 1973, the SDR was redefined as a basket of
currencies. Currently,
• the Chinese Renminbi (RMB) as the fifth currency, effective October 1, 2016
• Voting %
USA – 16.75
INDIA- 2.34
CHINA- 3.81
• WEO www.classmateacademy.com 164

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Economy

Economics :It is the social science that analyses the production,

The study of how we work together to transform scarce

Micro Economics: which examines the behaviour of firm,

Macro Economics: which deals with Inflation, unemployment,

• National income and output

• What goods and services should be produced in the

• How should the goods and services be produced?

• How should the goods and services be distributed among

Capitalist Economy: It is characterised by existence of

Socialist Economy: It is characterized by existence of

Mixed Economy : In this system, public and private sectors

• Market ="the invisible hand"

Great Depression : 1929,US

John Maynard Keynes :

The end Of laissez -Faire

was created to contrast against the liberal doctrine of

Utopian Socialism: ((First person)Thomas Moore,book Utopia)

From each according to his ability to each according to his need

Syndicalism (France) inspired in part by the ideas of Pierre Joseph

Factories managed by both Workers and Specialist called Syndicates

Guild Socialism : G. D. H. Cole & William Morris.

The Fabian Society' is a British socialist organization which was

Karl Marx and Fredrick Angels :

revolutionary socialism, and state socialism versus libertarian

Socialist Economy: It is characterized by existence of public

Economic growth : It can be defined as a sustained increase in the

Economic Development: It is a phenomena where growth is

Sustainable Development: It is the development process which

Human development report (HDR,1990):

Human Development Index:

Carrying capacity : the resource extraction is not above the rate

Absorptive capacity :means the ability of the environment to

Fossil Fuels, Green house gases and Global Warming

1972 : Stockholm Conference on the Human Environment

1987 : Go Harlem Burtland Report : Our Common Future

1992 : Earth Summit ,Rio-de-Janerio

Gender Empowerment Measure: captures Gender equality in

• Power over economic resources as measured by women's

Green GDP: Environmentally adjusted GDP.

Gross National Product(GNP):it refers to the money value of total output

Net Domestic Product (NDP):It is obtained by subtracting depreciation

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

• CSO(1950) estimates National Income of India.

• What is the value of total production in the economy

Factor Cost +Indirect Taxes =Market Price.

Net National Product at Factor cost = NNP at market Prices –Net

NNP at FC =National Income

Per capita income, also known as income per person, is

Rank Country GDP in PPP Year

Base year from 2004-05 to 2011-2012

Growth for 2013-2014 is 6.9 %

• Consumer Goods : Goods like food and clothing that are

• Consumer durables : like television sets, automobiles

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

Primary sectors : The primary sector of the economy makes

Secondary sector: This sector generally takes the output od

Tertiary sector: It involves providing intangible goods like

U.K 0.7% 21.6% 77.6%

Primary Secondary Tertiary

Distribution of working population :

Primary Secondary Tertiary