• The term economics comes from the Ancient Greek word oikonomia mean management of a household, administration. The term economic process refers to those activities, through which goods and services aimed at satisfying human needs, are produced, distributed and used.
• Economics includes the study of labour, land and investments of money, income and production and taxes and government expenditures.
• Adam Smith regarded as the Father of Economics, defines Economics as, “The science relating to the laws of production, distribution and exchange.

Branches of Economics

• The two chief branches are

Micro Economics

• It examines the behavior of basic elements in the economy, including individual agents (such as households and firms or as buyers, and sellers) and market and their interaction.

Macro Economics

• It is concerned with how the overall economy works. It studies such things as employment, gross domestic product and inflation; the stuff of news stories and government policy debates.
• It studies the economy as a whole and its features like national income, employment, poverty, balance of payments and inflation.

Economy

• Economy represents the production, distribution or trade and consumption of goods and services in a given geographical area by different agents, which can be individuals, businesses, organization or governments.
• The study of economy of any country helps us in finding out the financial condition of the population as well as the different working sectors of the economy.
• The Modern Economy is a complex machine. Its job is to allocate limited resources and distribute output among a large number of agents mainly individuals, firms and governments allowing for the possibility that each agent’s action can (directly or indirectly) affect other agent’s actions.

Open Economy

• Market-economy mostly free from trade barriers and where exports and imports from a large percentage of the GDP.
• No economy is totally open or closed in terms of trade restrictions and all governments have varying degrees of control over movements of capital and labour.
• Degree of openness of an economy determines a government’s freedom to pursue economic policies of its choice and the suceptability of the country to the international economic cycles.

Closed Economy

• An economy in which no activity is conducted with outside economies. A closed economy is self-sufficient meaning that no imports are brought in and no exports are sent out.
• The goal of such economy is to provide consumers with everything that they need from within the country’s borders.

Broad Sectors of Indian Economy

• Primary sector: Agriculture, forestry and fishing (also called raw materials).
• Secondary Sector: Mining manufacturing, electricity gas and water supply, construction (also called manufacturing sector).
• Tertiary Sector: business, transport, telecommunication, banking, insurance, real estate, community and personnel services (also called service sector).

Labour Force by Occupation

Nature of Indian Economy

1. Mixed Economy: It is an economy, where both public and private sector co-exist. The nature of Indian economy is a mixed economy. The term Mixed economy was coined by JM Keynes.
2. Developing Economy: Following features shows that Indian economy is a developing economy
3. a) Low per capita income.
4. b) Occupational pattern is primary producing.
5. c) Heavy population pressure.
6. d) Prevalence of chronic unemployment and underemployment.
7. e) Steadily improving rate of capital formation.
8. f) Low capital per head.
9. g) Inequal distribution of wealth/assets.

• Agrarian Economy: An agrarian economy is a type of economy that relies primarily on agricultural industry including livestock farming or crop production. More than half of India ‘s working population is engaged in agriculture.

Economy explains the financial condition of the different sectors of the country. The study of economy of any country helps us in finding out the financial condition of the population as well as the different working sectors of the economy. It also helps in comparing the economic condition of two different countries

• Indian economy is world’s 7^th largest economy on exchange rate basis and 3^th largest economy on PPP basis in 2014 (World Bank)
• The government has forecast a growth rate of 7%- 7.5% for the year 2015-16, whilst the RBI expects the same to be at 7%(Base year: 2011-2012)
• India has a share of 17.4 % in world population ,but accounts for only 2.3% of world’s GNI (Gross National Income) on exchange rate

1. NATIONAL INCOME OF INDIA

• National Income is the net value of all the final goods and services produced by its nationals during a financial year. It is a flow concept. In India the financial year is from 1^st April to 31^st The national income is calculated annually.
• According to National Income Committee (1949), “ A national income estimate measures the volume of commodities and service turned out during a given period counted without duplication”.

NI= C+G+I+(X-M)+(R-P)-Depreciation – Indirect tax +Subsidies.

C= Total Consumption Expenditure.

I= Total Investment Expenditure.

G= Total Government Expenditure.

X= Export.

M= Import.

(R-P)= Net Fraction Income from Abroad.

• When the national income is measured at the base year price, it is called national income at constant price.
• When the national income is measured at the current year price, it is called national income at current year price.
• When NNP is calculated at factor cost (FC) it is called National Income. This measure is calculated by deducting indirect taxes and adding subsidies in NNP at Market Price (MP).

NNP_FC = NNP_MP   – Indirect Taxes+ Subsidies + Government Surplus = National Income.

NI= NNP + Subsidies – Indirect Taxes.

GNP- Depreciation- Indirect Taxes + Subsidies.

NATIONAL INCOME AGGREGATES

1. Gross Domestic Product (GDP)

• It is the total money value of all final goods and services produced within the geographical boundaries of the country during a given period of time.

GDP=C+G+I

Where          C=Consumption expenditure

G= Government expenditure

I = Investment expenditure

2. Gross National Product (GNP)

GNP refers to the Money value of total output of production of final goods and services produced by the nationals of a country during a given period of time, generally a year.

Symbolically,

GNP=GDP+(X-M) +(R-P)

GNP=C+G+I+(X-M) + (R-P)

X=Exports

M=Imports

R-P= Net Factor Income from Abroad.

3. Net National Product (NNP)

NNP is obtained by subtracting depreciation value (i.e., capital stock consumption) from GNP

Symbolically,

NNP=GNP-Depreciation

4. NNP at Factor Cost

          The NNP at factor cost calculates national income only on the basis of cost incurred to produce the goods and services. This cost is the payment made to the factors of production.

          The factors of production are land, labour, capitaland entrepreneur.

NNP _{at factor cost}  = NNP_{at Market price} – Indirect taxes + subsidy.

4. Personal Income (PI)

It is that income, which is actually obtained by the individual or nationals

Symbolically,

Personal Income=National Income –Undistributed Profits of corporations-Payment for social security provisions-Corporate taxes + Transfer payments + Net interest paid by the government

5. National Income (NI)

When NNP is calculated at factor cost (FC) it is called National Income. This measure is calculated by deducting indirect taxes and adding subsidies in NNP at Market Price When the National Income is measured at the base year price, it is called national income at constant prices or real income.

• When the National income is measured at the current year price , it is called national income at current prices or nominal income.
• In India, wholesale Price Index (WPI) is the weighted average of prices of 676 items with the base year of 2004-05 . Out of 676 items , 102 are primary articles , 555 are manufactured and 19 are service items

Measures of Measuring National Income

1. Product Method or Output Method or Production Method:

In this method, the National income is compiled by calculating the gross value of final goods and services produced in a country during a year. GDP is a concept of value added. It is the sum of gross value added of all resident producer units plus that part of taxes, less subsidies, on products which is not included in the valuation of output.  

Gross Value Added = Output of final goods and services – Intermediate Consumption.

GDP = Gross value added + Indirect Taxes – Subsidies.

2. Income Method:

In this method, the National Income is calculated by compiling income of factors of production viz., labour, land, capital and entrepreneur.

National Income= Total Wage + Total Rent + Total Interest + Total Profit.

3. Consumption Method or Expenditure Method:

In consumption Method, the consumption expenditure of consumers (C), consumption expenditure of investors or entrepreneur which is called investment (I), and consumption of government (G) is added.

GDP= C+I+G

In India, a combination of production method and income method is used for estimating national income.

Estimates of National Income in India

• In 1868, the first attempt was made by Dadabhai Naoroji in his book ‘Poverty and Un-British Rule in India’. He estimated the per capita annual income to be Rs.20.
• The first scientific attempt to measure national income in India was made by Professor VKRV Rao in 1931- 32. He divided the Indian economy into 13 sectors.
• In 1949, Natioanl Income Committee under the Chairmanship of Professor PC Mahalanobis was constituted. The other members being Professsor VKRV Roa and Professor DR Gadgil.
• The central Statistical Organization was formed. The first official estimate by CSO was in 1956 with base year 1948-49. 2011-12 is the new base year.
• National Statistical Commission (NSO) was set up on 1^st June, 2005, for promoting statistical network in the country. It was then headed by Professor SD Tendulkar.

2. PLANNING IN INDIA

• Planning is a conscious attempt on the part of policy makers to achieve multiple and pre-determined objectives of development within a specific period of time in a planned way. First attempt was made was by Sir M Visvesvarayya through his book‘Planned Economy for India ‘ in 1934.
• National Planning Committee was set –up under the chairmanship of Jawaharlal Nehru in 1938.

• Just after the attainment of independence, the Government of India set up the Planning Commission on 15^th March, 1950 to assess the country’s needs of material capital and human resources and to formulate economic plans for this more balanced and effective utilization
• Planning in India derives its objectives and social premises from the Directive Principles of State Policy mentioned in Indian Constitution.

Long –term Objectives

• The First Five Year Plan clearly spelt out the long-term objectives of planning:

1. To increase production to the maximum possible extent so as to achieve higher level of national and per capita income
2. To achieve full employment
3. To reduce inequalities of income and wealth
4. To set up a socialist society based on equality and justice and absence of exploitation

• The first two are economic objectives of planning the last two are social objectives of planning

PLANNING COMMISSION

• It is the central body for making plans in India and Prime Minister is the Ex-officio chairman.
• It is a non-statutory extra –constitutional and advisory body and finds no mention in the Constitution of India.
• The Deputy Chairman of the Planning Commission enjoys the status of Cabinet Rank Minister and its members are appointed by the Government.
• The tenure and its members, deputy chairman and composition of the Planning Commission is not fixed.
• The first Chairman of the Commission was Jawaharlal Nehru and the first Deputy Chairman was Gulzarilal Nanda.

ROLE OF PLANNING COMMISSION

• The Planning Commission has been assigned a number of functions. These were

1. To make an assessment of the material, capital and human resources of the country and investigate the possibilities to augment these resources.
2. To formulate a plan for the most effective and balanced utilization of the country‘s resources.
3. To indicate and determine the conditions for the successful execution of the plan.
4. To appraise from the time to time the progress achieved in the execution of each stage , of the plan and to recommend corrective measures.
5. To determine priorities and define stages , in which the plan should be divided and propose the allocation of resources.

Now, it has been replaced by a new institution named NITI AAYOG.

NITI AAYOG:

          NITI aayog or National Institution for Transforming India came into existence on 1^st January, 2015; policy making think tank of government that replaces Planning Commission and aims to involve states in economic policy making. It will be providing strategic and technical advice to the central and state governments.

Structure under NITI Aayog:

          NITI Aayog will be headed by Prime Minister and will have a governing council comprising chief ministers of states and Heads of all Unoin Territories. The governing Council replaces the earlier NDC. In addition, there will also be a Regional council comprising more than one state and Union Territories, which will be mandated to address specific issues and contingencies impacting more than one state region.

National Development Council (NDC)

The NDC was constituted on 6^th August 1952, with Prime Minister as the Ex-officio Chairman and the secretary of the Planning Commission as the Ex-officio Secretary of the NDC. Chief Minister of all the states and the members of the Planning Commission are the members of the NDC. It is an extra-constitutional and non statutory body (not formed by act of Parliament)

Functions

1. It aims to make co-operative environment for economic planning between States and the Planning Commission.
2. It evaluates the management of plans from time to time.
3. It analyses the policies affecting development.
4. It gives suggestions to achieve the fixed aim in the plans.
5. It gives final approval to the Five Year Plans.

Strategies of Planning

1. Harrod –Domar Strategy

• First Five Year Plan was based on this strategy.
• This strategy emphasized the role of capital accumulations dual character, which on the one hand increases the national income (demand side role) and on the other hand increases the production capacity (supply side role).

2. Nehru Mahalonobis Strategy

• Second and Third Five Year Plan was based on this strategy.
• Based on Russian experience, this strategy is a two sector model, e., consumer goods sector and capital goods sector.
• The strategy emphasized investment in heavy industry to achieve industrialization for rapid economic development.

3. Gandhian Strategy

• It was enunciated by Acharya SN Agarwal in his ‘Gandhian Plan ‘in 1944. The basic objective of the Gandhian Model is to raise the material as well as cultural level of the masses so as to provide basic standard of life.

4. LPG Strategy

• Liberalization , Privatization and Globalization (LPG ) strategy of Planning was introduced by the Finance Minister of that time Dr. Manmohan Singh under Narasimha Rao Government
• The strategy ended the ‘license –permit –raj ‘and opened the hitherto areas reserved for the public sector to private sector.

6. PURA Strategy

• PURA stands for Providing Urban Amenities in Rurl areas and was the brainchild of APJ Abdul Kalam
• This strategy emphasizes on four connectivities physical, electronic , knowledge and thereby leading to economic connectivity to enhance the prosperity of cluster of villages in rural areas.

TYPES OF PLANNING

1. Planning by Direction

• It is an integral part of a socialist society and entails absence of Laissez Faire.

2. Planning by Inducement

• It is a democratic planning and planning is through manipulating the market.
• It provide for freedom of enterprise , freedom of consumption and freedom of production subject to state control and regulation

3. Financial Planning’s

• It is a technique of planning , in which resources are allocated in terms of money. It is a long –term planning.

4. Physical Planning

• It refers to the allocation of resources in terms of men, material and machinery.

5. Perspective Planning

• It refers to long term planning in which long range targets are set in advance for a period of 15 , 20 or 25 years. Sixth Plan (1978-83) by Janata Government was such plan.

6. Indicative Planning

• A French System of planning based on decentralization principle.
• In this, State plays a facilitating role and allows flexibility so as to enable private sector play a greater role.
• In India, since Eighth Plan indicative planning is being followed.

7. Imperative Planning

• There is no consumer sovereignty.
• All economic activities and resources of the economy operate under the overall direction of the state.

8. Rolling Plan

• In Rolling Plan, every year three new plans, viz , annual , fixed and perspective plan made and acted upon.

9. Core Plan

• As per this concept, the planning Commission asks the states to submit their projected revenue estimates on the basis of these estimates, Planning Commission determines the expenditure heads for state annual plans. This helps in keeping the plan target to realistic limits

Five Year Plans at a Glance

• Plan Holiday (1966-69) The Prevailing crisis in agriculture and serious food shortage necessitated the emphasis on agriculture during the Annual Plans. During these Annual Plans a whole new agricultural strategy involving wide-spread distribution of HYV seeds.
• The extensive use of Fertilizers, exploitation or irrigation potential and soil conversion was put in to action to tide over the crisis in agricultural production. During the Annual Plans, the economy basically absorbed the shocks given during the third plan , making way for a planned growth

• Rolling Plan (Gunar Myrdal) was broughtout by Janata Party Government under Morarji Desai in 1978. The focus of the plan was enlargement of the employment potential in agriculture and allied activities to raise the income of the lowest income classes through minimum needs programme

• The Eight Plan could not take off due to fast changing political situations at the Centre. Therefore, from 1990-1992, annual Plans were formulated

 TWELTH FIVE YEAR PLAN (2012-17):

          Country’s apex policy making body National Development Council, on 27^th December, 2012 approved the draft 12^th five year plan (2012-17).

Economic Growth:

• Real GDP growth rate of 8.2%. (8.0% a/c to April 2013).
• Agricultural Growth rate of 4.0%.
• Manufacturing growth rate of 10.0%.
• Every state must have a higher average growth rate in the twelth plan than that achieved in the Eleventh plan.

Poverty and Employment

          Head count ratio of consumption poverty to be reducrd by 10% points over the preceding estimnates by the end of the twelth five year plan. Generate 50 million new work opportunities in the non-farm sector and provide skill certification to equivalent numbers during the twelth five year plan.

Education

• Mean years of schooling to increase to seven years by the end of twelth five year plan.
• Enhance access to higher education by creating two million additional seats for each age cohort aligned to the skill needs of the economy.
• Eliminate gender and social gap in school enrolment (i.e, between girls and boys, between SCs, STs, Muslims and the rest of the population) by the end of the twelth five year plan.

Health

• Reduce IMR to 25 and MMR to per 1000 live births and improve child sex ratio (0-6 years) to 950 by the end of the twelth five year plan. Reduce total fertility rate to 2.1, by the end of twelth five year plan.
• Reduce under nutrition among children aged 0-3 years to half of the NFHS-3 levels by the end of twelth five year plan. Infrastrucrure, including rural infrastructure.
• Increase investment in infrastructure as a percentage of GDP to 9% by the end of twelth five year plan.
• Increase the gross irrigated area from 90 million hectare to 103 million hectare by the end of twelth five year plan.
• Provide electricity to all villages and reduce AT and C Aggregate Terminal and Commercial Losses to 20% by the end of twelth five year plan.
• Connect all villages with all weather roads by the end of twelth five year plan.
• Upgrade national and state highways to the minimum two lane standard by the end of twelth five year plan. Complete estern and western Dedicated Freight Corridors by the end of twelth five year plan.
• Increase rural density to 70% by the end of twelth five year plan.
• Ensure 50% of rural population has access to 55 LPCD litres per capita daily piped drinking water supply and 50% of gram panchayats achieve the Nirmal Gram status by the end of twelth five year plan.

Environment and Sustainability

• Increase green cover by 1 million hectare every year during the twelth five year plan.
• Add 30000 MW of renewable energy capacity in the twelth five year plan. Reduce emission intensity of GDP in line with the target of 20% to 25% reduction by 2020 over 2005 levels.

Service Delivery

• Provide access to banking services to Indian households by the end of twelth five year plan.
• Major subsidies and welfare related beneficiary payments to be shifted to direct cash transfer by the end of twelth plan, using the Aadhar platform with linked bank accounts.

NEW ECONOMIC POLICY

• New Economic policy is related to economic reforms, which was devised and implemented, for the first time in the year 1985 during the period of Prime Minister Rajiv Gandhi . The Second wave of new economic reforms came in the year 1991 during the period of PV Narsimha Rao Government

Economic Reforms

• Macroeconomics crisis of the early 1990’s necessitated economic reforms in India. The crisis had three aspects
• Fiscal imbalance or increasing fiscal deficit
• Fragile Balance of Payment (BoP ) situation

Inflationary pressures in the economy

• The balance of payment situation was such that India did not have enough foreign exchange reserves to pay even for three months imports
• Two distinct strands of reform measures was prescribed by the World Bank and the IMF
• These were
• (i)Macroeconomic stabilization –Demand Management

It comprised of measures ,viz,

1. Control of inflation
2. Fiscal consolidation and
3. Balance of payment adjustment

• Structural adjustments –Supply –side Management

It comprised of measures namely

1. Trade and capital flow reforms
2. Industrial deregulation
3. Disinvestment and public enterprises reforms and
4. Financial sector reforms

INCLUSIVE DEVELOPMENT

• Inclusive development means development , which is participative and empowers every individual especially the poor and excluded
• Inclusive development in India first emphasized in the Eleventh Plan period (2007-12)
• The essential elements of inclusive development are

1. Poverty reduction and increase in quantity and quality of employment
2. Agricultural development
3. Reduction in regional disparities
4. Social sector development; and
5. Protecting the environment
6. POVERTY

• Poverty is a social phenomenon wherein section of society is unable to fulfill even its basic necessities of life. Planning Commission is the authority, which publishes the poverty estimates based on various rounds of National Sample Survey Organisation (NSSO) on monthly per capita consumption expenditure.
• In India, the poverty line is defined on the basis of calorie intake. According to this, 2100 calories a day has been fixed for urban areas and 2400 calories in rural areas. Alternatively, in monthly per capita consumption expenditure terms, the poverty line is fixed at Rs.454.0 for rural areas and Rs 540.0 for urban areas in 2004-2005.
• There are two types of Poverty.
  • Absolute Poverty
  • Relative Poverty

Absolute Poverty

          In this poverty, minimum physical quantities like cereals, pulses, milk, butter, etc are determined for the subsistence level of living and then the price quotationsof these commodities are obtained from market to convert these commodity requirement into monetary terms.

          By aggregating all the quantities included and its money value, a figure expressing per capita consumer expenditure is determined. The population whose level of income is below thid figure is considered to be Below Poverty Line.

Relative Poverty

          In this case, the income or consumption distribution of the population in different percentile groups is estimated and a comparison of the levels of living of the top 5% to 10% with the bottom 5% to 10% of the population reflects the relative standards of Poverty.

          Here, a person’s income/ consumption may be above the poverty line but he happens to be poor in comparison with the person whose income/ consumption is above his/ her. This measure is to calculate inequality in the society. 

• Based on the definition of poverty line given above the percentage of people below poverty line(or poverty ration) is provided in the table

Poverty Ratios (in %)

Source Planning Commission

• Since, NSSO 55^th Round (1999) , Planning Commission gives two poverty estimates based on Mixed Recall Period (MRP) and Universal Recall Period(URP)
• Mixed Recall Period, gives consumer expenditure data forfive non-food items, namely clothing, footwear, durable goods , education and institutional medical expenses for 365 days and consumption data for remaining items are collected for 30 days period.
• In Universal Recall Period, consumption data for all items are collected for a 30 days recall period.

Causes of Rural Poverty

• Rapid Population growth
• Lack of capital
• Lack of alternate employment opportunities other than agriculture
• Excessive population pressure on agriculture
• Illiteracy
• Regional disparities
• Joint family system
• Child Marriage
• Lack of proper implementation of PDS(Public Distribution System)

Causes of Urban Poverty

• Migration from rural areas
• Lack of skilled labour
• Lack of housing facilities
• Limited job opportunities in cities
• Lack of vocational education / training

New Definition of slums

• As per the Pranab Sen Committee‘s new methodology, there has been increase in the Urban slum population in 2100 to 93.06 million from 75.26 million estimated in 2001. This is an increase of 26.31%
• As per the new definition, any compact housing cluster or settlement of at least 20 households with a collection of poorly built tenements , which are mostly , temporary in nature with inadequate sanitary ,drinking water facilities and unhygienic conditions will be termed as slums

Multi-Dimensional Poverty Index (MDPI)

• Multi-Dimensional Poverty Index measures the deprivation of people in health, education and standard of living. It is the opposite of HDI. While HDI measures the level of achievements of individuals in the dimensions of health, education and standard of living the MDPI Index measures the under achievements in these dimensions.

Gender Inequality Index (GII)

• Gender Inequality Index measures inequality that exists between men and women across three dimensions viz, reproductive health, empowerment and labour market.
• The indicators for reproductive health are maternal Mortality Rate and Adolescent Fertility Rate. The indicators for Empowerment are parliamentary representation and attainment at secondary and higher education. Labour market indicator is labour market participation.

Poverty and its Study in India:

          Various economists and organizations have studied on the extent of poverty in India. Some of them are as follows:

Dr. V.M. Dandekar and Nilkantha Rath’s Study of Poverty in India:

          They estimated the value of diet with 2250 calories as the desired minimum level of nutrition. They estimated that in 1968-69 about 40% of rural population and a little more than 50% of the urbam population lived below the poverty line.

Montek Singh Ahluwalia’s Study of Rural Poverty:

          MS Ahluwalia studied the trends in incidence of rural poverty in India for the period of 1956-57 to 1973-74. He used the concept of poverty line, i.e., an expenditure level of   र. 15 in 1960-61 for rural areas and र. 20 per person for urban areas.

Rangarajan Report on Poverty:

          The expert group under the chairmanship of Dr C Rangarajan to review the methodology of measurement of poverty in the country constituted by the planning commission in june, 2012 has submitted its report on 30^th june 2014. The report retained consumption expenditure estimates of NSSO as a basis for determining poverty. On the basis of this, it pegged the total number of poor in india at 363 million or 29.6% of the population. This is higher than 269.8 million poor people or 21.9% pegged by the Suresh Tendulkar Committee.

61^st Round of National Sample Survey Organisation (NSSO) Survey and Poverty Estimation

• This round of survey was carried out during the period 2004-2005. It is a consumer expenditure survey. In this survey, people have been asked to recall and tell their expenditure of selected commodities for past 30 days and 365 days.
• This survey has fixed Rs.356.30 and Rs.538.60 as per capita monthly consumption expenditure as poverty line for Rural and Urban area respectively.

NSSO’s Mixed Recall Period (MRP)

• It involves estimation of poverty using consumer expenditure data of 30 days recall period, for all items.

Tendulkar Committee on Poverty

• ‘The Expert Group to Review the Methodology for Estimation of Poverty’ headed by Suresh D. Tendulkar was formed by Planning Commission in 2009. This committee adopted a new method. It moved from calorie based poverty estimation to nutrition, health and other expenditures like clothing footwear based estimation.
• This committee fixed poverty ratio for All India total at 37.2%, rural India at 41.8% and urban India at 25.7 during the year 2004-05.The poverty line fixed for rural India is Rs.446.68 and urban India is Rs.578.80

Rangarajan Committee on Poverty:

          It adopted the method of calorie based methodology as in the past. In addition, it accounted for nutrition, fat and other essential non food items to arrive at poverty line. It fixed Rs.972 per capita month as poverty line for rural area and Rs. 1181 for urban areas.

Ability to Pay Based Poverty Line:

          The author of this book in his article “Poverty Redefined” published in Business Line on 2^nd July 2014 argued to fix poverty line at the level of Basic Exemption Limit fixed for income tax purpose. This limit is fixed on the principle of ability to pay. The basic exemption limit is fixed at the level where the people are considered richenough tp part away their income for general cause in the form of tax. It means at that level a person is considered rich. So the author call to name people as poor whose income is below this limit.

          The basic exemption limit is for individuals. Even if a family has only one earning member he is charged to tax if his income is above this limit.

5. UNEMPLOYMENT

• An economic condition marked by the fact that individual actively seeking jobs remain unemployed. Unemployment is expressed as a percentage of the total available workforce. The level of unemployment varies with economic conditions and other circumstances.
• In India, a person working 8 hours a day for 273 days of the year is regarded as employed on a standard person year basis.
• B Bhagwati Committee on unemployment estimates (1973) set up by the Planning Commission gave three estimates of unemployment. These are

Usual Principal status (UPS)

• Employment Persons, who remained unemployed for a major part of the year. This is also called ‘open unemployment’.

Current weekly status (CWS)

• Unemployment Persons, who did not find even an hour of work during the survey week.

Current Daily status (CDS)

• Unemployment Persons, who id not find work on a day or survey week. This is the comprehensive measure of unemployment , including chronic as well as under employment

All India Rural and Urban Unemployment

(NSSO 66^th Round 2009-10)

Types of Unemployment

          Generally, unemployment can be classified into two types,

1. i) Voluntary Unemployment: This type of unemployment is on account of persons not interested to take the employment. i.e., jobs are available but the persons are not interested in being employed. It is psychological in nature. Therefore, such types of persons are not included in the category of unemployed.
2. ii) Involuntary Unemployment: It refers to a situation in which the persons are interested to work but the jobs are not available. Such persons are included in the categories of unemployed. Under this there are various categories of unemployment. They are as follows:

Structural Unemployment

• This type of unemployment is associated with economic structure of the country e productive capacity is inadequate to create a sufficient number of jobs

Under Employment

• Those labourers are under employed who obtain work , but their efficiency and capability are not utilized at their optimum and as a result they contribute in the production up to a limited level

Open Unemployment

• When the labourers live without any work and they don’t find any work to do , they come under the category of open unemployment
• Educated unemployment and unskilled labour unemployment are included in open unemployment
• refer usual principal status employment also

Disguised Unemployment

• If a person does not contribute anything in the production process or in other words, if he can be removed from the work without affecting the productivity adversely he will be treated as disguised unemployed
• The marginal productivity of such unemployed person is zero

Frictional Unemployment

• The unemployment generated due to change in market conditions ( change in demand and supply condition ) is called frictional unemployment

Seasonal Unemployment

• It appears due to a change in demand based on seasonal variations Labourers do not get work round the year g They get employed in the peak season of agricultural activities and become unemployed when these activities are over.

Classical Unemployment

• It is a component of overall employment caused by too high wage expectation
• In such a situation the wage are not flexible downwards , which will imply that unemployment would persist for long
• Such wages may be set by manipulations in the trade union
• It may also arise because of too generous minimum wage law

Cyclical Unemployment

• This type of unemployment is due to the recession in the economy. During recession there is less requirement of man-power on account of the decrease in the level of economic activities and thus causes cyclical unemployment.
• This type of unemployment is prevalent in developed countries. This is also known as Keynesian Unemployment.

Technological unemployment

Due to the introduction of better machinery, improvement in method of production etc. Some worker tend to be replaced by machines. Their unemployment is termed as technological unemployment

Chronic Unemployment

• When unemployment tend to be a long term feature of a country , it is called chronic unemployment
• Under developed countries suffer from chronic unemployment n account of the vicious circle of poverty , lack of developed resources and their under utilization , high population growth ,etc

Natural Unemployment

          Unemployment ranging between 2 to 3% in the country is considered natural and inevitable. This minimum percentage of unemployment cannot be eliminated at all. It is called natural unemployment.

Inequality

• According to HDR-2011 , inequality in India for the period 2000-2011 in terms of the income Gini coefficient was 36.8 , which is the most favourable among the BRICS countries
• Rural-urban disparities as indicated by differences in average Monthly Per-capita Consumption Expenditure (MPCE) according to the NSSO 66the Round (2009-10) , was Rs 1054 and Rs 1984 for rural and urban India respectively

Selected Health Indicators

Crude Birth Rate (Per 1000 populations)                         22.5(2010-11)

Crude Death Rate (Per 1000 population)                         7.2 (2010-11)

Total Fertility Rate(TFR) (per woman)                            2.6(2008)

Maternal Mortality Rate(per 100000 live births)              212(2006-08)

Infant Mortality Rate (per 1000 live births)            50(2009 ) Male     49 Female 52

Child Mortality Rate(Per 1000 children)                          15.2(2008)

Related Terms

Lorenz Curve

          It is the curve maps between the relationship between the percentage of income or wealth earned or appropriated and percentage of people earned that particular percentage of income or wealth.

Gini Coefficient

          It measures the inequality using Lorenz curve. It is the ratio between area above the Lorenz curve and area below the Lorenz curve.

Kuznetz Curve

          It says that in a developing economy initially the inequality will increase and with increase in growth the inequality will come down.this was said by economist Simon Kuznets.

Engel’s Law

          Ernest Engel said that with the increase in income the proportion of expenditure spent on food falls down. But there may be an increase in the absolute amount spent on food.

AGRICULTURE

Importance of Agriculture

• Agriculture is the mainstay of the Indian economy despite concerted in industrialization in the last six decades
• Its importance to be Indian economy can be gauged from the following facts
• Contribution to GDP Although its share in national income is declining but still it contributed 18% to the total GDP in 2013-2014 (Aggregate Economy)
• Contribution to Employment Agriculture provides livelihood to more than half of the population . In 2011, it contributed 58% to the total employment in the country
• Con tribution to Trade Although the share of agricultural procducts in total trade of India is declining due to export diversification . Yet in 2009-10 , it contributed 11% to the total exports and 13 % to the total imports of the country.
• In addition to above , agriculture sector plays a crucial role in inclusive growth by directly attacking poverty and containing inflation . It is also an important source of raw material for a vast segment of industry
• As a proportion of the value added by agriculture to GDP gross capital formation in agriculture rose to 20.1% in 2010-11 from 13.5% in 2004-05 at 2004-05 prices

Agriculture in Twelth five Year Plan

          The approach paper aims at the growth rate of 4%per annumk in agricultural sector with food grains growing at about 2% per year and non food grains growing at 5.6%.

          The approach paper has emphasized on technology as the main vehicle for improving productivity in agriculture as natural resources are fixed. Severely indicting the public sector research in agriculture the twelth plan encourages Public Private Partnership (PPP) in agriculture so as to bridge the gap in dryland areas and rapidly diversify agriculture.

          It emphasizes on greater road connectivity, development of horticulture, dairying and other animal husbandry to further improve the market access to the farmers.

Contribution of Agriculture in National Income

          Agricultural sector contributes a significantly large share to the National Income of India, although it has come down from as high as 56% during the 1950s to 13.9% in 2011-2012 and is projected to go further in immediate future.

Green Revolution

• Green Revolution was a part of New Agricultural Strategy , which included , initially , the Intensive Agriculture District Programme (LADP) and later the High Yielding Varieties Programme (HYVP)
• It was launched in the year 1966 and was the brainchild of Norman Borlaug, though in India , it was made successful by Dr MS Swaminathan . The term ‘ Green Revolution ‘ was coined by Dr William Gade
• The achievement of Green Revolution were rise in cereal production especially wheat and rice , change in cropping pattern in favour of wheat , and increase in employment opportunities
• The weaknesses of Green Revolution were growth of capitalistic farming, sidetracked land reforms , widened income and regional disparities and environmental degradation
• The Green Revolution demanded high yielding seed , increasing irrigation, pesticides in fertilizer

Second Green Revolution

• The call for Second Green Revolution was given by Prime Minister Manmohan singh at the 93^rd Science Conference in 2006
• The Second Green Revolution seeks to build up on the achievements of first green revolution and bridge the regional and crop imbalance which were not addressed by first Green Revolution
• The Second Green Revolution seeks to cover dryland farming and concentrate on the small and marginal farmers. It seeks to raise the foodgrain production to 400 million tonnes by 2020

EvergreenRevolution

• Concept given by renowned agricultural scientist Dr MS Swaminathan
• The concept emphasizes on ‘organic agriculture ‘ and ‘ green agriculture ‘ with the help of integrated pest management , integrated nutrient supply and integrated natural resource management
• The cause of the evergreen revolution is ‘ Sustainability’

Major Agricultural Revolutions

White Revolution

• India ranks first in the world in milk production, which went up from 17 MT in 1950-51 to 121.84 MT in 2010-11. The per capita availability of milk also increased from 112 gm/day in 1968-69 to 281 gm/day in 2010-11. However , the world average per capita availability was 258 gm/day in 2009-10
• Speedy increase in the field of milk production is called White Revolution. To increase the pace of White Revolution , the operation flood was started. The father of operation flood was Dr Varghease Kurein. Operation flood was started by National Dairy Development Board in 1970

Crop Production

• Food grain production recorded an increasing trends for five consecutive years from 2004-05 to 2008-09 and then declining to 218.11 MT in 2009-10 due to severe drought in various parts of the country. The second advance estimate puts the food grain to be 250.42 MT in 2011-12
• India hold first position in the world for the production of species. India hold second position in the world for the production of vegetables and fruit. Yield and area under oilseeds have shown improvement during the period 2000-01 to 2011-12 as compared to the 1980’s, however, India still imports about 50% of its edible oil requirement.
• The area under major crops declined in 2011-12 as compared to the 2010-11 except sugarcane and cotton. India hold the first position in the world for the production of mint. India is the fourth largest producer of natural rubber with a share of 8.2% in world production in 2010. In productivity , India continues to record the highest productivity in natural rubber
• India is the second largest consumer of natural rubber with 8.8 % share of world consumption in 2010. Kerala accounts for 9/10^th of total rubber production in India
• India is the sixth largest producer of coffee after Brazil , Vietnem , Colombia , Indonesia and Ethiopia .It contributes 4% to world coffee production and has 2% share in global area under coffee. India consumes coffee comprising both Arabica (32%) and Robusta (68%) coffee. Indian coffee is primarily an export –oriented commodity with about 70% of production being exported
• India is largest producer and consumer of black tea in the world .Tea is grown in 16 states in India. Asom, Paschim Bangal, Tamil Nadu and Kerala, account for about 95 % of total tea production. India hold second position in the world for the production of sugarcane and sugar
• The per capita availability of eggs in India is around 53 eggs/ year in the year 2010-11 India is third in egg production. Four regional Central Poultry Development Organisations are located at Cahndigarh, Bhubaneshwar , Mumbai and Hessarghatta

Fisheries Sector

• India is the third largest producer of fish and second largest producer of inland fish in the world. Fisheries sector occupies a very important place in the socio –economic development of the country
• It has been recognized as a powerful income and employment generator as it stimulates growth of number of subsidiary industries and is a source of cheap and nutritious food besides being of foreign exchange earner
• At Present, the fisheries sector is a source of livelihood of over 11 million people engaged fully, partially or in subsidiary activities pertaining to the sector.

Tricolor Revolution

          The reference to a tricolor revolution was made by Prime Minister Narendra Modi. This phrase has three components,

• Saffron Energy Revolution for promotion and better utilization of solar energy.
• White Revolution to ensure cattle welfare and further the goals of white Revolution.
• Blue Revolution for fishermen’s welfare, cleansing rivers and sea and conserving water.

Food Security in India

• The need for food self-sufficiency was borne out on account of the experience gained from the PL-480 programme of the USA in the year 1966 . The American President Lyndon Johnson restricted food aid to force India not to condemn the Vietnam War
• Food security implies access by all people at all times to sufficient quantities of food to lead an active and healthy life . Essentially , it involves
• Quantitative dimension in term of food self-sufficiency
• Qualitative dimension in form of nutritional requirement ; and
• Purchasing power dimension so as to ensure access to all through employment generation programmes

Public distribution System (PDS)

• PDS was envisaged in 1967 to act as a price support programme for the consumer during the periods of food shortage of the 1960s
• The basic aim was to provide essential commodities such as rice , wheat , sugar , edible oil , soft coke and kerosene at subsidized prices
• PDS is the largest distribution network of its kind in the world

Targeted Public Distribution system (TPDS)

• Following the criticism of PDS, the government in June, 1997 replaced the PDS with TPDS. The system envisaged issuing special cards to BPL families and selling foodgrains to them at subsidized prices . With effect from July ,2001
• The BPL allocation of food was increased from 20 kg to 25 kg per family per month at 50% of the economic cost
• 35 kg of foodgrains to be provided to the poorest of the poor families of the Antyodaya Anna Yojana (AAY) at 2/kg for wheat and Rs 3/kg for rice under PDS. It also concentrate on 1 cr poor families
• The allocation of APL (Above Poverty Line) families was retained at 10 kg level fixed in 1997 at a price equal to 100% of the economic cost

Agricultural Price Policy(APP)

• APP of the governmentseeks to ensure remunerative prices to the producers so as to encourage higher interest and production on the one hand , on the other , if safeguards the consumers interest by making food available at reasonable prices
• To achieve this government announces Minimum Support Prices (MSPs) for 25 agricultural crops taking into accounts the recommendation of the Commission for Agricultural Cost and Prices (CACP) . MSP is that price , at which government is ready to purchase the crop from the farmers directly , if crop price falls below the MSP
• Kisan Credit Cards(KCCs) was introduced in 1988-99 by NABARD. The purpose of the KCC scheme is to facilitate short-term credt to far,mers
  Union –Budget 2012-13 has proposed to make KCC as smart cards and can be used at ATMs
• Rehabilitation Package for Distressed Farmerswas introduced in 2006 for 31 suicide prone-districts in the states of Andra Pradesh , Karnataka , Kerala and Maharastra
• Commission for Agricultural Costs and Prices (CACPs) was set up in 1965 with the name Agricultural Price Commission and was renamed as CACP in 1985
• Market Intervention scheme(MIS) is implemented for horticultural and agricultural commodities , generally perishable in nature and not covered under the Price Support Scheme (PSS)
• Economic cost is composed of three components viz MSP , procurement , incidentals and cost of distributing foodgrains

Agricultural Credit

• There are two sources of credit available to farmers viz institutional and private
• Institutional credit covers cooperative societies and banks , commercial banks , RRB and NABARD
• Non-institutional/Private sources of credit are moneylenders , traders and commission agents , relatives and landlords
• Lead Bank Schem based on area approach  was launched in 1969 on the recommendation of Dr Gadgil Committee and  Narasimham Committee
• Under the LBS all the 14 nationalised banks and a few private sector banks were allots specific districts and were asked to play the ‘lead role ‘ in coordinating credit deployment

Regional Rural Banks(RRBs)

• RRBs formally launched in 2^nd October , 1975 at Moradabad and Gorakhpur (Uttar Pradesh) , Bhiwani (aryana) , Jaipur (Rajasthan) and Malda (Paschim Bangal)

• The objective of the RRB was to provide credit and other facilities particularly to small and marginal farmers, agricultural labourers,etc so as to develop agriculture. RRBs mobilize financial resource from rural/semi urban areas. It is jointly Awned by GoI , the concerned State Government and sponsor banks

Agriculture Insurance Company of India Limited (AIC)

• AIC was incorporated under the Companies Act , 1956 on 20^th December , 2002 as a specialized insurer with the capital participation from GIC , four public sector General Insurance Companies and NABARD
• The other specilaised insurer is Export credit Guarantee Corporation (ECGC). It was established in 1957

Commodity Future Market

• The commodity future market facilities the price discovery process and provides a platform for price risk management in commodities. The market comprises 21 commodity futures exchanges which include 5 national and 16 (commodity –specific) regional commodity exchanges

Food Processing Industry

• India is the third largest producer of food in the world after china and the US
• Food processing industry is the fifth largest industry in India in terms of production , consumption , exports and expected growth

Mega Food Park Schemes

• The Tenth Plan Scheme of Food arks was renamed as the Mega Food Park Scheme (MFPS) in 2008. The scheme has been launched with the objective of implementing the express objectives of the Vision 2015 Document through creation of excellent infrastructure

Vision 2015

• In order to urgently reduce the wastage quotient in the processing of perishables the Ministry of Food processing has come out with Vision 2015 Document , which has set a target of tripling the size of the processed food sector
• It envisages increasing the level of processing of perishables from 6% to 20% value addition from 20% to 35% and share in global food trade from 1.5 % to 3% by 2015

Land Reforms

• Land reforms are institutional factors that along with technological factors like better seeds , improved irrigation affect agricultural productivity in the country

Land Reform Programmes in India

• Elimination of Intermediaries Consolidation of holdings (Chakbandi). Determination of ceiling of holdings per family. Distribution of surplus land among landless people. Tenancy forms
• The most successful land reforms initiative was Operation Banga in Paschim Bangal in 1977. Acharya Vinoba Bhave launched Bhoodan Andolan in the country in order to improve the condition s of landless farmers

INDUSTRY

• Industry sector comprises of mining , manufacturing , electricity and gas and construction
• Industry has a share of 228% in the overall GDP and its share in total employment increased from 16.2% in 1999-2000 to 21.9% in 2009-10
• The long-term average annual growth of industries during the past-reform period between 1991-92 to 2011-12 , averaged 6.7%

Industrial Policies

• Industrial policies were launched in 1948 ,1956,1977,1980 and 1991
• The industrial policy resolution of 1948 marked the beginning of the evolution of the Indian Industrial Policy
• The IPR 1956 called the Economic Constitution of India , gave the public sector a strategic role in the economy
• The objective of the IPR 1956 was establishment of socialistic pattern of the society in the country
• Presently , there are two areas , which are reserved for public sector
• Atomic energy
• Railway transport

New Industrial Policy, 1991

• Formed the basis for the economic reforms in India , which proved to be a watershed in the history of Indian economy
• The main aim of the new industrial policy 1991 was
  1. To unshackle the Indian industries from the codweb of unnecessary bureaucratic control
  2. To introduce liberalization with a view to integrate Indian economy with the world economy
  3. To remove restrictions on FDI and to abolish MRTP Act , 1969 and
  4. To shed the load of the public enterprises

Public Sector Enterprises

• As on 31^st March , 2011 there were 248 Central Public Sector Enterprises(CPSEs). Out of 248 CPSEs , 220 were in operation and 28 were under construction. To measure the performance of management of PSEs at the end of the year in an objective and transparent manner, the concept of Memorandum of Understanding (MoU), on thr recommendation of Arjun Sengupta Committee (1988) was started in 1991.
• To impact greater managerial and commercial autonomy to the PSEs, the concept of Maharatna, Navratnas and Miniratnas was started in 1997

Maharatna

• In 2009, the government established the Maharatna status which raised the PSEs investment ceiling from 1000 crore ro 5000 crore
• The Maharatnas firm can now decide on investments of upto 15% of their net worth

Criteria for Maharatna

The six criteria for eligibility of Maharatna are

• Having Navratna status;
• Listed on Indian Stock exchange
• An average annula turnover of more than 20000 crore during the last three years
• An average annual net worth of more than 10000 crore during the last three years
• An average annual net profit after tax of more than 2500 crore during the last 3 years
• And should have significant global presence

List of Maharatna

• There are seven Maharatnas in India
• Oil and Natural Gas Corporation (ONGC)
• Bharat Petroleum Corp Ltd
• Gas Authority of India Limited (GAIL)
• Steel Authority India Limited (SAIL)
• Indian Oil Corporation(IOC)
• Natonal Thermal Power Corporation (NTPC)
• Coal India Limited (CIL)

Navratna

To be qualified as a Navratna Company

• The company must obtain a score of 60 ( of the total 100)
• The core is based on six parameters , which included net profit to net worth , total manpower cost to total cost of production, Profit Before Depreciation , Interest and Taxes (PBDIT) to capital employed , PBDIT to turnover , Earning per share and inter-sectoral performance
• The company must first be a Miniratna-I and must have four independent directors on its board. The Navratna status empowers a company to invest upto 1000 crore on 15% of their net worth overseas without government approval
• At present , there are 14 Navratnas

List of Navratna

• Bharat Electronics Limited
• Bharat Heavy Electrical Limited
• Hindustan Aeronautics Limited
• Hindustan Petroleum Corporation Limited
• Mahanagar Telephone Nigam Limited
• National Aluminium Company Limited
• National Mineral Development Corporation
• Nevyeli 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

Miniratna

Category Miniratna-I

• Public Sector enterprises (PSEs) that have made profit continuously for the last three years or earned a net profit of 30 crores or more in one of three years
• At present there are 55 Miniratna-I

Category Miniratna –II

• PSEs that have made profit for the 1^st three years and should have a positive net worth. At present, there are 17 Miniratna-II.

Sick Industries

• A sick unit is one , which is in existence for atleast 5 years and 15 % of its net worth has eroded
• To combat industrial sickness particularly with regard to the crucial sectors and timely detection of sick and potentially sick industrial companies Sick Industrial CompaniesAct (1985) was enacted SICA provisions were extended to public enterprises in 1993 so as to enable public sector enterprises to be referred to a quasi –judicail body Board of Industrial and Finance Reconstruction (BIFR) to take appropriate measures for revival and rehabilitation

Disinvestment Policy

• The Industrial Policy Statement of 24^th July , 1991 outlined the disinvestment of selected PSEs
• Disinvestment is a process , through which privatization could take place

1. The objective of pursuing disinvestment in India were
2. Unlocking resources trapped in non-strategic PSEs
3. Reducing public debt ; and
4. Transferring commercial risk to the private sector

• First Disinvestment Commission was set up in 1996 , under the Chairmanship of Mr . EV Ramkrishna , which was later reconstituted in July ,2001, under Dr RH Patil
• To shed the load of the excess workers in the public sector government mooted with the idea of Voluntary Retirement Scheme (VRS). VRS is also called Golden Hand Shake Scheme.
• For this purpose, it had set up a National Renewal Fund(NRF) in 1992 , which was abolished it in 2000

Small-Scale Industries

• A new thrust in favour of small scale industries was given in the Industrial Policy Resolution of 1977.
• With effect from 2^nd October, 2006 government enacted the Micro, small and Medium Enterprises Development Act.
• The MSMED Act 2006, clearly defines, for the first time, not only the medium enterprises but also extends it to the services sector too.
• According to the Fourth Census(2009) of the MSME sector, 67% are manufacturing and 33% services enterprises.
• MSME sector contributes 8% to the GDP, 455 to the manufactured output, 40% to the exports and provides employment to 42 million people.
• SIDI (Small Industries Development Bank of India) is a independent financial institution to finance the growth of MSME’s.
• AbidHussain Committee was set-up to look into the problems of small-scale industries.

Large Scale Industries

Iron and Steel Industry

• First steel industry at Kulti, paschim Bengal-Bengal Iron Works Company was established in 1870.
• First large ‘scale steel plant-TISCO at Jamshedpur (1907) was followed by IISCO at Burnpur (1919).
• The First public-owned steel plant was Rourkela Integrated steel plant set-up in 1954 with the help of German Kmpp-Demag.
• India is the fourth largest producer of crude steel in the world after China, Japan and the USA in 2010. In 2009, India was ranked third.
• India is the largest producer of sponge iron since 2002.
• Steel Authority of India Limited(SAIL) wasestablished in 1974 for the development of the steel industry.

Iron and Steel Plants in India

Cotton and Synthetic Textile Industry

• It is the Largest industry in India Accounting for about 20% of industrial output, provides employment to 20 million persons and contributes 33% to total export earnings. The first Indian modernised cotton cloth mill was established in 1818 at fort Gloster near Kolkata, but this was unsuccessful.

Jute Industry

• Jute industry was started in 1855 at Resra and India is the largest producer and second largest exporter of jute in the world. Jute Technology Mission was launched 2^ndJune,2006.

Gems and Jewellery

• Gems and jewellery is an important emerging sector in the Indian economy.
• According to the data released by the World Gold Council(WGC), India is the largest consumer of gold.
• India (especially, Surat and Mumbai) ranks among the ‘big four’ diamond cutting centres of the world, the other three being, Belgium (Antwerp), the USA (New york) and Israel (Ramat Gan).

Paper Industry

• Paper Industry in India is the 15^th largest paper industry in the world. It provides employment to nearly 1.5 million people and contributes $ 25 billion to the government Skitty.
• The first paper mill in India was set up at Sreerampur, PaschimBanga, in the year of 1862.
• On the basis of raw material, paper industry divided into three parts:

1. Wood based industry
2. Water paper based industry
3. Agro based industry

Silk Industry

• India is the second largest (after china) silk manufacture contributing to 18% of the total raw silk production.
• The majority of silk is produced mainly in BhoodanPochampally (also known as silk city), Kanchipuram, Dharamvaram and Mysore.

Sugar Industry

• India is the largest producer of sugar in the world with a 22% share.
• It is the second largest agro-based industry in the country.
• BB Mahajan Committee was set-up to study the sugar industry.
• The sugar Development Fund was set-up in 1982, under the Sugar Cess Act.

Cement Industry

• The foundation of stable Indian cement industry was laid in 1914, when the Indian cement company Limited manufactured cement at porbandar in Gujarat.
• India is the Second Largest producer of cement in the world.

Petrochemical Industry

• The real thrust to this industry came with the establishment of Indian Petrochemical Corporation Limited at Baroda.
• Petrochemical industry mainly comprises synthetic fibres, polymers, elastomers, detergents and performance plastics.
• The main source of feedstock and fuel to the industry are natural gas and naptha.
• Kapur Committee was set –up to identify and support the growth of basic petrochemical and their end.

Fertilizer Industry

• The first fertilizer industry was set-up in 1906, in Ranipet near Chennai.
• India meets 85% of its urea requirement through indigenous production, but is largely import dependent for meeting the demand for phosphorus (90%) and potassium fertilizer (20%).
• India is the third producer of fertilizer after China and USA and second largest consumer after China.
• Urea is the only fertilizer under statutory price control.

Automotive Industry

• India is the second largest manufacturer of motorcycle and fifth largest manufacturer of commercial vehicles in the world.
• In 2009, India was the fourth largest exporter of passenger cars after Japan, South Korea and Thailand.
• India is the largest manufacturer of tractors in the world. India is the ninth largest car manufacturer in the world.

Foreign Direct Investment

• FDI is a type of investment that involves the injection of foreign funds into an enterprises that operates in a different country of origin from the invester. FDI play an extraordinary and growing role in global business. It can provide a firm with new markets and marketing channels, cheaper production facilities, access to new technology, products, skill and financing.
• FDI occurs when a company invests in a business that is located in another country and it is investing not less than 10% of shares belonging to the foreign company. It is a non-debt capital flow.
• If the investment is less than10% shares then it is called FIL (Foreign Institutional Investment).
• Foreign portfolio investment occurs, when foreign Investment in the form of shares, equities and bonds, is made by a foreign company.
• Present policy on FDI is liberal and through automatic route has been allowed expect,

1. Retail trading:
2. Lottery business;
3. Gambling and betting;
4. Chit fund business. Nidhi company;
5. Real estate business;

• Manufacturing of cigars and tobacco products;
• Activities/sectors not opened to private sector,viz railways and atomic energy.
• 20th May, 2011 FDI in Limited Liability Partnership (LLP) has been allowed.

Unorganised Sector and Informal Economy

• Unorganise informal workers refer to workers,who are not covered under any social security benefits irrespective of whether they work in organized or unorganized sector. 86% of the total workforce were in the unorganized sector in 2004-05.
• To look into the problems of unorganized sector, National commission for Enterprises in the under the Chairmanship of DrArjunSengupta. In accordance with the recommendation of the NCEUS, the Government of India enacted the UnorganisedWorkers Social Security Act, 2008.
• The act came into effect from 16^th may, 2009. The act among other things provides for Constitution of a National Social Security Board and State Social Security Board to recommend Social Security Schemes;
• Constitution of record keeping functions by the district administration. Constitution of a workers facilitation centre. A National Social Security Fund (NSSF) with initial allocation of $.1000crore for the unorganized sector workers has been set-up.
• A National Social Security Board (NSSB) has been constituted in 2009. FDI Limits in Various Sectors

National Manufacturing Policy(NMP)

• The NMP was released by the government on 4^th November,2011 to bring about a qualitative and quantitative change with following objectives.
• Increase manufacturing growth to 12-14% over the medium term;
• Enable manufacturing to contribute atleast 25% of GDP by 2022;
• Create 100 million additional jobs in the manufacturing sector by 2022;
• Provides for National Investment and Manufacturing Zone (NIMZ) on lands, which ard degraded and uncultivable.

National Governance Plan

          It was launched in May, 2006. It seeks to make all government services accessible to the common man through common service delivery outlets. It comprises Mission Mode Projects, covers e-infrastructure and MCA-21.

National Polity on Electronics (NPE), 2011

• NPE was released on 3^rd October, 2011 providing for a roadmap for the development of the electronics sector in the country.
• The main objectives are:

1. To achieve a turnover of about US $ 400 billion by 2020;
2. To create employment opportunities of around million;
3. To increase export from US $ 5.5 billion to US $ 80 BILLION 2020.

FOREIGN TRADE

• Trade between two or more nations is called foreign trade or international trade. With the liberalisationof the economy in 1991 and adoption of ‘export promotion’ policy measures has led to substantial growth in exports and diversification of our exports.
• India’s share in world trade stands at 1.4%. The overall openness of theeconomy is reflected by total trade as a percentage of GDP. It stands at 50.3% in 2010-11.

Balance of Payments (BOP)

• The balance of payments in a statical statement that systematically summarises, for a specific time period. The economic transactions of an economy with the rest of the world.
• BOP comprises of current account, capital account and omissions and changes in foreign exchange reserves.

Current Account

• Under current account transactions are classified intomerchandise (export and imports) and invisibles.
• Invisibles Invisible transactions are classified into three categories namely

1.Services travel

2. Income
3. Transfers

Capital Account

• Under capital account, capital inflows can be classified by instrument (debt / equity) and maturity (short / long-term).
• The main component of capital account include foreign investment, Loans and banking capital.

Non-Debt Liabilities

• Includes FDI and portfolio investment comprising of FIIs, ADRs/GDRs.
• Debit Liabilities Include External assistance, External Commercial Borrowing (ECBs),trade credit and banking capital (NRIs deposits).

Balance of Trade (BoT)

1. Balanced BOT i.e., Exports = Imports
2. Adverse BOT i.e., Exports < Imports
3. FavourableBOT i.e., Exports > Imports

Foreign Exchange Reserves in India

These are the main Foreign Exchange Reserves in India

• Foreign Currency Assets (FCAs);
• Gold Stock of RBI;
• Special Drawing Rights (SDRs); and
• Reserve Tranche Position (RTP) in the IMF.
• FERA (Foreign Exchange Regulation Act) was enacted in 1973, to consolidate and regulate dealings in foreign exchange, so as to conserve the foreign exchange and utilise it to promote economic development.
• FEMA ( Foreign Exchange Management Act) was enacted in 1999 to replace existing FERA. This act seeks to make offences related to foreign exchange civil offences.

Special Economic Zone (SEZ)

• A Special Economic Zone (SEZ) is a geographical region that has economic and other laws that are more free-market oriented than a country’s typical national laws. Asia’s first Export Processing Zone (EPZ) was set-up in Kandla,India in 1965.
• The first SEZ policy was announced in April,2000,to make SEZ an engine of infrastructure backed by attractive fiscal package.
• To overcome the short comings experienced on account of the multiplicity of controls and clearances and an unstable fiscal regime and with a view to attract foreign investment in India, SEZ Act,2005 was enacted with effect from 10th February,2005.

Foreign Trade Policy (2009-14)

• Special focus initiatives of FTP (209-14) are Market diversification, technology up gradation, support to status holders,agriculture, handlooms, handicraft, gems and jewellery, leather etc. Short-term objective of the policy is to arrest and reverse the declining trend of exports as witnessed in global economic crisis.
• It seeks to achieve an annual export growth of 15%, so as to achieve the export target of US $ 200 billion by March, 2011. In next three years, e., up to 2014, the policy seeks to achieve 25% growth in annual export of goods and services share from 1.64% in 2008.
• To double India’s share in global trade from present 1.45%(2005) by 2020.0

The Indian Currency System

• The present monetary system of India is based on inconvertible paper currency and is managed by the RBI. The present currency system is based on minimum reserve system of note issue. It was adopted in 1957, under the minimum reserve system, minimum of gold and foreign securities to the extent of $ 200 crore (of which gold should be of value $ 115 crore) and thebalance in rupee securities is maintained.
• RBI Working Group on Money supply headed by YV Reddy recommended for dropping of post office saving deposits. Accordingly, there are now only three monetary aggregates, viz M_1,M₂, and M
• The revised monetary measure are

1. M₁ = Coins and Notes + Demand Deposits + Other deposits with RBI.
2. M₂ = M₁+ Time liabilities portionof saving deposits with banks + Certificates of depositsissued by banks + Term deposit maturing with in a year.
3. M₃ = M₂ + term deposit with banks with maturity over 1 year + call/term borrowing of the banking system.
4. Coins are minted at four places, viz Mumbai, Kolkata, Hyderabad and Noida.

Devaluation of Currency

• Devaluation of Currency means reducing the value of a currency by the fiscal authorities, so as to make exports cheaper and imports costlier and overcome balance of payments deficit. In India, devaluation has been resorted to four times.

(a) First Devaluation In June, 1949 (by 30.5%) ( Finance Minister Dr John Mathai).

(b) Second Devaluation In June, 1966 (by 57% ) (Finance Minister SachindraChaudhry).

(c) Third DevaluationOn 1^st July 1991 (by 9%) (Finance Minister DrManmoohansingh).

(d) Fourth DevaluationOn 3^rd July 1991 (by 11%) (Finance Minister DrManmohansingh).

Printing of Securitiesand  Minting in India

BANKING IN INDIA

• The first bank of Limited liability managed by an Indian was Oudh Commercial Bank in 1881. Subsequently,PNB was established in 1894.
• The largest bank imperial Bank of India was nationalized in 1955 and renamed as State Bankof India followed by formation of its 7 associates in 1959.
• Six more Commercial Banks were nationalized on 15^th August,1980.
• As on March 2011, there were 4 non-scheduled Commercial Banks in India.

Reserve Bank of India (RBI) 

• RBI is the Central Bank of the country.
• RBI was set-up on the basis of Hilton Young Commission recommendation in April 1935 with the enactment of RBI Act, 1934. Its first Governor was Sir Osborne Smith.
• The main purpose of creating RBI wasto separate currency and credit from GoI.
• RBI was nationalized in 1949 and its first Indian Governor CD Deshmukh.

Administration

• The headquater of the RBI is in Mumbai.
• There are 14 Directors Central Board of Directors besides the Governer, four Deputy Governors and one Government Official.
• Governer of RBI –Mr. Urjit Patel

Functions

• The main functions of the RBI include

1. Monetary authority.
2. Issue of currency.
3. Banker and dept manager to government.
4. Banker of Banks.
5. Regulator of Banking system.
6. Manager of foreign exchange.
7. Maintaining financial stability.
8. Regulator and supervisor of the payment and settlement system.

          Since 1952, monetary policy of the RBI emphasise on twin goals.

• These are:

1. Economic growth
2. Inflation control

Credit Control Instruments

• Instrument of credit control can be divided into two namely Qualitative/ Selective credit control and Quantitative credit control.

Quantitative/ General Credit Control

• Quantitative credit controls are used to control the volume of credit and indirectly to control the inflationary and deflationary pressures caused by expansion and contraction of credit.

The quantitative credit control consists of

• Bank Rate It is also called the rediscount rate. It is the rate, at which the RBI gives finance to Commercial Banks.
• Cash Reserve Ratio (CRR) Since 1962, the RBI has been empowered to vary the CRR requirement between 3% and 15% of the total demand and time deposits. The RBI (Amendment) Bill, 2006, empowers RBI to prescribe CRR-Cash that banks deposits with the RBI without any floor rate or ceiling rate.
• Statutory Liquidity Ratio (SLR)It is the rate of liquid asset, which all Commercial Banks have to keep in the form of cash, gold and unencumbered approved securities equal to not more than 40% of their total demand and time deposits liabilities. (ranges is 25-40%)
• Repo RateIt is the rate, at which RBI lends short-term money to the banks against securities. Repo rate injects liquidity in the market.
• Reverse Repo RateIt is the rate, at which banks park short-term excess liquidity with the RBI. Reverse repo rate withdraws liquidity from the market. This is always 100 base point /1% less than Repo rate.
• Open Market OperationsUnder OMOs, when the RBI sells G-secs in the market, it withdraws money liquidity from the market and thus reduces volume of credit leading to control of inflation.

Qualitative/ Selective/ Direct Credit Control

• Qualitative measures are used to make sure that purpose, for which loan is given is not misused. It is done through.
  1. Credit rationing
  2. Regulating loan to consumption etc.

Scheduled and Non-Scheduled Banks

• The schedule banks are those, which are entered in the second schedule of the RBI Act, 1934.These banks have a paid-up capital and reserves of an aggregate value of not less than $ 5 lakh and satisfy the RBI that their affairs are carried out in the interest of their depositors.
• All Commercial Banks (Indian and foreign), regional rural banks and state cooperative banks are scheduled banks. Non-scheduled banks are those, which are not included in the Second Scheduled of the RBI Act

                                Structure of Banking in India

 Schedule Commercial                                                      Schedule Cooperative

         Banks (163)                                                                                Banks (69)

Public Sector         Private Sector             Foreign                       RRBs

  Banks(26)             Banks(21)                Banks(34)                 Banks(82)

Nationalized                          Old Private*

Banks(26)                                Banks(14)                 Schedule Urban        Schedule State 

SBI and its                                New Private                Cooperative               Cooperative

Associates (6)**                          Banks(7)                   Banks(53)                  Banks(16)

State Bank of India   

• State Bank of India (SBI) was previously called Imperial Bank of India in 1921, which was created by amalgamation of 3 presidency banks viz Bank of Bengal, Bank of Bombay and Bank of Madras.
• It was nationalized in 1955.
• At present it has five subsidiaries. There are:

1. State Bank of Bikaner and Jaipur (SBBJ)
2. State Bank of Mysore
3. State Bank of Patiala
4. State Bank of Travancore

• SBI is ranked 292 in the Fortune 500 companies and one of the Four Bigs –ICICI Bank, Punjab National Bank and HDFC Bank in India.

Private Sector Banks in India

• All those banks, where greater parts of stake or equity are held by the private shareholders and not by the government are called private sector banks.
• There are two categories of private sector bank old and
• Banking Regulation Act, 1949 was amended in 1993 and once again in 2001to permit the entry of new private sector banks in the Indian banking sector; the objective was to instill greater competition in the banking system to increase productivity and efficiency.
• 10 new banks were set-up in the private sector after the 1993 guidelines and 2 new banks after the 2001 revised guidelines.
• Recently the Banking Regulation was amended to increase the private banks.

Criteria for Private Sector Banks

2001 revised guidelines has set certain criteria for the establishment of the new private sector banks. Some of these are

• The bank should have minimum net worth of $ 100 crore.
• The promoters holding should be a minimum of 25% of the paid-up capital.
• Within 3 years of the starting of the operations, the bank should offer shares to public.

Basel Norms

• Based Norms are set by Bank of International Settlement (BIS) headquartered in Basel, Switzerland. It prescribes for a set of minimum capital requirement for banks. 55 countries Central Banks are members of the BIS.
• In India Basel norms were introduced in 1988 by the RBI.
• So far two Basel norms viz, Basel-I and Basel-II have been implemented in India and third are e., Basel-III norms will become operational from 1^st January, 2013.
• RBI issued guidelines in 1992 to maintain a capital adequacy ratio of 9% as mandatory for every Scheduled Commercial Banks (SCBs). Capital adequacy ratio is that ratio of the total capital of a bank to its risk weighted assets, which ensure strength and stability of a bank to withstand reasonable degree of
• Capital to Risk weighted Assets Ratio (CRAR) is composed of Tier-I and Tier-II capital.
• Tier-I capital consists mainly of share capital and disclosed reserves and it is bank highest quality capital because it is fully available to cover losses.
• Tier-II capital consists of certain reserves and certain types of subordinate debts. The loss absorption capacity of Tier-II capital is less than Tier-I capital

All India Financial Institutions At a Glance

Insurance Sector

• Insurance industry includes two sectors – Life Insurance and General Insurance.
• Life Insurance in India was introduced by Britishers. A British firm in 1818 established the Oriental Life Insurance Company at Calcutta now Kolkata.

Life Insurance Corporation (LIC)

• LIC was established on 1^st September, 1956, Which set the pace for nationalization of life insurance under the Stewardship of CDDeshmukh. It has head office at Mumbai and eight zonal offices the most recent being at Patna.

General Insurance Corporation (GIC)

• GIC was established on 1^st January, 1973, with its four subsidiaries, viz,

1. National Insurance Company Limited, Kolkata;
2. The New India Insurance Company Limited, Mumbai;
3. The Oriental Fire and General Insurance Company Limited New Delhi; and
4. United India General Insurance Company Limited, Chennai.

Insurance Regulatory and Development Authority (IRDA)

• IRDA was set-up on 19^th April, 2000 under IRDA Act, 1999 to protect the interest of holders of insurance policies and to regulate, promote and to insure orderly growth of the insurance industry.
• IRDA comprises of a Chairman, three whole-time members and four part-time members.

Pension Sector

• New Pension System Launched on 1st January, 2004.
• The NPS covers all employees of the Central Government and Central Autonomous bodies, except armed forces 27 states have notified and joined the NPS.
• With effect from 1st November, 2009 the NPS was opened to all citizens.
• NPS-Lite is the lower cost version of NPS.
• Swawalamban Scheme was announced in the budget 2010. It is an incentive scheme for the NPS.
• Under this, any citizen in the unorganized sector, who fairs NPS in 2010-11 with a minimal annual contribution of annual $ 1000 and maximum of will receive a government contribution of $ 1000 in his NPS account.
• The National Securities Depositories Limited (NSDL) has been appointed as the Central Record Keeping Agency, for the NPS.
• The revised guidelines for NPS has raised the age from 55 years to 60 years. The pension Fund Regulatory Development Authority was established on 23rd August, 2003.

Insurance Sector Schemes

INFLATION

        Inflation means a persistent rise in the price levels of goods and services leading to a fall in the currency’s purchasing power.

Shapiro defines inflation as “persistent and appreciable rice in the general level of prices”.

Causes of Inflation

• Printing too much money.
• Increase in production cost.
• Tax rises.
• Decline in exchange rates.
• War or other events causing instability.
• Increase in money supply in the economy.

Wholesale Price Index (WPI)

• It measures the change in wholesale prices on weekly basis. On the basis of weekly indices, average annual WPI is worked out. Average annualwholesaleprices of the current year are related to average annual wholesale prices of the base year (assumed as 100). The base year for WPI is 2004-05

Consumer Price Index (CPI)

• It measures the change in retail prices on monthly basis.On the basis of monthly indices, average annual CPI iss worked out. Average annual retail prices for the current year are related to the average annual retail prices of the bese year (assumed as 100).

General Price Index (GPI).

• General Price Index measures the changes in average prices of goods and services. A base year is selected and its index is assumed as 100 and on this basis, price index for further period is calculated.

Measurement of Inflation

• Inflation is measured with the help of general or whole sale price index in India. The percentage of rise in the price index of a particular period from previous period price index is the rate of inflation.

Whole Sale price Index (WPI)

• The following table gives details about weights assigned to different commodity groups within WPI

Consumer Price Index for Industrial Worker

TYPES OF INFLATION

Different Inflation Based on Rate of Rise in Prices

1.Creeping Inflation

• Price rise at very slow rate (less than 3%) like that of a snail or creeper is called Creeping inflation. It is regarded safe and essential for economic growth.

2.Walking or Trotting Inflation

• Price rise moderately at the rate of 3 to 7% (or) less than 10% is called Walking or trotting inflation.

3.Running Inflation

• Running inflation means price rise rapidly like running of a horse at a rate of 10-20%. It affects the economy adversely.

4. Hyperinfaltion (or) Runway (or) Galloping Inflation

• The price rise at very fast at double or triple digit rate from 20 to 100% or more is called Hyperinflation (or) Runaway (or) galloping inflation.

Different Inflation Based on Causes

1.Demand Pull Inflation

• Demand pull inflation arises due to higher demand for goods and services over the available supply. Higher demand for goods and services arises due to increase in income of the people, increase in money supply and change in the taste and preference of people.

2.Cost Push Inflation

• Price rise due to increased input costs like raw materials, wages, profit margin etc., is called Cost push inflation.

Factors Affecting Demand

1. Increase in Money Supply

          Increase in money supply leads to prise rise. More money available with people induces people to purchase more goods and services. Mit means there is an increase in demand. So, prices move upward.

1. Increase in Disposable Income

          It leads to higher spending on the part of households. It hikes the level of price.

1. Cheap Monetary Policy

• Cheap monetary policy means loan availability at very low interest rate and at easy terms. It leads to more investment by investors with loaned money. It pushes up the demand for capital goods and rise in price of the same.

1. Increase in Public Expenditure

• Increase in government expenditures over its income, leads to deficit budget. It Increase the price of both goods and services.

1. Repayment of Public Debt

          The repayment of public debt borrowed by government to public leaves people with more money. It induces people to spend more. It ultimately leads to increase in price of goods and services.

Factors Affecting Supply

1. Shortage of Factors of Production

          The shortage in the factors of production viz., land, labour and capital increases the cost of production.

1. Industrial Disputes

          Industrial disputes lead to strike or lay off. It affects the production and supply of goods. It results in increased prices.

1. Natural Calamities

          Natural Calamities like Earthquake, land slide and tsunami, affect production and supply of goods and services. The end result is price rise.

1. Artificial Scarcities

          Artificial scarcities created by activities like hoarding and speculative trading in commodities in the commodities future market, results in price hike.

1. Increase in Exports

          Increase in export of a particular commodity leads to shortage of goods in the domestic market. It pushes up prices.

1. International Factors

          International factors like oil price hike, shortage in production of certain commodities leads to higher import prices.

EFFECTS OF INFLATION

          Inflation has impact on all the economic units. The effects are discussed under three different heads,

1. Redistribution of Income and Wealth

          It redistributes income from one hand to another. It leads to loss to some group of people and gain to another group of people.

1. Debtors Vs Creditors

          In case of debtor and creditor, debtor is gainer and creditor is loser.

1. Producer Vs Consumers

           In inflationary situation, the producers stand to gain and consumers stand to lose. The producers profit will increase as a result of inflation. The purchasing power of money held by consumer falls. So, they have to pay more money to purchase the same amount of goods and services which they bought before inflation.

1. Flexible Income Group Vs Fixed Income Group

          The flexible income groups like sellers, self employed and employees of private concerns whose salary is adjusted according to inflation do not get affected, but fixed income groups like daily wage earners lose as a purchasing power of their income diminishes.

1. Debuntures or Bond Holders and Savers Vs Equity Holders

          The debentures or bond holders and savers receive fixed periodical income from their financial assets. The purchasing power of their asset remains intact only if interest rare is more than rate of inflation.

2. Effects on Production and Consumption

          The inflation may lead to fall in the demand for goods and services. It may curtail the amount of production. Inflation also leads to reallocation of resources. Sometimes, only few goods may experience prise rise. In that case, the investment from other sectors may shift to these sectors.

3. Other Effects
4. Balance of Payment

          High price reduces the amount of export and increases import from other countries where goods are available at cheaper rate. It results in unfavourable balance of payment.

1. Exchange Rate

          High import and low export means high demand for foreign currencies compared to domestic currency.

1. Social and Political

          Higher rate of inflation leads to social and political tension. The political parties and organized group of people call for strike, hartals and stage dharnas.

MEASURES TO CONTROL INFLATION

          The control of inflation needs a multi-pronged strategy. All the strategies need cooperation and harmony among them.

1. Monetary Measures
2. Credit Control

          Credit control method is used by RBI to control inflation. RBI used Wholesale Price Index based inflation as a benchmark to control inflation.

          But now based on Urjit Patel Committee recommendation, RBI shifted targeting to newly introduced CPI (combined).

1. Demonetisation of Currency

          Demonetisation of currency means declaring that hereafter currencies of particular denominations are invalid. It suddenly reduces the money to the extent of money kept in those particular denominations. It is resorted to only in extreme cases.

1. Issue of New Currency

          In this case all the money in circulation is withdrawn by government and new currency is issued. The new currency of single unit will be made equal to many units of old currency. For example, new currency of one rupee will be made equal to Rs. 100 of old currency. So the money supply is reduced to 1/100^th. This too is resorted only under extreme cases.

2. Fiscal Measures
3. Reduction in Unnecessary Expenditure

          Reduction of unnecessary government expenditure means less demand from government side. It brings down the prise level.

1. Increase in Direct Taxes

          Increase in direct taxes like income tax reduces the disposablke income available with people. It means low demand from households. Less demand leads to lower price.

1. Decrease in Indirect Taxes

          Decrease in indirect taxes like excise duty, sales tax brings the prices down.

1. Surplus Budget

          Surplus budget means less expenditure than receipts. It reduces the money supply and government demand for goods and services. The price level is brought down due to this.

3. Trade Measures

          Trade measures refer to export and import of goods and services. In case of shortage of goods in domestic market, the supply can be increased through import of goods from foreign countries at low or nil import duty. The restriction in the form of import licenses has to be eased to increase import. The higher supply helps to bring down the price.

4. Administrative Measures
5. Rational Wage Policy

          Rational wage policy helps to keep the cost of production under control. The cost control means price control.

1. Price Control

          Direct price control also helps in inflation control. Price can be controlled by fixing maximum price limits through administered price system and subsidy from the government.

1. Rationing

          Rationing of goods in short supply keeps the demand under control so that price comes under control.

DEFLATION

          Deflation is opposite to that of Inflation. The persistent and appreciable fall in the general level of prices is called as deflation. The rate of change of price index is negative. The effects, causes and measures are also in the opposite direction.

Philips Curve

• Philips curve shows the relationship between rate of inflation and rate of unemployment. It shows that the relationship is negative. That is at high rate of inflation the unemployment rate is low.

Stagflation

Stagflation refers to the situation of coexistence of stagnation and inflation in the economy. Stagnation means low national income growth and high unemployment.

Disinflation

The rate of inflation at a slower rate is called disinflation.

Reflation

Reflation means deliberate action of government to increase the rate of inflation to stimulate the economy. It is usually done to redeem the economy from deflationary situation.

Base Effect

Base effect refers to the phenomenon of currebt year index being influenced by very low or high base period index.

Core Inflation

It is the measure of price rise in the economy excluding the price rise of certain products. Those products are whose price is very volatile and temporary in nature. The long term plans are framed to control inflation.

PUBLIC FINANCE

          Public finance is one of the disciplines in econokics that deals with resource mobilization for and utilization of the same to accomplish State activities at all levels viz., central, state and local governments.

          The estimated receipts and expenditures are essentially made into and out of the following funds.

1. i) Consolidated Fund of India.
2. ii) Public Accounts of India.

          iii) Contingency Fund of India.

RECEIPTS

                             Receipts

Revenue Receipts                     Capital Receipts

A.Revenue Receipts

• Revenue receipts are those receipts which need not to be paid again to the payee by government and income from government assets. These are necessarily one way transaction i.e.no need to return the receipts and it is a onetime settlement. Revenue receipts are three types.

1. Tax Revenues
2. Non-tax Revenues
3. Other non-tax receipts
4. Tax Revenues
5. Union Excise Duties

• It is the tax on production of commodities.

1. Customs Duties

• It is the tax on export and import of commodities from and to the country.

iii. Corporate Tax

It is levied on the company’s profit income

1. Income Tax (Personal income tax)

It is a tax on the personal income of the individuals.

1. Service Tax

It is a tax on the services consumed by consumer.

1. Taxes of Union Territories

vii. Other Taxes and Duties

          tax income from other taxes like wealth taxes are lumped together under this category.

2. Non Tax Revenues
3. Interest Receipts
4. Dividends & Profits
5. Other Non-Tax Receipts
6. i) Fiscal Services
7. a) Currency, Coinage, Mint
8. b) Other Fiscal Services
9. Other General Services

iii. Social services

1. Economic services
2. Grants in Aid Contributions
3. Non tax Receipts of Union Territories
4. Capital Receipts

• These receipts are essentially a two way transactions. These receipts can be raised either from already invested amount in the form loan given/asset created by disposing it or on the assurance that it will be paid back in future if government has not invested already and has no claim over the source of this receipt. In short, they are

1. Receipts due to disposal of permanent assets.
2. Recovery of loans given to others.
3. Fresh loans raised by the government

• Capital receipts can be classified into two categories as shown below.

1. Debt Capital Receipts

• Among the above listed capital receipts fresh loans raised (borrowings) by the government along with other liabilities fall under this category. In short, they are

1. Borrowings
2. Other liabilities

I.Borrowings

A.Internal Borrowing

a.Market Loans (net)

• Market loans are raised by issuing bonds (dated securities) to public and financial institutions. They have maturity of 12 months or more. They are generally interest bearing with fixed “coupon”.

1. Treasury Bills Issued to RBI & Banks

• Treasury bills are securities issued by Government treasury. They are of short term nature, in this regard they differ from market loans. They are not non-interest bearing (zero interest/zero coupons)

1. Other Internal Debt

Debt raised to meet budget needs apart from the previous two methods are called other internal debt.

1. i) Funded Securities
2. ii) Other Special Securities Issued to RBI

iii) Ways and Means Advance: RBI acts as banker to the government. It keeps the bank account of Government. It receives and pays money on behalf of government. If the balance goes negative RBI lends short term interest bearing advance to government. It is called ways and means advance.

1. iv) Special Floating and Other loans
2. v) Securities Against Small Savings
3. vi) Compensation Bonds and Others

vii) Non-Negotiable, Non interest Bearing Securities issued to International Financial Institutions

B.External Borrowings

a.Multilateral Loans

• These are loans received from multilateral agencies like IMF, World Bank.

1. Bilateral Loans

• These are loans raised from foreign governments and foreign government bodies directly.

II.Other Liabilities

• Liability literally means the responsibility to pay money or responsible for something

A.Small Saving Scheme

B.Provident Funds

1. Other Accounts

D.Reserve Funds of the Railways, Posts and Telegraphs

2. Non- Debt Capital Receipts

Amounts received by the government from disposal of its assets and recovery of loan given to others are included in this. They can be listed as

1. Recoveries of Loans
2. Disinvestment of Government Shares other than PSUs.

EXPENDITURES

                             Expenditures

Revenue expenditure                                          Capital expenditure

A.Revenue Expenditure

• Expenditure incurred to meet day to day expenditure of government and that will not yield any revenue in future are termed as revenue expenditure. It is a one way payment. It means, if government spends money, cannot recover it. These are

1.Interest Payments

Interest paid on borrowing and other liabilities, discounts on treasury bills constitute this category.

2.Defence, Police

3.Subsidies

4.Grants to States & Union Territories

5.Pensions and Salaries

6.Economic Services

7.Other General Services

8.Social Services

9.Postal Deficit

10.Expenditure on Union Territories without Legislatures

11.Grants to Foreign Governments

B.Capital Expenditure

• In general, expenditures that create permanent assets any yield periodical income and loans given to state governments and local bodies are called capital expenditure. It is a two way payment. It means spent money cannot be recovered through periodical income and/or by disposal of the asset created.

Plan Expenditure

• Expenditure envisaged in 5 year plan documents are called as Plan Expenditure. It has both revenue and capital component.

Non Plan Expenditure

• Expenditures not envisaged in the 5 year plan documents are called as Non Plan Expenditure. It also has both revenue and capital component of expenditure.

DEFICIT

• Deficit means shortage. Here deficit means shortage of money for expenditure. The gap between the receipts and expenditure is called deficit.

Budget Deficit

• Budget Deficit = Total Expenditure – Total Receipts = (Capital expenditure + Revenue expenditure) – (Capital Receipts + Revenue Receipts)

Revenue Deficit

Revenue  Deficit = (Revenue Expenditure – Revenue Receipts)

Fiscal Deficit

Fiscal Deficit = Total Expenditure – Total Receipts except Borrowing and Other liabilities = Total Expenditure – [Capital Receipts other than Borrowing and other Liabilities + Revenue Receipt]

Primary Deficit

Primary Deficit is measured by subtracting the interest payments from fiscal deficit.

Primary Deficit = Fiscal Deficit – Interest payment

Monetised Deficit

          Monetised deficit goes beyond the government budgetary operations. This represents increase in the net RBI credit to the Union government which is the sum of increases in the RBI’s holding of Givernment debt plus any draw down by the government of its cash balance with RBI.

          Monetised Deficit = Borrowing from RBI + Draw down balance of government from RBI.

TYPES OF BUDGET

Performance and Programme Budgeting

In this budget the chosen programmes/projects are subjected to the tests of actual performance against their expected standards. So it involves stagewise plan and standard fixation to assess performance of programmes.

Outcome Budget

• It is the compilation of anticipated and intended outcomes of various ministries intended outcome is not just the physical output of financial input. Outcome means the benefits arise out of physical output from receptive financial input.

Zero Based Budget

• In this budgeting, all the schemes and programmes are not included in every year budget just because they already exist. Under it every scheme should be reviewed critically and re-justified that why they have to be included in the coming budget. It involves a consideration that there are no existing schemes/programmes and the budget has to be started from scratch/zero base.

TAX

• Tax is a compulsory levy payable by an economic unit to the government without any corresponding entitlement to receive a definite and direct quid pro quo from the government.

Broad Areas of tax

1. Tax on income and expenditure

Taxes imposed on Personal income, corporate income, sales tax and like come under this area.

1. Tax on Commodities

Taxes like Excise duty, Custom duty fall under this category.

1. Tax on Property & Property Transaction

Taxes like wealth tax, Estate & succession duties are classified under this category.

Tax base

Tax base is the legal description of the object with referenct to which the tax is payable. It may have time dimension like year, month.

e.g., base of excise duty is production of commodities.

Base of income tax is income of individual.

Tax Buoyancy

It measures actual or observed change in Tax revenue relative to GDP.

Tax Buoyancy = Proportioinate change in the tax revenue / Proportionate change in GDP

Tax Buoyancy = % T / %  GDP

where

T = Change in Tax revenue

GDP = Change in Gross Domestic Product.

Tax Elasticity

Proportionate change in tax revenue without any discretionary change, relative to GDP is called tax elasticity.  Tax revenue that is calculated after setting aside the change in tax revenue due to discretionary changes is called adjusted tax revenue.

Tax Elasticity = Proportionate change in Adjusted tax revenue / Proportionate change in GDP

Tax Elasticity = % AT / % GDP

CLASSIFICATION OF TAXATION

Proportional Taxation

• Tax levied as a % of tax base irrespective of size of tax base, at a uniform rate is called as proportional tax. Progressive Taxation.
• If tax rate increase with the increase in size of tax base, it is called progressive tax. Here those who receive income/spend

Regressive taxation

• If tax rate decrease with the increase in the tax base it is called regressive tax. Here those who receive income/spend/purchase

Methods of Taxation of Goods

1.Ad valorem

• If tax is levied as a % of the value of the goods regardless of number of Units produced/sold/imported, then it is called ad valorem.

2.Specific duty

• If tax is levied at a flat rate per unit of goods produced/sold/imported regardless of the value then it is called specific duty. E.g Rs.2 per 1 Kg of iron.

TYPES O F TAXES

There are two types of taxes namely,

1.Direct Tax

2.Indirect Tax

1.Direct Taxes

1. Income Tax
2. Estate and Succession Duties
3. Wealth Tax
4. Fringe Benefit Tax (FBT)
5. Banking Cash Transaction Tax (BCTT)
6. Securities Transaction Tax (STT)
7. Corporate Income Tax

It is a tax on the company’s profit income.

Minimum Alternate Tax (MAT)

• It is a tax imposed on companies, which escaped corporate tax net by using the provisions of exemptions, deductions, incentives etc, and are called Zero tax companies. It was introduced in 1996-97. In case, total income of the company after availing all eligible deductions is less than 30% of the book profits, the company shall be charged to a minimum tax as a percentage of total income.

2. Indirect Tax

• These are those taxes, which have their primary burden or impact on one person. But that person succeeds in shifting his burden on to others.
• Indirect taxation is policy often used to generate tax revenue. Indirect tax is to called as it is paid indirectly by the final consumer of goods and services while paying for purchase of goods or for enjoying services.
• Composition of Indirect Taxes Out of 42.6% contribution of indirect tax to the total tax revenue in 2011-12, excise contribution was 16.7%, customs contribution was 13.4% and services tax contributed 9.3%.
  • Excise Duties
  • It is the tax on production of commodities
  • Customs Duties
  • It is the tax on import and export of commodities
  • ModVAT (Modified VAT)
  • K.Ja Committee recommended it in 1976. It is an excise duty. Introduced as MANVAT. Then it was changed as ModVAT in 1986-87
  • Sales Tax/VAT (Value Added Tax)
  • It is a tax on sale of commodities. It is a state level sales tax. The taxrate is imposed as a % of value added.
  • General Sales tax
  • Service tax

 Financial Relations between Centres and States

• India possesses a federal structure, in which a clear distinction is made between the union and the state functions and sources of revenue.
• Our Constitution provides residual powers to the centre. Article 264 and Article 293 explain the financial relations between the Union and State Government.
• Although, the states have been assigned certain taxes, which are levied and collected by them, they also have a share in the revenue of certain union taxes and there are certain other taxes, which are levied and collected by the Central Government, but whole proceeds are transferred to the states.
• The Constitution provides residuary powers to the center.
• It makes a clear division of fiscal powers between the Centre and the state Government.

(A) List I of Seventh Schedule of the Constitution Enlists the Union Taxes, which are

1. Taxes on income other than agriculture income.
2. Corporation tax.

3.Custom duties.

4.Excise duties except on alcoholic liquors and narcotics not contained in medical or toilet preparation.

5. Estate and succession duties other than on agricultural land.
6. Taxes on the capital value of assets agricultural land of individuals and companies.
7. Rates of stamp duties on financial documents.
8. Taxes other than stamp duties on transactions in stock exchanges and future markets.
9. Taxes on sales or purchase of newspaper and on advertisements there in.
10. Taxes on railway freight and fares.
11. Terminal taxes on goods or passengers carried by railways, sea or air.
12. Taxes on the sale or purchase of goods in the course of interest trade.

(B) List II of Seventh Schedule enlists the Taxes, which are within the Jurisdiction of the States

1. Land revenue.
2. Taxes on the sale and purchase of goods, except newspapers.
3. Taxes on agricultural income.
4. Taxes on land buildings.
5. Succession and estate duties on agricultural land.
6. Excise on alcoholic liquors and narcotics.
7. Taxes on the entry of goods into a local area.
8. Taxes on the consumption and sale of electricity.
9. Taxes on mineral rights (subject to any limitations imposed by the parliament).
10. Taxes on vehicles, animals and boats.
11. Stampduties expect those on financial documents.
12. Taxes on goods and passengers carried by board or inland water-ways.
13. Taxes on luxuries including entertainments, betting and gambling.
14. Tolls.
15. Taxes on professions, trades, calling and employment.
16. Capitation taxation.
17. Taxes on advertisements other than those contained in newspaper.

(C)  Apart from taxes levied and collected by the state, the Constitution has provided for the revenues for certain taxes on the Union List to be allotted, partly or wholly to the states. These provision fall into-various categories

1. Duties, which are levied by the Union Government, but are collected and appropriated by the state. These include stamp duties, excise duties on medical preparations containing alcohol or narcotics.
2. Taxes which are levied and collected by the Union, but the entire proceeds of which re assigned to the states, in proportion determined by the parliament. These taxes include

(i) Succession and estate duty.

(ii) Terminal taxes on goods and passengers.

(iii) Taxes on railway freight and fares.

(iv) Taxes on transactions in stock exchange and future markets.

(v) Taxes on sale and purchase of newspapers and advertisements there in.

3. Central taxes on income and union excise duties are levied and collected by the Union, but are shared by it with the state in a prescribed manner.
4. Proceeds of additional excise duty on mill-made textiles, sugar and tobacco, which are levied by the union, since 1957 in replacement of state relates taxes on these commodities, are wholly distributed among the state in a manners as to guarantee their former incomes from the displayed sales taxes.

GST (Goods and Services Tax)

• It is a uniform tax on goods and services throughout the country. It is supposed to be implemented from 2010. It will have all features of VAT. In VAT, only goods are taxed but in GST both goods and services will be taxed on the basis of value addition method. If it comes, the taxes like excise duty and octroi will go away.

FRBM ACT 2003: FRBM Act was enacted in the year 2003 with the purpose of correcting the fiscal imbalances like high revenue and fiscal deficit. Apart from provisions of the act, FRBM rules also framed which fix targets of deficits among other things. Special features of the act and rules are as under.

Related Terms

Cess

• It is a tax additionally levied as a percentage of existing tax amount for specific purpose. For example, educational cess of 3% is levied on all central taxes.

Surcharge

• It is also like cess. A tax additionally levied as a percentage of existing tax amount, but without any specific purpose.

Countervailing Duty

• To encourage export, countries give subsidy to exporters. So, the cost of production for exporters comes down. Hence, exporters are able to export to other countries at a cheaper rate. It largely affects producers of the importing country. To counterbalance (countervail) this, importing countries impose duty on imported goods to raise the price of subsidized product to offset its lower price. This is called countervailing duty.

Anti-Dumping Duty

• Dumping means exporting goods to other country in large quantity at a cheaper rate.

Laffer curve

• Laffer curve explains the relationship between tax rate and tax revenue.

Structure of Taxes

Finance Commission

• Finance Commission is constituted to define financial relations between the centre and the state. Under the provision of Article 280 of the Constitution, the president appoint a Finance Commission for the specific purpose of devolution of non-plan revenue resources.
• The functions of the commission are to make recommendations to the president in respect of the distribution of net proceeds of taxes to be shared between e union and the states and the allocation of share of such proceeds among the states. The principles, which should govern the payment of grants-in-aid by the centre to the states.Any other matter concerning financial relations between the centre and the states.

Thirteenth Finance Commission

• The Thirteenth Finance Commission was constituted in accordance with the Articles 270, 275 and 280 of the Indian Constitution. Main recommendations of the FC-XIII relate to sharing of net process of union taxes between centre and state, grants in aid, goods and services tax, financing of relief expenditure and roadmap for fiscal consolidating.
• The FC-XIII submitted its report on 30^th December, 2009. It overall approach was to foster “inclusive and green growth promoting fiscal federalism”. It propose reducing the combined debt-GDP ratio to 68% by 2014-15, with the Centre’s debt-GDP ratio declining to 45%.
• The share of states in net proceeds of shareable central taxes shall be 32% every year for the period of the award. The indicative ceiling on overall transfers to states on revenue account may be set at 39.5% of gross revenue receipts of the centre.
• A total non-plan revenue grant of $ 51800 crore is recommended over the award period for eight states. A performance grant of $ 1500 crore is recommended for three special category states that have graduated from a non-plan revenue deficit situation.
• A total sum of $ 318581 crore has been recommended for the award period as grants-in-aid to states.

Finance Commission in India

Salient Recommendation of 13^th Finance Commission

• Sharing of union taxes.Grant-in-aid of revenues of states under Article 257 of the constitution.Environment related grants. Grants for improving outcomes.Grants for maintenance of roads and bridges.State specific grants.Goods and service tax.Local bodies.Disaster relief.Fiscal roadmap.Debt relief to states.

Fourteenth Finance Commission

• The government constituted the Fourteenth Commission under former Reserve Bank of India Governor Yoga Venugopal Reddy. The five member panel is to submit its report by 31^st October, 2014. Apart from its recommendations on the sharing of tax proceeds between the centre and state, which will be apply for a five year period beginning 1^st April, 2015.
• The commission has been asked to suggest steps for pricing of public utilities such as electricity and water in an independent manner and also look into issue like disinvestment, GST composition, sale of non-priority PSU and subsidies.

Panel of Fourteenth Finance Commission

• Chairman YV Reddy (Former RBI Governor)

Members

• Sushmanath (Former Finance Secretary)
• M GovindaRao ( Director NIPFP )
• AbhijitSen (Member of Planning Commission)
• SudiptoMundle (Chairman of National Statical Commission)

12. INDIAN FINANCIAL SYSTEM CAPITAL MARKET

• Capital market is a medium and a platform for long term funds. It helps to generate bulk fund for government and industries. The institutions in the capital market are called Non-Banking Financial Companies. This is evident from RBI’s observation which runs as: “Housing Finance Companies, Merchant Banking Companies, Stock Exchanges

COMPOSITION AND FUNCTIONS OF CAPITAL MARKET

Security market

• Securities market deals with shares (equity shares, preference shares, derivatives) and debt instruments (bonds, debentures etc.,) Both shares and debt instruments are instruments of fund raising. But, there is a difference between them.

New and Old Issue market

• The New issue market is also known as Secondary Market.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

• It was established in 1988 for the development and regulation of securities market through a resolution of government. It was given statutory in 1992. Its head office is in Mumbai. Its regional offices are in Kolkata, Delhi and Chennai.

Main Functions

• To protect the interest of investor in securities. To promote the development of securities market and to regulate the securities market. For matters connected there with or incidental thereto. To prohibit unfair trade practices in the market.
• Clause 49 of the Listing Agreement to the Indian stocks exchange relates to the improvement of corporate governance of all listed companies. It came into effect from 31^st December, 2005. As per the Clause 49, for a company with executive chairman, at-least 50% of the board should comprise independent directors.
• On 25^th October, 2007, SEBI allowed creation of a separate exchange for Small and Medium Enterprises (SMEs).

TRADING PROCESS

• The trading of shares in stock exchanges is mediated by stock broking companies. Both buyer and seller have to approach broker. Brokers are registered members with stock exchanges to trade on behalf of clients. They are subject SEBI guidelines. Sub-brokers are trading persons affiliated with Brokers. They act like branches to Brokers.
• The types of trading are different based on time. In case trading, the sale and purchase of securities takes place in the prevailing price on the day of trading. In forward trading, both buyer and seller agree to buy and sell respectively at a future date at a pre agreed price, irrespective of the price that prevails on the day of trade.
• There are two types of forward trade. One is Futures and another one is Options. Though both are forward trade methods, there is a slight difference. In case of Futures, both buyer and seller has to execute the agreement. In case of Options, the buyer can withdraw from the agreement. To have this option the buyer has to deposit some amount as premium. In the case when he fails to execute the agreement, he has to forego the premium amount.
• The futures and options are Derivatives. Derivatives mean any agreement like futures and options which doesn’t have independent value. The agreement to trade in the future doesn’t have any value. It has value only because of underlying securities which are to be traded.

Online Trading

• The trading of shares is now made online. The online trading platform of Bombay is BOLT (BSE Online Trading) and of NSE is NEAT (National Exchange Automated Trading). Financial system refers to the borrowingandlending of funds for the demand and supply of funds of all individuals institutions, companies and of the government.
• The Indian Financial System consists of two parts, viz, Indian money market and the Indian capital market.

Money Market

• Money Market is a market for ‘near money’ or it is the market for borrowing and lending of short-term funds.

Capital Market

• FM refers to all those institutions, which help the private and public enterprise to raise funds. In that Money market deals with the provision of raising short-term fund with maturity less than 1 year.
• While capital market is concerned with provision of raising long-term funds of maturity 1 year or more. Capital market can be classified into debt market and equity market.
• In debt market, accompany can acquire funds only by incurring debt and lender is guaranted of a fixed repayment e.g., bond.
• Equity Market In here, funds can be raised without incurring debt those, who finance the enterprise by purchasing equity instrument like shares.

Stock Exchange in India

• Stock exchange or share market deals on shares, debentures and financial securities.
• There are 23 stock exchanges in India. Among them two are national level stock exchange namely Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). The rest 21 are Regional Stock Exchanges (RSE).

Bombay Stock Exchange (BSE)

• It is a stock exchange located on Dalal Street, Mumbai, Maharashtra, India. It is the 11^th largest stock exchange in the world by market capitalization as on 31 December 2012.
• Established in 1875, BSE Ltd. (formerly known as Bombay Stock Exchange Ltd.), is the India’s oldest Stock Exchange, one of Asia’s oldest stock exchange and one of India’s leading exchange groups.
• Over the past 137 years, BSE has facilitated the growth of the Indian corporate sector by providing it an efficient capital-raising platform. Popularly known as BSE, the bourse was established as “The Native Share & Stock Brokers Association” in 1875.

National Stock Exchange (NSE)

• It is the country’s leading stock exchange located in the financial capital of Mumbai, India. National Stock Exchange (NSE) was established in the mid 1990 as a demutualized electronic exchange.
• NSE provides a modern, fully automated screen-based trading system, with over two lakh trading terminals, through which investors in every nook and corner of India can trade.
• NSE has played a critical role in reforming the Indian securities market and in bringing unparalleled transparency, efficiency and market integrity. NSE has a market capitalization of more than US $ 989 billion and 1,635 companies listed as on July 2013.

MCX SX Stock Exchange

• It is a private stock exchange head-quartered in Mumbai, which was founded in 2008. Now it is a MCX-SX Full Fledged Stock Exchange.
• Securities and Exchange Board of India (SEBI) on 10^th July, 2012 granted (MCX-SX) to operate as full-fledged stock exchange.
• MCX-SX would be able to offer additional asset classes, such as equity and equity F and O (Futures and Options) interest rate futures and wholesale debt segments.

Important Share Price Indexes of India

• BSE SENSEX This is the most sensitive share index of the Mumbai Stock Exchange. This is the representative index of 30 main shares. Its base year is 1978-79. BSE is the oldest stock exchange of India, founded in 1875.
• The Barometer of Indian capital market. BSE sensitive index also referred to as BSE-30 is a free-float market capital- stations –weighted stock market index of 30 well established and financially sound companies listed on Bombay stock exchange.
• The free-float market capital-station of a company is determined by multiplying the price of its stock by the number of shares issued by a company which is readily available for trading on the stock exchange. The base year/period of SENSEX is 1978-79.
• NSE-50 from 28^th July, 1998, its name is S and P CNX Nifty. National Stock Exchange launched a new share price Index, NSE-50 in place of NSE-100 in April, 1996. NSE-50 includes 50 companies shares. This stock exchanges was founded on FerwaniCommittee’s recommendation in 1994.

Global Indices

• The CNX Nifty covers 22 sectors of the Indian economy and offers investment managers exposure to the Indian market in one portfolio. The CNX Nifty Index is free float market capitalization weighted index.
• The index is calculated on free float methodology. The base value of the index has been set at 1000, and a base capital of Rs. 2.06 trillion. The CNX Nifty Index was developed by Ajay Shah and Susan Thomas.

Credit Rating Agencies

• It is a company that assigns credit ratings for issuers of certain type of debt obligation as well as the debt instrument, example of issuers are companies, state and Central Government etc.
• The credit rating represents the credit rating agency’s evaluation of qualitative and quantitative information for a company or government; including non-public information obtained by the credit rating agencies analysis. The credit rating is used by individuals and entities that purchase the bonds issued by companies and government to determine the likelihood that the government or company will pay its bond obligations.
• CRISIL, set-up in 1988, is a credit rating agency. It undertakes the rating fixed deposit programmes, convertible and non-convertible debentures and also credit assessment of companies.
• CRISIL 500is the net share price Index introduced by credit Rating Agency. The ‘Credit Rating Information Services of India Limited’ (CRISIL) on 18^TH January, 1996.
• In some cases, the services of the underlying debt are also given ratings.

International Economic Organizations

International Monetary Fund (IMF)

• IMF was conceived on 22^nd July, 1944 and came into existence on 27^th December, 1945, when 29 countries signed the agreement. It originally had 45 members. India is the founding member.
• IMF at present has 187 members and headquartered at Washington DC. The capital resources of the IMF comprise Special Drawing Rights (SDRs) and currencies that member pay under quotas calculated for them when they join the IMF.
• The quotas determine the amount of foreign exchange a member may borrow from the IMF and its voting power on IMF policy matters. Quotas and denominated in SDRs.
• The member with largest quotas is USA followed by Japan and China. Tuvalu is the member with smallest quota. India with a quota share of 2.75% is now placed eighth largest quota holding country at the IMF.
• Based on nothing share, India (together with Bangladesh) Bhutan and Sri Lanka are ranked 22^nd in the list of 24 constitutions.
• For India, Finance Minister is the Ex-officio Governor of the Board of Governors of the IMF. Governor of the RBI, is India’s alternate Governor.

World Bank (WB)

World Bank is one of the five institutions created at the Bretton Woods Conference in 1944. Along with the IMF, it constitutes ‘twin-sister’ of Bretton Woods.

• World Bank has 187 members and is headquartered in Washington DC.
• The World Bank provides loans to developing countries for capital programme and its official goal is reduction of poverty.
• International Finance Corporation (IFC) was established in 1955, to provide loans to private industries of developing nations.
• International Development Association (IDA), known as the soft loan window of the World Bank was established on 24^th September, 1960.
• International Center for Settlement of Investment Disputes (ICSID) was established in 1966, to provide facilities for the conciliation and arbitration of investment disputes between member countries. It has 157 members.
• Multilateral Investment Guarantee Agency (MIGA) was founded in 1988 to promote foreign direct investment into developing countries. It has 175 members.

World Trade Organization

• It was constituted on 1^st January, 1995 under the Marrakesh Agreement and took the place of GATT (General Agreement on Trade and Tariff) as an effective formal organization. GATT was an informal organization, which regulated world trade since 1948.
• It is headquartered at Geneva. At present, it has 157 members.

Functions of WTO

• To oversee, implementing and administering WTO agreements. To provide a forum for negotiations.
• To provide a dispute settlement mechanism. To provide facilities for implementation, administration and operation of multi-lateral and bilateral agreements of the world trade.
• The WTO is currently endeavouring to persist with a trade negotiation called Doha Development Agenda (DDA), which was launched in 2001, to enhance equitable participation of poor countries, Which represent a majority of the world’s population
• Singapore Issues refer to transparency in government procurement, trade facilitation, trade and investment and trade and competition.

Swiss Formula relates to NAMA (Non-Agricultural Market Access).

Asian Development Bank (ADB)

• It was established in December, 1966 with the aim to accelerate economic and social development in Asia and Pacific region. It is headquartered at Manila, Phillipines.
• The ADB offers hard loans from ordinary capital resources on commercial terms, and the Asian Development Fund affiliated with the ADB extends soft loans from special fund resources with concessional condition.
• For OCR, members subscribe capital, including paid-in and callable elements, a 50 percent paid-in ration for the initial subscription, 5 percent for the Third General capital increase (GCI) in 1983 and 2 percent for the Fourth General Capital Increase in 1994….

BALANCE OF PAYMENT

• The balance of payment of a country is a systematic record of all its economic transactions with the outside world in a given year. The term ‘all transaction’ means transactions of government as well as private. It is a double entry book keeping. It means the incoming receipts are credited and outgoing transactions are debited.

1. Current Account

• The external transactions are classified as current account and capital account transactions. This classification is similar to the classification of receipts and expenditure as revenue receipts and capital receipts and revenue expenditure and capatial expenditure in public finance.
• Current account transactions are single time and one-way transactions. It means the transaction either receipt or payment happens once and the transaction ends there.

1. Export

• Export means the receipts against export of merchandise goods to other countries. The export receipts of services are not included here.

2. Import

• Import means the payment for import of merchandise goods from other countries. The payments for import of services are not included here.

3. Trade Balance

• The balance of trade is difference between export receipts and import payments.

Trade balance = Export – Import

4. Invisibles (net)

• The head of invisibles record the receipts and payments regarding services exports and imports and other current account payments viz.,

1. Non – factor services
2. Income and
3. Private Transfers

• Non – factor services

Non – factor services refer to all invisible receipts or payments not attributable to conventional factor of production, i.e., labour (remittances from overseas migrants). Thus Non – factor services mean the export and import of services alone.

1. income

• Income includes transactions regarding income from investments in the for of dividends, profit and interest from loans, rent from house property and income generated through employment.
• Remittance is directly earned by labour which is a factor of production and incomes like dividend, profit and interest are earned by capital which is also a factor of production. So the income from both these heads is called factor income services.

1. Private Transfers

• Private transfers include grants, gifts, etc., which do not have any quid pro quo. Without any quid pro quo means it need not be compensated. Once it is received it need not be repaid.

Current account balance

• Current account balance is the sum of the items 3 and 4 viz, trade balance and net invisibles.
• Current account balance = Trade balance + Net invisibles.

1. Capital Account

• Capital account transactions are two way and multiple transactions. It means paid money can be recovered through periodical income and/or by disposal of the asset created. Likewise the received money needs to be repaid periodically and setteled finally by repaying the full amount. For example from the loan paid to a foreigner periodical interest income can be received at the same time the paid principal amount can be recovered from the debtor.

1. External assistance (net)

• External assistance means the transaction of official (government) bilateral and multilateral loans. The bilateral loans are loan transactions between two countries. Multilateral loans are official loan transactions between a country and multilateral bodies like World Bank, IMF and Asian Development Bank etc.

1. External Commercial Borrowings (net)

• Commercial borrowing means loan transaction by commercial enterprises. It is also called as External Commercial Borrowing (ECB).
• ECB refer to commercial loans in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments availed of from non – resident lenders with a minimum average maturity of 3 years.
• Short – term debt
• Short – term debts are trade credits for a maturity of less than three years.

1. Banking Capital

• Banking capital comprises three components:

1. Foreign assets of commercial banks
2. Foreign liabilities of commercial banks and
3. Others

• “Foreign assets” of commercial banks consist of
• Foreign currency holdings, and
• Rupee overdrafts to non – resident banks.

“Foeign liabilities” of commercial banks consisits of

• Non – resident deposits and
• Liabilities other than non – resident deposits, which comprise rupee and foreign currency liabilities to non – resident banks and official and semi – official institutions.
• “Others” under banking capital include transaction in balances of foreign central banks and international institutions like the IBRD, IDA, ADB, IFC, IFAD, etc., maintained with the Deposit Accounts Department (DAD) of the RBI as well as transaction in balances held abroad by the Embassies of India in London and Tokyo.

Non – resident deposits

• The deposit received from non resident Indians come under this head. At present, there are three, types of NRI Deposit Schemes.

Non – Resident External Rupee Account NR(E)RA

• These deposits are held in Indian Rupee. Term deposits with maturity of one to three years as well as saving depostis are allowed under this scheme. Its interest rate is also pegged to LIBOR / SWAP rate.

Non – Resident Ordinary Rupee Account (NRO)

It is the account held by Indians ordinarily living abroad.  An Indian who was Indian resident but migrated abroad can shift his account to this category. It is held in Indian Rupee. NRO accounts can be opened as current, savings, recurring or fixed deposit accounts.

1. Foreign Investments

          There are two types of foreign investments. One is foreign direct investment and another is portfolio investment. Portfolio investment is also called as rentier investment.

Foreign Direct Investment (FDI)

• Foreign Direct Investment refers to direct bulk investment in a domestic company by a foreign individual or company. The foreign direct investors have control over company’s management and day to day affairs of Company which is possible by enough voting rights in his hand due to bulk investment.

Portfolio (or) Rentier Investment

• Portfolio investment refers to investment minimally in various financial instruments like shares, debentures of a company. The portfolio investor can not have any control over company management. There are three major types of portfolio investment. They are:

1. Foreign Institutional Investment (FII)
2. Depository Receipts
3. Offshore Funds

Foreign Institutional Investment

• It is the portfolio investment by foreign institutions like Mutual funds, Insurance Cos, Pension funds etc., in shares and debentures.

Depository Receipts    

• Companies of a country can go abroad to sell their shares in foreign capital market. When a foreign investor buys shares of domestic companies abroad (in capital market), he is issued a receipt by a custodian Bank. This receipts represents a certain number of underlying shares of domestic companies and hence they are called Depository receipts.

Offshore Funds

• These are money raised from offshore destination (low tax or no tax countries) like Cayman Islands, Isle Of Man, Mauritius and British Virgin Islands etc., by mutual funds and other investment.

1. Other Flows

• Other flows include, delayed export receipts, leads and lags in export receipts (the difference between the customs data and the banking channel data), funds held abroad, and other capital transactions not included elsewhere such as flows arising from cross – border financial derivative and commodity hedging transactions, and sale of intangible assets such as patents, copyrights, trademarks etc.,

Capital Account Balance

• It is the sum of items I to V above. Capital account total (net) = External assistance (net) + Commercial Borrowings (net) + Nonresident deposits (net) + Foreign investements (net) + Other flows (net).

1. Overall balance

• The overall balance is the sum of current account balance and capital account balance.

Overall balance = Current account balance + Capital account balance

• If there is a positive balance it increases the reserve and vice – versa.

Reserves

• Reserve means foreign exchange reserve. The sum of current and capital account balance is the balance of payment.

Balance of payment = current account balance + capital account balance

• The foreign exchange reserve consists of

1. Foreign Currency Assets
2. Gold Stock of RBI
3. SDR (Special Drawing Right) holdings of the government
4. Reserve Tranche

Foreign Currency Assets

• Currencies of various countries are held in foreign exchange reserve. It is expressed in US $ or Indian Rupee terms after converting currencies of various countries by their respective exchange rate against US $ or Indian Rupee respectively.

Gold Stock of RBI

• The RBI has gold stock as a back up to issue currency and to meet unexpected Balance of Payment problem. Its value is expressed in terms of US$ or Indian Rupee.

SDR Holdings

• SDR is a reserve created by International Monetary Fund.

Reserve Tranche

• Tranche means portion or slice. Reserve tranche means a portion of fund kept in reserve. The reserve tranche forming part of foreign exchange reserve is the portion of fund of Government of India held in reserve as contribution to Financial Transaction Plan of IMF.

SDR

• SDR has two dimensions. One, it is an exchange rate system and another it is a loan arrangement.

FOREIGN EXCHANGE

Exchange Rate

• It is the rate at which home currency is exchanged for one unit of foreign currency.

Depreciation

• Increase in the exchange rate i.e.fall in the external value of domestic currency because of more demand for foreign currency or more supply of (less Demand of) Domestic currency is called depreciation.

Appreciation

• Fall in the exchange rate i.e increase in the external value of domestic currency, due to more demand for home currency.

Devaluation

• Reduction in the external value of home currency is called Devaluation. For example changing the exchange rate from Rs.50=US $1 to Rs.75 = US $1 is called devaluation.

How Export Increase

• Both depreciation and devaluation helps to increase export. This can be clearly illustrated from the following example.
• Consider price of rice per kg is Rs.25, and consider that a foreigner wants to import rice from India. When the exchange rate is Rs.50=US$1 with US $1 foreigner can import 2 kg of rice.

Purchasing power parity (PPP)

• PPP, proposed by Gustav Cassel, is a method of determining exchange rate. Purchasing Power Parity menas the equality of buying capacity. Based on the buying capacity (purchasing power) of respective currencies in their home country the exchange rate is determined.

Need for PPP

• It is customary to compare level of development of different countries based on living standard of people. The standard of living is measured by proxy variable, namely per capita income. People in countries with high per capita income are considered to be enjoying high standard of living and such ountries are considered developed countries. Later it was realized that standard of living is not in the amount of money they have but the amount of goods they can have with that money i.e., purchasing power of money.

Convertibility in India

• The convertibility in India is a gradual one. Like other reforms it was also introduced in 1990.

Current Account Convertibility

• Current account convertibility refers to the freedom of converting home currency into foreign currency with reference to transactions in current account.

Capital Account Convertibility

• Capital account convertibility means the freedom to convert home currency into foreign currency regarding transactions in capital account.

Capital Account Convertibility Committee

• This committee was formed under the chairmanship of S.S. Tarapore the then deputy governor of RBI. It gave green signal to introduce Capital Account Convertibility. It recommended the introduction of CAC in a phased manner throughout the period of 1997 – 2000.

BARRIERS TO TRADE

• The policy instruments which obstruct trade are called as barriers to trade. They are of two types namely, tariff barriers and non-tariff barriers as shown in the following figure.

                             Barriers to trade

Tariff Barriers                          Non-Tariff Barriers

Tariff Barriers

• Tariff means the duty on import and export of goods. The tariff on import is to make the price of imported goods equal to domestic goods. It increase the price of imported good. So import is discourage export and make the goods available in domestic market which otherwise may be exported.

Non-Tariff Barriers

• The instruments and executive operations that obstruct free flow of trade other than tariff is called non tariff barriers.

a.Quota

• It fixes a limit on the amount of trade that can take place. In this system only a fixed quantity is allowed to be exported to any country and imported from any country.

b.Production Subsidies

c.Export Subsidies

d.Health, sanitary & safety regulations

• It refers to import restrictions on health and safety grounds. The countries that want to restrict import fix higher level of norms.

e.Packaging requirements

ECONOMIC INTEGRATION

• Economic integration means the cooperation that exists between countries in the trade and other economic front such as investment, monetary policy.

Preferential Trade Agreement (PTA)

• It is a agreement between two or more countries where the agreeing parties reduce the level of tariff imposed on traded goods among themselves.
• The aim is to bring down the level of tariff and thereby increase the flow of trade.

Free Trade Agreement/Area (FTA)

• Free trade agreement/area is an improved level of economic integration compared to preferential trade agreement. In this agreement, the parties to the agreement abolish tariff on most of the goods and services and keep tariff on some items at a minimal level.

Customs Union (CU)

• It is as till higher level of integration. In this, the member countries abolish barrier to trade and service among them, and as a whole, they maintain a common tariff against third parties.

Common Market (CM)

• In addition to provisions of customs union, a free flow of labour and capital is also allowed in common market.

Economic and Monetary Union (EMU)

• In this arrangement, in addition to common market’s provision, the monetary and fiscal policies are hormonised among member Countries.

NEER and REER

          NEER stands for Nominal Effective Exchange Rate and REER stands for Real Effective Exchange Rate. Usually the exchange rate is determined for a domestic currency against a single foreign currency. In the effective exchange rate is fixed against a basket of currencies. For NEER and REER the basket is SDR currencies.

        NEER = Domestic currency exchange rate in terms of SDR/ Foreign Currency exchange rate in terms of SDR.

       REER = NEER X Domestic price index/ Foreign Price index.

WORLD TRADE ORGANISATION

          WTO is an international organization established to promote multilateral trade. It is successor to erstwhile GATT (General Agreement on Tariffs and Trade). It came into force by January 1, 1995 and has played a pivotal role in facilitating international trade.

FROM GATT to WTO

• GATT is a forum for international trade.
• It was established with an aim to ensure free trade among world countries by way of reduction of tariff and other barriers to trade. Under the aegis of GATT, eight rounds of negotiations were held between 1986 and 1994 among members, to ensure free trade. The last one was the Uruguay round.

PRINCIPLES OF WTO

• The two main principles of WTO are Most Favored Nation (MFN) and National Treatment (NT)
• The principle of MFN calls the member countries to treat all nations on equal footing in the policies concerning import and export of goods and services. The principle of National Treatment calls to treat imported goods and services equal to domestic goods and services in domestic sale and consumption.

STRUCTURE OF WTO

• Ministerial Conference is the top level decision making body. It meets once in two years.
• Next is the General Council. It is functioning under the ministerial conference. The General Council also acts as Dispute Settlement Body and Trade Policy Review Body. It meets many times in a year as and when required.
• The Council for Trade in Goods is called Goods Council.it looks after the working of GATT agreement.
• The Council for Trade in services is called Services Council. It looks after implementation of General Agreement on Trade in Services (GATS).
• TRIPS council looks after issues related with Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement implementation.

AGREEMENTS

• As a result of Uruguay round 20, agreements were signed. Here, we are going to have a look about few important agreements – the WTO agreement, Agreement on Agriculture (AoA), Trade Related Aspects of Intellectual property Rights (TRIPS), Trade Related Aspects of Investment Measures (TRIMS), General Agreement on Trade in Services (GATS)

Agreement on Agriculture (AoA)

• Agreement on Agriculture calls for freeing agriculture trade. The Commitments under this agreement are based on Special and Differential treatment. Special and Differential treatment means flexible and lesser commitment on the part of developing and less developed countries compared to developed countries in fulfilling the obligation under this agreement.
• This agreement also has special safeguard mechanism means the option available to countries to impose additional duties on imported products when there is surge in imports or products are imported at lower price. The main components of this agreement are Market access, Domestics support or Domestic subsidies and Export subsidies.

Market Access

• Market Access provision calls for provision of access to imported agricultural goods in the member countries. There are two provisions. One is tariffication and tariff reduction and the other one is minimum market access.
• Tariffication means converting non tariff barriers into tariffs that ensures same level of protection. Tariff reduction calls for 36 % tariff reduction by developed countries over 6 years period and 24% by developing countries over the period of 10 years. The least developed countries do not have any commitments.
• Minimum access calls for at least a minimum of 5% of imported agriculture products in domestic consumption by the year 2000 in developed countries and 2004 in developing countries. Domestic Support or Domestic Subsidies.
• This provision calls for reduction of domestic subsidies that result in lower price of exported products and distort free trade. These subsidies are called Amber Box subsidies.

1. Green Box Subsidies
2. Blue Box Subsidies
3. Export Subsidies

• Agreement on the Application of Sanitary and Phytosanitary Measures. This agreement sets basic rule to ensure food safety and life/health of plant and animals in member countries. Under this agreement member countries are allowed to set health and hygienic standards of imported products.
• The standards set should be non discriminatory, scientifically justifiable and to the extent required and not prohibitive in nature. Trade Related Intellectual Property Rights (TRIPS)
• Intellectual properties are knowledge oriented creations, inventions and innovations. The intellectual property rights refer to the recognized ownership of the intellectual property to creator, inventor and innovator.

Copy Right

• Copy Rights is related with literary and artistic works like books, lectures, sermons, music etc.,

Trade Mark

• Trade mark, means the symbols that give unique identity to products of particular producer.

Geographical Indicator

• Geographical indicator means the unique identity attached to a particular product for the reason that particular product is produced in a particular geographical location.

Industrial Designs

• Designs when recognized as it belongs to any body others cannot use that design. The Designs Act, 2000 observes.

Patents

• Patent means recognition of invention and conferment of certain exclusive rights to inv

Trade Related Aspects of Investment Measures (TRIMS)

• TRIMS are essentially to promote investment and equally among countries in the sphere of foreign investments. It calls for countries to avoid unnecessary conditions attached with foreign investments like employment opportunities for local people, limit to imported contents of products produced etc.,

GATS

• GATS call for liberalization of trade in service sector. This is counterpart of GATT which covers merchandise trade.
• Mode 1 (Cross border supply): Cross border supply means export of service across border from domestic country like BPO and Banking services through e-media etc.,
• Mode 2 (Consumption abroad): Consumption abroad means the services availed by citizens of one country in another country like foreign tour, medical treatment in foreign country, study abroad etc.,
• Mode 3 (Commercial presence): It means the commercial establishments that provide service in foreign country by establishing subsidiary or holding company in foreign country.
• Mode 4 (Movement of Natural Persons): It means, the services provided by professionals like Doctors, Accountants, and Lawyers etc with their physical presence abroad.

WTO ROUNDS

          WTO was born out of Uruguay round of negotiation as said at the outset. Under WTO, a new round of negotiation was started and negotiated as Doha round. This fresh round actually syartyed in the year 2001 but declaration and decisions were Doha ministerial Conference and named after Doha as Doha Development Round. This sound is continuing. This round is concerned with implementation of agreements made in the Uruguay round of negotiation. It covers a whole range of issues from agriculture to e-commerce.

FLAGSHIP PROGRAMMES OF GOVERNMENT OF INDIA

• The flagship programmes were launched by the Government of India is 2004 to bridge education , health , employment and infrastructure divides
• The ultimate objective of the flagship programme is to achieve broad –based improvement in the living standards of our people and to ensure that growth is widely spread

Sarva Shiksha Abhiyan (SSA, launched in 2001)

• The Sarva Shiksha Abhiyan (SSA) was conceived as a centrally sponsored scheme at the end of the Ninth Five Year Plan
• The main objective of this programme was to provide educational facility to all children of 6-14 are group in the state , to complete the primary education by 2007 and upper primary education by 2010 of all enrolled children and to ensure universal stay of all children up to the year 2010
• Also concentrate on gender equality

National Rural Health Mission (NRHM. Launched in 2005)

• The National Rural Health Mission(NRHM) , aims to provide accessible affordable and accountable quality health services to the rural poor
• The time-period of this programmes is 7 years from 2005 to 2012
• The objectives of the Mission include reduction in child and maternal mortality and universal access to public health care services among other
• The thrust of the Mission is on establishing a fully functional, community owned , decentralized health delivery system with intersectoral convergence at all levels

Integrated Child Development Scheme (ICDS, launched in 1975)

• The Integrated Child Development Services (ICDSs) Scheme aims at enhancing the health, nutrition and learning opportunities of infants, ypung children (0-6 years) and their mothers.
• The Scheme provides an integrated approach for converging basic services which includes supplementary nutrition , immunization ,health check yp , referral services , pre-school non-formal education and nutrition and health education
• Since 2005-06 , the Government of India is providing central assistance to states for supplementary nutrition also to the extent of 50% of the actual expenditure incurred by states or 50% of the cost norms, whichever is less

Mid –day Meal (MDM , launched in 1995)

• Under the scheme , hot cooked meal of a minimum 300 calories and 8-12 gms of protein is being provided to children studying in primary schools / Education Guarantee Scheme (EGS) / alternative and Innovative Education (AIE) centre’s
• This Programme is expected to help Universalisation of elementary Education by improving enrolment and regularity of attendance, by reducing drop-outs, and by improving children’s level of learning and self-esteem
• The Programmes is the largest feeding programme in the world
• It provides nutritional support to children of primary stage in drought affected areas during summer vacation

National Rural Drinking Water Programme (NRDWP, launched in 2009)

• This programme’s instrument is accelerated Rural Water Supply Programme (ARWSP) under implementation since 1972-73 , which is funded on a 50% matching share basis between the Government of India and the State Government
• The ARWSP has been modified as National Rural Drinking Water Programme(NRDWP) in 2009-10 with major emphasis is on ensuring sustainability in terms of portability , adequacy ,affordability and equity by adopting decentralized approach

Total Sanitation Programme (TSP)

• Total Sanitation Campaign Programme is in force in all districts of the state. TSP was started in the state in the year 2000
• This programme was originally envisaging construction of household toilets , schools and Anganwadi sanitation and community complex with overall behavioural changes in the rural habitation
• It involves heath education ,awareness and hygiene education

National Social Assistance Programme (NSAP)

• The National assistance Programme (NSAP) envisage the pension schemes , National Family Benefit Scheme and scholarship to up to 2 children of BPL families studying in classes 9^th to 12^th
• The pension schemes under NSAP are Indira Gandhi National Old Age Pension Scheme, Indira Gandhi National Widow Pension Scheme , Indira Gandhi National Disability Pension Scheme , provide a sum as pension to old aged, widowed and disabled

Mahatma Gandhi Rural employment Guarantee Act (MGNREGA, launched on 2^nd February, 2006)

• The National Rural Employment Guarantee Act (NREGA) 2005 envisages securing the livelihood of people in rural areas by guaranteeing 100 days of employment in a financial year to a rural household. The main provisions of the Act are
• Employment to be given within 15 days of application for work. If employment is not provided within 15 days, daily unemployment allowance in cash has to be paid. Employment within 5 km radius , else extra wages to be paid
• At least one-third beneficiaries have to be women. Gram Sabha will recommend works. Gram Panchayat to execute at least 50% of works. PRIs have principal role in planning and implementation
• Grievance redressal mechanism to be put in place for enhancing a responsive implementation

Indira Awas Yojana (IAY, launched in 1999)

• The Indira Awsa Yojana (IAY) addresses housing shortage as an important component of poverty alleviation in rural India
• The cost is shared by the Centre and State in the ratio of 75.25 . 75% weightage to the poverty ratios prescribed by the Planning Commission for state level allocations
• Under this yojana, houses are invariably allotted in the name of women

Rajiv Gandhi Gramin Vidyutkaran Yojana (RGGVY launched in 2005)

• Aims at providing electricity in all villages and habitation and access to electricity to all rural households
• Connections to BPL families are given free of cost . 90% cost of the scheme is released as grant , where 10% as loan
• For creation of village electrification infrastructure , first priority is given to unelectrified villages . Preference for electrification is given to Dalit Bastis, Tribal settlements and habitations of weaker sections

Jawaharlal Nehru National Urban Renewal Mission (JNNURM launched on 3^rd December,2005)

• The aim of the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) is to encourage reform and fast track planned development of identified cities
• The duration of the Mission is seven years beginning from the year 2005-06 to 2012-13
• The Mission has two sub-missions. On is BSUP (Basic Services to Urban Poor) and the other is UIG (Urban Infrastructure and Governance)
• The JNNURM has now been extended to 65 cities from the previous 63 cities

Employment, Poverty, Rural and Urban Development Programmes

Employment Guarantee Scheme of Maharashtra (EGSM) (set up in 1972)

• To assist the economically weaker’ sections of the rural society .It was the first programme to recognize ‘ Right to Work’

Training Rural Youth for Self-Employment (TRYSEM) (set up in 1979)

• Programme for training rural youth self employment

Integrated Rural Development Programme (IRDP) (set up in 1980)

• All round development of the rural poor through a programme of asset endowment for self employment

National Rural Employment Programme (NREP) (set up in 1980)

• To provide profitable employment opportunities to the rural poor

Rural Landless Employment Guarantee Programme (RLEGP) (Set up in 1983)

• For providing employment to landless farmers and labourers

Jawahar Rozgar Yojana (JRY) (Set up in 1989)

• For providing employment to rural unemployed

Nehru Rozgar Yojana (NRY) (Set up in 1989

• For providing employment to urban unemployed

Scheme of Urban Wage Employment (SUWE) (set up in 1990)

• To provide wages employment after arranging the basic facilities for poor people in the urban areas, where population is less than one lakh

Employment Assurance Scheme (EAS ) (Set up in 1993)

• To provide employment of atleast 100 days in a year in village. Minimum wages under NREGA has been raised to 20 per day

Swarna Jayanti Shahari Rozgar Yojana (SJSRY) (Set up in 1997)

• To provide gainful employment to urban unemployed and under employed poor through self employment or wage employment
• It has been revamped with effect from April 2009 . The revamped scheme has five components
  1. Urban Self-Employment Programme(USEP)
  2. Urban Woman Self-Help Programme(UWSHP)
  3. Skill Training for Employmnet Promotion amongst Urban Poor (STEP-UP)
  4. Urban Wage Employment Programme (UWEP)
  5. Urban Community Development Network( UCDN)

Swarna Jayanti Gram Swarozgar Yojana (SJGSY) (set up in 1^st April , 1999)

• It replaced Integrated Rural Development Programme (IRDP) , Development of Women and children in rural areas (DWCRA) , Ganga Kalyan Yojana (GKY) (1997) , Million Well Scheme (MWS) (1989) and Supply of Improved Tool-kits to Rural Artisans (SITRA) (1992)
• For eliminating rural poverty and unemployment and promoting self employment through establishing micro enterprises nine rural areas . Targets to cover 50% SCs/STs , 40% women , 15% minorities and 3% disabled
• It has been restructured as NRLM (National Rural Livelihoods Mission)

Jai Prakash Narayan Rozgar Guarantee Yojana( JPNRGY)

(Proposed in 2002-03 Budget)

• Employment guarantee in most poor districts

Pradhan Mantri Gramodaya Yojana( PMGY) (Set up in 2000)

• Focus on village level development in five critical areas, i.e primary health primary education , housing, rural roads, drinking water and nutrition with the overall objective of improving the quality of life of people in rural areas
• The scheme was notified to throughout the country with effect from 1^st April 2008 . Renamed as MGNREGS from 2^nd Octobe , 2009 . SGRY and Food for Work Programme merged into it
• With effect from 1^st April, 2012, MGNREGA-2 has been launched. MGNREGA’s new version encompasses works related to agriculture, animal husbandary, poultry, drinking water and sanitation. Further, small marginal and SC/ST farmers will be able to employ NREGA workers for farm work.

Sampoorna Grameen Rozgar Yojana(SGRY) (set up in 25^th September , 2001)

• EAS , Jawahar Gram samridhi Yojana (JGSY) and JRY merged into it
• To provide wage employment and food security in rural areas and also create durable economic and social assets

Food for Work Programme(set up in 2001)

• To give food through wage employment in the drought affected areas in eight states . Wages are paid by the State Governments` partly in cash and partly in food grains

Prime Minister’s Employment Generation Programme (PMEGP) (set up in 2008)

• To generate employment opportunities in rural as well as urban areas through setting up of new self –employment ventures / projects / micro enterprises

Rural Development Programmes

Community Development Programme (CDP) (set up in 1952)

• Over –all development of rural areas with people’s participation

National Fund for Rural development (NFRD) (set up in 1984)

• To grant 100% tax rebate to donors and also to provide financial assistance for rural development projects

Council for Advancement of People’s Actions and Rural Tachnology (CAPART)

(set up in 1986)

• To provide assistance for rural development

District Rural Development Agency (DRDA) (set up in 1993)

• To provide financial assistance for rural development

Pradhan Mantri Gram Sadak Yojana (PMGSY) (set up in 2000)

• To line all villages with pakka road having population of 500 and above in general areas and 250 and above in trial and general areas
• All weather roads

Twenty Point Programme (set up in 1975)

• Poverty eradication and raising the standard of living

Drought Prone areas Programme (DPAP) (set up in 1973-74)

• To minimize the adverse effects of drought on production of crops and livestock and productivity of land , water and human resources ultimately leading to drought proofing of the affected areas

Annapurna Scheme (set up in 2000)

• To indigent senior citizens of 59 yrs of age or above, who are not getting pension under National Old Age Pension scheme are covered . 10 kg of food grains per person per month are supplied free of cost under this scheme

Total Sanitation Campaign (TSC)(set up in  1st April ,1999)

• It follows a community led and people-centred approach and places emphasis on Information, Communication and Education(ICE) for demand generation of sanitation facilities

Nirmal Gram Puraskar (NGP) (set up in October 2003)

• It is an incentive scheme to encourage PRIs to take up sanitation promotion

Desert Development Programme (DDP ) (set up in 1977-78)

 To mitigate the adverse effects of desertification

Integrated Wasteland Development Programme (IWDP) (set up in 1989-90)

To development of wasteland and degraded lands

Valmiki Ambedkar Awas Yojana(VAAEY) (set up in December , 2001)

• Facilities construction and upgradation of dwelling units for slum dwellers

Member of Parliament Local Area Development Programme (MPLADP) (set up in 1993)

• It provides for 2 crore to each MP to undertake development activities in its constituency. The amount has been raised to 5 crore from 2011

Affordable Housing in Partnership (AHIP)(be a part of JNNURM) (set up in 2009)

• Aims at constructing one million houses for the EWS/LIG/MIG with at least 25% for EWS category. Seeks to operationalise National Habitat Policy 2007

Rajiv Awas Yojana (RAY) (set up in 2010)

• It aims at ‘slum-free’ India in next five years
• It is for urban areas

Women Empowerment Programmes

Support to Training and Employment Programme for Women (STEPW) (set up in 2003-04)

• To increase the self-reliance and autonomy of women by enhancing their productivity and enabling them to take up income generation activities

Rajiv Gandhi Scheme for Empowerment of Adolescent Girls(RGSEAG)-

• It aims at empowering adolescent girls of 11 to 18 years by improving their nutritional and health status , upgradation of home skills , life skills and vocational skills

Rashtriya Mahila Kosh(National Credit Fund for Women) (set up in 1993)

• It extends micro –finance services through a client friendly and hassle-free loaning mechanism for livelihood activities , housing , micro-enterprises , family needs, etc to bring about the socio-economic upliftment of poor women

Indira Gandhi Matritva Sahyog Yojana (IGMSY)

• To improve the health and nutritional status of pregnant , lactating women infants
• It involves conditional cash transfer and wage loses are also compensated

Swayam Siddha (set up in 2001)

• At organsizing women into self-help groups to form a strong institutional base

Swadhar (set up in 1995)

• To support women to become independent in spirit , in thought , in action and have full control over their lives rather than be the victim of others actions

Support to Training and Employment Programme for Women (STEP)

• To mobilize women in small viable groups and make facilities available through training and access to credit , to provide training for skill upgradation ,etc

Development of women and children in Rural Areas(DWCRA) (set up in 1982)

• To improve the socio –economic status of the poor women in the rural areas through creation of groups of women for income-generating activities on a self-sustaining basis

Dhan Laxmi (set up in March,2008)

• Conditional cash transfer scheme for the girl child to encourage families to educate girl children and to prevent child marriage

Ujjwala (set up in 4^th December 2007)

• A comprehensive scheme for prevention of trafficking with five specific components –prevention , rescue , rehabilitation reintegration and repatriation of victims

Gender Budgeting Scheme (GBS) (set up in2004)

• With a view to empower women

National Mission for Empowerment of Women (NMEW) (set up in 2010)

• To achieve empowerment of women socially , economically and educationally by securing convergence of schemes

Education Oriented Programmes

Aims at universalisation of primary and elementary education

• National Programme for Education of Girls at Elementary Level(NPEGEL) important component of SSA( set up in 2003)
• Focused intervention to reach the ‘Hardest to Reach ‘ girls and provides for ‘ model school ‘ in every cluster with more intense community mobilization and supervision of girls enrolment in schools

Kasturba Gandhi Balika Vidhyalayas (KGBVs) (set up in 2004)

• To set up residential schools at upper primary level for girls belonging to SC/ST/OBC /Minority communities
• The scheme being implemented in rural areas and urban areas with female literacy below 30% and national average respectively

Inclusive Education for the Disabled at Secondary stage (IEDSS) Replaced Integrated Education for Disabled Children (IEDC) (set up in 2009-10)

• Provides 100% central assistance for inclusive education of disable children studying in class IX-XII in government local body and government –aided schools

Rashtriya Madhyamik Shiksha Abhiyan (RMSA) or Scheme for Universalisation of Access for Secondary Education (SUCCESS) (set up in March, 2009)

• Aim at raising the enrolment rate at secondary stage from 52.26% in 2005-06 to 75% in next 5 years by providing a secondary school within reasonable distance of 5 km of any habitation ; ensure universal access by 2017 and universal retention by 2020

Saakshar Bharat (set up in 8^th September, 2009)

• National Literacy Mission has been recalled as ‘Shakshar Bharat’. The aim is to cover all adults in the group of 15 and above with its primary focus on women

Health Oriented Programmes

National Rural Health Mission (NRHM) (set up in 12^th April, 2005)

• To provide effective healthcare to rural population with special focus on 18 states with weak health indices / infrastructure ; to raise public spending on health from 0.9% of GDP to 2.3% of GDP , reduction of IMR and MMR ; and universal access to healthcare with emphasis on women

Janani Suraksha Yojana (JSY) a core component of NRHM (set up in April 2005)

• Focus on demand promotion for institutional deliveries in states and regions and targets lowering of MMR

Pradhan Mantri Swasthya Yojana (PMSSY) (set up in 2010)

• To correct regional imbalance in tertiary health care and augmenting facilities for quality medical education in the country ; and setting up six AIIMS –like institution and upgradation of 13 existing government medical college institution.