What is Economics-?

Economics is a branch of social science. In simple words we can say that Economics is the study of how people
choose to use their available resources in most efficient way. Please note down that Economics is not only about
managing money and finance. It is much more than that in contemporary context. There is no universal definition of
Economics because it is really difficult to cover all aspects of economics into a water tight boundary. Yet some
scholars tried to defined Economics in their words as given below-
Economics is the study of how individuals and groups mae decisions with limited resources as to best satisfy their
wants! needs! and desires"
Economics is the social science that examines how people choose to use limited or scarce resources in attempting
to satisfy their unlimited wants"
# definition that captures much of modern economics is that of $ionel %obbins in a &'() essay- the science which
studies human behavior as a relationship between ends and scarce means which have alternative uses
Economics aims to explain how economies wor and how economic agents interact. Economic analysis is applied
throughout society! in business! finance and government! but also in crime! education! family! health! law! politics!
religion! social institutions! war! and even to science
Moral of the story-
*ver all we can say that Economics is the branch of social science that studies the production! distribution! and
consumption of goods and services in a society
*n the basis of above definition! we can brea down the study of economics into two broad categories
&. +icroeconomics
). +acroeconomics
What is Microeconomics-?
This is a sub branch of economics that deals with economics decisions made at a low! or micro! level. ,ow does the
change of a price of good influence a family-s purchasing decisions-. If my wages rise! will I be inclined to wor
more hours or less hours-.
What is Macroeconomics-?
This is a sub branch of Economics which deals with a larger/broader level of economy. It relates to issues such as
determination of national income! savings! investment! employment at aggregate levels! tax collection! government
expenditure! foreign trade! money supply and price level etc
Notable Points-
Adam smith is considered as father of Modern Economics. ,e wrote The nature 0 causes of wealth of
the 1ations" in &223. ,e stressed upon wealth aspect of economy
#fter that Professor +arshall wrote Principles of Economics" in &4'5. ,e stressed upon welfare aspect of
economy
Current Status of Indian Economy-
The economy of India is the &)
th
largest economy in the world by maret exchange rates and 6
th
largest economy of
world by purchasing power parity 7PPP8 as per the latest report of 9orld :an. ;espite recent global economic
recession! Indian Economy is growing at a healthy rate of 3< and considered as one of the fast emerging economy
in world along with =hina! :ra>il! ?outh #frica and +exico. In the )&
st
century! India is an emerging economic
power with vast human and natural resources! and a huge nowledge base. Economists predict that by )5)5! India
will be among the leading economies of the world. ,owever! Indian Economy is still lagging behind in many
spheres lie more than 35< of India-s total woring population is still engaged into agricultural activates! while its
contribution into @;P is only around &4<. India is a labor surplus country and problem of sectional unemployment
still a matter of concern for @*I.
India was under social democratic-based policies from &'62 to &''&. The economy was characteri>ed by extensive
regulation! protectionism! and public ownership! leading to pervasive corruption and slow growth. ?ince &''&!
continuing economic liberali>ation has moved the economy towards a maret-based system. # revival of economic
reforms and better economic policy in )555s accelerated India-s economic growth rate. :y )554! India had
established itself as the world-s second-fastest growing maAor economy after =hina. India-s large service industry
accounts for B6< of the country-s @;P while the industrial and agricultural sector contribute )'< and &2<
respectively. #griculture is the predominant occupation in India! accounting for about 35< of employment. The
service sector maes up a further )4< and Industrial sector around &)<.The labor force totals half a billion worers.
India raned (&
st
in Cinancial development index-)55' produced by 9orld Economic Corum
Some Indicators of Indian Economy-
@;P growth in )554-5' 3.2< Ddue to global recessionE
&5
th
Cive year plan @;P- 4< DtargetedE 2.4< DachievedE
&&
th
Cive year plan @;P- '< DtargetedE
Per =apita Income- F&525 D%an &6)
nd
E
$abor Corce- ,uge D?urplusE
Inflation 7=PI8 2.4< D)554E increasing every day
Population :P$ ))< D)554E
Current Challenges before Indian Economy -
+aintaining consistent growth rate of '<
%educing widening gulf between rich and poor
=ontrol on increasing population
Producing new employment opportunities
,arnessing potential of human power
*ptimal usage of 1atural ?ources along with sustainable development
Increasing Indian ?hare into Coreign Trade
What is concept sustainable e!elopment-?
+eeting the needs of the present without compromising the ability of future generations to meet their needs is called
sustainable development. This concept is popular in present context of development
What is concept of Microcredit-?
In common meaning +icro credit is $oan of very small amount". It can be defined as provision of parsimony!
credit and other financial services and products of very small amount to the poor in rural! semi-urban and urban
areas for enabling them to raise their income levels and improve living standards. The institutions that provide
+icro =redit are called +icro =redit Institutions. +icro =redit is provided to those individuals that lac collateral!
steady employment and a verifiable credit history and therefore cannot meet even the most minimal Gualifications to
gain access to traditional credit. This group of individuals includes artisans! tiny and small industries! grocers!
vegetable vendors! ricshaw pullers! roadside retailers and the lie. *ther activities include farming! poultry! cattle
rearing! piggery! fishery etc.
The innovative idea of +icrocredit originated with the @rameen :an in :angladesh. In &'23 Professor +uhammad
Yunus launched a research proAect to examine the possibility of designing a credit delivery system to provide
baning services targeted to the rural poor. The @rameen :an is a microfinance organi>ation and community
development ban started in :angladesh that maes small loans nown as microcredit. The organi>ation and its
founder! +uhammad Yunus! were Aointly awarded the 1obel Peace Pri>e in )553H the organi>ation-s $ow-cost
,ousing Programme won a 9orld ,abitat #ward in &''4. The Inited 1ations declared "##$ the International
%ear of Microcredit&
:efore the nationali>ation of bans in India in &'3'! co-operative bans were the main dispensers of small loans in
the organi>ed sector. =ommercial bans were not easily accessible to small borrowers. Those were the days of
security-oriented approach. 1obody could thin of a loan! big or small! without a guarantor or mortgage of
immovable property. Profit was the only motive of the baning. ,owever 1ationali>ation changed the picture and
the nationali>ed bans opened branches in the remotest corners of the country. They were to implement various
government schemes lie the Twenty Point Program! #ntyodaya Program! subsidi>ed ;ifferentiated %ate of Interest
loan etc. which aimed at uplifting the poorest of the poor with the help of micro credit.
@radually there was establishment of %egional %ural :ans 7%%:s8! ;eposit Insurance and =redit @uarantee
=orporation 7;I=@=8! 1ational :an for %ural and #gricultural ;evelopment 71#:#%;8! ?mall Industrial
;evelopment :an of India 7?I;:I8! Export =redit @uarantee =orporation 7E=@=8 and the latest =redit @uarantee
Cund Trust for +icro 0 ?mall Enterprises 7=@T+?E8. The =@T+?E covers collateral-free credit up to %s. B5
lahs. These institutions play supportive roles to ensure uninterrupted flow of credit to small time borrowers. Inder
the present directive of the %:I! the priority sectors must get a minimum of 65< share of a commercial bans- total
lending. This includes &3< for the agriculture sector.
Some Issues-
In spite of all these measures the performance of micro finance in India has neither been Guite satisfactory
Guantitatively nor Gualitatively.
The money disbursed has not been adeGuate! nor has it yielded the desired results.
Instead of being recycled! the maAor portions of loans have been lost as bad debt.
Self-'elp (roups )S'(s*-
# ?elf-,elp @roup 7?,@8 is a registered or unregistered group of micro entrepreneurs belonging to homogenous
social and economic bacground voluntarily! who come together to save small amounts regularly! to mutually agree
to contribute to a common fund and to meet their emergency needs on mutual help basis. The group members use
collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment thereof. ?,@ provides
strength to an economically poor individual as part of a group. Cinancing through ?,@s reduces transaction costs
for both lenders and borrowers.
S'(-ban+ lin+age Programme-
9ith a view to facilitating smoother and more meaningful baning with the poor! # pilot proAect for purveying micro
credit by lining ?elf-,elp @roups 7?,@s8 with bans was launched by 1#:#%; in &''&-'). The aim was to
mae it possible facilitating smoother and more meaningful baning with the poor. %:I had then advised
commercial bans to actively participate in this linage programme. The scheme has since been extended to %%:s
and co-operative bans. +ore than '5 per cent of the groups lined with bans are exclusive women groups. ?,@-
ban linage programme has surely emerged as the dominant micro finance dispensation model in IndiaH other
models too have evolved as significant micro finance purveying channels.
'istory of Indian Economy-
There was a time when India considered as ?parrow of @old." It was the wealth of India! which attracted so many
invaders and foreign rulers towards the country at that time. ;uring ancient time when other countries had limited
trade activities! India enAoyed a very well developed trade and commerce. The famous sil route of India is very well
nown even today. #fter the advent of :ritish East India =ompany in &355! the trade activities were in favor of India
till &2B2. :ut in the beginning of &4
th
=entury when industrial revolution emerged in England! :ritish used India as
producer of raw material for their industries on one hand and exploited the country as potential mar for various
goods produced into factories of England. @radually till &4&( handloom and craft business of India totally ruined by
:ritish for their personal advantages. ;ada :hai 1aroAee exposed the drain of wealth" from India in his famous
wor
After Independence-
Independence came with pain of partition to India. ,ence it was not easy to put the country on path of rapid
development. Indian @overnment opted for planned economy Da type of economy where economic planning plays
very crucial role in the socio-economic development of countryE. To achieve the desired and consistent growth in
Indian Economy! @*I came up with idea of Cive Year Plans." To implement this idea Planning =ommission was
constituted in &'B5 and &
st
Cive year plan was formulated for period from &'B& to &'B3. #t present &&
th
Cive year
plan is going on and Indian economy is growing with a healthy rate of 4< since last on decade
Ne, Economic Policy-
The initial idea of planned economy did not wor as well as it was expected. It resulted into heavy burden of
external debt on India. ,ence @*I came with new economic policy in &''&. The ( main obAectives of this new
economic policy was as follows-
&. (lobali-ation DInrestricted movement of goods and technology across globeE
). .iberali-ation D@overnment =ontrol on industries has been relaxed. +ore and +ore ?ectors gradually
opened for commerciali>ationE
(. Pri!ati-ation D,andover of public sector to private sector! ;isinvestmentE
What is Policy of .aisse- /aire-?
$aisse> Caire is a Crench term and it literally means no interference. It is a doctrine which states that government
generally should not intervene in the economic activities and economy should be maret oriented based upon
demand and supply principle
0an+ing System in India-
The organi>ed baning system of India can be divided into following ( categories-
&. Central 0an+ of India DJJ%:I which is apex baning institution in the country and control as well
regulates the sheer money in IndiaE
JJ%:I was established in &'(B on recommendations of %oung 'itler Commission and nationali>ed in &'6'. %:I
was established in Kolata initially but later headGuarters of %:I shifted to +umbai. Its financial year is from &
st
Luly to (5
th
Lune. %:I-s main function is to control flow of money in Indian +aret i. e. formulation and
implementation of +onetary Policy for India. %:I formulate such policy every year and came up with its review
Guarterly Dat an interval of ( monthsE. ;uring this Guarterly review of monetary policy! %:I announce current rate of
various financial control mechanisms lie :an %ate! ?$%! =%% and %epo %ate.
.atest 1e!ie, by 10I-
10I2s "
nd
3uarter re!ie, of monetary policy released on "4
th
5ctober "##6
&. Commercial 0an+s DPublic :ans lie ?:I M Private :ans lie ,;C= as well as foreign bansE
). 1ural7 Co-operati!e 0an+s D;edicated to %ural :aning and usually sponsored by Public :ansE
JJ%:I is the supreme baning authority and all other bans of India wors under guidelines given by it. 1otes and
=oins of only %upee & are released by Cinance +inistry of India and all other currency notes as well as coins are
released by %:I. Even =urrency printing press cannot print notes without permission of %:I
India and /oreign 8rade-
The trade activity with other countries on globe is nown as Coreign Trade. It is directly related to export-import of a
country with other countries. The foreign trade of India was very well developed during ancient history. The
orientation of foreign trade of India totally changed with advent of :ritish Empire in India. Immediately after
independence @*I adopted inward looing foreign trade policy to restrict global trade but picture has been changed
with new economic policy of the country which emphasi>ed on globali>ation. In &'B5! the Indian ?hare in total
world trade was Aust &.24< which further decreased to 5.3< in &''B. The foreign trade of India is going upwards
and it is expected to be )< of total world trade by )55' D#s per figure released by 9T*E. These figures clearly
shows that India has failed to increase its share in the total world trade
/oreign 8rade of India-
India is a founding-member of @eneral #greement on Tariffs and Trade 7@#TT8 since &'62 and its successor! the
9T*. 9hile participating actively in its general council meetings! India has been crucial in voicing the concerns of
the developing world. Cor instance! India has continued its opposition to the inclusion of such matters as labor and
environment issues and other non-tariff barriers into the 9T* policies. ?ince liberali>ation India opened almost all
sectors for C;I DCoreign ;irect InvestmentE and continuously signing pact with international economic
organi>ations lie #?E#1 and #PE= to harness international trade potential. I?# is top trade partner of India
followed by =hina. These days India is considered as one of the hottest destination for C;I. %ecently +inistry of
=ommerce and Trade came up with new Coreign Trade Policy to boost its share in total world trade
Indian /oreign 8rade Policy "##6-"#9:
What is /oreign 8rade Policy?
The Inion =ommerce +inistry! @overnment of India announces the integrated Coreign Trade Policy CTP in every
five year. This is also called ENI+ DExport! importE policy. This policy is updated every year with some
modifications and new schemes. 1ew schemes come into effect on the first day of financial year i.e. #pril &! every
year. The Coreign trade Policy which was announced on Thursday #ugust )4! )55' is an integrated policy for the
period )55'-&6.
5b;ecti!es of /oreign 8rade Policy "##6-9:
&. To arrest and reverse declining trend of exports due to global recession is the main aim of the policy. This
aim will be reviewed after two years.
). To double India-s exports of goods and services by )5&6.
(. To double India-s share in global merchandise trade by )5)5 as a long term aim of this policy. India-s share
in @lobal merchandise exports was 9&:$< in "##4&
6. ?implification of the application procedure for availing various benefits
B. To set in motion the strategies and policy measures which cataly>e the growth of exports
3. To encourage exports through a mix of measures including fiscal incentives! institutional changes!
procedural rationalisation and efforts for enhance maret access across the world and diversification of
export marets.
Aim in (eneral= The policy aims at developing export potential! improving export performance! boosting foreign
trade and earning valuable foreign exchange. CTP assumes great significance this year as India-s exports have been
battered by the global recession. # fall in exports has led to the closure of several small- and medium-scale export-
oriented units! resulting in large-scale unemployment.
8argets=
&. Export Target O F )55 :illion for )5&5-&&
). Export @rowth TargetO &B < for next two year and )B < thereafter.
EPC( )Export Promotion =apital @oods ?chemeE Scheme=
&. *bligation under EP=@ scheme relaxed.
). To aid technological Ipgrdation of export sector! EP=@ ?cheme at Pero ;uty has been introduced.
(. Export obligation on import of spares! moulds etc. under EP=@ ?cheme has been reduced by B5<.
1efi>ation of Annual A!erage E>port 5bligation=
Taing into account the decline in exports! the facility of %e-fixation of #nnual #verage Export *bligation for a
particular financial year in which there is decline in exports from the country! has been extended for the B year
Policy period )55'-&6. ?upport for @reen products and products from 1orth East extended.
Announcements for /PS )Cocus Product ?chemeE? /MS )Cocus +aret ?chemeE? M./PS )+aret $ined Cocus
Product ?chemeE-
&. )3 new marets added in this scheme.
). Incentives under C+? raised from ).B < to ( <
(. Incentive available under Cocus Product ?cheme 7CP?8 rose from &.)B< to )<.
6. Extra products included in the scope of benefits under CP?
B. +aret $ined Cocus Product ?cheme 7+$CP?8 expanded by inclusion of products lie pharmaceuticals!
textile fabrics! rubber products! glass products! auto components! motor cars! bicycle and its parts.etc.
7,owever! benefits to these products will be provided! if exports are made to &( identified marets 7#lgeria!
Egypt! Kenya! 1igeria! ?outh #frica! Tan>ania! :ra>il! +exico! Iraine! Qietnam! =ambodia! #ustralia and
1ew Pealand8.
3. Cocus Product ?cheme benefit extended for export of green products and some products from the 1orth
East.
2. # common simplified application form has been introduced to apply for the benefits under CP?! C+?!
+$CP? and QK@IY.
MA )+aret ;evelopment ?chemeE @ MAI )+aret #ccess InitiativeE-
,igher allocation for +aret ;evelopment #ssistance 7+;#8 and +aret #ccess Initiative 7+#I8 has been
announced.
8o,ns of E>port E>cellence A8EEB
The following cities have been recogni>ed as towns of export excellence 7TEE8
1. 'andicrafts = Laipur! ?rinagar and #nantnag
2. .eather Products = Kanpur! ;ewas and #mbur
3. 'orticultural Products= +alihabad
Scheme for Status 'olders 7?tatus ,olders means star status holders8
&. #dditional ;uty =redit ?crip-s shall be given to ?tatus ,olders R &< of the C*: value of past exports
accelerate exports and encourage technological Ipgrdation.
). This facility shall be available for sectors of leather 7excluding finished leather8! textiles and Aute!
handicrafts! engineering 7excluding Iron 0 steel 0 non-ferrous metals in primary and intermediate form!
automobiles 0 two wheelers! nuclear reactors 0 parts! and ships! boats and floating structures8! plastics and
basic chemicals 7excluding Pharma products8.
(. This facility shall be available up to (& +arch! )5&&.
6. Transferability for the ;uty =redit scrip-s being issued to status holders under QK@IY DQishesh Krishi 0
@ram IpaA YoAanaE ?cheme permitted only for the procurement of cold chain eCuipments&
E>tension of Income 8a> E>emption to E5D )Export *riented InitsE and S8PI )?oftware Technology Pars of
IndiaE-
Income Tax exemption to &55< E*Is and to ?TPI units under ?ection &5: and &5# of Income Tax #ct has been
already extended for the financial year )5&5-&& in the :udget )55'-&5.
E>tension of EC(C )Export =redit @uarantee =orporation 7of India $td8E-
The adAustment assistance scheme initiated in ;ecember! )554 to provide enhanced E=@= cover at 'B<! to the
adversely affected sectors! is continued till +arch! )5&5.
Announcements for Marine sector-
&. Cisheries exempted from maintenance of average E* under EP=@ ?cheme 7along with 2 sectors8 however
Cishing Trawlers! boats! ships and other similar items shall not be allowed for this exemption.
). #dditional flexibility under Target plus ?cheme 7TP?8 / ;uty Cree =ertificate of Entitlement 7;C=E8
?cheme for the marine sector.
Announcements for (ems @ Ee,ellery Sector=
&. ;uty ;rawbac is allowed on @old Lewellery exports to neutrali>e duty incidence.
). Plan to establish ;iamond :ourse 7s8 with an aim to mae India and International Trading ,ub
announced.
(. Introduction of a new facility to allow import on consignment basis of cut 0 polished diamonds for the
purpose of grading/ certification.
6. &( value limits of personal carriage have been increased from F ) million to I?F B million in case of
participation in overseas exhibitions.
B. The limit in case of personal carriage! as samples! for export promotion tours! has also been increased from
I?F 5.& million to I?F & million.
3. Time limit of 35 days for re-import of exported gems and Aewellery items! for participation in exhibitions
has been extended to '5 days in case of I?#.
Announcements for Agro E>ports-
&. Introduction of a single window system to facilitate export of perishable agricultural produce with an aim
to reduce transaction and handling cost.
). This system will involve creation of multi-functional nodal agencies. These agencies will be accredited by
#PE;# D#gricultural 0 Processed Cood Products Export ;evelopment #uthorityE
Announcements for .eather E>ports-
*n the payment of B5 < applicable export duty! .eather sector shall be allo,ed re-e>port of unsold imported
ra, hides and s+ins and semi finished leather from public bonded ware houses.
Announcements for 8ea E>ports-
&. The existing +inimum value addition under advance authori>ation scheme for export of tea is &55 <. It
has been reduced from the e>isting 9##< to $#<&
). ;T# 7;omestic Tariff #rea8 sale limit of instant tea by E*I units increased from (5< to B5<.
(. Export of tea has been included under QK@IY ?cheme benefits.
Announcements for Pharma E>ports-
&. Export *bligation Period for advance authori>ations issued increased from existing 3 months to (3 months.
). Pharmacy sector included under +$CP? for countries in #frica and $atin #merica 0 some countries in
*ceania and Car East.
Announcements for 'andloom E>ports-
The claims under Cocus Product ?cheme! the reGuirement of ,andloom mar" was reGuired earlier which has been
removed.
Scheme for E>port 5riented Dnits-
&. E*Is have been allowed to sell products manufactured by them in ;T# 7;omestic Tariff #rea8 up to a
limit of '5< instead of existing 2B<! without changing the criteria of Ssimilar goods-! within the overall
entitlement of B5< for ;T# sale. 7This means that instead of 2B< these units can sell up to '5 < of their
products in the domestic marets8
). E*I allowed procuring finished goods for consolidation along with their manufactured goods! subAect to
certain safeguards.
(. Extension of bloc period by one year for calculation of 1et Coreign Exchange earnings of E*Is ept
under consideration.
6. E*I allowed =E1Q#T =redit Cacility.
Announcements for Falue Added Manufacturing AFAMB
To encourage Qalue #dded +anufactured export! a minimum &B< value addition on imported inputs under #dvance
#uthori>ation ?cheme.
Announcements for Pro;ect E>ports-
ProAect Exports and a large number of manufactured goods covered under CP? and +$CP?.
/uel included in EP0 Scheme-
=ustom duty component on fuel where fuel is allowed as a consumable in ?tandard Input-*utput 1orm included in
factoring.
Easy Import of samples-
1umber of sample pieces has been increased from the existing &B to B5. This will facilitate the duty free import of
samples by exporters.
Con!ertibility of Shipping 0ills-
@reater flexibility has been permitted to allow conversion of ?hipping :ills from one Export Promotion scheme to
other scheme. =ustoms shall now permit this conversion within three months! instead of the present limited period
of only one month.
1eduction in 8ransaction Costs-
&. ;ispatch of imported goods directly from the Port to the site has been allowed under #dvance
#uthori>ation scheme for deemed supplies. 7Presently the duty free imported goods could be taen only to
the manufacturing unit of the authori>ation holder or its supporting manufacturer.
). +aximum applicable fee for &4 #uthori>ations/ license applications 7except those mentioned in =hapter (
of CTP8 has been reduced to %s. &55!555 from the existing %s &!B5!555 7for manual applications8 and %s.
B5!555 from the existing %s.2B!555 7for E;I applications8.
(. 1o fee shall now be charged for grant of incentives under the ?chemes in =hapter ( of CTP.
isposal of Manufacturing Wastes-
;isposal of manufacturing wastes / scrap will now be allowed after payment of applicable excise duty also before
fulfillment of export obligation under #dvance #uthori>ation and EP=@ ?cheme. Earlier it was allowed after
fulfillment of export obligation.
Announcements for Sports Weapon-
$icenses for the import of sports weapon will be issued now by %egional #uthorities provided a 1*= 71o *bAection
=ertificate8 is issued by +inistry of ?ports 0 Youth #ffairs. 7Earlier ;@CT D;irectorate @eneral of Coreign TradeE
,eadGuarters had to be approached for this8
Announcements for Medical e!ices-
To solve the problem of medical device industry! the procedure for issue of Cree ?ale =ertificate has been simplified
and the validity of the =ertificate has been increased from & year to ) years.
Announcements for Automobile Industry-
Those #utomobile industries which have their %0; establishment will be allowed free import of reference fuels
7petrol and diesel8! up to a maximum of B K$ per annum! which are not manufactured in India.
Announcements for EI Initiati!es-
&. Export Promotion =ouncils 0 =ommodity :oards have been advised to issue %=+= through a web based
online system.
). It is expected that issuance of %=+= would become E;I enabled before the end of )55'.
Inter Ministerial Committee
+r. #nand ?harma announced that an Inter +inisterial =ommittee will be formed to redress/ resolve
problems/issues of exporters.
Set up of irectorate of 8rade 1emedy Measures Announced
# ;irectorate of Trade %emedy +easures shall be set up! which will enable support to Indian industry and exporters!
especially the +icro ?mall 0 medium Enterprises +?+Es in availing their rights through trade remedy instruments!
uty Credit Scrip2s
Earlier the payment of customs duty for Export *bligation 7E*8 shortfall under #dvance #uthori>ation! ;CI# or
EP=@ #uthori>ation was allowed in cash only. 1ow this payment can be done in the way of debit of ;uty =redit
scrip-s.
Import of 1estricted Items
%estricted Items can be imported now 7as replenishment8 against transferred ;CI#s 7;uty Cree Import
#uthori>ations8 as the present ;C%= 7;uty Cree %eplenishment =ard8 scheme.
ollar Credits
There is a provision for state-run ban+s to pro!ide dollar credits
What is W85 and Concept of oha round-?
Iruguay %ound of +ultilateral Trade 1egotiations comprised )4 #greements. It had two components-
&. 9T* #greement
). +inisterial decisions and declarations
9orld Trade *rgani>ation 79T*8 was founded to supervise and liberali>e international trade. The organi>ation
officially commenced on Lanuary &! &''B under the Marra+esh Agreement! replacing the @eneral #greements on
Tariffs and Trade 7@#TT8. The 9T* has &B( members which represent more than 'B< of total world trade and (5
observers! most seeing membership. The 9T* is governed by a ministerial conference! meeting every two yearsH a
general council! which implements the conference-s policy decisions and is responsible for day-to-day
administrationH and a director-general! who is appointed by the ministerial conference. The 9T*-s headGuarters is at
the =entre 9illiam %appard! @eneva! ?wit>erland.
W85 deals ,ith
&. %egulation of trade between participating countries
). Providing a framewor for negotiating and formali>ing trade agreements
(. ;ispute resolution process aimed at enforcing participants- adherence to 9T* agreements which are signed
by representatives of member governments and ratified by their parliaments.
What is oha e!elopment Agenda?
9T* is currently endeavoring to persist with a trade negotiation called the ;oha ;evelopment #genda 7or ;oha
%ound8! which was launched in )55& to enhance eGuitable participation of poorer countries which represent a
maAority of the world-s population.
,owever! the negotiation has been dogged by disagreement between exporters of agricultural bul commodities
and countries with large numbers of subsistence farmers on the precise terms of a Sspecial safeguard measure- to
protect farmers from surges in imports. #t this time! the future of the ;oha %ound is uncertain."
Ministerial conferences @ bul,ar+ of disagreements
/irst ministerial conference G Singapore 966H
The inaugural ministerial conference was held in ?ingapore in &''3. ;isagreements between largely developed and
developing economies emerged during this conference over four issues initiated by this conference! which led to
them being collectively referred to as the ?ingapore issues".
The ?ingapore issues wereO
&. Transparency in government procurement
). Trade facilitation 7customs issues8!
(. Trade and investment
6. Trade and competition.
The developing countries opposed these issues as they were not in their favors. The European Inion! Lapan and
Korea favored these issues and pushed them in successive conferences. I? said that it could accept some or all of
them at various times! but preferring to focus on maret access.
/ourth ministerial conference oha "##9
The ;oha ;evelopment %ound was launched at the conference. The tals are stalled even today and impetus is on
reaching a final agreement. The maAor impediment is different interests of developed and developing nations.
/ifth ministerial conference? Cancun Me>ico "##I
This ministerial conference was called for to reach an agreement on the ;oha round. ,owever! an alliance of ))
southern states! the @)5 developing nations 7led by India! =hina and :ra>il8! demanded agreements on ?ingapore
issues and called for an end to agricultural subsidies within the EI and the I?. There was no progress made in this
round too.
Si>th ministerial conference= 'ong Jong "##$-
The sixth 9T* ministerial conference was held in ,ong Kong from &( ;ecember T &4 ;ecember )55B with an aim
to reach an agreement on ;oha %ound by )553. In this meeting! countries agreed to phase out all their agricultural
export subsidies by the end of )5&(! and terminate any cotton export subsidies by the end of )553. Curther
concessions to developing countries included an agreement to introduce duty free! tariff free access for goods from
the $east ;eveloped =ountries! following the Everything :ut #rms initiative of the European Inion U but with up
to (< of tariff lines exempted. *ther maAor issues were left for further negotiation to be completed by the end of
)5&5
Se!enth ministerial conference- (ene!a "##6
This will held in @eneva from (5 1ovemberT;ecember )55'.
@lobal competitiveness report )55'-&5
What is (lobal Competiti!eness 1eport?
The @lobal =ompetitiveness %eport is a report annually published by the World Economic /orum since &'2'. This
report assesses the ability of countries to provide high levels of prosperity to their citi>ens. This in turn depends on
how productively a country uses available resources. Therefore! the @lobal =ompetitiveness Index measures the set
of institutions! policies! and factors that set the sustainable current and medium-term levels of economic prosperity.
8op 9# Countries ,ith (CI )"##6-9#*-
&. ?wit>erland B.35
). Inited ?tates B.B'
(. ?ingapore B.BB
6. ?weden B.B&
B. ;enmar B.63
3. Cinland B.6(
2. @ermany B.(2
4. Lapan B.(2
'. =anada B.((
&5. 1etherlands B.()
India has moved up one position to 6' 7@=I 6.(58 in the @lobal =ompetitiveness %eport )55'-)5&5.
Cinance +inisters of the world-s )5 most powerful countries are gathering for a two-day meet starting to discuss
reforms to tacle blac money and money laundering in $ondon
oha 1ound-Issues? Implications @ Challenges
Trade ministers from about (B countries met in ;elhi recently to give impetus to the ;oha round of trade tals. This
article covers in a condensed form the bacground of the stalled ;oha round of Trade negotiations! understanding
the issues of the developing countries and challenges ahead.
What ,as the 5b;ecti!e of elhi Meeting?
The obAective of the ;elhi meeting was neither to focus on negotiations on specific topics nor to reach an
agreement .The obAective was to concentrate on woring on a timetable for the tal+s. India-s foreign trade minister!
#nand ?harma had invited the leaders to get some momentum into the negotiations.
8he Echo of the Issues-
The core issues were echoed in @)5 summits in 9ashington in 1ovember and $ondon in #pril as well as the @4M
summit in $-#Guila in Luly apart from a meeting of farm exporters in Lune at :ali and again at the *rganisation for
Economic =ooperation and ;evelopment 7*PE=8 in Paris and in Luly at a meeting of the #sia-Pacific #PE=
grouping.
Is America ta+ing too much Interest?
Inited ?tates is ey to any deal is expected by many other countries to start engaging in the negotiationsH however
the ey focus of *bama #dministration seems to be upon economic crisis and health care besides to be able to point
to new opportunities for I.?. business.
What is Emphasis of e!eloped Countries?
eveloped countries emphasi>e the big emerging countries lie =hina! India and :ra>il to open their marets and
not mae excessive use of special arrangements for developing countries in a ;oha deal to shield their industries
from competition.
What are the Issues @ Challenges?
There are gaps and unresolved issues on agriculture and non-agriculture maret access 71ama8. The center point of
tals involves efforts to open up trade in agriculture and industrial goods.
The involves rich countries to open their protected marets for agriculture produce and cutting their heavy subsidies
they provide to their farmers 0 agro exporters ! as they are able to wipe out the farmers in poor / developing
countries out of the maret.
The richer developing countries will also cut industrial tariffs in return so that it opens up their marets for industrial
goods to do business with both rich and poor countries.
5utcome-
There seems to be a more of a split between the developing and the developed nations
9Ith /inance Commission
Posted on +arch 6! )5&5 by Young :loodV B =omments
The &(
th
C= was constituted by the President under #rticle )45 of the Indian =onstitution on &(
th
1ovember
)552 under ;r. QiAay Keler to give recommendations on specified aspects of =entre ?tate fiscal relations during
)5&5-&B. The =ommission submitted its report to the President on (5
th
;ecember )55' covering all aspects of its
mandate
Composition-
;r. QiAay Kelar was appointed the =hairman of the =ommission. ;r. Indira %aAaraman! Professor! 1ational
Institute of Public Cinance 0 Policy 71IPCP8! ;r. #busaleh ?hariff! =hief Economist! 1ational =ouncil of #pplied
Economic %esearch 71=#E%8! and Professor #tul ?arma! Cormer Qice-=hancellor! %aAiv @andhi Iniversity
7formerly #runachal Iniversity8 were appointed full time +embers 7&M(W68. ?hri :.K. =haturvedi! +ember!
Planning =ommission was appointed as a part-time +ember. ?hri ?umit :ose was appointed as ?ecretary to the
=ommission
Point to be noted-
President appointed ;r. ?anAiv +isra! Cormer ?ecretary 7Expenditure8! +inistry of Cinance as member of
the =ommission in place of ;r. #busaleh ?hariff! who was unable to Aoin
8erms of 1eference-
The distribution between the Inion and the ?tates of the net proceeds of taxes which are to be! or may be!
divided between them under =hapter I Part NII of the =onstitution and the allocation between the ?tates of
the respective shares of such proceeds
The principles which should govern the grants-in-aid of the revenues of the ?tates out of the =onsolidated
Cund of India and the sums to be paid to the ?tates which are in need of assistance by way of grants-in-aid of
their revenues under article )2B of the =onstitution
The measures needed to augment the =onsolidated Cund of a ?tate to supplement the resources of the
Panchayats and +unicipalities in the ?tate on the basis of the recommendations made by the Cinance
=ommission of the ?tate
The =ommission shall review the state of the finances of the Inion and the ?tates! eeping in view! in
particular! the operation of the ?tates- ;ebt =onsolidation and %elief Cacility )55B-)5&5 introduced by the
=entral @overnment on the basis of the recommendations of the &)
th
Cinance =ommission! and suggest
measures for maintaining a stable and sustainable fiscal environment consistent with eGuitable growth
The =ommission may review the present arrangements as regards financing of ;isaster +anagement with
reference to the 1ational =alamity =ontingency Cund and the =alamity %elief Cund and the funds envisaged
in the ;isaster +anagement #ct! )55B
=ommission may review the roadmap for fiscal adAustment and suggest a suitably revised roadmap with a
view to maintaining the gains of fiscal consolidation through )5&5 to )5&B
Point to be noted-
In maing its recommendations on various matters! the =ommission shall tae the base of population
figures as of &'2&! in all such cases where population is a factor for determination of devolution of taxes and
duties and grants-in-aid
About /C-
What is the role of the commission-?
The =onstitution provides that certain tax revenues of the Inion government should be shared between the =entre
and the states. President constitutes the finance commission under #rticle )45 of the =onstitution to recommend
what percentage of such revenues should go to the states and also how the funds are shared among the states
Why the resources are shared bet,een the Centre and states-?
This is necessary due to the fact that the bul of taxation powers are with the =entre! but expenditure is in the
domain of states. In fact! most federal systems need a mechanism to address the issue of vertical distribution of
resources. =anada has a federal system very similar to that of India. There! too! a mechanism is in place to address
the issue of vertical imbalance and hori>ontal eGuity-how the resources are shared amongst states themselves.
#ustralia is another such federal setup
What are the other +ey responsibilities-?
Cinance commission is also reGuired to lay down the principles governing the grants-in-aid to states out of the
consolidated fund of India. It should also suggest measures to augment the resources of states to supplement the
resources of panchayats and municipalities. #t times the government can also as the finance commission to mae
suggestions on specific issues. The Thirteenth Cinance =ommission was ased to mae recommendations on
accounting of off budget subsidies and @?T
Are the recommendations of finance commission binding-?
The recommendations of the finance commission are not binding on the government. :ut! the recommendations
have the force of precedent and governments generally go by the suggestions. The recommendations relating to
distribution of Inion taxes and duties and grants-in-aid can be implemented by a presidential order only ANot by
e>ecuti!e orderB
When ,as the 9
st
/C appointed in India-? What is the timeline for recommendations-?
The &
st
Cinance =ommission was constituted on ))
nd
1ovember &'B& under the chairmanship of K.=. 1eogi. &(
th
Cinance commissions have been appointed so far at five-year intervals. %ecommendations are valid for a period of
five years. The recommendations of the current finance commission will be for the five year period beginning #pril
&! )5&5
What is /iscal consolidation-?
# conscious policy effort is needed by the government to live within its means and thereby bring down the fiscal
deficit and public debt. It includes! among other things! efforts to raise revenues and bring down wasteful
expenditure such as subsidies. #s a larger mandate! it also involves the participation by state governments in the
process. :ut the whole initiative is planned as a long-term exercise by the government through a road map for fiscal
reform rather than through a single :udget announcement. This is particularly true for a country lie India where the
government-s expenditure is way beyond its revenues! forcing it to borrow 7increasing Ciscal deficit8
Why do rating agencies often e>press their concern about it-?
Lust as a borrower-s creditworthiness depends on her indebtedness! a country-s rating is often lined to its fiscal
deficit. Ciscal consolidation efforts are looed at positively by sovereign-rating agencies. This is because it gives
them an indication of a country-s financial strength and hence! its ability and capacity to service the debt it rises.
+any a time! even though an economy has grown well or its other indicators! such as external sector strength! are
buoyant! it does not get a good rating only on the ground of poor efforts at fiscal consolidation
'o, is India placed on /iscal consolidation ran+ing-?
Cor many years! India raned low on fiscal consolidation. ,owever! from )55( onwards! the government made
conscious efforts to bring down its fiscal deficit and public debt after it passed the Ciscal %esponsibility and :udget
+anagement 7C%:+8 #ct. This enabled the government to pursue fiscal reforms aimed at committing to a pre-
decided level of deficit. Though its efforts went off well in the initial years! government finances slipped in the last
two years as it was forced to provide fiscal sops initially to tacle high inflation and then to contain the impact of the
global financial crisis of )554-5' that hit the real economy hard along with recommendations of 3
th
pay
=ommission. #s a result! through its fiscal stimulus pacage! it had to announce several fiscal concessions and also
increase expenditure on account of some sops. This ended in a further worsening of the country-s finances
What is India going to do about it-?
#lthough the government does not borrow overseas! it cannot ignore the fisc as it is now a part of the global
economy. The cost of borrowing for private corporate which raise money overseas! depends a lot on its home
country-s sovereign ratings. It is expected that finance minister Pranab +uherAee will roll out a road map for fiscal
consolidation during the Inion :udget )5&5-&& which includes unwinding of the fiscal stimulus
Summery of 1ecommendations by 9I
th
/C-
Initiatives should be taen to reduce the number of =entrally ?ponsored ?chemes 7=??8 and to restore the
predominance of formula-based plan transfers
:oth the =entre and the states should conclude a S@rand :argain- to implement the +odel @?T. To
incentivi>e implementation of the @rand :argain! this =ommission recommends sanction of a grant of %s.
B5!555 crore. The grant would be used to meet the compensation claims of ?tate @overnments for revenue
losses on account of implementation of @?T between )5&5-&& and )5&6-&B! consistent with the @rand
:argain. Inspent balances in this pool would be distributed amongst all the states! as per the devolution
formula! on &
st
Lanuary )5&B
The Empowered =ommittee of ?tate Cinance +inisters 7E=8 should be transformed into a statutory council
The policy regarding use of proceeds from disinvestment needs to be liberali>ed to also include capital
expenditure on critical infrastructure and the environment
The practice of diverting plan assistance to meet non-plan needs of special category states should be
discontinued
#ll states need to draw up a roadmap for closure of non-woring P?Is by +arch )5&&. ;ivestment and
privati>ation of P?Is should be considered and actively pursued
The share of states in net proceeds of shareable central taxes shall be () per cent in each of the financial
years from )5&5-&& to )5&6-&B
The =entral @overnment should review the levy of cesses and surcharges with a view to reducing their
share in its gross tax revenue
The revenue deficit of the =entre needs to be progressively reduced and eliminated! followed by emergence
of a revenue surplus by )5&6-&B
# target of 34 per cent of @;P for the combined debt of the =entre and states should be achieved by )5&6-
&B
The +edium Term Ciscal Plan 7+TCP8 should be reformed and made a statement of commitment rather
than a statement of intent. Tighter integration is reGuired between the multi-year framewor provided by
+TCP and the annual budget exercise
Transfer of disinvestment receipts to the public account to be discontinued and all disinvestment receipts
should be maintained in the consolidated fund
The C%:+ #ct needs to specify the nature of shocs that would reGuire a relaxation of C%:+ targets.
@iven the exceptional circumstances of )554-5' and )55'-&5! the fiscal consolidation process of the states
was disrupted. It is expected that states would be able to get bac to their fiscal correction path by )5&&-&)!
allowing for a year of adAustment in )5&5-&&
+anipur! 1agaland! ?iim and Ittarahand to reduce their fiscal deficit to ( per cent of @?;P by )5&(-&6
Lammu 0 Kashmir and +i>oram should limit their fiscal deficit to ( per cent of @?;P by )5&6-&B
1ational ?mall ?avings ?cheme to be reformed into a maret-aligned scheme. ?tate @overnments are also
reGuired to undertae relevant reforms at their level
Cor states that have not availed the benefit of consolidation under the ;ebt =onsolidation and %elief
Cacility 7;=%C8! the facility! limited to consolidation and interest rate reduction! should be extended! subAect
to enactment of the C%:+ #ct
#rticle )45 7(8 7bb8 0 7c8 of the =onstitution should be amended such that the words Son the basis of the
recommendations of the Cinance =ommission of the ?tate-s are changed to Safter taing into consideration
the recommendations of the Cinance =ommission of the ?tate-s
#rticle )6(7I8 of the =onstitution should be amended to include the phrase Sor earlier- after the words
Severy fifth year-
?tate @overnments should appropriately strengthen their local fund audit departments through capacity
building as well as personnel augmentation
To buttress the accounting system! the finance accounts should include a separate statement indicating
head-wise details of actual expenditures under the same heads as used in the budget for both Panchayati %aA
Institutions 7P%Is8 and Irban $ocal :odies 7I$:s8. =ommission recommend that these changes be brought
into effect from (& +arch )5&)
?tate @overnments should ensure that the recommendations of ?tate Cinance =ommissions 7?C=s8 are
implemented without delay and that the #ction Taen %eport 7#T%8 is promptly placed before the
$egislature
The development plans for civilian areas within the cantonment areas 7excluding areas under the active
control of the forces8 should be brought before the district planning committees
?tate @overnments should lay down guidelines for the constitution of 1agar panchayats
The 1ational =alamity =ontingency Cund 71==C8 should be merged into the 1ational ;isaster %esponse
Cund 71;%C8 and the =alamity %elief Cund 7=%C8 into the ?tate ;isaster %esponse Cunds 7?;%Cs8 of the
respective states. =ontribution to the ?;%Cs should be shared between the =entre and states in the ratio of
2BO)B for general category states and '5O&5 for special category states
#ssistance of %s. )B5 crore to be given to the 1ational ;isaster %esponse Corce to maintain an inventory of
items reGuired for immediate relief