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Economy Notes
INDIA’S CASE
Sometimes Indian economy is also considered undeveloped due to the following reasons :
Agriculture is the main occupation of the people in India, In 2005, nearly 54% of the
population was depending on Agriculture.
There has been increase in the absolute number of people in agriculture activities in
India but it has decreased in % of GDP terms over the years.
In India, the poverty is very high,. Every third poor person in the world is an Indian.
That means one third of the world’s poor live in India.
According to the National Sample Survey Organization (NSSO) survey in 2004-05, nearly
22% of the population is below poverty line.
Indian population has grown at a fast rate of more than 2%. India is facing the problem of
population explosion as the death rate is falling but there is no corresponding fall in the
birth rate.
4. Low per Capita Income :
India’s per capita income is low not only compared to developed countries like USA, UK
Germany but also developing countries like China, Sri Lanka, Indonesia etc.
Because of low level of per capita income the standard of living is quite low.
In India, because of low per capita income and low saving rates, saving and investments
rates are very low.
6. Backward Techniques :
Techniques of production are still backward in the agriculture sector and industrial
sector as compared to advance countries.
The incidence of unemployment in India is quite high. During the planning period 35.39
million persons were unemployed in India and the unemployment rate over the year has
increased.
In India there is very high rate of open unemployment and disguised unemployment.
Disguised unemployment means apparently people are employed but their marginal
productivity is nil or negative. Disguised unemployed is more common in the agriculture
sector.
India’s National income has increased by 16 times during the planning period.
Per capita income in India has increased by more than 4.5 times during the planning
period.
Average per capita income has increased at a rate of 3.45%.
(a) Primary Sector (Agriculture ): It included agriculture and allied activities such as
forestry, poultry farming etc.
(b) Secondary Sector (Industrial) : It includes all types of manufacturing and
construction activities.
(c) Tertiary Sector (service): It included services like transport, communication, banking
insurance and other such services.
Indian economy has developed firstly, so there is a shift of labour force from primary sector to
secondary and tertiary sectors.
The following table shows the occupational structure in India :
The share of agriculture sector in India’s national income has decreased over the years and
shares of secondary and tertiary sector have improved in the GDP.
1950-51 196-61 1970-71 1980-81 1990-91 2000-01 2004-05
Primary 56.1 47.8 42.8 36.5 29.1 26.5 18.5
Secondary 11.7 15.1 16.9 19.5 21.9 23.1 26.4
Tertiary 32.7 37.3 40.9 44.4 49.0 50.4 55.1
(a) Indian railway has been world’s second largest rail network under a single management.
The railway’s route length has increased by nearly 10 thousand kilometers. In two
metro vcities-Kolkata and Delhi, Metro rail system has been working.
(b) Diesel and electrical engine has replaced by steam engines.
(c) The Indian road network has become the largest in the world aggregating 3.32 million
kilometers.
(d) Although the country is still facing energy crisis, there has been an impressive increase
in the installed capacity. In 2004-05, the installed electricity generating capacity was
1,37,500 MW against 2,300MW in 1950-61 and 74,700 MW in 1990-91.
(e) Similarly, irrigation facilities have increased raising the land under irrigation from 22.6
million hectares in 1950-51 to 84.7 million-hectares in 2003-04.
(f) The literacy ration has increased from 18.33 per cent in 1951 to 65.38 percent in 2001.
(g) In the field of medicine and health some development has taken place. The number of
doctors has increased by more than 9 times increasing from 61.8 thousands in 1950-51
to 625.1 thousand in 2003-04
ANSWER
Agriculture plays a very important role in India’s economic development. It contributes nearly
18.5% of GDP and engages around 54% of the population of the country. Its role is discussed in
the following points :
(2) Share in national income :- Agriculture contributes a major portion of GDP i.e 18.5% in
2004-05. The agriculture sector’s share in GDP continues to reduce because as non-
agricultural sectors are growing.
(3) Supporting industries :- Agriculture has a big role in the development of the agro-based
industries such as textiles, sugar, tea, paper and other cottage industries etc. Similarly,
agriculture needs industrial products as its inputs e.g. fertilizers, pesticides, machinery
and electricity.
(4) Share in foreign trade :- The country’s foreign trade especially in the export of jute, tea,
tobacco and coffee depends on the supplies of the agricultural sector. Only in case of
crop failures the India becomes a net importer of food grains, otherwise India has not
been a big importer of food grains especially since 1990s. Therefore, the balance of
trade in the country is affected by the agricultural sector. As economy developed, the
share of agricultural exports in total exports fell down. In 2004-05 earnings from
agricultural from exports were 10.2% of total export earnings. Agricultural imports
constituted just 3.4% of our total imports in 2004-05. India now has become self-
sufficient in the agro-products and need to import them only when there are shortage
resulting from unfriendly weather conditions like drought and floods.
(5) Supplier of food :- Agriculture meets almost the entire food-needs of the people. In
India, people spend a very large proportion of their incomes on food and food products.
Thus, agricultural prosperity also affects the cost of living of people. If food is costly, the
cost of living of the people also gets affected to a great deal.
(6) Savings of Capital :- Agriculture ahs low capital output ratio. Agriculture requires lesser
capital per unit of output produced compared with the industries. A capital poor
economy like India can make efforts to develop this sector, which along with increase in
production, could increase employment opportunity.
(8) Solving problems of urban congestion and brain drain :- Migration from rural areas to
urban areas has created so many problems like urban congestion and rural brain drain.
If Agriculture is on the road to prosperity and is in a position to absorb fruitfully the
growing talent in rural areas, the problems of urban congestion and rural brain drain
will be solved.
The following points indicate that Agriculture sector has developed in India over the years.
(1) Increase in Production and Productivity :- Over the last five and half decades,
Agriculture production like food grains, pulses, sugarcane, oilseeds, cotton, jute
increased by more than thrice. The strategy of green revolution in 1966 has been made
possible increment in production and productivity. This strategy stressed upon the use
of high yielding varieties of seeds proper irrigation facilities, extensive use of fertilizers,
pesticides often termed as high yielding varieties programmes (HUVP) HYVP was
restricted to five crops wheat, rice, bajra, jawara and maize, But production of wheat
increased by 5.5 times. On account of this, the green revolution is also known as wheat
revolution.
(2) Diversified Agriculture :- Indian agriculture has become diversified in different areas
like -
(a) The share of non-crop sectors like fishery, forestry and animal husbandry is increasing.
(b) Area under commercial crop like sugar, cotton, oilseeds, etc is increasing.
(c) Within food grains area under superior cereals (rice and wheat) is increasing and inferior
cereals are declining.
(3) Modern Agriculture :- Agriculture has been modernized in the following ways
(a) Since 1966 when Green Revolution was started, the use of HYVP of seeds, chemical
fertilizers, pesticides, irrigation facilities threshing machine is rising.
(b) Farmers are increasingly resorting to intensive cultivation, multiple cropping and
scientific water management.
(c) Farmers are ready to accept new and scientific techniques of production.
(d) Agricultural capacity has improved a lot.
(e) A number of institutions as such NABARD and 196 RRBs have facilitated growth of
Agriculture.
(f) The land tenure systems have been improved. The zaminidari system has been
suspended, because the system of collecting land revenue, from the tenant or the actual
tiller of the land was exploited by the land owners. More than 25% of the produce was
taken away by the zamindar in the form of rent.
(4) Land reforms :- In order to stop the exploitation of the actual tillers of the soil and to
pass on the ownership of land to them land reforms were introduced. Three measures
were contemplated to achieve these objectives.
For regulation of rent, the legislations were passed to fix rents between 25-50 percent
for different states.
Security of tenure has also been provided by these states by passing legislations, which
disallow ejectments of the tenants except in accordance with the provisions of the law,
Many states have also conferred ownership rights on the tenants.
To provide ownership rights on tenants, ceiling on land holding was also imposed on
agriculture. That limits were imposed on the amount of land which a family could hold.
Accordingly, a family could hold 18 acres of wet land or 54 acres of unirrigated land.
(a) The HYVP was initiated in just 44% of the gross cropped area.
(b) In large many areas and in number of crops old methods of ploughing, sowing and
harvesting etc are still used. As a result, productivity in such areas and crops are
very low.
(c) About 60% area is rain fed and there are no appropriate dry-farming technique.
(d) Only 40 percent of the gross cropped has irrigation facilities.
(a) Before independence, main source of agriculture credit was the moneylender,
Moneylenders provide 71.6% of the rural credit. Money lenders charge very high rates
of interest ranging from 18 to 50%. They often manipulated accounts and cheated the
poor uneducated farmers.
(b) Therefore, after independence to expand institutional credit to agriculture.
14 Banks were nationalized in 1969 and 6 banks were nationalized in 1980.
In 1975, Regional Rural Banks (RRRBs) were established and in 1982, (NABARD) –
National Bank for agriculture and Rural Development is the apex Bank for Agricultural
credit.
(c) With an objective of providing credit to the rural and other priority sectors and to meet
the requirements of the agricultural and rural credit. Cooperative credit societies were
also established to finance rural projects at lower rates of interest.
As a result of all these efforts the share of moneylenders has reduced to about 17% now
and that of institutional credit has increased.
(d) Although the following problems have emerged in Agriculture credit.
Agricultural loans are concentrated in certain regions and states. For example, nearly
half of the agricultural bank credit is concentrated in southern states.
The proportion of bad debts has been increasing. Nearly 40% of the amount financed
does not come back to the society.
The major beneficiaries of the agricultural credit have been the large and medium
farmers.
There is a lack of experienced and skilled staff in these institutions.
(4) Problems relating to warehousing and marketing :-
(a) Inadequate storage facility - The storage facilities are not adequate so 10-15% of
agriculture produce gets soiled. Government agencies like Food Corporation of India
(FCI) provide storage facilities but these are inadequate.
(b) Lack of organization among farmers :- There is a lack of organization among farmers so
they do not get a fair price from the buyers who are generally well organized.
(c) No of commission agents :- There are a large number of agents between the producers
and the consumers. They charge a heavy amount of commission. As a result, the
farmers do not get a fair share in the total product price charged.
(d) Heavy indebtedness :- Because of heavy indebtedness, the farmers are many times
forced to sell their produces at low prices.
(e) Lack of proper transport facilities :- There is lack of proper transport facilities in the
market, so farmers are unable to get the fair price of his produce.
(g) Lack of market information :- The farmers are many a times not well ;informed about
the prevailing market conditions including prices prevailing in the markets.
(h) Lack of Grading and standardization :- Grading and standardization are at a very low
level. So often inferior quality gets mixed up with superior one, killing the motivation of
farmers to produce superior quality products.
(i) Inadequate ration shops and fair price shops :- In order to meet the needs of poor
people in the country, the Government runs a network of ration shops and fair price
shops which provide food grains and other essential commodities at very low prices to
consumers. But it has been seen that these ration shops have catered to the needs of
all and sundry. Despite the massive coverage of these shops, the total requirements of
food grains of all vulnerable sectors are not met.
(2) Providing employment :- Population of India is very high and increasing at an alarming
rate. Indian economy needs sectors, which absorb ever – increasing labor – force.
Industries can play an important role here. It is the establishment of industries along
that can generate employment opportunities.
(3) Share in the GDP :- Over the years, the value – added by industrial sector in the GDP
has improved from 12 percent in 1950-51 to 26.4 percent in 2004.
(4) Contribution to exports :- Indian industries contribute a major portion to the export
earnings of India. In fact, manufactured goods alone contribute around 72 percent of
exports earnings of India.
(5) Raising incomes of the people :- Industries generally help in raising the incomes of the
people of a country. By putting in more efforts, capital and improved technology
industrial output and production can be raised. In fact, in this sector, the benefits of
large – scale production can be reaped.
(6) Enhancing further the economic growth :- As industrialization grows, the role of
capital goods vis-a- vis consumer goods gains strength. This helps in enhancing further
the economic growth.
(7) Meeting high income demands :- Beyond certain limits, the demand of the people for
agricultural products fall and for industrial products rises. Industries help in meeting
these ever-increasing demands.
(8) Strengthening the economy :- Industries help strengthen the economy in a number of
ways.
(a) The growth of industries producing capital goods i.e machines, equipments etc. lets
a country to produce a number of goods in large quantities and at low cost.
(b) It makes possible the production of economic infrastructure.
(c) Agriculture gets improved farm-implements, chemical fertilizers and transport and
storage facilities.
(d) Dependence on foreign sources for defense materials is a risky matter.
Industrialization helps a country to become self reliant in defense materials.
Growth of Industrial Sector in India :
(a) Low sided pattern of development :- Industries were either too large or too small
in size with very few medium size units. There was high concentration of
employment in small and large industries.
(b) Low capital employed and low per capital income :- Capital employed per worker
in industry was very low.
After Independence :-
4. Modernisation :- Industries sector has become broad-based and modernized. The role
of traditional industries like textiles has reduced and role of non-traditional industries
like engineering goods, chemical goods and electrical goods has improved
tremendously.
5. Increase in the size and diversification of public sector :- There has been a massive
increase in the size and diversification of public sector. In the first plan, the number of
public sector units was just 5 but in the March 2002, increased 239 like ONGC, IOC SAIL,
BHEL, HMT, HAL, BEL, NTPC etc and total investment increased to 3,93,000 crore.
6. Dominance of large and monopoly business houses :- The dominance of large and
monopoly business houses has increased several times. Now big business houses has
increased enormously to about 80. These are Tata, Birla, Reliance, Thapars, Mafatlals,
Goenka and Chhabria and so on.
8. Progress in the science and technology :- The country could be proud of achieving
remarkable progress in the science and technology front. Several Research laboratories
were set up. Technological know – how was extensively imported through foreign
technical collaboration arrangements. Science, Engineering, Management and other
professional educational institutions have been established on a large scale.
9. Growth of small – scale industries units :- One of the notable features of the planning
era since 1951 has been the substantial growth of small-scale industries (SSI) units.
Meaning of SSI
Manufacture :-
(a) Micro Up to 25 lacks Rs.
(b) Small – above 25 lakhs to 5 crore Rs.
(c) Medium – above 5 crore to 10 crore Rs.
Service :-
Performance and contribution of SSI : Since independence there has been an all round
development of small – scale and cottage industries in India. This will be clear from the
following points.
1. High growth rate :- The growth rate of SSI @ 9% per annum in terms of production has
been far faster than that of large – scale sector since it is estimated that they contribute
about 40% of the gross value of output in the manufacturing sector.
2. Large Numbers :- The numbers of registered and unregistered small-scale units, which
stood at 16,000 units in 1950 increased to and 123.42 lakhs in 2004-05.
3. Employment generation :- The SSI is labor intensive and hence they employed 283
lakhs persons in 2004-05. This represents about 60% of the total industrial
employment.
4. Produce a very wide producer and consumer goods :- They include both simple and
sophisticated engineering products, electrical, electronics, chemicals, plastics, steel,
cement, textiles, paper, matches, ready made garments and so on.
5. Support of large – scale Industries :- The support to large industries by meting their
requirements of inputs of raw materials, intermediate goods, spare parts etc.
6. Non inflationary force-price stability :- A large number of small scale industries are
engaged in the manufacture of consumer goods of mass consumption, thereby making
them available in plenty which serve as a non-inflationary force.
7. Higher output capital ratio :- SSI produces higher output at lower capital so higher
output capital ratio found here. The employment generating capacity per ;unit of
capital of small and cottage industries was found to lbe at least eight times greater than
that of large industries.
PROBLEMS OF INDUSTRIAL DEVELOPMENT IN INDIA
The following are the main problems of the industrial development in India :
1. Failure to achieve targets of production :- Except in first FYP, the industrial sector has
failed to achieve the target of production. The average industrial growth rate achieved
6.2% relative to the target of 8% per annum. These are the following causes which has
resulted in failure to achieve target of industrial production :-
o Poor planning.
o Power, finance and labour problems.
o Technical complications.
3. Increasing capital output ration (ICOR) :- Incremental capital output ration means more
capital required for per unit of output. It increases the capital costs of new industrial
units.
5. Poor performance of Public sector :- A large number of public sector lunits are loss
leaders’ in the industrial sphere while the rate of profitability of others is low . Loss of
PSU was 73,150 crore in 06,83,725 in 05.
8. Industrial Sickness :- Industrial sickness has become a serious problem affecting small,
medium and large units. The causes of sickness are financial mismanagement demand
recession, labour unrest, working capital shortage, cost escalations, shortage of raw
materials, uneconomic size, out dated machinery and equipment and so on. In 2003
there were 1.71 lakhs sick units, out of which more than 98% were small units.
SERVICES
The service sector or tertiary sector of an economy provides services to other business
enterprises as well as to the consumers. Service sector includes.
(1) Business services and professional services.
(2) Communication services.
(3) Construction and related services.
(4) Distributed services.
(5) Education Services.
(6) Energy services.
(7) Environment services.
(8) Financial services.
(9) Health and social services.
(10) Tourism services.
(11) Transport services.
The service sector in India is its largest sector and accounts for increasingly significant share of
GDP. This sector is growing very fast. It is clear from the following points.
(a) Increasing share in the GDP :- Over the planning period, the share of tertiary or
services sector has increased to more than half i.e 55% in 2005-06.
(b) Providing employment :-- In 2001, service sector occupied 22.5% of working
population in India. (Nearly 23%).
(a) The service sector now accounts for India’s GDP 55.1% in 2005-06.
(b) The share of primary sector in GDP falls and shares of secondary and tertiary sectors
increases.
(c) With in the services sector, the share of trade, hotels, transport and communication
increased to 42.67 in 2004-05.
(d) The tourism industry and financial services segment are growing very fast and has the
potential for growing still faster. Share of financial sector has grown at 22.41%.
(e) The share of other services such as community, social and personal services have
improved to 24% in 2004-05. There has been an increase in the growth rate of these
services also.
(f) India has second largest scientific and technical manpower in the world. India’s
consultancy professionals posses capability to provide expertise in sophisticated areas
like information and technology. Advanced financial and banking services etc to
developed countries like USA, UK, France, West Germany and Australia.
(g) India’s health services, super specially hospitals specializing in both modern and
traditional Indian medicine systems (like Ayurveda, Unani, and Nature care) supported
by state of the art equipment, are attracting patients from across the world.
(h) Education is also a foreign exchange earner by way of NR is, and foreign students
enrolled in India.
(i) Entertainment industry (Including films, music, broadcast, television and live
entertainment) is another service industry which has growth very fast after
Independence.
(j) IT enabled services, such as Business Process Outsourcing (BPO) have been growing
rapidly (60-70%) in the recent past and will continue to grow. It is projected that in
2006 it will create employment opportunities for about a million people. Out sourcing
has changed the image of India.
(k) Growth rate for tenth plan was 9% and target for Xith plan is 9.4%
PROBLEMS OF SERVICES SECTOR IN INDIA :
(a) Inadequate infrastructure :- For the purpose of achieving rapid growth of the economy
we require a very high quality of infrastructure. Unfortunately. Our infrastructure is
inadequate both in the rural areas and in the urban areas.
(b) Inadequate economic reforms :- Economic reforms undertaken in all the sectors are
inadequate. In financial sector many controls and bottlenecks are still there. These
need to be removed.
(c) Lack of proper environment for tourists :- India has great potential in the tourism
sector. But there is a need to create proper environment for attracting tourists. Foreign
tourists often get harassed and cheated in the hands of babus and officialdom, touts
and comment.
(d) Lack of Training :- Etiquettes and good behavior are the hallmark of the services sector.
Indian service providers whether they are in banks, in hotels and restaurants, in
hospitals or in public administration, they need to be trained thoroughly in public
dealing etiquettes, and hospitality.
(e) Lack of cleanliness : The airports, railways etc in India are not clean and well organized.
They need to be reorganized.
(f) Problem of Visa :- Our consular division also is not proper. It takes many days to issue
visas. This hampers the growth of tourism sector.
(g) Lack of set up :- Service trade also faces a number of problems. These include lack of
set up like export promotion councils.
(h) Unfair competition :- In the telecom sector unfair competition and lack of internet
infrastructure, monitoring and customer demand, mar the growth of ecommerce.
(i) Slow growth in primary and secondary sector :- Service sector cannot grow in
isolation. It needs strong backing of other sectors/primary and secondary.
(j) Competition from other countries :- Indian service providers (like BPOs and IT service
provider) are facing strict competition from other countries. They need to improve their
quality and reduce their costs.
Objective
Q 1. The green revolution is also known as ?
(a) Wheat revolution.
(b) Rice revolution.
(c) Maize revolution.
(d) Forest revolution.
Q 2. The area under irrigation has ……over the years in India?
(a) Remained constant.
(b) Decreased.
(c) Increased.
(d) First increased and then decreased.
Q 7. In absolute terms, the number of people engaged in Agricultural activities over the
planning period has?
(a) Remained.
(b) Increase.
(c) Decreased.
(d) First increased and then decreased.
Q 8. We can say Indian agriculture has become modern since
(a) There has been an increase in the use of high yielding verities of seeds, fertilizers,
pesticides etc.
(b) There has been noticeable positive change in attitude of farmers towards new
techniques of production.
(c) Farmers are increasingly resorting to intensive cultivation, multiple cropping, and
scientific water management.
(d) All of the above.
Q 9. Which of the following has been specifically established to meet the requirements of
credit of the farmers and villagers?
(a) ICICI bank.
(b) Regional Rural Banks.
(c) State Bank of India.
(d) EXIM Bank.
Q 13. There steel plants in Bhilai, Rourkela and Durgapur were set up in the ?
(a) First plan.
(b) Second plan.
(c) Third plan.
(d) Fourth plan.
Q 14. The industrial sector faced the process of retrogression and deceleration during ?
(a) 1950-1965.
(b) 1990-2005.
(c) 1980-1995.
(d) 1965-1980.
Q 15. Which of the following has resulted in failure to achieve targets of industrial
production?
(a) Poor planning.
(b) Power, finance and labour problems.
(c) Technical complications.
(d) All of the above.
Q 17. About ………………..percent of the sick units in India are small lunits.
(a) 10 Percent.
(b) 5 percent.
(c) 30 percent.
(d) 98 percent.
Q 18. The tenth plan aims at achieving a growth rate of ………..in the industrial sector.
(a) 5 percent.
(b) 8 percent.
(c) 10 percent.
(d) 6 percent.
Q 20. Oil and Natural Gas Corporation Indian oil Corporation steel Authority of India, and
Baharat Heavy Electrical Ltd are all examples of ?
(a) Small scale units.
(b) Private sector units.
(c) Public sector units.
(d) Sick units.
Q 20. The Indian industry faced the process of retrogression and deceleration because of ?
(a) Unsatisfactory performance of agriculture.
(b) Slackening of real investment in public sector.
(c) Narrow market for industrial goods, especially in rural areas.
(d) All of the above.
Q 21. Which of the following statements is correct ?
(a) The industrial pattern of the eve of independence was quite balanced.
(b) During the planning period, the structure of Indian industry has shifted in favour of
basic and capital goods and intermediate sector.
(c) Most of the big industrial units in India are sick.
(d) None of the above.
Q 22. Over the planning period the share of industrial sector in the GDP of India has ?
(a) Increased.
(b) Decreased.
(c) Remained constant.
(d) Remained above 50 percent.
Q 25. All of the following can cause sickness to an industrial unit except :-
(a) Demand recession.
(b) Uneconomic size.
(c) High productivity of labour and capital.
(d) Financial mismanagement.
Q 29. India has the ………….largest scientific and technical manpower in the world.
(a) Fifth.
(b) Tenth.
(c) Eighth.
(d) Second.
National Income or national product of a country is the aggregate of final goods and services
produced by that country in any given year. Since physical aggregate is not possible, these
goods and service are aggregated in money terms.
It is to be noted that
GDPMP may be equal to NDPMP if Depreciation is zero.
GDPMP may be equal to GNPMP if NFIA is zero.
GDPFC may be equal to GDPMP if NIT is zero or say IT = S
National income is the money value of all the final goods & services produced by a county
during a period of time. It can be viewed in three ways, as a flow of goods and services, as a
flow of income and as a flow of expenditure. Thus there are three ways of measuring National
Income.
(a) Value added method measures the contribution of each producing enterprise in the
domestic territory of the country. All the producing units are classified into three
sectors namely primary, secondary and territory sector.
(b) Primary sector may be subdivided into agriculture, fisheries, animal husbandry etc. The
secondary sector may be sub divided into manufacturing units and territory sector may
be classified into trade, transport, communication, banking, insurances, etc.
(c) For calculating value added by each unit of the sub-sector, the value of the raw
materials, intermediate goods and services used and depreciation are subtracted from
the value of the gross output.
(d) By adding the value added by all units of the sub-sector, we get the value added by that
sub-sector.
(e) For economy as a whole we add value added by each sector to get the net domestic
product.
(f) If the information regarding final output and intermediate goods is available in terms of
market price. We can easily convert it in terms of factor cost by subtracting the value of
indirect taxes and adding the value of subsidies. This gives us net domestic product at
factor cost.
If we add or subtract het income from abroad we get the Net National product at factor
cost which is nothing but national income.
1. Production for self consumption, imputed rent of owner occupied house and own
account production of fixed assets are included in value added.
2. Value of sale and purchase of second hand goods in not included in value added.
However commission earned on this sale and purchase is included in value added.
3. Services for self consumption are not considered in value added.
(a) Compensation of Employees :- It includes (a) wages and salaries in cash and kind
and (b) Employer’s contribution to social security scheme.
(b) Operating Surplus :- It includes dividend, rent, royalty and surplus of public sector
enterprises.
(c) Mixed Income of Self Employed :- Interest on capital.
Besides it includes Net Flow of income from abroad. The sum total of these incomes provides
us the measure of gross income at factor cost. If we deduct depreciation from this measure,
we shall get the value of National income.
They together give us the value of gross domestic expenditure at market price. If we add net
investment undertaken abroad to it, we get gross national expenditure at market price. Gain, if
we add subsidies and deduct indirect taxes we get net national expenditure at the factor cost.
(a) Only final expenditure is to be taken into A/c. Expenditure on raw material and
intermediate goods are excluded to avoid double counting.
(b) Govt Expenditure on transfer payment such as pension, scholarship etc should be
excluded.
CONCLUSION :-
The total from each of these methods must be equal. But due to practical difficulties it may not
be possible to determine the value of national income separately by each of these methods.
Usually in India., different methods are applied for different sectors of the economy, and
figures obtained are added in order to estimate national income of the economy as a whole.
These are problem of concepts, terminology, stage of economic activity, no similar date for all
sectors of the economy. Commodity and services must have a money measure of value,
problem of double counting. There may some statistical like unorganized sectors, lack of
adequate and reliable data, inter regional differences, problem of multiple sources of earnings,
difficulties in collection of statistics and lack of skilled and hones personnel to collect
information for national income.
Precautions to be taken while estimating national income by above three methods, that what
should be included in national income and what should not be included in national income.
What is included in National Income.
The real national income of India has increased at an annual average rate of 4.4% during the 54
years of economic planning. Against the annual average target growth rate of 8% of Tenth plan
(2002-07), achievement rate is 7.6% in the first four years ending 2005-06.
Plan wise study of growth of real income in India
India’s per capita net national product has increased at an annual average rate of 2.2% during
the 54 years of economic planning. In the Tenth Plan, the growth rates witnessed in per capital
income are 2.2, 7.2 and 6.1 for the years 2002-2003, 2003-04 and 2004-05.
Q 6. National income fixed cost differs from net national product at market price by the
amount of
(a) Current transfers from the rest of the world.
(b) Net indirect taxes.
(c) National debt interest.
(d) It does not differ.
Q 9. The net values added (NYA) method of measuring national income is also known as
(a) Net output method.
(b) Production method.
(c) Industry of origin method.
(d) All of the above.
ANSWER
TAXES
A tax is a compulsory contribution imposed by the state without reference to some
particular benefits to tax payer in exchange for tax.
Taxes are generally classified into direct and indirect taxes.
DIRECT TAXES
Direct tax is that tax which can not shifted i.e the incidence of which falls on persons,
who pays then to the Government.
Example of direct taxes are income tax and wealth tax.
Merits :
(a) Direct taxes are imposed according to ability to pay of the taxpayer.
(b) Collection from direct tax to Government is elastic i.e as income rises, tax collection
rises in a greater proportion.
(c) The amount of direct tax to be paid is clearly known to the taxpayer.
(d) Direct taxes collected from the rich may be spent for benefit of the poor. In this way,
direct taxes help in reducing inequalities of income.
(e) They are in the nature of progressive nature and imposed according to ability to pay of
the taxpayer.
Demerits :-
(a) It is difficult to determine the ability to pay of the tax payer and only a rough idea can be
formed.
(b) Direct taxes are taxes on willingness to work hard since those who work more earn
more and pay more taxes. Thus, direct taxes discourage more work.
(c) It is possible to hide the real sources of income i.e there is possibility of tax evasion This
result in black money.
(d) It requires proper maintenance of accounts which some of the tax payers may not be
able to do so.
(e) The direct tax system is complicated. The calculation of direct tax requires expert
assistance of tax advisers.
INDIRECT TAXES
Indirect tax is that tax when tax impact is on the one person while tax incidence on the other
person. Examples of indirect taxes are sales tax, service tax, excise duty, custom duty and VAT
etc.
Merits
(a) The most important merit of indirect taxes is convenience in their assessment. This is
because generally they are assessed at flat rates and realized at appropriate points such
as at factory site in the case of an excise duty on production or at points of entry in the
case of imports.
(b) It is difficult to evade indirect taxes. In the case of excise duty, unless the producers
resort to manipulation of accounts or smuggling. It is difficult to evade it.
(c) Both rich and poor have to pay indirect taxes, therefore, almost 100% individuals falls in
the purview of theses taxes.
(d) Indirect taxes on drinks, narcotics and tobacco serve a social purpose by discouraging
their consumption.
(e) The rates may also be different-higher for luxury items and lower for necessaries the
latter are sometimes fully exempt.
Demerits
(a) Indirect taxes are often criticized for their regressive character. Tax on necessities of life
may hurt poor people.
(b) If does not fulfill social purpose because taxpayers do not feel them.
(c) Neither the Government nor the tax payers know the quantum of tax likely to be
realized or paid as the case may be.
(d) These taxes can be evaded by such methods as smuggling, false presentation of
accounts etc.
Direct Taxes
Under this mainly income tax, estate duty, wealth tax and gift tax are included.
1. Income Tax:
Income tax is a tax on the income of an individual or an entity. Income tax is of two type’s
viz. Personal tax and corporate tax.
2. Estate Duty:
It was first introduced in India in 1953 and abolished in 1985.
It was levied on the total property passing to the heirs on the death of a person.
It was a minor source of revenues.
3. Wealth Tax
It was introduced in 1957.
It was levied on the wealth such as land, bonds, shares etc of the people.
4. Gift Tax:
A gift tax was first introduced in 1958 and abolished in 1998.
It was leviable on all donations to recognized charitable institutions, gifts to women
dependents and gifts to wife.
Indirect Taxes
The main indirect taxes levied in India are as follows :-
1. Custom Duties:
Custom duties are levied on export and imports.
It was levied on the basis of ad valorem which means they are determined as a percentage
of the price of the commodity.
On some commodities, specific import duties i.e per unit taxes on imports are levied
Since 1991, the custom duty structure has been revised. The maximum rate of custom
duty is now just 10%.
2. Excise Duties:
An excise duty is levied on production.
Government introduced MODVAT (Modified value added Tax) in 1986-87 in order to
remove the deficiencies of the indirect taxes.
In the budget 2000-01, Government introduced CENVAT (Central Value Added Tax).
The basic excise duty rate is 16% applicable to all the excisable commodities. Special
excise duty is in addition to CENVAT.
3. Sales Tax:
Sales tax is a tax on sale.
Sales tax is more in the case of luxury items and less or almost nil in the case of
necessities.
Under sales tax, the registered trading concerns are required to pay the sales tax to the
Government.
These registered concerns shift the burden of sales tax to the customers.
Sales tax suffers from many problems, main being, lack of transparency, narrow base,
different procedures followed by different sates and so on.
4. VAT:
Value added tax is the tax on value added. Value added is the difference between sales
and purchase items.
For example input purchased Rs 10,000 @ 4% input tax and output sold Rs 12,000 @
10% output tax, then calculation of VAT = output tax Rs 1200 (10% of 12,000) – input
tax Rs 400 (4% on Rs 10,000) = Rs 800 VAT payable.
VAT was introduced in 1999 and was implemented in April 2005 in some states like
Delhi.
5. Service Tax :
This tax is levied on the services provided.
Direct Taxes
Q 5. A present, the marginal rate of income tax (i.e. tax for highest slab) is ………….
(a) 10%.
(b) 20%.
(c) 30%.
(d) 40%.
Indirect Taxes
Q 12. Among the following types of taxes, fined the one which is indirect?
(a) Gift tax.
(b) Corporate Income tax.
(c) VAT.
(d) Wealth tax.
Q 17. Which of the following statements is incorrect about the benefits of value added tax?
(a) Overall tax burden will be rationalized.
(b) There is a provision of self-assessment.
(c) Price will in general fall.
(d) There will be less transparency.
Q 19. Which one of the following taxes belong exclusive to the state Government of India?
(a) Income tax.
(b) Agriculture tax.
(c) Excise tax.
(d) Wealth tax.
Q 20. Which one of the following sources of central revenue belongs to the category of
indirect taxes?
(a) Corporation tax.
(b) Customs.
(c) Wealth tax.
(d) Gift tax.
Q 21. Which one of the following DOES NOT come under the jurisdiction of state taxation?
(a) Land revenue.
(b) Taxes on agricultural income.
(c) Taxes on land and buildings.
(d) Personal income tax.
Q 22. CENVAT stands for?
(a) Common entity value added tax.
(b) Corporate entity value added tax.
(c) Central value added tax.
(d) None of the above.
Q 27. The cost of tax collection has increased from Rs 543 crores in 1990-91 to more tha
…………………….in 2004-05.
(a) 1900 crore
(b) 3663 crore.
(c) 3900 crore.
(d) 1450 crore.
Q 29. The share of direct taxes in the gross tax revenue (centre and states combined) was
……………………% in 2005-06.
(a) 66
(b) 35
(c) 25
(d) 75
Q 33. Income Tax was introduced first time in India in 1860 and then discontinued in 1873. It
was re-introduced in the year.
(a) 1885
(b) 1886
(c) 1887
(d) 1890
ANSWER
POPULATION
POPULATION
Population of India means the total number of people living in India. Population is very
essential for the growth of country.
So growing population is an asset or a liability for the economy depends upon economy
to economy.
GROWTH OF POPULATION
Decade Growth Rate (%)
Per decade Per annum
1901-1911 05.74 00.56
1911-1921 (-)00.31 -00.03
1921-1931 11.00 01.04
1931-1941 14.22 01.33
1941-1951 13.31 01.25
1951-1961 21.64 01.96
1961-1971 24.80 02.20
1971-1981 24.66 02.22
1981-1991 23.86 02.14
1991-2001 21.34 01.93
2006 23.8% 7.6%
Since 1921, population has started increasing. In fact, year 1921 is known as “year of
great Divide’ for India’s population.
From the decade 1971-1981 to till date, the growth rate has come down to 1.93% in
1991-2001.
* Over the years, birth rate in India has fallen and death rate has also fallen.
(4) Density of Population :
Density of population refers to the number of persons per square kilometer.
It has increased since 1951.
In India at present average it is 324 persons per square kilometer.
Year Ratio
1951 946
1961 941
1971 930
1981 934
1991 927
2001 933
This ratio is most favorable to women in the state of Kerala only, it is 945 in 2001.
Kerala is the state which provides better status to women as compared to other states.
A number of reasons are ascribed for a high ration of males to females. These are :-
(a) Neglect of female child.
(b) High death rate among females.
(c) Under reporting of female births.
(Literacy Ratio)
Above table shows that in 2001, 76% of males and 54% of females were literate giving
an overall literacy rate of 65%
The highest literacy ration is 90% in Kerala and less than 50% in Bihar.
The eighth plan aimed at complete illiteracy among people ;in the age group of 15 to 35
years by the end of the plan.
(a) Control over famines :- Famines, which were wide spread before independence, have
not occurred on a large scale since independence.
(b) Control over epidemics :- There has been decline in the incidence of malaria and
tuberculosis. These have resulted in reducing the death rate.
(c) Other factors :- Other factors which have reduced the death rate are :-
(a) Spread of education,
(b) Expanded medical facilities.
(c) Improved supply of potable water.
(d) Improvement in the nutritional level.
Theory of Demographic Transition says that every country passes through 3 stages:-
In the first stat, both birth rate and death rate are very high.
In the second stage, birth rate comes down slightly but death rate comes down very
heavily. This stage is also called the stage of population explosion as population
increases at very high rate during this stage.
India is passing through the second stage of demographic transition.
In the third stage, birth rates falls and death rate also falls and the net result is
population grows at a very modest rate.
(1) Growth of National Income :- National income rose by 16 times but on account of
increase in population by 2 times, the per capital income rose by 4.5 times during the
planning period. The average annual growth was 4.4% but the per capital income was
only 2.2%.
(2) Food Supply :- The total production of food grains increased from 51 million tones in
1951 to 205 million tones in 2004-05, but population has increased from 361 million to
1090 million. Consequently, per capital food grains increased from 395 grams to 463
grams.
(3) Unproductive consumers :- In India, 63% of the population (working) is in the age group
15-60 and 37% of the population (Non-working) is under 15 or above 60 years. Increase
in the population of children and old persons, which leads to higher burden of
unproductive consumers on total production.
(4) Problem of Unemployment :- The increase in backlog of unemployment in each
successive plan shows how growth in population has led to increase in unemployed
persons. Backlog of unemployment was estimated to be 34 million.
(6) Ecological Misbalance :- A repaid growing population in India has somewhat upset the
ecological balance. There is a gradual shrinkage of area covered by forests, removal of
forests, high concentration of population and inadequate infrastructural facilities is the
cause of serious ecological degradation.
OBJECTIVE
Q 10. Over the years, birth rate in India has………….and death rate has.
(a) Fallen, Fallen.
(b) Risen, Fallen.
(c) Risen, Risen.
(d) Fallen, Risen.
ANSWER
Absolute poverty :-
When poverty is taken in absolute terms, it is absolute poverty. The concept of absolute
poverty is relevant for the less- developed countries. In India we use the concept of absolute
poverty for measuring poverty. Here we measure the consumption of calories required by a
person in a month and the amount to by such consumption.
Relative Poverty :-
When poverty is taken in relative terms and is related to the distribution of income or
consumption expenditure, it is relative poverty. The concept of relative poverty is more
relevant for the developed countries. Gini co-efficient is often used for measuring poverty in
relative sense.
POVERTY IN INDIA
Poverty Line :
As per planning commission of India, a person is below the poverty line if his daily
consumption of calories is less than 2400 in rural areas and 2100 in urban areas.
As per the new definition one who earns less than Rs 368 per month in rural area and Rs
559 per month in urban area will be below the poverty line.
The latest National Sample Survey organization (NSSO) 2004-05 shows that the
percentage of people living below poverty line has reduced to 22% in 2004-05.
CAUSES OF POVERTY
Various causes of poverty can be classified under economic, political and social heads.
1. Economic Causes :
Majority of population depends upon Agriculture and the income of agriculture workers is
substantially below average due to small size of land holdings, inadequate irrigation facilities,
lack of enough financial resources needed for investment for ensuring development and raising
productivity.
3. Other Causes :
Other factor such as family size and family composition, high growth of population and high
rate of unemployment, poor levels of education and skills, lack of motivation etc.
OBJECTIVE
ANSWER
ENERGY
Energy is an important input for most of the production processes and consumption
activities.
At present, 23% of the energy consumed is obtained from no9n-commercial sources.
Major users of the commercial energy are industry (50%) transport (22%) household
(12%).
Electricity :
(a) Demand and supply imbalances in commercial fuels :- Over the planning period,
demand for commercial fuels has increased at a modest rate of 5.5% per annum, and no
availability of the desired level of coal, has hampered the growth of thermal generation.
(b) Oil prices and inflationary pressure :- The organization of Petroleum Exporting
Countries (OPEC) has increased the prices more than times. Rising oil prices has led to
rising general prices in India.
(c) Growing oil imports bill :- Since 1973, India’s oil imports bill has increased substantially.
Petroleum, oil and lubricants (POL) constitute around 27% of our import bill. The oil
import bill is also responsible to a great extent for the existing large balance of trade
gap.
(d) Transmission and distribution (T&D) losses :- One of the major problems faced by the
power companies are T&D losses. The T&D losses of power companies are very high in
many of the SEB (state Electricity Board) systems. National average of this los is around
23 per cent while in many states it is more.
(e) Sick SEBs :- Many SEBs have financially sick due to almost free supply of power to
agriculture, operational inefficiencies, high cost structure and lower powre tariffs and
large overdue.
(f) Operational inefficiency :- Plant Load Factor (PLF) measures the operational efficiency
of a thermal plant. PLF varies across the regions. PLF is lowest in North Eastern region
(16.4%) and highest in Southern region (80%).
(g) Inadequate electrification :- Till date, nearly 14% of villages are not electrified.
(a) Electricity Act was passed in 2003 and Electricity amendment bills 2005 was passed in
2005.
(b) To improve generation of power, Ministry of Power has launched the “Partnership in
Excellence” programme.
(c) Government is encouraging private sector investment in power.
(d) In 2002 power sector was privatized in Delhi.
(e) An all India Power Grid also called National Grid to be developed in year 2012.
(f) ‘Rajiv Gandhi Grameen Vidhyutikaran” programme was started in 2005.
TRANSPORTATION
Important means of transport are railways, roads, water and air transport.
(1) Railways :
(a) Indian Railways, Asia’s largest and world’s second largest rail network.
(b) There are two main segments of railways-freight and passenger.
(c) The total route length of railways was 63.5 thousand kilometers in 2004-05. Out of
which 17.5 thousand kilometers were electrified.
(d) Problems of railways are- technology is very old, financial crunch, over crowding and
poor passenger services.
(2) Road :
(a) The Indian road network is the largest in the world.
(b) In 2002-03, the total road length had increased to 24, 83,300Kms.
(c) The National Highways (NH) now encompasses a road length of 58,000 kms, carry
more than 40% of the total road traffic.
(d) The rural roads network connects around 65 percent all weather roads.
(e) Problems of road transport are road length is inadequate, number of areas to be
linked with roads, large tracts of rural roads are mud roads and poorly maintained.
(f) Most of the State Road Transport Corporations are running on heavy losses. (in
Delhi-DTC also).
(3) Water transport :- It can be divided into.
(a) Inland water transport :- It includes natural modes as navigable rivers and artificial
modes such as canals.
(b) Shipping :- Shipping can again be divided into coastal shipping and overseas
shipping India’s overseas shipping tonnage has 17th rank in the world. Gross
Registered Tonnage (GRT) fell down from 0.31 million in 1961 to 0.25 million in
1980.
(c) 12 major port and 187 minor port The 12 major ports carry about three-fourth of
the total traffic and o the major 12 ports Vishakhapatnam ;is the top traffic handler.
COMMUNICATION
The important means of communication are the postal services, telephone services, tele
printers, radio and television etc.
HEALTH
EDUCATION
(a) In new population policy (NPP-2002) stress on imparting that education should be free
for children below 14 years of age.
(b) The National Policy on Education (NPE) was made in 1986 and further modified in 1992.
It emphasizes 3 aspects in respect of elementary education.
(c) NPE had set a goal of expenditure on education at 6% the GDP.
(d) Gross Enrolment Ration (GER) has increased progressively from 32.1 in 1950-51 to 84.91
in 2003-04.
(e) The Sarva Shiksha Abhiyan (SSA) launched in 2001-02.
(f) National Programme for education of Girls at elementary level (NPEGEL) is an important
component of SSA. This programme concentrates on education of girl child.
(g) Another important component of SSA is the Education Guarantee Scheme + Alternative
and Innovative Education (EGS+AIE).
(h) There are seven national institutions on technology known as Indian Institute of
Technology (IIT). These provide courses in engineering and technology.
(i) There are six Indian Institutes of Management (IIM), which are centers of excellence in
management education.
(j) For audit education, the National Literacy Mission (NLM) was launched in 1998.
Q 7. Considering state Electricity Boards (SEBs) central sector and private sector, PLF is
highest in.
(a) Private sector.
(b) SEBs
(c) Central sector.
(d) Both for SEBs and private sector.
Q 18. Over the years, the incidence of malaria (cases in million) has…………..
(a) Reduced.
(b) Increased.
(c) Remained the same.
(d) Doubled.
ANSWER
INFLATION
Inflation refers to an upward movement in the general price level. It results in a decline of the
purchasing power. A small dose of inflation at the rate of less than 5% is beneficial for the
economy. Inflation can broadly be of the following types.
(1) Demand-pull inflation :- In this case excess of demand relative to supply pushes up the
prices of goods and services. Such inflation, as a result of increased money expenditure,
is called demand pull inflation.
(2) Cost –push inflation :- Cost – push inflation refers to a situation where prices
continuously. Rise because of increment in factor costs like wages rent, interest and
profits. A cost push inflation is much more difficult to control than demand pull
inflation.
(3) Stagflation :- The combination phenomenon of demand – pull and cost push inflation is
called stagflation. Stagnation refers to a situation where low rate of growth (in
deflation), combines with the rise in general price level (inflation).
MEANING OF DEFLATION
It is just opposite of inflation. It is a state when the prices are falling and the purchasing power
of money is increasing.
(1) Increase in Public expenditure :- Public expenditure has risen from 18.6% in 1961 to
36% in 2004-05. Approximately 50% of the Government expenditure in India is on non-
developmental activities like defense and maintenance of law and order. At the same
time, it must be noted that due to their unproductive nature, expenditure on these
activities results in inflationary price rise.
(2) Deficit financing (Printing of new currency) :- When the Government tries to meet the
gap of public expenditure and public revenue through borrowing from the banks or
printing of new currency, it is called deficit financing. A large does of deficit financing
creates slow growth in economy and turns out to be inflationary.
(3) Erratic Agricultural Growth :- The Indian agriculture largely depends on monsoons and
thus crop failures due to drought have been regular feature of agriculture in this county.
In the years of scarcity of food grains not only price of food articles increases but the
general price level also rises.
(4) Agricultural price policy of the Government :- The Government has been pursuing a
policy of price support to the agriculturists to promote the productivity in agriculture.
This policy benefited farmers in India but this has been a major contributory factor to
the inflationary price rise in the country.
(5) Inadequate rise in industrial production :- Performance of the industrial sector were
inadequate, particularly in the period 1965 to 1985, has been rather disappointing.
Over the 20 years period, industrial production increased at a modest rate of 4.7% per
annum. The industrial sector registered slow growth 6% per annum.
(6) Upward revision of administrated Prices :- There are a number of commodities and
services like bus services, railway, and defense are produced in the public sector. The
Government keeps on raising prices to cover the losses arising due to inefficiency and
unimaginative planning. This policy results in cost push inflation.
(7) Other factors :- Besides the above factors, the following have also contributed to
inflationary trades of price in India.
(a) Large scale tax evasion and avoidance.
(b) Increasing reliance on indirect taxes-sales tax.
(c) Black marketing.
(d) Unused capacity in industries.
(e) High capital-output ratio.
(f) Shortage of essential raw materials.
(g) Low surplus from public sector undertakings.
(h) Infrastructural bottleneck and rising prices of imports.
(2) Fiscal measures :- Means measures regarding Government revenue and Govt
expenditure and it includes-
(a) The progressive income tax system should be introduced.
(b) Control over public expenditure should be done.
(c) Introduction of new types of taxes should be introduced.
(d) Improving profits of public sector units (PSU) etc.
(3) Control over Investment :- Increase in investment leads to large increase in income and
expenditure and the demand for both the consumer and capital goods goes up speedily,
as it increases the inflationary tendencies.
(4) Other Measures :- In the other measures, short-term measures can be in regard to
public distribution system by ration card through fair price shops. The long-term
measures will require acceleration in economic growth.
Q 3. When the Government tries to meet the gap of public expenditure and public revenue
through borrowing from the banking system, it is called.
(a) Deficit financing.
(b) Debt financing.
(c) Credit financing.
(d) None of the above.
ANSWER
Budget Deficit :-
(a) Budget deficit is the difference between total receipts and total expenditure (revenue
plus capital).
(b) If borrowings and other liabilities are added to the budget deficit, we get fiscal deficit.
Fiscal Deficit :-
(a) Fiscal deficit = Budget deficit + Borrowings and other liabilities or.
(b) So fiscal deficits = Total Revenue Receipts + Loan recoveries and other receipts – total
Expenditure (Revenue and capital)
1990-91 2004-05
(Crore) (Crore)
(b) Balance of services :- Balance of services records all the services exported and
imported by a country in a year, which are invisible. The services transactions
includes-transportation, banking, insurance, tourism, travel services, interest,
profits, dividends and royalties received and paid from and to the foreigners,.
Balance of services may be of three types like zero positive or negative.
(c) Balance of unrequited transfers :- It includes all gifts, donations, grants and
repatriation, receipts and payments to foreign countries.
(3) Balance of payment on capital account :- It deals with borrowings or lending of the
country. It includes private direct investments, private portfolio investments and
Government loans to foreign Governments. It deals with borrowings or lending of the
country.
(4) Balance of Payments :- Overall balance of payments is the sum of balance of current
account and balance of capital account.
The balance of payments must always balance in an accounting sense. This is because for any
surplus show due from other countries and any deficit show due to other countries there must
be a corresponding debit (or credit) entry by the settlement account.
EXTERNAL DEBT
The share of concession debt in the total external debt of India has reduced from 75% in
1980-81 to 31.0% at present. Debt service payments (i.e returning of principal and interest)
as percentages of current receipts were high.
Q 2. If borrowings and o
(a) Revenue deficit.
(b) Capital deficit.
(c) Primary deficit.
(d) Fiscal deficit.
Q 4. ……………..is a systematic record of all the economic transactions between one country
and rest of the world.
(a) Balance of trade.
(b) Balance of transactions.
(c) Budget.
(d) Balance of payments.
1. Voluntary Unemployment :-
When a person is unemployed because he is not willing to work at the existing wage rate is
called voluntary unemployment.
2. Frictional Unemployment :-
Frictional unemployment may arise when some workers are temporarily out of work while
changing jobs. It may also result when the work is suspended due to strikes or lockouts.
3. Casual Unemployment :-
Where workers are employed on a day to day basis or on short-term contracts, there are
chances of casual unemployment.
4. Seasonal unemployment :-
There are some industries and occupations such as agriculture in which production activities
are seasonal in nature. People engaged in such type of work of activities may remain
unemployment during the off-season.
5. Structural Unemployment :- Due to structural changes in the economy, structural
unemployment may result, it is caused by a decline in demand for production in a particular
industry. Most of the unemployment in India is structural unemployment.
6. Technological unemployment :- Some workers tend to be replaced by machine due to
the introduction of new machinery, improvement in methods of production, labor-saving
devices etc.
7. Cyclical Unemployment :-
Trade cycles-especially recessionary and depression phases cause cyclical unemployment in
developed countries.
8. Chronic unemployment :-
When unemployment tends to be a long-term feature of a country it is called chronic
unemployment. Underdeveloped countries suffer from chronic unemployment.
9. Disguised unemployment :- A situation of employment in which a person is apparently
employed but his contribution to the production is almost nil is called disguised unemployment.
In disguised unemployment marginal productivity of workers is zero. It is common
phenomenon in agriculture sector.
2. Growing population :- Population has increased at a very fast pace since independence
but jobs have failed to keep pace with the population.
3. Increase in technology :- India is a labor surplus and capital scarce economy. Under
such circumstances, labor-intensive industries should have been given preference. But
not only in industry but also in agriculture producers are increasingly substituting capital
for labor.
4. Inappropriate education system :- The education provided in India has not much
practical utility. The students receiving such education are failing to get appropriate
jobs.
EXTENT OF UNEMPLOYMENT
Backlog of unemployment :-
The backlog of unemployment at the beginning of the FYP-1 was 3.3 million to which
were added 9.0 million new entrants during this period.
The plan provided additional employment to 7.0 million, thus leaving a backlog of 5.3
million at the beginning of the PYP-2 (3.3+9= 12.3-7=5.3 backlog)
Backlog of unemployment was estimated to be 35 million in FYP-9. The total number of
persons requiring would be 70 million over the period 1997-2002.
The tenth plan aims at creating 50 million jobs during the plan.
1. Usual persons Status (UPS) :- Usual person status (UPS) measure estimates the number
of persons who may be said to be chronically unemployed.
2. Current Weekly Status (CWS) :- The reference period here is a week. According to this
estimate a person is said to be employed for the week even if he is employed only for a
day during the week.
3. Current daily status (CDS) :- The reference period here is a day, it counts every half-
day’s activity status of the respondent over the week.
The following table shows that the LFPR, WFPR and PU in 2004- in India.
The above table shows that in the year 2004, unemployment rates (PU/LFPR) is CDS>CWS>UPS
As per the latest survey of National Sample Survey organization (NSSO) 2004 following are the
salient features of the trend of unemployment rates in the country.
John is jacqueline’s father, both of them are unemployed. Jecqueline brilliant in Economics, has
turned down many job offers because she hopes eventually to teach at one of the top ten
universities in her field.
John (now age 54) lost his job as a shipbuilder during the recession of 1991.
His plant never reopened and he has very specialized skills that are no longer in demand.
Q 4. When some people in a society are unwilling to work at the prevailing wage rate and
there are people who have income from property of some other sources and need not work,
such people are :
(a) Casually unemployed.
(b) Chronically unemployed.
(c) Voluntarily unemployed.
(d) Disguisedly unemployed.
Q 5. If out of 100 people in the labour force, 92 are in the work force, the number of people
unemployed is :-
(a) 5
(b) 192
(c) 100
(d) 92
Q 6. If 4 farmers can do a filed job which is being done by 6 farmers, this means there is
(a) Frictional unemployment.
(b) Disguised unemployment.
(c) Voluntary unemployment.
(d) Seasonal unemployment.
Q 7. If 9 people are unemployed and 411 people are in the work force, then people in labour
force are :
(a) 402
(b) 411
(c) 9
(d) 420
Q 11. ………………….Unemployment may result when some workers are, temporarly out of work
while changing job.
(a) Cyclical.
(b) Voluntary.
(c) Prictional
(d) Seasonal.
Q 13. Measure estimates the number of persons who may be said to be chronically
unemployed.
(a) Usual status.
(b) Current weekly status.
(c) Current daily status.
(d) Current yearly status.
Q 14. When due to introduction of new machinery, some workers tend to be replaced cby
machines, their unemployment is termed as
(a) Structural.
(b) Technological.
(c) Mechanical.
(d) Seasonal.
ANSWER
1. Liberalisation
Liberalisation refers to relaxation of previous government restrictions.
Thus, when government liberalises trade, it means it has removed the tariff and other
restrictions on the flow of goods and services between countries.
2. Privatisation :
Privatisation refers to the transfer of assets or service functions from public to private
ownership or control and the opening of closed areas to private sector entry.
Privatisation can be achieved in many ways such as through franchising, leasing
contracting.
Merits of Privatisation :
(a) Privatisation will held in reducing the burden on exchequer which arises from loss
making public sectors units.
(b) It will help in modernization and diversification of public sector units.
(c) It will help in making public sector units more competitive.
(d) It will help in improving the quality of decision making of management.
(e) It will help in reviving sick units which have become a liability on the public sector.
(f) It will develop capital market and international market.
Demerits of Privatisation :
(a) Privatization will encourage growth of monopoly power in the hands of big business
houses.
(b) It will increase greater disparities in income and wealth.
(c) Private sector has no interest in buying of loss making and sick enterprises.
(d) Private sector will not be interested in infrastructure investments and risky projects.
(e) Some times limited recourses of the private sector cannot meet some of the vital task.
(f) The private sectors do not care the principles of social justice and publics welfare.
(g) Privatization leads to better results itself, it is questionable. Some times liberalization
and deregulation may be proved harmful.
3. Disinvestment :
Disinvestment means disposal of public sector’s unit’s equity in the market or in other
words selling of a public sector investment to a private entrepreneur.
Method of Disinvestment :-
1. Equity offer :- In this method equity was offered to retail investors through domestic
public issue (Initial Public Offers-IPO) and Global depository Receipts (GDR) to cover the
oversees market.
2. Cross holding :- In cross holding the government simply selling part of its shares in one
PSU to other PSUs.
3. Warehousing :- In warehousing, government’s own financial institution buy
governments stake in selected PSUs and holding them until any third buyer emerged
and retaining golden share of 26% in the PSU to protect its interest.
4. Strategic sale method :- Under this method, the government sells a major portion of its
stake to a strategic buyer at market price.
5. Differential pricing method :- In 2005-06, government has resorted to differential
pricing method and sold the shares of PSUs to public sector financial institutions and
banks.
Privatisation in India generally is in the form of disinvestment of equity. Following are the
cases of privatization in India till 2005-06:-
PROGRESS OF DISINVESTMENT
ANSWER
Globalization
MEANING OF GLABLIZATION
(1) It will improve the allocative efficiency of resources, reduce the capital output ratio,
increase labour productivity, develop the exports, increase the inflow of capital,
increase the degree of competition and give a boost to the average growth rate of the
economy.
(2) Foreign capital will be attracted and with its entry, updated technology will also enter
the country.
(3) With the entry of foreign competition and removal of import tariff barriers, domestic
industry will be subject to price reducing and quality improving effects in the domestic
economy.
(4) It is believed that globalization provides cheaper and high quality goods and increase in
production create employment opportunities for the economy.
(5) It is also believed that the efficiency of banking and financial sectors will improve as
there will be competition from to foreign capital and foreign banks.
(1) One study reveals that in the globalization world the economic of the world are moving
away from one another than coming together.
(2) With the lightening speed at which globalization is taking place, it is increasing the
pressure on economics for structural and conceptual readjustment to breading point.
(3) It is becoming hard for the countries to ask their public to go through the pains and
uncertainties of structural adjustment for sake of benefits yet to come.
Allowing foreign companies to use their trademark in India and carry on any activity of a
trading, commercial or industrial nature.
Allowing repatriation off profits by foreign companies.
Allowing foreign companies (Non-banking companies) to borrow money or accept
deposits without taking permission of RBI.
Allowing foreign companies to deal in immovable property in India.
Removing restrictions on transfer of shares from one NRI to another.
Allowing some foreign Institutional investors to invest in Indian capital market subject to
certain conditions, etc.
Criticism of Globalization :
The competition was not among equal but between the financially strong corporations
and the economically weak Indian corporate.
It has also been claimed that export promotion has been nullified by import
liberalization.
Neglect of agriculture in the major sin of liberalization.
There are many international organizations which have facilitated the process of globalization.
Some of them are as follows.
Objectives
Functions :
Features of WTO :
The main features of the world trade organization (WTO) are as follows :-
(1) The WTO is the main organ of implementing the multilateral Trade Agreements. (MTA).
(2) The WTO is global in its membership. Its present membership is already around 151
countries and with many other considering accession.
(3) It is forum for negotiations among its members. In this forum, the member nations
discuss issues related to the MTAs associated legal instruments.
(4) It is a full fledged international organization in its own right.
(5) It administers a unified package of agreements to which all members are committed.
(6) The decision making under the WTO is carried out by voting. Each member has one
vote.
(7) The WTO has legal personality.
(8) The representatives of the members and all officials of the WTO enjoy international
privileges.
Functions of WTO :-
(1) The WTO will facilitate the implementation, administration and operation of world trade
agreements.
(2) The WTO facilities implementation of the results of the negotiations as decided by the
ministerial conference.
(3) It is also the organ for establishing coordination with IMF and IBRD and its affiliated
agencies.
(4) It shall provide the forum for trade negotiations among its member countries.
(5) The WTO shall handle trade disputes through disputes settlement body (DSB).
Economic reforms were taken in 1991. After independence, (between the period 1947 to 1990).
The public sector was given dominant position in newly independent India and was made the
main instrument of growth under Industrial Development Regulation Act (IDRA). Foreign trade
policy was formulated to protect domestic industry and keep balance of trade in manageable
limits. These conservative policies were noticed in 1980 that there were following drawback.
(a) Excess of govt expenditure over govt revenue resulting in heavy government
borrowings.
(b) Inefficiency in the use of resources.
(c) Over protection to Industry.
(d) Mismanagement of firms and public sector.
(e) Losses of public sector enterprises.
(f) Poor technological development and shortage of foreign exchange.
(g) Mismanagement of foreign exchange reserves.
Before economic reforms (before 1991) the following crises were considered
(1) Low foreign exchange reserves : The available foreign exchange reserves were just
sufficient to finance imports of three weeks.
(2) Burden of National debt :- National debt constituted 60% of the GNP in 1991. The
large fiscal deficits in the previous five years meant that the government was borrowing
increasingly to meet the shortfall of the revenue account.
(3) Inflation : Rate of inflation crossed double digits due to gulf war in the economy and
rate of inflation was 12% in the country.
The government responded to the crisis by introducing economic reforms ;in 1991. Reforms
were introduced in the following sectors (a) Industrial sector, (b) Financial Sector (c) External
sector and (d) Fiscal policy.
(3) Automatic clearance :- In projects where imported capital goods are required,
automatic clearance would be given in the following cases.
(a) Where foreign exchange availability is ensured through foreign equity. Automatic
approval by the RBI of foreign equity has been permitted.
(b) If the value of imported capital goods required is less than 25% of the total value of
plant and machinery up to maximum of Rs 2 crore.
(4) No requirement for industrial approval : Locations other than cities of more than 1
million populations, there would be no requirement of obtaining industrial approvals
from the Central Government except for industries subject to compulsory licensing.
Industries other than those of non-polluting nature such as electronics, computers,
software and printing would be located outside 25 km of periphery except in prior
designated industrial areas.
Foreign Investment
Financial sector reforms mainly relate to three categories as (a) Banking sector reforms (b)
capital reforms and (c) Insurance sector reforms.
Banking Sector Reforms In the pre-reform period the banking system functioned in a highly
regulated environment characterized by
During the pre reform period, the foreign trade policy in India was made very restrictive.
Import of all inessential items was strictly controlled.
Import of food grains was allowed, because T.R Malthus was first who raised the fears of a
world food shortage. The balance of payment was quite uncomfortable.
India continued to face deteriorating balance of payments situation in late 80’s and early 90’s.
In order to rectify these situations, devaluation was carried out. It was followed by
announcement of new foreign trade policy and foreign trade reforms.
Economic reforms and external sector Following are the major measures which have been
undertaken to reform the external sector of the country.
1. Schemes : Many schemes such as duty draw back scheme cash compensatory scheme,
100% export oriented units (100% EOUs) and export processing zones (EPZs) were
started to boards. The federation of Indian export organizations. The trade fair
authority. The Indian Institute of foreign trade (IIFT) and federation of Indian export
organization (HEO) etc, were geared up to promote exports.
2. Exchange Rate Stabilisation The rupee was devalued twice in July 1991 amounting to a
cumulative devaluation of 19%. The RBI used to control the foreign exchange in
accordance with the foreign exchange regulation Act, 1973 as amended periodically.
3. Import Licensing : The process of liberalization was given a push with the
ammouncement of EXIM policy in 1991. The policy allowed free trade of all items
except a negative list of imports and exports. The number of import licenses has also
been reduced.
(D) FISCAL POLICY
Fiscal policy means policy relating to public revenue and public expenditure and allied matters
thereof. The unsustainable levels of government deficits in the late of 80’s can be attributed to
Fiscal reforms aims are reducing expenditure, increasing revenues and earning positive
economic returns on the investments.
The economic reform process has completed nearly 15 years and available evidence indicates
that a great deal of re-engineering has taken place.
New technologies have been imported at a rapid pace quality is upgraded. The removal of
import licensing and lowering of the tariffs have helped exporters compete internationally and
facilitated value added exports.
Increased competition and has made growth the only-protection against competition. There
has been a considerable increase in the foreign investment levels, and reduction in the
formalities to be fulfilled after the onset of economic reforms in India.
1. Failure to achieve fiscal deficits to the targeted level : Fiscal deficits are still very high
and we need to reduce them. This requires :-0
5. Slow financial sector reforms : The financial sector and banking reforms need to be
pushed further.
Objective
Q 1. ……………………………….RRBs working in the India economy.
(a) 125
(b) 196
(c) 216
(d) 324
Q 2. Which of the following has been specifically established to meet the requirements of
credit of the farmers and villagers?
ANSWER
1. (b) 2. (b)
MONEY –MEANING AND FUNCTIONS
DEFINITION OF MONEY
Money is an important element of modern civilization.
In ordinary usage, what we use to pay for things is called money.
Thus in India rupee is the money, in England the pound is the money while in America
the dollar is the money.
So a definition of money is based on the functions of the money.
Traditionally, money serves the following functions:-
1. General acceptability.
2. Medium of exchange.
3. Common measure of value.
4. Store of values.
FUNCTIONS OF MONEY
4. As store of Value : Money holds the purchasing power over the goods and services for
all the times present and future. Money can be exchanged for the required goods and
services at any time. Thus it acts as a store of value.
5. Directs Economic Trends :- Money directs idle resources into productive channels and
thereby, affects output, employment, consumption consequently economic welfare of
the community at large.
In 1979 the RBI classified money stock in India in the following four categories :-
M1 = Currency with the public i.e, coins and currency notes + Demand deposits of the
public known as narrow money.
M3 = M1+ Time deposits of the public with banks called broad money.
The RBI working groups has now redefined its parameters for measuring money supply :-
Q 5. Money includes
(a) Currencies and demand deposits.
(b) Bonds Government securities.
(c) Equity shares.
(d) All of the above.
Q 8. Money includes :
(a) Currencies and demand deposits.
(b) Bonds Government securities.
(c) Equity shares.
(d) All of the above.
Q 9. Which of the following statements about money is incorrect ?
(a) There are many assets, which carry the attribute on money.
(b) Money is what money does.
(c) In modern sense, money has stability, high degree of substitutability and feasibility
of measuring statistical variation.
(d) None of the above.
Q 13. The basic distinction between narrow and broad monies is the :
(a) Treatment of post office deposits.
(b) Treatment of time deposits of banks.
(c) Treatment of savings deposits of banks.
(d) Treatment of currency.
ANSWER
MEANNING
A commercial bank accepts deposits from the general public and extends loans to the
households, firms and to the Government.
Thought borrowing and lending constitute the main business of banks, commercial
banks perform a variety of functions.
Examples of commercial banks are Punjab National Bank and State Bank of India.
(1) Encourages the saving and capital formation : The economic development depends
upon the rate of savings. Banks offer facilities for keeping savings and thus encourage
the habits of savings in the society.
(2) Mobilization of Savings : Banks encourage savings and mobilize savings into productive
investments. Without banks these savings would have remained idle and would not
have been utilize for productive and investments purpose.
(3) Optimum utilization of savings : After nationalization, commercial banks also allocate
resources for agriculture, small scale industries (SSI) and weaker sections of the society.
(4) Increase the rate of investments and credit creation : By encouraging savings and
mobilizing them from public, banks help to increase the aggregate rate of investments in
the economy. Banks also create deposits or credit, which serve as money.
(a) Demand or current deposits- It includes current deposits and savings deposits.
Deposits which are withdrawal on demand are called demand deposits.
(b) Time deposits : Deposits withdrawal after the expiry of fixed time period called
fixed deposits. Interest paid by banks is highest for fixed deposits and lowest or
even nil for current deposits.
(2) Lending of Money :
Banks lend money mainly for industrial and commercial purposes. This lending may take
the different form like :
(2) Urban bias : Prior to nationalization, many commercial banks were in urban areas. But
after nationalization more and more branches were opened in semi-urban and rural
areas. This urban biased nature of commercial banks let to slow rate of growth in the
rural areas. Out of about 5.6 lakhs villages in India, only 5,000 villages were served by
commercial banks.
(3) Neglect of agricultural sector : There was a total neglect of the agricultural sector and
its finance prior to nationalization of banks. The banks increasingly advanced finances
to commerce and industry 70% in 1951 to 87% in 1968 and at the same time agricultural
accounted was only 2.2% of the total advances.
(4) Violation of norms : Private commercial banks often violated the norms and priorities
laid down in the plans and granted loans to even those industries, which figured
nowhere in the priority list.
(5) Speculative activities : Private commercial banks earned large profits and do
speculative activities. They have given advances to black marketers against high rates of
interest.
(6) Neglect of priority sectors : There was a complete neglect of agricultural sector, export
and small scale industries etc.
OBJECTIVE OF NATIONALISATION
After the nationalization of 14 banks in 1969 and 6 banks in 1980 following development have
taken place :-
(1) Expansion of Branches : There has been a remarkable expansion of branches since
nationalization. Compared to just 8262 branch offices in 1969, the number of branches
in 2005 has increased to 68616. As a result, the population per bank has reduced from
55,000 in 1969 to 16,000 in 2005.
(2) Branch opening in rural and unbanked areas : Before nationalization, there was a clear
urban bias in the operations of banks. But after nationalization they have started
moving towards rural and semi urban areas. Compared to just 22% in 1969 bank
branches in rural areas, has increased about 44% in June 2005 (Nearly 50%).
(3) Deposits mobilization : There has been a substantial rise in the rate of deposit
mobilization since nationalization. The aggregate deposits of commercial banks have
increased from Rs 4,665 crore in 1969 to around Rs 23,50,000 crore in June 2005
forming almost 50% of the national income in state wise deposit mobilization.
Maharasthra leads all other states and accounts for more than 1/5 th of the aggregate
deposits received by the banks. The states Delhi, UP West Bengal, Tamilnadu, Karnataka
and AP account for 65% of the aggregate deposits
(4) Bank lending : There has been a great rise in the bank lending since nationalization. It
has gone up from Rs 3,399 crore in June 1969 to more than 10,93,000 crore in March
2005. The bank have taken special care of the priority sectors like agriculture, small
scale industries and small retail trade accounted for about 14% of the commercial banks
credit. This percentage has gone up to about 37.5% in March 2004.
SHORT COMINGS OF COMMERCIAL BANKING IN INDIA
(2) Regional imbalances : Only few states have all developed banking facilities Assam,
Bihar Arunachal Pradesh and Madhya Pradesh, on an average have lesser number of
banks compared to other states. Even from the states which are well banked like
Maharashtra, West Bengal and Tamilnadu, if big metropolitan cities are excluded, the
population per bank is larger than the average for these states.
(3) Increasing overdue : As a result of increasing loan and advances to unemployed and
weaker sections, the commercial banks are facing the problem of bad debts, doubtful
debts and over dues. As much as 50% of the loans advanced by these banks have not
been recovered.
(4) Lower efficiency : The quality of services rendered has deteriorated. This has
happened because of staff indiscipline and absence of the system of accountability,
problem of effective management and control. This has hampered the overall efficiency
of the commercial banks.
(5) Declining trends in profitability : The absolute profits of the banks are rising but the
profitability ratio has been declining. Factors for declining trends in profitability are :-
Profitability are declining due to increasing of non-performing assets (NPA), RBI has taken some
steps to reduce NPAs. These include debt restructuring and recovery through Lok Adalats, vivil
courts and debt recovery tribunals.
OBJECTIVE
Q 10. The profitability ratio is bank has declined over the years due to
(a) Lower interest on government borrowings from banks.
(b) Subsidization of credit to priority sector.
(c) High expenditure resulting from overstaffing and mushrooming of branches.
(d) All of the above.
Q 13. Which one of the following is the most profitable but least liquid assets of a commercial
bank?
(a) Loans and advances.
(b) Money at call and short notice.
(c) Bills discounted and purchased.
(d) Investment in Government securities.
ANSWER
The Reserve Bank of India (RBI) is the Central Bank of the country and it performs all the central
banking functions. A central Bank is one which constitutes the apex of the mometary and
banking structure of a country and which performs, in the national economic interest, the
following functions :-
ROLE OF RBI
The Reserved Bank of India (RBI) occupies a important position in the Indian economy. Its role
is summarized in the following points.
(1) RBI plays an important role in strengthening, developing and diversifying the country’s
economic and financial structure.
(2) It is responsible for the maintenance of economic stability and assisting the growth of
the economy.
(3) It is India’s prominent public financial institution given the responsibility for controlling
the country’s monetary policy.
(4) It acts as an advisor to the Government in its economic and financial policies, and it also
represents the country in the international economic forums.
(5) It also acts as a friend, philosopher and guide to commercial banks. In fact, it is
responsible for the development of an adequate and sound banking system in the
country and for the growth of organized money and capital markets.
(6) India being a developing country, the RBI has to deep inflationary trends under control
and to see that main priority sectors like agriculture, exports and small scale industry
get credit at cheap rates.
Monetary policy is the state through its central bank, to control the supply of money as
an instrument of achieving the objectives of general economic policy.
Monetary policy is implemented by the RBI through the instruments of credit control.
Generally two types of instruments are used to control credit. These are (i) quantitative or
general measures (ii) qualitative or selective measures.
It is used for changing the total volume of credit in the economy without special regard for the
use to which it is put. Quantitative measures consists of :-
Conclusions
During inflation, to control credit & to discourage investments – it is advisable to
(a) Increase the bank rate.
(b) Sale of securities in the open market.
(c) Increase the CRR and SLR.
But effect of increase in CRR or SLR will be reduced or nullified if Bank rate is reduced so
all things should be in the same directions.
These controls are directed towards the particular use of credit and not its volume. The central
Bank generally use the following forms of credit control :-
Q 5. Who is the fiscal agent and adviser to Government in monetary and financial matters in
India.
(a) SBI.
(b) IDBI.
(c) ICICI.
(d) RBI.
Q 9. NABARD is a ………………………………..
(a) Bank.
(b) Board.
(c) Exchange programme for consumer goods.
(d) Department.
Q 13. At present the responsibility for the provision of finance for agriculture, trade and small
industries has been handed over to :-
(a) SBI.
(b) NABARD.
(c) NABARD, SIDBI.
(d) NABARD, EXIM and SIDBI.
Q 22. RBI makes advances to the central and state Government repayable
within………………from the date of advance.
(a) 60 days.
(b) 45 days.
(c) 90 days.
(d) 75 days.
Q 23. Bank are regulated by.
(a) Securities exchange board of India.
(b) Reserve bank of India.
(c) Company law board.
(d) Registrar of companies.
BANK RATE
Q 27. ……………………is the official minimum rate at which the Central Bank of a country is
prepared to rediscount approved bills held by banks.
(a) CRR.
(b) SLR.
(c) Bank rate.
(d) Repo rate.
VARIOUS RESERVES
Q 35. ………………………..refers to that portion total deposits of a commercial bank which it has
to keep with itself in the form of liquid assets.
(a) CRR.
(b) SLR.
(c) Bank rate.
(d) Repo rate.
Q 41. In the given paragraph it is stated that bank rate and cash reserve ratio (CRR) have been
kept unchanged. What can RBI do if it wants to control credit in the economy?
(a) Decrease bank rate and decrease CRR.
(b) Increase bank rate and increase CRR.
(c) Increase bank rate and decrease CRR.
(d) Decrease bank rate and increase CRR.
Q 44. In order to increase money supply in the country, the RBI may?
(a) Reduce CRR.
(b) Increase CRR.
(c) Sell securities in the open market.
(d) Increase Bank rate.
Q 45. In April 2007, the SLR was………………..percent.
(a) 5%
(b) 15%
(c) 25%
(d) 20%
Monetary Policy
ANSWER
Employment by Agriculture 54 %
Employment by Industry 23.5%
Employment by Service 22.5%
Below Poverty line 22% population
Population Growth Rate More than 2%
Bank Rate 6%
CRR 7.5%
SLR 25%
Rural Area Branches of Bank 44%
Loan not recovered 50%
Loan Given to Priority Sector 37.5%
Insurance, Defense 26% FDI
Banking 74% FDI
Hotel, tourism, Drugs, Airports 100% FDI
CDS % of unemployment Highest %
CWS % of unemployment Modest %
UPS % of unemployment Lowest %
External Assistance 90% in the form of loan
External debt 15.8% of GNP
Share of concessional Debt 31% now, previously it was 75%
Normal Inflation rate 5%
Current inflation rate 4.7%
Highest Inflation rate 13.9% (1966-67)
Electricity from non commercial 23%
Transmission loss of energy 23%
Villages not electrified 14%
World Area in India 2.4%
World income in India 1.2%
Average literacy ratio 65%
Highest literacy Ratio 90% (Kerala)
Lowest literacy ratio 50% (Bihar)
Custom Duty Rate 10%
Excise rate 16%
Population pays tax 2.5%
Tax is 20% of national income
Direct tax is 5% of GNP
Direct tax corporate rate 30%
GDP target was 8% (7.6% achieved)
Industry share in GDP 26.4%
Agriculture share in GDP 18.5%
Service share in GDP 55.1%
Growth in industry 8.7% in X plan (target for XI plan 8.5%)S
Agriculture growth rate 2% in X plan (target in XI plan 4%)
Growth rate in service 9% in X plan (target in XI plan 9.4%)
Export by industry 72%
Share in Export by agriculture 10.2%
Rain fed area 60%
Irrigation facility 40%
Small sick unit 98%
IMPORTANT DATA