the total of money earned within a country

growth within various countries such as India,

Intercountry
US, China, etc

within the country what is growth in

National Income Intracountry
comparison to previous year

Gross Domestic Product

Total value of all final goods and services

produced within the territory of a country

developed by American Economist “Simon

Kuznetsk” in 1934

GDP second hand goods are never counted

total income of an individual earned from all

the sources before taxes

Personal Income
eg: subsidy by govt.

A common basket of goods

National Income
Purchasing Power Parity

Gross National Product

GDP Calculation by National Statistical Office
under MOSPLI (Ministry of Statistics & Total value of all final goods and services
Program Implementation) Measures & Aggregates GNP
produced by the nationals of the country

Also known as Production Method

Value Added Method

Compensation to employees

Operating surplus Income Method

Methods to Net Domestic Product
calculate GDP
Mixed income

NDP

Expenditure Method
Financial year 1 April to 31st March

Net National Products

NNP
 Tax pe Tax (on rich people) Surcharge Tax an approximation of revenue and expenses
over a specified period of time
for a definite purpose (charged on everyone) Cess Tax
Annual Fiscal Statement (Art. 112)
to lower the negative externalities Pigouvian Tax 101 CA
Department of Economic Affairs
Prepared by
(Ministry of Finance)
Operational by: 1st July 2017

Presented by Finance Minister

Assam was the first state to ratify it
Directly payable to govt.
1st budget presented by R. K. Shanmukham
GST council is a constitutional body: Art 279A GST
It cannot be passed to someone else
33 members (2 from Centre+31 from Budget 2nd budget by John Mathai
Progressive tax Direct Tax States/UTs)
Morarji Desai (10 times)
eg: Income tax, Wealth tax, Gift tax, Chairman: Finance Minister
capital gain tax Most no. of budget P Chidambaram (9 times)

Pranab Mukherjee (8 times)

Corporate tax Taxation System
Indirectly payable to govt. Receipt > Expenditure Surplus budget

It can be passed to someone else Expenditure > Receipt Deficit Budget

Indirect Tax
Regressive tax Expenditure = Receipt Balanced Budget
A propert owned by a person
(Something that economical value)
eg: GST, Excise duty, Custom duty Asset
Eg: Gold, Property
Budgetary Deficit
Budget & Taxation Something that someone is responsible for
Revenue Expenditure - Revenue Receipt Revenue Deficit (Debt/obligation)
Liability
accurate measure of govt. deficit/govt. Eg: payment of Loan
borrowing
Fiscal Deficit Deficits
Total Expenditure - Total Receipts - Borrowings

Fiscal Deficit - Interest Payment Primary Deficit

Revenue Deficit - Grant given for Salary/Pension

Effective Revenue Deficit
developmental purpose
Subsidy/Grant
Revenue Expenditure
Interest Payment

Maintenance of Infrastructure
components
Construction of any infrastructure
of budget
Purchase of land/machinery

Investment Capital Expenditure

Loan

Repayment of Loan
 Increase in general level of prices of
goods & services
a mismatch between worker’s skill &
availability of job Purchasing power decreases in case of inflation
Structural unemployment
eg: technology advancement, like machinery Money illusion concept
replacing farmer labour Inflation Irwin Fisher
MV = PT
degree - unemployment, seen in Urban part of
Educated unemployment
India During inflation the debtor/borrower benefits
more than the lender Demand side inflation
type of unemployment while searching for a Demand Pull
new job “Too many dollars chasing too few goods”
Frictional unemployment Cause of Inflation
eg: an employee leaving current job to move to Supply side inflation
a better one (seen in Urban) Types of Cost Pull
Wholesale Price Index Increase in cost of any factors of production &
when some people seem to be employed but
Unemployment input cost
are not, marginal productivity is zero More weightage to manufactured goods
Disguised/Hidden unemployment
eg: Agriculture sector does not capture the changes in the prices of
WPI
services
Recession in economy (upturn & downturn)
Base Year - 2011-12
When economy revives, there is opportunity to
employment, seen in Urban Published by: Office of Economic Advisor (OEA)
Ministry of Commerce & Industry
eg: Great Recession Cyclical unemployment
Measurement Consumer Price Index
Employment based on the seasonal basis
of Inflation More weightage to food items
Seen more rural part of India Seasonal Unemployment Inflation (inc.) & Unemployment (inc.)
Checked from consumers perspective
eg: Light or fireworks sellers during Diwali
No economic activity
Stagflation Base Year - 2011-12
Great Depression - 1929-1939
Inflation (inc.) & Unemployment (dec.) have Published by: National Statistic Office (NSO)
inverse relationship Great Recession - 2007-2009 CPI Ministry of Statistics & Program
Implementation (MoSPI)

RBI uses CPI (combined) to target inflation

Philips Curve

Inflation &
Index of Industrial Production
Unemployment
Base Year: 2011-12

Published by - NSO (MoSP)

Refinery products
IIP Creeping 3-4%
Electricity
Walking 4-10%
Steel
Types of Inflation Running 10-20%
Crude oil
8 core industries have Galloping 20-100%
40% contributions
Natural gas Disinflation Rate of inflation is decreasing
Hyper 100%
Cement
opposite of disflation
Fertilizer
Deflation Fall in the general level of prices
Crude Oil
Purchasing power increases
 Provides micro loans/micro financial services Reserve Bank of India was established
as Independent body
Minimum requirement of Micro Finance Loans:
75% of total assets on recommendation of
Hilton Young Commission, 1926
Estd. through recommendation of a NBFC-MFI
Eg: Bajaj Finance, Muthoot Finance, Mahindra committee: Malegam Committee, 2010 (also 1st setup of RBI Headquarter
and Mahindra 1st April 1935
sees issues of MFIs) - Calcutta, At present
RBI Act of 1934
They are registered under Companies Act of To qualify for NBFC MFI license they should Headquarter - Mumbai in 1937
1956 have at least 75% of assets in Microfinance
Banking Regulation Act, 1949 1st RBI Governor - Osborne Smith
Gives loans and advances on gold

They cannot accept Demand Deposits

Deposits not guaranteed
They are regulated by RBI
They need not maintain CRR and SLR
They offer financial services to low income
population
Non-Banking Financial License 1st Indian RBI Governor - CD Deshmukh
its regulates Banks
Companies (NBFC) CRR/SLR RBI was nationalised on 1st Jan 1949
Regulate ban
except Rs.1 note (under Ministry of Finance)
Micro Finance, collateral free loans
legal tender - FIAT Money
Micro Units Development and Refinance
Agency, launched in 2015 MUDRA scheme Plastic Money - Credit card, debit card, etc.

eg: Loan, Savings, Insurance loans upto 50,000 Sishu Hot Money - Assets such as stocks, deposits,
Functions of RBI Currency printing
bonds, etc
Microfinance loans is given to households loans upto 50,000-5 lakhs Kishore 3 types loan
having income less than Rs.1.25 lakhs/annum
loans upto 5 lakhs-10 lakhs Tarun
gave concept of Grameen Model Banks, 1970 Father of Micro Finance system
and was given Nobel Prize - Muhammed Yunus (Bangladesh)

1st Micro Finance institution in India Micro Finance

- SEWA Bank (1974)
Institution Monetary Policy
group of 10-20 people come together
to find ways to improve their living Lender of last resort and Bank of Banks
National Bank for Agriculture and Rural
conditions Development

Group of below poverty line (BPL)

Self Help Groups
(SHG) Set up - 12 July 1982, on recommendation of B.
Classification of
Informal
banking system
groups Usually in rural areas
Business Model
Sivaramman Committee (1979)
Money & Banking
group of 4-10 people Through NABARD Act 1981 NABARD
Joint Liability Group
Could be a small business Headquarter - Mumbai
venture for profit
Provide finance for agriculture and rural development

Regulate - RBI 1st bank - 1770 (Bank of Hindustan)

Supervises cooperative banks and RRBs Functions
Supervise - NABARD 1806 - Imperial Bank of Calcutta
Does not deal directly with people Merged
1840 - Imperial Bank of Bombay 1921 - Imperial Bank of India
Provides financing through PMAY, KCC, Ru Pay Kisan Cards 1955 - State Bank of India
1843 - Imperial Bank of Madras
1988, through Act of 1987 National Housing Bank
Other Financial 1st Indian owned bank - Allahabad Bank, in 1865
Securities and Exchange Board of India
Institutions RRB Act 1976
through SEBI Act of 1992, established on 12 April 1988
to enhance financial activities in rural areas
Statutory body
History of Banking
SEBI Regional Rural Banks (RRBs) eg: Grameen Banks
Headquarter - Mumbai
1st - Pratham Grameen Bank (2nd Oct 1975,
To protect the interests of investors Function Moradabad, UP)

Chairman - Madhabi Puri Buch (1st women, 1st non IAS chairman)

Insurance Regulatory and Development Authority of India

Estd. through IRDAI Act of 1999 IRDAI

2nd April 1990
as a statutory body April 2000 SIDBI
Headquarter: Lucknow
 RBI provides loan to Commercial Banks
(without keeping any securities)
6.75%
Net Demand and Time Liability
Bank Rate
(RBI keeps a part of your NDTL as a reserve)

NDTL Cash Reserve Ratio

Reserve in the form of - Cash

Banks do not earn any interest rate on CRR

Outright purchase Reserve
Reserve in the form of - Cash, Gold, G-Sec
Selling and buying of G-sec for shot term Statutory Liquid Ratio
Banks earn interest rate on SLR, profit is
obtained
Open Market Operations

Fiscal Policy
Repurchase agreement

Quantitative tools

Repo means Repurchase Obligation

2% NDTL is a limit

overnight loan

CRR and SLR is not maintained Balance Sheet

Penalty + loan

Can use SLE Quota G-Sec as collatera

Monetary Policy
Marginal Standing Facility

Monetary
Policy Tools

RBI Regulates money supply in the economy

with the help of Monetary Policy Tools

in case of
Inflation/Deflation On recommendation of Urjit Patel Committee

Monetary Policy RBI Governor

Committee
3 RBI Deputy Governor

6 members Executive

3 Govt.
a maximum amount of new money created by
Qualitative tools banks for every dollar of reserves
Money Multiplier
 Currency with public
Currency in circulation
Securitisation And Reconstruction of Financial Currency with bank
Assets &Enforcement of Security Interest Act
Saving Account
Provides power to the bank/any financial Demand Deposit
institution to seize the property of a Current Account
defaulting borrower Deposits with Bank
SARFAESI Act 2002 Fixed Deposit
Term Deposit
who would not pay to banks even it he has the
Wilful Defaulter
Types of Money Recurring Deposit
ablity to do so
Bank Deposits with RBI
Consolidates the existing laws on bankruptcy Insolvency & Bankruptcy Code, 2016 Deposits with RBI
Other deposits with RBI

Demand Deposit
Financial entity setup to buy NPAs
Postal Deposit same as bank
Term Deposit
Recovery of NPAs

2 bad banks to be established

Bad Banks the ease with which an asset or security can
be converted into ready cash without
National Asset Reconstruction Company Ltd. affecting its market price Monetary Base/High Powered Money/Reserve
2021 budget Money
(NARCL)
Non Performing Assets Demand Deposit is more liquid than Term
India Debt Resolution Company Ltd. (IDRCL) (NPA) Liquidity Deposit Currency in circulation

Cash > Cheque > Bonds M0 Bankers deposit with RBI

A situation in economy where people love to
components
hold their money despite of any changes in Delay is more than 90 days
interest rates which renders any Monetary Mutual agreement Other deposits with RBI
Policy ineffective Fiduciary money eg: deposits of Governmental/Quasi-Judicial
Eg: checks, bitcoins authority

No spending Liquidity Trap

Currency with public
happens when rates will increase
M1 Demand Deposits
Narrow Money
Speculative Demand: perfectly elastic Monetary Other deposits with RBI
Short-term loans Aggregates
M2 M1 + Saving deposits with Post Offic
to be paid within a day Call Money Money Market
M1 + Time deposits with Bank
Liquidity Adjustment Facility
to be paid within 2-14 days Notice Money
LAF Banking M3
Actual Money Supply
Broad Money
(M3 - priority)
Long-term loans Capital Market
M4 M3 + All deposits with Post Office
issued by RBI Treasury Bills
Liquidity Order -
less than 1 year Basel is a place in Switzerland by Irving Fisher M1 > M2 > M3 > M4

91 days Headquarter of Bank of International

Settlements (BIS) - Basel, Switzerland
182 days types Maturity Bills

364 days Basel Committee, 1974 by G10

They are always listed on discount rate Focused on Credit Risk

Min. capital requirement at 8% of Risk

Basel Norms
No rate of interest Weighted Assets (RWA) BASEL I - 1988
Capital Adequacy Ratio

Capital Adequacy Ratio: 15% of RWA

Non-banking Financial Companies-MFI
NBFC cannot accept Demand Deposits
(NBFC-MFI)
CRR/SLR maintenance: No 3 norms

BASEL II - 2004
Quantity theory of money

BASEL III - 2008

 only 1 seller Satisfaction - Utility

pure monopoly is rare Demand Affordibility

Monopoly
Entry barrier Eagerness to buy something

eg: Indian railways

the addition satisfaction or benefit that a
Few dominant sellers Marginal Utility consumer derived from buying an additional
unit of a commodity/service Consumer’s side - Affordability
Many buyers
Oligopoly
No easy entry

eg: Telecom sector, laptop market

Demand Curve
Types of Market
Many sellers
from producer’s side/profitability
Many buyers
Monopolistic Competition
Similar but slightly different products

eg: Toothpaste

Many sellers
selling homogenous products Supply Curve
Many buyers Transaction motive
Perfect Competition
future
Free entry and exit
Precautionary motive
People hold money
eg: Agricultural products Receipt expenditure for three purposes
by J M Keynes (Father of Economics)
Speculative motive
Father of Modern Economics -
Adam Smith

Things exists in equilibrium non-luxurious goods

Giffen goods
Perfectly Inelastic Demand
eg: increase in price of wheat

Exceptions luxurious goods

Veblen goods Demand is perfectly inelastic

Changes in price (usually -ve) affect the
Demand & Supply changes of demand
eg: iPhone, Mercedes

Relatively Inelastic Demand

Price Elasticity

Price Elasticity Perfectly Elastic Demand

Relationship between change in income and
demand for certain goods
Income Elasticity

Relatively Elastic Demand

Cross Price Elasticity
 in place of Planning Commission
Chairman - PM
Setup on: 1st Jan 2015
Post Independence, 1947 launched on - 1st April 1951
It is a Think Tank of govt. NITI AAYOG
Planning Taken from - USSR Based on Harrod-Domar Model
Publishes reports
Commission
During Manmohan Singh During Jawaharlal Nehru
Introduced in 1928
Vision Document
by Joseph Stalin
2012-2017 Duration 12th FYP Duration 1951-56
During Manmohan Singh
Towards faster, inclusive,
& sustainable growth
Key Focus 1st FYP Key Focus Primary Sector
2007-2012 Duration
Target - 2.1%
Towards faster & more Fully successful
Achieved - 3.6%
inclusive growth
Key Focus 11th FYP Based on P.C. Mahalanobis Model

During Jawaharlal Nehru Bhakra Nangal Dam

Target - 9%
Achieved - 8% During Atal Bihari Vajpayee & Manmohan Singh Setting up Dams to promote
Duration 1956-61 Hirakud Dam
growth of Agriculture
2002-2007 Duration Nagarjuna Sagar Dam
2nd FYP Key Focus Rapid Industrialisation

Target - 8%
Achieved - 7.6% 10th FYP Target - 4.5%
Moderately successful
Achieved - 4.27%

During Atal Bihari Vajpayee National Horticulture Mission (NHM) was

Industrial Policy Resolution, 1956 (2nd IPR)
promoted by govt
1997-2002 Duration Rourkela Steel Plant - Odisha (Germany)
Rapid
Industrialisation
Growth with social Durgapur Steel Plant - West Bengal (UK)
justice and equality
Key Focus 9th FYP
Bhilai Steel Plant - Chattisgarh (USSR)
Target - 6.5% Based on Gadgil Formula
Achieved - 5.4% During P V Narasimha Rao
During Jawaharlal Nehru & Lal Bahadur Shashtri
1992-97 Duration
Duration 1961-66
New Indicative Policy
Five Year Plans Key Focus
Self reliant &
Economic and Fiscal Reforms Key Focus 8th FYP Self generating economy Plan Holiday

Share of public sector declined Target - 5.6%

(Licence Raj ended) 3rd FYP Achieved - 2.8%
failure
Annual Plan for 3 years 1966-69
Target - 5.6% China War - 1962
highly successful Annual Plan New agricultural strategy
Achieved - 6.8% War
1990-92 Indo-Pak - 1965

PL-480 - importing wheat from USA

FCI - 14 Jan 1965 Based on Gadgil Formula/Rudra Allen Mode

During Rajiv Gandhi CACP - 1 Jan 1965
IDBI - 1 July 1965 During Indira Gandhi
1985-90 Duration UTI - 1963
Duration 1969-1974
Food grain production
Growth with stability
Employment opportunities to be generated Key Focus 7th FYP
4th FYP Key Focus Family Planning
Productivity Progressive achievement
14 banks nationalisation
of self reliance
Target - 5%
very successful Underground nuclear test
Achieved - 6% During Indira Gandhi Based on D.P. Dhar Model - Smiling Buddha

Concept by - Prof. Raj Krishna 1980-85 Duration During Indira Gandhi Target - 5.6%
Hindu Rate of Growth a big failure
Achieved - 3.3%
India from 1960-80 has seen 1978 National Income Duration 1974-78
slow economic growth
Modernisation of technology Removal of poverty (Garibi Hatao)

Unemployment Key Focus 6th FYP 5th FYP Attainment of self reliance
Rolling Plan
introduced Established NABARD Basic needs to be provided to all
Key Focus Minimum Needs Programme (1974)
Landless Labour Employment Guarantee 20 points programme (1975)
Programme (RLEGP) on 15 August 1983
During Janta Govt./Moraji Desai RRBs were setup (1975)
Target - 5.2%
successful
Duration: 1978-80 Achieved - 5.7% Target - 4.4%
a bit successful
Achieved - 4.8%
Emphasis was on employment Key focus
 Also known as service sector
Focused on the action of govt./countries take
to influence broader economies
It is that part of economy where business
produce services
Macroeconomics GDP, NI, Inflation

Activities - teaching, transport, advertising,

retail Tertiary Sector Sectors Father - J. M. Keynes (England)

It is always intangible in nature

Focused with the action of
White collar jobs individuals/businesses
Also called manufacturing sector

These add value to natural resources by Microeconomics Individuals, firm

transforming raw materials into valuable
products Father - Adam Smith (The wealth of nation)

Blue collar jobs Secondary Sector

Activities - Manufacturing, Processing,
Building/Construction work
Directly dependent on environment Indian Economy
Secondary sector is called backbone of a
country, helps in industrialisation of a country also called agriculture sector
eg: China
types of
In India primary sector seen mostly in
agriculture Primary Sector economic systems

red collar jobs

Activities - Agriculture, Fishing, Hunting &

gathering, Forestry & Mining