Micro Economics Macro Economics

Economy

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Micro Economics

Macro Economics

Macro Economics


Some Basic Definitions :

Economics :It is the social science that analyses the production, distribution and consumption of goods and services . The study of how we work together to transform scarce resources into goods and services to satisfy the most pressing of our infinite wants and how we distribute these goods and services among ourselves. Micro Economics: which examines the behaviour of firm, consumers and the role of government. Macro Economics: which deals with Inflation, unemployment, Industrial production and the role of government.


Micro Economics : • Product pricing • Consumer behaviour • Factor pricing • Economic conditions of section of people • Study of firms • Location of a industry

Macro Economics : • National income and output • General price level • Balance of trade and payments • External value of money • Saving and investment • Employment and growth.



Every society has to answer three questions: • What goods and services should be produced in the

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

people?

Types of Economy: Capitalist Economy: It is characterised by existence of private enterprise and ownership of all important sectors. Socialist Economy: It is characterized by existence of public enterprises or state ownership of capital in all important spheres of economic activity. Mixed Economy : In this system, public and private sectors co-exist, India economy is a mixed economy.



Adam Smith : • The Theory of Moral Sentiments (1759) • An Enquiry into the Nature and Cause of the Wealth of

Nations.(1776)

• Market ="the invisible hand" • laissez-faire economics(From Mercantilism to Free trade )

Great Depression : 1929,US John Maynard Keynes :General Theory of Employment, Interest and Money (1936)

http://en.wikipedia.org/wiki/The_Theory_of_Moral_Sentiments

http://en.wikipedia.org/wiki/Invisible_hand

http://en.wikipedia.org/wiki/Invisible_hand


socialism“: Socialism is a social and economic system characterised by social ownership of the means of productionand co-operative management of the economy. was created to contrast against the liberal doctrine of "individualism", which stressed that people act or should act as if they are in isolation from one another Utopian Socialism: Saint Simon, which stressed that people act or should act as if they are in isolation from one another. socialism is attributed to Pierre Leroux, Marie Roch Louis Reybaud in France. Robert Owen in 1827, father of the cooperative movement.

http://en.wikipedia.org/wiki/Social_ownership



http://en.wikipedia.org/wiki/Means_of_production





http://en.wikipedia.org/wiki/Individualism

http://en.wikipedia.org/wiki/Pierre_Leroux



http://en.wikipedia.org/wiki/Marie_Roch_Louis_Reybaud







http://en.wikipedia.org/wiki/Robert_Owen



http://en.wikipedia.org/wiki/Cooperative_movement




Syndicalism (France) inspired in part by the ideas of Pierre Joseph Proudhon and later by Fernand Pelloutier and Georges Sorel Factories managed by both Workers and Specialist called Syndicates John Stuart Mill : Principles of Political Economy (1848), The Fabian Society' is a British socialist organisation which was established with the purpose of advancing the principles of socialism via gradualist and reformist means. Communists : Karl Marx and Fredrick Angels : The Communist Manifesto (1848) and Das Kapital (1867–1894). revolutionary socialism, and state socialism versus libertarian socialism. Socialist Economy: It is characterized by existence of public enterprises or state ownership of capital in all important spheres of economic activity.

http://en.wikipedia.org/wiki/Syndicalism

http://en.wikipedia.org/wiki/Pierre_Joseph_Proudhon





http://en.wikipedia.org/wiki/Fernand_Pelloutier



http://en.wikipedia.org/wiki/Georges_Sorel



http://en.wikipedia.org/wiki/John_Stuart_Mill

























http://en.wikipedia.org/wiki/Principles_of_Political_Economy







http://en.wikipedia.org/wiki/The_Fabian_Society





http://en.wikipedia.org/wiki/History_of_Socialism_in_Great_Britain



http://en.wikipedia.org/wiki/Gradualism

http://en.wikipedia.org/wiki/Reformism

http://en.wikipedia.org/wiki/The_Communist_Manifesto





http://en.wikipedia.org/wiki/Das_Kapital



http://en.wikipedia.org/wiki/Revolutionary_socialism



http://en.wikipedia.org/wiki/State_socialism



http://en.wikipedia.org/wiki/Libertarian_socialism



Gross domestic Product(GDP):It is the value of all final goods and services produced in the economy during an year. Economic growth : It can be defined as a sustained increase in the real per capita income of a country.it is quantitative in nature. Economic Development: It is a phenomena where growth is accompanied by redistribution of resources in favor of the relatively worse off. Sustainable Development: It is the development process which allows for development of the present generation without compromising the capacity of future generation to meet their development needs.



Industrial Revolution : Carrying capacity : the resource extraction is not above the rate of regeneration of the resource and the wastes generated are within the assimilating capacity of the environment. Absorptive capacity :means the ability of the environment to absorb degradation. Fossil Fuels, Green house gases and Global Warming 1972 : Stockholm Conference on the Human Environment 1987 : Go Harlem Burtland Report : Our Common Future 1992 : Earth Summit ,Rio-de-Janerio

http://en.wikipedia.org/wiki/United_Nations_Conference_on_the_Human_Environment

http://en.wikipedia.org/wiki/United_Nations_Conference_on_the_Human_Environment


Physical quality of Life Index: Morris David His Indicators were : Life Expectancy, Infant Mortality, Basic Literacy. Human development report (HDR,1990): Mahboob-ul-Haq & Amartya sen Human Development Index: • Per capita -Income-as measured by real GDP per capita (PPP) • Longevity -Life expectancy at Birth • Literacy levels-Adult Literacy (2/3 weight)+ combined

primary, secondary and tertiary enrollment ratio (1/3 weight).

Gender related Development Index(GDI): same as HDI, taking in to account only gender related indicators. Gender Empowerment Measure: captures Gender equality in three different areas • Political participation measured by women's and men's

share in parliamentary seats. • Economic participation :measured by women and men's

percentage shares of position as legislators, senior officers and managers and women and men's percentage shares of professionals and technical positions.

• Power over economic resources as measured by women's and men's estimated earned income.

Green GDP: Environmentally adjusted GDP. Green GDP = GDP-Depreciation of natural Capital. www.classmateacademy.com 14

National Income: Measurement

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


Measuring National Income : Three methods: • Product Method /Value added method eg. Agriculture,Forestry,mining. • Income Method eg. Banking, Insurance. • Expenditure Method. eg. Construction

• CSO(1950) estimates National Income of India. • Dadabhai Naoroji • VKRV Rao made the first scientific estimates in 1925-29 • First official estimates in year ,1949 Ministry of commerce. • Now CSO is under MoSPI.



Product Method:

• Let us suppose that there are only two kinds of producers in the economy.

• wheat producers (or the farmers) and the bread makers (the bakers) • Total value of wheat that the farmers have produced is Rs 100. • Out of this they have sold Rs 50 worth of wheat to the bakers. • The bakers have used this amount of wheat completely during the

year and have produced Rs 200 worth of bread.

• What is the value of total production in the economy


Expenditure Method :


Income Method :

Factors of Production : Land, Labor ,Capital, Entrepreneurship Factor Cost +Indirect Taxes =Market Price. Factor Cost –subsidy=Market price. Net National Product at market Prices = GDP at factor cost +Net indirect Taxes-Subsidy. Net National Product at Factor cost = NNP at market Prices –Net Indirect Taxes+ Subsidy. NNP at FC =National Income



New Estimates : Base year from 2004-05 to 2011-2012 Growth for 2013-2014 is 6.9 %

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

• Consumer Goods : Goods like food and clothing that are consumed when purchased by goods, are consumed when purchased by their ultimate consumers are called consumption goods or consumer goods.

• consumer durables : like television sets, automobiles or home computers, although they are for ultimate consumption have one characteristic in common with capital goods – they are also durable

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



Sectors of Economy: Primary sectors : The primary sector of the economy makes direct use of national resources .eg agriculture,fishing,mining. Secondary sector: This sector generally takes the output od the primary sectors and manufacturing finished goods. All industrial production comes under this. Tertiary sector: It involves providing intangible goods like services. Eg. Financial services, management,consultancy, and It are good examples of service sectors

Primary Secondary Tertiary

1951 56 16 28

2011 13.9 27 59

Primary Secondary Tertiary

1951 72 10.7 17.2

2011 53.5 20.9 25.6

Share in GDP :

Distribution of working population :


Classification of Economy : Agriculture sector: Agriculture , Fisheries, Forestry. IndustrialSector:Mining,Manufacturing,Construction,Electricity, Gas and water. Services Sector: Transport, Storage and Communication, Hotel, Finance ,Real estate, Public adminstration etc. Primary sector: Agriculture Sector +Mining. Secondary Sector: Industrial Sector -Mining


S.No Category Global ranking

1 Area 7

2 Population 2

3 Labour Force 2

4 GDP(nominal) 10

5 GDP(PPP) 4

6 GDP(nominal) per capita

138

7 HDI 135


HDI = 135/187 (0.586) GDI = 132/148 (0.828)

Poverty and Unemployment

Short Term Unemployment : Cyclical unemployment: Unemployment due to down turn in the economy which is cyclical fluctuation in any economy, is called unemployment • Phase of increasing growth rates • Deflation or disinflation phase • Recession • Reflation

Frictional Unemployment: Unemployment caused due to short term obstacles in the economy like change in technology is known as frictional unemployment.


Seasonal unemployment :Reoccurrence of unemployment in a certain period of the year on a regular basis. Disguised unemployment : when marginal productivity of surplus work force is negligible due to engagement of work force more than required is known as disguised unemployment. Under employment: If a person is not employed according to one’s qualifications or full period is known as underemployment. Structural unemployment: surplus of labour force in one sector of the economy and at the same time there is short supply of work force in the other sector . Voluntary Unemployment: Labour Force : All those who are willing to work Work Force : Demand for labour


Short term Schemes: Temporary solution. JRY---->JGSY------->SGRY(JGSY+EAS)----->MNREGA Long term schemes: Permanent solution. IRDP,DWCRA,TRYSEM,SITRA 1999,all of IRDP,TRYSEM,DWCRA,SITRA merged to SGSY. Now referred to as NRLM. Montek Singh Ahluwalia Committe,2001 SP Gupta commmittee,2001:target 10 million oppurtunities


Poverty : • Absolute Poverty: it is a level of income which is not sufficient to fulfill the basic

needs of a person.

• Relative poverty: It is related with the unequal distribution of income in the country.

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

• Gini coefficient: It is a co-efficient which shows the inequality in distribution like inequality in income. The value of Co-efficient varies between 0 and 100(in % terms)The value of the coefficient increases with increase in inequality.

• Gini coefficient =area between lorenz curve &45 line/area of below 45 line.


Poverty line: Defined on the level of nutrition-2400 cal/2100 cal Converted to poverty line basket(monetary terms) It is based on the consumption income in India. Poverty rate now is 22 %(approx). World Bank Definition:$ 1.25 per person perday.

poverty Urban Rural

Tendulkar(2005) 37.2%(2005) 21.9(2012)

Rs 33 and 25.7% Rs 27 and 41.8%

Rangarajan(2012)

29.6% Rs 47 and 30.95 Rs 32 and 26.4%


Poverty alleviation schemes: Pradhanmantri Gramsadak Yojana: PMGSY a centrally sponsored scheme to provide all-weather connectivity to all the eligible unconnected habitations in the rural areas. Indira Awaas Yojana: To provide Financial assistance for construction of houses to BPL rural households belonging to SC &ST etc. NREGA: 100 days job guarantee scheme. SwarnaJayanthi Gram swarozgar Yojana: The only self-empolyment Programme for the rural areas now called the NRLM. Swarna Jayanthi Shahari Rozgaar Yojana:It includes both self-employment and wage employment aimed at urban poverty areas.


Bharath Nirman: • Irrigation: To ensure irrigation for additional one crore hectare land by 2009.

• Roads: To link all villages of 1000 population with main roads and also to link

all ST and hilly villages up to 500 population with roads.

• Housing : Construction of additional 60 lakh houses for the poor.

• Water supply : To ensure drinking water to all remaining 74,000 villages.

• Electrification: To supply electricity to all remaining 1,25,000 villages and to provide electricity connections to 2.3 cr houses.

• Rural Communication :To provide telephone facilities to all remaining 66,000(approx) villages.


Education: RTE Sarva Shiksha Abhiyan : Implemented since 2000 tp address the needs of children in the age group 6-14. National programme for Education of Girls at Elementary Level: NPEGEL, Implemented in rural areas where the level of rural female literacy is less than the national national average.(educationally backward blocks). National Programme for Mid-day Meals:since 1995 one of the worlds largest scheme. Kasturba Gandhi Balika Vidyalaya: These are residential schools at the upper primary level for girls belonging predominantly to SC,ST,OBC and minority communities.


Health : National Rural Health Mission: A scheme that operates through out the country with speicial focus on 18 states which include 8 Empowered action group of states(Bihar,Jh,MP,Ch,UP,Orissa& Raj). ASHA (Accredited Social Health Activist). Pradhan Mantri Swasthaya Suraksha Yojana : To reduce the regional imbalances in the availability of affordable and reliable tertiary health care services. Setting up of 6 AIIMS like institutions . Upgrading 13 existing government medical college institutions.


Population: Human resource

Birth rate : Number of births per thousand population in a year . Death rate: Number of death per one thousand population in a year. Natural growth rate :The difference between birth rate and death rate is called Natural growth rate of population. Neo-Natal Mortality rate: Number of death of children below one month of age per thousand live births. Infant mortality Rate :Number of deaths of children below one year of age per one thousand live births. Child Mortality: Number of deaths of children below five years of age per thousand infants. Maternal Mortality rate: Number of maternal deaths one lakh live births. Life expectany at birth:The average expected life of children born in a given period .


Literacy rate: The percentage of population in the age group of 7 years and above who can read, write and understand at least one language. TFR(Total fertility Rate)-Number of births per woman is called TFR. Gross fertility Rate –(No. of Births)/(Female population 15-49). Sex ratio: number of women per 1000 men. Best state –Kerala Worst state : Haryana, Punjab Population Theories: • Malthusian Theory-An Essay on Principle of Population,1798 • Optimum population Theory • Demographic transition theory Demographic Transition Theory: First Phase------------------(phase of stagnation 1901-1921) Second Phase --------------(Phase of steady growth 1921-1951) Third Phase------------------(Phase of rapid Population growth 1951-81) Fourth Phase-----------------(Phase of high but decelerating growth 1981-01)


Earliest references of census are found in : • 'Rig-Veda' reveals that some kind of population count was maintained in

during 800-600 BC in India. • Kautilya’s ‘Arthashastra’(321-296 BC) and later, in • Abul Fazl’s ‘Ain-Akbari’ (1595-96) • First census:1872 • Second Census:1881 • The 1901 Census: Herbert Risley, The People of India(Inclusion of caste) National Population Policy:2001 • TFR 2.1 by 2010. • Long term population stabilization by 2045. • National Population Stabilization Fund Established in 2003,under ministry of health. Age classification: 0-14 yrs : Dependent Population 15-59 yrs : working age population 60+ yrs : Dependent Population Demographic Dividend


Census

Year

Total Population

(in crore)

DecadalGrowth

Rate (in %)

Average Annual

Growth Rate (in%)

1901

1911

1921

1931

1941

1951

1961

1971

1981

1991

2001

2011

23.84

25.21

25.13

27.90

31.87

36.11

43.92

54.82

68.33

84.64

102.87

121.02

-

+5.75

-0.31

+11.00

+14.22

+13.31

+21.64

+24.80

+24.66

+23.87

+21.54

+17.64

+0.11

+0.56

-0.03

+1.04

+1.33

+1.25

+1.96

+2.20

+2.22

+2.16

+1.97

+1.64


TFR : 2.3 (Survey ),women 48 % of population


Age 0-14yrs 15-59 yrs

1971 41.2 % 53.4%

1981 38.1% 56.3%

1991 36.3% 57.7%

2013 28.4% 63.3%

In 2020 avg age ,India =29 yrs China=37 yrs USA=37 yrs WesternEurope=45yrs Japan=48yrs

Globally ,shortage of young population of 56m,India only country with excess of 47 m

1 Dadra and Nagar Haveli 55.88 %

2 Daman and Diu 53.76 %

3 Puducherry 28.08 %

4 Meghalaya 27.95 %

5 Arunachal Pradesh 26.03 %

High Growth Rate :

Population Density: 2001-324 2011-382

1 Uttar Pradesh 199,812,341

2 Maharashtra 112,374,333

3 Bihar 104,099,452

4 West Bengal 91,276,115

5 MadhyaPradesh 72,626,809

Total Population :


Census Year Sex Ratio

1901 972

1911 964

1921 955

1931 950

1941 945

1951 946

1961 941

1971 931

1981 934

1991 927

2001 933

2011 943

Sex Ratio :


S.No. Census Year Total (%) Male (%) Female (%)

1 1901 5.35 9.83 0.60

2 1911 5.92 10.56 1.05

3 1921 7.16 12.21 1.81

4 1931 9.50 15.59 2.93

5 1941 16.10 24.90 7.30

6 1951 16.67 24.95 9.45

7 1961 24.02 34.44 12.95

8 1971 29.45 39.45 18.69

9 1981 36.23 46.89 24.82

10 1991 42.84 52.74 32.17

11 2001 64.83 75.26 53.67

12 2011 74.04 82.14 65.46

Literacy:


1 Kerala 1084

2 Puducherry 1037

3 Tamil Nadu 996

4 Manipur 992

5 Chattisgarh 991

Sex ratio :

1 Bihar 1106

2 West Bengal 1028

3 Kerala 860

4 Uttar Pradesh 829

5 Haryana 573

Population Density :


1 Delhi 11,320

2 Chandigarh 9,258

3 Puducherry 2,547

4 Daman and Diu 2,191

5 Lakshadweep 2,149

Union Territories : Density

State %

1 Meghalaya 27.95

2 Arunachal Pradesh 26.03

3 Bihar 25.42

4 J & K 23.64

5 Mizoram 23.48

Decadal Growth rate :


Variation on religious level- • Jains - 94.1% (highest literate) • Christians - 80.3% • Buddhists - 72.7% • Sikhs - 69.4% • Hindus - 65.1% • Muslims - 59.1% States of India (in descending order) having highest literacy rate • Kerala-94.00% • Mizoram -91.33% • Goa- 88.70% • Tripura-87.22% • H.P-82.80 % States of India (in ascending order) having lowest literacy rate • Bihar (61.80%) • Arunachal Pradesh (65.38%) • Rajasthan (66.11%) • Jharkhand (66.41%) • Jammu & Kashmir (67.16%) • Uttar Pradesh (67.68%)


Union territories of India (in descending order) having highest literacy rate • Lakshadweep (91.85%) • Daman and Diu (87.10%) • Andaman& Nicobar Islands (86.63%) • Delhi (86.21%) • Chandigarh (86.05%) Union territories of India (in ascending order) having least literacy rate • Dadra and Nagar Haveli (76.24%) • Puducherry (85.85%) • Chandigarh (86.05%) • Kerala has the highest male literacy followed by Mizoram, Goa and

Maharashtra.

• Kerala has also the highest female literacy followed by Mizoram, Goa and Himachal Pradesh.

• Among union territories, Lakshadweep stands first both in male and female literacy.


Life expectancy (at the time of birth) (2001-2006) : Total - 65.3 years Male - 63.87 years Female - 66.91 years

Religious Group Percent

Hindus 78.35

Muslims 14.88

Christians 2.34

Sikhs 1.87

Buddhists 0.77

Jains 0.41


Religious Composition. Hindus:(80.45%) Himachal Pradesh-95.4% Mizoram-3.6%. Muslims:(13.5%) UP,WB J&K-66.9% Assam-30.9% West Bengal -25.2% Kerala-24.7% Mizoram -1.14% Lakshadweep-94.3%

Christians(2.34%): Kerala Nagaland -90% Mizoram -87%, Meghalaya-70% Manipur- 32.2% Goa -26.7% Sikhs(1.87%): Punjab-70 % of population. Punjab-59.91% Chandigarh-16.1%, Haryana -5.54%. Delhi-4.01% Jammu & Kashmir -2.04% Rajasthan-1.45% Buddhists- Maharashtra-73.4% Sikkim -28% Arunachal Pradesh Mizoram Tripura. Ladakh (Jammu and Kashmir) and

Dharmshala (Himachal Pradesh)


Jains- Maharashtra Rajasthan Gujarat Delhi.

Parsis- Maharashtra (mainly in Mumbai) and Gujarat.


Urban Habitat: Definition: • All the places with Muncipalities,Municipal corporations,Cantonments and

Notifies urban areas.

• Census Definition Minimum population-5000 Minimum Population Density-400 per sq km. Minimum 75% of the male working population whould engage in non-agricultural activities. • Classification of cities in India : Group 1 --------1,00,000 and above Population Group 2---------50,000 -99,999 Group 3 ---------20,000-49,999 Group 4 ----------10,000-19,999 Group 5 ----------5000-9,999 Group 6 ----------Less than 5,000


Highest population in Group 1,Highest number of cities is in Group-4. Slum population :MH, AP, UP, WB, TN, Del Cities :Mumbai, Delhi, Calcutta, Chennai, Nagpur, Hyderabad, Pune.


While addressing the Constituent Assembly in 1947, Jawaharlal Nehru had said, “This achievement (Independence) is but a step, an opening of opportunity, to the great triumphs and achievements that await us…the ending of poverty and ignorance and disease and inequality of opportunity.” First Five Year Plan (1951-56), “the urge to bring economic and social change under present conditions comes from fact of poverty and inequalities of wealth, income and opportunities. Second Five year plan : The benefits of economic development must accrue more and more to the relatively less privileged classes of society .


Indian Planning:1950- up to now

Economic Planning is a development strategy taking into consideration limited resources to achieve long term objective in the economy. Types of Planning: Planning on the basis of role of STATE: Imperative Planning: All the economic decisions are taken by single central authority ,usually known as central Planning Authority. Indicative Planning :Planning by incentive/inducement.The state interference is limited to making policy and adopting indirect control. Government takes help of private sector in plan formulating a plan .The ways of achieving such targets is left to private sectors. Planning by Inducement: It is a feature of mixed economy.The government sets broad objectives and targets of development ,but instruments used are not like in a Planning by command,but use indirect methods like Tax benefits


Planning on the basis of plan formulation and implementation: Centralised Planning: It is similar to planning by command .The process of plan formulation lies at the hand of a central authority usually central planning Authority. Decentralised Planning: Planning from below.The plan is formulated a various levels ,like in India centre,state, local levels and amalgamated and a Plan is formulated at National Level. Planning on the basis of time period of plans: Prespective Planning :It is called a long term Plan .Under this system the plan is formulated for a longer period say 15-20 yrs Medium Plan :Planning for a limited period say 5 years ,targets are set for five years. Annual Plan: All the perspective and medium plans may have annual targets specified for a fixed plan.


Flexibility or rigidity of plan : Fixed Plan: Such are formulated time period of 5 years and 10 years. Targets are fixed for a fixed period . Rolling Plans: This Plan contains 3 plans .Annual Plan,Five year Plan and long term plan. History of Planning in India: • M .Vishveshvarya(1934):”Planned Economy for India”. • National Planning Committee (1938):J Nehru. • Bombay Plan(1944):Industrailists • Sriman Narayan :”Gandhi Plan” • People Plan (1945):M.N.Roy • Jay Prakash Narayana(1950):Sarvodaya Plan.

• Planning Commission(1950) • NDC(1952)


Indian Planning : the changes Phase 1:1950-51 to 1965-66---Nehruvian Era Phase 2:1965-66 to 1979-80---Indira Gandhi era Phase 3 1979-80 to 1991-92---Structural Change Beginning of liberalisation Phase 4:1991-92 to 2013-14---LPG First five year Plan(1951-56):Development of Agriculture • Harrold-Domar Model. • CDP • Hirakud and Bhakra Nangal

Second five year plan(1956-61):Rapid Industrialisation. • Mahalanobis Model. • Influenced by soviet model. • Rapid industrialisation. • UGC,IITs • Steel Plants • Bhilai(USSR),Durgapur (Britain),Rourkela(Germany)


Industrial Policy Resolution 1956 (IPR 1956): • exclusively owned by the state; • private sector could supplement the efforts of the state sector, • private sector. Trade Policy : Import Substitution Protection : Tariffs and Quotas Industry groups Examples

Basic Industries Steel industry, Aluminium smelters, Cotton ginning mills, Sulphuric Acid & Caustic Soda

Capital goods industries Machinery except electric, electric Machinery, Shipbuilding, Railroad equipment, Motor vehicles

Intermediate Petroleum refinery , Ferro-Chrome alloy

Consumer goods industries



SCHEDULE A • Arms and ammunition and allied items of defence equipment • Atomic energy. • Iron and steel. • Heavy castings and forgings of iron and steel. • Heavy plant and machinery required for iron and steel production, for mining, for

machine tool manufacture and for such other basic industries as may be specified by the Central Government.

• Heavy electrical plant including large hydraulic and steam turbines. • Coal and lignite. • Mineral oils. • Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond. • Mining and processing of copper, lead, zinc, tin, molybdenum and wolfram. • Minerals specified in the Schedule to the Atomic Energy (Control of Production and

Use) Order, 1953. • Aircraft. • Air transport • Railway transport. • Shipbuilding. • Telephones and telephone cables, telegraph and wireless apparatus (excluding radio

receiving sets). • Generation and distribution of electricity.


SCHEDULE B • All other minerals except "minor minerals" as defined in Section 3

of the Minerals Concession Rules, 1949. • Aluminium and other non-ferrous metals not included in Schedule

'A'. • Machine tools. • Ferro-alloys and tool steels. • Basic and intermediate products required by chemical industries

such as the manufacture of drugs, dyestuffs and plastics. • Antibiotics and other essential drugs. • Fertilizers. • Synthetic rubber. • Carbonisation of coal. • Chemical pulp. • Road transport. • Sea transport

Third Plan(1961-1966):Self reliance and Self sustained economy • Import Substitution • Gadgil Yojana • Two wars &Political Instability • Officially declared failure Plan Holiday:1966-69 • Three Annual Plans

Fourth Plan(1969-1974):Self reliance in growth with stability • Growth with Justice and Garibi hatao. • Aggressive policies • FERA,1973—To use forex reserves properly • Bank Nationalisation,1969 • MRTP,1969---To prevent the emergence of Monopoly. • 1971-74:Inflation(>10%),1971 war,Oil shock. • Operation Smiling Buddha

Fifth Plan(1974-79):Poverty Eradication. • National emergency,1975. • 20 Point Programme. • Food for work programme started.


Rolling Plan(1978-1980): • Every year performance of the plan would be assessed and a new plan would be

based on such an assessment would be made for the subsequent year.

Sixth Plan(1980-85):Employment Generation(Perspective Planning) • PC--Structural changes in the economy • Liberal licensing Eg. Agro based industries • More Poverty Eradication Programmes Seventh Plan(1985-90):Modernisation Towards 21 century • Continued sixth plan,Liberalisation in Industries like Electronics,Food Processing etc Technology missions like Oilseeds etc. • More investments in PSU,modernisation. • More Schemes like JRY

1990’s severe economic crisis,Gulf war,Credit rating agencies down graded India,NRI also with draw money from India. Plan Holiday (1990-92):Annual Plans • 24,July,1991 –Liberlisation –”New Industrial Policy”



Milton Friedman: Chicago School of Economics Reaganomics and Thatcherism Trickle-down theory Neo Right Policy

Eighth Plan (1992-97):Human Resource Development • John Miller • Employment, Education and Public Health • Economic growth 6.7%

Privatization : Privatization is to increase participation of private sector in the public sector companies by capital investment or by management or both or to hand over a public sector unit to a private company . Liberalization :It is the process by which government control is relaxed or abolished. Globalization :The process of amalgamation of Economy with the world economy is called Globalization . It is signified by lower duties on import and export. Disinvestment: To reduce the government share in the public sector is called disinvestment.

Ninth Plan(1997-2002):Growth with Social justice and Equity • Focus on agriculture and rural development to eradicate poverty. • Problems in International level


Tenth Plan (2002-2007): Growth, equality & employment generation

Eleventh Plan(2007-2012):Towards faster and more inclusive Growth Twelfth Plan(2012-2017):Faster,More Inclusive and sustainable Growth 1. Economic Growth • Real GDP Growth Rate of 8.0 per cent. • Agriculture Growth Rate of 4.0 per cent. • Manufacturing Growth Rate of 10.0 per cent.

2. Poverty and employment • Poverty to be reduced by 10% • Generate 50million additional Employment opportunities in non-farm

sector and provide skill certification to equivalent numbers.

3. Education • Mean years of schooling to be seven years • Enhance acess to higher education by creating additional 2 Million seats • Eliminate gender and social gap in school education

(girls,SC,ST,Muslims,etc)


4.Health • IMR-25,MMR-1,CSR(950) • TFR-2.1 • Reduce under Nutrition among children by half among 0-3 yrs children.

5.Infrastructure Including rural Infrastrucure: • All weather road connectivity • Two laning of state highways • Teledensity-70%

6.Environment and sustainability • Green cover 1 million hectares • 30,000 MW renewable energy • Reduce emission intensity by 20-25%,reduction over 2005 levels by 2020.

7.Service Delivery • 90% financial Inclusion. • Subsidies be given through DTC.



Schemes of New Government : • Pradhan Mantri Jan Dhan Yojana : 28 Aug,2014 : • Rupay Debit card • Accident insurance cover of Rs 1L • Life insurance cover of Rs30,000to those who opened account before 16,Jan • 28 Jan : 12.31cr (7.36 in rural areas ,4.95 in urban areas ) • 67.5 % with zero balance DDUGJY : Deendayal Upadhyaya Gram Jyoti Yojana • Separation of agriculture and non-agriculture feeders • Augmentation of transmission and distribution • Metering in rural areas

Swach Bharat Mission : 2oct,2014 by 2oct 2019 Awareness,solidwaste,sanitation, Heritage City Development and Augmentation Yojana(HRIDAY) Heritage linked urban development(12 cities Ajmer,Varanasi,Warangal,badami,Puri,Gaya) Smart City Scheme : 100 cities


J : JanDhan Yojana, 125.5 m JanDhan bank accounts A : Aadhaar,757m Aadhaar numbers M : Mobile numbers, 904m mobile phones . ASER report : Grade 5 -47% could read grade 2 Padhe Bharath Bade Bharath : focuses on early reading, writing and comprehension and early grade mathematics. Deendayal Upadhyaya grameen Koushalya Yojana(Ddu-GKY) : Training and carrer Nai Manzil : Education and skill development of dropouts without a formal school-leaving certificate to obtain one and find better employment.


Nai Roshini : Leadership training programme for minority women. MANAS (Maulana Azad National Academy for Skills) Upgrading entrepreneurial skill of minority youth for sled employment Mission Indradhanush (25 dec): To cover all the children who are either unvaccinated or are partially vaccinated against 7 preventable diseases Diphtheria,Whooping Cough,Tetanus,Polio,Tuberclosis,Measles Immunization –From 65% to 90%


Beti Bachao BetiPadhao Programme (BBBP) : 22 Jan,2015 at panipat ,Haryana First in 100 dist Haryana-835 Sukanya Samriddhi account" special account for girl child, Rs1000 at time of birth ,then any amount in multiples of hundred and at 18 yrs,Rs 1,50,000 Sansad Adarsh Gram Yojana(SAGY): 11Oct,2014 One Model village -2016 Two Model Villages -2019 Vanbandhu Kalyan Yojana : One Block In Tribal areas (schedule 5 states),10 cr for all round development

Agriculture :The Back bone to Indian Economy

• 50% of work force and 14 % GDP.

Land Reforms: • Abolition of intermediaries • Tenancy reforms Regulation of rent Security of tenure Ownership rights to tenants • Land ceilings.

• Green Revolution Production =Productivity*area Increase in production through productivity is known as Green revolution Inputs: Irrigation,HYV,Fertilizers and pesticides. IAAP HYVP,1966


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

• Command Area Development Programme(CADP),1974-75 • AIBP,1996-97 • Drought Prone Area Programme(DPAP),1973 • Desert Development Programme(DDP),1977 www.classmateacademy.com 92

Pricing in Agriculture: Minimum Support Price(MSP): It is fixed before sowing i.e start of the season. 24 crops are under MSP CACP,1965 Procurement Price: It is the price at which the government procures foodgrains for buffer stock and PDS. Issue Price : It is the price at which the government sells the agricultural produce from its stocks. PDS : FCI keeps stock of food grains for the government . Food Subsidy-Consumer Subsidy + Buffer Subsidy. Consumer subsidy: the difference of procurement price and issue price. Buffer subsidy : it is the cost incurred between the point of purchase and point of sale 1997-TPDS(APL+BPL) 2000-AAY(Poorest of the poor) NFSA-National Food security Act. Ever green revolution,Second Green Revolution,Rainbow Revolution. www.classmateacademy.com 93

Agriculture finance:27% institutional sources,22%--non institutional sources,51% unable to get any loan. Short Term: 0-15 months Medium Term: 15-5 Years Long term: 5> years Cooperatives: Started in 1904 Three Tier Structure : Primary Credit Societies,DCCB,SCB

Commercial Banks: After Nationalisation,60% credit through Commercial banks.

RRB,1975:set up by lead banks at district level with primary objective of branch expansion and lending to rural areas. 9% lending.

KCC,Kisan Credit Card Scheme:Issued by commercial banks,cooperatives and RRB. Commercial banks have issued maximum no of KCC NABARD,1982

Priority Sector Lending: Decided by RBI, Indian Banks-40%,Foreign Banks-32% (Agriculture)


Agriculture Insurance: NAIS,1999:To protect Banks MNAIS-Modified NAIS WBCIS-Weather based Insurance scheme,2007 Pvt Companies-IFFCO-TOKYO,ICICI-LOMBARD CPIS- Agriculture Insurance Company of India Limited: GIC(35%),NABARD(30%), remaining by Four PSU Micro Finance: Started in 1992,MFIs RKVY-Rashtriya Krishi Vikas Yojana NHM-National horticulture mission NBM-National Bamboo Mission. NFSM NCM,2004-MS Swaminathan National Policy For farmers,2007 RIDF-rural Infrastructure Development Funds,1996



New Schemes : Pradhan Mantri Krishi Sinchayee Yojana : Neeranchal Soil Health Card Shanta Kumar Committee on FCI

Industry: Its Development

Industrial Policy-1948: • Public sector emphasized • Private sector given limited role(lack of capacity + willingness) Industrial development act ,1951 Industrial Policy ,1956 Role of Public sector expanded. Schedule A-17 Public sector. Schedule B -12 Public+private Industrial Policy,1973: Joint Sector was allowed in important and export oriented Industries. Eg.Maruti,Vespa,HeroHonda. Industrial Policy,1980: Beginning of Gradual Liberalisation process in the country Agro based industries,backward areas and export oreinted industries


Liberalization :It is the Process by which government control is relaxed or abolished. Privatization :Privatization is to increase the participation of private sector in the public sector companies by capital investment or by management or both or to hand over a public sector unit to private company. Globalization: The process of amalgamation of an economy with world economy is called Globalization. It is signified by lower duties on import and export . Disinvestment: To reduce the government share in the public sector is called disinvestment. New Industrial Policy,1991: • Except 18 industries all other were freed from compulsory licensing in

1991,now only 3 (Atomic energy,Atomic minerals and railways) • MRTP,1969 is replaced by competition act,2002 • FERA,1973 replaced by FEMA,2000.


Public sector: Changes • Now only Three reserved –Atomic energy, atomic minerals and railways. • Policy of recommending sick PSUs to BIFR.

Policy of MOU-Arjunsen Gupta Committee PSU granted more managerial and financial autonomy . Beginning of Navratna,Maharatna,Mini-ratna.(1,2) Policy of disinvestment. BRPSE,(2004)-Board of Reconstruction of Public Sector Enterprises-to revive sick PSU units. VRS-Golden Handshake. National Investment Fund(2005): Present status : 290 CPSEs ,234(operational) and 56 (under construction)



Maharatna

Navratna

Miniratna Category-I

Miniratna Category-II

Eligibility

Three years with an average annual net profit of over Rs. 2500 crore (earlier was 5,000 Cr), OR Average annual Net worth of Rs. 10,000 crore for 3 years (earlier was 15,000 Cr), OR Average annual Turnover of Rs. 20,000 crore for 3 years (earlier was 25,000 Cr)

A score of 60 (out of 100), based on six parameters which include net profit, net worth, total manpower cost, total cost of production, cost of services, PBDIT (Profit Before Depreciation, Interest and Taxes), capital employed, etc., ANDA company must first be a Miniratna and have 4 independent directors on its board before it can be made a Navratna.

Have made profits continuously for the last three years or earned a net profit of Rs. 30 crore or more in one of the three years

Have made profits continuously for the last three years and should have a positive net worth.

Benefits for investment

Rs. 1,000 crore - Rs. 5,000 crore, or free to decide on investments up to 15% of their net worth in a project

up to Rs. 1,000 crore or 15% of their net worth on a single project or 30% of their net worth in the whole year (not exceeding Rs. 1,000 crores).

up to Rs. 500 crore or equal to their net worth, whichever is lower.

up to Rs. 300 crore or up to 50% of their net worth, whichever is lower.

Maharatna CPSEs • Bharat Heavy Electricals Limited • Coal India Limited • GAIL (India) Limited • Indian Oil Corporation Limited • NTPC Limited • Oil & Natural Gas Corporation Limited • Steel Authority of India Limited Navratna CPSEs • Bharat Electronics Limited • Bharat Petroleum Corporation Limited • Hindustan Aeronautics Limited • Hindustan Petroleum Corporation Limited • Mahanagar Telephone Nigam Limited • National Aluminium Company Limited • NMDC Limited • Neyveli Lignite Corporation Limited • Oil India Limited • Power Finance Corporation Limited • Power Grid Corporation of India Limited • Rashtriya Ispat Nigam Limited • Rural Electrification Corporation Limited • Shipping Corporation of India Limited


Foreign Sector: • After 1991, Policy is to promote foreign investment in India. • FDI, allowed in some sectors up to 100% • FIIs allowed to invest in Indian Capital Market. • Indian Companies allowed to raise ADR/GDR Classification of Industries: • No of Employees Organised(>10), Unorganised(<10) • Turnover criteria • Small sector

Small Scale sector: Since 2006 MSME Act Manufacturing Services Micro 25 lakh 10 Lakh Small 5 cr 2 cr Medium 10 cr 5 cr



3.61 cr (MSME ),37.5% of GDP Schemes :

• Prime Ministers employment Generation Programme • Micro and small Enterprises –Cluster Development

Programme • Credit Guarantee Fund Scheme for micro and small

Enterprises • Performance and Credit Rating Scheme • Assistance to Training Institutions • Scheme of Fund for Regeneration of Training Industries

SIDBI-Small Industries Development Bank of India,1990 Recent Measures: Credit Linked capital subsidy scheme: SMERA(Small and Medium Enterprises Rating Agency) Some Important Committees of small scale sector Abid Hussian Committee: Small Scale Sector. Meera Seth Committee: Handloom Sector. M.L Kapoor Committee: Better Credit facility to Small scale sector . IIP- Index of Industrial of Production(now base 2004-05,Base=100): 682 items Mining: 14.17% Basic Goods: Manufacturing: 75..53% Capital Goods: Electricity : 10.32% Intermediate Goods: Consumer Goods:



Recent Initiatives to boost Industrial growth : E-Biz project : G2B portal to serve as one stop shop foe delivery of services ,24*7 Skill development : 31 Industry/employer led Sector Skill Councils and aligned with 25 sectors of ‘Make In India’. Labour reforms : Shram Suvidha Portal launched for online registration of units,filing of self-certified,simplified,single online return .


All the public sector establishments and those private sector establishments which employ 10 hired workers or more are called formal sector. All other enterprises and workers working in those enterprises form the informal Sector. There are about 460 million workers in the country. There are about 29 million workers in the formal sector.

Financial System in India

Financial System------------Money Market +Capital Market Money market: Short term ,up to 1 year Capital market : more than 1 year. Money market Instruments: • Call Money market • Treasury Bill market • Commercial Bill market • Certificate of Deposit • Commercial Paper Market

Treasury Bill markets: Repo Rate : It is the rate at which RBI provides short term loan to the banks. Reverse Repo Rate: It is the rate at which the banks park their funds with RBI for short term


Capital Market : Internal+External Internal Source: Shares + Debentures+ Reinvestment of Profit External Sources: Banks + Financial Institutions. Shares: they are associated with a company, all shares have equal value hence called as equity shares. Ordinary : They are normal shares. Preference : They have some preference over ordinary shares. Eg dividend ,compnay is winded up . Debenture: It is an instrument used by companies to get a loan. Convertible: Convertible to share on maturity. Non- Convertible: Principle is paid on maturity. Buy back of shares: Usually done by promoters. Splitting of shares :Conversion of shares in to more shares of less denomination. IPO: Initial Public Offer. FPO: Forward Public offer.


BSE: Bombay stock exchange ,oldest stock exchange in India ,1875 NSE: Established on recommendation of Pherwani Committee ,started in 1994 Depository system : In this system there is no physical transfer of securities change in ownership is done through electronic ledger entry transfer. MCX-SX: Third Stock exchange of the country. United Stock Exchange of India : The Fourth stock exchange at the national level. BSE-30,BSE-50,NSE-50,NSE-500. Bull: These are he investors who buy at low prices and after some time sell at higher prices. Bear: These are the investor who first sell at higher price and after some time purchase at lower prices. Gilt Edged Security: Government security.


Merchant Bank : These are not Banks ,they are financial intermediaries which provide various financial services like management of the new issue , arrangement of loans financial advice etc. Venture Capital Fund: For new or specialised areas funding is provided. Derivatives: Purchasing of an item for Future Trading. Forward Market Commission(FMC):It is the agency to regulate commodity futures in India. Commodity Futures market in India : MCX : Multi Commodity Exchange ,Mumbai. NCDEX : National Commodity and Derivatives Exchange ,Mumbai. NPS: New Pension Scheme,2004 The NPS was made mandatory for central government employees from Apr 1 ,2004


SEBI: Established in 1992,as a regulator of capital market. It the autonomous regulatory authority of the capital market with wide spread powers . Insider Trading : Getting information about the company which is other wise not available in all. PLR : Prime Lending Rate • It is the rate applicable to more credit worthy borrower (safest loan). • If lending is less than PLR it is called Sub-PLR.

Base Rate : It is the minimum rate of lending of the bank. BASEL -3:To be Introduced in India from 2017-2018 CAR/CRAR: Capital Adequacy ratio. Ratio of capital and Risk assets.


Monetary Sector : Money and Inflation.

Money :It’s a medium of exchange. Its legal tender .

Inflation : is a sustained increase in the general price level of goods and services in an economy over a period of time. Deflation : A reduction in the level of national income and output usually accompanied by reduction in price level. Stagflation :Is a term used in economics to describe a situation where the inflation rate is high, the economic growth rate slows down, and unemployment remains steadily high.

Measurement of Inflation : In India we use different indices for different purposes.

WPI(2004-05)-Base 100(676 commodities): • Primary articles(20.11%),Fuel & Power(14.91%),Manufactured goods(64.97%) Food articles(24.27%)

• CPI-AL : It is used for revision of minimum wages of agricultural workers.

• CPI-RL :

• CPI-IW: It is used for wage revision of industrial workers.

• CPI-UNME: It is used by services sector like revision of DA by government.


CPI-UNME: is published by CSO ,rest by Ministry of labour. Headline Inflation vs Core Inflation : Head line inflation rate is about total inflation in the economy while core inflation excludes food and energy prices. New CPI series : 2011 CPI(Urban),CPI(Rural),CPI(Combined)(Base 2010-100) 310-Towns,1181-Villages. Reasons for inflation : • Demand Pull • Cost Push

Effects: • Supply side • Demand side • Savings • Imports/Exports

• From April,2014 the RBI had announced its intent to anchor its monetary policy To headline CPI (combined )


RBI-Reserve Bank Of India

Functions:

Normal Central Bank Functions: • Issue of currency notes: • Banker to the Government • Banker’s Bank • Regulation of Foreign Exchange • Collection and Publication of Data

Instruments of credit Control: Bank Rate : The rate at which RBI lends loans to the banks. CRR : The ratio of demand and term deposits with the banks that they have to keep with the RBI. SLR : The ratio of demand and term deposit with the banks that they have to keep in liquid form i.e cash , gold and permitted securities OMO: Sale and Purchase of securities by the RBI is termed as open market operations


Fiscal Sector: Taxes, Centre-state, Budget

Progressive Taxation : The tax system in which tax rates increase with increase in tax base i.e income tax in India. Regressive Taxation: The tax system in which tax rates decrease with in crease in tax base . Proportional Tax system : The tax system in which there is no change with change in tax base , eg .corporate tax, customs duties, central excise . Direct Tax : The tax in which the impact and incidence of tax is one the same entity; i.e income tax, corporate tax. In case of direct tax the burden of tax cannot be shifted. Indirect Tax : The tax in which the impact and incidence of tax is on different entities. i.e service tax ,custom duties etc. Ad valorem Tax : If the tax is levied on the basis of value of the product or service in percentage terms.


Countervailing Duty : The duty imposed on imported goods equivalent to the domestic taxes on domestic products. Dumping Duty :This duty is imposed on imported goods if the exporting country is exporting the products on the price which is less than the domestic price of the product. Securities Transaction Tax (STT):The tax imposed on transaction of securities in capital market in India since 2004-2005.it varies from 0.017% -0.125% Tobin Tax :The tax Imposed on International Transactions of Currencies. Commodity Transaction Tax : It is just like STT but is imposed on commodities in the futures market. Service tax : This tax was first imposed in India in 1994-95,on three services,at the rate of 5 %.But now a negative list of 17 services exits in India,since 2013 MAT: This tax is levied from those companies which are zero tax companies because of various rebates and exemptions.


Centre –State : Financial Relations

Federal Structure ----Division of powers between Centre and states . Unitary Bias----more powers to centre. Centre ----------------> State(gives money to states). • Share in taxes –decided by finance Commission.(Art-280).

• Grants-in-Aid(one part reco –F.C +Discretionary Grants).

• Loans (Planning Commission ).


Taxes Right to Impose

Right to Collect

Right to Use

Income Tax, Corporate Tax, Service Tax, Central excise Centre Centre Centre and states

Sales Tax, State Excise Tax , Entertainment Tax ,Land revenue, Tax on agricultural Income

States States States

Estate duty on all except agricultural land, tax on rail fare and freight ,terminal tax on rail, sea and air travel and transport ,tax on sale of news papers and advertisements

Centre Centre States

Stamp duty, Excise Duty on medicines and cosmetics Centre States States

Division of Taxes:

Finance Commission : K.C.Neogi(First), Vijay Kelkar (13 Finance Commission.) Y V Reddy • Share of States to be 42%%



FFC : Share of states from divisible pool to 42 %

VAT: In this tax system, tax is imposed on every stage of production or sale of goods and services on the basis of value addition in each stage. 1981, Manufactured VAT L.N Jha Committee led to introduction of 1986,Mod VAT 2000, CENVAT

Goods Services

Centre CENVAT Service Tax

State VAT/ST -

• Vijay Kelkar Committee,2002 :Recommended the implementation of VAT at state level also.

• Haryana(First state ,2003)…UP was the last state now all states follow this system.

• GST proposal since 2006 . • 122 Amendment Bill ,GST. • Empowered Committee under –Asim Dasgupta (First), Sushil Modi

(Second)


Grant –in- Aid : • One part recommendation by FC • Discretionary grants

These are given based on the Gadgil Formula(1969),Mukherjee Formula (1991). Service tax In India: Started by Union Government in 1994-95,Telephone,General Insurance & Stock Broking. Now a Negative list of 17 Commodities Exist . 92 Amendment act ,Service tax may be levied by Centre but Collected and appropriated by Centre and State. Contribution from Different Taxes: • Corporation Tax • Income Tax • Union Excise tax • Customs Tax • Service Tax DTC,1961 to be changed


Fiscal Sector : Union Budget

Revenue

Revenue Account

Tax

Tax on income

Tax on property

Tax on services

Non Tax

Capital Account

Expenditure

Plan Expenditure

Non-Planned Expenditure

Revenue

Fiscal & other

services

Dividend and profits

Interest receipts

Capital


Budget : It is always an estimate of Receipts & Expenditure. Receipts: Revenue receipts • Tax revenue • Non-tax revenue(Interest,dividend,fines )

Capital receipts • Repayment of loans • Other receipts • Loans and Other Liabilities

• Revenue: Income which is to be received in the present year.

• Capital : Income which will be received in the Future(more than a

year) or spent as part of repayment of previous obligation.


Expenditure: Planned • Expenditure in the budget on the recommendation of PC. Non-Planned • Interest Payment • Subsidies • Defence • Public Administration

Expenditure on Revenue Account : Those consumed in the present year. e.g : maintenance of canal , Rent of buildings, Salaries of Government Officials etc. Expenditure on Capital Account : Those that create Capital assets. e.G : Constructing canals , new buildings etc.


Revenue Deficit: Excess of revenue expenditure over revenue receipts . Revenue receipts = Tax revenue +non-tax revenue. Revenue expenditure=Plan+ Non-Plan. Budget Deficit :It is the excess of total expenditure over total receipts. Total expenditure = Revenue expenditure+ capital expenditure. Total revenue = Revenue receipts + Capital receipts . Fiscal Deficit : Total expenditure –Total receipts (but the receipt component does not include borrowings and other liabilities). Deficit Financing : It is the difference between expenditure and receipts . www.classmateacademy.com 127


Fiscal cost of subsidies : Rs 3,78.000 L cr ,4.2 % of GDP FRBM,Act : Fiscal Responsibility and Budget Management act,2003 Initial targets : • Revenue deficit -0 % • Fiscal deficit -3% by 2008-09

• Due to recession now targets changed to 2016-17 on the

recommendation of Rangarajan Committee.


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

Fiscal Policy : It is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy. Fiscal Stimulus: An increase in Public Spending or a reduction in the level of taxation that might be performed by a government in order to encourage and support economic growth. Most government bail out package form part of fiscal stimulus. Laffer Curve : Chelliah Committee : Related to Direct tax reforms ,1991


Foreign Sector:

After Independence : The immediate policy was based on import restrictions. Quantitative Restrictions (QRs): • Negative list –NO Import is allowed. • Canalised –Import only of essential items but through specified agencies. • OGL- Open general license .

Tariff barrier: High rates if Import. Non-Tariff barrier: Restrictions of import on the ground of Technology level, human health ,environment etc. e.g: No car of less than E-IV standards is allowed ,Banning certain chemicals in Food. During 1970’s SE Asian countries proved that aggressive policies can be used to increase the exports. In 1980s we started export Promotion policy . 1985 : First Export –Import Policy (EXIM Policy started ) ,3 years


1992: First five year EXIM policy which was co-terminus with Five Year Plan. Due the reforms of 1991, Imports : Procedures for imports were simplified, QRs removed, Tariff rates reduced now stand at 10% for most of the goods. Exports : More Emphasis and new schemes to increase the exports from India. e.g EPCG: Export Promotion of Capital goods Scheme. SEZ,Act 2005 : Started in India ,Asia First EPZ-Kandla,1965. AEZ: Agriculture Export Zones, Nodal Agency –APEDA (Min Of Commerce) AEZ-Chillies-Guntur AEZ-Mangoes-Vijayawada AEZ-Hyderabad-Grapes,Mangoes


Exim Policy 2002 -2007 , • Focus Africa . • Reviving relations with CIS Countries. FTP-2004 Introduction of many schemes: • Focus Market Scheme(FMS) • Focus Product Scheme(FPS) • Vishesh Krishi Upaj Yojana (VKUY) • Served From India (SIF)

FTP-2009 : FPS,FMS,MLFPS,VKGUY,AIIS(Agri Infrastructure Incentive scheme) Other Policies : Look East Policy: To diversify the direction of our trade, Today the trade with Asia is 50-55 % of our Total Trade. Free Trade Area(FTA) : It is an agreement between two countries or a group of countries for concessional Import duty rates.(Only Goods) Comprehensive Economic Cooperation Agreement (CECA/CEPA) :This includes not only goods but also services, investments, recognition of degrees etc. www.classmateacademy.com 134

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



Trade :

exports imports

2004 0.8% 1.0%

2012 1.7% 2.5 %

Region 2004 2013

Europe 23.6% 18.6%

NA 20.1 17.2

Asia 47.9 49.4

Africa 6.7 9.9

Exports :


Imports %

China 11.2

UAE 7.6

SA 6.8

USA 5.1

Exports %

UAE 11.7

USA 11.6

China 5.3

Singapore 4.5

Survey :2014

Balance of Payments: BOP

Bop is an account of transactions between a country and rest of the world. Part 1 Accounts –Current Account : • Imports-Imports of goods (services not included) • Exports Balance of Trade =Export-Import • Invisibles(Net): Services, remittances . • Current Account Balance : BoT+Invisibles. Part 2 –Capital Account : • Capital Account (Net): Investment (Net)-FDI,FII Loan(Net)-ECB etc. Banking-NRI deposit etc. Over all BOP: Current + Capital . This should be positive. Increase in BOP ,so this surplus is shifted to forex reserves.



Country Reserves in Billion dollars

1 China 3840

2 Japan 1312

3 Switzerland 526.6

4 Russia Federation 388.5

5 Brazil 363.6

6 Korea, Republic of 363.2

7 China, Hongkong 344.6

8 India 320.6

9 Germany 192.7

10 Thailand 163.7

Convertibility Of Rupee :

Convertibility: Permission to convert domestic currency into foreign currency and foreign currency into domestic currency. Rupee made Convertible on Trade Account in 1993-93 Rupee made Convertible on Current Account in 1994-95 For Capital Account Convertibility , a committee was established in 1997, called Tarapore Committee Again in 2006 Same committee was appointed . Present Status : Rupee remain Partially convertible in Capital Account. FDI,FII,ECB there are limits that are specified to each sector with in the limits they are convertible outside the limits they are not .


WORLD TRADE ORGANISATION

GATT- General agreement on tariffs and trade MFN –Most favored nation URUGUAY round of negotiations ---1986-1994 Arthur Dunkel came up with a draft which led to establishment of WTO on 1st Jan 1995 RUSSIA and VANAUTU are the last two countries to join the WTO making the total membership to 159 Roberto Azevedo—present Director General


Agreements under WTO ATC-Agreement on Textiles and Clothing TRIPS-Trade related intellectual property rights 2001 Doha round of talks: • AOA-Agreement on Agriculture • NAMA- Non Agriculture Market Access • GATS-General agreement on trade and services

• Uruguay Round : maximum support to agriculture

is 10 %

• G-33 proposed a change to this


WORLD BANK

• International bank for reconstruction and development – IBRD, 1944 Also known as WORLD BANK • International Finance Corporation –IFC, 1956 • International Development Association-IDA, 1960 • International Centre for Settlement of Investment Disputes-ICSID, 1966 • Multilateral Investment Guarantee Agency-MIGA, 1988

IMF

• International Monetary Fund, 1944

• SDR-Special Drawing Rights: Official currency of IMF

• Voting % USA – 16.75 INDIA- 2.34 CHINA- 3.81


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