Economy Notes

NAME OF INDIAN ECONOMY
MEANING OF UNDEVELOPED ECONOMY
An economy is said to be undeveloped or underdeveloped, if it has the following characteristics

(a) Agriculture is the main occupation of the people.
(b) Poverty is widespread, so savings and investments are also quite low.
(c) Population grows at a high ate (about 2% per annum).
(d) The standard of living of people is low.
(e) The productivity of labour is considerably low.
(f) The production techniques are backward.
(g) Investment in research and development is quite low.
(h) The incidence of unemployment is quite high.
(i) The level of human being in terms of income, health and education is generally low.
(j) Income inequalities are widespread.
(k) Low participation in export, import and foreign trade.
(l) Social life is traditional, people are generally orthodox in their outlook and they seldom
make any changes in their socio-economic relations.
INDIA’S CASE
Sometimes Indian economy is also considered undeveloped due to the following reasons :
1. Agriculture is the Main Occupation
 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.
2. High rate of Poverty :
 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.
3. High rate of Population Growth :
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.
5. Low rate of saving and Investment :
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.
7. Unemployment is quite high :
 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.
8. Level of Human Being :
 In India, the level of human will being is quite low.

 For measuring human well being, Human development index (HDI) constructed by the
United Nations Development Programme (UNDP) is used.
 The HDI is a composite of three basic indicators :
(a) Longevity : is measured in terms of life expectancy at birth.

(b) Knowledge : in terms of education.
(c) Standard of living.
According to UNDP report, 2005 India’s rank is 126th among 177 countries for three years is
row.
9. Unequal distribution of income and wealth :
 The distribution of income and wealth in India is not equitable.

 The Gini index used to measures the inequality on income and wealth.
 A Gini index of 0 represents perfectly equality while 1 represents perfect inequality.
 According to the world Development Report – 2006, the Gini index for India in 1994 was
297 and in 1999-00 was 33.
 Thus, over this period the inequalities of income and wealth have increased.
INDIA – A DEVELOPING ECONOMY

In fact India is not undeveloped county. It is a developing county. The following facts are
important here :
1. Rise in national Income :
India’s National income has increased by 16 times during the planning period.
2. Rise in per Capita Income :
 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%.
3. Significant changes in occupational distribution of Population :

Occupational structure can be divided into three groups :
(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 :
Occupation 1951 1961 1971 1981 1991 2001

Primary 72.1 71.8 72.1 68.7 62.7 54.0
Secondary 10.6 12.2 11.2 13.5 14.9 23.5
Tertiary 17.3 16.0 16.7 17.5 22.4 22.5
Total 100 100 100 100 100 100
4. Important changes in spectral distribution of Gross Domestic Product :
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
5. Growing Capital base of the Economy :

After independence, in the second plan a high priority was given to establishing basic and
capital goods industries. These include, iron and steel, chemicals, nitrogenous fertilizers,
heavy engineering, machine tools, petroleum products and many more.
6. Improvements in social overhead capital:

Social overhead capital includes transport facilities, irrigation facilities, energy, education
system, health and medical facilities and in India these facilities have improved. It can be
seen from the following points :
(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
7. Development in Banking and Financial Sector :

 After the nationalization of 14 banks in 1969 and 6 banks in 1980, the important
developments have taken place in the banking and financial sector.
 Agricultural sector, small scale industries and other sectors have been getting bank’s
funds on a priority basis and at concessional rates of interest from NABARD.
Thus we can say, India is on the road of development.

OBJECTIVE
1. Generally and economy is considered under developed if :

(a) The standard of living of people is low and productivity is also considerable low.
(b) Agriculture is the main occupation of the people and productivity in agriculture is
quite low.
(c) The production techniques are backward.
(d) All of the above.
2. Which of the following statements is correct ?

(a) Agriculture occupies 10 percent population of India.
(b) Nearly 5 percent population India is below the poverty line.
(c) The production techniques are backward.
(d) None of the above.
3. Which of the statements is correct ?

(a) The tertiary sector contributes the maximum to the GDP.
(b) India- is basically a socialist economy.
(c) The distribution of income and wealth is quite equitable.
4. Is the apex bank for agriculture credit in India?
(a) RBI.
(b) SIDBI.
(c) NABARD.
(d) ICICI.
5. The share of agricultural ;in India’s national income has…………..over the years
(a) Remained constant.
(b) Decreased.
(c) Increased.
(d) First decreased and then increased.
ANSWER
1. (d) 2. (c) 3. (a) 4. (c) 5. (b)

ROLE OF DIFFERENT SECTORS IN INDIA
ROLE OF AGRICULTURE IN INDIA
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 :
(1) Providing Employment : Agriculture provides employment to a large number of

people in India. At the time of independence around 72% of the population was
engaged in agriculture and allied activities. As economy developed, industry and
services sector also developed and the % of people in agriculture sector came down. In
India, agriculture engages around 54% of the population in 2004-05. It is to be noted
that in absolute terms number of people engaged in agricultural activities over the
planning period has been increased.
(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.
(7) Contributions to Government’s revenue :- The Government revenues also depend on

Agricultural prosperity. The direct contribution of agricultural taxes to the Govt.
revenues is not significant but indirectly Agriculture has a considerable influence on the
Government revenues. At present, income tax revenue from Agricultural sector is
negligible.
(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.
GROWTH OF AGRICULTURE DURING PLANNING PERIOD
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.
(a) Abolition of Intermediaries :-

Legislations were passed to abolish zamindari system. As a result around 173 million
acres of land was acquired from the intermediaries and two crore tenants were brought
in direct contract with the state.
(b) Tenancy reforms includes :-

(i) Regulation of rent.
(ii) Security of tenure.
(iii) Ownership right on tenants.
 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.
(c) Reorganizations agriculture _

In order to solve the problem of fragmentation of holding, the land was reorganized in the
following two ways –
(i) Consolidation of holding.
(ii) Cooperative farming.
Accordingly it was decided to consolidate holdings by giving to the farmer one equal to the
total of the land in different scattered plots under his possession. Cooperative farming was
also started but it did not succeed much.
(5) Other development :- A part from the above, the following developments have also
taken place.
(a) Increment the use of agriculture inputs at subsidized rates.

(b) Agricultural credit at low rates of interests.
(c) Minimum support price has been fixed by the Government.
(d) Minimum wage law has been introduced.
(e) Special programmes such as integrated Rural Development Programme (IRDP).
Jawahar Rozgar Yojana (JRY) etc have been started to provide employment to the rural
people.
PROBLEMS OF AGRICULTURE SECTOR IN INDIA
(1) Slow and uneven growth :-

(a) The growth of agricultural sector is not sufficient to meet the rising demands of fast
growing population.
(b) Certain crops (like wheat) are growing at a higher rate than other crops (like Jawar
etc.
(c) There are regional imbalances in the spread of growth. The growth has remained
confined to certain areas like Punjab, Haryana and Western Uttar Pradesh.
(d) Development of agricultural crops and animal husbandry, fisheries and forestry were
not given much attention.
(2) Not so modern Agriculture :-
(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.
(3) Inadequate Finance :-
(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.
(f) Unorganized markets :- Several malpractices exists in unorganized agricultural markets

such as under weighing, levying of a number of unauthorized fees, deductions and taxes
etc.
(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.
(5) Agriculture under XIth Plan :-

Growth rate was 2% in X plan but for XIth plan target is double i.e 4%.
INDUSTRY
Roll of Industry in India :

In any economy, industries have an important role to play. It has been noticed that
countries which are industrially well developed (example USA) have higher per capita
income than those countries where industries are not well developed (example India,
Pakistan) In India, industrial sector plays the following roles :
(1) Modernizing Agriculture :- It modernize agriculture and improves productivity in it. It

provides agriculture with the latest tools and equipments, which enhance the efficiency.
(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 :
All the industries of a country can be grouped in two major ways
1. On the basis of size of industries : It can be divided into
(a) Large scale industries include mining, manufacturing and electricity.

(b) Medium scale industries and small scale industries (SSI).
2. On the basis of end – use :-

(a) Basic goods industries – like minerals, fertilizers, cement, iron and steel, non-ferrous
basic metals, electricity etc.
(b) Capital goods industries – like machinery, machine tool, railroad equipments etc.
(c) Intermediate goods – like chemicals, rubber, plastic, coal and petroleum products.
(d) Consumer goods – consumer durables and non durables (Like man-made fibers,
beverages, watches, cosmetics, perfumes etc).
Pattern of Industrial Development : Before Independence :
(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 :-
Main developments are :-
1. Industrial Growth :- The pattern of industrial growth experienced as.

 Ups and downs during the period 1951-2005.
 A significant decline was experienced for 15 years from 1965-1980, annual rate of
industries fell down to 4.1%.
 At the time of 2005-06 industries growth was 7.8% (nearly 8%).
 Under Xth plan growth rate target was 8.7%, which was not achieved but target for XIth
plan is 8.5%.
 The industrial sector faced the process of retrogression and declaration during the
period 1965-80. The reasons were-
(a) Unsatisfactory performance of agriculture.

(b) Slackening of real investment especially in public sector.
(c) Slow down in import substitution.
(d) Regulation and control over private sectors.
(e) Narrow market for industrial goods, especially rural area.
2. Development of Basic and Capital goods Industries :- The structure of industry has
shifted in favour of basic and capital goods and intermediate goods sector during the
planning period. In second plan (1965-65) Mahalanobis plan emphasized upon the
establishment of capital and basic goods industries. Three steel plants were set up in
the public sector at Bhilai, Rourkela and Durgapur in the second plan.
3. Growth of consumer goods industries :- There has been a remarkable growth of

consumer goods industries. Since 1991, important changes have occurred in the
industrial structure. Intermediate and consumer goods have got more important than
basic and capital goods.
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.
7. Expansion of Infrastructure facilities :- A remarkable expansion took place in

infrastructure facilities since 1951 in such respects as power generation, development of
energy sources, railway transport, telecommunication, roads and road transport and the
like, which are basic pre requisites for industrial development. Industrial finance was
supported heavily by public financial institutions (LIC, IDBI, ICICI for example) and
commercial banks. Port facilities for imports and exports have been substantially
expanded.
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 :-
(a) Micro-Up to 10 lacks Rs.

(b) Small – above 10 lakhs to 2 crore Rs.
(c) Medium – Above 2 crore to 5 crore Rs.
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.
2. Under utilization of capacity :- A large number of industries suffer from substantial

under utilization of capacity. The average under utilization being in the region of 40% to
50% Main factors responsible for under – utilization of capacity are :-
(a) Indiscriminate grabbing and creation of capacities by private enterprise.
(b) Demand short-falls.
(c) Overoptimistic demand projections.
(d) Supply bottle-necks.
(e) Labour problems and deliberate under-utilization to create shortages.
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.
4. Inadequate employment generations :- One of the most serious deficiencies of

industrial development over the decades since independence is its inadequate
employment generations, in relation to investment made. Factory employment
absorbed only 2% of the labour force in 1980.
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.
6. Sartorial imbalances :- In India, industrial development on an over-all basis suffered

several setbacks because of inadequate support from agriculture and infrastructure.
But in real practice, several sectoral imbalances at a point of time and over a period of
time plague the industrial economy of India.
7. Regional imbalances :- Industrial development continues to be lopsided, region wise,

large scale industries are concentrated in a very few states like Maharashtra, West
Bengal, Tamilnadu and Gujrat. These four states account for 44% of total factories and
48% of productive capital’
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.
ROLE OF SERVICE SECTOR IN INDIA
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%).
(c) Providing support to other sectors : It provides support to agriculture and

industries by providing a number of services in the form of financial services,
transport services, storage services, distributive services, and software and
communication services and so on.
(d) Contribution to Exports : Services exports from India comprise services such as
travel, transportation, insurance, communication, construction, financial, services,
software, agency services, royalties, copyright and license fees and management
services. Services accounted for 35 percent of total exports in India (2004-05). In
2004, India’s share in world’s total services export was 2.3%. Indian services exports
grew by 75% In 2005-06. In the list of exporters of services (2004, India is ranked
11th.
GROWTH OF SERVICE SECTOR DURING PLANNING PERIOD
(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 :
It is facing lots of problems. Important ones are :-
(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 3. Which of the following statements is correct ?

(a) Under Zamindari system, farmers directly paid land revenue to the state.
(b) At present, income tax revenues from the agriculture sector are negligible.
(c) Commercial bank are providing loans to the agriculture sector at zero interest rates
Q 4. Which of the following is incorrect ?

(a) Special schemes have been started to promote export of agro-products.
(b) India has been a big importer of food grains especially since 1990s.
(c) High yielding varieties programme has resulted in improvement in production and
productivity of food grains in India.
(d) None of above.
Q 5. Abolition of intermediates and tenancy reforms are both parts of ?

(a) Industrial reforms in India.
(b) External sector reforms in India.
(c) Land reforms in India.
(d) Banking reforms in India.
Q 6. Agriculture sector faces the problem of ?

(a) Slow and uneven growth.
(b) Inadequate and incomplete land reforms.
(c) Inadequate finance.
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.
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 10. Which of the following statements is incorrect?

(a) About 80 percent of agricultural area has irrigation facilities.
(b) About two third areas are rain-fed in India.
(c) Productivity per worker in agriculture is much lower than that in Industry.
(d) Cropping pattern is quite skewed in India.

(a) Countries, which are industrially well developed generally, have higher per capital
income than countries, which are not.
(b) India is a capital surplus economy.
(c) Agriculture sector need not depend upon industrial sector for its growth.
Q 12. Mahalanobis model stressed upon the establishment of ?

(a) Consumer goods industries.
(b) Export oriented industries.
(c) Agro-based industries.
(d) Capital and basic goods industries.
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.

(a) A large number of industries face under utilization of production – capacity.
(b) The incremental capital-output ration has been falling over the planning period.
(c) In terms of regions industrial development is quite balanced.
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.
(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.
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 23. The industrial sector depends on the agricultural sector because?

(a) The agriculture sector provides food and other products for the consumption
purposes of industrial sector.
(b) The agriculture sector provides raw materials for the development of a agro based
industries of the economy.
(c) The agricultural sector provides market for the industrial products.
Q 24. A sick industrial unit is one?

(a) Where most of the employees are sick.
(b) Which is unable to perform its normal functions and activities of production of
goods and services at a reasonable profit on a sustained basis.
(c) Which is unable to make profits more than 10 percent of its capital employed.
(d) Which borrows money from bank for its fixed assets.
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 26. The service sector in India now accounts for

(a) More than 80 percent of GDP.
(b) More than 70 percent of GDP.
(c) More than 50 percent of GDP.
(d) More than 90 percent of GDP.
Q 27. Nearly …………………..percent of working population is engaged in the service sector.
(a) 23 percent.
(b) 45 percent.
(c) 80 percent.
(d) 50 percent.
Q 28. Service sector accounted for nearly ………….percent of export (2004-05).

(a) 10 percent.
(b) 20 percent.
(c) 35 percent.
(d) 80 percent.
Q 29. India has the ………….largest scientific and technical manpower in the world.
(a) Fifth.
(b) Tenth.
(c) Eighth.
(d) Second.
Q 30. Which of the following statements is correct?

(a) The service sector contributes more than half of the GDP of India.
(b) The scope of attracting tourists is limited as there is hardly any place of tourist’s
attraction in India.
(c) Generally as an economy grows first service sector grows and then agriculture and
industrial sectors grow.
Q 31. BPO stands for?

(a) Bharat Petro Organization.
(b) Business Process Outsourcing.
(c) Big Portfolio outsourcing.
(d) Business Partners Organization.
Q 32. Small scale units exist in India because
(a) They are labour intensive and India is a labour surplus economy.
(b) They offer methods of ensuring more equitable distribution of income and wealth.
(c) They facilitate the creation of a wider entrepreneurial base.
ANSWER
1. (a) 2. (c) 3. (b) 4. (b)

5. (c) 6. (d) 7. (b) 8. (d)
9. (b) 10. (b) 11. (a) 12. (d)
13. (b) 14. (d) 15. (d) 16. (a)
17. (d) 18. (c) 19. (c) 20. (d)
21. (b) 22. (a) 23. (d) 24. (b)
25. (c) 26. (c) 27. (a) 28. (c)
29. (d) 30. (a) 31. (b) 32. (d)
National Income In India

NATIONAL INCOME
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.
BASIC CONCEPT IN NATIONAL INCOME AND OUTPUT
1. Gross Domestic Product (GDP) :-

GDP is the3 money value of all final goods and services produced in the domestic
territory of the country in a year’s time.
Domestic territory of the country includes :-
a. Political boundary including territorial waters of the country.
b. Ships and aircraft operated by a country between political frontiers of two or
more countries.
c. Oil and natural gas rigs, fishing vessels and floating platforms operated by a
country in international waters.
d. Embassies, military establishments and consulates of a country located abroad.
2. GDP at Constant Prices and at Current Prices :-

When the GDP is calculated on the basis of the prices prevailing in the market, it is called
gross domestic product at current prices. On the other hand when the GDP is calculated on
the basis of some fixed prices keeping as base, then it is called GDP at the constant prices.
3. GDP at Factors Cost :-

GDP at factor cost is the sum of domestic factor incomes and consumption of fixed capital.
In brief GDP (FC) = GDP (MP) – IT = S

GDP (FC) = GDP (MP) _ NIT
Where IT = Indirect taxes; S= Subsidies and NIT + Net Indirect Taxes
4. Net Domestic Product (NDP):-

While calculating GDP no provision is made for depreciation allowance (also called capital
consumption allowance). When depreciation allowance is subtracted from gross domestic
product we get net domestic product. In brief, NDP = GDP – Depreciation.
5. Gross National Product (GNP) :-

GNP is the gross Market value of all final goods and services produced annually by the
residents of the country whether inside the country or outside. Being gross it includes
depreciation and being national, lit takes into account production done by residents within
and outside the country.
In brief – GNP + NFIA (where NFIA is the net factor income from abroad).
6. Net National Product NNP):-

It can be derived by subtracting depreciation allowance from GNP.
in brief – NNP = GNP Depreciation or NDP + FFIA.
7. NNP at Factor cost or National Income :-
MNP at factor cost or national income is defined as the sum of domestic factor incomes
and net factor income from abroad. If NNPmp is available, we will subtract indirect
taxes and add subsidies to get the figure of NNPfc or national income of the economy.
Summary :-
The following statements mathematically a summary as follows :
a. GNP at market price – Depreciation = NNP at market price.
b. GNP at market price – NFIA = GDP at market price.
c. GNP at market price – NIT = GNP at factor cost.
d. NNP at market price – NFIA = NDP at market price.
e. NNP at market price – NIT = NNP at factor cost.
f. GDP at market price – NIT = GDP at factor cost.
g. GNP at factor cost – Depreciation = NNP at factor cost.
h. NDP at market price – NIT = GDP at factor cost – depreciation.
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
METHODS OF MEASURING NATIONAL INCOME
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.
(1) PRODUCTION METHOD (VALUE ADDED METHOD):-
(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.
Precautions While Using Product Method :-
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.
(1) INCOME METHOD :-

 Different factors of production are paid for their productive services rendered to an
organization. Thus labour gets wages, land gets rent capital gets interests and
entrepreneur gets profits.
 In other words, whatever is produced is distributed among the factors of production for
their services and their aggregate of factor incomes of all the factors of production is the
subject matter of calculation of National income by income method.
 The various incomes that are included in this method are classified into :-
(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.
(2) EXPENDITURE METHOD :-

 This method of measuring national income is based on the assumption that what is one
man’s expenditure is other man’s income. “Hence the national expenditure should be
equal to national income”
 The various sectors i.e the household sector, the business sector and Government
sector either spend their incomes on consumer goods and services or save a part of
their incomes or we can say that they spent a part of their incomes on non consumption
goods.
 These expenditure are grouped as :-
(a) Private consumption.
(b) Private investment.
(c) Public consumption.
(d) Public Investment.
(e) Change in stock.
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.
Precautions While Using Expenditure Method :-
(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.
PROBLEMS/DIFFICULTIES IN ESTIMATION OF NATIONAL INCOME
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.
1. Final goods and service sold in market in the current period.

2. Other goods and service sold be the Govt.
3. Production for self – consumption.
4. Own account production of fixed assets.
5. Imputed rent of owner occupied houses.
6. Economic activities.
7. Mixed income-income from self employed resources.
8. Brokerage and commission earned by the dealers on second hand goods.
9. Expenditure on financial assets of foreign countries.
What is not included in NI
1. Self consumption services – housewives.

2. Leisure time activity – hobbies
3. Illegal incomes, death duties and gift tax.
4. Sale of second hand machine.
5. Expenditure on financial assets – shares and bonds.
6. Expenditure on raw materials and intermediate goods.
7. Transfer payments .income (unproductive activities) – like charity, donations, pension
for retired workers and unemployment allowances.
8. Scholarships given to SC students.
9. Goods produced in preceding years.
TRENDS IN INDIA’S NATIONAL INCOME GROWTH AND SRUCTURE
(1) Trends in NNP :
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
Plan Growth Rate (in %) Reasons

I 3.7
II 4.2
III 2.8 Serious drought in 1965-67
IV 3.9 Sharp rise in prices. Short falls
in the production on account of
lower utilization of capacity.
V 5
VI 5.5
VII 5.8
VIII 6.8 Economic reforms and good
harvest
IX (Target 6.5) 5.4 Dismal performance of the
industry.
(4 years ending 2005-06) 7.6
(Target 8%)
(2) Trends in Per Capita Income :-
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.
Plan Growth Rate (in %) Reasons

I 1.8
II 2.0
III 0 Serious drought in 1965-67
IV 1.5 Sharp rise in prices. Short falls
in the production on account of
lower utilization of capacity.
V 2.7
VI 3.2
VII 3.6
VIII - Data not available
IX - Data not available
(3 years ending 2004-05) 2.2, 7.2, and 6.1
OBJECTIVE
Q 1. Which of the following is an economic activity?

(a) Listening to music on the radio.
(b) Teaching one’s own son at home.
(c) Medical facilities rendered by a charitable dispensary.
(d) A housewife doing household duties.
Q 2. Net value added is equal to ?

(a) Payments accruing to factors of production.
(b) Compensation to employees.
(c) Wages plus rent plus rent.
(d) Value of output minus depreciation.
Q 3. Per capital national income means.

(a) NNP + population.
(b) Total capital + Population.
(c) Population + NNP.
Q 4. Which of the following is correct ?

(a) If national income rises, per capital income must also rise.
(b) If population rises, per capital income must fall.
(c) If national income rises, welfare of the people must rise.
Q 5. Which of the following is incorrect ?

(a) GDP at market price = GDP at factor cost plus net indirect taxes.
(b) NNP at factor cost = NNP at market price minus indirect taxes.
(c) GVP at market price = GDP at market plus net factor income from abroad.
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 7. Net national product at factor cost is

(a) Equal to national income.
(b) Less than national income.
(c) More than national income.
(d) Sometimes less than national income and sometimes more than it.
Q 8. Transfer payments refer to payments, which are made

(a) Without any exchange of goods and services.
(b) To workers on transfer from one job to another.
(c) As compensation to employees.
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.
Q 10. Identify the items which is not a factor payment.

(a) Free uniform to defense personnel.
(b) Salaries to the members of parliament.
(c) Imputed rent of an owner occupied building.
(d) Scholarships given to the scheduled caste students.
Q .11 Mixed income of the self employed means

(a) Gross profits received by proprietors.
(b) Rent, interest and profit of an enterprise.
(c) Combined factor payments which are not distinguishable.
(d) Wages due to family workers.
Q 12. Demand for final consumption arises in

(a) Household sector only
(b) Government sector only
(c) Both household and Government sectors.
(d) Neither household nor Government sector.
Q 13. Demand for intermediate consumption arises in

(a) Consumer households.
(b) Governments enterprises only.
(c) Corporate enterprises only.
(d) All producing sectors of an economy.
ANSWER
1. (c) 2. (a) 3. (a) 4. (d)

5. (b) 6. (b) 7. (a) 8. (a)
9. (d) 10. (d) 11. (c) 12. (c)
13. (d) 14. 15. 16.
Understanding of Tax System
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.
TAX STRUCTURE IN INDIA
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.
(a) Personal Tax

Personal income tax in India has a progressive income tax because whole income is divided
into different slabs and it is taxed on the basis of slab into which it falls. For example, first
1,10,000/-nil tax, next 40,000 @ 10%, next 1,00,000 @ 20% and balance amount 30%. At
present the marginal tax rate is (i.e tax for the highest slab) is 30%.
(b) Corporate Tax

Corporate tax is levied on the incomes of registered companies and corporations i.e Pvt ltd
and Ltd Company @ flat 30%.
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.
FEATURES OF TAX STRUCTURE IN INDIA
Following are the main features of tax structure of India :-
1. High Tax Revenue :-

Tax revenue form about 20% of the total national income of India. India is one of the highest
taxed countries. Main reasons for high burden of tax as in India.
(a) Rise in expenditure on defense and other non –development activities.

(b) Increase in expenditure on development planning.
Tax revenue collection has increased from Rs 460 crores in 1951-52 to more than 6,89,000
crores in 2005-06.
2. Large share of Indirect Taxes :

 Indian tax system has become more and more injustice. At present the ration of direct
tax and indirect tax is 35% : 65 % in 2005-06.
 Thus there has been an increasing reliance on indirect taxes, which ;is not good.
3. Narrow Population Base :

Only 2.5% of the population is liable to pay income tax in India. Thus, Indian tax structure has a
very narrow population base.
4. Inadequate Tax Revenue:

The total tax revenue is highly insufficient to meet the expenditure requirements of the
economy. Over time there has been an increasing reliance to internal and external debts.
5. Complicated and Illogical Income Tax Structure :

The income tax structure is very complicated and illogical. However, recently steps have been
taken to rationalize and simplify the whole system of taxation.
6. Structure of Taxes has changed:

Earlier income tax and corporate tax were important, now excise duty is one of the largest
sources of tax revenue.
7. Direct Taxes are Progressive:

Direct tax rates increase with increase in income and indirect tax rates are constant or
sometimes higher for luxury items and lower for necessities.
8. The Agriculture income is wholly exempted from the Income Tax :

At present, income tax revenue from the agriculture sector is negligible.
9. Tax Collection Expenses :

The cost of tax collection has increased from Rs 543 crore in 1990-1991 to more than 3,663
crore in 2004-2005.
TAX OBJECTIVE
Direct Taxes
Q 1. One of the following is not the merit of direct taxes, find it

(a) They are imposed according to the ability of the person to pay.
(b) These taxes create civil consciousness.
(c) The revenue is income elastic.
(d) They do not require maintenance of accounts.
Q 2. Find the tax which is direct tax among the following
(a) Personal income tax.
(b) Excise duty.
(c) Sales tax.
(d) Service tax.

(a) Income tax was abolished in India in 1991.
(b) Gift tax was abolished in India in 1998.
(c) All the sates have adopted VAT system of indirect taxation.
(d) Estate duty was abolished in 1995.
Q 4. ……………………is not a direct tax.

(a) Income tax.
(b) Wealth tax.
(c) Gift tax.
(d) Entertainment tax.
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%.
Q 6. Estate duty was levied on the …………………………….

(a) Incomes of the individual.
(b) Production of goods.
(c) Export and import goods.
(d) Total property passing to the heirs on the death of a person.
Q 7. Which of the following statement is incorrect?

(a) Indian tax structure relies on a very narrow population base.
(b) Direct taxes are differential, indirect taxes are progressive in nature.
(c) The ration of direct taxes to indirect taxes which was 40.60 in 1951 declined to 20:80
in 1991.
(d) The total tax revenue is highly insufficient to meet the expenditure requirement of
the economy.
Q 8. Wealth Tax was abolished in
(a) 1985.
(b) 1988.
(c) 2005.
(d) False it is still continuing.
Q 9. On which of the following income tax is not imposed in India?

(a) Income from salary.
(b) Income from house property.
(c) Interest on fixed deposits.
Q 10. Which of the following is not the example of direct tax?
(a) VAT.
(b) Wealth Tax.
(c) Corporate Tax.
(d) Income Tax.
Q 11. which one is a direct tax among the following ?

(a) Wealth tax.
(b) Excise Duty.
(c) Service Tax.
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.

(a) Excise duty is levied on sales volume.
(b) Custom duties have been drastically cut down since 1991.
(c) VAT has been adopted by all the sates in India.
(d) Agriculture contributes the maximum to the direct tax revenues in India.
Q 14. Custom duties are levied on…………………………

(a) Incomes of the individual.
(c) Export and import of goods.
(d) Incomes of the corporate.
Q 15. Suppose a shopkeeper buys inputs worth Rs 2,00,000 and his sales are worth Rs
4,00,000 in a month. The input tax rate is 4% and output tax rate is 10%. What is value added
tax here after set off of input tax credit?
(a) Rs 32,000
(b) Rs 8,000
(c) Rs 4,0000
(d) Rs 20,000
Q 16. Excise duties are levied on……………….

(a) Incomes of the individual
(c) Export and import of goods.
(d) Incomes of the corporate.
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 18. VAT is levied by

(a) Central Government.
(b) State Government.
(c) Local Government.
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.
Q 23. CENVAT was introduced in the year.

(a) 2001-02.
(b) 2000-01.
(c) 2002-03.
(d) 2004-05.
Q 24. The basis rate of Excise duty is

(a) 6%
(b) 16%
(c) 24%
(d) None of the above
Q 25. Advalorem duty means duty imposed on the basis of

(a) Percentage of price of the commodity.
(b) Per unit on the commodity.
(c) Both (a) and (b).
Q 26. Which of the following is not an indirect tax reform?

(a) Reducing the peak rate of custom duties.
(b) Rectifying anomalies like inverted duty structure.
(c) Introduction of VAT for achieving harmonized.
(d) The tax rate on foreign companies has also been reduced from 55% to 40%.
FEATURES OF TAX STRUCTURE
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 28. At present direct taxes are around ………………% of GNP.

(a) 10
(b) 15
(c) 12
(d) 5
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 30. Pick up the correct statement.

(a) Inflation is a persistent fall in the price level.
(b) The Indian direct tax structure relies on a very narrow population base.
(c) Mixed income of self-employed means gross profits received by proprietors.
Q 31. Dumping involves

(a) Selling at price in another market which is lower than the price or cost in your home
market.
(b) Price discrimination between the two markets.
(c) Surplus production at lower cast.
Q 32. The incidence of taxes of taxation

(a) The level and rate of taxation.
(b) Who ultimately bears the money burden of the tax.
(c) The growth of taxation.
(d) The way in which a tax is collected.
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
1. (d) 2. (a) 3. (b) 4. (d)

5. (c) 6. (d) 7. (b) 8. (d)
9. (d) 10. (a) 11. (a) 12. (c)
13. (b) 14. (c) 15. (a) 16. (b)
17. (d) 18. (b) 19. (b) 20. (b)
21. (d) 22. © 23. (b) 24. (b)
25. (a) 26. (d) 27. (b) 28. (d)
29. (b) 30. (b) 31. (a) 32. (b)
33. (b)
POPULATION
POPULATION
 Population of India means the total number of people living in India. Population is very
essential for the growth of country.
 Following are the advantages of having a large size of population.

(a) It provides work force to produce.
(b) It provides market for the products produced.
(c) It may promote innovative ideas.
(d) It may promote division of labor and specialization.
 Following are the disadvantages of having a large size of population.

(a) There may not be adequate jobs to absorb all additional people.
(b) They put pressure on means of living.
(c) They put pressure on social overheads (hospitals, schools, roads etc).
(d) They may result in increased consumption and reduced savings and capital
formation.
 So growing population is an asset or a liability for the economy depends upon economy
to economy.
POPULATION TREND IN INDIA
(1) Size of Population :

(a) The India’s population is growing since 1901 and India’s present population is above
100 crores.
Year Population (In crores)

1901 23.84
1911 25.21
1921 25.13
1931 27.90
1941 31.87
1951 36.11
1961 43.92
1971 54.81
1981 68.33
1991 84.33
2001 102.70
2004-05 111
Note :-
 India’s population rank is second in the world after China.

 India has only about 2.4% of the world’s area and 1.2% of the world’s income but India
accommodates about 16.7% (nearly 17%) of the world’s population.
 Every sixth person in the world is an Indian. (nearly seventh)
 The annual addition to India’s population is almost equal to the total population of
Australia.
(2) Size of Population :

Following table shows the rate of growth of population in India. It shows growth rate of
population per decade and per annum.
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.
(3) Birth Rate and Death Rate :

Birth rate refers to number of birth per thousand of population. Similarly, death rate refers
to number of deaths per thousand of population.
(Birth and Death Rate)
Year Birth Rate Death Rate

1951 39.9 27.4
1961 41.7 22.8
1971 36.9 14.9
1981 33.9 12.5
1991 29.5 9.8
2001 25.4 8.4
* 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 Density of Population

1951 117
1961 142
1971 178
1981 216
1991 274
2001 324
 Density of population is not same for all the states.

 Kerala, West Bengal, Bihar and U.P have density higher than the average density.
 Andhra Pradesh, Himachal Pradesh, Gujrat, Madhya Pradesh, Maharashtra, Karnataka,
Orissa, Rajasthan, Sikkim etc have lower density than the average density.
 Delhi has density of more than 9000 and Arunachal Pradesh 13 person.
(5) Male Female Ratio :

 This ratio refers to the number of females per 1000 males.
 The following table gives ratio since Independence.
(Females per 1000 males)
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.
(6) Life Expectancy at Birth :

 Life expectancy refers to the expectation of life at birth.
 The following table shows life expectancy at birth for males and females.
(Life expectancy at Birth)
Period Male Female Overall all average

1951 32.5 31.7 32.1
1961 41.9 40.6 41.3
1971 46.4 44.7 45.6
1981 54.4 54.7 54.6
1991 59.0 59.7 59.3
2001 62.3 65.3 63.8
(7) Literacy Ratio :

 Literacy ration refers to number of literates as a percentage of total population. Literacy
ration in general and among males and females is shown below :-
(Literacy Ratio)
Current Year Literate Persons Males Females

1951 16.7 25.0 7.9
1961 24.0 34.4 13.0
1971 29.5 39.4 18.7
1981 43.6 56.4 29.75
1991 52.21 64.1 39.3
2001 65.38 75.85 54.16
 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.
CAUSES OF THE RAPID GROWTH OF POPULATION
Population generally increases because of

(a) High birth rate.
(b) Relatively lower death rate.
(c) Immigration.
Causes of high birth rate
(a) Predominance of Agriculture :- India is predominance agrarian economy. In an

agrarian economy, children are considered assets and not burdens as they help in
agricultural fields.
(b) Slow Urbanization :- The process of urbanization is slow in India and it has failed to
generate social forces, which force people to have small families.
(c) High incidence of poverty :- There is high incidence of poverty in India. Poor people
tend to have large families as they consider every child as an earning hand.
(d) Compulsory Marriage :- Marriage is both a religious and social necessary in India.
Presently in India by the age of 50 only 5 out of 1,000 Indian women remains unmarried.
(e) Early Marriage :- Not only marriages are almost compulsory, they take place at quite
young age in India, which provides more time for women to give birth to children.
(f) Religious beliefs and superstitious :- Most Indians on account of their religious and
social superstitions desire to have more children having no regard to their economic
conditions. Every child is considered as “Gift of God”.
(g) Joint Family system:- Joint family system in India also encourages people to have large
families.
(h) Illiteracy :- Lack of education among people especially among women causes people to
have irrational attitudes and hence big families.
Causes of fall in the death rate
(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.
GROWTH OF POPULATION IN INDIA AND ITS EFFECT ON ECONOMY
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.
How growth of population has affected economic growth in India.
(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.
(5) Capital Formation :- Growth is a function of capital accumulation. In a country like

India where the rate of population growth continues to be high, much development
would not materialize. This is because a fast growth in a population of a country
reduces its capacity to save and invest which in turn affect its productive capacity and
incomes.
(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.
GOVERNMENDT MEASURES FOR SOLVING THE POPULATION PROBLEM
 In a developing country like India, Population growth is not controlled properly.

 A full fledged department of family planning was created in 1966. Various methods
were offered and the acceptors had the freedom to choose any of the methods offered.
 This has been known as “Cafeteria approach”.
 Under the policy the marriageable age was raised to 18 years for girls and boys
respectively, monetary incentives were offered for voluntary sterilization and family
planning was made a mass movement by involving various community groups like Zila
Parishad, Panchayat Samitis, Co-operative Societies and trade unions at the grass roots
levels.
National population Policy, 2000 (NPP-2000)
The following are the main features of the NPP.

(1) Address the unmet needs for basic reproductive and child health services, supplies and
infrastructure.
(2) Make school education free and compulsory upto the age of 14.
(3) Reduced infant mortality rate (IMR) to below 30 percent 1000 live births.
(4) Reduce maternal mortality ratio (MMR) to below 100 per 100,000 live births.
(5) Promote delayed marriage for girls, not earlier than age 18.
(6) Achieve 80% institutions deliveries and 100 percent deliveries by trained persons.
(7) Achieve 100% percent registration of marriage, pregnancy, births and deaths.
(8) Integrate Indian system of Medicine (ISM) in the provision of reproductive and child
health services, and in reaching out to households.
(9) Promote the small family norms.
(10) Bring about convergence in implementation of related social sector programs so
that family welfare becomes a people centered program.
Tenth Plan Targets

The tenth plan targeted
 A reduction in IMR to 45 per 1000 by 2007 and 28 per 1000 by 2012.
 A reduction in MMR to 2 per 1000 by 2007 and 1 per 1000 live births by 2012.
 A reduction in decadal growth rate of the population between 2001-2011 to 16.2
percent.
OBJECTIVE
Q 1. What is India’s rank in world population?

(a) First.
(b) Second.
(c) Third.
(d) Fourth.
Q 2. The annual addition to India’s population is almost equal to the total population of
(a) Bangladesh.
(b) Australia.
(c) Japan.
(d) China.
Q 3. Which year is known as year of great divide for India’s population?

(a) 1991.
(b) 2001
(c) 1981
(d) 1921
Q 4. In which state/union territory is the literacy rate highest?

(a) Delhi.
(b) Chandigarh.
(c) Karnataka.
(d) Kerla.
Q 5. India’s passing through……………..stage of demographic transaction

(a) Fourth.
(b) Third.
(c) First.
(d) Second.
Q 6. In the theory of demographic transition in the last stage.

(a) Birth rate rises, death rate rises.
(b) Birth rate rise, death rate falls.
(c) Birth rate falls, death rate rises.
(d) Birth rate falls, death rate falls.

(a) India’s population is second highest in the world.
(b) India is still passing through first stage of demographic transition.
(c) More people in a country always mean more economic trouble for the country.
(d) None India’s present populations.
Q 8. India’s present population
(a) Between 50-60 crore.
(b) Between 60-70 crore.
(c) Between 70-80 crore.
(d) Between 100 crore.
Q 9. India accommodates nearly……..percent of world’s population.

(a) 10
(b) 50
(c) 17
(d) 45
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.
Q 11. Every………person in the world is an Indian.

(a) Second.
(b) Third.
(c) Seventh.
(d) Tenth.
ANSWER
1. (b) 2. (b) 3. (d) 4. (d)

5. (d) 6. (d) 7. (a) 8. (d)
9. (c) 10. (a) 11. (c) 12.
Poverty
ABSOLUTE POVERTY AND RELATIVE POVERTY
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.
2. Political and Social Causes :

Political vested interests are also responsible for widespread poverty in the economy.
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.
GOVERNMENT PROGRAMMES FOR POVERTY ALLEVIATION

The plan strategies for poverty alleviation and raising the average standard of living can be
broadly dividend into three phases.
 In the first phase, the prime emphasis was on growth. It was expected that growth
through improvement in infrastructure and heavy industries would take care of the
problem of unemployment and poverty.
 In the second phase several specific programmes for poverty alleviation and
employment generation directed towards selected target groups were launched.
 In the third and final (present) phase, emphasis shifted to growth and poverty
alleviation. As two complementary actions.
The various recent programmes for poverty alleviation are as follows.
1. Pradhan Mantri Gram Sadak Yojana (PMGSY).

* The PMGSY was launched in December 2000.
* Its aim is to provide road connectivity to 1.60 lakh unconnected villages with a
population of 500 persons or more by the end of the Tenth plan.
* Upto December 2005, a total length of 82,718 km of road works has been completed.
2. Indra Awas Yojana (IAY) :

 This is a major scheme for construction of houses to be given to the poor, free of cost.
 Upto January 2006, about 318 lakh houses had been constructed/upgraded.
3. Swaran Jayanti Gram Swarozgar Yojana (SGSY) :

 This was introduced in April, 1999 as a redult of restricting and combining the integrated
Rural Development Programme (IRDP) and allied programmes and million wells scheme
(MWS).
 It is the only self employment programme for the rural poor.
4. Sampoorna Grameen Rojgar Yojana (SGRY) :

 This Programme was launched in 2001.
 This programme aims at (i) providing wage employment in rural areas (ii) food security
(iii) Creation of durable community, Social and economic assets.
 Gram Sammridhi Yojana (JGSY) have been merged with this programme since April
2002.
5. National Food for work programme (NEFWP) :

 This programme was launched in November 2004 in 150 most backward districts of the
country.
 The objective was to intensify the generation of supplementary wage employment.
 The National Rural Employment Gurantee Act was notified in September 2005 and the
scheme was launched in February 2006.
 The on-going programmes of Sampoorna Grammen Rozgar Yojana (SGRY) and National
Food for Work Programme (NFFWP) would be submerged in it.
6. The Swarna Jayanti Shahari Rozgar Yojana (SJSRY :

 It came into operation from December 97.
 Earlier urban poverty alleviation programmes viz, Nehru Rozgar Yojana (NRY), urban
Basic Service Programmes (UBSP) and Prime Minister’s integrated Urban Poverty
eradication Programme (PMIUPEP) were submerged in it.
 The scheme aims to provide gainful employment to the urban unemployed or
underemployed poor.
7. DPAP, DDP and IWDP :

 Drought prone Area Programme (DPAP) was launched in 1973-74 to tackle the special
problems faced by drought prone areas.
 Desert Development Programme (DDP) was launched in 1977-78 to mitigate the
adverse effects desertification.
 Integrated Wastelands Development Programme (IWDP) has been under
implementation since 1989-90 for the development of wastelands/degraded lands.
8. Valmiki Ambedkar Awas Yojana (YAMBAY):

 VAMBAY was launched in 2001.
 It facilities the constructions and up gradation of dwelling units for the slum dwellers it
also provides a healthy and enabling urban environment through community.
OBJECTIVE

(a) Gini coefficients are often used for measuring poverty in relative sense.
(b) When poverty is related to the distribution of income or consumption expenditure,
it is absolute poverty.
(c) In India, we mainly use the concept of relative poverty for measuring poverty.
Q 2. Identify the incorrect statement.

(a) The problems of poverty and unemployment are inter-related.
(b) The problem of poverty has been solved in India.
(c) Growing population has also contributed to the problem of poverty in India.
Q 3. SJSRY stands for

(a) Swaran Jayanti Shahari Rozgar Yojana.
(b) Shahari Jeewan Sudhar Rashtriya Yojana.
(c) Sampoorna Jeewan Shahari Rozgar Yojana.
Q 4. EAS stands for

(a) Easy Assistance Scheme.
(b) Endless Assistance Scheme.
(c) Employment Assurance Scheme.
(d) Employment Assessment Scheme.
Q 5. According to the planning Commission, a person is said to be below poverty line, if he is

earning less than ………………per capital per month for rural areas.
(a) Rs 2000, Rs 3000.
(b) Rs 500, Rs 1000.
(c) Rs 240, Rs 200.
(d) Rs 559, Rs 368.
ANSWER
1. (a) 2. (b) 3. (a) 4. (c)

5. (d)
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 :
Electricity or power is the most important source of commercial energy.

(a) There are 5 major sources of electricity (1) water (2) coal (3) oil (4) Gas and (5) Radio
active elements like uranium, thorium and plutonium.
(b) Electricity generated from Water is known as Hydro-electricity.
(c) Electricity generated from Coal, Oil and Gas (COG) is called Thermal electricity.
(d) Electricity generated from Radio – active elements is called Atomic energy.
(e) Present capacity, 62% is in the thermal sector 22.5% In the hydel and 2.5% is in the
nuclear and rest is in the other sectors.
(f) The central government, state government and private sector all work together in the
generation of power. The Central Government operates through.
National Thermal Power Corporation (NTPC).
National Hydroelectric Power Cooperation (NHPC).
Nuclear Power Corporation of India Limited (NPCIL).
(g) State Governments have their State Electricity Boards (SEBS). There also exist central
electricity authority and central electric regulatory commission.
Difficulties and Problems relating to energy
(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.
Recent steps taken to meet the above problem :
(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.
(4) Air Transport :-

(a) The first operational domestic air services are provided by Indian Airlines Ltd.
(b) Domestic air services are also provided by private airlines like Sahara, Jet Airways
Kingfisher, Spice Jet etc.
(c) Pawan Hans Helicopetrs Ltd provides helicopter support service.
(d) Air India Ltd and a lot of foreign airlines provide international air services.
(e) Airport Authority of India manages 92 airports, including five international airports
at Delhi, Mumbai, Kolkata, Chennai and Triruvananthapuram.
(f) The Department of civil aviation, Government of India, is responsible for regulatory
cum development aspect.
(g) Domestic and international traffic growth is the second highest in the world next to
China.
COMMUNICATION
The important means of communication are the postal services, telephone services, tele
printers, radio and television etc.
(1) Postal Services :-
(a) Today India’s postal network is the largest in the world.

(b) We have more than 1.55 lakh post offices and out of which around 1.4 lakh are in
the rural areas.
(c) On an average, one post office serves 6623 persons and 21.16 sq km area.
(d) Automatic mail processing centers (AMPC) have been set up at Mumbai and Chennai
for faster processing of mails. Two more AMPCs are being set up in Kolkata and
Delhi.
(e) E-post services were started in 2001 in some states.
(f) Logistics posts, Retail Post Services are other new services, which are now being
provided.
(2) Telecommunications :
(a) India’s telephone network is one of the largest in the world.

(b) There are 16.82 phones per hundred populations.
(c) India had 190 million connections (basic and mobile) as on December 31, 2005 and
5.6 villages were connected using a village public telephone (VPT). In the rural areas
more than 2 lakh public call offices (PCOs) and 14.18 million phones have been
provided.
(d) Upto December 2005, there were about 150 millions subscribers of cellular mobile
telephone services.
(e) The two PUSs in the telecom sector-Bharat Sanchar Nigam Limited (BSNL) and
Mahanagar Telephone Nigam Limited (MTNL)
(f) There has been significant growth the internet connections and broadband
subscribers.
(g) Telecom regulatory Authority of India (TRAI) is regulatory authority for telecom in
India.
(h) National internet Exchange of India (NIXI) has been set up to ensure that internet
traffic originated and destined for India is routed within India.
HEALTH
For good health, two things are essential :
(a) Balanced and nutritional diet.

(b) Medical care.
 The general health standard in India is quite low.

 Over the years, there has been a fall in the incidence of certain diseases like malaria,
polio, T.B. But there are also rises in the incidence of certain diseases like Blindness,
cancer etc.
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.
Problems of India’s Education system
(a) Unplanned expansion of higher education.

(b) Inadequate number of institutions.
(c) Low standard of education.
(d) Large number of unemployed educated people.
(e) Large – scale migration of educated people to the developed western countries.
(f) Lack of infrastructure in many rural schools – absence of rooms, blackboard, teachers
etc.
(g) Neglect of primary education.
Suggestions for improving the education system
(a) Education should be made job-oriented.

(b) Expansion of education should be carefully planned since it is costly.
(c) In rural areas emphasis should be on agriculture and vocational education.
(d) Technical education should be properly planned.
(e) Efforts should be made to stop brain drain i.e highly educated people going abroad in
search of jobs.
(f) The standard of education should be raised.
OBJECTIVE
Q 1. At present nearly …………..percent of the energy consumed is obtained from non-

commercial traditional sources.
(a) 45
(b) 51
(c) 23
(d) 10
Q 2. The highest user of commercial energy is

(a) Agriculture.
(b) Transport.
(c) Household.
(d) Industry.
Q 3. In terms of generation of power…..’s contribution is the maximum.

(a) Hydel.
(b) Nuclear.
(c) Thermal.
(d) Others.
Q 4. NTPC stands for

(a) National Thermal Power Corporation.
(b) National Tidal Power Corporation.
(c) National Theological Power Corporation.
(d) National Talent and Potential Corporation.
Q 5. ……………….measures the operational efficiency of

(a) Thermal plant.
(b) Power load factor.
(c) Power leakage factor.
(d) Plant leakage factor.
Q 6. According to the latest data (2005) PLF is lowest in

(a) Southern region.
(b) Northern region.
(c) Western region.
(d) North eastern region.
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 8. Electricity generated from radio active elements is called

(a) Thermal electricity.
(b) Atomic energy.
(c) Hydel electricity.
(d) Tidal energy.

(a) The demand and the supply of fuel are almost equal.
(b) Our import bill on account of oil has been decreasing since 1990.
(c) Oil prices have been decreasing since 1973.
(d) Transmission and distribution losses of power companies are very high.
Q 10. Which of the following statements is incorrect?

(a) The Indian road network is second longest in the world.
(b) The rural road network connects around 65 percent of all weather roads.
(c) Most of the state Road Transport corporations are running on profits.
(d) The National highways carry more than 40 percent of the total road traffic.
Q 11. In terms of overseas shipping tonnage, India ranks.

(a) 10th
(b) 15th
(c) 20th
(d) 17th
Q 12. Of the major 12 ports……………is the top traffic handler.

(a) Paradip.
(b) Cochin.
(c) Vishakhapatnam.
(d) Mumbai.
Q 13. Sahara jet and Kingfisher are examples of

(a) Private schools.
(b) Private airlines.
(c) Private ships.
(d) Private railways.
Q 14. Our postal network is ……………..in the world.

(a) Largest.
(b) Smallest.
(c) Tenth largest.
(d) Tenth smallest.
Q 15. On an average, one post office in India seves.

(a) 100 persons.
(b) 1000 persons.
(c) 6623 persons.
(d) 5800 persons.
Q 16. There are about…………………..phones per hundred populations in India.
(a) 16.80
(b) 12.85
(c) 13.83
(d) 15.15
Q 17. Who is regulatory authority for telecom in India?

(a) SEBI
(b) TRAI
(c) MTNL
(d) BSNL
Q 18. Over the years, the incidence of malaria (cases in million) has…………..
(a) Reduced.
(b) Increased.
(c) Remained the same.
(d) Doubled.
Q 19. Over the years, the number of polio cases has

(a) Increased.
(b) Reduced.
(c) Remained the same.
(d) Doubled.
Q 20. NLM stands for

(a) National leprosy Mission.
(b) National Logistic Mission.
(c) National Literacy Mission.
(d) National Law Mission.
Q 21. IIM stands for

(a) Indian Institute of marketing.
(b) Indian Institute of Manpower planning.
(c) Indian Institute of Management.
(d) International Institute of Management.
ANSWER
1. (c) 2. (d) 3. (c) 4. (a)

5. (c) 6. ((d) 7. (a) 8. (b)
9. (d) 10. (c) 11. (d) 12. (c)
13. (b) 14. (a) 15. (c) 16. (a)
17. (b) 18. (a) 19. (b) 20. (c)
21. (c)
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.
MEASURE TO CHECK INFLATION

Inflation can be controlled with the following measures:-
(1) Monetary Measures :- Monetary measures means measures regarding money and
credit. Monetary measures are taken by the RBI and it includes.
Control the money supply.

Control of credit control of credit includes.
(a) Quantitative measures :-

(I) Sale of securities in open market.
(ii) Increase in Bank Rate.
(iii) Increase in Cash Reserve Ratio.
(iv) Increase in Statutory liquidity Ratio.
(b) Qualitative measures :-

(I) Increase in margin requirements.
(ii) Consumer credit regulation.
(iii) Rationing of credit.
(iv) Moral suasion.
(v) Direct action.
(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.
PRICE TRENDS IN INDIA

 During the fifties, the average decade’s rate of inflation was very low at 1.7%
 The maximum inflation at 13.9% was recorded for the year 1966-67.
 Now inflation rate is controlled i.e 4.7% during 2005-06.
Objective
Q 1. The combined phenomenon of stagnation inflation is called

(a) Demand-pull inflation.
(b) Cost-push inflation.
(c) Money inflation.
(d) Stagflation.
Q 2. When prices are falling continuously, the phenomenon is called.

(a) Inflation.
(b) Stagflation.
(c) Deflation.
(d) Reflation.
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.
ANSWER
1.(d) 2. (c) 3. (a)

Budget & Fiscal Deficit in India
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)
1. Revenue Receipts 54,950 3,51,200

2. Capital receipts of which
a. Loan recoveries + other 5,710 12,000
Receipts
b. Borrowings 33,300 39,010 1,51,144 1,63,144
3. Total receipts (1+2) 93,960 5,14,344
4. Revenue expenditure 73,510 4,15,982
5. Capital expenditure 31,800 98,362
6. Total expenditure (4+5) 1,05,310 5,14,344
7. Budgetary Deficit (3-6) 11,350 Nil
Add : borrowing and other 33,300 1,51,144
Liabilities
8. Fiscal deficit 44,650 1,51,144
TRENDS IN INDIA’S BUDGET AND FISCAL DEFICITS

 The Government now taps 91 days treasury bills from the market and shows it as part of
the capital receipts under the heading” borrowings and other liabilities”
 To restore fiscal discipline, the fiscal responsibility and budget management act (FRBM-
Act) was passed in 2003.
Balance of Payment and Balance of Trade

MEANING
(1) The Balance of payments :-

(BOP) is a systematic record of all economic transaction between the one country and rest
of the world in a year it includes –
(a) Balance of current Accounts – it includes
Balance of trade (BOT)
Balance of services
Balance of unrequited transfers.
(b) Balance of capital account
(2) Balance of Current Account :-

(a) Balance of trade – Balance of trade is the difference value of export goods and value
of import goods, it may be of three types.
-Equilibrium balance of trade if Export = import.
Deficit balance of trade if Export<Import.
Surplus balance of trade if Export>Import.
(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.
Types – Balance of payments may be of three types

(a) Favorable BOP.
(b) Unfavorable BOP
(c) Equilibrium BOP
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.
TENDS IN BLANCE OF PAYMENTS OF INDIA
While analyzing India’s balance of payments situation we find that :

(a) A country, like India, which is on the path of development generally, experience a deficit
in balance of payments situation.
(b) Over the period of planning India’s balance of payments has generally remained
unfavorable.
(c) During the fifth plan experienced surplus in the balance of payment.
EXTERNAL DEBT
External assistance to India has been in two forms

(a) Grants- Grants do not involve any repayment obligation. It includes gift and donation
etc.
(b) Loans- Loan carries an obligation to pay interest and repay the principal. About 90% of
the external assistance received by India has been in the form of loan. These loans from
different sources like World Bank, IMF, International Development association, U.S.A
U.K etc.
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.
India’s external debit was 15.8% of GDP in 2004-2005.

Objective
Q 1. ………………..is the difference between total receipts and total expenditure.

(a) Fiscal deficit.
(b) Budget deficit.
(c) Revenue deficit.
(d) Capital deficit.
Q 2. If borrowings and o
(a) Revenue deficit.
(b) Capital deficit.
(c) Primary deficit.
(d) Fiscal deficit.
Q 3. FRBM Act stands for

(a) Fiscal revenue and Budget Management.
(b) Foreign Revenue and Business Management.
(c) Fiscal Responsibility and Budget Management.
(d) Foreign Responsibility and Budget Management.
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.
Q 5. EPCG scheme stands for

(a) Export package for capital Goods.
(b) Export promotion capital Goods.
(c) Excise promotion capital Goods.
(d) Excise package for capital Goods.
Q 6. The share of concessional debt in total external debt of India has.

(a) Remained the same.
(b) Doubled.
(c) Reduced.
(d) Increased.
Q 7. About………….percent of the external assistance has been in the form of loans.
(a) 40
(b) 30
(c) 10
(d) 90
ANSWER
1. (b) 2. (d) 3. (c) 4. (d) 5. (b) 6. (c) (7. (d)
MEANING AND TYPES OF UNEMPLOYMENT

 Every sixth persons in the world is an Indian and every third poor person in the world is
also an Indian.
 It has been observed that with the increase in the number of unemployment persons
poverty expands.
 Removal of unemployment has been given serious consideration only after fifth plan.
 A person who is not gainfully employed in any productive activity is called unemployed.
 The important forms of unemployment are.
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.
NATURE OF UNEMPLOYMENT IN INDIA
 Most of the unemployment in India is definitely structural.

 In India we can classify as rural unemployment and urban unemployment.
 Urban unemployment is mainly of ;industrial unemployment and educated
unemployment type.
 Rural employment is seasonal and disguised in nature.
 It is estimated that over one-third of India’s work force is disguisedly unemployed.
CAUSES OF UNEMPLOYMENT IN INDIA
The various causes responsible for widespread unemployment in India are as follows :-
1. Growth without adequate employment opportunities :- As economy grows usually

employment also grows. But in India, most of time, the economic growth has been
inadequate and adequate number of jobs could not be created.
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.
Before understanding the incidence of unemployment, it is better to understand the meaning

of labor force, work force and unemployment rate :-
1. Labour Force Participation Rate (LFPR) : Includes both employed and unemployed
labors. The LFPR is defined as the number of persons in the labor force per 1000
persons.
2. Work Force Participation Rate (WFPR) : Work force refers to that part of labor, which is
employed. The WFPR is defined as the number of persons/person days employed per
1000 person days.
3. Unemployed rate :- Means persons unemployed (PU) defined as the number of
person’s unemployed per 1000 persons in the labor force.
MEASUREMENT OF UNEMPLOYMENT
There are three main measures of employment and unemployment.
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.
All India LFPR (2004) (Number of persons per thousand population)
WFPR PU LFPR PU/LFPR

UPS 411 9 420 2.14%
CWS 370 20 390 5.12%
CDS 33 33 363 9.09%
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.
(1) The unemployment rate went up between 1993-94 to 2004.

(2) Similarly, unemployment rate for females increased from 56 per thousand persons or
5.6% 1993-94 per thousand persons or 9.3% in 2004 in rural areas and from 105 per
thousand persons or 10.5% to 117 per thousand persons or 11.7% in urban areas.
(3) In 2004 rural unemployment rates for males were higher than urban employment rates.
(4) The approach paper to the Mid-term Appraisal (MTA) of the Tenth Plan, repeated that
employment growth should exceed growth of labor force to reduce the backlog of
unemployment.
Unemployment Objective
Q 1. The following table provides a breakdown of country’s population (million)
Total population 228 Children (blow the working age 36

Unemployed people looking for a job 18 Full time students (Not looking for a job) 4
Retired people 28 Employed people 126
People confined to correctional 2 Other adults not in the labour force.
institutions
Based on the information in table, the country’s unemployment rate is

(a) 7.9%
(b) 12.5%
(c) 20.25
(d) 22.2%
Read the following paragraph and answer question 2 and 3.
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 2. The type of unemployment jacqueline is experiencing is

(a) Frictional
(b) Structural
(c) Seasonal
(d) Cyclical
Q 3. The type of unemployment john is experiencing is

(a) Frictional
(b) Structural
(c) Seasonal
(d) Cyclical.
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 8. Disguised unemployment in India is maximum in :

(a) Agricultural sector.
(b) Secondary sector.
(c) Tertiary sector.
Q 9. Unemployment rate in India is defined as the rate of number of persons unemployment

to total.
(a) Population.
(b) Population excluding children.
(c) Labour force.
(d) Population excluding the aged.
Q 10. A situation of employment in which a person is apparently employed but contribution to

the production is almost nil is called……………unemployment.
(a) Structural
(b) Chronic.
(c) Disguised
(d) Cyclical.
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 12. According to measure, a person is said to be employed or the week even if he is

employed only for a day during the week.
(a) Usual status.
(b) Current weekly status.
(c) Current daily status.
(d) Current yearly status.
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.
Q 15. Most of the unemployment in India is……………..

(a) Voluntary.
(b) Structural.
(c) Frictional.
(d) Technical.
Q 16. Work force refers to that part of

(a) Labor force, which is employed.
(b) Population, which is unemployed.
(c) Population, which is forced to work.
(d) Labor force, which is unemployed.
Q 17. According to the latest NSSO survey (2004)

(a) The unemployment rates went down between 1993-94 to 2004.
(b) The unemployment rates went up between 1993-94 to 2004.
(c) The unemployment rates remained same between 1993-94 to 2004.
Q 18. According to the latest NSSO survey (2004)

(a) Unemployment rates on the basis of current daily status were same as those on the
basis of usual status.
(b) Unemployment rates on the basis of current daily status were higher than those on
the basis of usual status.
(c) Unemployment rates on the basis of current daily status were lower than those on
the basis of usual status.
ANSWER
1. (b) 2. (a) 3. (b) 4. (c)

5. (a) 6. (b) 7. (d) 8. (a)
9. (c) 10. (c) 11. (c) 12. (b)
13. (a) 14. (b) 15. (b) 16. (a)
17. (b) 18. (b) 19. 20.
Liberalisation, Privatisation and Disinvestment
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.
Pre-conditions for Privatisation to Prove Successful :
(a) Liberalisation of the economy.

(b) Capital market should be sufficiently developed.
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 AND DISINVESTMENT IN INDIA
Privatisation in India generally is in the form of disinvestment of equity. Following are the
cases of privatization in India till 2005-06:-
(1) Bharat Aluminium company Ltd (BALCO)

(2) CMC Ltd.3
(3) Hindustan Zinc Ltd (HZL).
(4) Hotel Corporation of India Ltd (HCI).
(5) HTL Ltd (HTL).
(6) IBP Company (IBP).
(7) India Tourism Development Corporation (ITDC).
(8) Indian Petrochemical Corporation (IPCC).
(9) Jessop and Company Ltd (JCL).
(10) Lagan Jute Machinery Corporation Ltd (LJMC).
(11) Maruti Udyog Ltd.
(12) Modern food Industries Ltd.
(13) Videsh Sanchar Nigam Ltd (VSNL)
PROGRESS OF DISINVESTMENT
 The disinvestment progreamme was started in 1991-92.

 This is true that not only enterprises which were los making but also the high profile
companies such as ONGC, SAIL, BHEL, Maruti, VSNL and IPCL ARE DISINVESTED.
 Progress of disinvestment is not as good as targeted. As a result the total realization of
the government from various rounds of disinvestment has been much below the target
during the 1991-to 2006.
 Against the target of 4,000 crore disinvestment in 2004-05, the actual disinvestment has
been 2765 crore.
OBJECTIVE DIS-INVESTMENT
Q 1. ………………refers to relaxation of previous government restrictions.

(a) Privatisation.
(b) Globalisation
(c) Disinvestment.
(d) Liberalisation.
Q 2. ……………………….refers to the transfer of assets or services functions from public to

private ownership.
(a) Privatisation.
(b) Globalisation
(c) Disinvestment.
(d) Liberalisation.
Q 3. …………………….refers to disposal of public sector’s units in equity in the market.

(a) Privatisation.
(b) Globalisation
(c) Disinvestment.
(d) Liberalisation.
Q 4. The pre condition for privatization to be successful requires.

(a) Liberalization and de-regulation of the economy.
(b) Capital markets should be sufficiently developed.
(c) None of the above.
(d) Both of the above (a) and (b).
Q 5. Privatisation in India has taken place in all of the cases except.

(a) CMC.
(b) BALCO
(c) VSNL.
Q 6. Which of the following statements is correct.

(a) The disinvestment programme has been successfully carried out in India.
(b) Privatization upto 100% has been carried out in all the PSUs in India.
(c) Under strategic sale method of disinvestment, the government sells a major share to
a strategic buyer.
ANSWER
1. (d) 2. (a) 3. (c) 4. (d)

5. (d) 6. (c) 7. 8.
Globalization
MEANING OF GLABLIZATION
(a) Globalization is a process of increasing economic interdependence between countires in

the world economy. It is relative softening up of economic and trades barriers across
the countries so as to facilitate a free interflow of capital, technology, people, goods and
services.
(b) Eventually, globalization would mean being able to manufacture in the most cost
effective way any where in the world. It means being able to procure raw materials and
labour and drawing management resources from the cheapest sources anywhere in the
world.
(c) Globalization intends to integrate the Indian economy with the world economy.
(d) As a result of globalization efforts taken by India, we find all types of goods available
here. For example, Lee Cooper shoes, Reebok T-shirts, Rayban sunglasses, Coca Cola,
Pepsi etc have flooded the Indian market.
CASES IN FAVOUR OF FLOBALIZATION MERITS
(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.
CASES AGAINST CLOBALIZATIN/DEMERITS
(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.
MEASURES/STEPS TOWARDS GLOBALISATION

Since 1991, the Government of India has been in the process of reforming the economy
globalization, which intends to integrate of Indian economy with the world economy, is and
important component of the reforms package. In specific, the following measures have been
taken to globalize and liberalize the economy,
(1) Liberalization of Foreign Trade :
* Prior to mid 1991, foreign trade of India suffered from strict controls.
* Since 1991, instead of control and regulations, the focus is on promotion and
development of foreign trade.
* EXIM policy of 1992-1997, owed the free import of all items including capital goods
except a negative list. Similarly, it allowed exports a negative list and import duties on a
wide range of commodities were drastically cut down.
(3) Inviting Foreign Capital :

 The waves of globalization across the world, has forced Indian economy to open its
national markets for international business.
 The initial policy for foreign direct investment (FDI) in India came in July 1991, when the
new industrial policy provided automatic approval for project with foreign equity
participation up to 51 percent in high-priority areas..
 In recent year, the government has initiated the second generation reforms under
which measures have been taken to further facilitate and broaden the vase of foreign
direct investment in India.
 The policy of FDI allows freedom of location choice of technology, repatriation of capital
and dividends.
 Now FDI up to 25%, 49%, 51%, 74% and even 100% has been allowed in different
industries.
(4) Other Measures :-

Besides the above, many other measures have been taken to integrate the economy with
he world economy. These include :
 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.
EFFECT OF GLOBALISATION ON INDIAN ECONOMY

The following achievements have been claimed due to globalization.
(1) Our foreign currency reserves which had faller to nearly one million dollars in June 91
rose substantially to about 141 billion dollars March 2005.
(2) Exports now finance over 80 percent of imports, compared to only 60 percent in the
latter half of the eighties.
(3) Contrary to what many feared, the exchange rate for rupee has remained almost steady
despite the introduction of full convertibility of rupees.
(4) The current account deficit was over 3 percent of GDP in 1990-91. If was fallen to about
less than one percent in 2000-01. During 200-03 we even had surplus in current a/c.
(5) At the time of crises, our external debt was rising at the rate of $8 billion a year, after
that its growth has been arrested from 1997 to 1998 and it grew only by about $1
billion.
(6) Certain benefits of globalization have accrued to the Indian consumer in the form to
large variety, of consumer goods. Improved quality of goods and in some cases,
reduced prices of consumer durables.
(7) International confidence in India been restored. This is indicated by foreign direct
investment.
(8) The rating agencies which rate investment risk in countries for global investors, has
upgraded India’s rating.
(9) The average growth of export has been around 10% p.a during 1992-2001. More and
more Indian companies are opening branch offices/subsidiaries in other countries.
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.
MAIN ORGANISATION FOR FACILITATAION BLOBALISATION
There are many international organizations which have facilitated the process of globalization.
Some of them are as follows.
(1) INTERNATIONAL MONETARY FUND (IMF) :

The IMF was organized in 1946 and commenced its operation in March 1947. Its initial
membership was 31 and now 185 countries are ‘’member of IMF.
Objectives
There are four following general objectives of the IMF:

1. Elimination or reduction of existing exchange controls.
2. Establishment and maintenance of currency convertibility.
3. Extension of multilateral trade and payment.
4. Solving the balance of payment problems.
Functions :
The following are major functions of the IMF.

1. It functions as a short terms credit institution.
2. It provides machinery for the orderly adjustment of exchange rates.
3. It is a reservoir of the currencies of all the member nations who can borrow the
currency of other nations.
4. It is a short of lending institution in foreign exchange.
5. It is also provides a machinery for international consultations.
2. WORLD BANK OR INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

(IB.R.D)
The world Bank or IBRD was established in 1945 with the aim of providing long terms loans
to its 185 members countries for the reconstruction and development of the economies.
Objectives:
Objective of World bank is as follows
(1) To invest in the people, particularly through basic health and education.
(2) To the environment.
(3) To help in the reconstruction and dev development of member countries.
(4) To encourage the development of productive resources in developing countries by
supplying them investment capital.
(5) To help raise standard of living in member countries.
(6) To encourage long term foreign investment.
(7) To help its members in constructing economic infrastructure.
(8) To provide facility for long term loan for its member countries.
3. WORLD TRADE ORGANSTION 9WTO) :

 WTO is an international trade organization which came into existence on January 1,
1995.
 The WTO will act as permanent watchdog an International trade and in which each
member, nation will have single voting right. I will be directed by a ministerial
conference that will meet at least once every two years and its regular business will be
overseen by a general council.
 With enlarged functions it plays a major role in the world economic affair.
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).
(6) The WTO shall monitor national trade policies.
(7) It shall provide technical assistance and training to developing countries.

ECONOMIC REFORMS IN INDIA
(a) ECONOMIC REFORMS
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.
(B) INDUSTRIAL SECTOR

In the industrial sector, following reforms were undertaken after new industrial policy – 1991
(NIP 1991) :
(1) Industrial licensing was abolished for all projects except for 18 industries related to
strategic and security concerns, social reasons, hazardous chemicals and over-riding
environmental reasons. At present there are only 6 industries under the purview of
industrial licensing. These are alcohol, cigarettes, hazardous chemicals, electronic
aerospace and defense equipment, industrial explosives and drugs and pharmaceuticals.
(2) Industry reserved for public sector :- A present, there are only 3 industries, which are
reserved for the public sector. They are (a) atomic energy (b) the substances specified
in the schedule to the notification of the Government of India in the Department of
Atomic Energy and (c) rail transport. As a result of NIP – 1991, the public sectors
portfolio will be reviewed with greater realism. The focus will be on strategic high tech
and essential infrastructure industries 2001, defense production was deserved and
opened up to private participation with requirement of minimum capital of Rs 100 crore
and foreign investment up to 26% is being allowed.
(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
1. Automatic approval would be given for foreign direct investment (FDI):-

(a) 26% FDI has been allowed in defence production, insurance and print media.
(b) 51% FDI in high priority industries (totaling 34) and for trading companies engaged in
export activities.
(c) 74% FDI was allowed for private banking.
(d) 100% FDI was allowed in drugs and pharmaceuticals, hotels and tourism courier
services, oil reforming, transport system, airports, E-commerce, special economic
zones (SEZ) industries and telecom industries, internet services providers, electronic
mail and voice mail, advertising film sector and tea etc subject to certain conditions.
2. During 2004-05, there was increase in the FDI limits in Air Transport Services up to 49%
through automatic route. FDI up to 100% is now permitted in many products.
(C) FINANCIAL SECTOR
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
(a) Administered interest rate structure.

(b) Quantitative restrictions on credit flows.
(c) High reserves requirements under cash reserve Ration (CRR).
(d) Keeping major lendable resources for the priority sectors.
These restrictions resulted in inefficiency of the banks, which in turn led to low or negative
profits . As a result, measures were taken to reform banks.
Important banking sector reforms These are
1. CRR has reduced in stages and at present it is 7.5% (in 2004).

2. SLR reduced to 25% recent years, from 38.5% during 1990-1992.
3. Prim lending rates (PLR) of banks for commercial credit are now entirely within the
purview of the banks and not set by the RBI. With effect from April 2001. PLR has been
converted into a benchmark rate for banks rather than treating it as the minimum rate.
4. Bank rate reduced to 6% in April 2003 from 8% during pre reforms period.
5. Recovery tribunals were set up to facilitate quicker recovery of loans arrears due to
banks and other financial institutions Act 1993.
(D) EXTERNAL SECTOR-FOREIGN TRADE POLICY
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
(a) High level of Govt expenditures.

(b) Insufficient revenues and poor returns on Government investments.
Fiscal reforms aims are reducing expenditure, increasing revenues and earning positive
economic returns on the investments.
(E) IMPACT ON ECONOMIC REFORMS ON THE INDIAN ECONOMY
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.
Benefits of Economic Reforms
1. Companies, no longer, feel shy of restructuring, merging and acquisitions.

2. Many industries are now directing their efforts towards the world market.
3. An improvement in work culture has been noticed.
4. The workers have become more quality and cost conscious.
5. Many entities have graduated from being labour intensive to capital intensive.
6. Trade unions and workers have not responded in a much hostile manner to the
economic reforms.
7. There has been much awareness and stress on quality and R&D.
8. There has been much awareness and acceptance of the role of scale economies, rapid
technological growth and increased productivity.
9. Corporate are going in for brand building in an increasingly competitive market place.
Failures of Economic Reforms There are following hurdles in economic reforms :-
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
(a) Improving tax administration to raise larger revenues.

(b) Reducing subsides.
(c) Downsizing of Government.
(d) Bolder privatization.
(e) Re-priorities plan schemes.
2. Failure to fully implement industrial deregulation : There are some areas of industrial
deregulation where further action is needed. It has been noticed that sectors, which are
reserved for SSI, have grown more slowly than the unreserved SSI sectors. There is a
strong need for immediately de-reserving these areas especially the ones which have a
strong strong export potential.
3. Not fully opening the economy to trade : We should clearly identify the major tariff
anomalies and lay down a phased programme for their elimination. Besides, our
antidumping mechanism and procedures should also be strengthened to ensure the
Indian industry is not subjected to unfair competition.
4. Adhoc and unplanned disinvestments : The programme of privatization and

disinvestment has been carried out in an unplanned manner. Lack of transparency with
reference to these programmes has led to suspicion in the minds of public. Therefore, it
is necessary that transparency should be maintained in the manner of the
disinvestments.
5. Slow financial sector reforms : The financial sector and banking reforms need to be
pushed further.
6. Financing of infrastructure :- Our infrastructure consisting of roads, power, ports,

telecommunications, etc, is inadequate. There are severe shortages in quantity and
deficiencies in quality. Public investment will continue to have an important role in all
these areas, but the scale of the need is such that it must be supplemented by private
investment. But they need to be given sufficient incentives for this.
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?
(a) ICICI bank.

(b) Regional rural bank.
(c) State bank of India.
(d) EXIM bank.
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.
 To modern economists, money includes the following

1. Currencies and demand deposits of banks.
2. Financial assets such as bonds Government securities and equity shares.
3. Times deposits with banks.
 For money, some economists categories as

1. Near money - includes as financial assets.
2. Pure money – includes as cash and chequable deposits with commercial bank.
FUNCTIONS OF MONEY
Money serves the following functions :-
1. As a Medium of Exchange :- The fundamental role of money in an economic system is

to serve as a medium of exchange.
2. As a Unit of Account :- Money is a common measure of value. The value in exchange

of all goods and services can be expressed in terms of money. In fact, it acts as a means
of calculating the relative prices of goods and services.
3. As Standard of Deferred Payments :- Money is a unit in terms of which debts and

future transactions can be settled. Thus loans are made and future contracts are settled
in terms 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.
6. As Encouragement to Division of Labor :- In a money economy, different people tend

to specialize in the different goods and through the marketing process these goods are
bought and sold for the satisfaction of multiple wants. In this way, occupational
specialization and division of labor are encouraged by the use of money.
7. Smoothness Transformation of Savings into Investments :- Financial institutions and

banks help in mobilization of saving into investments with the help of money.
MONEY STOCK IN INDIA
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.
 M2 = M1+ Post office saving deposits.
 M3 = M1+ Time deposits of the public with banks called broad money.
 M4 = M3 + Total post office deposits.
The RBI working groups has now redefined its parameters for measuring money supply :-
 M1 =Currency + Demand deposits + other deposits with RBI.

 M2 = M1 + time liabilities portion of savings deposits with banks + certificates of deposits
issued by banks + Term deposits maturing within a year excluding FCNR (B) deposits.
 M3 = M2+ Term deposits with banks with maturity over one year + call/term borrowings
of the banking system.
 M4 has been excluded from the scheme of monetary aggregates.
OBJECTIVE
Q 1. …………………..is the most liquid measure of money supply.

(a) M1
(b) M2
(c) M3
(d) M4
Q 2. Money in dynamic sense:

(a) Serves as encouragement to division of labour.
(b) Serves as smooth transformer of saving into investments.
(c) Serves as both a and b of the above.
(d) Serves neither as a or b of the above.
Q 3. Narrow money refers (as per latest RBI working group)

(a) Currency + Demand deposits + other deposits RBI.
(b) Currency + Demand Deposits + post office saving deposits.
(c) Currency + demand deposits money at call.
Q 4. M1 is defined by RBI(as per latest definition) as

(a) Currency = Deposits + other deposits with RBI.
(b) Currency + demand deposits+ other deposits with RBI.
(c) Currency + fixed deposits + other deposits with RBI.
(d) Currency + Time deposits + other deposits with RBI.
Q 5. Money includes
(a) Currencies and demand deposits.
(b) Bonds Government securities.
(c) Equity shares.
Q 6. The basis distinction between M1 and M2 is in the :

(a) Treatment of post office deposits.
(b) Treatment of time deposits of banks.
(c) Treatment of saving deposits of banks.
(d) Treatment of currency.
Q 7. Money in traditional sense :

(a) Serves as a medium of exchange.
(b) Serves as a store of value.
(c) Serves as both medium of exchange and store of value.
(d) Serves neither as medium of exchange and store of value.
Q 8. Money includes :
(a) Currencies and demand deposits.
(b) Bonds Government securities.
(c) Equity shares.
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.
Q 10. M1 in the money stock in India refers to :

(a) Post office saving deposits.
(b) Total post office deposits.
(c) Currency plus demand deposits plus other deposits with RBI.
(d) Time deposits with banks.
Q 11. Narrow money refers to :

(a) M1
(b) M2
(c) M3
(d) M4
Q 12. Broad money refers to :

(a) M1
(b) M2
(c) M3
(d) M4
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.
Q 14. In the present context, total money stock in India refers to :

(a) M1
(b) M2
(c) M3
(d) M4
Q 15. Which of the following is a function of money ?

(a) Medium of exchange.
(b) Store of value.
(c) Transfer of value.
ANSWER
1. (a) 2.(c) 3. (a) 4. (b) 5. (d)

6.(a) 7. (c) 8. (d) 9. (d) 10. (c)
11.(a) 12. (c) 13. (b) 14, (c) 15. (d)
COMMERCIAL BANKS
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.
ROLE OF COMMERCIAL BANKS
(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.
FUNCTIONS OF COMMERCIAL BANKS
The functions of a bank can be summarized as follows :
(1) Receipt of Deposits :

The most important function of a bank is to accept deposits from the public (individual,
firms and institutions). Such deposits may be different types-
(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 :
(a) Cash Credits.

(b) Overdrafts.
(c) Loans and advances.
(d) Discounting of bill of exchange.
Interest charged by banks on such lending various according to the amount and period
involved, social priority, nature of security offered and the standing of the borrower etc.
(3) Agency Services :
A bank renders various services to consumers as an agent, such as :

(a) Collection of bills, promissory notes and cheques.
(b) Collection of dividends, interests, premium etc.
(c) Purchase and sale of shares and securities.
(d) Acting as trustee or executor when so nominated.
(e) Making regular payments such as insurance premiums etc.
(4) General Services :

A modern bank performs following general services to the public :-
(a) Issue of letters of credit, travelers cheques, bank drafts, circular notes.
(b) Safe keeping of valuable in lockers.
(c) Supplying trade information and statistics.
(d) Conducting economic surveys.
(e) Preparation of feasibility studies, project reports etc.
(f) Underwriting of shares and make loans for long – term purposes.
CAUSES OF NATIONALISATION OF COMMERCIAL BANKS
 Government announced the nationalization of 14 major commercial banks with effect

from July 1969, 6 more banks were nationalized in 1980. Two banks were merged in
1993.
 So at present there are 19 nationalized banks.
 The following factors were responsible for nationalization of commercial banks in India.
(1) To remove private ownership of commercial banks and concentration of economic

power : At the time of independence, one or more business houses controlled all major
banks. Thus private ownership of banks resulted in concentration of income and
wealth in few hands. To remove the private ownership and concentration of economic
power nationalization was compulsory.
(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
Objectives of nationlisation were as follows :

(a) Removal of control by a few hands.
(b) Provision of adequate credit for agriculture and small industry and export.
(c) Giving a professional bent to management.
(d) Encouragement of a new class of entrepreneurs and
(e) The provision of adequate training as well as terms of services for bank staff.
PROGRESS OF COMMERCIAL BANKS AFTER 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
The main drawbacks of commercial banking are as follows :-
(1) Insufficient branches : The growth of branches in numerical terms is insufficient in

India. This is specially so with regard to rural areas have nearly 44% of the bank
branches but 70% of the population residing there.
(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 :-
(a) Lower interest on Government borrowings from banks.

(b) Subsidization of credit to priority sector.
(c) Directed credit programmes of the Govt.
(d) Lack of competition.
(e) Increasing expenditure on over staffing.
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 1. Which of the following statements about banks is incorrect ?

(a) Banks encourage saving habits among.
(b) Banks mobilize savings and make them available for production.
(c) Banks help in creating credit money
Q 2. Banks perform the function of :-

(a) Receiving deposits.
(b) Lending of Money.
(c) Agency services.
Q 3. Commercial banks in India were nationalized in 1969 because :-

(a) There was urban bias.
(b) Agriculture sector was neglected.
(c) There was concentration of economic power.
Q 4. Nationalization of banks aimed at all of the following except :-

(a) Removal of control by a few.
(b) Provision of credit to big industries only.
(c) Provision of adequate credit for agriculture, small industry and export units.
(d) Encouragement of a new class of entrepreneur.
Q 5. Rural bank branches constitute ……………………Percent of total bank branches in India.

(a) 14
(b) 60
(c) 44
(d) 82
Q 6. Population per bank in India is

(a) Around 5000
(b) Around 20000
(c) Around 16000
(d) Around 45000
Q 7. In terms of deposit mobilization………………leads other states

(a) UP
(b) Maharashtra
(c) Kerla
(d) Bihar
Q 8. In terms of lending priority sectors which constitute about……………..of total bank lending
(a) 60
(b) 80
(c) 30
(d) 37.5
Q 9. Commercial banks suffer from

(a) Regional imbalances.
(b) Increasing overdue.
(c) Lower efficiency.
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.

(a) Rural areas have nearly 50 percent of bank branches but 70 percent of the
population residing there.
(b) Banks are evenly spread out.
(c) Most of the banks have very less NPAs ranging between 0 to 50 percent.
Q 12. Which of the following statements about banks is incorrect ?

(a) Banks encourage saving habits among people.
(b) Banks mobilize saving an make them available for production.
(c) Banks help in creating credit money.
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.
Q 14. Major commercial banks of India were nationalized in

(a) 1969
(b) 1970
(c) 1971
(d) 1972
Q 15. Commercial banks provide

(a) Loans.
(b) Agency services.
Q 16. At present there are…………………………nationalized banks in India.
(a) 14
(b) 6
(c) 21
(d) 19
Q 17. Commercial banks provide.

(a) Loans.
(b) Agency services.
Q 18. Which one of the following is not a function of commercial banks?

(a) Advancing loans.
(b) Accepting deposits.
(c) Issuing notes.
(d) Discounting bills of exchange.
Q 19. Which one of the following offers the least liquidity?

(a) Treasury bills.
(b) Immovable property.
(c) Bill of exchange.
(d) Bearer cheques.
Q 20. Nationalization means:

(a) Selling of Government stake to private sector.
(b) Selling of Goverenment companies to private sector.
(c) Governemt purchasing 26% shares in private companies.
(d) Taking of full control and management from private sector by the Government.
Q 21. PNB, SBI, Canara Bank is examples of.

(a) Semi private banks
(b) Public sector Banks.
(c) Private sector banks.
(d) Semi public sector banks.
Q 22. Nationalized banks include.

(a) SBI.
(b) Citiban,.
(c) American Express Bank.
Q 23. Two Nationalized banks were merged in the year.

(a) 1991
(b) 1975
(c) 1980
(d) 1983
Q 24. Out of 5.6 lakh villages in India, only……………….. village is being served by commercial
banks.
(a) 56,000
(b) 10,000
(c) 5,000
(d) 50,000
Q 25. Population per bank office at present is :

(a) 5,000
(b) 55,000
(c) 16,000
(d) 18,000
Q 26. Total bank lending was just ………….in June, 1969.

(a) 9933 crore.
(b) 3399 crore.
(c) 1000 crore.
(d) 10,000 crore.
Q 27. Which of the following is a commercial bank in India?

(a) SBI.
(b) Citi Bank.
(c) ABN Amro Bank.
Q 28. After 1950 commercial banks in India were nationalized.

(a) Once in 1969.
(b) Twice in 1969 and 1980.
(c) Thrice in 1969 and 1991.
ANSWER
1. (d) 2. (d) 3. (d) 4. (b) 5. (c)

6. (c) 7. (b) 8. (d) 9. (d) 10. (d)
11. (a) 12. (d) 13. (a) 14. (a) 15. (c)
16. (d) 17. (c) 18. (c) 19. (b) 20. (d)
21. (b) 22. (a) 23. (d) 24. © 25. (c)
26. (b) 27. (d) 28. (b) 29. 30.
THE RESERVE BANK OF INDIA (RBI)
MEANING AND FUNCTIONS OF RBI
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 :-
(1) Issue of Currency :

The RBI is the sole authority for the issue of currency in India other than one rupee coins
and notes. The RBI is also called “bank of issue.
(2) Banker to the Government :

As a banker to the Central and State Governments, the RBI performs the following
functions:
(a) It transacts all the banking business. It accepts money, makes payment and also
carries out their exchange and remittances.
(b) It manages public debt, advises the Government on the quantum, timing and terms
of new loans.
(c) It also sells Treasury bills to maintain liquidity in the economy.
(d) It makes advances which are repayable within 90 days.
(e) The RBI makes advice to the Government in monetary and financial matters. It has a
special responsibility in respect of financial policies and measures concerning new
loans.
(3) Banker’s Bank :

 The RBI has extensive power to control and supervise commercial banking system under
the RBI Act, 1934 and the Banking Regulation Act, 1949.
 The scheduled banks are required to maintain a minimum of cash reserve ratio (CRR)
with RBI, RBI controls the credits position of the country.
 The RBI provides financial assistance to scheduled banks and state cooperative banks.
 The RBI also conducts inspection of the commercial banks and calls for other necessary
information from banks.
(4) Custodian of Foreign Exchange Reserves :

 The RBI is the custodian of monetary reserve in India and RBI also is the custodian of
national reserve of international currency.
 It has to ensure that normal short-term fluctuations do not affect the exchange rate.
When foreign exchange reserves are inadequate for meeting balance of payment
problem, it borrows from the IMF.
 The RBI has the authority to enter into exchange transactions on its own account and on
account of government.
(5) Controller of Credit :

 Credit control is generally considered to be the principle function of a Central bank. By
making frequent changes in monetary policy, it ensures that the monetary system in the
economy, functions according to the nation’s needs and goals.
(6) Promotional Functions :
 RBI also performs a variety of development and promotional functions. It is responsible
for promoting banking habits among people mobilizing savings, development of the
banking system, and provision of finance for agricultural, foreign trade and small-scale
industries.
 But now these functions have been handed over to NABARD, EXIM Bank and SIDBI
(State Industrial Development Bank of India) respectively.
(7) Collection and Publication of Data :

It is also the work for RBI of collection and compilation of statistical information relating to
banking and other financial sectors of the economy.
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.
CENTRAL BANK V/S COMERCIAL BANK
Ser No Commercial Bank Central Bank
1. It is profit-seeking institutions. Its objective is not to make profit.

2. It allows interests on deposits from It does not allow interests on deposits from
public. public.
3. Its profits mainly from loans and Its profits mainly from Govt securities, loans
advances. to Govt and commercial banks.
4. Commercial banks have largely public Central bank’s deal with Govt, banks and
dealing. other financial institutions.
5. Banks mobilize savings and channelize Central bank’s role is to ensure that the
them into investments. other bank properly conducting their
business I national economic interest.
6. Functions of commercial banks are Functions of central bank are unique.
different.
INDIAN MONETARY POLICY
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.
Objectives of Monetary Policy
(a) To regulate monetary growth and maintain price stability.

(b) To ensure adequate expansion in credit.
(c) To assist economic growth.
(d) To encourage the flow of credit into priority and neglected sectors.
(e) To strengthening the banking system.
Instruments of Credit Control
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.
QUANTITATIVE OR GENERAL 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 :-
(a) Bank Rate Policy :

 The Bank Rate is the official interest rate at which the Central Bank rediscounts the
approved bills held by a commercial bank.
 If central Bank wish to control credit and inflation and wishes to discourage investments
at that time- it will increase the bank rate.
 If Central Bank wish to control deflation or wishes to boost production and investments
at that time- it will decrease the bank rate.
 At present bank rate is 6% (In April 2003)
(b) Open Market Operations (OMO) :

 OMO imply direct sales and purchase of securities and bills in the open market by the
Central Bank jto control the volume of credit.
 If to control credit and inflation-than central Bank sells securities in the open market.
 It Central Bank wish expansion of credit at the time of deflation – than it purchase the
securities.
(c) Variable Reserve Requirements :
The Central Bank also uses the method of variable reserve requirements to control credit.
There are two types of reserves, which the commercial banks are generally required to
maintain :-
(a) Cash Reserve Ration (CRR)

It refers to the portion of total deposits, which a commercial bank has sto deep with RBI
in the form of cash reserves.
(b) Statutory Liquidity Ratio (SLR)
o It refers to that portion of total of deposits of a commercial bank, which it has to

deep with itself in the form of liquid assets.
o If Central Bank wish to control credit or discourage credit – it should increase
CRR & SLR.
o If it wants to encourage credit – It should decrease CRR & SLR.
o At present CRR is 7.5% and SLR is 25% for entire demand and time liabilities.
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.
During deflation, to control deflation and to encourage investments, it is advisable to

(a) Decrease the bank rate.
(b) Buying of securities in open market.
(c) Decrease 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.
QUALITATIVE OR SELECTIVE MEASURES
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 :-
(a) Margin Requirements :

Margin requirements are the difference between securities offered and amount borrowed
from banks. Increase in margin reduces the borrowing capacity and decrease the margin
increase the borrowing capacity. To control credit in selective are3as, bank should increase
the margin requirements and vice versa.
(b) Consumer credit Regulation :

The regulation of consumer credit consists of laying down rules regarding down payments
and maximum maturities of installment credit for the purchase of specified consumer
durable goods. Raising the required down payment limits and shortening of maximum
period tend to reduce the demand for such loans and there by check consumer credit.
(c) Issue of Directives :
The central Bank also uses directives in the form of oral, written statements, appeals, or
warnings, to various commercial banks for credit control.
(d) Rationing of Credit :

Rationing of credit is a selective method adopted by the Central Bank for controlling and
regulating the purpose for which credit is granted or allocated by commercial banks.
(e) Moral Suasion :

Moral suasion is a psychological means and purely informal form of selective credit control.
In moral suasion central Bank morally request to the commercial banks to co-operate with
the general monetary policy of credit control.
(f) Direct Action :

The central Bank may take direct action against the commercial banks, It may refuse to
rediscount their papers, and give excess credit, or it may charge a penal rate of interest over
and above the Bank rate for the credit demanded beyond a prescribed limit.
OBJECTIVE
Meaning & Functions of RBI
Q 1. Which is the Central Bank of India ?

(a) State Bank of India.
(b) Punjab and National Bank.
(c) Oriented Bank of Commerce.
(d) Reserve Bank of India.
Q 2. Who is the official lender of the last resort in India?

(a) SBI
(b) PNB.
(c) RBI.
(d) OBC.
Q 3. Who is the custodian of monetary reserves in India ?

(a) SBI.
(b) SIDBI.
(c) NABARD.
(d) RBI.
Q 4. Who is called the “Bank of Issue”?

(a) RRBI.
(b) SBI.
(c) IDBI.
(d) ICICI.
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 6. Who is the custodian of national reserves of International currency?

(a) SBI.
(b) IDBI.
(c) RBI.
(d) ICICI.
Q 7. …………………………..is the apex bank for agriculture credit.

(a) RBI.
(b) SIDBI.
(c) NABARD.
(d) ICICI.
Q 8. All but one of the following statements are incorrect find the correct statement.
(a) Balance of payments is a narrow concept than balance of trade.
(b) India is facing severe foreign exchange reserves crunch.
(c) Devaluation is panacea for BOP problem.
(d) The RBI is the lender of last resort for Indian public sector banks.
Q 9. NABARD is a ………………………………..
(a) Bank.
(b) Board.
(c) Exchange programme for consumer goods.
(d) Department.
Q 10. Reserve bank of India is the countries.

(a) Central Bank.
(b) Biggest commercial bank.
(c) Biggest cooperative bank.
Q 11. Find the odd one out.

(a) State bank of India.
(b) Reserve bank of India.
(c) Bank of Baroda.
(d) Bank of India.
Q 12. ICICI bank is a .

(a) Central bank.
(b) Private commercial bank.
(c) Rural regional bank.
(d) Nationalized bank.
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 14. Which of the following statements about central bank is incorrect ?

(a) Central bank regulates currency in accordance with the requirements of business
and the general public.
(b) Central banks performs general banking and agency services for the state .
(c) Central bank generally deals with the public and tries to encourage saving habits
among people.
Q 15. Which of the following is a commercial bank in India?
(a) UTI.
(b) IFCI.
(c) IBRD.
(d) SEBI.
Q 16. Banks are regulated by

(a) Securities exchange board of India.
(c) Company law board.
(d) Registrar of companies.
Q 17. The reserve bank of India was set up in.

(a) 1949.
(b) 1956.
(c) 1935.
(d) 1901.
Q 18. Which one of the following is not a function of commercial banks?

(a) Advancing loans.
(b) Accepting deposits.
(c) Issuing notes.
(d) Discounting bills of exchange.
Q 19. A central bank differs from a commercial bank in that ?

(a) It has no branches.
(b) It is the banker of the Government.
(c) It deals with general public.
Q 20. The lender of last resort’ means…………………………..

(a) The Government coming to the rescue of poor framers.
(b) Central bank coming to the rescue of other banks in times of financial crisis.
(c) Commercial banks coming to the rescue of small industries units.
(d) People coming to the rescue of commercial banks in times of their financial crisis.
Q 21. Reserve bank of India is the countries.

(a) Central bank.
(b) Biggest commercial bank.
(c) Biggest cooperative bank.
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.
(c) Company law board.
(d) Registrar of companies.
Q 24. A central bank differs from a commercial bank in that :

(a) It has no branches.
(b) It is the banker of the Government.
(c) It deals with general public.
Q 25. Which of the following is not be function of RBI?

(a) Issue of currency.
(b) Bankers’ bank.
(c) Controller of credit.
(d) Banker to general public.
Q 26. Banking Regulation Act of India pertains of the year.

(a) 1945
(b) 1949
(c) 1943
(d) 1934
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.
Q 28. At present bank rate is percent.

(a) 5
(b) 6
(c) 6.5
(d) 5.5
Q 29. In order to discourage investment in the economy, the RBI may.

(a) Increase Bank rate.
(b) Decrease Bank rate.
(c) Buy securities in the open market.
(d) Decrease CRR.
Q 30. What is bank rate?

(a) The rate of interest charged by public sector banks from the general public.
(b) The rage of interest on housing loans.
(c) The rate of interest on educational loan.
(d) The rate at which the RBI discounts the bills of commercial banks.
Q 31. In order to encourage investment in the country the RBI may
(a) Decrease Bank rate.
(b) Increase CRR.
(c) Sell securities in the open market.
(d) Increase bank rate.
Q 32. In April 2007, Bank rate was …………….percent

(a) 6
(b) 7
(c) 5
(d) 8
Q 33. Banks rate means.

(a) Rate of interest paid by banks to depositors
(b) Rate below which banks cannot lend money to borrowers.
(c) Rate of interest charged by RBI on its loan to other commercial banks.
(d) Rate of interest charged by commercial banks for loan given to RBI.
VARIOUS RESERVES
Q 34. …………………………refers to that portion of total deposits of a commercial bank, which it

has to keep with RBI in the form of cash reserves.
(a) CRR.
(b) SLR.
(c) Bank rate.
(d) Repo rate.
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 36. At present, CRR is ……………….percent.

(a) 4
(b) 4.5
(c) 7.5
(d) 5.5
Q 37. At present, SLR is ………………….percent

(a) 25
(b) 30
(c) 35
(d) 40
Q 38. In order to encourage investment in the country, the RBI may.
(a) Reduce CRR.
(b) Increase CRR.
(d) Increase Bank rate.
Q 39. The effect of increase CRR will be reduced or nullified if.

(a) Bank rate is reduced.
(b) Securities are sold in the open market.
(c) SLR is increased.
(d) People do not borrow from non-banking institutions.
Q 40. In order to control credit.

(a) CRR should be increased and Bank Rate should be decreased.
(b) CRR should be reduced and bank rate should be decreased.
(c) CRR should be increased and Bank Rate should be increased.
(d) CRR should be reduced and Bank rate should be increased.
Read the following paragraph and answer questions 41 :-

In the monetary policy announced for the year 2006-07 the following announcements have
been made-bank rate, repo rate, reverse repo rate and cash revenue ratio have been kept
unchanged at their present levels of 6 percent, 6.5 percent, 5.5 percent and 5 percent
respectively. These have been kept unchanged as liquidity pressures seen during the last 4
months of 2005-06 have eased off considerably.
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 42. The cash reserve ratio is determined by ?

(a) Free play of market forces.
(b) Commercial banks.
(c) Monetary authority.
Q 43. In order to control inflation in India RBI may :

(a) Increase CRR.
(b) Decrease CRR.
(c) Increase buying of Government securities.
Q 44. In order to increase money supply in the country, the RBI may?
(a) Reduce CRR.
(b) Increase CRR.
(d) Increase Bank rate.
Q 45. In April 2007, the SLR was………………..percent.
(a) 5%
(b) 15%
(c) 25%
(d) 20%
Q 46. An increase in SLR will result in.

(a) An increase in revenue deficit.
(b) A decrease in revenue deficit.
(c) An increase in fiscal deficit.
(d) No change in fiscal deficit.
Q 47. ……………………………refers to that portion of total deposits which a commercial is required

to keep with itself in the form of liquid assets.
(a) CRR.
(b) SLR.
(d) Margin requirements.
OPEN MARKET OPERATION

Q 48. In order to control credit in the country, the RBI may.
(a) Buy securities in the open market.
(b) Sell securities in the open market.
(c) Reduce CRR.
(d) Reduce Bank Rate.
Q 49. During depression, it is advisable to

(a) Lower bank rate and purchase securities in the market.
(b) Increase bank rate and purchase securities in the open market.
(c) Decrease bank rate and sell securities in the open market.
(d) Increase bank rate and sell securities in the open market.
Q 50. In case RBI wants to increase rate of interest then it should

(a) Sell securities.
(b) Buy securities.
(c) Hold securities.
Q 51. Open market operations by a central bank involve.

(a) Sale and purchases of government securities.
(b) Increase and decrease of discount rate.
(c) Changing the reserve ratio up and down.
(d) Raising or lowering of the margin requirements.
Q 52. Open market operations by a central bank involve :

(a) Sale and purchases of government securities.
(b) Increase and decrease of discount rate.
(c) Changing the reserve ration up and down.
(d) Raising or lowering of the margin requirements.
Q 53. Open market purchase of government bonds by RBI will have the tendency to
(a) Decrease interest rates, but increase money supply.
(b) Decrease interest rates, but decrease money supply.
(c) Increase interest rates, but increase money supply.
(d) Increase interest rates, but decrease money supply.
Monetary Policy
Q 54. …………………controls affect indiscriminately all sectors of the economy.

(a) Selective credit.
(b) Quantitative.
(c) Margin requirements.

(a) The RBI is just like any ordinary commercial bank in India.
(b) The RBI is responsible for the overall monetary policy in India.
(c) Selective credit control measures affect all banks in similar manner.
(d) A high rate of interest encourages new investments.
Q 56. Monetary policy means.

(a) Policy relating to non-banking financial institution.
(b) Policy relating to public revenue and public expenditure.
(c) Policy relating to money and banking in a country.
Q 57. Monetary policy is formulated by :

(a) RBI
(b) SEBI
(c) CLB
(d) Finance ministry.
Q 58. Which of the following is not a quantitative measure of credit control?

(a) Bank rate policy.
(b) Open market operation.
(c) Consumer credit regulation.
(d) Variable reserve requirement.
Q 59. Monetary policy is formulated by:

(a) RBI
(b) SEBI
(c) CLB
(d) Finance ministry.
Q 60. Rationing of credit takes place when.

(a) Demand for credit is zero.
(b) Demand for credit is higher than supply.
(c) Demand for credit is low.
Q 61. Monetary policy refers to
(a) Public revenue and public.
(b) Policy to control money supply.
(c) M1 and M2.
(d) Policy linked to banking.
Q 62. Margin requirement for commercial bank refers to

(a) Profit margins.
(b) CRR and SLR.
(c) CRR.
(d) Difference between amount of security to be given by the borrowers to bank and
the amount of loan.
Q 63. Which of the following is not the objective of monetary policy?

(a) To regulate monetary growth.
(b) To ensure adequate expansion in credit to assist economic growth.
(c) To introduce measures for strengthening the banking system.
(d) To increase Public revenue.
ANSWER
1. (d) 2. (c) 3. (d) 4. (a) 5. (d)

6. (c) 7. (c) 8. (d) 9. (a) 10. (a)
11. (b) 12. (b) 13. (c) 14. (c) 15. (a)
16. (b) 17. (c) 18. (c) 19. (b) 20. (b)
21. (a) 22. (c) 23. (b) 24. (b) 25. (d)
26. (b) 27. © 28. (b) 29. (a) 30. (d)
31. (a) 32. (a) 33. (c) 34. (a) 35. (b)
36. (c) 37. (a) 38. (a) 39. (a) 40. (c)
41. (b) 42. (c) 43. (a) 44. (a) 45. (C)
46. (d) 47. (b) 48. (b) 49. (a) 50. (a)
51. (a) 52. (a) 53. (a) 54. (b) 55. (b)
56. (c) 57. (a) 58. (c) 59. (a) 60. (b)
61. (b) 62. (d) 63. (d) 64. 65.
FULL FORMS/ABBREVIATIONS
AMPC Automatic mail processing centers

BALCO Bharat Aluminium Company Limited
BHEL Bharat Heavy Electrical Limited
BOP Balance of Payment
BOT Balance of Trade
BOP Business Process Outsourcing
BSE Bombay Stock Exchange
BSNL Bharat Sanchar Nigam Limited
CDS Current Daily Status
CENVAT Central Value –Added Tax
CRR Cash Reserve Ratio
CWS Current Weekly Status
DDP Desert Development Programme
DFEC Duty Free Export Credit
DPAP Drought Prone Area Programme
DTC Delhi Transport Corporation
DWCRA The Programme of Development of Women and Children in Rural Areas
EAS Employment Assurance Scheme
EGS+AIE Education Guarantee Scheme and Alternative and Innovative Education
EMRs Exclusive Marketing Rights
EOUs Export Oriented Units/Undertakings
EPCG Export Promotion Capital Goods
EPZs Export Processing Zones
EXIM Export Import
FCI Food Corporation of India
FDI Foreign Direct Investment
FEMA Foreign Exchange Management Act
FERA Foreign Exchange Regulation Act
FIEO Federation of Indian Export Organizations
FIIs Foreign Institutional Investors
FRA Forward Rate Agreement
FRBMA Fiscal Responsibility and Budget Management Act
FYPs Five-Year Plans
GATT General Agreement of Tariff and Trade
GDP Gross Domestic Product
GDRs Global Depository Receipts
GER Gross Enrolment Ratio
GNP Gross National Product
GRT Gross Registered Tonnage
HCI Hotel Corporation of India Limited
HDI Human Development Index
HMT Hindustan Machinery Tools
HUFs Hindu Undivided Family’s
HYVP High Yielding Varieties Programmes
HZL Hindustan Zinc Limited
IAY Indira Awas Yojana
IBRD International Bank of Reconstruction and Development
ICICI Industrial Credit and Investment Corporation of India
ICSID International Centre for Settlement of Investment Disputes
IDA International Development Associations
IDRA Industrial Development Regulation Act
IFC International Finance Corporation
IIM Indian Institute of Management
IIT Indian Institute of Technology
IMF International Monetary Fund
IMR Infant Mortality Rate
IPCC Indian Petrochemical Corporation
IPO Initial Public Offer
ISM Integrated Indian system of Medicine
ITDC Indian Tourism Development Corporation
IWDP Integrated Wastelands Development Programme
KGBV Kasturba Gandhi Balika Vidyalaya
LJMC Lagan Jute Machinery Company Ltd
NFIL Modern Food Industries Ltd
MIGA Multi-leteral Investment Guarantee Agency
MMR Maternal Mortality Rate
MODVAT Modified Value Added Tax
MTA Mid Term Appraisal
MTNL Mahanagar Telephone Nigam Ltd
MUL Maruti Udyog Ltd
NABARD National Bank for Agriculture and Rural Development
NFFWP National Food for Work Programme
NHPC National Hydroelectric Power Corporation
NIXI National Internet Exchange of India
NLM National Literacy Mission
NPCIL Nuclear Power Corporation of India Ltd
NPF National Policy of Education
NPEGEL National Programme for Education of Girls at Elementary Level
NSSO National Sample Survey Organasation
NTPC National Thermal Power Corporation
OMO Open Market Operation
ONGC Oil and Natural Gas Corporation
PCO Public Call Offices
PLF Plant Load Factor
PLR Prim Lending Rates
PMGSY Pradhan Mantri Gram Sadak Yojana
PMGY Pradhan Mantri Gramodaya Yojana
PMRY Prime Ministee’s Rozgar Yojana
PPL Paradeep Phosphates Limited
PTA Plurilateral Trade Agreements
PU Person Unemployed
QRs Quantitative Restrictions
RBI Reserve Bank of India
RRBs Regional Rural Bank
SAIL Steel Authority of India Ltd
SBI State Bank of India
SDRs Special Drawings Rights
SEB State Electricity Boards
SETUP Self Employment Programme for Urban Poor
SGRY Sampoorna Grammen Rojgar Yojana
SGSY Swaran Jayanti Gram Swarojgar Yojana
SIDBI State Industrial Development Bank of India
SJSRY Swarna Jayanti Shahari Rojgar Yojana
SLR Statutory Liquidity ratio
SSA Sarva Shiksha Abhiyan
SSI units Small Scale Industrial Units
T& D Transmission and distribution
TLC Total Literacy Company
TLC Total Literacy Campaign
TM Trade Mark
TRAI Telecom Regulatory Authority of India
TRC Tax Reforms Committee
TRIMs Trade Related Intellectual measurements
TRIPRs Trade Related Intellectual Property Rights
TRPS Tax Return Prepare Scheme
UNDI United Nations Development Index
UNDP United Nation Development Programme
UPS Usual Persons Status
US Usual Status
VAMBAY Valmiki Ambedkar Awas Yojana
VAT Value Added Tax
VKUY Vishesh Krishi Upaj Yojana
VPT Villages Public Telephone
VSAT Very small Aperture Terminal
VSNL Videsh Sanchar Nigam Limited
WFPR Work Force Participation Rate
WPR Work Participation Rate
WTO World Trade Organization
IMPORTANT DATES
RBI Setup in 1935

14 Bank nationalize in 1969
6 more banks in 1980
Merger of banks 1993
Old definition of money 1979
Economic reforms taken in 1991
World Bank set up 1945, 185 members
IMF Set up in 1946, 185 members
WTO Set up in 1995, 151 members
Decrease of population in 1921
VAT introduced in 1999
VAT Implemented in 2005 (April)
Wealth tax introduced in 1957
State duty 1953 introduced and 1985 abolish
Gift tax 1958 introduced and 1998 abolish
Green revolution start in 1966
RRB starts in 1975 (total 196 regional rural banks)
NABARD Starts 1982
IMPORTANT %
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
Total No of Banks Nationalize 19

No of Bank branches ;in India 69,616
Population per bank Reduced from 55,000 to 16,000
No of villages covered by bank being Out of 5.6 lacks villages only 5,000 village served
by bank
Total bank lending 3,399 crore in 1969
No of industry requires licenses 6
No of industry reserved for Govt 3
Disinvestment target 4,000 crore target but actual 2,765 crore
Rail rank 2nd in World & 1st in Asia
Road rank 1st in World
Shipping rank 17th
Population rank 2nd
Rank in HDI 126th out of 177 (level of human being)
Service export rank 11th
Main port 12
Minor port 187
International air port 5
Total air port 92
One post office serve 6623 person & 21.16 sq Km area
Phone per 1,000 population 190
No of IIM 6
No of IIT 7
Calories daily 2,400 (Rural), 2,100 (Urban)
Income 368 Rs (Rural), 559 Rs (Urban)
Current population 111 Crore
Average density of population 324 people
Highest Density 9,000 (Delhi)
Lowest Density 9,000 (Dlehi)
Average male female ratio 13 (Arunachal)
Highest Male female 945 (Kerala)
Tax collection expenses 543 crore now it is 3,663
Tax collection is 460 crore now it is 6,89,000 crore
Direct and Indirect tax ratio 40 :60, 20:80 now 35:65
GDF was lowest in 3rd plan (due to drought)
Total loss of PSU 83,725 crore
Small Scale (Manufacture)
Micro Upto 25 Lacks
Small 25 Lacks – 5 crore
Medium 5 crores-10 crores
Small Scale (Service)
Micro Up to 10 lacks
Small 10 lacks – 2 crore
Medium 2 crores – 5 crores
Gini Index Increase from 297 to 33, means perfect unequal,
zero means perfectly distributed.

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NAME OF INDIAN ECONOMY

MEANING OF UNDEVELOPED ECONOMY

An economy is said to be undeveloped or underdeveloped, if it has the following characteristics

1. Agriculture is the Main Occupation

2. High rate of Poverty :

3. High rate of Population Growth :

5. Low rate of saving and Investment :

7. Unemployment is quite high :

8. Level of Human Being :

 In India, the level of human will being is quite low.

(a) Longevity : is measured in terms of life expectancy at birth.

 The distribution of income and wealth in India is not equitable.

INDIA – A DEVELOPING ECONOMY

1. Rise in national Income :

2. Rise in per Capita Income :

3. Significant changes in occupational distribution of Population :

Occupation 1951 1961 1971 1981 1991 2001

4. Important changes in spectral distribution of Gross Domestic Product :

5. Growing Capital base of the Economy :

6. Improvements in social overhead capital:

7. Development in Banking and Financial Sector :

Thus we can say, India is on the road of development.

1. Generally and economy is considered under developed if :

2. Which of the following statements is correct ?

3. Which of the statements is correct ?

1. (d) 2. (c) 3. (a) 4. (c) 5. (b)

ROLE OF AGRICULTURE IN INDIA

(1) Providing Employment : Agriculture provides employment to a large number of

(7) Contributions to Government’s revenue :- The Government revenues also depend on

GROWTH OF AGRICULTURE DURING PLANNING PERIOD

(a) Abolition of Intermediaries :-

(b) Tenancy reforms includes :-

(c) Reorganizations agriculture _

(a) Increment the use of agriculture inputs at subsidized rates.

(1) Slow and uneven growth :-

(2) Not so modern Agriculture :-

(3) Inadequate Finance :-

(f) Unorganized markets :- Several malpractices exists in unorganized agricultural markets

(5) Agriculture under XIth Plan :-

Roll of Industry in India :

(1) Modernizing Agriculture :- It modernize agriculture and improves productivity in it. It

All the industries of a country can be grouped in two major ways

1. On the basis of size of industries : It can be divided into

(a) Large scale industries include mining, manufacturing and electricity.

2. On the basis of end – use :-

Pattern of Industrial Development : Before Independence :

Main developments are :-

1. Industrial Growth :- The pattern of industrial growth experienced as.

(a) Unsatisfactory performance of agriculture.

3. Growth of consumer goods industries :- There has been a remarkable growth of

7. Expansion of Infrastructure facilities :- A remarkable expansion took place in

(a) Micro-Up to 10 lacks Rs.

2. Under utilization of capacity :- A large number of industries suffer from substantial

4. Inadequate employment generations :- One of the most serious deficiencies of

6. Sartorial imbalances :- In India, industrial development on an over-all basis suffered

7. Regional imbalances :- Industrial development continues to be lopsided, region wise,

ROLE OF SERVICE SECTOR IN INDIA

(c) Providing support to other sectors : It provides support to agriculture and

GROWTH OF SERVICE SECTOR DURING PLANNING PERIOD

It is facing lots of problems. Important ones are :-

Q 3. Which of the following statements is correct ?

Q 4. Which of the following is incorrect ?

Q 5. Abolition of intermediates and tenancy reforms are both parts of ?