NAME : NIKHIL TUMBDE

DIV : A
ROLL NO : 60

Q 1A
It is an understatement to say that our world has changed dramatically
over the last few months. The novel coronavirus pandemic has resulted in
unimaginable loss to the global economy and the loss of human lives has
been unprecedented in an era of global peace.

Not only are the numbers alarming but, the speed at which the challenges
have emerged is intimidating. Governments and health professionals are
constantly calibrating the response to this pandemic and frequent
strategic adjustments are being done.

We are now in lockdown, exploring novel medical treatments and are on

the hunt for a vaccine that will stop this virus in its tracks. And since the
scenario is grim, doctors, scientists, and governments arUnprecedented
losses

First, let us get an understanding of the economic impact of the novel

coronavirus. The Asian Development Bank has estimated that the global
economic cost of the virus is a whopping $2 to $4 trillion.

Going by the damages estimated by some legal firms, the figure goes up
to an unimaginable $6.5 trillion. Back home, the economy is being
battered as well. Under complete lockdown less than a quarter of India's
$2.8 trillion economy is functional. We are expected to lose over Rs
32,000 crore ($4.5 billion) every day during the lockdown.

Huge human cost

While the impact of novel coronavirus on businesses has been devastating

worldwide, the human cost has also been staggering. In India, those with
savings and access to shelter and food have managed to weather the
storm albeit with difficulty.e working on an accelerated mission mode.

owever, the impact on a large proportion of the 40 million migrant

labourers, those who provide the muscle to power India's construction,
agriculture and other sectors, has been especially heart-wrenching.
After the extension of lockdown on April 14, in a desperate bid to get
home, vast numbers of migrants started to move. With no public transport
available, lakhs of labourers started trudging home along the highways.

Some were coaxed to stay at government shelters where food and shelter
were provided and many others were convinced to return to their place of
work and stay put.

Helped by local communities and government agencies, they have

managed to cope with the lockdown. The saga of their journeys will be
told over time and there will be plenty to learn from their experience.

Green shoots

The tsunami of novel coronavirus has impacted most business sectors

from aviation to hospitality, from real estate to apparel, from agriculture
to poultry, from petroleum to shipping. The list is long and comprehensive
and no sector has been spared. Yet the captains of the industry are
cautiously upbeat about the recovery.

First priority - defeating COVID-19

So, is there any light at the end of the tunnel, and where do we go from
here? We may be stating the obvious but it is worthwhile reiterating that
the greatest challenge before us is tackling the effects of the COVID-19
pandemic.

The top priority is finding a way to defeat or neutralise the effects of the
virus. All other battles can be handled once we cross this particular
challenge. Thanks to the timely action initiated by our government, India,
has outperformed most other countries in slowing down the pandemic.

Racing to build infrastructure at great cost

Despite the early setbacks, the response from our healthcare sector, both
private and government, has been robust and proficient.

Testing has been ramped up quickly and more than half a million samples
have been tested as of April 22 throughout the country.

Nationwide a total of 586 hospitals have been marked as dedicated

COVID-19 hospitals with a capacity of over 100,000 isolation beds and
11,500 ICU beds reserved for coronavirus patients.

At Apollo, we have 590 dedicated negative pressure beds for COVID-19

patients across our hospitals and in partnership with leading corporates
and hotels chain, Project Stay I (Isolation) rooms have been created, with
readiness to scale to up to 5000 if needed.
Using extraordinary innovation, train compartments have been prepared
to serve as isolation wards and our military too is prepared for an
untoward eventuality.

Doctors, nurses, administration, and support staff have shown that they
can rise spectacularly to the occasion. All this has come at a great
financial cost to the entire sector. Unless the health sector is supported
generously, it will not be able to deliver its full potential.The next phase of
human development will depend on ensuring that our population is a
healthy and prudent investment in the health facilities will make that a
greater reality.

Q1B What is the policy action taken by RBI to

counter the impact of Covid 19 Pandemic?
The Reserve Bank of India (RBI) on Friday announced a slew of measures
in order to provide relief for the ongoing Coronavirus outbreak in India.
These include:

1) Repo Rate

RBI announced that it was cutting the repo rate by 75 bps, or 0.75% to
4.4. The Repo Rate was earlier 5.15; last being cut in October 2019.

2) Reverse Repo

The regulator also announced that it would cut the Reverse Repo rate by
90 bps, or 0.90%. On a daily average, banks had been parking Rs 3 lakh
crore with the RBI. The current reverse repo rate was 4%.

3) Loan Moratorium

In a massive relief for the middle class, the RBI Governor also announced
that lenders could give a moratorium of 3 months on term loans,
outstanding as on 1 March, 2020. This is applicable to All Commercial
Banks including Regional, Rural, Small Finance, Co-Op Bank, All India
Financial Institutions and NBFCs including Housing Finance and
Microfinance.

4) CRR
 The RBI also announced that the Cash Reserve Ratio (CRR) would be
reduced by 100 bps, or 1%, to 3% . This would be applicable from March
28, and would inject Rs. 1,37,000 crore.

5) LTRO

The RBI will also undertake Long Term Repo Operations (LTRO); allowing
further liquidity with the banks. The banks however are specified that this
liquidity will be deployed in in commercial papers, investment grade
corporate bonds and non-convertible debentures.

6) Ease of Working Capital financing

Lenders were allowed lending to recalculate drawing power by reducing

margins and/or by reassessing the working capital cycle for the borrowers.
The RBI also specified that such a move would not result in asset
classification downgrade.

7) Working Capital Interest

A Three month interest moratorium shall also be permitted to all lending

institutions.

8) Deferment of NSFR

The Net Stable Funding Ratio (NSFR), which reduces funding risk by
requiring banks to fund their activities with sufficiently stable sources of
funding was postponed to October 1, 2020. The NSFR was earlier
supposed to be implemented by April 1, 2020.

9) MSF

Marginal Standing Facility (MSF) has also been increased to 3% of SLR,

available till June 30, 2020. “This measure should provide comfort to the
banking system by allowing it to avail an additional ` 1,37,000 crore of
liquidity under the LAF window in times of stress at the reduced” said the
RBI.

10) Fresh Liquidity

The impact of all the announcements today shall inject almost 3.2% of
GDP, the Governor said in his brief today. The RBI also added that since
February 2020 it had injected Rs 2.8 lakh crore of liquidity, equivalent to
1.4 percent of GDP.
Q 3: Select any company of your choice. Describe the
business of the company in brief. Identify internal
environmental factors impacting the business. Marks 10
Spotify Technology S.A.- Spotify is a digital music, podcast, and video
streaming service that gives you access to millions of songs and other
content from artists all over the world. Founded in 2006, the company's
primary business is providing an audio streaming platform, the "Spotify"
platform, that provides DRM-restricted music, videos and podcasts from
record labels and media companies. As a freemium service, basic features
are free with advertisements or automatic music videos, while additional
features, such as offline listening and commercial-free listening, are
offered via paid subscriptions.

Launched on October 2008, the Spotify platform provides access to over

50 million tracks.[7] Users can browse by parameters such as artist,
album, or genre, and can create, edit, and share playlists.

Factor 1 Value System: Spotify offers five primary value propositions:

accessibility, pricing, customization, performance, and brand/status.

Factor 2 Mission and Objectives: Our mission is to unlock the potential of

human creativity—by giving a million creative artists the opportunity to
live off their art and billions of fans the opportunity to enjoy and be
inspired by it.

Factor 3 Organisation Structure: Spotify Technology S.A.’s organizational

culture directly reflects the diversity of the company’s human resources.
This diversity is based on the variations among the cultural backgrounds
of workers in the company’s offices and operations in different markets
around the world. As a leading music streaming service provider, the
company applies its corporate culture to motivate human resources to
ensure effective core competencies for value creation via the online
platform, which is a factor in Spotify’s value chain, resources, capabilities,
and core competences determined through the VRIO/VRIN framework. The
behavioural implications of the company’s organizational culture affect
strategic management effectiveness, as employees’ values and beliefs
and the organization’s customs and traditions determine how strategies
are implemented to grow a competitive music streaming service. Spotify’s
corporate culture, along with various aspects of organizational design,
creates a work environment that favours diverse contributions to ensure
innovation and product-market alignment for expanding the online
service.

Factor 4 Corporate Culture and Style of Functioning of Top Management:

Spotify is truly at the forefront of creating an awesome company culture
of the future. It’s no secret that the company has made strides in
innovating on employee experience, even when it grew from 300
employees in 2011 to 3,000 in 2018. Spotify prides itself on creating the
best social experiences for a wide range of employees and fostering
inclusion through its practices.

And this forward-thinking mentality has paid off. The streaming service
giant has racked up over 180 million users (including over 75 million
paid), and over $5 billion in revenue in 2017. It’s no doubt the company
culture made a significant contribution to its rapid growth. The company’s
Glass door reviews point to a largely positive employee experience,
boasting an impressive 86% CEO approval and 76% employees likely to
recommend working there to a friend.

Factor 5 Quality of Human Resources: Their Swedish approach to

leadership inspires businesses and politicians the world over. This team
takes full advantage of its members’ skills and their passion for attracting,
developing and retaining the right employees.

Factor 6 Physical Resources and Technological Capabilities: Spotify’s

strong brand is based on the popularity of its music streaming services.
Even though the company started its international expansion in 2009, the
business has steadily expanded to offer its digital media services to a
continually increasing user base.

Wide reach and easy accessibility of media streaming services is a value

proposition and another strength relevant in this SWOT analysis of Spotify
Technology S.A. This internal factor involves the ability of the company to
provide its streaming services to consumers around the world..

Another strength of Spotify is the demand-side economies of scale of its

business. Such economies of scale build on the other strengths shown in
this SWOT analysis. For example, the strong brand and wide accessibility
of the online service leads to a major share of the market and the
correspondingly large user base. This business condition strengthens
Spotify through the business size needed to reach effectiveness and
efficiencies through economies of scale. This SWOT analysis stresses the
benefits of such an internal factor, including the reduction of fixed costs
per account or per customer, and optimization of profit margins. Through
this business strength, Spotify has reached profitability despite payments
to rights holders, such as artists or production companies, and other
costs.

Q 4 Identify the characteristics of Indian

Business
1. Economic activity:

Business is an economic activity of production and distribution of goods

and services. It provides employment opportunities in different sectors
like banking, insurance, transport, industries, trade etc. it is an economic
activity corned with creation of utilities for the satisfaction of human
wants.

It provides a source of income to the society. Business results into

generation of employment opportunities thereby leading to growth of the
economy. It brings about industrial and economic development of the
country.

2. Buying and Selling:

The basic activity of any business is trading. The business involves buying
of raw material, plants and machinery, stationary, property etc. On the
other hand, it sells the finished products to the consumers, wholesaler,
retailer etc. Business makes available various goods and services to the
different sections of the society.

3. Continuous process:

Business is not a single time activity. It is a continuous process of

production and distribution of goods and services. A single transaction of
trade cannot be termed as a business. A business should be conducted
regularly in order to grow and gain regular returns.

Business should continuously involve in research and developmental

activities to gain competitive advantage. A continuous improvement
strategy helps to increase profitability of the business firm.

4. Profit Motive:

Profit is an indicator of success and failure of business. It is the difference

between income and expenses of the business. The primary goal of a
business is usually to obtain the highest possible level of profit through
the production and sale of goods and services. It is a return on
investment. Profit acts as a driving force behind all business activities.
Profit is required for survival, growth and expansion of the business. It is
clear that every business operates to earn profit. Business has many goals
but profit making is the primary goal of every business. It is required to
create economic growth.

5. Risk and Uncertainties:

Risk is defined as the effect of uncertainty arising on the objectives of the

business. Risk is associated with every business. Business is exposed to
two types of risk, Insurable and Non-insurable. Insurable risk is
predictable.

6. Creative and Dynamic:

Modern business is creative and dynamic in nature. Business firm has to

come out with creative ideas, approaches and concepts for production
and distribution of goods and services. It means to bring things in fresh,
new and inventive way.

One has to be innovative because the business operates under constantly

changing economic, social and technological environment. Business
should also come out with new products to satisfy the growing needs of
the consumers.

7. Customer satisfaction:

The phase of business has changed from traditional concept to modern

concept. Now a day, business adopts a consumer-oriented approach.
Customer satisfaction is the ultimate aim of all economic activities.

Modern business believes in satisfying the customers by providing quality

product at a reasonable price. It emphasize not only on profit but also on
customer satisfaction. Consumers are satisfied only when they get real
value for their purchase.

The purpose of the business is to create and retain the customers. The
ability to identify and satisfy the customers is the prime ingredient for the
business success.

8. Social Activity:

Business is a socio-economic activity. Both business and society are

interdependent. Modern business runs in the area of social responsibility.

Business has some responsibility towards the society and in turn it needs
the support of various social groups like investors, employees, customers,
creditors etc. by making goods available to various sections of the society,
business performs an important social function and meets social needs.
Business needs support of different section of the society for its proper
functioning.

9. Government control:

Business organisations are subject to government control. They have to

follow certain rules and regulations enacted by the government.
Government ensures that the business is conducted for social good by
keeping effective supervision and control by enacting and amending laws
and rules from time to time.

10. Optimum utilisation of resources:

Business facilitates optimum utilisation of countries material and non-

material resources and achieves economic progress. The scarce resources
are brought to its fullest use for concentrating economic wealth and
satisfying the needs and wants of the consumers.

Q 5: Describe different deficits in the Indian budget?

Make your observations on the deficit numbers in the
budget of 20-21. Marks 10
There can be different types of deficit in a budget depending upon the
types of receipts and expenditure we take into consideration. Accordingly,
there are three concepts of deficit, namely

(i) Revenue deficit (ii) Fiscal deficit and (iii) Primary deficit.

1. Revenue Deficit:

Revenue deficit is excess of total revenue expenditure of the government

over its total revenue receipts. It is related to only revenue expenditure
and revenue receipts of the government. Alternatively, the shortfall of
total revenue receipts compared to total revenue expenditure is defined
as revenue deficit.Revenue deficit signifies that government’s own
earning is insufficient to meet normal functioning of government
departments and provision of services. Revenue deficit results in
borrowing. Simply put, when government spends more than what it
collects by way of revenue, it incurs revenue deficit. Mind, revenue deficit
includes only such transactions which affect current income and
expenditure of the government.

Revenue deficit = Total Revenue expenditure – Total Revenue receipts

2. Fiscal Deficit:
Fiscal deficit is defined as excess of total budget expenditure over total
budget receipts excluding borrowings during a fiscal year. In simple
words, it is amount of borrowing the government has to resort to meet its
expenses. A large deficit means a large amount of borrowing. Fiscal deficit
is a measure of how much the government needs to borrow from the
market to meet its expenditure when its resources are inadequate.

Fiscal deficit = Total expenditure – Total receipts excluding borrowings =

Borrowing

If we add borrowing in total receipts, fiscal deficit is zero. Clearly, fiscal

deficit gives borrowing requirements of the government. Let it be noted
that safe limit of fiscal deficit is considered to be 5% of GDR Again,
borrowing includes not only accumulated debt i.e. amount of loan but also
interest on debt, i.e., interest on loan. If we deduct interest payment on
debt from borrowing, the balance is called primary deficit.

3. Primary Deficit:

Primary deficit is defined as fiscal deficit of current year minus interest

payments on previous borrowings. In other words whereas fiscal deficit
indicates borrowing requirement inclusive of interest payment, primary
deficit indicates borrowing requirement exclusive of interest payment. We
have seen that borrowing requirement of the government includes not
only accumulated debt, but also interest payment on debt. If we deduct
‘interest payment on debt’ from borrowing, the balance is called primary
deficit. It shows how much government borrowing is going to meet
expenses other than Interest payments. Thus, zero primary deficits means
that government has to resort to borrowing only to make interest
payments. To know the amount of borrowing on account of current
expenditure over revenue, we need to calculate primary deficit. Thus,
primary deficit is equal to fiscal deficit less interest payments.

Primary deficit = Fiscal deficit – Interest payments

Observations on the deficit numbers in the budget of 20-21

Revenue deficit is targeted at 2.7% of GDP, which is higher than the

revised estimate of 2.4% in 2019-20. Fiscal deficit is targeted at 3.5% of
GDP, lower than the revised estimate of 3.8% in 2019-20. Note that the
government is estimated to breach its budgeted target for fiscal deficit
(3.3%) in 2019-20 and the medium term fiscal target of 3% in 2020-21.
This does not include off-budget borrowings (0.9% of GDP in 2020-21).
Q 6: Define GDP and GNP. Why each economy is focusing
on GDP growth?
Gross Domestic Product (GDP) is one of the most widely used measures of
an economy’s output or production. It is defined as the total value of
goods and services produced within a country’s borders in a specific time
period — monthly, quarterly or annually. GDP is an accurate indicator of
the size of an economy and the GDP growth rate is probably the single
best indicator of economic growth while GDP per capita has a close
correlation with the trend in living standards over time.

Why GDP is Important?

Samuelson and Nordhaus neatly sum up the importance of the national

accounts and GDP in their seminal textbook “Economics.” They liken the
ability of GDP to give an overall picture of the state of the economy to that
of a satellite in space that can survey the weather across an entire
continent. GDP enables policymakers and central banks to judge whether
the economy is contracting or expanding, whether it needs a boost or
needs to be restrained, and if threats such as a recession or rampant
inflation loom on the horizon.

The national income and product accounts (NIPA), which form the basis for
measuring GDP, allow policymakers, economists and business to analyze
the impact of such variables as monetary and fiscal policy, economic
shocks (spike in oil price), and tax and spending plans on specific subsets
of an economy as well as on the overall economy itself. Along with better-
informed policies and institutions, national accounts have contributed to a
significant reduction in the severity of business cycles since the end of
World War II. (For related reading, see "What is GDP and Why is It So
Important to Economists and Investors?")

GDP Calculation

GDP can be calculated either through the expenditure approach (the sum
total of what everyone in an economy spent over a particular period) or
the income approach (the total of what everyone earned). Both should
produce the same result. A third method, the value-added approach, is
used to calculate GDP by industry.

Expenditure-based GDP produces both real (inflation-adjusted) and

nominal values, while the calculation of income-based GDP is only carried
out in nominal values. The expenditure approach is the more common one
and is obtained by summing up total consumption, government spending,
investment, and net exports.
GDP = C + I + G + (X – M)

where:

C = private consumption or consumer spending;

I = business spending;

G = government spending;

X = value of exports

M = the value of imports.

GDP fluctuates because of the business cycle. When the economy is

booming, and GDP is rising, there comes a point when inflationary
pressures build up rapidly as labor and productive capacity near full
utilization. This leads the central bank to commence a cycle of tighter
monetary policy to cool down the overheating economy and quell
inflation.

As interest rates rise, companies and consumers cut back spending, and
the economy slows down. Slowing demand leads companies to lay off
employees, which further affects consumer confidence and demand. To
break this vicious circle, the central bank eases monetary policy to
stimulate economic growth and employment until the economy is
booming once again. Rinse and repeat.

Consumer spending is the biggest component of the economy, accounting

for more than two-thirds of the U.S. economy. Consumer confidence,
therefore, has a very significant bearing on economic growth. A high
confidence level indicates that consumers are willing to spend, while a low
confidence level reflects uncertainty about the future and an
unwillingness to spend.

Business investment is another critical component of GDP since it

increases productive capacity and boosts employment. Government
spending assumes particular importance as a component of GDP when
consumer spending and business investment both decline sharply, as, for
instance, after a recession. Finally, a current account surplus boosts a
nation’s GDP, since (X – M) is positive, while a chronic deficit is a drag on
GDP.

Drawbacks of GDP

Some criticisms of GDP as a measure of economic output are:

It does not account for the underground economy – GDP relies on official
data, so it does not take into account the extent of the underground
economy, which can be significant in some nations.

It is an imperfect measure in some cases – Gross National Product (GNP),

which measures the output from the citizens and companies of a
particular nation regardless of their location, is viewed as a better
measure of output than GDP in some cases. For instance, GDP does not
take into account profits earned in a nation by overseas companies that
are remitted back to foreign investors. This can overstate a country's
actual economic output. For example, Ireland had GDP of $210.3 billion
and GNP of $164.6 billion in 2012, the difference of $45.7 billion (or 21.7%
of GDP) largely being due to profit repatriation by foreign companies
based in Ireland.

It emphasizes economic output without considering economic well-being –

GDP growth alone cannot measure a nation's development or its citizens'
well-being. For example, a nation may be experiencing rapid GDP growth,
but this may impose significant cost to society in terms of environmental
impact and an increase in income disparity.

Global GDP Trends

Discussions about GDP growth invariably turn to the torrid pace of growth
recorded by China since the late 1970s and India from the 1990s,
following economic reforms that revitalized the Asian giants. Smaller
nations like the Asian Tigers – Hong Kong, Singapore, South Korea, and
Taiwan – had already achieved rapid economic growth from the 1960s
onward by becoming export dynamos and focusing on their competitive
strengths. But China and India succeeded despite their massive
populations, as an average 10% GDP growth rate in China since 1978 and
a slower growth pace in India enabled hundreds of millions to escape the
clutches of poverty.

While the emerging market and developing nations have been growing at
a faster pace than the developed world since the 1990s, the divergence in
growth rates has begun to narrow since the end of the Great Recession in
early 2009. In 2011, for instance, developing countries collectively
recorded GDP growth of 6.2%, while the developed nations only grew by
1.7%. By 2019, developing countries collective GDP was 3.7% while
developed nations GDP stayed steady at 1.7%. The COVID-19 pandemic
that roiled the global economy in early 2020 has seen the economic
outlooks for both developing and developed nations plummet to negative
growth rates.

Q 7: What is the difference between open economy and

close economy? Explain
the circular flow of national income in four sector economy.

Closed economy is an economy, which does not have any sort of

economic relation with rest of the world but is confined to itself only. A
closed economy does not enter into any one of the following activities.

(i) It neither exports goods and services to the foreign countries nor
imports goods and services from the foreign countries.

(ii) It neither buys shares, debentures, bonds etc. from foreign countries
nor sells shares, debentures, bonds etc. to foreign countries.

(iii) It neither borrows from the foreign countries nor lends to the foreign
countries.

(iv) It neither receives gifts from foreigners nor sends gifts to foreigners.

(v) Normal residents of a closed economy cannot go to other countries to

work in their domestic territory. No foreigner is allowed to work in the
domestic territory of a closed economy.

Due to all these seasons, Gross Domestic Product and Gross National
Product are the same in a closed economy.

On the other hand, an open economy is one, which is not only involved in
the process of production within its domestic territory but also can
participate in production anywhere in the rest of the world. An open
economy involves itself in the following activities.

It buys shares, debentures, bonds etc. from foreign countries and sells
shares, debentures, bonds etc. to foreign countries.

It borrows from foreign countries and lends to foreign countries.

It can send gifts and remittances to foreigners and can receive the same
from them.Normal residents of an open economy can move or be
employed and are allowed to work in the domestic territory of other
economies.

Due to these reasons, Gross Domestic Product and Gross National Product
are not same in an open economy. It is to be noted that at present all
economies of the world are open economic
The circular flow model in four sector economy provides a realistic picture
of the circular flow in an economy. Four sector model studies the circular
flow in an open economy which comprises of the household sector,
business sector, government sector, and foreign sector.

The foreign sector has an important role in the economy. When the
domestic business firms export goods and services to the foreign markets,
injections are made into the circular flow model. On the other hand, when
the domestic households, firms or the government imports something
from the foreign sector, leakage occurs in the circular flow model.

The circular flow of income in four sector economy can be explained by

the flowing diagram

From the viewpoint of the circular flow of income, each sector has dual
roles to play in the economy; while a sector receives certain payments
from other sectors, it pays back to those sectors as well. The circular flow
of income in different sectors can be expressed as follows:

Household Sector

Receipts

The household sector receives factor income in the form of rent, wages,
interest, and profit from the business sector. It also receives transfer
payments from the government sector.

Payments

The income of the household sector flows into the business sector,
government sector and capital markets in the form of consumption
expenditure, taxes and savings respectively.

Business Sector

Receipts

The principle receipts of the business sector constitute of income from the
sale of goods and services, income from exports, subsidies from the
government sector, and borrowings from the capital market.

Payments

Factor payments, import payments, and savings constitute the principal

payments from the business sector to the household sector, government
sector, foreign sector and the capital market.

Government Sector
Receipts

The major source of income for the government sector include the taxes
paid by household and business sector. Besides this, it also receives
interests and dividends for the investments made.

Payments

The government sectors make payments to different sectors in the form

of transfer payments, subsidies, grants, etc. It pays to the business sector
in return for the goods purchased, makes transfer payments like pension
funds, scholarships, etc. to the household sector. If the government
receipts are greater than the expenses, the surplus goes to capital
market. In case of cash deficit, the government borrows from the capital
market to maintain a balance in the economy.

Foreign Sector

Receipts

The foreign sector receives income from the business sector in return for
the goods and services imported by the latter.

Payments

Foreign sectors need to make payment to the business sector from where
imports have been made.

If exports exceed imports, the economy has a surplus balance of payment.

In case exports exceed imports, the economy faces a deficit balance of
payment. Depending on the trade policies, the economy tries to maintain
a balance between imports and exports.

Capital Market

Household, business, and government sectors deposit their excess of

income to the capital markets as savings. These savings are borrowed by
the business sector or government sector for making investments in
different projects.

The model can be described using the equation

Y= C + I + G

Where Y= produced goods and services; C= consumption expenditure;

G= government expenditure.

Introducing taxation in the model to equate the government expenditure,

we get
Y= C + S + T

Where, S= Saving; T= Taxation

Equating the two equations, we get

C+I+G=C+S+T

This results to: I + G = S + T

Introducing foreign sector, we segregate investment into domestic

investment (ID) and foreign investment (IF) and get

ID + IF + G = S + T

If IF = X-M

Where X= Exports; M= Imports;

ID + (X-M) + G= S + T

ID + (X-M) + G= S + (T-G)

This equation shows equilibrium in the circular flow of income and

expenditure.

Q 8: Why the dollar is continuously appreciating

after Covid 19. Marks 10
The coronavirus outbreak has caused millions of people to lose their jobs
and brought the economy to its knees but it has not dethroned the
American dollar.

To the contrary, the currency has risen in value this year, gaining six
percent from its lowest point reached in early March, according to the US
dollar Index, which measure's the greenback's value against a basket of
other currencies.

The dollar's rise is primarily due to its privileged position as the world's
reserve currency. That means that in times of crisis investors want to put
their money are in safe havens, even if the US economy is in trouble as
well.

That is the US Federal Reserve's move in recent weeks to pump multiple

trillions of dollars in liquidity into the financial system have not weakened
the value of the currency. Another reason for the dollar's appeal is the
pressing need for cash by companies who have seen the crisis sap their
revenues.
The currency is also the most traded in the world on the foreign exchange
market, and the Fed announced last month that it would facilitate
currency swaps with several other central banks so they could increase
their dollar reserves.

Against the euro, the dollar has risen by 3.5 percent since January 1. And
collapsing oil prices have helped the dollar appreciate against the Russian
ruble, Canadian dollar and Norweigan krone, economies all deeply reliant
on petroleum.

The US dollar already was already highly valued thanks to the health of
the economy – to the annoyance of President Donald Trump, since a
strong currency also makes American exports more expensive against
competitors. Trump felt that made it more difficult for US firms compete
with China as the two countries fought a trade war, and he relentlessly
called on the Federal Reserve to cut the benchmark interest rate.

With the onset of the crisis and the shutdown of huge portions of the
economy, the Fed last month cut the rate to zero. Some observers believe
the upheavals caused by the coronavirus could reshuffle the cards dealt to
the world's two largest economies and jeopardize the dollar's position.

Q 9: Why Industrial policy of 1991 is new? Marks 10

The New Industrial Policy of 1991 comes at the center of economic
reforms that launched during the early 1990s. All the later reform
measures were derived out of the new industrial policy. The Policy has
brought comprehensive changes in economic regulation in the country. As
the name suggests, these reform measures were made in different areas
related to the industrial sector.

As part of the policy, the role of public sector has been redefined. A
dedicated reform policy for the public sector including the disinvestment
programme were launched under the NIP 1991. Private sector has given
welcome in major industries that were previously reserved for the public
sector.

Similarly, foreign investment has given welcome under the policy. But the
most important reform measure of the new industrial policy was that it
ended the practice of industrial licensing in India. Industrial licensing
represented red tapism.

Because of the large scale changes, the Industrial Policy of 1991 or the
new industrial policy represents a major change from the early policy of
1956.
The new policy contained policy directions for reforms and thus for LPG
(Liberalisation, Privatisation and Globalisation). It enlarged the scope of
private sector participation to almost all industrial sectors except three
(modified). Simultaneously, the policy has given welcome to foreign
investment and foreign technology. Since 1991, the country’s policy on
foreign investment is gradually evolving through the introduction of
liberalization measures in a phasewise manner.

Perhaps, the most welcome change under the new industrial policy was
the abolition of the practice of industrial licensing. The1991 policy has
limited industrial licensing to less than fifteen sectors. It means that to
start an industry, one has to go for license and waiting only in the case of
these few selected industries. This has ended the era of license raj or red
tapism in the country. The 1991 industrial policy contained the root of the
liberalization, privatization and globalization drive made in the country in
the later period. The policy has brought changes in the following aspects
of industrial regulation:

1. Industrial delicensing

2. Deregulation of the industrial sector

3. Public sector policy (dereservation and reform of PSEs)

4. Abolition of MRTP Act

5. Foreign investment policy and foreign technology policy.

1. Industrial delicensing policy or the end of red tapism: the most

important part of the new industrial policy of 1991 was the end of the
industrial licensing or the license raj or red tapism. Under the industrial
licensing policies, private sector firms have to secure licenses to start an
industry. This has created long delays in the start up of industries. The
industrial policy of 1991 has almost abandoned the industrial licensing
system. It has reduced industrial licensing to fifteen sectors. Now only 13
sector need license for starting an industrial operation.

2. Dereservation of the industrial sector– Previously, the public

sector has given reservation especially in the capital goods and key
industries. Under industrial deregulation, most of the industrial sectors
was opened to the private sector as well. Previously, most of the industrial
sectors were reserved to the public sector. Under the new industrial
policy, only three sectors- atomic energy, mining and railways will
continue as reserved for public sector. All other sectors have been opened
for private sector participation.
3. Reforms related to the Public sector enterprises: reforms in the
public sector were aimed at enhancing efficiency and competitiveness of
the sector. The government identified strategic and priority areas for the
public sector to concentrate. Similarly, loss making PSUs were sold to the
private sector. The government has adopted disinvestment policy for the
restructuring of the public sector in the country. at the same time
autonomy has been given to PSU boards for efficient functioning.

4. Foreign investment policy: another major feature of the economic

reform measure was it has given welcome to foreign investment and
foreign technology. This measure has enhanced the industrial competition
and improved business environment in the country. Foreign investment
including FDI and FPI were allowed. Similarly, loan capital has also
introduced in the country to attract foreign capital.

5. Abolition of MRTP Act: The New Industrial Policy of 1991 has

abolished the Monopoly and Restricted Trade Practice Act. In 2010, the
Competition Commission has emerged as the watchdog in monitoring
competitive practices in the economy.

The industrial policy of 1991 is the big reform introduced in Indian

economy since independence. The policy caused big changes including
emergence of a strong and competitive private sector and a sizable
number of foreign companies in India.
Q2.GDP DEFLATOR METHOD
TIME GDP GDP GDP
CURRENT
PERIOD DEFLATO INFLATIO
CONSTANT N
PRICE R
PRICE(REA
L) RATE
( RS)

2005- 637772 594487 107.281

2006
2006- 722984 619190 116.763 8.838
2007
2007- 836518 655080 127.697 9.364
2008
2008- 943240 655689 143.849 12.649
2009
2009- 1083514 660987 163.924 13.955
2010