hapter 1. Introduction to Micro Economics ‘Economies’ -Greek word ‘Oikonomia’ (Household Managemen) 1) Sclenice of wealth: ‘Adam Smith (Father of Econamics) - 1776 - Book "The Nature and causes of Wealth of Notions": “An ingulry into the nature and causes of wealth of nations." JB Say: “Science which deals with wealth", ‘Demerits:f) Ieis too materialistic, if) Neglect of Welfare. 2) Sclence of material well-being: ‘Alfred Marshall (Neo-Classicist) "Economics is s study of mankind in the ordinary business of life, It examines ‘that part of individual and social action which is most closely connected with the aftainment and with the use of ‘the material requisites of well-being” A.C. Pigou: “The range of our inquiry becomes restricted to dhat part of social weltare that can be brought directly of indirectly into relstion with the measuring rod of money". Marchal and Pigou have considered the ethical pee eee ies hes eee ‘Domerits: i} It is also materialistic. 1) The concept of welfare is very vague, 3) Scleace of chofce making: Prof” Lionel Robbins - Book “Nature and Significance of Economics” (1931): “Economies is the sclence which stadies human behavior as a relationship between ends and searce means Which have alternative uses” Demerits: Impersona and colourless (Excluding normative aspects), 4) Science ofdynamic growth and Paul A. Samuelson: "Beoaomics is the stody of how men and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, te produce various commodities ever time and dfswibure thems for consumption now and in the fiature amongst various people and groups of sockety”, Prof Henry Smith: "Economics, is the study of how in a civilized society one obtsins the share of what other people have produced and of how the total product of soctety changes and is determined”. Jacob Viner: “Economics is what Economists 40” 1 ‘Micro Economics: Greek word ‘mikros’. Prof. Boulding “Microeconomics is the study of particular firms, articular households, individual price; wages, income, individual industries and particular commodBes”. It fs spliga eae ao angle bl aga 2) - Macro Economics: Greek word ‘nakros, It is the study of overall economic phenomena of the econoriy a8 3 ‘whole, rather than is individual parts. It ineludes: ()) national ineome and output; (tl) general price tevel; (i) balance of trade und payments; (iv) external value of money; (¥) saving and investment; and (vi) employment and economics growth. 1) Economies isa setence: 1) ‘tis a systomatised body of knowledge which studiés the relationship between cause and effect, i) isempable of meanreient. (Te mesrremet isin ems of money) fi) Ithas its own methodological apparatus. (Induction and deduction) ™) ‘Tchas the ability to forecast. thetic ti pesca fre sey cocina fed a ss ores at wan We ce ‘its methodology and art in ts application. 3) Pasttve Science: Positive Economics 's the one that simply sales facts. A positive or pure ‘science analyses cause and effect relationship between variables, but it does not pass Value judgment 4) Necamatve Slence is peserpive in tau ud deserts what shouldbe the things. Example: "This x should reduced.” Profeasor Robbins emphasised the positive aspects of science but Marsal and Pigou have considered the ethical aspects of science whizh obviously are normative. : There are two mnethods of deriving generalisations or lass: (1) Deductive method: Abstract; enalytical and a priori method Conclusions and generalisations ars drawn based on, ‘seta fimidamental assumptions accepts truths. The kigic provceds from geaeral to particular. (2) Inductive Method: Under this method conclusions are drawn on the basis of collection and analysts of facts relevant to che ingulry. The kogic inthis ease proceeds fom the particular ta general. Prof. Sanjeev Chopra 1 9811508718‘There inna economy is withot scarcity (©) What to produce? (ii) How to produce? (ii) For whom te produce? (iv) What provision should be made for economic growth? Produstion Possibility Curve: Productioa-possibility curve (PPC) of "wacsfeeaiation curve": shows production of two ‘goods that can be produced with limited productive resources. Increasing opporunity cast that makes the PPC concave tothe origin. If opportunity coats were constant, PPC would be a straight line. Further PPC has ncgative slope doe to scarcity of resources. Optimum level of production fs on the Curve. Point R(any point inside ppe) represents underuilisaion. Point S(any point outside ppc is unatiinable combination beyond the reach ofthe economy) is not possible doe to limited resources. ‘Economic grewth and shift in Production Possibility Curve: ‘When the economy males progress in technology, that is, when scientists and engineers discover mew and betier ways of doing things, the proshction possiblities curve will shit qutoard and to the right showing that more of both goods can be produced than before. ‘Copiialist economy: Capitalism is an economic system in which all means of production are owned and controlled by private individuals for profit. Free market or laissez-faire economy) (Q) The right of private property: Under private ownership. 1@) Freedom of enterprise: Everybody’ fee to set up any firm to produce goods and services (G) Freedoen to ehcie by the coasunters: Consumer sovereignty. (@) Profit motive (6) Competition (6) Inequalities of income How do-capitalist economics solve their central problems? ‘No central planning avsboriry to decide what, how and for whom to produce, Such an economy uses the impersonal forces ‘of market demand and supply or the price mechanism to sclve its central problems. ‘Deciding what to produce: ‘Question regarding what to produce is ubimately decided by consumers who how their references by spending on the goods which they want. ‘Deciding how to produce: Relative prices of ficior: of production. ‘Deciding for whom to produce: For those whe ave the buying capacity. Deciding aboyt consumption, saving and investment: Savings govemed by the rate of interest prevailing inthe market. ‘Higher the interest rae, higher is tbe savings, investment decisions depend upon the rate of renum on capital. Mecits af Capitalist economy: 1. Herel in high standard of living, 2 Copitalsin works automatically through price mechanism. 23, Mascara ¢ffickency in production. 4, Ttrewards men of initiative and enterprise Demerits of Capitalism 1. Rich becomes richer and poor becomes Poort. ‘2 Wellare is not protected : 3, Reonomie instability 4, Class conc arises between employer and employee. +, Productive resouices are misused, ‘6, Formation of monopatis, "7. There is no security of employment. ‘Saclalist economy: Material means of production i. foctories, capital, mines ete. are owned by the whole costetunity represented by the State with the objective of Social Welfire. ("Command Economy” or a "Centrally Planned Esonomy"}, ‘() Collestive Ovnership (i) Central Pianning Authority (il) Abseace of Consumer Choice ‘G) Relatively Equal Income Distribution (y) Minimum role of Price Mechanism or Market forces ‘Merits of Socialism: 1, Equitable distribution of wealth and income 2. Planned economy, Better utilfration of resources +, Unemployment is minimised, business fluctuation are eliminated 4. Avoids class war. 5. Labourers and coosumers are protected, ‘Prof Sanfeey Chopra 981150871:| ‘Predominance of bureaucracy. There may also be corruption, rediepism, fhvouritisen, etc. Itrestricts the freedom of individuals Iwill noc provide necessary incentive to hard work in the form of profit. ‘State manopolies create by socialiem will somecimes become uncontrollable. ‘The entreae form of sociatim is not wt all practicable, Tig Mixed Economy, aim isto develop a system wiich tres to include the best features of both the controlled econoeny and the market economy while excluding the demerits of both. Planning is done by the State Authority called Planning. whope EFeaturexof mbxed econamy: ()— Corersience of private and pubic sector (i) Existence of Economic Planning. (ii) Administered Price: In the private sector, prices of gna and factors of production are determined through the five play of market forees of demsand and supply, In the poblic sector, the state determines the prices of various products, Merits of Mixed, Economy 1. Merits of both capitalism and socialism while avoiding the evils of both 2. Mixed economy protec individual freedom. a Price mechanism is allowed to operate under mixed economy, 4 Reducing the inequalities of wealth and class strugele is one of the aims. 5. ‘Economic fluctuations can be avoided Mixed eccnomy is dificult to operate, Excessive-contols and heavy tes are likely to prevall under mised economy, Problems red-tapism, nepotism, favouritism, officiakdom, ee, Deseribed by Schumpeter as “Capitalism in the oxygen tent, It is only a trsk of the capitalists to chean the ‘working class by offering them some temporary advantages like social security, upliftment of the depressed nts et, ter 2. Theory of Demand & Supph Meaning of Demand (Flow Concept: ‘Demand = Desire + Ability to buy + willingness to Pay. ‘What.determines Demand? ae Saree ret ee ‘rice of related commodities: Le. Price of (@) . Complementary goads (Eg. Tea.& Sugar) (inverse) () Competing goods or Substitutes (Eg. Tea & Coffee) (Direct) @) level of income of the household: Directly related. Hut exceptions ie, there are certain commodities for which ‘quantities demanded deerease with an increase in money income. These goods are called inferior goods. (@) Testes & preferences of consumers (S)__ Size of popatstion: larger the sizeof popalation, restr, isthe demand in general. (Direct relationship) (6) Composition of population (7) Distribution of income: Usually Rich populetion less, poor population more, Therefore demand for durable goods ‘yl be less and demand for non durable goods will be more. Beer led Marshall: High the price of coment, the smaller the quality emandet snd vce vere, Dowzeard pep iag ieee ea cus olde che wegen og Cees (oe (1) Ew of diminishing marginal ulity (2) Substitution effects (Hicks and Allen) Example: X and Yare Substitutes. When, the price of commodity X falls, it becomes relatively cheaper compared to coramodity Y. It induces consumers to substitute the commodity, as the result the total demand for the commodity X increases. @. Income effect: As the price of the commodity falls, Consumer's purchasing power increases. This induces him to ‘buy more of that commouty. Ths, demand foc tat commodity (whove price hs fallen increases, «@) Arrival of new consumers: Whea the price of a commodity falls, number of consumers increasesand hence the demand for the commodity increases. @) Different uses: If prices fall commodities can be used for varied purposes and demand for such commodities will increase Electricity Prof. Sanjeev Chopra se1is08718‘Bxceptions tothe law of Bemand:. ay Conspicvous goods: Articles of prestige value (Veblen effect) (Snob appeal) ee Giffen goods: Examples of such goods are coarse grains like bajra, Jaw quality rise and wheat etc. '@) —_Conspiceous necessities: These goods, dor ro their constant ung, have become necessities of ie, For example, Television sets, refrigerators. coolers, cooking gas etc. (8) Puture expectations about prices (5) Speculative goods (Movement slong the Demand Curve} {Only du to pice) ‘tncoease-and Decrease. n-Demands [Skit in Demand Curve] aes ak haere ‘A rightward sift in demand curve: (when more is demanded at same price) Example: If level of income increases, then consumer will demand more goods o same @ A leftward shift in demand curve: (When less is dersanded at same price) Example: If evel of income decreases, ‘hens consumer will demand fewer goods at same price, ‘Elasticity of Demand: Elasticity of demand is defined aa the responsiveness of the quantity demanded of a good to changes in prices, income of the consumers, taste etc. (factors) om which demand depends. In symbolic terms fp Bo Ee. q Sp op q Polat elasticiny; [Small Change) Jpoit elasticity, we measure elasticity at a given point on a demand curve. ae dp ae ange p= ‘change in price) {p~ Original price) (q = Original Quantity) (Or else infirmatian will be ‘Siena Mas Coed lca Cpl acy wy ka my cans fy ig rc RO lester sigement ‘Rt upper sigment ‘Are- Elasticity: Just a new method) pei, At Ps 44% PP: Price Plasiiclyy. Increase or decrease & Te fereeacraime eat Unit Elasticity (i) Price Increase & Total Expenditure increase or Price decrease- Total expenditure decrease, then Low elasticity Price Increase & Total Expenditure Decrease or Price decrease & Total expenditure Increase, then High elasticity, (1) Availabilty of substitutes: [STE & Vice versa] @) Position of commodity ina consumer's budget: (Share in lacome 1 E:7 & Vice Versa (3) Nature of need that m commodity satisfies: (WY Luncury then Et & if Necessities thea E (@ Number of wee 10 which a commodity can be put: [Number of we JE t & Vice Versa} (5) Time Period: [Time Period f E tt Vice Versa] (© Consumer habits: [Addiction 1 E | 2 Vice Versa (7) Tied demand: Normally inelastic: (8) Price range: Goods which arc in very high price range or in very low price range have inelastic demand, but those ten the middie range have elartis demand. tncome Blasticty of Bemaad Taco clay of demand the depres of reponivnes of qumtty demanded of «good tow small chmge in the Prof. Sanjeev Chopra + 9e11s08718‘Consumer Behaviour ‘Al Desires + Tastes + Motives Human Wats. (Classification of wants: 1) Necessaries 2} Comforts 3) Laswries ‘What is Utility? Unity is the want satisfying power of commodity. The concept of utility i ethically nental, ‘TheLaw of Diminishing Marginal Ucllity “The additional benefit which a person derives trom a given increase in stock of a thing diminishes with every increase in the stock that he already bas” (Assumptions) (1) Homogenous units (2) Standand units of Consumption (3) Continuous ‘Consinption (4) The Law fils in the case of prestigious goods ‘Extra Assumptions: (1) The Cardinal Measurabilty of Uiiliy (2) Constancy ofthe Marginal Uuilty of Money ‘Consumer's Surplus: = What a consumer is ready to pay ~ What he actually pays. ‘Consumer Surplus = TU—T. Exp ‘Per Unit Consumer Surplus = MU -P Uiily = Price ready to poy ‘An ordinal concept. Indlfforsnce Curves: An. indifference curve is a curve which represents all those combinations of two gowxls which ire ‘same satisfaction to the consumer: Since all the combinations on an indifference curve give equal satisfsction to the ‘sonsuamer, the consumer is indifferent among them. Todifference curve is a L- sbaped (Right angled) curve if goods are perfect complimects} [If MRS increases shape will become - Concave} ‘Budget line: A budget line shows all those coembinations of two goods which the consume can buy Spending ks given Se ae ee ee re re rice: A tats Comes eh a ln Ie sen OF Be seme will tie oa the budget line. shld be mld ty point oie se gen pice Hae ay, wl Begone the ech of he commune ed any combination lying within the line, say K, shows under spending by the “Therefore connie ania Equi atthe pot where bagel is ange w tb ldiferscce Curve: (Lo, pola Q} MUP URS = ox MU P ‘Suppl: Supply’ refers to the amount of & good or Secvicethit the producers aré willing and able to offer to the masket st ‘various prices during a period of time. (Flow Coacept) ‘Doteminans of Supely (1) Pree ofthe good fPrice | Supply ? and vice versa) ‘@) Prices ofrelated goods [Price of related goods | Supply of concemed good {and vice versa) (@) Prices of factors of production () Ste of technology [Better technology = move supply and vive versa] (5) Government Policy [Taxes t Supply | & vice versal[Subsidies | Supply { & viee versa] ‘Other things remaining constant, the quantity of a good produced and offered forsale wll increase asthe price ofthe good rises and decrease as the price falls. Povenet slong tn Supt. Cave [Only dot ore] ‘Increase. and Decrease of supply: [Shift in Sopply Curse) [doe to change in tan price) lass of Sunol: ‘The elasticity of supply is defined as the responsiveness of the quantity supplied of a good to a change in its price, Bs = Percenaige chnage in quantity sup plied Pecentage changein price ee a> bes ‘Are Easiciys Balik, BEB 1+ AP: Profi Sanjery Chopra 5 sa11s087183. Theory of Production & Cost, ‘Meaning of Production: Making of any material goods or providing any service is considered as production, provided it satisfies the wants of some people. Process of productioa is noching bat creation of form utility, place utr, time wtlity ‘and personal ulity ‘Fnctors.of Production: 1) Lands It does sot mean soll or earth's surface alone, but refers to all free pits of nature which, would include: ‘natural resources, fertility of soll, water, air, natural vegetation et. It is a passive factor. 2) Labour: Labour, to have an economic significance, must be one which is done with the motive of some eeonomis ‘eward. It implies that any work done for the sake of pleasure or love does not represent labour in Economics. @ Labour is perishable (i) The supply of labour and wage rate are directly related. t implies that, a8 the wage Tate increases the labourer tends to increase the supply of labour by reducing the hour of leisure (i) Labour is ‘mobile (Active) Land and labour are net produced factors but are primary or original factors of 3) Capital: We may define capital as that part of wealth which is used foc Farther production ie 'produced means of ‘production’. Machine, tools, instruments, fictories, dams, canals, transport equipment etc, are some of the ‘examples of capital, i) Fixed capial (Foretample tools, machines, c:) BH) Circulatiog capital (for example stock of raw materials et) fil) Real capital refer to physical goods such as building, plant, machines, te, x) Homan capita refers to hurnan shill ond sbiity ¥). Intangible capital. For example, goodll, pons rights, te. ‘yD. Individual eapital isthe personal propery owned by an individual or group of individuals. ‘yl) Social Capital is what belongs to the society asa whole inthe form of roads, bridges, ete, (Capital formation: (Consumption | Savings t Investment ¢ Capital 1] ‘Stages. of capital formation: a) Savings b). Mobilisation: of savings (Bank or Financial iosttution mobilizes savings) e) Investment (By entrepreneurial class) 4) Brirepreneur: Enitepreneur mobilises above factors, combines them inthe ight proportion, initiates the process ‘of production and bears the risks involved init Fesclo ofa entrpresen: (ning «bases ctexris and esate cone) Ri barn (i) lta Bent: ei mai re ipa ue] ‘The maximum amount of ouput dat canbe produced with given quanties of inputs under a given state of echnical knowledge ‘Cobb-Douglas production function: Q= KL C'* twee owes te quay of bow ad ‘Che cunt of copii nd are pstive conser The ‘conclusion drawn from this famous statistical seedy is that labour contributed about 3/4* and capital about 14% of the increase in the manuftcroring production Law of variable proportions: (Skort Run Concept) ‘The law states that as we' increase the quantity of ooe input which fs combined with other fied inputs, the marginal physical productivity ofthe variable input mast eventually decline. Total Product (TP): Total our foo all he Fetors of ‘production. ‘Average Product (AP): Outpt per unit of he variable factor. ae ee et ee o iis fags ess AER he os rire Whee average pradbct is maximum, marginal product is equal to average product. In other words, the marginal ‘product curve euts the average product eurvet ts maximum, (Git)__ When average product falls marginal product is less than the average product. Si ae iy fcr Rts ‘(Reason ‘The efficiency of the fixed fasters (E.g. Machine) increases as addiéonal units of the variable Factors (E-labour) ‘are added 1 them. (Indivisibility of fied factors) }) As more units of the variable factors are employed, the efficiency of the variable factors itself increases due to 1 MRis (he €< 1, MR will be ve ‘Sinmlianeous Changes in Demand and Supply: 8) Ingrease in Demand ~ Increase in Supply. The New Equilibrhim Price = the Olt Equilibrium Pre. [price sabe ‘but quaity increases} 'b) Increase in demand > Incresse in supply. Hencs, the New Equilitrium Price> the Old Equilibrium Price. (Price lncreases and quantity also increases] 9) Terease in Supply > Increase in ‘Demand. Hence, the New Equilibrium Price The O84 Equilibrium Price, (Price ‘decreases but quantity increases] ‘Bexfest Competition; (Vegetable macket - Potato) (Myth) (Idea) ‘There are large numbers of buyers and sellers and no buyer o seller is in 2 position to influence the demand ot soppy in the market (2) The commodity deat inf is homogencous, ie, Wentical in manure (G) Every firm is fee to enter the market orto go out of it. (@)___Theccommodity or the goods are soldat» uniform price throughowt the market. (5) Industry - Price Maker, Firm ~Price -Taker. ‘Eanlilrinm of the Firm (Price Taker’: ‘Conditions for equilibrium of a firm: @ — MR=MC. (The MC carve should cut Mik curve trom below. ‘Lanz Run Eaultisrium of the Firm: (Abways Normal Profi) ‘Manapoty: (Curve is inelastic) Monopoly isa situation in which thee i. singe seller of a product which has no close ‘substinite. Pure monopoly is never found in peactce. However, in public utilities such as transport, we generally find monopoly orn of market. 1) Single seller ofthe product (So Market = Individal Seller) (@) Restrictions to Entry ‘G)No close substitutes (Cross elasticity = Zero) Eauilitrlum of the monopets firm: A monopolist has to determine nat only his ourpat but also the price of his prodct. ‘The twin conditions for equilibrium in a monopoly: market are the same as discussed eater (1) MC = MR (8) MIC curve ust cot MR curve from Below, However, one thing is certain: The monopolist will not continue ihe makes loses in the long. nin. He wil contin 16 make super normal profits even inthe long ran as entry of* ouside firms is blocked. Brice Disrbmlnation: Conditions for pice diserimination: Monopoly power necessary t0 discriminate price, Gi) Thesseller should be able to divide his market into two or Bore subemerkets, (Gil) The price-lasticity ofthe product should be different in different sub-markers, The monopolist fixes a high price for his product for those buyers whose price elasticity of demand forthe product is lexs than ode, (Gv) should not be possible for the buyers of lowspriced market to resell the product to the buyers of high-priced market dmpcctect Compeiition - Menopotissc Competition: (Eg, Soaps & devergents) ‘Esatures of Monopolistic Competition; (1) Large number of sellers (i) product differentiation (Gi) Preedom of entry or exit (ivy Noneprice competition ‘rof. Sanjeev Chopra a 9811808718Eeuillbrtum of « thm: ()-MC=MR (Matisum profits or minimum fosses) (iMG curve must cut MR curve from below. Oligopoly: When there nce few (two to ten) sellers in a market selling hociogencous or differentiated products, oligopoly is ssid ionis, Diner of Oligopoly. 1, Pure oligopoly or perfect oligopoly occurs when the product is homogeneous in narure, Differentiated or imperfect oligopoly is based on product differentiation. 2, Open and closed oligopoiy: In an open oligopoly markt new firms can enter the market and compete with the ‘existing firms. Bet, in closed oligopoly entry is restricted 2. Collusive and Competitive, oligopoly: When few firm of the oligopolistic market come act in collaston with each ‘ther in fixing price and ousput, i is collusive oligopoly, When here fs an absence of soch understanding among the firms and they compete with each othr, fs called competitive oligopoly, 4, Partial or full oligopoly: Oligopoly is partial when the industry is dominated by one large firm which is considered or Jooked upon asthe leader of the group. The donsiating farm wil be the price Kader. In fall oigopoly, the market will 'be conspicuous by the absence of price ‘Characteristics of Gligopoly Market: (1) Interéependcnce (2) Importance of advertising Kicked demand curve: ‘(American econornist Paul A. Sweezy"s Model) it is because the segment of the demand curve abave the prevailing price level is highly elastic‘and the segment ofthe demand curve below the prevaiting price level is inelastic. 5: Indian Econo: A Profil ‘Ecaiures ofan Underdeveloped Econome 1) ‘Nesrly 60 to 80:% of the population is engaged in agriculture. In india - Independence 72%. Today, nearly 46 86. ‘Eeonomis survey 2016-17) 2) Poverty is wide-spread, In India -One third ofthe work! poor live in India, 21.9% of population in India is poor, 3) Popalation grovis at about more than 2 % per annum. 4) The standard of living of people is generally low, India's Per Capita Income (PCI) = 159% in 2015. 5) Saving and capital formation rate is low. tn India, Gross Domestic Savings Rate = 30%6, Gross Domestic Copital Formation =32.3 %6in 2018, 6) The incidence of unemployment and underemployment is quits high. In India - Unemployment rate = 5 9 in 2015-16, (UPS approach) (National Sample Survey Organisation) 7) The level of human well-being is geberally low, Itis measured by (HDD) developed by (UNDP) (Composite of ‘three basic indicavors of human development -longevity, knowledge and standard of living). India’s relative plabal ‘ranking on this index has remained at alow of 131 among 188 countries in 2016, Further HDI improved to 0.624 in. 2016 (Higher HDI is beter) (But China, Srilanka, Thailand have better HDI) 8) __ Income inequalities are widespread. In order to measure the Inequality of income and wealth, Gini Index is used. If Gini lndex = 0 = Perfect Equality. IfGini Index = | = Perfect inequality. Tel el es 054 {rr hm cu A (HIT Br ASI, Tei OT AT 2 even ‘Wey rash ta the conclusion that Indian economy is an underdeveloped ecceomy. But that is not completely tric. todiacd Developing Economy: (Rise tn Nationa income: recealy, i was decided to estimate Natiocal Income in terms of matonal value ndded ot Basic price than NNP at factor cost. Aecordingly, in 2013-16, NVA at Basle price was ° 108300 billion. @) _Riseln Per Capita Income: Per capita income rose more than *49,000 in 2015-16. (nearly si tims since 1950- 1) © Sige changs in sepsis dstuton of poputstion Prof. Sanjeev Chopra 9811508718‘Table 2: the GOI has recently started giving National aggrigntes in terms of Gross Value Added(GVA) at constant instead of GDP( ministry of statistics and programme Implementat ‘Area ‘Latest (2016-17...with2011-12prices) ‘Agricolnare Industry Service (Development of strong indasivial base: Eg ron & steel, Machine tools, ee (3) Improvements tn social everhend api: Indian ratlways covers more than 65,000 kilometers. Indian railways is world's second largest rail network. ¥ The Indian rood network has become second largest networks in the world oggregating 4.87 million kilometers. % In 2015-16, the installed electricity generating capacity was about more than 300,000 Mega War. — Similary, irigation facilites have increased to 63 million-bectares in 2012-13. Currently, 48 percent of ‘the net cropped area i irrigated, ¥ ‘Number of primary educational institucions has nearly quadrupted: the numbers of midie’sealor basis ‘schools and higher secondary educational instiutions have increased by around 23 times, There are no ‘round 37,000 colleges and 677 universities. The literey rate has increased to 74.4 pee cent in 2011. ¥ The number of doctors has increased to about 9S lakh in 2016. The bed-population riio is now 10.9 per 1,000 population. Economic planning ns 2 means of realiring overall national cconomic goals: Economic planning had boen an integral part ‘of Indian Bcooomy. The Planning Commission used to lay down ...... The government tried fo achieved the laid down targets by providing Snceolves to these sections. Thus, new planning was planning was omly indicative in mature and not nparui In 251, br Planning Commission whic as lying own five ea las i nda was lve wd as ‘replaced by National Insttate for Transforming India NITI Asy0g. ‘National Institution for Transforming India (NIT) Aayog ‘The Government of Indi has recently replaced the Planning Commission (instituted i 1950) with the NITI Aayog. It was. felt that the Planning Commission has become a redundant organization in new of the féct that India is n0 lager & ‘command economy but a diversified country with its sates in various phases of development. NIT Aayog i policy think tank of the Government of India and aims to involve tbe states in policy making in India. At the core of NITI Aayog's ‘creation are two hubs ~ tears India Hub and the Knowledge and Imovation Hub. The Team Hub leads the of sates with the Central government, while the Knowledge tnd Innovation Hvb builds NITT's Think-tank ‘With ‘he establishment of NITI Aayog, the government will act a6 an enabler rather than & provider of first and last resort. It ‘ims to enable India to better face the various problems and challenges through leveraging is demographic dividend, elimination of poverty, reduction of inequalities, reduetion of economic disparities, integrated development of villages, ‘providing support to small businesses and safe guarding environmental and ecological assets Hole of Different Stctors in India: ()Agricaltare: ‘(@ Provides employment: Around 46 percent ‘Gi) Share in national income: Around 15 per cent in 2016-17. ‘Gi) Supports industries. (Exg. Textiles, sugac, tea, popes) tv) Share in foreign trade: Coston textiles, jute and tea earlier, Now Agricultural exports ~ 10% of the national exports. A gro-imports» 4.5% of national imports in 2085-16. ‘v) Supplise of food and fodder vi) Savings of capita: Itrequires lesser capital pec unit of output compared to industries. ‘i Solving problems cf urban congestion end brain drain ‘Growth of epricuimure during planning period. Tae a ese sk consis a a Slr At «Fed ple ene increased to about 252 million tonnes in 2015-16, The pet capita availability af food grains has improved io $11 ‘om (High Yielding Variety Programme (HYVP)] (Greea Revolution ~ 1965 — Also known ax: Wheat Revaluation) This program was launch anly on S crops ie. Rice, Wheat, Bajra, Maize, Jowar. 2) Imaproved Agrarian systers 3) Ober Developments @) + Famers have been getting material inputs at subsidized rates, 1b) artners have been getting materials at subsidized rates Government is elping them in procuring thelr products at predetermined rates and masketing them, Minis wage levels have beea fixed for agricultural labourers. Prof. Sanjeev Chopra 30 98115087189 Special programmes such as Swamjayanti Gram Swarojgar Yojana (SGSY) and Mahatma Gandhi ‘National Rural Employment Scheme (MGNREGS) etc ae in place in rural area to provide employment to the rural people. 1) The National Food Security Mission: (NESM) was lauoched in 2007-08 (Ains-sel-sufickency) ). __Teenbace food security and to make Indian agriculture more resilient to climate change, National Mission for Sustainable Agriculture (NMSA) was launched in 2011-12, bh) Daring 11% plan « growth of 396 was achieved as against target of 4%, Tn 12h plan target of 4% bas been setup, ‘Problems of azriculocral sector in India: (@1)——‘Slow and uneven growth: India has the largest area under rice and wheat in the world and isthe second largest Producer of these crops, but in term” of productivity its world rank is $2 In rice and 36* in wheat. @) Not se modern agricaltwre: The HYVP was initiated on just 44 perceot of the Net eropped area. Only4S per cent ‘ofthe Net cropped area has irigaion facilities, The current level of farm mechanization at 25 percent is very low 4s compared to about 90 percent in developed countries, G)— Flawsin Land reforms ()- Problems relating to finance: Share of moneylenders has reduced te about 27%. (5) Problems relating to warehousing and marketing: As 2 result 10 - 15 9 of-egricuture produce gets spoiled or eaen by rats Rote of Industry in Ido: 1) Modernizing agricole 2} Providing employment 3) Share in the GDP 4) Contribution to exports (more than 25° of the export) 5) Raising incomes of the people (6) Enhancing further the coonomic growth ‘Dinas of ladies: ‘On the basis of end-use: (2) Basie goods industries like minerals, fertilizers, cement, ium and-steel, electricity et.) (b) Capital goods industries (like machinery, machine too, rail. road equipment's ete.) (Intermediate goods (ike chemical, rubber, plastic, coal and petroleum products) (@)-Consumer goods - consumer durables and noa-durables (ike beverages, watches, cosmetics, perfumes ete). utieen of Dudusteial Develooment since plonming perked ke, 19ST: (1) The Tenth Plan (2002-2007) aimed at achieving a growth rate of 10 % inthe industrial sector but the growth of around 8.2 4% p.a. was only achieved. @) The Eleventh Plan aimed at 10% p.. growth inthe industrial sector but industry grew ata rate of about 7% pa. @) The prograrame of indusctalization was started on a massive seal in the Second Plan (1956-61) based on the Mahalanob is model. This Plan emphasized on building basic and capital goods industries. Taree Sceet Plants ‘were setup inthe publie sector at Bhilai, Rourkela snd Durgapur. (@—_ Micco Enterprise - Investment up to 25 lakhs, Small Enterprise ~ From 25 lakes wo Sers, Mediom Enterprise — From § erst. 10 ers of Manufacturing Sector. For SERVICE ENTERPRISES ~ investmnent uptolOLis micro, 1OL-2er is small, er Ser is medium enterprise (5) The growth rate of small-scale sector is more than 10% pa. ©) The numberof small-scale-unic is around 4$ million MSMEs, (7) The MSME sector employed nearly 100 million persons. (8) Wis estimaved that smalls scale sestor contributes over 40 per cent of the total export, (B) Employment generated by the small scale sector per € I lakh investment was 1.39. Employment generated on investment of Rs.10 lakh was 21 persods in sual scle sector and 2 persons in large scale séctor. (10) Industry Targets - Growth of 12-14%. Targer share in GDDP-25% Atomie energy, and railway operations other ‘han the listed projects. ‘Make In India ‘A new iilative —make in India as taken in 2014 which rested on the following four pillars: ‘New Processes: in order 20 promote entrepreneurship, ‘Make in India" recognize “ease of doing business as the most ‘important factor, A number of steps have already been undertaken t6 ease business environment. ‘New Infrastructure: Availability of modem and facilitating infrastructure is a very ienportat requifemen forthe growth Of indasiry. Por this, industrial coridors and start cites are being developed fo provide infrastructure based on siate-of- the-art technology with modem high-speed communication and integrated logistic arrangements. Existing inftastrcture ix ‘also being to be strengitiened, Prof. Sanjeev Chopra un 9811508718[New Seetors: ‘Make in India’ has identified 25 sectors in manufacturing. infrastructure and service activites and detailed fnformation is being shared through interactive web-portal and professionally developed brochures, FDI has been opened. up to Defense Production. Construction and Railway infrastracture in a big way. New Mindset: “Make in India” intends to change the image of Government from regulator to facilitator by bringing a paradigm shift-in bow Govemment interacts with industry. The Government will parter industry in economic evelopment ofthe country. ‘A mamber of messures have been iaken to make the Make India program a success, These ioc, replacing ies and red ‘apinm with new, IT-driven application and tracking processes, streamlining and rationalizing licensing rules af the sate government level and aligning thom with global bes practices. Ergbtens of ladusirtal Develaposest ta Inga. ()_Poot performance of public sector: The ne loss ofthe loss making enterprises (79 in number) stood at "28,000. crore fn 2012413 (@) Regional imbalances: Large scale industries are concentraied ina very few states ike Teil Nadu, Maharaahira, ‘Andhra Pradesh and Gujarat. These four States aocoumt for 50% of total factories and $0%% of productive capital, (3) nda sckmess: There wore 2.$ lakh sick units out of which more thas 90 percent were small units, 9 Hole ofsermicesectorin India: {) Increasing share in the GDF (2) Providing employment (27% of population) (3) Contribution to Exports: Services account for over 1/3 of tal exports ‘Growth of service sector during planning period: ‘The Eleventh Plan aims ai a growth rate of 9.4 % p.a. but the actual growth rate ofthe service sector has been tle fess than 10 per cent per anni. For the Twelth plan, a target of 9 per cet per annum growth rate had been kept Actual growth ofthe service sector during 2012-15 to 2014-15 has been in the range of 8-18 percent of GVA: The Growih of ‘Trade, Hotel, Transport and storage recorded growth in the mnge of 6 to 16 percent daring XI plan. Financing, insurance, realestate and business services reconded an average growth of aboot 8 percent duriag 2000-07, Daring XI plan, their average growth rate was around 11 percent. During XIl Plan, it grew in the mage of $ to 105 percent. Problem of service sector in India: ® service sector has been the fasrst growing sector in the fest decade and contibutrs shout $4 per cent of the GDP. its share in the employment is only about 32 per cent. This sector does not cantribuie adequately by way ‘of employment. Services that have witnessed a very high growth rale eg. business and communication services Ihave alow share ia GDP or employment. Sarlose! fncometo Leia: [National income isthe money’value of al the final goods aad services produced by s country during a period of one year. ‘Basic Concents of Notional Income ond Ourput: (1) Gross Domestic Product (GDP): Gross domestic product is the money value of al final goods and services produced inthe domestic territory ofa country during an accounting year. @) GDP at Current Prices and GDP at Constant Price: Ifthe domestic product is estimated on the basis i ofthe prevailing prices iis called gross domestic product et current prices (ti 1,35,96,086 crores in 2015-16). 1f GDP is measured on the basis of some fied prices, tha is prices prevailing at polnc of time or in some base year it is known a8 GDP at Constant Prices (itis 1,13,50,249 crores in 2015-16....recently tase year as been sifted ftom 200405 to 2011-12). G) GDP at Factor Cost and GDP at Market Price: GDP:.= GDPucr - IT + S: (Where IT = Indirect Taxes, S = Subsidies) (IT#+8 = Net Indirect Taxes) (@) Net Domestic Products NDP = GDP - depreciation (5) Gross National Product (GNP): in order to estimate the gross national product of India we have to add net factor ‘income fiom abroad. In bref GNP = GDP + NFIA (where NFIA {s the net fetor income fom abrosd). (6) Net National Produet (NP): NNP = NDP + NFIA (7) NNPat factor costar National focome: NNP figure is available at market prices we will subtract indiest taxes snd -add subsidies tothe figure to get NNP at factor cost or national income of the ccanomy’, ‘Value Added Method: Value added method measures the conisibution of each producing entexprise tn the omestic terftory of the country. ‘Core should be taken to inclade the value ofthe following tems: (@) Cm account produétion of fixed assets by government, enterprises and household. () Production for selfconsumption. (©) Imputed rent of owner oecupied hauses, Prof. sanjeew Chopra a e11508718Gi Gi ‘Care should also be taken not to include se of second-Aand machines because they were counted as a part of ‘production inthe year in which they were produced. GDP mp = (VO~ ICps-* (VO=1C ps +{VO~ ICs Income Method: Aggregate of factor incomes ofall tbe factors of production of all the producing unis form the subject mane of calculation of national income by inceme method. Only incomes eamed by overs of primary factors of production are incloded in national income. Transfer incomes are excluded from nation income. Ths, ‘while wages of laborers will be included, pensions of retired workers will be excluded fom national income. Similarly, egal incomes, windfall gains, death duties, gift tax, interest on unproductive national debt and sale proceeds of second-hand goods are not incladed while calculating national income. NDPib = Rent-+ Wages + Interest + Profit Expenditure Method: (@) Net domestic expenditure = Consumption expenditure + net domestic investment, (©) ‘Net national expenditure = Consumption expenditure + net domestic investinent + net “foreign investment. (©) Gross national expenditure = Consumption expenditure + net domestic investment + net foreign investment + replacement expenditure (depresiation) GPmp= C +GH19NX OM) ‘Understanding of Tax Svstem in India: Taxes which are not shifted are direct taxes: Taxes, the burden of which is shifted are indict taxes. Direct Taxes: It is the Tax which cannot be shifted, In this case, inact and incidence of Tax fall on saene person. (Central Gov.) (Progressive in Nature) Income Tox; Personal income tx is levied on the income of Individuals, Hinds Undivided "Families! wunregistered firms and other association of people They are taxed at slab rate after giving certaio exemptions. Earlier income tax was at high 3397.75 ®% forthe highest income slab. At present, tx for the highest slab is 30%. Indian Company > 30%, Partaership > 30%, Foreign Company > 40% ‘Wealth Taxc Abolished ‘Gift tax; lncome tax on gifts (received without adequate consideration) was partially reintroduced in April 2005, under the income tex under the head IFS -> Income from other sources if it exceeds & $0,000!-. Merits of Direct Taxes (They are imposed according tothe ably ofthe person to pay. (Progressive) a ‘They best serve the purpose of transference of income from the rich to the poor. Demers of Direct Taxes (I also sometimes sad that direct taxes are tees on the honesty ofthe person. Gi) Necesstate proper maintenance of accounts. (Gil) ‘The assessment procedure is sso cumbersome, Indirect Taxes: Government impose taxes on goods and services, these are called Indirect Taxes. In this case + impact of Tax and incidence of tx may fll on different person. (Differentials in Nature) Merits of indirect Taxes (©The most important merit is convenience in assessment & a relative difficulty in evasion, (W) __Indirect taxes on drinks, tobsoco, ec. serve a social purpase, ‘Damerio of Indirect Taxes (@ Regressive character. (More burden om poor than rich) (8) The consumers have to bear theultimate burden of indirect tes, ‘Custom Duaiess Costom duties are levied 0 exports and imports as a percentage of the price of the coramodity successively eustom duty has been reduced to 10%, (Central Govt) ‘Bxele Duales: An excise duty is levied on production. Mostly iis levied by the Central Govt. however, sates ley excise ty on alcobol, drugs ete, Further Central Value-Added Tax {CENVAT] was introduced in 2000-01 Sales Tax: Being replaced by Velue Added Tax ia all states. Central sales tax is interstate sales tax which is being phased out in stages. At present central sales taxis percent, ‘VAT: A major benefit of VAT over sales tax is that the VAT avoids double taxation. VAT was introduced in 1999 and was implemented in April, 2005, The existing general sles tax laws were replaced with VAT act, 2005 and associated VAT rules, At present all states‘union territories have successfully implemented VAT except ‘Andaman & Nicobar Islands and Lakshadweep fstand. ‘Service Tax: Service taxis a form of indirect tx imposed on services. Introduced fn the year 1994: 95, service tex network bas expanded to cover almost all services except a negative list of services. Prof. Sanjeev Chopra 2B 3811508718GST (Goods and services txt): ‘The indirect tax regime in India has been replaced by a sompreheasive dal Goods and services Tax (GST). ‘GST aims to make India a common market with common tax rates and progedures and remove the economic barriers thus. paving the way for an integrated economy atthe national level. By subsuming most of the Central excise duty service tx. ‘ental sales tax) and Stare taxes (State-Level VAT) into a single tax and by allowing 9 set-off of prio-stage uaes for the ‘transactions. across the entire value chain, it would mitigate the ill effects of cascading, improve competitiveness and. improve liqudity of the businesses. It follows a mult-stage collection mechanism. Ia this, tx is collected at every sage and the credit of tax paid at the previous stage is available as 2 set off at the next stage of transaction. This shifts the tax Jncidence near tothe enasumer and benefits the industry through bever cash flows and beter working capital management. ‘GST isbe applicable on “supple” of goods or services as against the earlier concept of tux on the manufacture of goods or ‘a sale of goods or on provision of services. GST be based on the principle of dessnation bazed consumption taxation && ‘against the present principle of origin based taxation Its a dual GST withthe Centre and the State simnitenesasly levying ‘it on a common base. The GST levied by the Centre is called Centre GST (COST) and the one levied by the State {including Union territories with legislature} is called State GST (SGST), Union territaries without legislature levy Union. territory GST (UTGST). An Integrated GST (IGST) is levied on inter-State supply (including stock transfers) of goods or serviees, This is sollected by the Cente so that the credit chain isnot disrupted. Eenmures of Tax Strucore in Indias (Q) Tex revenues = 17% of National Income of India. { 2015-16) (2) Tex reveaue = 25,00,000 Crores in 2015-16. (G) Share of direct taxes in the gross tax revenue was 36.596 in 2013-16 while that of indirect taxes declined to 613%. (@) The population of the economy is more than 125 crore. But Less than 3.8% of the popolation pays ineome te in India, (6) The foal ax revenue is highly insufficieot vo meet the expenditure requirements, (6) 1.201617, the most important contributor to tax revecue is corporation tax (30 percent followed by: exelse duis (23 per cent), personal incoene-ax (20 per cent) custom duties (13 percent) and service tax (128 percent). Similarly, land reveotses were important spusce of state revenue. (@) The agriculture income is mostly exempt from the income-tix. (8) iehas been enlimated thar blak money (tax not pad) is generated t these of 30% of ODP. (@) ‘Direct taxes (centre and states combined) is 7 per cent of GDP in 2012.13. (10) GST has been introduce in finda with the aim of making india a common market with common tax rate and procedures. Eure 1) Year of Great Divide - 1921, 2) Indian Coaneil of Agriculture Research aod Development was established in 1929 3) State with highest number of schedule caste people and highest mortality rate - UP 4) ‘Banking and financial sector: (1975— Government Established Regional Rural Banks (RRBs) 1982 — National Bank for Agricolture and Rural Development (NABARD) 3} TRYSEM (Training of Rural Youth for Self-Employment) is a programme of Rural Development. 8} Food Corporation of India, « Provider food storage facility. 7) Green Revolution » Wheat Revolution, 8) Chairman of Planning Commission = Prime Minister. 9) ~~ National Nutrition Policy, 1993 - Goal of Annual production of 250 million tones. 10) Share of service sector in world output is 3.3%. 11) BO: Business Process Ouisourciag, 12) India has 3 largest scbentific & technical man power in world. 13) AGMARK - Related to agriculture produce. 14) ICAR (Indian Council of agriculture Research), Prof, Sanjeev Chopra, as yar1soe718(T-6 SELECTIVE ASPECTS OF INDIAN ECONO! Teste [lista abr sieaans Fe +2. They pul pressure on means of Subsistence and social Tey may real increased consumption and eiaced savings and capital formation. ‘ndia's Population rank is second tne world alter chins. In 2016 R was more than 128 erore. ‘India has only about 2.4% of the world's area and 1.2% of the world’s income but India secocimodates about 17.5% of the woeid’s Popalation. “Every sith person in te world isan Indian and every third poor person inthe worlds an Indian. ‘The sasualaddition to India’s population is almost equal tothe population of Australia. ‘Year 1921 is known as year of great divide owing to rapid increases in population. ‘Over the years birth raté and death rte in India has fallen, In 2015 bicth rate ~ 19.6 and death rte ~7.0 Delhi has highest density of population with 11297 folloned by Chandigarh with 9252 people per equare km. Sex ratio is most favoruble in Kerala ie. 1084 F/1000M¢. Highest literacy ratio in Kemla about 93.919% and Bir bas the lowest literacy ratio of 63.82% Amongst the states, Kerala has the highest life expectancy at birth i. 74 yrs. And Madhya Pradesh has the lowest life expectancy of 58 years in 2006, Infant Mortality Rave (OMR) refers to the number of babies dying before the age of one per 1000 live hrths. As er 2007, IMR in India is highest in Madhya Pradesh (72) and lowest in Kerala (13). Materaal Mortality Rate (MMR) refers tothe nomber of matemal eas per 1,00,000 live bith. High bith rate, relatively low death rate and immigration are causes of the rapid growih of popultion in india. ‘A fullfledged department of frily plaaning was created in 1966. Demographic Dividend: itis “a boot in economic productivity that occurs when there ae grossing numbers of People in the workforce relative to the. aumber of dependents” UNFPA. (United Natioss Population Fund (UNFPA), formerly the United Nations Fund for Popvlation Activites) Stated due, “A county with both Increasing numbers of young people sad declining feriliy has the potential 1 reap 2 demographic dividend, In order to reap the benefit of Demographic Dividend a rumber of seeps have been taken like Skill India wich alms to train over 40 crore people in India in different skills by 2022. It incisdes “National Skill Development Mision’, "os! ply fr kl velopment and Eatpeseuship, 2018 "Pradhan Man Kaa Vas ‘Yeujana (PMKVY) and the "Sil Loan Scheme” > Predominance of agriculture. > Slow whanization. > High incidence af poverty ee Early marriage > Religious believes and superstitions. 3 Jofot family system & Tleracy > Control aver firsines, Control aver epidemics > Spread of education. Serie et trees one WYYY Vv YrYYYYYY yy Prof, Sanjeev Chopra ‘ 1s 9B1LSO871E