Economics Notes

By
Aman Srivastava - I

Economics :
A science which deals with how goods and services are produced,
distributed and consumed in a society.
Adam smith is called the father of Modern Economics.

Economy :
A system of governance which deals with the allocation of money and
resources in order to achieve inclusive growth is called the Economy.

Mobilisation of Resources:
❖ Mobilizing is the process of assembling and organizing things for
ready use or for achieving a collective goal.
❖ For a country to grow, identification and mobilization of its
resources is necessary.
❖ It should be available for easy use and for central and state level
planning.

Mobilization of Natural Resources

Mobilization of natural resources means a country is better equipped for
efficient utilisation of its domestic natural resources.

Mobilization of Human Resources

Mobilization Human resources stands for the wholesome growth of the
population of a country into a workforce.
What is needed for Mobilisation of Human Resource:-

❖ Assurance of proper hygienic diet and environment for all.

❖ Weaker sections like women, children, SC, ST, OBC etc should be
brought into mainstream.
❖ There should be the right employment opportunities for human
resources, and when there is a lack of skill the job demands, there
should be skill development programs.
❖ A good comprehensive education policy for overall development of a
student.

Mobilization of Financial Resources

If a country needs to grow, more goods and services should be produced.
The production can be done by the government sector, private sector or in
PPP mode. But for that, the economic resources of a country should be
mobilised.

Steps for Mobilisation of Financial Resources

● The tax base has to be widened. In India also , tax collected is

very less. Effective tax collecting system along with awareness
programmes is what needed to be done.
● Four factors of production- land, labour, capital and organization;
are needed simultaneously. So along with availability of natural
resources and suitable demographic conditions, there should be
an atmosphere for growth and investment.
● Government policy should provide incentives and subsidies to
encourage more and more productive investment.
● More savings and More productive investment : This should be
the motive of policies.
Distributive Effect

Distributive Effect or Distributional effect means the distribution of gains

and losses, distribution of costs and benefits occured in order to bring
equalisation in economic development.

Some Major steps taken by Governments to ensure efficient distribution

are:
❖ Provision of subsidies to farmers, miners i.e. to primary sectors.
❖ Social Provisions in Labour law like EPF, Bonus, Health
Insurance, Accidental covers, Educational cess etc.
❖ Socio-Financial policy like Old age/Widow pensions,
Scholarships programme for SC/ST or other backwards
classes.

Two Major - Division of Economics :

<A> Micro Economics :

:- It is the study of economic behaviour / decisions that an individual or a
business or entity makes in order to maximize its efficiency to increase its
production to compete better in the economy.

For Ex.: Analysis of goods purchased by a customer with fixed income.

:- Funds allocation strategy by a company etc.

<B> Macroeconomics :
:- It covers a wide range.
:- It takes into consideration the investment, production consumption in an
economy as a whole.
:- It analyzes the income of a nation, its GDP, Inflation states and its
controlling measures, monetary policy of the central bank etc.
Economic Development Vs Economic Growth

Economic Growth
Economic growth can be referred to as the increase that is witnessed in the
monetary value of all the goods and services produced in the economy
during a time period.
It is a type of quantitative measure that reflects the potential increase in the
number of business transactions taking place in the economy.

Economic Development
Economic development refers to the process by which the overall health,
well-being, and academic level of the general population of a nation
improves.
It also refers to the improved production volume due to the advancements
of technology.
It is the qualitative improvement in the life of the citizens of a country and is
most appropriately determined by the Human Development Index (HDI).

Human Poverty Index (HPI)

It was introduced in the Human Development Report 1997.

The HPI concentrates on the deprivation in the three essential elements of

human life already reflected in the HDI: longevity, knowledge and a decent
standard of living.

The Multidimensional Poverty Index (MPI)

❖ This index measures that perspective of poverty that provides a

complete scenario of income-based poverty assessments by looking
at multiple factors at the household level, from basic living standards
to access to schooling, clean water and health care.
 ❖ According to Global MPI 2020, India is 62nd among 107 countries
with an MPI score of 0.123

Human Development Index (HDI)

The Human Development Index (HDI) is a single index measure that aims
to record the three key dimensions of human development:
Access to knowledge,
A decent standard of living,
Long and healthy life.

Indicators of Human Development

❖ Human Development Index Rank
➢ India has been ranked 131st in the Human Development Index
(2020).
❖ Life Expectancy
➢ It is the age at which a particular person belonging to a
particular age is expected to live.
➢ Life Expectancy at birth in India
■ Males: 67.34 years
■ Females: 69.64 years
❖ Infant Mortality Rate
➢ It is the total number of infants dying below the age of 1 year
out of 1000 babies.
➢ The Infant Mortality Rate in India is 40.5 infants.
❖ Maternal Mortality Rate
➢ It is the total number of dying mothers out of 1000 mothers
while giving birth to babies.
➢ According to the 2011-13 Census, the Maternal Mortality Rate
in India was 167 deaths.
❖ Adult Literacy Ratio
 ➢ It refers to the number of people of both sexes i.e. male and
female aging more than 15 years having the ability to read and
write.
❖ Percentage of the Population Below Poverty Line
➢ People below the poverty line are categorized according to
calories consumed by each person per day which is 2400 in
rural areas and 2100 in urban areas.
➢ Any person consuming calories less than the minimum limit
mentioned above is said to be below the poverty line.

Physical Quality of Life Index (PQLI)

❖ It was Introduced by M D Morris in 1979
❖ It is the average of three statistics:
➢ Basic literacy rate (at the age of 15 years),
➢ Infant mortality,
➢ Life expectancy at age one,

Gender-related development index (GDI)

❖ It was introduced in Human Development Report 1995, measures
achievements in the same dimensions using the same indicators as
the human development index (HDI) but captures inequalities in
achievement between women and men.

Gender Empowerment Measure (GEM)

❖ It reveals whether women take an active part in economic and
political life.
❖ Differing from the GDI, the GEM exposes inequality in opportunities in
selected areas.

Green Index
The World Bank has developed an index known as the Green Index.
This index measures a nation’s wealth by using a new system.

The new system attaches a dollar value to each of the three components:

i) Produced assets

ii) Natural resources

iii) Human resources.

Gross Happiness Index

The phrase ‘gross national happiness’ was first coined by the 4th King of
Bhutan, King Jigme Singye Wangchuck, in 1972 when he declared, “Gross
National Happiness is more important than Gross Domestic Product.”

The concept implies that sustainable development should take a holistic

approach towards notions of progress and give equal importance to non-
economic aspects of wellbeing.

Sustainable Development
Sustainable development is the idea that human societies must live and
meet their needs without compromising the ability of future generations to
meet their own needs.

The “official” definition of sustainable development was developed for the

first time in the Brundtland Report in 1987.

Sustainable Development Goals (SDGs)

❖ The Sustainable Development Goals (SDGs) was adopted by all

member states of the United Nations in 2015.
 ❖ The SDG index frames the implementation of 17 SDG goals among
UN member states in terms of six broad transformations-
➢ Education and skills,
➢ Health and wellbeing,
➢ Clean energy and industry,
➢ Sustainable land use,
➢ Sustainable cities,
➢ Digital technologies.

Sustainable Development Index

❖ It is the ranking list of UN member countries according to their

development in accordance to SDGs.
❖ Report 2020
➢ Sweden topped the list.
➢ India was ranked 117.

Poverty :
Poverty is a state or condition in which a person lacks the resources for a
minimum standard of living.

→ Poverty Line :- Poverty line is determined by the monetary value of

the minimum calorie intake.
For Rural :- 2,400 calories for a person.
:- Rs.816 per person a month.
Urban :- Rs.2,100 calories for a person
:- Rs.1,000 per person a month.

→ Type of Poor :-

(i) Always Poor :- Who always stays below the poverty line.
:- Ex. beggars.
 (ii) Usually poor :- Who usually lie below the poverty line but
occasionally come above the poverty line.
:- Ex. Casual workers
(iii) Churning poor :- Who regularly move in and out of the poverty
line.
:- Ex. Small farmers, seasonal workers.
(iv) Occasionally poor :- Who are rich most of the time but may
sometimes come below the poverty line due to Bad luck or anything
else.
:- Ex. SMSEs owner, shareholders etc.
(v) Never/Non Poor :- Who never even come close to the poverty line.
Ex.: Millionaires family.

Types of Poverty:

There are two main classifications of poverty:

Absolute Poverty: A condition where household income is below a

necessary level to maintain basic living standards (food, shelter, housing).
This condition makes it possible to compare between different countries
and also over time.
It was first introduced in 1990, the “dollar a day” poverty line measured
absolute poverty by the standards of the world's poorest countries. In
October 2015, the World Bank reset it to $1.90 a day.

Relative Poverty: It is defined from the social perspective that is living

standard compared to the economic standards of the population living in
surroundings. Hence it is a measure of income inequality.
Usually, relative poverty is measured as the percentage of the population
with income less than some fixed proportion of median income.

Poverty Estimation in India

● Poverty line estimation in India is based on the consumption

expenditure and not on the income levels.

● As per the Rangarajan committee report (2014), the poverty line

is estimated as Monthly Per Capita Expenditure of Rs. 1407

in urban areas and Rs. 972 in rural areas.

Demographics
Demographics refer to statistical data relating to the population in a region.
This covers various factors like population growth rate, the percentage of
different age groups within the population, the literacy rates, the sex ratio,
urban-rural population ratios, etc

Statistic from Census 2011

Total population of India

Around 1.22 billion (as per census
2011)

Rank in world (Population) 2

Percentage of the world 17.71%

population

Population density 464 per sq. km

Growth rate 0.99%

Median age: Total: 28.1 years

Male: 27.5 years

Female: 28.9 years

Infant mortality rate 27 (26.6) deaths per 1000 live births

Under – 5 mortality rate 33 (32.9) deaths per 1000 live births

Life expectancy at birth Total: 70.42 years

Male: 69.2 years

Female: 71.8 years

Rural population Around 65%

Urban population Around 35%

The population of India by state

Most Populatio Least Population
populated n populated

1 Uttar 199,812, 1 Sikkim 610,57

Pradesh 341 7

2 Maharashtr 112,374, 2 Mizoram 1,097,

a 333 206

3 Bihar 104,099, 3 Arunachal 1,383,

452 Pradesh 727

4 West 91,276,1 4 Goa 1,458,

Bengal 15 545

5 Madhya 72,626,8 5 Nagaland 1,980,

Pradesh 09 602

Population density (persons per sq. km) by state

Highest Density Least Density

1 Bihar 1106 1 Arunachal Pradesh 17

2 West Bengal 1028 2 Mizoram 52

3 Kerala 859 3 Sikkim 86

4 Uttar Pradesh 828 4 Nagaland 119

5 Haryana 573 5 Manipur 122

Literacy Rates in India

Total Literacy Rate: 74.04%
Male Literacy Rate: 82.14%
Female Literacy Rate: 65.46%

Highest Rate (%) Least Rate (%)

1 Kerala 93.91 1 Bihar 63.82

2 Lakshadweep 92.28 2 Telangana 66.5

3 Mizoram 91.58 3 Arunachal Pradesh 66.95

4 Tripura 87.75 4 Rajasthan 67.06

5 Goa 87.4 5 Andhra Pradesh 67.4

Fertility Rate in India (Number of children born per woman)

Total fertility rate: 2.2
The table given below depicts the figures announced by NITI Aayog for the
fertility rate in India (as of 2013):

Top Three Rate Bottom Three Rate

1 Andaman & Nicobar Islands 0.7 1 Bihar 3.4

2 Tripura 1.3 2 Uttar Pradesh 3.1

3 Goa 1.4 3 Madhya Pradesh 2.9

Sex Ratio in India

The figures given below are based on NITI Aayog’s data for 2013-2015:
Total sex ration in India: 900
(900 females per 1000 males)

Top Three Sex Ratio Bottom Three Sex Ratio

1 Kerala 967 1 Haryana 831

2 Chhattisgarh 961 2 Uttrakhand 844

3 West Bengal 951 3 Gujarat 854

4 Odisha 950 4 Rajasthan 861

5 Karnataka 939 5 Delhi 869

Socio-Economic Status as per the Census 2011

Socio-Economic Caste Census (SECC) 2011 is the first-ever census that

generated comprehensive data covering households in both rural and
urban areas.

It was the first paperless census in India, conducted on handheld electronic

devices, in 640 districts.
It was the first-ever caste-based census since the 1931 census of India.
The first caste census was conducted in the year 1881
The Government of India is planning to use the data collected from Socio-
Economic Caste Census 2011, to implement their Direct Benefit Transfer
(DBT) schemes and to expand Pradhan Mantri Jan Dhan Yojana, Aadhar
and Mobile Governance (JAM).

Major Findings
❖ The number of households in India – 24.49 Crore, 17.97 crores live in
villages.
❖ 10.74 crore households are considered deprived.
❖ Approximately 30% of households in rural areas are landless and
they majorly get their income from manual labour.
❖ Around 13% of families in villages live in houses of 1 room.
❖ 56% of rural households lack agricultural land
❖ SECC 2011 recorded a higher number of illiterates than the numbers
recorded in 2011 Census of India.
❖ 60% of rural households are deprived or poor.
❖ 35% of urban households are poor.
❖ 1.80 Lakh households are engaged in manual scavenging for
livelihood. Maharashtra has the highest number of manual
scavengers.
❖ 48% of the rural population is female.
Fiscal Policy :
Fiscal policy means the use of taxation and public expenditure by the
government for stabilization or growth of the economy.
According to Culbarston, “By fiscal policy we refer to government actions
affecting its receipts and expenditures which ordinarily as measured by the
government’s receipts, its surplus or deficit.”

General objectives of Fiscal Policy are given below:

To maintain and achieve full employment.

To stabilize the price level.

To stabilize the growth rate of the economy.

To maintain equilibrium in the Balance of Payments.

To promote the economic development of underdeveloped regions of a

country.

Component of Fiscal Policy :

There are three components of the Fiscal Policy of India:

❖ Government Receipts
❖ Government Expenditure
❖ Public Debt

Government Receipts:
The categorisation of the government receipts is given below:
1. Revenue Receipt
● Tax Revenue
 ● Direct Tax (income tax, corporate tax, etc)
● Indirect Tax (sales tax, excise tax, custom duty)
● Non Tax Revenue
● Fees
● License and Permits
● Fines and Penalties, etc
2. Capital Receipt
● Loans Recovery
● Disinvestments(Disinvestment by government means selling a
part or whole of its shares of public sector undertakings (e.g., HMT,
LIC, and FCI)
● Borrowing(they create liability of returning loans) and other
liabilities

Government Expenditure :
There are two classifications of public expenditure:
1. Revenue Expenditure – It is a recurring expenditure:
● Interest Payments
● Defence Expenses
● Salaries to Central Government employees, etc are
examples of revenue expenditure
2. Capital Expenditure – It is a non-recurring expenditure
● Loans repayments
● Loans to public enterprises, etc.

Government Deficit
A government deficit is the amount of money in the budget by which the
spending done by the government surpasses the revenue earned by it.

There are three measure of Deficit:

1. Revenue deficit :
A revenue deficit refers to the surplus of the government’s revenue
expenditure over the revenue receipts.
 Revenue deficit = Revenue expenditure (or, recurring expenditure) –
Revenue receipts (revenue from taxes, fees, etc.)

This deficit only incorporates current income and current expenses.

The government may raise its revenue receipts by raising income tax.
Disinvestment and selling off assets is another corrective measure to
minimise a revenue deficit.

2. Fiscal deficit:
A fiscal deficit is the distinction between the government’s total
expenditure and its total receipts, which excludes borrowing.

Gross fiscal deficit = Total expenditure – (Revenue receipts + Non-

debt creating capital receiBudget
pts)

A fiscal deficit has to be financed by borrowing.

Hence, it includes the total borrowing necessities of the government

from all the possible sources.

3. Primary deficit:
A primary deficit is the amount of money that the government
requires to borrow for the interest payments on the formerly borrowed
loans.
Gross primary deficit = Gross fiscal deficit – Net interest liabilities

Budget
In simple words, the budget is an estimate of income and expenditure for a
definite duration.
The word ‘budget’ has been borrowed from the English word "Bowgette"
which traces its origin from the French word “Bougette”. Word “Bougette”
has arrived from the word ‘Bouge’ which means a leather bag.

The Government performs two important functions by making a budget

every year-

1. The Government estimates the expected expenditures for developmental

works.

2. To meet the expenditures for the coming financial year, the Government
tries to work out the sources of revenue.

Types of Budget

1. Traditional or General Budget:

The initial structure of the present-day general budget is known as
the Traditional Budget.
The main aim of the General Budget is to set up financial control over
the Executive and the Legislative.
Surplus Budget : When Goverments’s receipt is greater than the
expenditure.
Deficit Budget : When the government’s expenditure exceeds its
receipts

2. Performance Budget:
When the outcome of any activity is taken as the base of any budget,
such a budget is known as ‘Performance Budget’.
For the first time in the world, the performance budget was made in
the USA.
In the Performance Budget, it is the compulsion of the government to
tell 'what is done', 'how much done' by it for the betterment of the people.
In India, the Performance Budget is also known as the ‘Outcome Budget’.

Outcome Budget:

In India, development-related schemes such as MGNREGA, NRHM,

Mid Day Meal, PMGSY, Digital India, Prime Minister Skill Development
Council, etc. are started every year.

A large sum of money is spent on these schemes every year.

Therefore, in order to reduce this cost, the Government of India introduced

the Outcome Budget in 2005.

Outcome Budget acts as a pathfinder for all the Ministries and

Departments which helps in improving Services, the performance of
the programmes.

3. Zero Based Budget:

There are two primary reasons for adopting this type of Budget in
India.

(i) The continuous revenue deficit in the budget of the country.

(ii) Poor implementation of the Performance Budget.

In the zero-based budget, neither expenses incurred during the

previous financial years are not considered nor the expenditure of the last
financial year used for the coming years.

also known as ‘Sun Set Budget’

Peter Pyre is known as the father of ‘Zero Based Budgeting’ who

presented this sort of budget in 1970.
 In India, the Zero Based Budgeting was introduced by the
mainstream Research organization, Council of Scientific and Industrial
Research and the Central Government adopted the same in 1987-88.

Gender Budget:

If a budget describes the schemes and plans for the welfare of

children and females, it is known as Gender Budget.

Taxation Structure in India.

• The taxation system in India comprises a three-fold federal structure.

1. The Union Government
2. The State Governments
3. The Local Bodies

• Taxes in India are divided into two categories-

Direct taxes
Indirect taxes

• Taxes that are levied by the Indian Government :- Income Tax,

Central Excise Duty (tax imposed on goods for their production, licensing
and sale like alcohol), Customs Duty, Sales Tax and Service Tax.

• Taxes that are levied by the State Government:- Entertainment

Duty(on films), Land Revenue, Profession Tax, Sales Tax, Stamp Duty and
Excise Tax.

• Taxes that are levied by the local bodies: - Consumption Tax(tax

levied on consumption spending on goods and services), Octroi Tax (Tax
by Local bodies on certain categories of goods on entry in state) and
Property Tax.

• In India, direct taxes are: Corporate Tax, Banking Cash Transaction Tax
Capital Gains Tax, Fringe Benefit Tax
Securities Transaction Tax, Personal Income Tax and Tax Incentives.

• In India, indirect taxes are: Anti Dumping Duty, Custom Duty, Excise
Duty, Sales Tax, Service Tax and Value Added Tax (VAT).

Goods and Services Tax (GST)

• Goods and Services Tax (GST) is an indirect tax imposed on

manufacture, sale, and consumption of goods and services all over India.

• GST was initiated from July 1, 2017, and thereafter became the biggest
tax reform in the country.

• The first country to impose GST was France in 1954. Since then, more
than 140 countries have implemented the GST.

• Genesis of GST occurred during the previous NDA Government under

Atal Bihari Vajpayee when it set up the Asim Dasgupta Committee to
design a model for GST.

Taxes Replaced by GST

GST would replace almost all vital indirect taxes and cesses on goods and
services in the country.
Among the taxes levied by centre, GST will subsume the following:

• Duties of Excise (Medicinal and Toilet Preparations)

• Additional Duties of Customs (commonly known as CVD)

• Additional Duties of Excise (Goods of Special Importance)

 • Central Excise duty & Service Tax

• Special Additional Duty of Customs (SAD)

• Additional Duties of Excise (Textiles and Textile Products)

• Central Surcharges and Cesses so far as they relate to supply of goods

and services.

Among the state taxes that would be replaced by GST include :

• State VAT
• Central Sales Tax
• Luxury Tax
• Entry Tax (all forms)
• Entertainment and Amusement Tax (except when levied by the local
bodies)
• Taxes on advertisements
• Purchase Tax
• Taxes on lotteries, betting and gambling
• State Surcharges and Cesses so far as they relate to supply of goods and
services

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