Arguments in Favor of NEP: (i) Raising the rate of economic growth of India to about 8 per cent at par with

other Asian countries like Singapore, Malaysia, Hong Kong, South Korea etc.(ii) Economic reforms is helping the country to attain growing competitiveness in its industrial sector to face
global competition.(iii) New Economic Policy aims to reduce the extent of poverty and inequality in the distribution of income and wealth.(iv) The new policy has been taking steps to raise the efficiency and profitability of public sector enterprises.(v) The new policy is promoting the private sector
investment in important areas(vi) The new policy is taking steps to develop small scale industries (SSI).(vii) The new policy is taking various steps to raise the flow of foreign direct investment in the country.(viii) The new policy has been taking steps to contain the fiscal deficit in the budget.(ix) The
new economic policy has been able to contain the trend of growing disequilibrium in the balance of payments and has been able to raise the reserve of foreign exchange through export promotion and discouraging imports.(x) The new economic policy has undertaken some measures to control the
inflationary rise in prices by checking deficit financing, controlling the volume of public expenditure and also by better supply management. Thus the New Economic Policy has been taking some important steps for accelerating the growth rates of the economy and also to correct the maladjustments
of the economy.

Arguments against NEP:(i) The new economic policy has neglected the agricultural sector as compared to that of industry, trade and services sector.(ii) The policy has introduced the policy of liberalisation and globalisation of the economy under the pressure of World Bank and IMF and leads to
complete surrender of the economy to these international bodies.(iii) The new policy has increased the dependence of the economy on foreign technology and has failed to improve the indigenous technology.(iv) The policy has increased the dependence of the country on foreign assistance and has
multiplied the volume of external debts.(v) The new policy has led to the loss of economic sovereignty of the country by allowing the sale of equities of Indian Companies to foreign investors.(vi) The new policy has aggravated the problem of unemployment by introducing the scheme of large scale
retrenchment of workers through the introduction of its exit policy without making any adequate provision for alternative scope of employment.(vii) The new policy has been providing too much stress on privatization neglecting the commitment to the society for the improvement of social sector.(viii)
The new policy has been encouraging a dangerous trend of consumerism by encouraging the production of luxuries and items of elitist consumption.(ix) The new economic policy has failed to correct the macro-economic parameters as it has failed to control the rising trend in prices, check fiscal
deficit, control subsidies, controlling non-plan expenditure of the Government etc..

Income MethodNational income is calculated using this method as a flow of factor incomes. Labor, capital, land, and entrepreneurship are the four main components of production. Labour is compensated with wages and salaries, money is compensated with interest, the land is compensated with
rent, and entrepreneurship is compensated with profit. Furthermore, certain self-employed individuals, such as doctors, lawyers, and accountants, use their own labour and capital. Their earnings are classified as mixed-income. NDP at factor costs is the total of all of these factor incomes. National
Income is calculated as a flow of income in this case. NI can be calculated as follows: Employee compensation + Operating surplus (w + R + P + I) + Net income + Net factor income from overseas = Net national income.Expenditure Method National income is calculated using this method as a
flow of expenditure. The gross domestic product (GDP) is the total of all private consumption expenditures. Government consumption expenditure, gross capital formation (public and private), and net exports are all factors to consider (Export-Import). As said above, the flow of expenditure is used to
calculate national income. The Expenditure technique can be used to calculate NI as follows: NationalIncome+NationalProduct+NationalExpenditure=National Income+National Product+National Expenditure=National Expenditure.Product/ Value Added Method National income is calculated
using this method as a flow of goods and services. During a year, we determine the monetary value of all final goods and services generated in an economy. The term "final goods" refers to goods that are consumed immediately rather than being employed in a subsequent manufacturing process.
Intermediate goods are goods that are used in the manufacturing process. Because the value of intermediate products is already included in the value of final goods, we do not count the value of intermediate goods in national income; otherwise, the value of goods would be double-counted. To avoid
duplicate counting, we can use the value-addition approach, which calculates value-addition (i.e., the value of the end good plus the value of the intermediate good) at each stage of production and then adds them together to get GDP. The sum-total is the GDP at market prices since the money value is
measured at market prices. The methods outlined before can be used to convert GDP at market price. The flow of goods and services is used to calculate national income. NI can be calculated as follows: G.N.P. - COST OF CAPITAL – DEPRECIATION – INDIRECT TAXES = NATIONAL
INCOME

Mncs are dominating the indian industrial sector and are offering stiff competition to the small scale industry. How do you compare this situation with the one under british rule when the indian handicrafts were exposed to stiff competition from the machine made products from
britain? Handicrafts being replaced by colourful, machine-made synthetic items, and consumers used to lean more toward using synthetic goods than Indian handicrafts. Even while over time individuals tended to choose foreign, inexpensive items, The whole business structure is altered by the
substitution of handicrafts and this shift in demand patterns for high-quality Indian commodities. The issue is identical to that of MNCs and small businesses, where the latter are having difficulties competing with rapidly expanding large businesses, much as how handicrafts are affected by imported
items.The advent of British tariff rules, competition from several synthetic furnished machine-made items, and changes in consumer preferences that resulted in changes in demand were the primary causes of the decline of handicrafts. The road for handicrafts was made more challenging by British
tariff regulations, and they were forced to quit the Indian market due to the heavy burden of enforced tariff and taxes.

Why should plans have goals? Planning is done to achieve some predetermined goals within a specified time period. Without goals, the planners would not be able to know which sector of the economy needs to be developed on a priority basis. So, plans should have goals.

Circular Flow of Income The circular flow of income is an economic model that reflects how money or income flows through the different sectors of the economy. A simple economy assumes that there exist only two sectors, i.e., Households and Firms. Households are consumers of goods and
services and the owners of the factors of production (land labour, capital, and enterprise). However, the firm sector produces goods and services and sells them to households. In the circular flow of income (two-sector economy), there is an exchange of goods and services between the two players,
i.e., the firms and households, which leads to a certain flow of money in the economy. Households provide the firms with the factors of production namely, Land (Natural Resources), Labor, Capital, and Enterprise that generates goods and services, and consumers spend their income on the
consumption of these goods and services. The firms then make factor payments to households in the form of rent, wages, interest, and profit. This flow of goods and services and factors payments between firms and households reflects the circular flow of money in an economy. 1. Generation Phase
The first phase of the circular flow of income is Generation Phase. In this phase, the firms produce goods and services by taking the help of the factor services. 2. Distribution Phase The second phase of the circular flow of income is the Distribution Phase. In this phase, factor incomes such as
wages, rent, interest, and profit flow from firms to the households. 3. Disposition Phase The last phase of the circular flow of income is the Disposition Phase. In this phase, the income received by the factors of production is spent on the goods and services produced by the firms.

Functions for central bank Currency regulator or bank of issue: Central banks possess the exclusive right to manufacture notes in an economy. All the central banks across the world are involved in issuing notes to the economy. This is one of the most important functions of the central bank in an
economy and due to this the central bank is also known as the bank of issue.Earlier all the banks were allowed to publish their own notes which resulted in a disorganised economy. To avoid this situation the government around the world authorised the central banks to function as the issuer of
currency, which resulted in uniformity in circulation and balanced supply of money in the economy.Bank to the government: One of the important functions of the central bank is to act as the bank to the government. The central bank accepts deposits and issues funds to the government. It is also
involved in making and receiving payments for the government. Central banks also offer short term loans to the government in order to recover from bad phases in the economy.In addition to being the bank to the government, it acts as an advisor and agent of the government by providing advice to
the government in areas of economic policy, capital market, money market and loans from the government.In addition to that, the central bank is instrumental in formulation of monetary and fiscal policies that help in regulation of money in the market and controlling inflation.Custodian of Cash
reserves: It is a practice of the commercial banks of a country to keep a part of their cash balances in the form of deposits with the central bank. The commercial banks can draw that balance when the requirement for cash is high and pay back the same when there is less requirement of cash.It is for
this reason that the central bank is regarded as the banker’s bank. Central bank also plays an important role in the credit creation policy of commercial banks.Custodian of International currency: An important function of the central bank is to maintain a minimum balance of foreign currency. The
purpose of maintaining such a balance is to manage sudden or emergency requirements of foreign reserves and also to overcome any adverse deficits of balance of payments.Lender of last resort: The central bank acts as a lender of last resort by providing money to its member banks in times of cash
crunch. It performs this function by providing loans against securities, treasury bills and also by rediscounting bills.This is regarded as one of the most crucial functions of the central bank wherein it helps in protecting the financial structure of the economy from collapsing..

Functions of commercial bank Accepting the Deposits The major source of funds in the bank’s deposits. This deposit consists only of money and not of any assets. For these deposits held, the commercial banks provide the interest. Advancing the Loans This is another primary function of
commercial banks. When a bank receives the money, a certain part of it is deposited in the reserves. While the remaining is dispatched in the form of loans. There are two types of loans advanced by the banks. These are money at call and discounting of the bills. Money at call is a loan given for a very
short period of time. Credit Creation Whenever a loan or credit is provided to the customer, he/she is not given any cash. In fact, a bank account is opened in the name of that person and amount is transferred to that account. Through this process, the bank is able to create money. A Cheque for
paying the funds A customer uses cheque as a negotiable instrument at the times of payment. This is one of the functions of the bank. So, in this, the bank offers a facility of having the cheques to the customer. It is also a main credit instrument in the banking world. Secondary Functions Apart
from performing the primary functions, banks use a number of useful services for their customers. They act as an agent for the following functions. The other functions of commercial banks include utility functions and agency functions.Paying and Collecting the Credit The commercial banks use
various instruments like a bill of exchange, cheques, promissory notes and many more. As this is used as a negotiable instrument in the bank.

Basis for Comparison Domestic Income National Income

Domestic Income implies the income accrued to
Meaning both residents and non-residents within the
geographical boundaries of the country.
Does not matters Who has generated the income?
National Domestic Product at Factor Cost
Represented as (NDPFC)
National Income is described as the
income accrued to the ordinary
residents of the country, irrespective of
their geographical location (i.e. within
and outside the country).
Where the income is generated?
Net National Product at Factor Cost
(NNPFC)

Concept Territorial Concept National Concept

NFIA Not a part of Domestic Income Part of Domestic Income

How does GDP and Welfare go together ???? Distribution of GDP – how uniform is it: If the GDP of the country is rising, the welfare may not rise as a consequence. This is because the rise in GDP may be concentrated in the hands of very few individuals or firms. For the rest, the income may in
fact have fallen. In such a case the welfare of the entire country cannot be said to have increased. Non-monetary exchanges: Many activities in an economy are not evaluated in monetary terms. For example, the domestic services women perform at home are not paid for. In barter exchanges, goods
(or services) are directly exchanged against each other. But since money is not being used here, these exchanges are not registered as part of economic activity. In developing countries, where many remote regions are underdeveloped, these kinds of exchanges do take place, but they are generally not
counted in the GDPs of these countries. This is a case of underestimation of GDP. Hence, GDP calculated in a standard manner may not give us a clear indication of the productive activity and well-being of a country. Externalities: Externalities refer to the benefits (or harms) a firm or an individual
causes to another for which they are not paid (or penalized). For example, let us suppose there is an oil refinery that refines crude petroleum and sells it in the market. The output of the refinery is the amount of oil it refines. We can estimate the value added by the refinery by deducting the value of
intermediate goods used by the refinery (crude oil in this case) from the value of its output. The value added by the refinery will be counted as part of the GDP of the economy. But in carrying out the production the refinery may also be polluting the nearby river. This may cause harm to the people
who use the water of the river. Hence their well-being will fall. Pollution may also kill fish or other organisms of the river on which fish survive. As a result, the fishermen of the river may be losing their livelihood. In this case, the GDP is not taking into account such negative externalities. Therefore,
if we take GDP as a measure of the welfare of the economy we shall be overestimating the actual welfare. This was an example of a negative externality. There can be cases of positive externalities as well. In such cases, GDP will underestimate the actual welfare of the economy.

Nominal GDP is the monetary value of all goods
and services produced within the domestic
Meaning
boundaries of a country based on the price of the
goods and services of the same year.
Nominal GDP is the Gross Domestic Product
What is it?
without any effect of inflation.
The Nominal GDP of a country is expressed in
Expressed terms of current year prices of goods and
services.
Complexity It is easy to calculate Nominal GDP.
The value of Nominal GDP is much higher than
Value of GDP the value of Real GDP because it takes current
market changes into consideration.
Comparison with the One can compare the Nominal GDP of different
previous GDPs quarters of a country.
One cannot easily analyze the economic growth
Economic Growth
of a country with its Nominal GDP.
Real GDP is the monetary value of all goods and
services produced within the domestic boundaries of a
country based on the price of the goods and services of
the base year.
Real GDP is the inflation-adjusted GDP of a country.
The Real GDP of a country is expressed in terms of base
year prices or constant prices of goods and services.
It is quite difficult to calculate Real GDP.
The value of Real GDP is much lower than the value of
Nominal GDP because it takes the market price of the
base year into consideration.
One can compare the Real GDP of different financial
years of a country.
One can easily analyze the economic growth of a
country using its Real GDP, as it is a good indicator of
economic growth

Precaution of Value Added Method 1…...Intermediate goods must not be added to the National Income as these are already added to the value of final goods. If included again, it will result in double counting. 2…...Dealings (sale and purchase) of second-hand goods should not be included in this
calculation. These goods are already included in the financial year in which they were produced, and they are not added to the current flow of goods and services. However, any brokerage fee or commission paid on any sale or purchase of such products are to be included in this calculation as it is a
productive service. 3……..Self-consumption services, i.e. domestic services like services of a housewife are not to be included in the national income calculation as it is challenging to figure out the market value of such work. These are produced and consumed within a household, and they do not
enter the market. Therefore, these are regarded as non-market transactions. However, paid services like maids, drivers, etc. should be mentioned. 4…..On the other hand, self-consumption goods should be counted in national income calculations because they contribute to the output of a financial year.
However, their value is to be estimated as these products are never sold in the open market. 5…..The estimated value of houses owned by individuals should be included. The reason is, owners who live in their own homes are enjoying similar housing services like people who live in rented places.
Hence, the value of such services is estimated as per the market rate. This estimation is known as imputed rent. Precaution of expenditure method 1…. Expenditure on only final goods and services should be included in the national income estimation while intermediate consumption expenditure
should not be included. 2….. Similarly, expenditure on the purchase of second hand goods should not be included in the national income estimation of the current accounting year. This is because they have already been included in the national income of the accounting year in which they were
originally purchased. 3…... Expenditure on shares and bonds is not included. This is because these are mere financial assets and do not reflect any production activity of the goods or services. 4….. Imputed value of the goods and services produced for self consumption are included. 5…...
Expenditure on transfer payments by the government should not be included. This because such payments are not related to any production activity in an economy.

Green revolution: Green revolution was introduced in the year 1967. The Indian council of Agricultural Research (ICAR) introduced this new strategy through land reforms, promoting the use of High Yielding Variety (HYV) seeds and improved irrigation facilities, to increase the agricultural
production. The green revolution largely means increasing production of food grains by using High Yielding Variety seeds especially of wheat and rice.The use of High yielding variety seeds required regular supply of water, fertilizers, pesticides and financial resources. As a result of green revolution
large number of States benefited by producing more crops. This enabled India to achieve self-sufficiency in food grain production.The credit of introducing the High yielding variety seeds goes to Indian council of Agriculture Research and many agricultural universities in India particularly Ludhiana,
Pantnagar (UP) and Coimbatore..The drawback of green revolution can be best represented by the statement: 1….Excessive use of chemical fertilizers, pesticides result in air, soil and water pollution.2...More requirement of water by high yielding crops result in the depletion of underground
water resources. 3..Use of agrochemicals was an expensive measure for Indian farmers.4….A lack of biodiversity in the global structures of croplands has been established...5….With one ravaging disease, it can be washed out.It decreases the soil quality used for growing crops. 6..t needs the use of
agricultural methods that are not sustainable. 7….It causes health effects that with its activities we have to remember. Impacts of green revolution: (1) increased area under farming, (2) double-cropping, which includes planting two crops rather than one, annually, (3) adoption of HYV of
seeds, (4) highly increased use of inorganic fertilizers and pesticides...[[[[Agriculture development implies giving assistance to farmers or crop producers by providing them various agricultural support…..Providing security, …..Helping in the research area,….Employing advanced
techniques, ...Checking pests, and facilitating diversity, ...They all fall under the category of agriculture development..

Liberalization removes state control over economic activities. It provides better autonomy to the businesses in decision-making without government interference. It was assumed that the market forces of demand and supply would operate automatically to derive a better efficiency and economic health
will recover. Internally, this was enacted by bringing reforms in the real and financial sectors and externally by releasing foreign exchange and trade from state governments grip. Privatization It means withdrawing the ownership or management of a government enterprise. Government companies
are converted into private companies in two ways Government is shredded from the ownership or management of the public-sector companies. by the blatant sale of public sector companies. Privatization is the transfer of the control and ownership of businesses from the public sector to the private
sector. It means a decline in the role of the government as the property rights shaft from public to private.Globalization can be defined as the integration of the national economy with the world economy. It enables a free flow of information, technology, goods and services, capital investments, and
even people across different countries. It brings the trade, investments, and markets from various countries under one umbrella. It promotes a more lucid economy. Globalization is also divided into three types.
Positive Impact of LPG in Our Economy 1. Increase in GDP Growth- The Indian economy has surely become vibrant after the LPG reforms. The overall growth of the economy has trended up as indicated by GDP growth. Post LPG policies, the growth of GDP shot up to as high as 8 percent per
annum.2. Stimulant to Industrial Production- LPG policies have worked as a great stimulant to industrial production in the Indian economy. IT industries in India have reached the global level because of these LPG reforms. 3. Curb on Fiscal Deficit The ever-increasing fiscal deficit has been a
danger to the process of investment in the Indian economy. It was 8.5 percent of GOP before 1991. Thanks to the LPG policies, government revenue has increased. As a result, the Fiscal deficit was deduced to 4% of the GOP (gross operating profit). 4. Check on Inflation -LPG reforms made the
flow of demand and supply smooth and it in return checked the inflation. There was a fall in inflation rates as reforms increased the production of goods and services resulting in either falling of price or constant price. The competition also helped to keep inflation in check. 5. The Decline in Poverty-
The reform led to the smooth running of businesses without any hindrance, which led to more employment and hence the decline in Poverty.

Negative Impact of LPG Reforms 1...The reforms were mainly for the formal sector of the economy, the agricultural sector, the urban informal sector, and forest depending communities were untouched by the reform. This resulted in Uneven economic growth and unequal distribution of
wealth. 2…...Economic liberalization in the organized manufacturing industries (subjected to strict labour laws) has led to very little employment. 3….Market-based reforms led to the economic disparity between the rich class and the poor class.4….Social Sectors like Health, education were ignored
in this reform which has led to poor health sector development and lousy educational growth. 5..Economic reforms have pushed up the growth of the economy but have miserably failed to generate adequate employment.
Industrial Policy Resolution, 1956, industries were classified into three categories on the basis of ownership:
(i) The first category consisted of industries which could be established and developed exclusively as public sector enterprises.
(ii) The second category consisted of industries which could be established both as public sector enterprises and private sector enterprises, with the private sector being given a secondary role.
(iii) The third category consisted of all industries other than those specified in the above categories and was open for the private sector.
IPR 1956 classified industries into three categories:
❖The first category comprised industries which would be exclusively owned by the state. (Schedule A industry) ❖The second category consisted of industries in which the private sector could supplement the efforts of the state sector, with the state taking the sole responsibility for starting new
(Schedule B industry) The third category consisted of the remaining industries which were to be in the private sector. (Schedule C industry) ➢Although there was a category of industries left to the private sector, the sector was kept under state control through a system of licenses. ➢No new industry
was allowed unless a license was obtained from the government. This policy was used for promoting the industry in backward regions; it was easier to obtain a license if the industrial unit was established in an economically backward area. ➢In addition, such units were given certain concessions such
as tax benefits and electricity at a lower tariff. The purpose of this policy was to promote regional equality.➢Even an existing industry had to obtain a license for expanding output or for diversifying production (producing a new variety of goods).➢This was meant to ensure that the quantity of goods
produced was not more than what the economy required. License to expand production was given only if the government was convinced that the economy required a larger quantity of goods.

Small-Scale Industry The concept of small-scale industries was born in 1955, when the Village and Small-Scale Industries Committee, also called the Karve Committee, noted the possibility of using small-scale industries for promoting rural ..A ‘small-scale industry’ is defined with reference to the
maximum investment allowed on the assets of a unit...In 1950 a small-scale industrial unit was one which invested a maximum of rupees five lakhs; at present, the maximum investment allowed is rupees one
Characteristic features of a small-scale industry Labour intensive: Small-scale industries are fairly labour-intensive. They provide an economic solution by creating employment opportunities in urban and rural areas at a relatively low cost of capital investment. Flexibility: Small-scale industries are
flexible in their operation. They adapt quickly to various factors that play a large part in daily management. Their flexibility makes them best suited to constantly changing the environment.One-man show: A small-scale unit is generally a one-man show. It is mostly set up by individuals. Even some
small units are run by partnership firm or company, the activities are mainly carried out by one of the partners or directors.Use of indigenous raw materials:Small-scale industries use indigenous raw materials and promote intermediate and capital goods. They contribute to faster balanced economic
growth in a transitional economy through decentralization and dispersal of industries in the local areas.Localised operation: Small-scale industries generally restrict their operation to local areas in order to meet the local and regional demands of the people. They cannot enlarge their business
activities due to limited resources.

The World Trade Organization (WTO) is the global international organisation dealing with the rules of trade between nations. The WTO agreements, negotiated and signed by the majority of the world’s trading nations and confirmed by their parliaments, are at its heart. The objective is to make
trading as seamless, predictable, and unrestricted as feasible. The World Trade Organization (WTO) serves a variety of purposes: it administers a worldwide system of trade regulations, serves as a venue for negotiating trade agreements, resolves trade disputes among its members, and assists
developing nations. Achievements of WTO The WTO has enabled a huge increase in cross-border economic activity by creating binding standards for global trade in products and services……...The WTO has not only increased trade value and volume but also contributed to the removal of trade and
non-trade barriers…...Since 1995, the value of global commerce has nearly tripled, while the volume of global trade has increased by 2.7 times…….The long-term increase in a country’s national income has stemmed from domestic changes and vows to open the market…..An increase in Global
Value Chains is due to WTO-created market conditions and better communication…..Trade inside these value chains accounts for over 70 percent of total product trade….The World Trade Organization (WTO) gives special attention to the world’s poorest countries….All WTO accords acknowledge
the need for maximum flexibility and the need for better-off members to take further steps to eliminate import barriers on exports from LDCs