Economy Without Coaching: Quick Revision Notes

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Economy
without
Coaching
Quick
Revision Notes
for IAS,EPFO,CAPF,CDS & State Civil Services
www.AroraIAS.com
www.AroraIAS.com Telegram: https://t.me/aroraias Economy Quick Revision Notes

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Index
1. Inflation
2. Monetary Policy
3. Banking
4. Money and Capital Market
5. Taxation
6. Fiscal Policy and Budgeting
7. Balance of Payment and Foreign Investment
8. Agriculture
9. Liberalization of Economy, Industries and Policies
10. Foreign Investment
11. Poverty
12. Unemployment
13. Health
14. National Income
15. WTO
16. World Bank & IMF
17. SDG

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Inflation
Economy Shield ( Youtube Series Video Notes)
Introduction lecture Video link for depth understanding
https://www.youtube.com/watch?v=nLalHrOba14
Lecture-1 Video link - https://www.youtube.com/watch?v=TEMpQ-u4B6s&t=223s
Lecture-2 Video link https://www.youtube.com/watch?v=ymBRhgO59YI&t=130s
Lecture-3 & 4 – check our Arora IAS YouTube channel
Intro (Meaning of inflation)
• Continuous rise in the price of goods and services

• Decline in purchasing power of the currency
• The particular currency is discontinued
• Lowest – 50 paise for a payment of rs 10
Impact of inflation
Saving
• It affects our savings

• Hurts the poor most
• Not rich becz they have surplus, they can invest and neutralize the impact.
Lender
• To continue their growth

• They have to give interest on deposits as well bcuz , low interest wont attract
consumers.
Impact on currency

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General causes – most of the time –

1. global crude prices
2. rupee depreciation
3. higher msp announced By govt
4. breaching fiscal deficit targets
Cause based
• Demand pull inflation

• Cost push inflation
• Structural inflation
Rate based
• Creeping inflation – 4%
• trotting inflation – creeping inflation increases
• Galloping inflation - 8-10%
• Runaway inflation – may change into hyperinflation
• Hyper inflation
Demand pull inflation
Some facts

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• This the reason why govt doesn’t produces employment beyond a certain
point called NAIRU (non accelerating inflation rate of unemployment)
• It also leads to economic growth but it will sustain if it will be productive.
• In developing economies, it is common.
Cost push inflation
Structural inflation
• Due to structural deficiencies
Causes of Demand-Pull Inflation:

• A growing economy or increase in the supply of money – When consumers feel
confident, they spend more and take on more debt. This leads to a steady
increase in demand, which means higher prices.
• Asset inflation or Increase in Forex reserves– A sudden rise in exports forces a
depreciation of the currencies involved.
• Government spending or Deficit financing by the government – When the
government spends more freely, prices go up.
• Due to fiscal stimulus.
• Increased borrowing.
• Depreciation of rupee.
• Low unemployment rate.
Effects of Demand-Pull Inflation:
• Shortage in supply
• Increase in the prices of the goods (inflation).
• The overall increase in the cost of living.
Cost-Push Inflation
This type of inflation is caused due to various reasons such as:

• Increase in price of inputs
• Hoarding and Speculation of commodities
• Defective Supply chain

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• Increase in indirect taxes

• Depreciation of Currency
• Crude oil price fluctuation
• Defective food supply chain
• Low growth of Agricultural sector
• Food Inflation
• Interest rates increased by RBI
• Cost pull inflation is considered bad among the two types of inflation. Because
the National Income is reduced along with the reduction in supply in the Cost-
push type of inflation.
Inflation in india
Measures by govt and rbi
How inflation is controlled in india

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With reference to inflation in India, which of the following statements is correct?

(a) Controlling the inflation in India is the responsibility of the Government of
India only
(b) The Reserve Bank of India has no role in controlling the inflation
(c) Decreased money circulation helps in controlling the inflation
(d) Increased money circulation helps in controlling the inflation
Stagflation
• The term was coined by Iain Macleod, a Conservative Party MP in the United
Kingdom, in November 1965.
• Stagflation is said to happen when an economy faces stagnant growth as well
as persistently high inflation.
• With stalled economic growth, unemployment tends to rise and existing
incomes do not rise fast enough and yet, people have to contend with rising
inflation.
• So people find themselves pressurised from both sides as their purchasing
power is reduced.
Case of Stagflation
• In the early and mid-1970s when OPEC (The Organisation of Petroleum

Exporting Countries), which works like a cartel, decided to cut supply and sent
oil prices soaring across the world.
• On the one hand, the rise in oil prices constrained the productive capacity of
most western economies that heavily depended on oil, thus hampering
economic growth. On the other hand, the oil price spike also led to inflation and
commodities became more costly.
• For instance, in 1974, the oil prices went up by almost 70% and it leads to a
consequent rise in inflation.
Measurement of Inflation
1. Wholesale Price Index (WPI) – It is estimated by the Ministry of Commerce &

Industry and measured on a monthly basis.
2. Consumer Price Index (CPI) – It is calculated by taking price changes for each item
in the predetermined lot of goods and averaging them.
3. Producer Price Index – It is a measure of the average change in the selling
prices over time received by domestic producers for their output.
4. Commodity Price Indices – It is a fixed-weight index or (weighted) average of
selected commodity prices, which may be based on spot or futures price

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5. Core Price Index – It measures the prices paid by consumers for goods and
services without the volatility caused by movements in food and energy prices. It
is a way to measure the underlying inflation trends.
6. GDP deflator – It is a measure of general price inflation.
Calculation of inflation
• For calculation of inflation indices are used.

• Two types –
1. Consumer price index
2. Wholesale price index
Which index is used
• Till 2014 wpi was used and it was a centre tool for monetary policy but after
the recommendation of urjit patel committee cpi was used.
Whole sale price index
• Inflation calculated at whole sale level

• Easy to calculate –
• Uniform rate
• Wpi figures calculated and published once in a month by ministry of
commerce
• For calculation basket is maintained
• Does not include services
• Modified not more then 10 yrs but not less then 5 yrs
• Last time modified in 2017
• Items can be added and removed
• Formula – lasplyres
• Indirect taxes not added
• Same month of previous year
• Base year -2011 - 12
Classification of basket
• Primary – milk , vegetables etc

• Secondary – machinery tools
• Fuels and lubricants
• Some items can increase and decrease known as skewflation
Drawbacks
• Consumer – retail level

• Services cant be traced
• Secondary goods overweightage

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• During 2013 retail inflation was 10 % , urjit patel committee said in next 12
month – 8% then in next 12 months – 6% , next – 4% , maintain a +/- 2 range.
Consumer price index
• At retail level
• Difficult to calculate inflation – problem
• Under cpi 4 indices –
1. Cpi(iw) – lb (mol)
2. Cpi(al) – lb(mol)
3. Cpi (rl) – lb(mol)
4. Cpi(unme) – cso (mospi)
• Last 3 are discontinued only iw is published based on 78 different industrial
locations.
• Dearness allowances
• 3 new were introduced –
• Cpi (urban) – 310
• Cpi(rural) – 1183(1182)
• Base year – 2011 - 12
Basket
• Food and beverages

• Pan supari and tobaccos
• Housing
• Clothing , footwear
• Fuel lubricants
• Misc.(mostly services like enter)
Which of the following brings out the "Consumer Price Index Number for Industrial
Workers ?
a) The Reserve Bank of India
b) The Department of Economic Affairs.
c) The Labour Bureau
d) The Department of Personnel and Training
Some important terms
• Deflation – continuous fall of price

• Either due to excess supply or fall of demand even below supply
(1) Due to low liquidity
(2) Population
(3) Saturation
(4) unemployment

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Disinflation
Reflation
Wpi cpi divergence
Important Terms related to Inflation
• Disinflation: Reduction in the rate of inflation

• Deflation: Persistent decrease in the price level (negative inflation)

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• Reflation: Price level increases when the economy recovers from recession based
on value of inflation
• Creeping inflation – If the rate of inflation is low (upto 3%)
• Walking/Trotting inflation – Rate of inflation is moderate (3-7%)
• Running/Galloping inflation – Rate of inflation is high (>10%)
• Runaway/Hyper Inflation – Rate of inflation is extreme
• Stagflation: Inflation + Recession (Unemployment)
• Misery index: Rate of inflation + Rate of unemployment
• Inflationary gap: Aggregate demand > Aggregate supply (at full employment
level)
• Deflationary gap: Aggregate supply > Aggregate demand (at full employment
level)
• Suppressed / Repressed inflation: Aggregate demand > Aggregate supply. Here
govt will not allow rising of prices.
• Open inflation: A situation where price level rises without any price control
measures by the government.
• Core inflation: Based on those items whose prices are non-volatile.
• Headline inflation: All commodities are covered in this.
• Structural inflation: Due to structural problems like infrastructural bottlenecks.

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Monetary Policy
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Monetary Policy Arora IAS You Tube Video Lectures Summary link –
https://www.youtube.com/watch?v=8TNPwXffMaw&t=917s
Reserve bank of India

• In India rbi is the apex authority in the banking system.
• Rbi act 1934 and was setup on 1st april 1935
• Earlier imperial bank of india used to perform its role
• In 1949 rbi(transfer to public ownership) act was passed and on 1 st jan 1950 it
was brought under the control of goi.
RBI REGULATION ACT,1949 – made RBI – Bahubali

• The Act provides a framework under which commercial banking in India is
supervised and regulated.
• the power to license banks
• regulation over shareholding and voting rights of shareholders
• supervise the appointment of the boards and management
• regulate the operations of banks etc
Structure of RBI
• RBI governor
• 4 deputy governors
• 1st rbi governor – Sir Osborne Smith
• 1st indian rbi governor – cd deshmukh
• At present – shantikanta das
Functions of RBI
• Traditional functions
• Nontraditional functions
Traditional functions
• Banker to the govt
• The rbi is banker to the banks – lander of last resort
• Control the entire banking system and some categories of nbfcs – scheduled
banks have to follow the guidelines given by rbi – 1/4th branch in rural areas etc.
• Formulates monetary policy
• Custodian of forex
• Issues the currency above the denomination of rs 1 that’s why rs 1 note signed by
finance secretary. it can only issue notes.
• Coins issued by goi but circulated by rbi.
• Rbi can issue highest note of 10,000 and financial yearly 10000cr

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• For this minimum reserve system is used.
Consider the following statements:

1. The Reserve Bank of India manages and services Government of India
Securities but not any State Government Securities.
2. Treasury bills are issued by the Government of India and there are no treasury bills
issued by the state Governments.
3. Treasury bills offer are issued at a discount from the par value.
Which of the statements given above is/are correct?
(a) 1 and 2 only
(b) 3 only
(c) 2 and 3 only
(d) 1, 2 and 3
The Reserve Bank of India (RBI) acts as a bankers’ bank. This would imply which of the
following?
1. Other banks retain their deposits with the RBI.
2. The RBI lends funds to the commercial banks in times of need.
3. The RBI advises the commercial banks on monetary matters.
Select the correct answer using the codes given below:
(a) 2 and 3 only
(b) 1 and 2 only
(c) 1 and 3 only
(d) 1, 2 and 3
Transfer of SURPLUS money

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ECONOMIC CAPITAL FRAMEWORK

• RBI transfers the “surplus” in accordance with Section 47 (Allocation of Surplus
Profits) of the Reserve Bank of India Act, 1934.
• Malegam Committee (2013) recommendations its transfer of surplus increased. -
demonitisation
• BIMAL JALAN COMMITTEE RECOMMENDATION –
• Revaluation reserves + Realized equity
• The Jalan committee has given a range of 5.5-6.5% of RBI's balance sheet for
Contingent Risk Buffer.
• RBI = 5.5 %
RBI’S STAND ON BITCOIN

• Do not confuse it with blockchain technology RBI’S Argument –
• susceptible to misuse – terror funding
• Ponzi scheme
• RBI issued circular to ban the ban of cryptocurrency
SC ON THE CIRCULAR
• RBI did not have jurisdiction over it as these assets could be classified as
commodities rather than currency.
RBI’S AUTONOMY

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Minimum reserve system

• In different countries different systems are used like proportional reserve system.
• India uses mrs – 200cr(115 cr gold and 85 cr hard currency )
Monetary policy
Meaning of monetary policy – monetary policy is that policy of RBI through which it
manages money supply in the economy
• Responsibility of central bank of country
• It controls the flow of money in the economy
• It decides how much money will stay with the public
Objectives of monetary policy
• To control inflation
• To manage economic growth
• To maintain a stable exchange rate of a system – for this large reserve has
already been accumulated – receives low attention
• This has changed from time to time - presently RBI focuses mostly inflation and
economic growth
• Monetary policy formulated twice a year
Cash reserve ratio (CRR)

• That part of NDTL that bank has to maintain with the RBI in the form of cash
• At present – 4%****

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• Earlier lower and upper limits were there – 15% and 3% , RBI amendment act
2006 was passed
• No interest rate is given to the banks
• CRR is calculated every fortnightly
• More than one rate of CRR known as incremental CRR – post demonitisation
When the Reserve Bank of India announces an increase of the Cash Reserve
Ratio,what does it mean?
(a) The commercial banks will have less money to lend
(b) The Reserve Bank of India have less money to lend
(c) The Union Government will have less money to lend
(d) The commercial banks will have more money to lend
CURRENT – RELAXING NORMS FOR CRR

• CRR LEEWAY - Banks can deduct the equivalent amount of incremental credit
disbursed by them as retail loans to these sectors, over and above the
outstanding level of credit to these segments as on January 31, 2020, from their
net demand and time liabilities (NDTL) for maintenance of the CRR.
• What will this measure do ??
Statutory liquidity ratio (SLR)

• That part of NDTL that banks has to keep with themselves in the form of gold ,
cash or g – sec.
• At present – 19.5%***
• SLR – only in the form of g-sec (why ??)
• However, SLR is not very effective tool but still it is used becz it tells the
direction. becz money reaches to economy only.
• Earlier there were limits on SLR as well but removed from RBI amendment act
2006 only lower ceiling was removed.
When the Reserve Bank of India reduces the Statutory Liquidity Ratio by 50 basis points,
which of the following is likely to happen ?
(a) India's GDP growth rate increases drastically
(b) Foreign Institutional Investors may bring more capital into our country
(c) Scheduled Commercial Banks may cut their lending rates.
(d) It may drastically reduce the liquidity to the banking system
Reserve ratio (CRR+ SLR)

• Price stability
• Providing loans to government (SLR)
• Safety of banking operations

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Open market operation

• Mechanism – RBI sells govt. securities in the form of bonds and bills to banks
• Even NBFCS can participate
• Buy back option
• Not mandatory – only if they have surplus
• How does it work
In the context of Indian economy, ‘Open Market Operations’ refers to

(a) Borrowing by scheduled banks from the RBI
(b) Lending by commercial banks to industry and trade
(c) Purchase and sale of government securities by the RBI
(d) None of the above
Bank rate
• The rate at which RBI used to lend to banks for long term
How it used to work?
• At present –4.65%
• Whenever the banks borrow they have to pledge the securities and it is 105% of
the total loan.
• It can’t be a part of SLR
• 2nd Narasimham committee recom. – LAF was brought in 1999 tempo. And then
in 2000 full flegedly and bank rate became dormant and at the end bank rate is
used as a penalty rate.
The lowering of Bank Rate by the Reserve Bank of India leads to

(a) More liquidity in the market
(b) Less liquidity in the market
(c) No change in the liquidity in the market
(d) Mobilization of more deposits by commercial banks
An increase in the Bank Rate generally indicates that the

(a) market rate of interest is likely to fall
(b) Central Bank is no longer making loans to commercial banks
(c) Central Bank is following an easy money policy
(d) Central Bank is following a tight money policy
LOAN TAKING SYSTEM
1 repo – two parties agree to sail and purchase of security

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2 it is also called as policy rate

3 only those securities certified By rbi
LAF
Which of the following measures would result in an increase in the money supply in the
economy?
1. Purchase of government securities from the public by the Central Bank.
2. Deposit of currency in commercial banks by the public.
3. Borrowing by the government from the Central Bank.
4. Sale of government securities to the public by the Central Bank.
Select the correct answer using the codes given below:
(a) 1 only
(b) 2 and 4 only
(c) 1 and 3
(d) 2, 3 and 4
MARGINAL STANDING FACILITY

• It is a facility of overnight lending and borrowing
• Under MSF banks may borrow for 24 Hrs.
• At present – 4.25%
• Bank can’t borrow an amount of more than 3-4% of NDTL
• 105% securities to be pledged but SLR can be used as well.
What is/are the purpose/purposes of the ‘Marginal Cost of Funds based Lending Rate
MCLR)’ announced by RBI?
1. These guidelines help improve the transparency in the methodology followed
by banks for determining the interest rates on advances.
2. These guidelines help ensure availability of bank credit at interest rates which
are fair to the borrowers as well as the banks.
Select the correct answer using the code given below.
(a) 1 only
(b) 2 only

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(c) Both 1 and 2

(d) Neither 1 nor 2
Supply of money remaining the same when there is an increase in demand for money,
there will be
(a) a fall in the level of prices
(b) an increase in the rate of interest
(c) a decrease in the rate of interest
(d) an increase in the level of income and employment
Policies
Standing deposit facility

• This concept, first recommended by the Urjit Patel committee report in 2014,
may soon become part of the central bank’s toolkit to manage liquidity.
• Standing deposit facility is a remunerated facility that will not require the
provision of collateral for liquidity absorption.
• Demonitisation – lot of cash with the banks – not voluntary cash
• This will allow the RBI to absorb surplus funds from banks without collateral.
• Banks too continue to earn interest (though possibly lower than the existing
reverse repo rate).
With reference to Indian economy, consider the following:

1. Bank rate
2. Open market operations
3. Public debt
4. Public Revenue
Which of the above is/are component/components of Monetary Policy?
(a) 1 only
(b) 2, 3 and 4
(c) 1 and 2
(d) 1, 3 and 4
QUALITATIVE TOOLS
• When inter- sectoral regulation is regulated without a change in total quantum,
e.g. big businessman getting large amount of money
• Selective credit control – increases share for some sections and decreases for
other. E.g. PCA

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• Margin requirement – lending to particular sector – set aside certain % of money

for safety
• Rationing of credit – maximum limit that a bank can provide to particular sector
• Moral suasion
Rates at which RBI lends
New rates of lending
Negative interest rate
NON-TRADITIONAL TOOLS

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URJIT PATEL COMMITTEE

• Inflation targeting – 4%+/-2
• CPI
• Monetary policy committee
Monetary policy committee

• Earlier there was a technical advisory committee was present , view of only
governor – veto power
• Urjit Patel committee recommended – monetary policy committee
• To take govt view also – FD
• To make it democratic and experts views only
• Hence monetary and fiscal policy left proper coordination
• It consists of 6 members
• RBI– RBI governor and 2 deputy governor
• Govt. – no political appointee – selection cum search committee – 4 years – no
reappointment
• Casting vote to governor
• Headed by governor
Responsibility on rbi
• If for 3 consecutive quarter – rate not maintained – rbi has to give reasons in
written for its failure
• Monetary policy report in 6 months – source and forecast of inflation
• Monetary policy framework agreement
Monetary policy transmission

• Monetary transmission refers to the process by which a central bank’s monetary
policy signals (like repo rate) are passed on, through financial system to influence
the businesses and households.
• policy rate changes by RBI are not reflected in the base rates of banks regularly –
increase is shown not the decrease
REASONS
• 1 locking of bank funds in double financial repression and psl
• 2 banks need not to borrow much from RBI, Indian economy bank dominated

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• 3 rising NPAs
Link between Growth, Inflation and interest rates
➢ In a fast-growing economy, incomes go up quickly and more and more

people have the money to buy the existing bunch of goods.
➢ As more and more money chases the existing set of goods, prices of such
goods rise. In other words, inflation (which is nothing but the rate of
increase in prices) increases.
➢ To contain inflation, a country’s central bank typically increases the
interest rates in the economy. By doing so, it incentivises people to
spend less and save more because saving becomes more profitable as
interest rates go up.
➢ However, when growth contracts, people’s incomes hit. As a result, less
and less money is chasing the same quantity of goods. This results in
either the inflation rate decelerating or it actually contracts (also called
deflation).
➢ In such situations, a central bank decreases interest rates so as to
incentivise spending and by that route boost economic activity in the
economy.
➢ In the current Monetary Policy, RBI has not raised the interest rates
even when retail inflation is high because RBI is facing an odd situation
at present: GDP is contracting even as inflation is rising.
➢ This is happening because the pandemic has reduced demand, on the
one hand, and disrupted supply on the other. As a result falling growth
and rising inflation are happening at the same time.

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Banking
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Banking Lecture on Youtube Link

https://www.youtube.com/watch?v=lTzh5pu54S4&list=PL-XduN-
VRcdhU5yYuJ3IS_276Q40jnDxO&index=14
History of banking in India
• 1st – bank of hindustan – 1770 – alexander and company
• 3 banks by east india company at 3 presidencies –
1) 1806 – bank of bengal
2) 1840 – bank of bombay
3) 1843 – bank of madras
• 1865 – allahabad bank – oldest bank surviving with same name – headquarter
in calcutta
• 1881 – oudh commercial bank – india’s 1st joint sector bank
• 1894 - pnb – 1st bank with indian capital only
Imperial bank of india

• Resulted into imperial bank of india in 1921.
• Performed the functions of central bank till 1934
• Sbi act was passed and it was brought under the goi in the year 1955
• 7 associates were also made.
State bank of india

• Hyderabad
• Travancore
• Patiala
• Bikaner and jaipur

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• Mysore
• Saurashtra
• Indore
• In 2008 and in 2010 bank of saurashtra and indore were merged. On 1st april
2017 even rest of the 5 associates were merged. (narsimham committee recom.)
• Bhartiya mahila bank is also merged which was setup in 2013
Nationalized banks
Problems in banks
• Private owned banks
• Fraudlent activities
• Most in urban areas
• Reach to upper class only
Govt wish
• To safeguard the interest of depositor
• For benefits of masses
• Meaning of Nationalization – converting a private sector company into a public

sector company.
• Several acts were passed
➢ 1969 – banks with min deposit of 50cr – 14
➢ 1980 – banks with min deposit of 200cr – 6
CLASSIFICATION OF BANKS
• 2 categories
• Scheduled – registered under 2nd schedule of rbi act ,1934 – list is dynamic –
banks are compelled to follow guidelines and in return they get monetary
support of rbi.(guidelines to be a bank will be covered later on)
• Non scheduled – opens and close everyday

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With reference to the governance of public sector banking in India, consider the
following tatements:
1. Capital infusion into public sector banks by the Government of India has steadily
increased in the last decade.
2. To put the public sector banks in order, the merger of associate banks with the parent
State Bank of India has been affected.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Regional rural bank

• Can be setup in rural part of a country only .
• Responsibility – loan to agricultural farmers + small business
• Earlier not established as a profit motive banks but now placed under it.
• How they are opened –
✓ Sponsored by psb’s only but work with different name
✓ 50% by central govt+35% by sponsored bank + 15% by state govt.
Problems
• Gradually number rose to 196 with 1000 of branches and most of them were
running in losses
• Impacting sponsored banks
• Govt decided to merge them and number fall to 56
• Rrbs were opened in 1975 but act was passed in 1976
Cooperative Banks
➢ born out of the concept of co-operative credit societies
➢ members from a community band together to extend loans to each other, at
favourable terms.
TWO TYPES
1 urban
2 Rural
Rural cooperative credit institutions

short-term cooperative credit
• State Co-operative Banks
• District Central Co-operative Banks,
• Primary Agricultural Credit Societies.
long-term institutions
• State Cooperative Agriculture and Rural Development Banks (SCARDBs)
• or

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• Primary Cooperative Agriculture and Rural Development Banks (PCARDBs).

Urban Co-operative Banks (UCBs)
• either scheduled or non-scheduled. Scheduled and non-scheduled UCBs are again
of two kinds- multi-state and those operating in single state.
REGULATION OF UCB
• UCBs are registered as cooperative societies under the provisions of, either the
State Cooperative Societies Act of the State concerned or the Multi State
Cooperative Societies Act, 2002.
• RBI regulates only the banking operations, Banking Regulations Act, 1949, and
the Banking Laws (Co-operative Societies) Act, 1955.
• Government: Registration and management related activities are governed by
the Registrar of Cooperative Societies (RCS) in case of UCBs operating in single
State and Central RCS (CRCS) in case of multi-State UCBs.
SOME CURRENT UPDATES
• SARFESI act can be used by cooperatives on secured lenders – sc
BANKING REGULATION (AMENDMENT) ORDINANCE 2020
• It brings all the urban cooperative banks (UCBs) and Multi state cooperative
banks under the direct supervision of Reserve Bank of India (RBI).
• scheme of reconstruction or amalgamation of a banking company without
imposing moratorium.
• do not affect existing powers of the State Registrars of Cooperative Societies
Reforms for Urban Co-operative Banks (UCBs)-
RBI has revised the Supervisory Action Framework (SAF) on UCBs for deterioration of
financial position. It has 3 parameters
✓ Net non-performing assets exceed 6% of net advances.
✓ Losses for two consecutive financial years or have accumulated losses on their
balance sheets
✓ Capital adequacy ratio (CAR) falls below 9%.
RBI has directed large UCBs (with assets of ₹500 crores and above) to report all
exposures of ₹5 crore and above to the Central Repository of Information on Large
Credits (CRILC).
Narasimham committee report on banking sector reforms

• No more nationalisation
• Private and public sector to be treated equally
• Complete computerisation
• Weaker banks should’t be merged with big banks
• Some banks to be promoted globally
• Rationalisation of interest rates
• Lower crr and slr
• Profit banks to be listed

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• Asset reconstruction companies

• Priority sector lending
Priority sector lending
• Some sectors by rbi are considered most important for overall socio economic
devn of the country
• Loans to them should be provided therefore put under priority sector.
• But these sectors contribute highly to the npa therefore banks are reluctant
• Therefore rbi has mandated the same and even there is subcategorisation for
more focus. E.g. 18% - agriculture and allied activities out of 40%
Priority Sector Lending Certificates (PSLCs)
• the seller sells fulfilment of priority sector obligation and the buyer buys the
obligation with no transfer of risk or loan assets.
Revised guidelines for PSL
• To address regional disparities – district – where per capita psl is less than 6000
• Loans for small and marginal farmers and weaker sections are being increased
in a phased manner.
• New categories will be added daily – sirf ek baar read maar lena – baki upsc hint
dega elimination
Rules for banks
• 40 % - banks with 20 or more branches – foreign + indian
• Foreign banks with less then 20 branches – 32% with no sub category.
• No action as by narasimham
Non banking financial companies
• They are financial banks but not a complete bank – engaged in financial activities
– known as shadow bank
• It is a company registered under the Companies Act, 1956 engaged in the
business of loans and advances, acquisition of shares/stocks/bonds/
debentures/securities
• Note - It does not include any institution whose principal business is that of
agriculture activity, industrial activity, purchase or sale of any goods (other than
securities) or providing any services and sale/purchase/ construction of
immovable property.
• On the nature of their activity: includes Housing Finance Company, Investment
Company, Micro Finance Company/Institutions (MFIs) etc.
NBFC regulated by RBI

P a g e | 29
Deposit taking NBFC
CURRENT UPDATES RELATED TO NBFC

• After ILFS crisis – liquidity crunch was felt in the sector – conditions were
improving but pandemic has again put them out of track, to revive nbfc sector
govt has announced many measures in atmnirbhar package
• RBI measure - liquidity buffer of high-quality liquid assets
• RBI has introduced liquidity management framework for NBFCs. It is applicable to
all non-deposit-taking NBFCs with an asset size of ₹100 crore and above,
systemically important Core Investment Companies and all deposit- taking NBFCs
irrespective of their asset size.
Special Liquidity Scheme for NBFCs/HFCs
• through a Special Purpose Vehicle (SPV)
• The SPV will purchase short-term papers from eligible NBFCs/ HFCs of debt up
to ₹30,000 crore,
Eligibility:
• NBFCs and HFCs should have- net non-performing assets (NPAs) less than 6%;
• Net profit in at least one of the last two preceding financial years;
• not reported under SMA-1 orSMA-2 category during last one year prior to 1
August 2018.
With reference to ‘Financial Stability and Development Council’, consider the following
statements:
1. It is an organ of NITI Aayog.
2. It is headed by the Union Finance Minister.
3. It monitors macroprudential supervision of the economy.
(a) 1 and 2 only
(b) 3 only
(c) 2 and 3 only

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(d) 1, 2 and 3
NPA
THERE IS NO RECOVERY OF PRINCIPAL AND INTEREST FOR 90 DAYS
Special mention account

• Banks classify borrowers into special mention accounts based on their delay in
repayment.
• Special mention account-0 (SMA- 0) loans are where the repayment overdue is
between one and 30 days,
• SMA-1 between 31 and 60 days
• SMA-2 from 61 to 90 days
• The asset turns NPA after 90 days of being overdue.
Stressed Assets
• It is a broader term and comprises of NPAs, restructured loans and written off
assets.
• Restructured Loans: Assets/loans which have been restructured by giving a
longer duration for repayment, lowering interest or by converting them to equity.
• Written off Assets: Assets/loans which aren’t counted as dues, but recovery
efforts are continued at branch level – done by banks to clean up their balance
books.
Procedure under npa
• Against a type of npa – some amount has to be kept out of profit known as
provision
Causes of high NPA

• On Borrower’s side- Global & Domestic economy slowdown; wilful default;
diversion of funds by borrowers for purposes other than mentioned in loan

P a g e | 31
documents; volatility in prices of raw material and the shortage in availability of

power etc. impacts the performance of the corporate sector
• On Bank’s side- Bad lending practices; inadequate capacity to evaluate projects
• Other external factors: Economic condition of a region effected by natural
calamities; ineffective recovery tribunals; change in government policies (e.g.
diversion of manpower of PSBs), administrative hurdles.
NPA RELATED CURRENT AND BANKING REFORMS
• In 2019 public sector banks accounted for about 80 per cent of the NPAs of
India's banking system.
GOVERNMENT –
• Partial Credit Guarantee – PSB purchasing high rated pool assets from nbfc’s
• EASE 3.0- It is a reform agenda which aims at providing smart, tech-enabled
public sector banking
• Insolvency and bankruptcy code
Actions by RBI
• domestic banks to directly sell their bad loans in manufacturing and
infrastructure sectors to investors abroad as part of one-time settlement (OTS)
exercises.
• Prudential Framework for resolution of stressed assets – making the process
more decentralized – insolvency and bankruptcy code – voluntary on lender side
• Asset Reconstruction Companies (ARCs) have been barred from buying financial
assets from their sponsors and lenders.
CIBIL
• It was constituted in aug 2000
• It is an agency which maintains the database of all borrowers
• These informations are provided by lender
• On it a website is been made which gives a score to all borrower
• It is out of 900
• If anyone has lower 750 – cant get loan
• Can be accesed by anyone
• No borrowing - -1
Twin balance sheet problem

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• Balance sheet refers to a document of a company which shows financial

health of a company.
• If blnc sheet of company goes bad so it will impact the blnc sheet of other
compnay as well known as twin balance sheet problem.
How it happened in india
Solutions
• Writing of the loan
• Asset reconstruction companies
• Corporate debt restructuring
• Recapitalisation
• Mission indradhanush
• Prompt corrective action
Writing of the loan

• Under this central banks can instruct the banks to clean their balance sheet by
counting npas as lost asset
• Against them provision will be released and it could be used .
• Meanwhile process of recovery can continue .
Asset reconstruction company

• Sarfesi act 2002
• can sell the secured assets
• can sell to arcs
• Accordingly 1st arc was established by sbi pnb idbi and icici known as arcil
Problems and solutions
• Arcs but the npas of the banks at discounted price and recover them with the
help of their trained workers.
• But problem kept on increasing as their npa have gone beyond a range e.g. pnb –
400000 cr and even many were politically complex.
• Solution by govt – bad bank
Bad bank and para

P a g e | 33
• Bad bank was to be a bank backed by govt but came under tough resistance by
raguramrajan – transfering the problem , fiscal deficit problem in monetary policy
• Govt came with new solution – para (public sector asset rehabilitation agency)
raise fund from public.
Corporate debt restructuring
• Several loans defaulted were genuine due to market conditions hence rbi decided
to give chance to these corporates
• Some guidelines were formed.
• So they can pay back their loan
Guidelines
• CDR is not possible without permission of rbi
• Possible if borrowing is from more then 1 bank
• If total borrowing is more then 10 cr
• Banks and co both can apply for it.
• Corporate can apply if supported by 20 % loan and same goes with bank
• Once application is accepted – joint lender forum
• 50% loan giver should get ready for further process – scheme will be decide
• Plan should be certified by 75%
Schemes
• 5/25
• Strategic debt restructuring
• S4a
5/25
• The loan of the company is restructured
• Usually it was for infra comp and loan for them was 12-15 yrs
• It was made to 25 yrs so the installments can be brought to low and as payment
starts after completion of project
• Comp can borrow after 5 yrs of successful payment
Strategic debt restructuring
• If 5/25 fails
• Banks may forcefully acquire the ownership of the company (51%)
• Then banks are given time of 18 months to find a suitable buyer for it.
• If it finds a buyer who can start the repayment then loan wont be counted as a
npa
• Banks still found a problem to get a buyer then it was done to 26% but he should
be made a single largest investor.
S4A
• Loan should not be less then 500 cr
• Even after a cash flow starts full payment is not possible due to low return
• Therefore, loan be divided into 2 including interest
❖ Sustainable – to be paid
❖ Non sustainable – to be converted into shares

P a g e | 34
Mission INDRADHANUSH
• Also known as A TO G mission
• A – APPOINTMENTS
• B – BOARD OF DIRECTORS
• C – CAPITALIZATION
• D – DESTRESSING
• E – EMPOWERMENT
• F – FRAMEWORK OF ACCOUNTABILITY
• G – GOVERNANCE – GYAN SANGAM – PM, FM , GOVERNOR (RBI), CMDS
PROMPT CORRECTIVE ACTION

• Rbi keeps a close look on the health of banks as it violates rbi psychological range
, it takes a preventive action and puts them under the following 3 categories.
Rules to foreign investment in banking sector

• In psbs – majority by govt – 51% , rbi asked it to go for 49% . Single buyer not
more then 10% and foreign investment not more then 20 %
• Private sector indian banks – fdi – 74% but single not more then 10%
• Foreign banks – 100%
On tap banking license guidelines

• An interested investor with an experience of at least 10 yrs in banking may apply
• even an Indian corporate owned by resident Indian with a neat and clean history
of at least 10 yrs can apply and
• even an existing NDFC can apply.
• Group companies can’t apply
On tap banking license guidelines

• License is valid for 18 months only if not worked it has to be surrender
• Paid up capital – 500 cr

P a g e | 35
• In 1st 5 yrs promoter to bring his sharing to 40% other investors cant take more
then 10% , in these 5 yrs fdi cant be more then 49% ( indian in nature)
• By the end of 15 yrs – promoter – 15% , fdi – 74% single buyer – 10%
• 25% branches in rural areas
• 6th year should be listed .
Core banking solution

• It provides anywhere banking facility to the customers of the banks.
• It connects each and every branch of the bank from the central server.
• Money can be withdrawn and deposited at any branch of the bank with its
customers.
• E-kuber – rbi
Online fund transfer

• RTGS – REAL TIME GROSS SETTLEMENT
• NEFT – NATIONAL ELECTRONIC FUND TRANSFER
• IMPS – IMMEDIATE PAYMENT SERVICES
DIGITAL PAYMENT
• MDR is the cost paid by a merchant to a bank for accepting payment from
their customers via digital means, which is usually recovered from the
customer.
• In 2019, RBI announced setting up of Acceptance Development Fund (ADF) to
improve the last- mile payments network in rural India to transact digitally.
• The 500 crores PIDF seeks to encourage acquirers to deploy Points of Sale
(PoS) infrastructure for both physical and digital modes, It will also receive
recurring contributions to cover operational expenses from card-issuing
banks and card networks. RBI will make an initial contribution of ₹250 crore
to the PIDF
UPI AND BHIM

P a g e | 36
FINANCIAL INCLUSION
• RBI releases National Strategy for Financial Inclusion (NSFI)
• Financial inclusion may be defined as the process of ensuring access to
financial services and timely and adequate credit where needed by vulnerable
groups such as weaker sections and low income groups at an affordable cost.
• Examples of financial inclusion – JAM trinity, digital payments, expansion of
banks in rural areas
DIFFERENTIATED BANKS
• They were setup on the recommendation of nachiket mor committee
• Another method of financial inclusion – increasing reach of banks in rural
areas
• Small finance banks and payment banks
INSOLVENCY AND BANKRUPCY CODE

• It is considered to be a economic reform for ease of doing of business.
• It will allow easy exit of business firms(why)
• Bcuz of complex laws it is easy to enter but even it is more difficult to come
out due to same complex laws.
• Insolvency refers to a financial condition in which person is not able to clear
its debt and when through legal procedure he allows himself to be declared
as being called as bankrupt.
Procedure
• Insolvency professionals – specialized cadre of licensed professional is created
to administer the resolution process
• Insolvency professional agency – IP registered with insolvency IPA
• Information utility
• Adjudicating authority – NCLT AND DRT + their appellate bodies
• Insolvency and bankruptcy board – rep from RBI, min of finance,cooperative
affairs and law
Procedure (waterfall mechanism)

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• After completion of bankruptcy liquidation will start and even liabilities order
is fixed
• Workers and secured lenders
• Unsecured lenders
• Dues of state
• Preferential shareholders
• Equity shareholders
BASEL NORMS
• Issued by basel committee on banking supervision(BCBS)
• It secretariat at BIS (bank for international settlement) – owned by central
bank – serves as bank for central banks – banking services only to central
banks and other international institutions – basel swizerland
• Also called as basel accords
• BASEL 1 AND BASEL 11- Basel 1 mainly dealt with credit risk and BASEL 11 –
scope of other risks were expanded
BASEL 111
• It was agreed in 2010-11 after global financial crisis of 2008
Basel 111 has 3 pillars –

• Pillar 1 – made of risks
• Pillar 11 – enlarges the role of banking supervisors
• Pillar 111 – defines the standards and requirement for higher disclosure by
banks on capital adequacy, asset quality and other risk management
processes
Pillar 1
Important concepts of pillar 111

• Capital adequacy ratio – expressed as a % of a bank’s risk weighted credit
exposure – each sector carrier its own level of risk – RBI mandated at 9%(global –
at least 8%)
• Counter cyclical capital buffer

P a g e | 38
• From last 2-3 yrs RBI is keep on postponing bcz of govt’s inability to recapitalize
the money in PSBs
Consider the following statements:

1. Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form
of their own funds to offset any loss that banks incur if the account-holders fail to repay
dues.
2. CAR is decided by each individual bank.
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Basel III Accord' or simply 'Basel III' often seen in the new, seeks to
(a) develop national strategies for the conservation and sustainable use of biological
diversity
(b) improve banking sector's ability economic stress and improve risk management
(c) reduce the greenhouse gas emissions but places a heavier burden on developed
countries
(d) transfer technology from developed countries to poor countries to enable them to
replace the use of chlorofluorocarbons in refrigeration with harmless chemicals
PJ NAYAK COMMITTEE
• Govt should reduce its holding in PSBs to below 50%
• Process of board appointments in PSB need to be professionalized
• Fixed term of 5 yrs – chairman and managing director
BANK BOARD BUREAU –

• Autonomous body
• Recommends – appointments of PSB and Financial institutions
• Recommends PSB consolidation
• Helping banks with developing strategies and raising capital
The Chairman of public sector banks are selected by the

(a) Banks Board Bureau
(b) Reserve Bank of India
(c) Union Ministry of Finance
(d) Management of concerned bank
BANK CONSOLIDATION

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• the total number of PSBs after consolidation has come down to 12 from 27 in
2017
BENEFITS OF MERGER
• Competetive- strengthening its presence globally, nationally and regionally.
• Capital and Governance- post-consolidation, boards will be given
the flexibility to introduce the chief general manager level as per business
needs, government's intention is not just to give capital but also give good
governance.
• Efficiency - potential to reduce operational costs due to the presence of
shared overlapping networks
• Self-Sufficiency: Larger banks have a better ability to raise resources from the
market rather than relying on State exchequer.
• Monitoring: With the number of PSBs coming down after the process of
merger – capital allocation, performance milestones, and monitoring would
become easier for the government.
CHALLENGES
• Decision Making: The banks that are getting merged are expected to see
a slowdown in decision making at the top level as senior officials of such banks
would put all the decisions on the back-burner and it will lead to a drop in credit
delivery in the system.
• Slowdown in Economy: The move is a good one but the timings are not just apt.
There is already a slowdown in the economy, and private consumption and
investments are on a declining trend. Hence, there is a need to lift the economy
and increase the credit flow in the short-term, & this decision will block that
credit in the short-term.

P a g e | 40
• Weak Banks: A complex merger with a weaker and under-capitalized PSB would
stall the bank’s recovery efforts as the weaknesses of one bank may get
transferred and the merged entity may become weak.

P a g e | 41
MONEY & CAPITAL MARKET

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MONEY & CAPITAL MARKET Lecture Series on YouTube Link

https://www.youtube.com/watch?v=_wmiVbd5E2o&list=PL-XduN-
Money market
• Lending and borrowing of short term finance with a maturity of 365 days
• It may be organised and unorganised
• Organised money market is always regulated by a regulator
• In india , organised money market is regulated by rbi.
Maturity of the borrowing
• 1 day – overnight call money
• 1 – 14 days – notice money
• 14 days – 365 days – term money
Rate of interest
• Goodwill , hence collateral may not required
• Demand and supply of the money.
Participants of money market
• Those who can borrow and lend in this market known as its participants.
• Participants are -
➢ Rbi on behalf of govt
➢ Banks operating in india except rrbs
➢ Financial institutions including insurance company and mutual fund
➢ Top rated corporates
➢ Individual investors.
➢ Those who are need they can borrow and those who are in surplus they can land.
➢ Note – rbi does not deal with investors and top corporate company directly.
Instruments of money market

• In order to borrow some instruments are used known as instruments of money
markets.
➢ Govt securities in the form of bills
➢ Certificate of deposits
➢ Commercial papers
➢ Note – explain how money market works.
How market works

P a g e | 42
Govt securities in the form of bills

• If govt is in need of stf then rbi will borrow
• Therefore rbi sells govt securities in the form of bills(bills have maturity less then
365 days)
• Can be sold to the banks or any individual.
• Presently these bills are issued with the maturity of 91 , 182 , 364 days.
• Normally the benefit is given to banks and fI’S in the form of interest.
• Cash management bills – less than 91 days
Certificate of deposits(banks)
• If a banks is in need of stf it can issue cds.
• This cd can be sold to other participants
• Issued with a maturity of not less then 7 days and not more then 365 days
• Face value – 1L and in multiple of that.
• The banks lend each other at lower rate of interest called as mibor (mumbai
interbank offer rate) originated from libor(Q ?? )
• Note – fis also issue cds but here exception is found maturity is 1year to 3 years
Commercial papers(corporates)
• If a top rated company is in need of stf it may issue commercial papers
• It cant be sold to rbi
• Maturity – not less then 7 days and not more then 365 days
• Face value – min 5L and then in multiple of 1L
Which one is less riskier
• Govt securities – less riskier
• Commercial paper – most riskier
CAPITAL MARKET
MEANING
• Lending and borrowing of long term finance maturity is more then 365 days.
• Here also there are participants
• Participants are –
➢ Rbi on behalf of govt
➢ Banks operating in india

P a g e | 43
➢ Financial companies including insurance and mutual

➢ Top rated corporates
➢ Individual investors
SEBI
• EXISTENCE – 1988
• ACT – SEBI ACT 1992
• HEADQUARTER – MUMBAI
• CHAIRMAN – AJAY TYAGI****
• Register stock brokers and control them
• REGULATES ENTIRE STOCK MARKET + ALSO KEEPS ITS EYES ON FRAUDLENT
ACTIVITIES UNDER IT.
• Education
• Credit rating agencies
Bonds
• If govt is in need of ltf , rbi on its behalf can sell the govt securities in the form of
bonds (more then 365 days) .
• These securities in the form of bonds called as g – sec in india.
• Also called as gilt edged securities (why ?? )
• Zero coupon bond – discounted bond
• Can also be given in the form of interest as well.
What about states
• They issues securities known as State development loans
• No treasury bills are issued
• Form the part of LAF
Debentures → Relate it with interest rates.

• Secured
• Non secured
➢ Non convertible
➢ Convertible

P a g e | 44
➢ Semi convertible
Stock exchange
• Here market is always regulated , indian capital market is regulated by sebi and
rbi both.
• Here also instruments are used –
➢ govt securities in the form of bonds
➢ Industrial securities in the form of shares.
Stock exchanges in india
• National stock exchange
• Bombay stock exchange
National stock exchange
• It was setup in 1992 in mumbai , recognised in 1993 as a stock exchange and
started working in 1994
• In terms of volume of trade – it is biggest in india
• In terms of companies listed it is second
• Important index is – NIFTY 50
NIFTY 50
• Initially known as s&p cnx nifty – 50
• These index consist of top 50 companies of that market – it is considered as if
these companies are working good rest will also work good in that field e.g. tata
in field of iron and steal as there will be demand overall and rest companies will
also be getting same treatment but in lower amount but there will be profit.
• N : 50:100
• S:30:100
Bombay stock exchange
• Setup – 1875
• Asia’s oldest stock exchange

P a g e | 45
• In terms of total value of trade – 2nd

• No of company registered – 1st
• Important index is – sensex – 30 companies
Classification of market
Initial public offering

• If a closely held company whose all shares are held by promoter and now wants
to raise some money by selling his company part (shares) without registering in
share market known as ipo.
• Merchant banking co. or investment banking co. evaluates the health of the
company and decides the share of the company.
• Therefore an application known as draft red herring prospectus is signed with
sebi.
• Once the permission is granted , company will come with advertisement then
interested investor can buy those shares.
• Therefore a date will be decided and company will be listed in stock exchange.
• If shares are oversubscribed in ipo then 15% more shares will be released known
as green shoe option.
• If shares are undersusbcribed known as underwritting of shares. In this case
merchant banking compnay will buy these shares known as lead bank in the
process.
Without use of stock market if co wants to raise funds again
Development financial institutions

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• These are specialized institutions set up primarily to provide development/

Project finance especially in developing countries.
• These DFIs are usually majority-owned by national governments.
• The source of capital of these banks is national or international development
funds.
Evolution
• The first DFI was the Industrial Financial Corporation of India (IFC) that was
launched in 1948.
• IDBI, UTI, NABARD, EXIM Bank, SIDBI, NHB, IIFCL etc are the other major DFIs.
• Later several of them were converted into banks as industry like ICICI Bank, IDBI
Bank etc.
Classification
• Sector specific financial institutions: These financial Institutions focusses on a
particular sector to provide project finance. Ex: NHB is solely related to Housing
projects, EXIM bank is oriented towards import export operations.
• Investment Institutions: These are specialized in providing services designed to
facilitate business operations, such as capital expenditure financing and equity
offerings, including initial public offerings (IPOs).Ex: LIC, GIC and UTI
Advantages
• To boost economic growth which would increase capital flows and energise
capital markets.
• To improve long term finances.
• To provide credit enhancement for infrastructure and housing projects
• As India does not have a development bank, DFI would fulfil the need for us to
have an institutional mechanism.
• Debt flow towards infrastructure projects would be improved.
Angel investor and venture capitalist
Terms related to share market

• Market capitalisation – price of one share *no of shares – market price of the
company (Q ??)
• Bulls and bears – bulls buy shares and bears sell shares
• Blue chip companies
• Insider trading
• Circular trading

P a g e | 47
Foreign portfolio investment

• You must have herd when market declines or people suck their money back.
Actually they have invested in share market by buying these shares but as things
wont work in their way they will suck out the money.
• They refer to foreign investment which came to india in the stock market.
• They invest huge amount of money in diversified manner.
• They are never interested in management part they are only interested in making
profit.
Types
Participatory notes
• It is a financial instrument introduced by sebi to encourage the fpi in india.
• Earlier only those fiis were allowed which were either registered in india or
mauritius.
• P-notes ensures investment even by unregistered fiis.
• Under this unregistered fiis can create a pool of money and can ask for a p note
from registered fii
• This registered fii will issue the p notes and will take whole of the money and will
invest and will cut its commission rest money or profit will be given to
unregistered fiis.
• To make it more interesting they were exempted from capital gain tax + no
information will be asked.
Impacts

P a g e | 48
Govt efforts
• Profit will be taxed
• Information will be asked.
• Impact – only 20% investment
American ,global,Indian depository receipts
• If a non american company wants to raise funds from american share market
therefore it can go to to an american finanacial institution and it will take
commision and will sell the adr of that company and adr holders are entitled to
receive share from global market but no management sharing.
Rolling settlement
• When trading of shares takes place demat a/c shows the trading but in actual it is
done after 2 days known as T+2 settlement also.
Beta value
• Beta value shows the degree of volatility of the shares.
• On its basis there are 2 beta value high and low when compared with index.
• N:50:100
Employees stock ownership plans(ESOPS)
• A company may reward its employees either by increment or bonus.
• But when a company awards with shares to its employees and these shares are
not salable called as ESOPS.
• This gives a sense of belongingness and they work in harder way for their
company.
Equity and preferential shares
Perpetual bonds
• Bonds are debt instruments which have a maturity period of more then 365 days
whereas perpetual bonds have no maturity periods.

P a g e | 49
• But they will receive interest rates.

• They have a lock in period when they can renegotiate.
Mutual funds
• Investment in share market is always riskier hence investment through mutual
fund co is done.
• Also called as asset management companies
• Mutual fund is regulated by sebi
• Mutual funds create a pool of money which is collected and invest in a diversified
manner and they are handled by trained share market experts.
• New scheme – new fund offer
• For saving purpose – equity linked saving scheme
• Invest on monthly basis – systematic investment plan.
Insurance sector
• There are 2 types of insurance
✓ Life insurance
✓ General insurance
• Life insurance provides death cover and rest are general insurance.
• Foreign investment – 49%
Classification of life insurance
Controversy between IRDAI AND SEBI

CREDIT RATING AGENCIES
• They are co or institutions which evaluates the health of a co and gives rating
accordingly.
• There are more then 70 credit rating agencies.
• Only 3 contributes 91% of the market.
a. S&p
b. Moody
c. Fitch
• Rating varies from AAA To D
Methodology

P a g e | 50
Importance
• Countries tries to maintain fiscal and monetary discipline.
• Low interest rate on higher rating for a country.
• Foreign investment
• Same goes for corporates
Issues
• India claims they are biased against india as it has good fd , monetary conditions ,
inflation controlled , good growth.

P a g e | 51
TAXATION
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Meaning of tax
• Compulsory payment over income(pit) as well as consumption(gst)
• Most imp source of revenue
• Invisible and muted contract
• Rights and obligation –
❑ People – to pay taxes + get services
❑ Govt – to get revenue + offer service
• Otherwise legitimacy will be lost
Types of taxes
• Corporate tax contribute most to the central govt

• Taxes collected both be central as well as states , clearly specified in constitution
Division of taxes
Tax and duty
Duties
Cess and surcharge

P a g e | 52
• Prior to budget 2018-19 = 3 % education cess on income tax was used to develop
primary and 2ndry education
• Budget 2018-19 = increased to 4% renamed – health and education cess = 11000
cr extra = ayushman bharat prog.
Tax evasion and tax avoidance
Tax evasion and way

• Tax not paid on income
• Money that flows called as black money also known as parallel or grey economy
• When converted to white known as money laundring
• Shell companies + p notes = round tripping
Tax deducted at source or withholding tax
• Keeping a track on the payment
• Whenever payment is made to an individual or corporate – deducted at the
source – paid to the beneficiary by the entity which has made the payment
DIRECT TAXES
Income tax
• Progressive tax
• Collected by centre

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Tax rebate
• Upto the income of 3.5L – rabate upto 2500
• With an income of 3L –no tax
• b/w 50 L and 1 cr – 10% surcharge
• Above 1 cr – 15% surcharge
• Surcharge may cause additional tax burden which exceeds the income therefore
provision of marginal benefit is there. 40000
Fiscal drag
• Income of the person increases and he falls under a new tax slab
Corporate tax
• Direct tax collected by centre
• Over the profit(income) of the corporates
• Single largest source of direct tax
• For indian – 30%
• For foreigner- 40%
• Indian companies with turn over 250 cr has been reduced to 25%
• It will benefit 99% of the indian companies
• Mainly MSMES
• Loss - 7000cr
• Create more employment opportunities
New changes
• Existing companies – reduced to 22%
• New companies in manufacturing – 15% + don’t have to pay mat
• To avail these benfits you cant claim exemption
• In asia lowest corporate taxes after Thailand
Surcharge over tax
Minimum alternative tax(MAT)

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• Pay tax under the income tax act

• Maintain loss and profit under companies act also
• Corporate tax to be paid only when the tax has been realised
• But most of the companies show losses or zero profit under the provision of
income tax and did not pay corporate tax are called as zero tax companies.
• At the same time these companies used to show book profit under companies
act.
GOVT RESPONSE –
• Except infra 18.5% mat on book profit
Capital gain tax
• Asset bought and sold – profit – capital gain tax
• Direct tax collected by centre
• Includes movable and immovable such as land, gold , silver etc
Types of capital gain tax
• On shares – LTCG – 10 % discount from 2004-2005 – stt is taken

• Indexation is done over rest of the taxes – then 20 % is imposed.
• Agricultural land and its income not taxable.
• Ltcg tax has been reintroduced , the rate will be 10% of profit with no indexation
• But it has been introduced with grandfathering clause
• Ltcg will be applicable if shares has been held for atleast 1 year and after 1 st april
2018 it will be applicable.
• Clause for protecting interest of the investors
Grand fathering clause
• Purchase price of the share
• Fair market value – intra day high before the announcement
• Selling price after 1st april 2018
• Ltcg iff in 1 fin year profit is of 1L

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Securities transaction tax

• Collected by centre
• Regulated by cbdt therefore direct but its nature is indirect(broker , retail
investor and institutional investor)
• Collected on value of trade both buyer and seller irrespective of profit.
DDT
• Earlier applied on companies now be applied on shareholders as their income is
increasing
Double taxation avoidance agreement
• Same income twiced – double taxation
• In order to avoid b/w two countries – dtaa is signed
• If an investor comes to india from any part with whome india has signed dtaa its
income(profit) will be taxed in that region only.
Profit and loss to india
• India has signed this agreement with 89 diff countries but benefit clause differs
• Therefore max investment from mauritius(34%) and singapore(16%) – 50%
• The investment which was coming was not really the investment
• Companies set their unit and channelise their money known as treaty
shopping(benefit by 3rd entity)
• Due to such losses – GAAR and amendments in agreements were made.
Amended agreement
• Headquarter located in the country
• Atleast 2 yrs old in singapore and 1 year in mauritius
• Spent 27 l in 1 fin year in its operational cost

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• Cg tax will be taken by india at a flat rate of 15%(listed) and 40%(non listed)
• GAAR priority over DTAA
GAAR
• 1stly introduced in Germany then 100 of countries implemented
• Empowers tax officials , those evade tax claiming as tax avoidance will be
enquired and charged.
• It was decided under GAAR where decision has been taken – no reopening of
cases.
• Only those cases – 3 cr
• No p notes
GAAR council
• To settle some disputes
• Headed by chairman of CBDT
• Two members – rank of joint sec in law min. +independent
• GAAR will be given priority
• Retro – parthsharti shome
Direct tax code

• Earlier decided to implement it but when not found adequate changes were
brought in income tax act
❑ EEE mechanism – under tax avoidance , govt wanted to change but did not
(during time – exemption – during withdrawl) – under EET – limit will be raised.
❑ Corporate tax 25%
❑ Lcgt and scgt will be made uniform
❑ Mat on all companies , instead of book profit – total value of asset for normal co
– 2% low and for banking – 0.25% low
❑ Wealth tax to be abolished
❑ POEM
❑ GAAR
❑ Changes in DTAA
Some important terms

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• Tax buoyancy
• Tax amnesty schemes
• Inverted duty structure
• Tax expenditure
• Tobin tax
• Pigovian tax
INDIRECT TAX
How indirect tax works
Custom duty
• Indirect tax collected by central govt
• Only on international trade of goods
• Collected on import and export of goods
• Two types –
❑ Import duty
❑ Export duty
❑ Not only a source of revenue but also a instrument of controlling the essential
and non essential commodities
❑ It has not subsumed under GST
Service tax
• Indirect tax collected by centre on sale of services
• Now subsumed under GST
Excise duty
• It is an indirect tax collected on the manufactured goods.
• As goods come out of factory this tax is imposed.
State sales tax and value

Added tax and its drawback
And implementation of
GST

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STATE SALES TAX

• Sst indirect tax collected by states over sale of goods
• Under mechanism – free to decide which product to be taxed at which rate
Drawback
• Big variation
• Cascading effect
• Affecting other states as well
• Resultant – products were becoming costly
Value added tax
• Only value added part to be taxed
• Drawback –
• At the point of consumption entire value was taxed
• Producer state was suffering – bcuz vat will go to the final state.
• Central sales tax was imposed – collected by centre but given to states but vat
was also collected on final state.(cascading)
• Consumer state sometimes started collecting entry tax (to encourage production
and investment)
GOODS AND SERVICES TAX
• France was the 1st country to implement
• Thereafter app. 150 countries
• In india GST came in the limelight of vijay kelkar task force – to be implemented
by 2009-10
• A committee was setup under state finance minister.
• In last loksabha 115th constitutional amendment bill was introduced – since
states revenue was also involved therefore ratification by states and special
majority hence bill lapsed.
• 122nd amendment bill was introduced and gst came as 101st amendment act
Objectives

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• What is GST ?? - It subsumes a number of taxes by centre and state on goods and
services
• To eliminate a number of taxes and ensure one single tax at the point of
consumption
• Simplifies the entire mechanism of indirect tax
• Input tax credit
• To eliminate cascading effect
• To bring all goods and services under few slabs and gradually to one slab
• Ease of doing business
• To make filing of indirect taxes digital – GST – N portal
• To get a chain mechanism.
Issue of state
• They were demanding revenue neutral rate .
• From 1st day it will be taken care that no one will loss the revenue but the
proposal was rejected.
• For 1st 5 year if any loss then they will be compensated 100%
• Therefore it was decided to tax sin and luxuorious product + cess over them +
state revenue max to be kept out of gst.
Loss of autonomy of state
• Central government also compromised its taxes
• Number of taxes increased for states
• Central government cant take decision unilaterally
• Most earning revenue still not under GST
• Disadvantages to states = sales tax – can not apply when the need arises – earlier
good examples during floods and other natural events
• Than why problem = central govt not keeping its promise – delaying the tax
revenue
Various taxes
• Whole of the tax to be divided into two one will be cgst and other sgst
• If consumption in union territory – utgst
• In case of inter state trade – igst (collected by centre and half will be given to
producer state and rest by centre)
• Anti profiteering cluase – as price is bound to come.

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Gst council
• Headed by union finance minister
• Other member – mos for finance at the centre and all the fms of states and uts
• Any modification in gst will be done by gst council
• Proposal will be passed if 75% are in power
• Centre vote – 1/3rd
• State + ut – 2/3rd
Reverse charge mechanism

• When a registered dealer procures an input from unregistered dealer.
• Then that registered dealer will pay tax to the govt and will get back from the
input tax credit.
E-WAY BILL
• Transportation of goods at inter and intra level
• It will ease the whole process
• Earlier physical documents – carried and checked at every post
• Result –
❑ Procedural delays
❑ Traffic jams
❑ Inconvience
❑ 20 mins to 2 hrs
❑ Loss of $45bn every year
❑ It will replace the physical to digital
❑ E way bill can be generated by sender , receiver and even transporter
❑ Manual check post will be dismantled
❑ But can be asked anywhere
❑ Info and tech
❑ E payment of taxes
❑ Single window
❑ Documentation to be reduced
❑ 24*7 custom clearance
❑ If caught full tax as penalty or 10,000
SABKA VISHWAS

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• It was announced with the objective of settling pending disputes of Service Tax
and Central Excise, which are now subsumed under GST.
• The two main components of the Scheme are dispute resolution and amnesty
REFORMS
• 1st tarc headed by parthasharthi shome.
• Dept of revenue to be discontinued + post as well
• Cbdt and cbec should be merged with each other
• Both should be headed by single chairman
• Tax officials to be made more responsible – training should be changed
• At least 10% to be provided in facilitation of tax payment

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FISCAL POLICY & BUDGETING

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Basics of fiscal system

• Refers to total receipt and total expenditure
• Policies formed to manage the receipt and expenditure known as fiscal policies
• Responsibility of fm of a country
• In parliament, every year current and estimated receipts and expenditure are
presented.
Receipts
Expenditure
Fiscal deficit
• Receipt less then expenditure – deficit
• Then what is FD
• NOTE – BORROWING OF THE SAME YEAR NOT COUNTED IN FD OF THAT
FINANCIAL YEAR
SCENARIO OF FISCAL DEFICIT
• Budget 2019-20 = 3.8%
• Budget 2020-21 = estimated – 3.5%

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• Fd shown in terms of % of gdp

How fd can be reduced
• Either by increasing receipts or by reducing exp.
• Even if gdp increases at rapid pace in terms of % of deficit will decline
automatically as compared to gdp.
• Is FD good for any country ???
Future of fd in india
• After demonitisation – tax receipts increases +disinvestment – high money
• But still fd will be high – ayushman bharat scheme + currency print – low dividend
to govt +short term impact on gdp(gst +demonitisation)
Revenue deficit
• It refers to the difference of revenue receipts and revenue expenditure
• Budget 2019-20 =2.4%
• Budget 2020-21= 2.7 %
• Why High fiscal deficit ??
What does it show
• Govt not able to meet its consumption
• Tax reliance is low
• Not a good sign
• Golden rule – borrow only for capital formation.
Primary deficit
• It is calculated by substracting interest payment from fd.
• It tells if there would have been no borrowing then what could have been the fd.
• O.7%
Monetised deficit
• The part of the deficit bridged by printing of currency
• Putoff after 1997
• Merits and demerits of fiscal deficit – good for new country – low saving, money
in private hands, boost is needed to economy
• Demerit – crowding out, depreciation and conditions of high inflation
Deficit financing
• The mechanism through which deficit is bridged known as deficit financing
• 1st used to borrow from public then banks , nbfcs , market etc.
• Finally if need is more then rbi used to print currency
• Bcuz consumers could have been denied.
Effective revenue deficit
• Erd was introduced in india by amending frbm act , 2003 on recom. Of 2011-12
• 14th finance commission – discontinue it
• Grants given to states was a part of revenue expenditure for centre and revenue
receipts for state.
• And it contributed towards rd of centre
• But some part was used as capital formation by states
• If that part deducted – erd arrives
• It affected the health of govt

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• Hence in 1997 both rbi and govt devised a method known as ways and means
advances
Ways and means advances
• Replaced the mechanism of deficit financing
• Facility is provided by rbi not just to centre but to states as well except sikkim
• Currency wont be printed and adhoc treasury bills will be discontinued.
• Under this all states and centre has to open an account with rbi
• Has to maintain min blnc with the rbi – 3yrs avg gdp
• In the begning of a financial year they decide that how much loan will be taken by
govt after market.
• This is known as ways and means advances
• 1st time loan from min blnc and maturity is 90 days and roi = repo rate
• If wma exhausted further borrow is allowed known as overdraft
• If overdraft exceeds 100% of wma then roi higher then 2% of repo rate
• If overdraft less then 100% of wma – roi – 5% repo rate
• It has to be paid within 10 working days or 14 days otherwise all assistance to
govt will be stopped.
Current – foreign currency borrowing
• Idea was mooted again in this year’s budget and this has been in debate since
1990’s
Reasons –
• Crowding out
• Low cost borrowing
• Benchmark
• Demerits – depreciation of the currency
Fiscal stimulus
• Global recession
• Tax revenues were hit
• Fall in demand
• Keynesian solution – borrowing and spending
Fiscal responsibility and budget managment act , 2003
• During 1990’s health of govt was continously declining and govt decide to follow
the path of fiscal consolidation and vijay kelkar task force was setup and it gave
certain recommendations and those recommendations were passed in
parliament in the form of FRBM
FRBM ACT ,2003
• From fin year 2004-05 , fd to be brought down 0.3% every year
• By 31st march – 3% of gdp
• From 2003-04 = rd – 0.5% of gdp
• By 2009 = 0%
• As compared to last financial year , borrowing not to increase more then 9%
• Complete health on quarterly basis – parliament
• In economic uncertainities act can be ameneded
Aftermath
• Every year govt keep on changing targets

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• Debate started
• One – keep it – puts limit on govt
• Second – remove it – against welfare
• Finally N.K. singh committee was formed.
Recommendations
• In target manner but flexibility should be there
• By 2023 – fd – 2.5%
• 2023 – rd – 0.8%
• Combined debt – 70%(21% - states and 49%-centre)
• Total to be brought down to 60%(20 % states and 40% centres)
• Escape clause – 0.5% only
• Fiscal council to be setup
Will this happen ??(RD)
• Low revenue –
❑ Gst
❑ Lower dividend from rbi
❑ National health protection scheme
• In parliament – health and education are the most important.
Fiscal activism
• Mentioned in economic survey – 2016-17
• The proactive fiscal policies formulated by govt to increase liquidity
• Bcuz it will be affecting growth and increase inflation (bank – no loans)
• Reduce taxes – consumption increases(direct and indirect)
• Increasing public expenditure
• This will increase the growth but it will result in increasing fd in turn rd(interest
payment due to borrowing)
• Not fit for countries like india
Finance commission
• Constitutional body
• Constituted for 5 yrs and headed by an eminent chairman
• 14th finance commission was headed by yv reddy
• Its recommendation will remain till 31st march 2020
• 15th finance commission will be headed by N.K. SINGH
• Its most imp function – allocation of tax called as state devolution in the form of
grant(why this is required??)
Recommendations
• Should withdraw from centrally sponsored scheme and it should be the only way
of grants
• 42 % to be given to states
• How much grant will go to which state would depend on following –
❑ Area of state
❑ Economic disparity (gdp and per capita income)
❑ Population (1971)
❑ Forest cover
• Fund allocation level –

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❑ Urban level – muncipality

❑ Rural level – panchayats
• Allocated on 2 basis –
❑ Urban – 80 % and 20% performance basis
❑ Rural – 90 & 10%
• plan and non plan to discontinue
• Scheme to improve electricity board
• 42% + withdrawl from css = autonomy to states
• Performance based allocation = judicious use of resources + comptition
th
15 finance commission report
Ujjawal discom assurance yojana(UDAY)

• Initiated by centre on the recom of 14th finance commission
• Would be applicable for the state owned power distribution company only till
30th sept 2015
• Combined loss – 3.8 l cr
• Losses mainly bcuz of
❑ Transmission and distribution losses
❑ Power theft
❑ Non payment of bills
❑ Subsidies
❑ It became difficult for them to upgrade , affects objective of digital india
❑ 24*7 electrification
❑ Affect investment under make in india , digital india
❑ If these loans start turning npa , financial problems
• Uday as a scheme optional for states
• If states will take part some benefits will be given –
❑ Electricity be psus at low rates

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❑ Low rate of coal – for electricity generation

❑ Priority under ddugjy
• Under uday – 2 parts 75% with centre securities – not as slr and rest 25% liability
of power sector companies
Fiscal consolidation
• A process through which country tries to bring down its deficit
• Why govt reduces –
❑ Burden of interest payments – less resources to govt for development
❑ Credit rating
❑ Cost of borrowing increases
Reason for high fd in post independent india
• Rd should be brought down to zero and loan only for capital formation .
• Ways –
❑ Downsizing ministries and bureaucracy
❑ Discontinue welfare schemes – not viable
❑ Subsidies
❑ Simplifying tax rules
❑ Laws stringent
❑ cashless
Important terms

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• Debt to GDP ratio: The debt-to-GDP ratio is the ratio of a country's public debt to
its gross domestic product (GDP). It indicates a particular country’s ability to pay
back its debts.
• Roll over risk: It is a risk associated with the refinancing of debt—specifically,
that the interest charged for a new loan will be higher than that on the old.
Generally, the shorter-term the maturing debt, the greater the borrower's
rollover risk.
• Currency or foreign exchange risk relates to vulnerability of the debt portfolio to
depreciation in the value of the domestic currency vis-à-vis the currency of
denomination of external loans and the associated increase in the Government's
debt servicing cost.
• Interest payment to revenue receipts (IP-RR): It is the ratio of total interest
payments made towards the debt to the revenue receipts of the government.
• Floating Rate Bonds (FRBs): These are securities issued at variable coupon rates.
• The gross fiscal deficit (GFD) is the excess of total expenditure (including loans
net of recovery) over revenue receipts (including external grants) and non-debt
capital receipts.
• Short-term debt of the Central Government refers to the total amount of debt
maturing within the next 12 months. It includes 14-day intermediate treasury
bills, regular treasury bills, dated securities maturing in the ensuing one year and
external debt with remaining maturity of less than one year.
BUDGETING
Budget and Constitutional Provisions
• According to Article 112 of the Indian Constitution, the Union Budget of a year
is referred to as the Annual Financial Statement (AFS).
• It is a statement of the estimated receipts and expenditure of the Government
in a Financial Year (which begins on 1st April of the current year and ends on
31st March of the following year).
• Overall, the Budget contains:
• Estimates of revenue and capital receipts,

• Ways and means to raise the revenue,
• Estimates of expenditure,
• Details of the actual receipts and expenditure of the closing financial
year and the reasons for any deficit or surplus in that year, and
• The economic and financial policy of the coming year, i.e., taxation
proposals, prospects of revenue, spending programme and
introduction of new schemes/projects.
In Parliament, the Budget goes through six stages:
• Presentation of Budget.
• General discussion.
• Scrutiny by Departmental Committees.

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• Voting on Demands for Grants.

• Passing an Appropriation Bill.
• Passing of Finance Bill.
• The Budget Division of the Department of Economic Affairs in the Ministry of
Finance is the nodal body responsible for preparing the Budget.
• The first Budget of Independent India was presented in 1947.
Trends in this year’s budget

• TR > NTR
• Direct tax > indirect tax
• Corporate tax > GST > PIT > excise > custom
• RE>CE
• Maximum money comes from = borrowing and other liability>corporate taxes >
GST > income tax
• Maximum rupee goes to = states share of taxes and duty > interest payments >
central sector schemes > centrally sponsored > defense > subsidies & pensions
• Allocation to ministries = min of defense > home affairs > telecommunication
>agriculture
• Highest allocation to scheme = PM KISAN >MGNREGA
SOME IMPORTANT HIGHLIGHTS

• Estimated to spend 12.7% more than revised estimates of 2019-20
• The govt receipts estimated to increase to 16.3%
• Rd to increase to 2.4%
• Fiscal deficit 3.5%
• Subsidies = food > fertilizer > petroleum
Merger of rail budget
• Before 1924 there was no separate rail budget
• Nationalists wanted transparancy of the system
• Sir william aeworth committee- sepr. Rail budget
• During independence rail budget was 6% higher then general budget.
Post-independence railway problem

• Earlier its contribution in transportation sector was 89%
• Competition from other sectors like aviation – 30% roadways 65% + door to door
services
• Oil and gas – tough resistance from pipeline
• Political instrument – matter of pride + appeasement for votes – hiring –salary
issues + more trains – no use without infra.
• Routes not electrified – more costlier
• Make profit in frieght services spent on passanger – out of 100 – 57
• At present - 6 % even lower then agriculture
• Bibek debroy committee
Gender budgeting

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• Gender is a neutral term used for all

• Evaluating provision wrt gender is known as gender budgeting
• India society –
❑ Patriarchal – rights to men only
❑ Health and education hardly cared
❑ Economically – domestic
❑ Leads them to poverty – feminisation of poverty
❑ Bcuz of these reasons gb was used as tool of social justice
❑ 1st in 2001 – 02 budget
❑ Same evaluation by number of states in 2002-03 budgets
❑ Every ministry has cell
Line item budget

• Followed by india since the beg
• No evaluation , analysis of the actual needs
• Rigid – no change even if required
Performance budget
• Was introduced in country bcuz of reckless expenditure
• In 1983 usa - 1st tym by dept of s&T
• 1986 – all ministries dept
• What are disadvantages
• Yearly evaluation if no longer viable even after more than half is spent + non-
viable economically but important for communities mainly in north east – viable
gap funding
Zero budget
• Determining – decision – ranking
• Advantages – more accurate + optimum allocation (reduction of unnecessary
budgeting)
• Disadvantages – time consuming + large consultation

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BALANCE OF PAYMENT & FOREIGN INVESTMENT

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Balance of payment
• Country’s economic and financial transaction with the rest of the world over a
specific period usually one year.
• Both private and government accounts included
• If financial outflows more than inflows – bop deficit
• If financial inflows more than outflows – bop surplus
Classification of balance of payments
• Current Account: It shows export and import of visibles (also called merchandise
or goods - represent trade balance) and invisibles (also called non-merchandise).
invisibles include services, transfers and income.
• Capital Account: It shows a capital expenditure and income for a country. gives a
summary of the net flow of both private and public investment into an economy.
External Commercial Borrowing (ECB), Foreign Direct Investment, Foreign
Portfolio Investment, etc form a part of capital account
Purpose of bop
• Reveals the financial and economic status of a country.
• Can be used as an indicator to determine whether the country’s currency value is
appreciating or depreciating.
• Helps the Government to decide on fiscal and trade policies.
Balance of payment crisis 1991
• Balance of Trade is the difference that is obtained from the export and import of
goods. Balance of Payments is the difference between inflow and outflow of
foreign exchange.
• Gulf war – import dependent – oil – depleated forex – outflows increased as trust
lost in Indian economy - - USSR fall – no one ready to help
How it was tackled
• The Government of India led by PV Narasimha Rao, with Manmohan Singh as
Finance Minister initiated a 4 pronged strategy to put the economy back on track.
• Industrial Policy Reforms
• License Raj and Inspector Raj were removed.
• Industrial licensing was abolished.
• Measures were taken to ease domestic supply constraints.
• Measures were taken to spur investments.
Trade Policy Reforms
• To make exports competitive Rupee was devalued by 20%.

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• Licensing controls and regulations on exports were eased.

Public Sector Reforms
• There was liberalisation of Foreign Direct Investment (FDI).
• Public Sector companies were given more operational freedom to scale up and
make bigger contributions to the economy.
Fiscal Correction
• Subsidies for Exports were abolished.
Devaluation & depreciation and revaluation & appreciation
How depreciation is tackled

• Capital inflows
• Capital outflows
• Limiting imports and encouraging exports
• Oil import needs
• Essential commodity act
• Nri deposit
• International cooperation
Current account deficit
• Current account includes – balance of trade + net factor income + net transfer
payments
• Changes in current account are the key driver
• Two points to remember
• Should be financed from dependable inflows like FDI
• It should be within limits
• Current account deficit above 2.5% not considered fruitful in india
• Capital inflows/surplus used to finance current account deficit
Twin deficit challenge
• CAD increases – RS value decreases – inflation increases – govt subsidies
increases – fiscal deficit increases – foreign investor panic – rating may decrease
– more current account deficit – more fiscal deficit – it may lead to soverign debt
crisis
Convertibility of currency
• Freedom to holders of currency to convert them freely into other currencies at
prevailing market rates
• Features are –
• Freedom to convert

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• Convert at market rate

• Liberalization of inflows and outflows
Full account convertibility
• Freedom to convert currency into foreign currency in both the accounts
• Current account convertibility has following –
• Exports and imports in goods and services
• Remittances
• Capital account convertibility means – FDI/FPI allowed into more and more areas
Advantages and disadvantages of full account convertibility
• Domestic saving alone not enough
• Cheaper foreign funds
• Since borrowing at cheaper funds than low borrowing rates in india it will have
positive effect
• Macro economic discipline
• Outflows are necessary – dutch disease
Disadvantages
• Destabilizing if anything goes wrong like financial crisis of 2008
• Domestic interest are hurt – unemployment
• Fdi in defense – national security
Tarapore committee
• Fiscal deficit should be minimal
• Forex reserve should be adequate
• NPAs of banks should be minimum
• Inflation rate and interest rates should be minimum
Rupee convertibility
• Regulated by RBI till 1992 – india does not have pro export policy
• Partial account convertibility
• Fully convertible in trade account in 1993
• Fully convertible in current account in 1994
Exchange rate system
• Price of one currency in terms of other
• Growth rate of economy
• Future potential
• Foreign trade profile
• Inflation
• Forex reserve with RBI
• Interest rate in major countries like USA
• Political stability
Currency mechanism
• Floating rate
• Dirty float
• Fixed exchange rate

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• Pegged system
India’s currency mechanism
• RBI buys and sells currency only to perform normal operations, rupee exchange is
not managed even not partial (dirty float)
• Manipulation in forex market – RBI may interfere
Forex reserves
• RBI holds in the following –
• Foreign currencies
• Foreign bank deposits
• Gold reserve
• SDR
Reasons for accumulation of forex
• To gain external account security
• To defend the rupee when needed
• To import essential for economic and social security
• To enable the country to globalize further
• To deter speculator
• To enjoy favourable ratings
Problems with large forex
• Cost of acquisition is high – sterilization
• Market risk like crisis of 2008
• Return is negligible
Hard currency and soft currency
• Large economy
• Performed well for decades
• It should be stable
• Adequate amount in global market
• What is global reserve currency

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AGRICULTURE
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Introduction to Agriculture
• Agriculture
• Industry
• Services
❑ It contributes 14% to GDP but 17% is based on GVA
❑ Agriculture and allied activities include – animal husbandry, horticulture,
pisiculture etc.
• It is considered as most imp economic activity – life
Evolution of economy
• Simple and small society – hunting and gathering
• Herding to animal husbandry
• Agriculture
• Irrigated agriculture
• Industry replaces agriculture as a major sector – provides employment and its
contribution increases
• Finally economy shifts towards service sector
• Agriculture contribution declines(gdp &emp) only not its value
Indian economy during independence

• GDP – 50%
• More then 2/3rd population
• At present 14% only but population – 55% - reason for impoverishment of agr.
• Reason – low employment opportunities in agri and serv. + low skill = jobless
growth
• Suffers disguised unemployment
Increases in production post-independence

• Decline in contribution due to rise in other sectors but production has increased
tremendously
• Increase in net sown area
• Land reform measures
• Green revolution
• Subsidies
• Market support price
• Institutional credit flow
Land reforms and its failure

• Disparity – ownership and non-ownership of the land

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• In order to bring down disparity – land reforms

Objectives
• Abolition of zamindari system
• Implement land ceilings – if found to be distributed among cultivators
• Land consolidation
• Tenancy laws – only 1/4th of the total can be taken
• Proper record of landholding
• For this 1st amendment act and 9th schedule were passed
• But it had a very little success –
❑ In WB and Kerala – land ceiling – distribution was ensured
❑ Punjab and Haryana – land consolidation
❑ In other parts they failed miserably
Reasons
• Lacked political and bureaucratic will – belonged to them
• Benami – registered – not existed – god and godesses
• Land consolidation – fertility of different pieces of land – caste and all
• De facto – landlord only even after assigning
• Only those pieces which were barren – no use
Impact
• Social unrest in the rural areas
• Anonymity b/w them increased
• Reasons of all post-independence movement
Law of diminishing return

• With passage of time income from agriculture decline continually
• Any land will reach to its limit of production – but due to inflation cost of
production will be increasing but not the production and hence the profit
• That’s why it doesn’t produce continuous employment
Classification of household

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• Avg landholding – 0.59 % - max are marginal and landless

• Affected investment in agriculture and low productivity
• Out of the total subsidy – 40% to 0.24 big farmers
• Seasonal unemployment – migration
• Not regarded very highly – youth not attracted towards it
• Among large farmers – resources – but still no induction
Green revolution
• Revolutionary changes in agricultural sector
• Use of technology
• Use of chemical fertilizers
• Pesticides
• Hyv seeds
• Not only self-sufficient but net exporter
Negative consequences
• Economic disparity – successful in areas – irrigation + land holding size = punjab ,
haryana , coastal u.p. , western up
• Areas – overwhelming in agriculture – lacked industrialization – agriculture
suffers – law of diminishing return – no more employment – rate of
unemployment increased – youth unrest + drug addiction – free time – khalistan
movement.
• Capitalistic transformation of agriculture – investment and technology – borne by
big farmers – small on moneylender – indebtness – exploitation and land
alienation – more disparity
• Land became the most important force behind production (low govt jobs and
factories) – joint family – indian society patriarchal more (succession) -
preference to male child – male domination, gender discrimination and female
infanticide and adverse sex ration

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• Over production of wheat and paddy – disturbed diet – stunting and wasting –
import pulses and oilseeds
• Environmental consequences – intoxication of soil and pollution
• Paddy field – methane – global warming
• Affected water table
• Contradiction of land reforms – land holding – limiting
Reasons behind green revolution failure in eastern part

• Geography – flood plains & fertility
• Natural calamity
• Overwhelming dependence on monsoon
• Low capital investment & political and bureaucratic will
• Extremely small land holding
• Caste and religion
• Low level of literacy
• Poverty
Factors for slowdown of agriculture

• Failure of land reforms
• Social and environmental negative consequences – infertile land due to excessive
chemicals
• Institutional credit – only 12 % rest on moneylender
• Subsidies – made farmers more and more dependent & failed in capital
formation – cold storage
• Low literacy – educated youth stayed outside
• Msp – prices crashed & production of few crops only
• Monsoon
• Industrialization – migration – joint family to nuclear family – fragmentation of
land
• Decrease in net sown area – agricultural land for other purposes
Steps taken by government

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• 2nd green revolution to be based on biotechnology

• Financial inclusion – kisan credit card scheme , rrbs , small finance banks
• Satellite based mapping
• National rainfed area authority – to solve irrigational problems
• National commission for farmers – M.S. swaminathan
• Msp
• Pmfby
• Neam coated urea
• Apmc act 2003
• Dedicated radio and tv channels & kisan call centres
• Soil health card scheme – information of soil
• To ensure online sale – national agricultural e – marketing portal
• National food grid – in order to connect deficient area with surplus
• Food processing industries
Market support price

• 1969
• Minimum price announced by govt for the procurement of certain crops
• Declared before cultivation season
• In 1969 – agricultural price commission was setup
• 1985 – renamed - commission for agricultural cost and prices
• Evaluation of cost – inflationary pressure , well being of the farmers
• Provides security – if production is high – govt will procure at announced at that
price only which motivated them
• Followed by govt as well as private agencies
• In case production is low msp may rise also
• 24 agri products like – wheat , rice etc except sugarcane
State advised price

• On sugarcane it is available
• Price decided by sugarcane
• Price to be paid by sugar producers
• Election – increase of sap – threat to the sugar industries
• In 2009, center introduced fair remunerative price(calculated by cacp) decided by
cabinet committee on economic affairs (approved)
• Sugar producers to pay price = frp and excess sap will be paid by states
• Protests – drawn back by center and now it is optional
Msp drawbacks
• Inflation continues – as procurement is done at msp only even after high
production
• Financial burden over the govt – fiscal deficit

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• Not provided on perishable items – fruits and vegetables
Some mains related topics

• Cropping pattern
• Issues related to irrigation
• Issues related agricultural marketing
• Issues related to technology adoption
Public distribution system

• Origin(1939) – rationing in ww 2 by britishers – for wheat and rice – low price
then market prices –Bengal famine
• In 1st 5 yr plan reintroduced in form of pds
• In 1st 5yr plan only wheat and rice but from 2nd 5 yr plan – cooking oil , coal edible
oil etc.
• In country like India it is must becuz of poverty and economic disparity – social
justice
Mechanism of pds
• Central government – commodities at subsidized prices
• State government – distribution
• The PDS stores- point of sale
• In 1965 – food corporation of india – established for the procurement, storage
and distribution for rice and wheat
• Production is high – high procurement
• Fci creates buffer stock – availability of wheat and rice for emergency and food
security
• When production is low – distribution – low procurement
• Cycle continues
• Coal procured by coal India ltd
• Kerosene oil – oil marketing companies
• Sugar – producers keep a quota aside at lower prices
• Centre compensate them
• Oil and pulses are not given regularly only when its prices goes out of reach and
at no profit and no loss
Reasons for failure

• Lack of political and bureaucratic will
• Lack of transparency and accountability
• Corruption in process of procurement
• Lack of proper coordination
• May remove hunger but not to fulfill nutritional needs
• Theft and leakages

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• Wastage of food grains

• Lack of awareness and people’s participation
• Black marketing of subsidized goods
Shanta kumar report

• Trifurcating the responsibility of fci
• Instead of sacs build silos
• Accountability has to be set right
• Use of technology e.g. end to end computerization
• Vehicles fitted with gps
• Ration card to electronic form – biometric system
• People should be made aware – surveillance system
• Direct benefit transfer
• Nutritional food should also be provided at least on the basis of no profit no loss
Food security act

• Legal right in 2013
• 75 % of rural population and 50 % of urban population
• Not universal right
• 5 kg of food grains per individual per month
• Option – rice , wheat or coarse grain
• Rice – 3rs / kg
• Wheat – 2 rs /kg
• Coarse grain – 1 rs/kg
• Maternity for 1st and 2nd delivery – rs 6000
Food processing
• Converting raw food into new form with the purpose of value addition
• Acc to confederation of Indian industries – production and consumption – 5th
rank ( india is a big market )
• Export – 5th rank
• Growth of the sector – 8-10 %
• Employment – 15 lakhs till now
• Expected in next 10 yrs – 90 lakh jobs
• Investment more then 33 bn dollar
• Even govt is dedicated – separate ministry for food processing
• Possible wrt 5 forms –
❑ Food grains
❑ Fruits and vegetables
❑ Milk
❑ Poultry products
❑ Beverages
• That’s why their price is high – demanded by middle class

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• Corn into popcorn, milk into ice cream

• Out of the total food only 2 % is processed and it contributes 32 % of total food
produced
• Maximum processing is of milk – 30 %
Scope
• Becz of climatic variation – all kinds of vegetation and animal are present
• No high skill – hence human resource available
• 2nd position in world – fruits and vegetables
• 3rd position – food grains
• 2nd position – livestock
• 1st position – spices
• 1st position – milk
Problems
• To fulfill upstream and downstream needs
• Connect point of production to point of consumption. E.g. jem
• Perishable
• Proper management of production , procurement , processing and marketing
• Solution – national food processing mission – mega food parks
Direct and indirect farm subsidies
• Financial assistance provided by government to producer or consumer to bring
down cost of production or consumption.
• Part of revenue expenditure
• Subsidies are used as an instrument of social justice
Types of subsidies
• Subsidies create additional burden, govt not left with money for capital
formation. E.g., loan waiver
Animal husbandry
• Part of agriculture and allied activities
• Ministry of agriculture
• Important sector as it is complementary – sense of security to farmers against
sudden shocks
• Read schemes

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LIBERALIZATION OF ECONOMY, INDUSTRIES AND POLICIES

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Liberalization
• Liberalization is any process whereby a state lifts restrictions on some private
individual activities.
• Liberalization occurs when something which used to be banned is no longer
banned, or when government regulations are relaxed.
• Economic liberalization refers to the reduction or elimination of government
regulations or restrictions on private business and trade.
• It is usually promoted by advocates of free markets and free trade, whose
ideology is also called economic liberalism.
At global level
• Britain and USA
• China’s open door policy
• Welfare state created two problems – nany state + new despots – bureaucracy
Why
• The process of reforms in India has to be completed via three other processes
namely, liberalisation, privatisation and globalisation, known popularly by their
short-form-the LPG.
• On July 23, 1991, India launched a process of economic reforms in response to a
fiscal and balance-of-payment (BoP) crisis. The reforms were historic and were
going to change the very face and the nature of the economy in the coming
times.
• Others – china’s growth, unsustainability of socialistic economy, world was
profiting from globalization, now india was ready
How it was done
Short terms impacts

• Increased employment
• Increased tax revenues and hence public spending
• Larger industry
• More foreign investments
• Increased GDP per capita
Effects of Liberalization on the Indian Economy

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• India’s annual average growth rate from 1990 – 2010 has been 6.6 % which
is almost double than pre reforms era.
• Removing Barriers to International Investing - tax laws, foreign investment
restrictions, legal issues and accounting regulations
• Foreign companies got free access to Indian markets and made domestic
products un-competitive. They obviously had better access to technology and
larger economies of scale.
• Small scale industry - Small scale industry however exists and still remains
backbone of Indian Economy. It contributes to major portion of exports and
private sector employment. Results are mixed, many erstwhile Small scale
industries got bigger and better
• Impact on Agriculture – share declined to 15-17 % + wto + large population
dependent + some positive like – export of branded projects
• Service sector - In this case globalization has been boon for developing
countries
• Banking
• Stock market
Basics of industry
• Contributes 26 %
• 3 main parts –
❑ Manufacturing
❑ Mining
❑ Construction
Manufacturing
• 15-16 %
• Labour intensive – continuous source of income
• But share in india is extremely low – in china 40 %
• Changes in structure of economy
Evolution of industrial policy

• Industrial policy resolution 1948
• It declared the Indian economy as Mixed Economy
• Small scale and cottage industries were given the importance
• The government restricted foreign investments
Industrial Policy Resolution, 1956 (IPR 1956)

• This policy laid down the basic framework of Industrial Policy
• This policy is also known as the Economic Constitution of India
• It is classified into three sectors
• Schedule A – which covers Public Sector (17 Industries)

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• Schedule B – covering Mixed Sector (i.e. Public & Private) (12 Industries)
• Schedule C – only Private Industries
Industrial Policy Statement, 1977

• This policy majorly focused on Decentralisation
• It gave priority to small scale Industries
• It created a new unit called “Tiny Unit”
• This policy imposed restrictions on Multinational Companies (MNC).
Industrial Policy Statement, 1980

• The Industrial Policy Statement of 1980 addressed the need for promoting
competition in the domestic market, modernization, selective Liberalization, and
technological up-gradation.
• Due to this policy, the MRTP Act (Monopolies Restrictive Trade Practices) and
FERA Act (Foreign Exchange Regulation Act, 1973) were introduced.
• The objective was to liberalize the industrial sector to increase industrial
productivity and competitiveness of the industrial sector.
• The policy laid the foundation for an increasingly competitive export-based and
for encouraging foreign investment in high-technology areas.
Post-independence
• Mixed economy
• All strategic sectors taken by state
• Reasons –
• Apprehensive about private investment
• Private investors not interested – long gestation period.
• Became compulsion on government
• Government also lacked expertise therefore private investment was also allowed.
New Industrial Policy, 1991
• Public sector investments (Disinvestment of Public sector)
• De-reservations –Industries reserved exclusively for the public sector were
reduced
• Professionalization of Management of PSUs
• Sick PSUs to be referred to the Board for Industrial and financial restructuring
(BIFR).
• The scope of MoUs was strengthened (MoU is an agreement between a PSU and
concerned ministry).
MSME

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Why low jobs in india

• Even reaching to the peak – india shifted towards service sector – stagnancy in
service sector
• Service sector is not labour intensive
• They may not remain stable in any economy for long. E.g. most of the services
provided by india are outsourced hence it is a export of service by india.(labour is
cheap)
• The moment services becomes costly they will move out from india.
• High end degree jobs – high skill and india is majorly unskilled – no jobs to masses
• All the machines have replaced men
• India,s growth – jobless
Reasons behind failure
• Continuous interference by ministries
• Bureaucratic control – red tapism and inefficient leadership
• In absence of competition – decrease in efficiency
• Locational disadvantage – to ensure development
• More then required workforce – salaries burden
• Low capital investment
• Corruption
Measures adopted to improve

• 1987 – board for industrial and financial reconstruction – identify loss making
psus – take decision on them
• 1991 – lpg policy
• 1996 – disinvestment commission
• Memorandum of understanding –to bring down ministries interference – target
was given earlier in the year – then their evolution
• Purchase preference policy – procurement from psus

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• Voluntary retirement scheme – reduce workforce

• To provide financial autonomy –
Maharatna – invest rs 5000 cr or 15 % of their net worth without seeking permission
from ministries. GAIL , COAL INDIA LTD , SAIL , INDIAN OIL , ONGC , NTPC , BHEL
Navaratna – 15 % of their net worth or 1000cr – 17 navaratna
Miniratna category – 1 – 500 cr – 58 companies
Miniratna category – 2 – 300 cr – 15
• Special economic zone
• National investment and manufacturing zone
• Micro units and refinance agency
• Startup india and stand up india – loans to weaker section
National investment and manufacturing zone (NIMZ)

• Introduced – new manufacturing policy 2011
• Purpose – enhance contribution of manufacturing to the gdp & enhance
employment opportunities
• Dedicated township in which investment in manufacturing is invited – consisting
of all facilities – schools , residence , water supply etc.
• Total land area – less then 5000 hc
• No tax concessions
• Only single window clearances
• Can sell products in domestic and international market
SEZ and NIMZ
MAKE IN INDIA
• Termed as extension of NIMZ
• To come and invest in different 25 sectors associated with manufacturing
• Based on ease of doing business – gst , single window clearance etc.

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FOREIGN INVESTMENT
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Foreign investment
• When an investment into a country takes place from any other country
❑ FDI
❑ FPI (money and capital market series)
Foreign direct investment
• For the purpose of setting up business
• Stable and permanent
• Long term objective to make profit
Consequences
American crisis
• Gdp of a country declines for 2 0r more quarter
• 2008 – america – subprime crisis & housing crisis
• Subprime customer – defaulted in past
• Home loans – secured loans
• American banks started giving loans to subprime customer on home loan at
higher interest of rates – prices of property increased
• Mortgage loan was also given – on same property additional loans
• It increased the overburden on them and they started defaulting
• Such defaulter were million in number
• Started selling properties but demand also started decreasing (apple)

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• Since banks started making losses

• Credit flow decreased
• Affected production – GDP – low workforce (unemployment)
• Form of severe recession
• Fiscal activism was adopted
• Borrowing may increase and if govt fails to pay this debt – bop crisis
• Bcuz of this govt may remove its support and banks may again fall down – known
as DOUBLE DIP RECESSION
Impact
• Very low on india
• Domestically driven economy
• Less cash economy
• Export companies severly affected
• EUROZONE CRISIS
EUROZONE CRISIS & BREXIT
• Big impact on smaller european countries PI^2GS (PORTUGAL ,ITALY
,IRELAND,GREECE & SPAIN)
• Main reason was not american recession but actually common currency it simply
exposed the weakness.
• Eu is a free trade area – restriction free trade with very low duties in goods and
services
• Human resource movement is also allowed
• Maximum benefit was derived by large economies
• In order to strengthen trade relation and alternative usd – common currency –
those who accepted common currency – EUROZONE
• Britain was not a part of it
• Earlier all countries had their separate currency in which small countries have
edge (more fdi – more export ) edge was taken by big economies like france and
germany after EURO
• Common central bank – no coordination b/w monetary and fiscal policies
• It made them more vulnarable
• After american recession – went into soverign debt crisis
• Troika was constituted – IMF + ECB + EUROPEAN COMMISSION
• Even england had to contribute
• Became political issues
• Jobs were taken away
• It was realised problem is not going to end soon – greece 1st developed country
to default
• Referndum held and britain decided to move out
Impact over EU
• Lost large trading partner
• Make EU weaker & relatively less important in world

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• Other countries may demand the same

• End of common culture
Impact over Britain
• Employment to britain people only
• Pound has started weakning
• Not restriction free export to other european countries
• Companies will start shifting
• In order to export to eu britain has to compete with developing countries like
india and china
• Scotland demand
Global impact
• Deglobalisation – low importance of multilateral bodies like WTO
• Will be followed by other – trump affect investment in developing countries

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POVERTY
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Meaning of poverty
• An economic state – individual or family not able to fulfill basic needs. E.g. food,
clothes housing etc.
• State of economic exclusion
• World bank – 987 mn – poor
• India maximum poor
• Poverty calculated by different countries in their different ways
Types of poverty
Causes of poverty
• Rapidly Rising Population: India’s population has steadily increased through the
years. During the past 45 years, it has risen at a rate of 2.2% per year, which
means, on average, about 17 million people are added to the country’s
population each year. This also increases the demand for consumption goods
tremendously.
• Low Productivity in Agriculture: A major reason for poverty in low productivity in
the agriculture sector. The reason for low productivity is manifold. Chiefly, it is
because of fragmented and subdivided landholdings, lack of capital, illiteracy
about new technologies in farming, the use of traditional methods of cultivation,
wastage during storage, etc.
• Underutilized Resources: There is underemployment and disguised
unemployment in the country, particularly in the farming sector. This has
resulted in low agricultural output and also led to a dip in the standard of living.
• Low Rate of Economic Development: Economic development has been low in
India. There is a gap between the requirement and the availability of goods and
services.
• Price Rise: Price rise has been steady in the country and this has added to the
burden the poor carry. Although a few people have benefited from this, the
lower-income groups have suffered because of it, and are not even able to satisfy
their basic minimum wants.
• Unemployment: Unemployment is another factor causing poverty in India. The
ever-increasing population has led to a higher number of job-seekers. However,

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there is not enough expansion in opportunities to match this demand

for employment.
• Shortage of Capital and Able Entrepreneurship: The shortage of capital and
entrepreneurship is making it harder to increase production.
• Social Factors: Apart from economic and commercial, there are also social factors
hindering the eradication of poverty in India. Some of the hindrances in this
regard are the laws of inheritance, caste system, certain traditions, etc.
• Political Factors: The British colonisation and rule over India for about two
centuries have caused damaging harm to the nature of India’s economy. India,
which was once a chief producer has been reduced to a big market. Much of the
natural resources of the country was used to benefit British coffers and a lot of
wealth was siphoned off to the homeland of the rulers. They also reduced many
classes of people such as farmers, artisans, potters, weavers, etc. to their current
state of poverty.
Poverty line
• Minimum level below which an individual is considered as a poor. Paramters may
be calorie , expenditure etc.
World bank data
• Moderate poverty - $ 2/day
• Acute poverty – below $ 1/day
• Poverty line (2011) - $ 1.59/day
Calculation of poverty line
• Data collected by national sample survey office (NSSO)
• In order to determine poverty line committees were setup.
Lakadawala committee
• 1989
• Per capita calorie consumption – basis
• Not able to consume – 2400 kilo calorie / day in rural area
• Not able to consume – 2100 kilo calorie / day in rural area
Drawback
• Estimate is faulty – food is not the only criteria to be taken to calculate poverty
line
Suresh tendulkar committee
• Converted calorie consumption into per capita expenditure for consumption
• 2005
• Rural area – rs 816 / month
• Urban area – rs 1000/ month
• Suggested only 21.9 % poor – came under heavy criticism
c. Rangrajan
• 2012
• On the basis of family expenditure
• Family of 5 in rural – rs 4800/month

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• Family of 5 in urban – rs 7035/ month

• From this per capita can not be derived – economy of scale
• Relatively cost of consumption is higher then an individual
Multi dimensional poverty index
• Index for calculating poverty in 100 developing countries
• Since 2010 – UNDP &oxford poverty and human development initiative
• 52 % indian population below bpl
• Called as multi dimmensional bcuz it takes 10 factors into consideration
Health
• Child mortality – in a family death upto an age of 5 yrs in the last 5 yrs
• Malnutrition – stunted growth
Education
• Attend school for at least 6 yrs – member of family
• If any children in the age group in which they should have been enrolled from
class 1st to 8th & if any drop out during this age
Living standard
• Water supply and electricity supply
• No toilet or one toilet shared by 2 families
• Floor is not plastered made up of mud
• Wood , coal and cow dung
• Radio , tv , refrigerator , cycle , motorcycle , car , truck & phone (more then one
things should be owned)
Feminisation of poverty
• Throughout the world poverty in women is more then men
• Lack of income and lack of opportunities (saudi arabia)
• Traditional societies like india
• Division of labour according to gender – dependent upon men counterpart
• Since women are not expected contribute economically – education not given
importance – lower literacy sign of feminisation of poverty
• It is also believed that if women will be more educated then it will be difficult to
find its male counterpart – more dowry – women deprived of education
• Patriarchal society – importance to male child – low importance to girl child –
considered as an economic burden – deprived of food & health care – suffers
malnutrition
• Women mainly in unorganised sector – not continuous & sufficient salaries – no
labour laws – differential wages
• Women are dependent on male head if dies – accute poverty
Measures to handle poverty
• In two ways – eradication – making person self dependent like quality education
and all
• Alleviating – providing support that he can survive and come out of bpl like
subsidies , pds etc

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• Post-independence india focused more on 2nd aspect

• Welfare state
• Inclusive development
• Secular constitution
• Positive discrimination
• Planning for equal distribution of resources
• Industrilisation – bcuz agriculture – law of diminishing return
• Pds
• Subsidies
• Progressive taxation
• Welfare schemes like MNREGA
• Universal basic income
Universal basic income
• Economic survey 2017 -18
• Universal income
• Bring down poverty from 21.9 % to 0.5 %
• Fixed amount of income to individual every month
• 4-5 % gdp
• Presently 3 % of gdp on subsidies – this has to be stopped
Drawback
• Jam trinity
• States have to share burden
• Demotivating factor for hard work
• People more and more dependent
• How to identify beneficiary

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UNEMPLOYMENT
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Meaning of unemployment
• Willing to work and failed to find a suitable job
• Counted among the people within a group
• Usually it is 15 – 59 – varies
• Age group – willing to work - labour force
• Engaged labour force – workforce
• Unemployed people – labour force – work force
Impact of unemployment
Types of unemployment
• Disguised unemployment
• Frictional unemployment – leaving current job without the other
• Cyclic unemployment – economic boom & recession
• Seasonal unemployment – farmer & labour
• Under employment
• Structural unemployment
Measures
• Planning
• Secular constitution
• Family planning
• Land reform measures
• Green revolution
• Reservation
• Education – RTE
• Subsidies
• Schemes – NIMZ , mnrega etc

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HEALTH & EDUCATION

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How to study these topics
• Some facts
• Present status
• Issues
• suggestions
• Steps taken – policy, schemes – objective, target section, importance/ why this
scheme, issues, suggestions
• Way forward
Education
• SDG – 4 “ensure inclusive and equitable quality education and promote lifelong
learning opportunities for all” by 2030.
Role of Education
• Education is fundamental to development and growth.
• It is a great leveller, and provides the only sustainable route to reduce poverty
and inequalities.
• Improving education scenario is equally essential to enhance India’s
competitiveness in the global economy.
EDUCATION IN INDIA
• At the time of independence, India's literacy rate was just 12%.
• The overall literacy rate in India in 2011 increased to 74%, with a male literacy
rate of 82.1% and a female literacy rate of 65.5%.
• However, the level is well below the world average literacy rate of 84%
• India currently has the largest illiterate population in the world.
• Kerala is the most literate state in India, with 93.91% literacy, while Bihar is the
least literate state with a literacy rate of 63.82%.
Important Measures Related to Education
• Concurrent List
• ARTICLE 21 A
• Various schemes to be discussed
New concepts in Indian education
• Rights-based approach to elementary education and student entitlement
• Shift in emphasis from literacy and basic education to secondary, higher,
technical and professional education
• The endeavour to extend universalization of primary education to secondary
education
• Reshaping the higher education.
Pre-school Education
• prepare children physically, emotionally, socially and mentally for formal
schooling and to prevent poor performance and early drop out

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• The RTE Act (2009), while does not include children below 6 years under its aegis,
does include Early Childhood Education (ECE)
• In 2013, the government of India approved the National Early Childhood Care and
Education (ECCE) Policy
• Ministry of Women and Child Development (MWCD) is responsible for the policy
on ECCE and launched
• Integrated Child Development Services (ICDS) Scheme. ICDS offers six basic
services to its beneficiaries which include supplementary nutrition, nutrition and
health education, health check-up, pre-school non-formal education,
immunization, and referral services
School Education in India
• The entire school education can be divided in to four parts, namely, primary,
upper primary, secondary and higher secondary levels.
• Primary education includes five years of lower primary (classes 1-5) and Upper
Primary includes three years of education (classes 6-8).
• Secondary school education comprises of two years of lower secondary (Classes
9-10) and two years of higher secondary education (Classes 11 and 12).
Present status
• The Gross Enrolment Ratio (GER) for Grades 6-8 was 90.9%, while for Grades 9-
10 and 11-12 it was only 79.3% and 56.5%, respectively
• As per the 2019 Human Development Report released by United Nations
Development Programme (UNDP), between 1990 and 2018, mean years of
schooling increased by 3.5 years and expected years of schooling increased by 4.7
years in India.
• • The ASER surveys estimate that national attendance in primary and upper
primary schools is 71.4 per cent and 73.2 per cent respectively.
• Our educational system is of General Education in nature. Development of
technical and vocational education is quite unsatisfactory
• Large proportion of students currently in elementary school - estimated to be
over 5 crore in number - have not attained foundational literacy and numeracy
Issues
• Inadequate public funding
• Disproportionate focus on school infrastructure as opposed to learning outcomes
• all main functions of governance and regulation of the school education system
are handled by a single body, i.e., the Department of School Education or its
arms. This leads to conflict of interest, centralization of power, ineffective
management etc.
• Inadequate teacher training,
• Limited options for vocational education
• Indian languages still under developed
Way forward

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• Funding by government: Government spending on education as a whole (not just

school education) should be increased to at least 6 per cent of GDP by 2022.
• Syllabus - At the pre-primary level, it would help develop school readiness, and at
the primary level, it would facilitate multi-level and multi-grade teaching
• Teacher training
• Reducing mental stress - Life skills, including coping with failure/crises and stress
management, should be included as part of the school curriculum.
• RTE should cover the entire spectrum of 18 years
• Drop out – creativity
• Performance linked
• Online education
Higher education in india
• Higher Education is the responsibility of both the Centre and the States. The
coordination and determination of standards in Universities & Colleges, at
present, is entrusted to the UGC and other statutory regulatory bodies.
Issues
• Enrolment in Higher Education: Gross Enrolment Ratio (GER) in higher education
in India has risen marginally from 25.8% in 2017-18 to 26.3% in 2018-19, world
average 33%
• Number of Institutions of Higher Education: Number of universities (from 903 in
2017-18 to 993 in 2018-19) & total higher educational institutions has increased.
• Narrowing gender gap: Nearly 51.36% of enrolled are male & 48.64% are female,
indicating narrowing gender gap in higher education
• Social Backwardness: SC & ST student enrolment is 14.89% & 5.53% respectively.
Among minorities, 5.23% students belong to Muslim category and 2.32% to other
minority communities.
• Regional disparity
• Management of the Indian education faces challenges of overcentralisation,
bureaucratic structures and lack of accountability, transparency, and
professionalism. Outdated and multiple regulatory mechanisms limit innovation
and progressive change.
• Outdated curriculum - There is a mismatch between courses taught at
universities and requirement of industry resulting into unemployable graduates
coming out of these institutes every year.
• Teacher shortage
Health
• The WHO defines health as a state of complete physical, mental and social well-
being and not merely the absence of disease or infirmity. The determinants of
good health are: access to various types of health services, and an individual’s
lifestyle choices, personal, family and social relationships.
• Progress made - India has made considerable progress in many health indicators.
Life expectancy at birth has increased, infant mortality and crude death rates

P a g e | 99
have been greatly reduced, diseases such as small pox, polio and guinea worm
have been eradicated, and leprosy has been nearly eliminated. The country
strives towards achieving Universal Health Coverage.
Health expenditure
• General Government expenditure on health as percentage of GDP in 2019-20 was
1.6% (up from 1.5% in 2018-19.
• Out-of-Pocket Expenditure (OOPE) as a percentage of Current Health Expenditure
fell down to 58.7% in 2016-17 from 60.6% in 2015-16.
• Population with health insurance coverage: About 14% of the rural population
and 19% of the urban population had health expenditure coverage.
• Source of hospitalisation expenditure: Rural households primarily depended on
their ‘household income/savings’ (80%) and on ‘borrowings’ (13%) for financing
expenditure on hospitalisation. The figure is 84% and 9% respectively for Urban
households.
Child health
• Life expectancy - between 1990 and 2018, life expectancy at birth increased by
11.6 years in India
• Under-five mortality rate (U5MR) (deaths of children less than 5 years per 1,000
live births) has declined from 126 in 1990 to 34 in 2019
• Infant mortality rate (deaths of children less than 1 year per 1,000 live births) has
declined from 89 in 1990 to 28 in 2019.
• Neonatal mortality rate (deaths of children within a month per 1,000 live births)
has declined from 57 in 1990 to 22 in 2019.
Child health
• Although progress has been made, according to National Family Health Survey-4
(NFHS4), 2015-16, over one-third of all under-five children are stunted (low
height-for-age), every fifth child is wasted (low weight-for-height), and more than
50 per cent of the children are anaemic.
Maternal Health
• Institutional deliveries: In rural areas, about 90% childbirths were institutional (in
Government/private hospitals) and in urban areas it was about 96%.
• Pre and Post Natal Care: Among women in the age-group 15-49 years, about 97%
of women took prenatal care and about 88% of women took post-natal care.
• Maternal Mortality Rate (proportion of maternal deaths per 1,00,000 live births
reported) of India has declined from 130 in 2014-2016 to 122 in 2015-17.
Issues
• Low level of expenditure - India’s public expenditure on healthcare was 1.4% of
its GDP in 2017-18 which was substantially lower that other BRICS countries
(Brazil: 3.8%, China: 3.1%, Russia: 3.7%, South Africa: 4.2%)
• High out of Pocket Expenditure on Health1. Over 70% of ailing population in rural
areas and almost 80% in urban areas utilize private facilities. 2. The public sector

P a g e | 100
accounts for only about 20 %, of the total healthcare expenditure with 80 %

contribution coming from the private sector
• Lack of Health Infrastructure 1. India faces an acute shortage of hospital beds
with a ratio 0.5 per 1000 population for India as compared to 2.3 for China, 2.6
for Brazil and 3.2 for the US
• Human Capital Crunch- Healthcare sector requires highly skilled human resources
from doctors to other medical support staff like nurses, lab technicians,
pharmacists, etc.
• 1. Though India has one doctor for every 921 people (WHO recommends: 1:1000)
but this number includes Ayurveda, Homeopathy and Unani practitioners.
• 2. Doctor-population ratio for Allopathic doctors alone in India stands at 1:1613
• Regional disparity
• Rising cost
• Quality of service
Steps taken
• National health policy
• Ayushman bharat

P a g e | 101
NATIONAL INCOME
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National income
• To calculate the national income of a country many methods are used like
income method expenditure method but the most important one is product
method.
• Through this while calculating GDP,GNP one can calculate national income.
GROSS DOMESTIC PRODUCT(GDP)
• Final products (no raw material)
• Goods and services
• Within the boundary of the country
• One financial year
• Only matters where is it produced not by whome.(foreign company)
• No inclusion of care economy
• Therefore, it becomes difficult to calculate the gdp of unorganized sector.
• Increase in gdp – economic growth
• More the economy larger its economy
• Calculated on quarterly basis – combination of quarter – annual GDP
• Rate of increase – India is fastest
• In terms of value – America – china – japan – 7th india ($2.2 t )
Ways of GDP
Gross national product (GNP)

• Final goods and services
• By nationalists of a country throughout the world
• Here matters is – produced by whome
• Calculation – inflow and outflow (outflow is deducted and inflow is added)
• Embassy
Net national product (NNP)

P a g e | 102
• In process of production – machines and tools are used – wear and tear – in
order to replace them in future some part is set aside known as depreciation
• NNP = GNP – depreciation
• GNP = GDP + INLOW - OUTLOW
National income
• When NNP is calculated at factor cost then national income is derived.
• National income = NNP – indirect taxes + subsidies
Estimating GDP
• Output approach – market value of final goods and services
• Expenditure method – adds consumption, investment, government expenditure
and net exports
• Income approach – wages, profit and rent
• They should be equal but some differences why?
Changes in GDP series
• Base year = 2011-12 – new enterprises
• MCA 21 – earlier from RBI
• Weights changed
• Replacing factor cost with market price
Some limitation
• Care economy
• Double counting – only final good is counted
• Imputed values
• Transfer payments but subsidy included
Green GDP
• When ill effects on environment is given monetary terms and deducted from GDP
known as GREEN GDP
Potential GDP
• GDP which is non inflator and sustainable
• Highest level of GDP that can be achieved
• Varies from country to country
GROWTH AND DEVELOPMENT
Inclusive development
• 2 aspects – development of all + participation in development & development in
all aspects

P a g e | 103
• Development of all – related with concept of antodaya(bottom) and sarvodaya

(automatically all will be lifted)
• Associated with concept of justice – john Rawl
Sustainable development
• Future generation
• Maximum development with minimum destruction

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WTO
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General agreement on tariffs and trade(GATT)

• Signed in 1947 but came into existence in 1948
• It was not an organisation mere agreement
• To ensure restriction free trade in goods.
• In developed countries labour laws became instringent and goods became
costlier.
• Industries started shifting towards developing economies by early 1990’s
• Hence in 8th round of uruguay the idea of WTO was conceived
• Under dunket proposal and in marakash(MORROCO) treaty WTO came into
existence in 1995.
WTO
• Multi member body
• Purpose – to facilitate trade in both goods and services
• Headquarter – Geneva
• Chairman – robert azenedo ******
• 164 members****
• Decision making body – ministerial conference – every 2 yrs
• Commerce ministers of different countries participate.
Tariff and non tariff
Dumping
• If in a domestic market – more production then required
• Domestic and international market is full
• If that country exports in other market lesser then fair value of international
market – DUMPING
Counterveling duty & anti dumping duty

P a g e | 105
Three foundational principles

• MFN
• National treatment
• S&D provision
Most favoured nation status (MFN)
• All the members have to provide to each other
• No discrimination in trade
• Helps small countries
• Increases the trade
• Bilateral & multilateral FTA are kept out of this perview
• In fta member countries can discriminate.
S&D provision
• Division between developed and developing (can choose by themselves but has
to be certified by developed country in their system)
• Least developed countries – UN
• Developing countries has advantages in agriculture, time limit, GSP – special and
differential treatment
DOHA round
• Last round of GATT these issues were left –
❑ Agreement on agriculture
❑ Non agricultural market access
❑ General agreement on trade & services
• Wto was established but issues were not resolved and hence they were officially
brought in DOHA round.
• Still they are not resolved and countries are taking help of FTA and wto
importance is decreasing
• Singapore round belongs to DEVELOPED NATIONS
Agreement on agriculture
• Provides susbsidies on agriculture – distort trade
• Even buffer stock comes under it.
• Us and eu alone provide subsidies of around $380 bn
Classification of boxes
• Blue box – provided by developed countries to their farmers – not to produce
more – not crashing of prices – reason given – soil fertility – leaving barren land.
• Amber box – most manipulative in nature – direct and indirect by govt.
developed – 5% and developing – 10 %
• Green box – research and development subsidy
• Least manipulative
Buffer stock – food security
• Buffer created is trade manipulative
• Buffer may result into short supply of food grains into the market
• Not more then 10 % can be created

P a g e | 106
• Calculation issues were there.

• Bali round – peace clause
• Safeguard mechanism – prices fall developing countries can impose high import
duty on developed.(to reduce the edge)
Food grain issue

• Export subsidy on food grains
• Food security
• Additional duty on import of food grains
Export subsidy on food grains
• Provided by developed and developing countries on export of food grains.
• Trade manipulative
• Decided – developed – zero , developing by 2018 - zero
EXPORT SUBSIDIES
• NAIROBI summit – phasing out
market access
• Tarrification followed by reduction of rates
Special products and special safeguard mechanism
• SP – importance to farming communities, food security, livelihood security, rural
development
• Available only to developing countries
• SSM – temprorily raise the tarrif to save the products and farmers (if inflows of
any of these products impacts small and marginal farmers and special products)
NAIROBI(2nd) & BALI(1st) round
• Issues related to food grains
• Issues related to export of cotton
• Issues related to non agricultural products from least developed countries
Issues related to export of cotton
• African countries cotton is of good quality – less export – export subsidy by
developed and developing countries
• Nairobi round – developed countries to bring down to zero + developing by 2017
and for developed countries import duty – zero on cotton and for developing it is
optional
General agreement on trade in services
• Ensuring restriction free services
• Restriction free services and human resources
• Concept of national treatment
• Bilateral in nature
Services

P a g e | 107
Trade related aspects of IPR

• These rights are granted under wto norms.
• They protect intellectual rights
• Products are novel , non obvious and have commercial utility
TRIPS LAWS
• Patents
• Copyrights
• Trademarks
• Trade secrets
• Geographical indicators
Patent
• Right provided to inventor of technology
• 20 yrs
• Novel , non obvious and commercial utility
• 2005 – process patent to product patent
• Evergreening not allowed – done to maximise profits and to have monopoly
Copyrights
• Over written and published material e.g. books , materials etc.
• For lifetime
• After death of the holder it may stay with successor for 60 yrs
Trademark
• Logo or symbol which becomes the identity of a company
• Renewed after 10 yrs
Trade secrets
• Use some secrets – right to protect them
Geographical indicators
• Distinct quality bcuz of local conditions
• On such products no patent can be given
• GI tag is given to them

P a g e | 108

P a g e | 109
INTERNATIONAL INSTITUTIONS –WORLD BANK & IMF

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Brettonwoods agreement
• Wb and imf known as brettonwoods(USA – NEW HAMIPSHIRE) twin
• Initially signed by 44 countries in 1944 and came into existence in 1945
• Wb started functioning in 1946 and imf in 1947
• Objective – reconstruct the world after ww 2
Similarities
• Headquarter – washington DC
• A country which becomes the member of IMF automatically becomes member of
WB
• 189 countries in total
• Wb – president
• Imf – md
• Ida – director general
• By convention –
❑ Wb – usa
❑ Imf – eu
World bank
• Initially known as IBRD i.e. international bank for reconstruction development
• Wb was only a popular name
• It was developed to reconstruct the world as it was done its official name became
WB and ibrd became part of world bank
• 1960 – international development association(IDA)
• World bank – IBRD + IDA
WORLD BANK GROUP
• 1956 – international finance cooperation (IFC)
• 1966 – international centre for settlement of investment dispute (ICSID)
• 1988 – multilateral investment guarantee agency (MIGA)
• IFC + ICSID + MIGA = WORLD BANK GROUP
IBRD
• Long term loan for developmental purposes to big countries only
• Lends to high and middle income members
• High credit rating since 1959 – borrowed at low interest
• $ 14 mn corpus – development of IDA
IDA
Long term loan for developmental purpose
Poorer nations
IFC
• Investment wing of WB

P a g e | 110
• Encourage the private investment in member countries to a investor in member

country
• Holds stakes in such investment and share profit
• Can issue bonds in international market
MIGA & ICSID
• Provides insurance(non commercial) cover on investment in other countries like
nationalisation
• ICSID - dispute related – binding upon member countries (india not a member)
INTERNATIONAL MONETARY FUND
• AIM – Loan to member countries in BOP crisis
• Single international accounting system
• Stable forex rate
• Promote pvt investment
• Financial cooperation
• SDR
• Decision is taken by board of governors – fm of all countries – held continuously

for 2 yrs in washington dc and in 3rd year – other member country
• It also has alternate governor – central bank governor
• For any proposal 114 countries should support it
• To be passed 85 % voting is required
• Usa – 16.5%
• India – 2.6%
• Not an egalitarian body therefore reforms are needed.(WTO)
CONDITIONS OF IMF WHILE GIVING SDR
• To reduce size of bureaucracy
• Reduce size of ministers
• Bring down subsidies
• To bridge fiscal deficit
• To discontinue welfare schemes not required.

P a g e | 111
SDG
Goals Objective Description

Goal -1 No Poverty By 2030, eradicate extreme poverty for all
people everywhere.
Goal -2 Zero Hunger End hunger, achieve food security and
improved nutrition by 2030.
Goal -3 Good Health and Well- Ensure healthy lives and promote well-being for
being all at all ages by 2030.
Goal -4 Quality Education Ensure that all girls and boys complete free,
equitable and quality primary and secondary
education by 2030.
Goal -5 Gender Equality To achieve gender equality and empower all
women and girls.
Goal -6 Clean Water and Ensure availability and sustainable
Sanitation management of water and sanitation for all by
2030.
Goal -7 Affordable and Clean Ensure access to affordable, reliable,
Energy sustainable and modern energy for all by 2030.
Goal -8 Decent Work and Promote sustained, inclusive and sustainable
Economic Growth economic growth.
Goal -9 Industry, Innovation Build resilient infrastructure, promote inclusive
and Infrastructure and sustainable industrialization and foster
innovation by 2030.

P a g e | 112
Goal - Reduced Inequality Reduce inequality within and among countries

10 by 2030.
Goal - Sustainable Cities and Make cities and human settlements inclusive,
11 Communities safe, resilient and sustainable.
Goal - Responsible Consumption Ensure sustainable consumption and
12 and Production production patterns.
Goal - Climate Action Take urgent action to combat climate change
13 and its impacts.
Goal - Life Below Water Conserve and sustainably use the oceans, seas
14 and marine resources for sustainable
development.
Goal - Life on Land Protect, restore and promote sustainable use of
15 terrestrial ecosystems, combat desertification
and halt biodiversity loss.
Goal - Peace and Justice Strong Promote peaceful and inclusive societies for
16 Institutions sustainable development; provide access to
justice for all.
Goal - Partnerships to achieve Strengthen the means of implementation and
17 the Goal revitalize the global partnership for sustainable
development.
Sustainable Development Index (SDG) 2020

In the recently published Sustainable Development Goals (SDGs) Index
2020 Bangladesh has outperformed the neighbouring countries of India, Pakistan and
Afghanistan.
• The country has been ranked 109th among the 166 countries and moved 7 places
up in the latest index released recently.
Key Highlights of the report:
• Sweden is placed at the top of the index with an overall score of 84.7 while
Bangladesh has a score of 63.5.
• Bangladesh position is ahead of India (117th), Pakistan (134th) and Afghanistan
(139th) in South Asia, as per the index.
• The report shows that among 17 SDG parameters, Bangladesh has remained on
track in achieving goals relating to poverty alleviation, quality education, decent
work and economic growth and climate action.
• However, significant challenges remain on 7 parameters including the goal of
zero hunger, good health, clean water and sanitation, innovation and peace,
justice and strong institutions.

Economy Without Coaching: Quick Revision Notes

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www.AroraIAS.com Telegram: https://t.me/aroraias Economy Quick Revision Notes

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For Economy Videos

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• Continuous rise in the price of goods and services

• It affects our savings

• To continue their growth

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General causes – most of the time –

• Demand pull inflation

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• Due to structural deficiencies

Causes of Demand-Pull Inflation:

This type of inflation is caused due to various reasons such as:

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• Increase in indirect taxes

Measures by govt and rbi

How inflation is controlled in india

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With reference to inflation in India, which of the following statements is correct?

• In the early and mid-1970s when OPEC (The Organisation of Petroleum

1. Wholesale Price Index (WPI) – It is estimated by the Ministry of Commerce &

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• For calculation of inflation indices are used.

• Inflation calculated at whole sale level

• Primary – milk , vegetables etc

• Consumer – retail level

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• Food and beverages

• Deflation – continuous fall of price

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Wpi cpi divergence

Important Terms related to Inflation

• Disinflation: Reduction in the rate of inflation

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Reserve bank of India

RBI REGULATION ACT,1949 – made RBI – Bahubali

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• For this minimum reserve system is used.

Consider the following statements:

Transfer of SURPLUS money

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ECONOMIC CAPITAL FRAMEWORK

RBI’S STAND ON BITCOIN

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Minimum reserve system

Cash reserve ratio (CRR)

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CURRENT – RELAXING NORMS FOR CRR

Statutory liquidity ratio (SLR)

Reserve ratio (CRR+ SLR)

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Open market operation

In the context of Indian economy, ‘Open Market Operations’ refers to

The lowering of Bank Rate by the Reserve Bank of India leads to

An increase in the Bank Rate generally indicates that the

LOAN TAKING SYSTEM

1 repo – two parties agree to sail and purchase of security

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2 it is also called as policy rate