UPSC PRELIMS 2024 – Subject Wise Bullet Points – Indian Economy

The UPSC Prelims 2024 examination places significant emphasis on testing candidates’ knowledge of the Indian economy, a crucial component for understanding the nation’s overall development. The subject comprises various dimensions, and aspirants must be well-versed in both theoretical concepts and current affairs. Key topics for Indian economy in UPSC Prelims 2024 include:

• GDP and Economic Growth: Understanding the factors influencing Gross Domestic Product (GDP) and the nuances of economic growth models.
• Monetary Policy: Knowledge of the Reserve Bank of India’s monetary policies, interest rates, and their impact on the economy.
• Fiscal Policy: Awareness of the Union Budget, government expenditure, and taxation policies.
• Inflation and Deflation: Understanding the causes, consequences, and measures to control inflation and deflation.
• Financial Inclusion: Grasping the government initiatives for inclusive growth and financial empowerment.
• Banking and Financial Institutions: Knowledge of the structure, functions, and recent reforms in the banking and financial sector.
• International Trade and Agreements: Awareness of India’s trade policies, bilateral and multilateral agreements, and their impact on the economy.
• Infrastructure Development: Understanding the role of infrastructure in economic development and government initiatives in this regard.
• Social Sector Initiatives: Familiarity with schemes related to education, healthcare, and poverty alleviation.
• Environmental Sustainability: Awareness of policies promoting sustainable development and the balance between economic growth and environmental conservation.

Candidates must keep themselves updated with current economic developments, government policies, and international economic trends to perform well in this section of the UPSC Prelims 2024.

Economy: An Introduction

• An economy represents the aggregate of production and consumption, encompassing individuals, organizations, or states within a given region. It involves the economic system, overseeing the production, distribution, and consumption of limited goods and services among various entities.
• Capitalist, Socialist, and Mixed economies constitute the three primary types. In a Capitalist economy, private enterprises dominate the production landscape. Karl Marx elucidated the class struggle through Dialectical Materialism in this context.
• Economic growth, a quantitative aspect, indicates a long-term trend denoting increased flow of goods and services. Conventionally measured by the percentage increase in Gross Domestic Product (GDP), Gross National Product (GNP), or per capita Net Domestic Product (NDP) over a year, per capita NDP serves as a pertinent measure of economic growth.
• The Human Development Index (HDI), introduced in 1990 by Pakistani economist Mahbub-ul-Hag, measures three dimensions: a long and healthy life. Additionally, the Gender Inequality Index (GII) gauges women’s disadvantages in reproductive health, empowerment, and the labor market. The Multi-dimensional Poverty Index (MPI) identifies various deprivations at the individual level in health, education, and standard of living.
• The MPI was introduced in July 2010 by the Oxford Poverty and Human Development Initiative in collaboration with the United Nations Development Programme (UNDP).
• The Global Peace Index (GPI), conceived by Steve Killelea, aims to assess the relative peacefulness of nations and regions and its impact on economic development.
• The Indian economy is structured into three sectors. The Primary Sector involves the extraction of raw materials, transforming natural resources into primary products.
• The Secondary Sector, encompassing manufacturing, includes economic activities that produce finished and usable products through manufacturing and construction.
• The Tertiary Sector, also known as the Service Sector, is defined by its exclusion from the above two sectors. It comprises services such as insurance, government, tourism, banking, retail, education, and social services.

National Income 

• National Income quantifies the net value of goods and services produced within a country in a year, encompassing Net Factor Income from Abroad (NFIA). The measurement of national income can be achieved through various indicators such as Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI), Net National Product (NNP), Net National Income (NNI), and Per Capita Income (PCI). (UPSC 2001, 2013)
• In the calculation of Net Domestic Product (NDP), the depreciation value, representing the consumption of capital stock, is subtracted from GDP. Gross National Product (GNP) reflects the monetary value of the total output or production of final goods and services generated by the nationals of a country in a specific period. Net National Product (NNP) is derived by deducting the depreciation value from GNP. (UPSC 2007)
• Per Capita Income (PCI) is determined by dividing a country’s total National Income by its overall population, representing the average income of the country.
• Personal Income encompasses the earnings of the residents (individuals) within a country. To calculate personal income, transfer payments to individuals are added to National Income, with deductions made for social security contributions, corporate tax, and undistributed profits.
• The Income method gauges National Income by examining payments made to the factors of production, while the Expenditure method measures the final expenditure on Gross Domestic Product. In India, the estimation of National Income combines both the product method and income method.
• Dadabhai Naoroji conducted the initial estimation of National Income for the year 1867-1868, estimating a Per Capita Income of ₹20. Post-independence, the responsibility for estimating National Income in India was assigned to the Central Statistical Organisation (CSO). The base year for measuring India’s GDP is presently 2011-2012.
• The Ministry of Statistics and Programme Implementation (MSPI) emerged as an Independent Ministry on October 15, 1999, after the merger of the Department of Statistics and the Department of Programme Implementation. MSPI comprises two wings—Central Statistical Office (CSO) and National Sample Survey Organisation (NSSO). CSO introduced a new series of national accounts statistics with the base year 2011-2012, replacing the previous series with the base year 2004-2005.
• Energy Statistics are collected by the Ministry of Statistics and Programme Implementation and released by the Central Statistical Organisation. The Reserve Bank of India (RBI) projects a growth rate of 7.1% in GDP at constant (2011-2012) market prices for 2018-2019.
• The Indian economy ranks as the third-largest economy globally in terms of Purchasing Power Parity (PPP).

Economic Planning

• Economic planning involves a deliberate and thoughtful process aimed at optimizing the use of existing resources to achieve specific objectives set by the State. In 2015, the Government replaced the Planning Commission with a new institution called NITI Aayog (National Institution for Transforming India). NITI Aayog is tasked with providing strategic and technical advice to the central and state governments on various policy aspects. (UPSC 2015)
• The initiation of planned economic development in India dates back to 1951 with the inception of the First Five Year Plan. However, the first attempt to introduce economic planning in India was made in 1934 by Sir M. Visvesvarayya through his book ‘Planned Economy for India.’
• The Planning Commission, established in 1950, served as the supreme planning organ for social and economic development. It operated as an Extra-Constitutional advisory and specialized institution.
• The National Development Council (NDC), formed in 1952, aimed to secure state cooperation in plan execution, strengthen and mobilize efforts and resources in support of the plan, promote common economic policies, and ensure balanced and rapid development across the country.
• The First Plan (1951-1956), based on the Harrod-Domar Model, emphasized agriculture due to significant food grain imports and inflationary pressures. Despite challenges, the plan exceeded the target growth rate of 2.1%, achieving an estimated annual average growth rate of 3.61%.
• The Second Plan (1956-1961), known as the Nehru-Mahalanobis Plan, shifted focus to rapid industrialization after successfully addressing agricultural targets. It surpassed the target growth rate, reaching 4.21%. (UPSC 2009)
• The Third Plan (1961-1966), also called the Gadgil Yojana, aimed to make the economy self-sufficient and balance industry and agriculture. However, unforeseen events such as the Chinese aggression (1962), Indo-Pak War (1965), and severe drought (1965-1966) led to the plan’s failure. (UPSC 2009)
• Three Annual Plans (1966-1969) were implemented due to difficulties faced by the third plan on the external front. This period is referred to as Plan Holiday, during which a five-year plan is not implemented.
• The two main objectives of the Fourth Plan (1969-1974) were growth with stability and the progressive achievement of self-reliance.
• The Fifth Plan (1974-1979) was launched with the primary goal of growth for social justice, focusing on the removal of poverty and the attainment of self-reliance. The targeted growth rate was 4.4%, and the achievement reached 4.8%.
• During the Fifth Five-Year Plan, an emergency was imposed, new elections were conducted, and the Janata Party was elected.
• The Sixth Plan (1980-1985) aimed at poverty removal and emphasized infrastructure development for both industry and agriculture. The achieved growth rate of 5.7% exceeded the targeted one.
• The Seventh Plan (1985-1990) emphasized policies for rapid growth in foodgrains production, increased employment opportunities, and productivity, marking the beginning of the liberalization of the Indian economy. The plan achieved a growth rate of 6.01%.
• In 1990-1991 and 1991-1992, two separate annual plans were formulated with the main objective of maximizing employment and social transformation.
• The Eighth Plan (1992-1997) aligned with economic reforms, recognizing human development as the core of all development efforts.
• The Ninth Plan (1997-2002) focused on four dimensions: quality of life, generation of productive employment, regional balance, and self-reliance. The plan aimed for an annual average growth rate of 6.5%, achieving a growth rate of 5.4%.
• The Tenth Plan (2002-2007) targeted a GDP growth rate of 8% per annum, primarily aiming to rejuvenate the nation.
• Extensively transformed, making it competent enough to rival some of the fastest-growing economies globally.
• Additionally, the aim was to reduce the poverty ratio to 20% by 2007 and further to 10% by 2012. The Tenth Plan successfully achieved a growth rate of 7.9%.
• The Eleventh Plan (2007-2012) envisioned an average GDP growth of 9% in the first year and a concluding growth of 10% over the five-year period. The plan also achieved a growth rate of 7.9%.
• Inclusive growth, as outlined in the Eleventh Five-Year Plan, encompassed the reduction of poverty, the extension of employment opportunities, and the minimization of gender inequality.
• The Twelfth Plan (2012-2017) is themed “Faster, Sustainable, and More Inclusive Growth,” with a growth target set at 8.0%.

Poverty and Unemployment

• Poverty is a social phenomenon in which a segment of society is unable to meet even its basic life necessities, encompassing deprivation of opportunities in health, education, skills, employment, etc.
• The Poverty Gap Index (PGI) represents the difference between the poverty line and the average income of all households living below the Poverty Line (BPL), expressed as a percentage of the poverty line.
• As of 2010, data from the United Nations Development Programme (UNDP) indicates that an estimated 29.8% of Indians live below the country’s National Poverty Line (NPL).
• Unemployment in India is primarily structural in nature. The extent of unemployment is generally measured using three concepts by the National Sample Survey Organisation (NSSO).
• The Usual Status or Chronic Unemployment, measured in terms of the number of persons who remain unemployed for a major part of the reference period, which is a year in this case.
• Current Daily Status (CDS) is a measure of unemployment in terms of the number of days or person-years, representing the number of persons who did not find work on a day or some days during the survey week. This is considered the most comprehensive measure of unemployment.
• The unemployment rate per 1000 population is currently at 27, compared to 25 two years ago. As of January 1, 2010, the number of unemployed was 9.8 million, and by January 1, 2012, it had increased to 10.8 million.
• The primary goal of the Seed Village Concept is to engage farmers in quality seed production training, thereby ensuring the availability of high-quality seeds to others at the right time and an affordable cost. (UPSC 2015)

Government Schemes

• The National Skill Development Mission (NSDM) aims to build institutional capacity for training a minimum of 300 million skilled individuals by 2022. The Pradhan Mantri Kaushal Vikas Yojana is a demand-driven, reward-based skill training scheme. It not only assesses and certifies 10 lakh youth for their existing skills but also imparts skills to 1 crore youth between 2016 and 2020.
• The Beti Bachao Beti Padhao Scheme is designed to tackle the declining child sex ratio and empower girls in India. The National Heritage City Development and Augmentation Yojana, launched on January 21, 2015, aims to integrate urban planning, economic growth, and heritage conservation for heritage cities.
• To enhance financial inclusion, the Prime Minister launched three social security schemes (Pradhan Mantri Jeevan Jyoti Bima Yojana, PM Suraksha Bima Yojana, and Atal Pension Yojana) under the Jan Suraksha Yojana, focusing on insurance and pension.
• Replacing the Indira Awas Yojana from 1985, the Pradhan Mantri Awas Yojana-Gramin enables rural residents to build new houses or enhance existing ones. The Swarnajayanti Gram Swarozgar Yojana, launched in April 1999, is restructured as the National Rural Livelihood Mission, a self-employment program for the rural poor.
• The Pradhan Mantri Gram Sadak Yojana, initiated on December 25, 2000, aims to connect all unconnected habitations in rural areas through robust all-weather roads. Finally, the Pradhan Mantri Jan Dhan Yojana is a crucial step in achieving financial inclusion by providing bank accounts and overdraft facilities. (UPSC 2001)
• Sarva Shiksha Abhiyan (SSA) was initiated in 2001 with the goal of providing elementary education to all children aged 6 to 14. The objective was universal retention by 2010.
• The Atal Innovation Mission (AIM), established by NITI Aayog in 2018, is a flagship initiative promoting innovation and entrepreneurship nationwide. This initiative includes Atal Tinkering Lab and Atal Incubation Centre.
• The Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) Scheme, launched on February 2, 2006, initially focused on the 100 most backward districts in India, later expanding to cover all districts. MGNREGA’s primary objective is to provide wage employment to rural individuals.
• Mission Indradhanush, launched by the Government of India, is dedicated to the immunization of children and pregnant mothers. (UPSC 2016)
• The Pradhan Mantri Jan Aarogya Yojana (PMJAY-Ayushman Bharat Scheme) was launched in Ranchi. As the world’s largest government-funded healthcare program, it covers over 50 crore beneficiaries, providing a benefit cover of ₹5 lakh per year per family.
• The National Rural Livelihood Mission (NRLM), initiated on June 3, 2011, aims to reduce poverty by facilitating access to gainful self-employment and skilled wage employment opportunities for poor households.
• Sansad Adarsh Gram Yojana is a Rural Development Programme (RDP) with a broad focus on village development, including social and cultural aspects, and fostering motivation for social mobilization within the village community.
• The One Nation One Ration Card Scheme, launched by Union Minister Ram Vilas Paswan on June 1, 2020, enables migrant workers to access affordable food grains with a single ration card across the country.
• The Self Help Group (SHG) program, originally initiated by the National Bank for Agriculture and Rural Development (NABARD) in 1992, provides micro-credit to the financially deprived.

Agriculture

• Agriculture stands as a crucial sector in the economy, serving as the primary source of essential goods—providing food items to both industries and the general population.
• Engaging approximately 49% of the country’s workforce, this sector contributes 14.5% (2015) to the GDP, representing around 10% of total export earnings. Additionally, it supplies raw materials to a myriad of industries, including textiles, silk, sugar, rice, flour mills, and milk products.
• Post-independence, the share of the agricultural sector in GDP experienced a decline with the growth of other economic sectors. In 1950-1951, the agricultural sector contributed 56.5% to the GDP, dwindling to 34.9% in 1990-1991, further diminishing to 14.7% in 2009-2010, and reaching 13.7% in 2013.
• The agricultural sector’s contribution to India’s GDP is 18.3% in 2022-2023, compared to 15.96% in 2019.
• The Green Revolution, observed in the mid-sixties, ensured India’s self-sufficiency in food grains, credited to Norman Borlaug and MS Swaminathan.
• The concept of the Evergreen Revolution was introduced by the renowned agricultural scientist MS Swaminathan.
• The Evergreen Revolution, considered the Second Green Revolution, emphasizes organic and green agriculture through integrated pest management, integrated nutrient supply, and integrated natural resource management. Major Agricultural Revolutions include the White Revolution (milk and dairy products), Silver Revolution (egg and poultry), Yellow Revolution (edible oil), Blue Revolution (fishery), Pink Revolution (meat), Golden Revolution (honey/horticulture), Silver Fibre Revolution (cotton), etc.
• PM Narendra Modi coined the term Tricolour Revolution, comprising the Saffron Energy Revolution, White Revolution, and Blue Revolution.
• In 2004, the National Commission on Farmers, chaired by MS Swaminathan, was appointed to identify and address problems in agriculture.
• Established in July 1982, the National Bank for Agricultural and Rural Development (NABARD) serves as the apex institution for extending credit facilities to agricultural and rural areas. NABARD takes charge of policy, planning, and operations related to credit for agriculture and other economic and developmental activities in rural regions. The Kisan Credit Cards (KCC) were introduced in 1988 to assist farmers in accessing timely and sufficient credit. Various crop insurance schemes, implemented across the country, are part of agricultural insurance. (UPSC 2020)
• The PM-KISAN Scheme, Pradhan Mantri Kisan Samman Nidhi, aims to provide direct income support at the rate of ₹6000 per year to vulnerable landholding farmer families with cultivable land up to 2 hectares.
• Replacing the National Agricultural Insurance Scheme and modified NAIS, the Pradhan Mantri Fasal Bima Yojana (PMFBY) is in place to safeguard farmers’ interests.
• Launched on July 2, 2015, the Pradhan Mantri Krishi Sinchayee Yojana’s primary objective is to achieve the convergence of investments in irrigation at the field level and expand cultivable areas.
• The National Agriculture Market Scheme is a nationwide electronic trading portal for agricultural commodities, granting farmers access to the pan-India market with prices corresponding to the quality of their produce. (UPSC 2017)

Money Banking and Capital markets 

• A money market is characterized as the arena for short-term lending and borrowing of funds, distinct from the capital market, which primarily deals with long-term funds. The capital markets encompass the Government Bond Market and the Stock Market. (UPSC 2023)
• The Reserve Bank of India (RBI) plays a central role in the money market by regulating the inflow of currency and credit into the market.
• The Indian money market is bifurcated into two segments: the Organised Sector, comprising entities such as the Reserve Bank of India, the State Bank of India and its associate banks, 19 nationalized banks, and other private banks; and the Unorganised Sector, consisting of indigenous bankers conducting banking activities through traditional methods.
• Open Market Operations, a function of the Reserve Bank of India (RBI), is considered a part of sterilization in the financial landscape. (UPSC 2023)
• Money Multiplier is the measure of money that banks generate with a unit of reserves, calculated as the ratio of Broad Money (M3) to Reserve Money (MO). This ratio increases with a rise in the population’s banking habits.
• Call Money refers to funds borrowed for a short duration, and the Call Money market involves inter-bank transactions on a day-to-day basis, constituting the most sensitive segment of the money market.
• Treasury Bills are short-term money market instruments issued by the RBI on behalf of the Government of India. These funds are utilized by the government to meet its short-term financial requirements. Treasury Bills come in various maturities, including 14 days, 91 days, 182 days, and 364 days.
• Commercial Bills are short-term, negotiable, self-liquidating instruments with low risk, enhancing liability for payment on a fixed date when goods are bought on credit.
• Gilt-Edged Securities represent government securities, ensuring capital and interest with no default or credit risk. This leads to low market risk and high liquidity.
• Banking conventionally involves accepting deposits from the public for lending and/or investment purposes. The Banking System in India comprises Public Sector Banks, Private Sector Banks, and Cooperative Banks. The Bank Board Bureau, established on February 28, 2016, plays a critical role in reforming troubled Public Sector Banks.
• The Reserve Bank of India (RBI), established under the Reserve Bank of India Act, 1934, on April 1, 1935, and nationalized on January 1, 1949, serves as the Central Bank of India. Its monetary functions encompass the control and regulation of money and credit, foreign exchange operations, acting as a banker to the government, being the Banker’s Bank, and serving as the lender of last resort.
• The non-monetary functions of the RBI focus on promoting a sound banking system, including the regulation of credit. Issuing notes and coins, regulating foreign exchanges, and serving as the Bankers to the Government and Commercial Banks are vital roles of the RBI.
• The Bank Rate, in essence, is the rate at which the RBI provides finance to Commercial Banks, signifying the rate at which it extends credit to them.
• According to the RBI Act of 1934, the Cash Reserve Ratio (CRR) mandates that a Commercial Bank must maintain a specific percentage of its total deposits in cash with the RBI. The RBI Amendment Act of 2006 removed the floor and ceiling for setting the CRR.
• The Statutory Liquidity Ratio (SLR) represents the ratio of liquid assets that all Commercial Banks must keep in the form of cash, gold, and unencumbered approved securities. The floor of 25% for SLR was eliminated from January 2007, following the Reserve Bank of India (RBI) Amendment Act of 2006. UPSC 1998.
• Open Market Operations (OMOs) involve the sale and purchase of Government securities by the RBI.
• Infrastructure Investment Trusts (InvITs) raise funds from investors, which are then invested in infrastructure projects. UPSC 2023.
• The Capital Market, focusing on long-term funds, comprises the primary market (for fresh security issues) and the secondary market (for existing securities). Carbon Markets transfer resources from the private sector to the state. UPSC 2023.
• The Primary market deals with fresh security issues, while the secondary market involves trading in existing securities.
• The Capital Market in India includes the gilt-edged market for government and semi-government securities, the industrial securities market for equities and debentures of corporate sector companies, and markets for Development Financial Institutions (DFI) and Non-Banking Financial Companies (NBFC).
• The Gilt-Edged Market focuses on government and semi-government securities with fixed interest rates backed by the RBI.
• Central Bank Digital Currencies (CBDCs) can function as a digital form of legal tender issued by the central bank.
• Central Bank Digital Currencies (CBDCs) can serve as a digital form of legal tender issued by the central bank, facilitating direct peer-to-peer transactions without relying on traditional financial intermediaries or international payment systems like SWIFT. (UPSC 2023)
• Established in 1875, the Bombay Stock Exchange (BSE) stands as the oldest exchange in Asia, located in Mumbai. Boasting over 6000 listed companies, it is the largest securities exchange in India. The BSE is gauged using the BSE SENSEX or the BSE 30 index, comprising 30 BSE stocks. The National Stock Exchange of India (NSE), established in 1991 and located in Mumbai, is one of the most advanced stock exchanges in the country. (UPSC 2002)
• The Over The Counter Exchange of India (OTCEI), incorporated under the provisions of the Companies Act, 1956, is a public limited company that allows the listing of small and medium-sized companies. The Capital Market of India is regulated by SEBI, established on April 12, 1992. SEBI’s fundamental functions include protecting the interests of investors in securities, promoting development, and regulating the securities market.
• Insurance holds a significant role in the Indian Financial System (IFS), encompassing two sectors: life insurance and general insurance. The Narasimhan Committee for Financial Sector Reforms has recommended a reduction in SLR, CRR, and Priority Financing.(UPSC 1995)

Fiscal policy 

• The 15th Finance Commission, established by the Government of India in November 2017 and chaired by Shri. NK Singh, a former Member of Parliament and former Secretary to the Government of India, was initially intended to operate from April 1, 2020, to March 31, 2025. However, the timeframe for its full set of recommendations has been extended to 2021-2026.
• The 14th Finance Commission, chaired by former RBI Governor YV Reddy, was constituted earlier. The 13th Finance Commission, under the chairmanship of Vijay L Kelkar, was formed on November 14, 2007, with its recommendations applicable for the period 2010 to 2015.
• The 14th Finance Commission’s report, accepted by the central government, proposed transferring 42% of the divisible pool to the states, including taxes and grants.
• Revenue Deficit is defined as the excess of revenue expenditures over revenue receipts, encompassing non-plan and plan expenditures as well as net tax and non-tax revenue.
• Fiscal Deficit is the sum of revenue and capital expenditure minus all revenue and capital receipts, excluding loans, providing a comprehensive indicator of the government’s deficit.
• Primary Deficit is the difference between the fiscal deficit and interest payments, aiding in assessing the government’s fiscal control efforts.
• Monetised Deficit involves borrowings from the RBI through the printing of fresh currency, a concept discarded since 1997.
• Budget Deficit, abolished in 1997, was the difference between total budgeted receipts and expenditures.
• Deficit Financing refers to the financing of the gap between government receipts and expenditures, either through borrowing from the RBI or the printing of fresh money by the RBI.
• Direct Taxes, including income tax, wealth tax, and corporation tax, are levied immediately on the property and income of individuals.
• Indirect Taxes, such as customs duties, excise duties, sales tax, and service tax, affect the income and property of individuals through their consumption expenditures.
• Service Tax, introduced in 1994, is an indirect tax covering services like telephone, insurance, brokerage, banking, financial services, post offices, constructions, and consulting.
• Minimum Alternate Tax (MAT) applies to companies with profits qualifying for tax but using various rebates to avoid payment, resulting in zero tax companies.
• Securities Transaction Tax (STT), introduced in 2004, is levied on the total value of delivery-based equity transactions in the stock market.
• Value Added Tax (VAT) is an indirect tax levied on the value added at different stages of production or value addition. Value added is the difference between the value of output and the value of intermediate consumption.
• Goods and Services Tax (GST) was conceptualized as a tax that would absorb all indirect taxes, including custom duties, at both the central and state levels, creating a Unified Indirect Tax (UIT) for the entire country. This tax aims to establish a common domestic market, eliminate multiple taxes, mitigate the cascading impact of tax on tax, enhance the competitiveness of Indian products, and ultimately benefit end consumers.
• General Anti-Avoidance Rules (GAAR) is integrated into the direct tax code as a crucial provision of direct tax policy. Its purpose is to prevent the misuse and abuse of tax policies and counter planned tax avoidance schemes.
• Inflation refers to the overall increase in the price level in the country over a period. Inflation coincides with a rise in the money supply, leading to a reduction in the purchasing power of money.
• Deflation, on the other hand, signifies a general decline in prices, often triggered by a reduction in the money or credit supply. It can result from decreased government, personal, or investment spending.
• Demand-pull Inflation, the most prevalent type, arises from increased demand due to elevated private and government spending.
• Cost-push Inflation occurs due to reduced supplies caused by increased input prices, such as a global increase in crude prices leading to supply constraints and higher production costs, subsequently resulting in higher prices.
• Various indexes, mainly the Consumer Price Index (CPI) and Wholesale Price Index (WPI), are employed in India to measure the inflation rate.

Foreign Trades

• Since gaining independence, India’s Foreign Trade (IFT) has exhibited cumulative advancements in both quality and quantity, yet the Indian share in the total world trade has consistently remained notably low.
• The proportion of total foreign trade (exports + imports) to GDP is a common indicator of an economy’s level of openness. Therefore, a more open economy engages in increased trade.
• A Special Economic Zone (SEZ) is a designated geographical area with economic and regulatory conditions conducive to free-market activities, deviating from the country’s typical national laws. Asia’s inaugural export processing zone was established in Kandla in 1965. The first SEZ policy was introduced in April 2000, with the aim of making SEZ an engine of growth supported by modern infrastructure and attractive fiscal incentives. The SEZ Act of 2005 came into effect on February 10, 2006.
• Balance of Payments (BoP) serves as a comprehensive statement reflecting a country’s economic transactions with the rest of the world over a specific period, typically a year. BoP encompasses the current account, capital account, errors and omissions, and changes in Foreign Exchange Reserves (FER).
• The Current Account records the inflow and outflow of goods and services, as well as transfer payments, providing a snapshot of a country’s economic engagement with the world.
• The Capital Account documents transactions causing a change in the asset or liability status between residents of a country and the rest of the world.
• Foreign Direct Investment (FDI) denotes an investment in a foreign country through acquiring a local company or establishing a new operation on a greenfield site. (UPSC 2011)
• The new five-year Foreign Trade Policy for 2015-2020 has been unveiled, emphasizing support for both the manufacturing and services sectors, with a particular focus on enhancing the ease of doing business in alignment with the Prime Minister’s Make in India Vision.
• The ‘Ease of Doing Business Index,’ as reported by the World Bank in its Ease of Doing Business Report, influences global perceptions of business-friendly environments.(UPSC 2016)
• Numerous local and foreign companies operating in India are taking advantage of India’s Production-Linked Incentive (PLI) scheme. (UPSC 2023)

International Organisations 

• The World Bank Network (WBN) is a consortium that extends leveraged loans primarily to impoverished nations. Established on December 27, 1945, following the global ratification of the Bretton Woods Agreements, the World Bank comprises five agencies: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Centre for Settlement of Investment Disputes (ICSID), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). (UPSC 1995)
• The International Bank for Reconstruction and Development (IBRD) was founded in 1944 with the aim of aiding Europe’s recovery from World War II. Specifically, IBRD supports long-term human and social development needs that private creditors typically do not finance, while also safeguarding the financial strength of borrowers by providing assistance during crisis periods.
• The International Development Association (IDA), established in 1965, is an integral part of the World Bank and serves as one of the largest sources of assistance for the 81 poorest countries globally. IDA extends loans on concessional terms, meaning it charges minimal or no interest, and repayment periods are extended over 25 to 40 years.
• The International Monetary Fund (IMF), formed in July 1944 during a conference of 44 nations at Bretton Woods, currently boasts 190 member nations and is headquartered in Washington, DC, USA. As an intergovernmental organization, the IMF oversees the Global Financial System by monitoring the macroeconomic policies of its member countries, especially those impacting exchange rates and the Balance of Payments (BOP). India is a founding member of the IMF.
• The Gold Tranche (Reserve Tranche) pertains to the accreditation system granted by the IMF to its members. (UPSC 2011)
• The General Agreement on Tariffs and Trade (GATT), established in 1947 by 23 countries, aims to create a free and equitable international trading zone among member countries by dismantling trade barriers such as tariffs or non-tariff restrictions like quotas. GATT officially came into existence in 1948.
• The Organisation for Economic Cooperation and Development (OECD), an international economic organization consisting of 34 countries, was established in 1961 with the goal of promoting world trade and fostering economic progress. Its headquarters are situated in Paris, France.
• The United Nations Conference on Trade and Development (UNCTAD) became a permanent intergovernmental body in 1964.
• The Asian Development Bank (ADB), formed in 1966 with the collaboration of 67 nations, has its headquarters in Manila. The Association of South-East Asian Nations (ASEAN), founded on August 8, 1967, in Bangkok, currently boasts ten member states. ASEAN’s objective is to enhance economic growth, social progress, and cultural development in the region through collaborative efforts, fostering equality and partnership to build a prosperous and peaceful community of South-East Asian Nations.
• The Asia Pacific Economic Cooperation (APEC), established in 1989, serves as the primary forum for promoting economic growth, cooperation, trade, and investment in the Asia-Pacific region. Its headquarters are located in Singapore.
• BRICS, composed of Brazil, Russia, India, China, and South Africa, is a group of five developing countries whose combined GDP represents 25% of the global GDP.
• The World Trade Organisation (WTO) came into existence in 1995 as a result of the GATT’s Uruguay round of negotiations. It is the sole global international organisation dedicated to regulating trade rules between nations.
• The Group of Twenty (G-20), formed in 1999, brings together systematically important industrialized and developing economies, including the European Union and 19 countries, to discuss key issues impacting the global economy.
• The New Development Bank (NDB), formerly known as the BRICS Development Bank, operates as a multilateral development bank under the stewardship of BRICS states (Brazil, Russia, India, China, and South Africa). It serves as an alternative to the existing American and European-dominated World Bank and International Monetary Fund (IMF).

Frequently Asked Questions (FAQs)

1. Question: What are the key features of India’s Goods and Services Tax (GST) regime?

• Answer:
  • GST is a comprehensive indirect tax levied on the supply of goods and services.
  • It replaced multiple indirect taxes such as VAT, service tax, and excise duty.
  • The GST Council, consisting of representatives from the center and states, decides tax rates.
  • It has a dual structure with both central and state components.

2. Question: Explain the concept of fiscal deficit and its impact on the Indian economy.

• Answer:
  • Fiscal deficit is the difference between total revenue and total expenditure of the government.
  • It indicates the borrowing requirements of the government.
  • A high fiscal deficit may lead to inflation and can have adverse effects on the economy.
  • It reflects the government’s fiscal discipline and its ability to meet financial obligations.

3. Question: How does the Monetary Policy Committee (MPC) influence the Indian economy?

• Answer:
  • MPC is responsible for formulating and implementing monetary policy in India.
  • It determines the repo rate, which affects interest rates in the economy.
  • Changes in interest rates impact inflation, economic growth, and investment.
  • The MPC aims to maintain price stability while supporting economic growth.

4. Question: Discuss the role of agriculture in the Indian economy and the challenges faced by the agricultural sector.

• Answer:
  • Agriculture is a significant contributor to India’s GDP and a source of livelihood for a large population.
  • Challenges include fragmented land holdings, inadequate infrastructure, and dependence on monsoons.
  • Initiatives like PM-KISAN and reforms like the Farm Acts aim to address these challenges.
  • Sustainable agricultural practices and technology adoption are crucial for growth.

5. Question: How does India’s trade balance impact its economy, and what measures can be taken to improve it?

• Answer:
  • Trade balance is the difference between exports and imports.
  • A trade deficit occurs when imports exceed exports, impacting the current account balance.
  • Promoting exports, reducing import dependency, and improving trade infrastructure can address the trade imbalance.
  • Trade policies and international collaborations play a crucial role in shaping the trade balance.

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