|





|

 |

 

 

 Total money value of all final goods & services

manufactured within the country in one year.
 Annual value of goods sold and services paid for inside a
country.
 
 |

 ominal GDP measures the value of all the goods and

services produced and expressed at current prices.
 Real GDP measures the value of all the goods and
services produced expressed at the prices of some base
year.
  
  |

 GDP at Constant Prices

 GDP at Current Prices

 

 

  
 

|



 |


 GP = GDP + Income accruing to domestic residents

from investments abroad ± income earned by foreigners
in the country.
 Annual value of goods and services in a country including
income from other countries.
 



 Ôum of total incomes of normal residents of a country

before deduction of direct taxes.
 To calculate total income, add all payments for the use of
factors of production, like wages, salaries, profits & net
income from abroad.

 


  

 Income per head =
u
 

 Average income of one person

  

 6xcess Demand in the economy
 High costs
 Increase in money supply
 More money chasing fewer goods
 Rise in prices, purchasing power of money decreases
 High interest rates tend to increase inflation
 Zimbabwe classic case of gallopping inflation currency
scrapped
   





 

 Consumption expenditure required for getting 2100
calories per person in urban area and 2400 calories in
rural areas.
 Arjun Ôen Gupta panel estimates poverty to be 70%+
 Key parameters
 o. of people BPL
 % of population BPL

 Orissa highest percentage of BPL population

 Ôome poverty zones are BIMARU and the KBK belt in
Orissa.
   





 

 The BPL percentage in India differs according to the
methodology adopted
 Latest estimate of Tendulkar panel is that 8.03 crore
families and 37.2% of the population are BPL
 ew poverty index Multi-Dimensional Index (MDI)
developed by Oxford HDI Group
 To sum up poverty estimates show wide variation
from about 21% to 70% plus
   



!
M
 M
  



 
 Developed by UDP in 1996
 Measures physical quality of life in a country along
with 3 key parameters
 Life expectancy at birth
 o. of years in school
 Per capita income
 HDI 2009 ± India at 134 (182 countries ranked)
 HDI 2009 o.1 is orway
 iger ranked at 182
   



"
ü
 ü
    

 
 Measures increase/decrease in industrial, commercial
prices of commodities under 3 broad categories
 Primary articles ± 98 items
 Fuel, power etc. ± 19 items
 Manufactured products ± 318 items
 Certain weightage to each category of commodities
   



#
ü



 Base year ± 1993-94
 Used for calculating IFLATIO
 PI no longer a true indicator of inflation as it may not
reflect ground reality
 The basket of commodities may be outdated
 ew series introduced from April 01, 2000
 435 commodities in the new series; as against 447 in
the old series
   



$

 

   

 
 Calculates increase / decrease in retail price
 Direct bearing on consumers
 Different types of CPIs for
 agricultural laborers
 industrial workers
 urban non-manual employee
*
     *
 FDI supplements domestic investment

 The investment made to acquire long term benefits in

enterprises operating outside the economy of the investor

 The FDI relationship consists of a parent enterprise and a

foreign affiliate which together form a transnational
corporation

 Mauritius, Ôingapore and UÔA are the three biggest

sources of FDI

 FDI involves bringing scarce capital, technology and

managerial expertise
*
     *
 FDI creates jobs
 FDI barred at present in retail trading except single brand
product retailing
 FDI restricted to 26% in print media relating to news and
current affairs
 FDI restricted to 26% in insurance and defence
 FDI 74% in banking
*
  
 
*
 FII means an entity established or incorporated outside
India which proposes to make investment in the financial
markets in India

 FII is not stable money

 Unlike FDI the focus of FII is on making quick profits

 Rapid inflows and outflows of FII can create instability in

financial markets
 
 


    

Real interest rate =

ominal interest rate ± rate of inflation
D  

% & ' 

 CRR Minimum 3%, Maximum 15%
 ÔLR Minimum 24%, Maximum 40%
 Cash Reserve Ratio (CRR) - 6%
 Ôtatutory Liquidity Ratio (ÔLR) - 25%
 Bank Rate - 6%
 Repo Rate - 6%
 Reverse Repo Rate - 5%
 Bank Rate is for a longer period say 6 months to one year
D  

% & ' 

 Repo and reverse repo rates are for the short term. They
are used to either increase money supply or mop up
excess liquidity
 Repo and reverse repo have now assumed more
importance than BR
 PLR is benchmark rate
 Concept of BPLR (below PLR) under scrutiny
 Under BPLR banks lent to corporates at very low rates
that is below PLR while charging priority sector borrowers
above PLR. An element of cross subsidy by the poor /
middleclass of the rich
D  

% & ' 
!
 Majority of Banks lending was under BPLR
 Base rate concept introduced from July 01, 2010
 Base rate system to ensure more transparency
 o lending below base rate except certain schemes like
DIR
 Capital adequacy ratio - minimum 9%
 CAR is creating a capital buffer against different types of
risks like loans
 *
(
 6xchange control
 Fixed 6xchange rates
 Free / Floating exchange rates
 Depreciation / appreciation
 Devaluation
 India¶s forex reserves more than $283.46 billion invested
mostly in low yielding U.Ô. securities
 Countries like China and India are financing consumption
in the U.Ô.
 China ± largest forex reserves in the world more than
$1 trillion
 Ôovereign ealth Funds are managing forex reserves like
Temasek of Ôingapore

 ) 

 
 


 An exchange rate between two currencies such that the
same basket of goods and services could be bought in
each country if the cost were converted at that exchange
rate.

 It is often used to compare the standards of living between

countries.

 Rate of exchange between two countries determined by

comparing respective internal price levels.
   *+
 ,
 Free flow for purposes other than for capital purchases and
loans
 6xports
 Imports
 Travel
 Ôtudy abroad
 Medical treatment
 6mployment abroad
 Gifts
 Consultancy
 Intl. credit cards
 *+
 ,
 The freedom to convert local financial assets into foreign
financial assets & vice versa at market determined rates of
exchange
 Indicator of a developed economy
 Gives confidence to investors
 However, leaves the country at risk
 Tarapore Committee 1997
 Fiscal consolidation ± low inflation
 Financial sector reforms
 3(

  
Direct incidence of tax on the person who pays the tax. liability
to pay tax is OT passed on to someone else. e.g. Income Tax,
Corporation Tax, ealth Tax, Land Revenue, Gift Tax etc«.



  
Levied on goods and services. Traders / producers pay it.
Liability passed on to end customer. e.g. Vat, 6xcise Tax,
Customs Duty, Ôervice Tax«
 ew Tax on Goods and Ôervices (TGÔ) proposed to be
implemented from April 01, 2011
 ew Tax code proposed to replace Income Tax Act 1961.
Proposed to be implemented from April 01, 2011
 Tax reforms aim is to widen tax base and ensure more
compliance
 ',
 Grants to suppliers of goods and services
 Used to keep consumer prices down (LPG & Kerosene, PDÔ
to BPL)
 To prop up production (farm and fertilizer subsidies)
 To boost exports
 To lower cost (tax subsidies)
 To improve infrastructure
 Meet social obligations (subsidy on food, education)
 Cross subsidies (petroleum products)
 Cross subsidies in Banking through concept of Below PLR
loans (BPLR)
 ow base rate concept to correct such distortions
 LPG subsidy aimed at middle class
 ',
 Kerosene and PDÔ subsidy aimed at poor
 Rationalisation of subsidies needed like subsidies for solar
lamps instead of kerosene
 Food subsidy ± `32,667 cr.
 Fertilizer subsidy ± `30,986 cr.
 Kerosene & LPG ± `30,000 cr.
 Politically and socially sensitive issue
 LPG subsidy aimed at the middle class
 Interest subsidy on crop loans
 6conomic Ôurvey 2010-11 favours ³coupon rather than cash´
route for fertilizer and food subsidies
 6conomic Ôurvey 2010-11 asks Govt. to move to a system of
direct transfer of subsidies for a targeted population
 
' 

 Coal
 Cement
 Power
 Ôteel
 Petroleum
 Petroleum refinery products
   
 1991-92 to July 2007
 Target ± `96,800 cr.
 Achievement ± `51,608 cr.
 Budget 2010-11 proposes to raise `40,000 cr. from
disinvestment
 6conomic Ôurvey 2008-09 talks of raising `25,000 cr. every
year from disinvestment
 Issues
 Loss making units
 Ôocial responsibility
 Method ± Public issue, strategic sale
 Valuation
 Creating monopolies ± (IPCL, VÔL)
 Job loss
 Loss of govt. control
   
 Ministry of Disinvestment formed by DA Govt Abolished by
UPA Govt
 Present policy is to opt for the IPO model of disinvestment
rather than outright sale
 Minimum Govt stake in PÔU¶s to be 51%
 ational Investment Fund created to pool disinvestment
proceeds
 Focus on investment rather than disinvestment
 Investment Commission formed
 Ôome prominent disinvestments are BALCO in 2001 and
Hindustan Zinc Ltd in 2001-02 and VÔL in 2001
 Current polices: Disinvestment to be used sparingly
 Global financial trends do not favour disinvestment
      
 Transport ± Railways, roads, shipping, civil aviation
 Communication ± Telecom, P&T 6nergy ± 6lectricity, Oil,
coal, non-conventional sources
 Ôcience & Technology
 Banking, finance and insurance
 Ôocial infrastructure ± education, health
 India lags behind China in development of infrastructure
 Top priority for creation of infrastructure
 Amartya Ôen¶s analysis is that India has neglected social
infrastructure
      
 Delhi Mumbai Industrial Corridor (DMIC) in 2008 with
Japan¶s assistance
 Aim is to create state-of-the art infrastructure to activate
local commerce
 Petroleum Chemical Petrochemical Investment Regions
(PCPIR) proposed in 2007

 
 Product patents
 Process patents
 Patents Act, 1970
 Generic Drugs ± $80 bn worth
 Reverse 6ngg.
 Huge opportunity
 Compulsory Licensing in emergencies
 India has created a digital data base of traditional knowledge
of healing systems like Yoga, Ayurveda, Unani and Ôiddha
and registered with 6uropean Patent Office (6PO)
 Frivolous patents granted in estern countries for traditional
Indian products like neem, turmeric and even for Yoga

 
 Geographical Indication (GI) is a patent associated with a
region
6x: Kalamkari Art, Darjeeling Tea, Coorg Coffee latest
Tirupati Laddu
 Mashelkar committee on patents
 The patent regime of TO can be overlooked in times of
medical emergencies like Ôwine Flu
 ''
ë
 
   
Micro 25 lakhs 10 lakhs
Ômall 25 lac - 5 cr 10 lac - 2 cr
Medium 5-10 cr 2-5 cr

 128.44 lakh units

 Turnover ± `4,97,842 cr.
 6mploys 312.52 lakh people
 6xports worth `86,013 cr.

  


 Tariff Barriers
 on-Tariff Barriers
 3 %  
 Customs Duty
 Countervailing Duty
 Anti-dumping duty
 Transit duty
 Cess
 Additional duties or surcharges
 
 %  
 Health, Ôafety regulations
 Quality norms (IÔO & 6 standards, FDA, C6 mark)
 Quarantine laws
 Local subsidies
 Channelised imports through governmental agencies
(eg: sugar imports through ÔTC)
 Licencing policy
 Quota restrictions
 Import bans
 Cumbersome Customs procedures
 * 

 
The government¶s policy of achieving economic objectives
(employment, per capita income«) through government
earning and spending related to increase or decrease in
taxes.
Government sources of funds : Taxes and duties,
government businesses,
fines, borrowing
from public, investments
Government uses of funds : Infrastructure, mining,
public welfare,
defense, power generation,
research &
development
 ë
 

 
The government¶s policy of achieving economic objectives
(employment, per capita income, balance of trade, economic
parity«) by controlling money supply through instrument like
interest rates
Decrease in supply : Deflation or decrease in prices
Increase in supply : Inflation or increase in prices
Monetary policy intimately connected to RBI¶s policies
 Hyper Inflation
 Ôtagflation
 Deflation
 Reflation
 Highest inflation in world is in Zimbabwe
 Currency made worthless due to inflation
 *  

)
 Indication of economy doing well
 Importers & borrowers in forex are happy
 Domestic consumers are happy
 Interest on government borrowings come down
 Companies with forex loans will gain
 Debt of the government decreases
 Lowers inflation rate
 6xporters are hit
 Margins erode
 Producers have to cut costs
 Indian rupee has now a symbol, joins select band of
dollar, pound, euro and yen
 *   
 Contributes about 22% to GDP
 60% of area sown dependent on rainfall
 65 to 70% of population dependent on agriculture
 233.88 mt foodgrain production in 2008-09
 ational Food Ôecurity Mission launched to enhance
production of rice wheat and pulses
 India second highest producer of fruits and vegetables in
world
 Largest producer of milk in the world
 India is home of spices-largest producer, consumer and
exporter of spices
 India largest producer of cashewnuts and basmati rice
 *   
 ational Horticultural Mission 2005
 ational Project for Organic Farming 2004
 India has largest livestock population in world
 Govt. puts on hold the introduction of GM Brinjal
 Debate on GM crops ± Are they safe ± will it lead to a
monopoly by MCs
 ational Fisheries Development Board set up in
Hyderabad
 Focus now on contract farming, modern terminal markets,
growing of horticulture and medicinal / aromatic plants
 60,000 oilseeds and pulses villages in rail fed areas in
2010-11 ± `300 crore allocation
   
 Coal main source of energy (67%)
 Installed power capacity is 149,391.91 M as of May 31,
2009.
 6lectricity Act 2003 ± Ô6RC¶s formed
 Coal based Ultra Mega Power Projects
 (UMPP) of 4000 M each
 ational Ôolar Mission launched on ovember 14, 2009
 uclear energy to be key for India¶s quest for energy
security. Hence 123 pact.
 uclear energy at present contributes 3 to 4% to total
energy pie.
 India to emerge as a global solar power 20,000 M by
2022.
 ë  

 India a services sector led economy defies conventional logic
 Conventional model is transition from manufacturing to
services
 India is services sector led but still predominantly rural
 Manufacturing and infrastructure are top priorities of the
Government
 Among infrastructure, social infrastructure is a very vital area
 India 2nd largest mobile network in world (about 525 million
users)
 Disinvestment of sick PÔU¶s and profit making PÔU¶s is
needed to generate huge funds for infrastructure, specially
social infrastructure
 ë  

 Ôecond generation economic reforms needed in power,
agriculture, legal sector and financial sector
 Massive transfer of population needed away from
unproductive agriculture to other sectors like services and
manufacturing is conventional thinking
 PURA a programme aims at providing connectivities
without transfer of population
 Competition Commission of India an anti-monopoly body
becomes operational in May 2009
 Ôavings 32.5% and 34.9 investment of GDP ± Gross Fiscal
deficit 6.5% of GDP



 UPA-II in May 2009. Congress 206 seats
 Trinamul Congress second largest component of UPA
 Highest tally contributed to DA by Karnataka ± Gateway
of Ôouth
 Left Front humbled in est Bengal
 Agatha Ôangma-youngest Union Cabinet Minister, Age 28
years
 Ôhashi Tharoor ws MOÔ 6xternal affairs ± quits on IPL
issue and sweat equity
 Meira Kumar first woman to be the Lok Ôabha Ôpeaker



 Ôushma Ôwaraj and Arun Jaitley leaders of opposition in
Lok Ôabha and Rajya Ôabha
 Oldest Cabinet Minister ÔM Krishna age 77 years
 DMK third largest component in UPA
 ÔP, BÔP not part of UPA or DA
 Justice Ôirpurkar Panel on Justice Dinakaran
  -- ) 3
 
 8,3000 sq. km of India claimed by China
 China objects to ADB¶s loan to Arunachal Pradesh
 Arunachal regarded by China as ³Ôouthern Tibet´
 China objects to Dalai Lama¶s and Manmohan Ôinghs visits to
Tawang
 India bans Chinese mobiles, dairy products and toys
 China says Agni-V can target most of China
 The two fastest growing economies in the world are China and
India
 India is the world¶s largest democracy and China is the world¶s
largest ³free-market´ and politically regimented country
 After Arunachal China disputes Jammu and Kashmir¶s
accession to India
 * 
 Vandana Ôhiva Ôydney Peace Prize in 2010
 Howard Jacobson wins 2010 Man Booker Prize
 Liu Xiaobo 2010 obel Peace Prize Chinese human
rights activist - in jail like Aung Ôan Ôuu Kyi - associated
with Charter 2008 - charter of human rights
 Vargas Llosa 2010 obel Prize for Literature
 Peter Diamond, Dale Mortensen and Christopher
Pissarides, obel Prize 6conomics for 2010
 Venkatraman Ramakrishnan wins obel Prize for
Chemistry for 2009
 Robert 6dwards, obel Medicine 2010
 D. Ramanaidu, Phalke Award 2009 - awarded in 2010
 % +


% +


 Parthasarathi Ôhome to head Indian Council of Research
of International 6conomic Relations (ICRI6R)
 According to orld Ôteel Association report of August
2010 India is the 4th largest steel producer in the world
 According to Global Governance 2025 report of U.Ô.
ational Intelligence Council and 6U¶s Institute for
Ôecurity Ôtudies India 3rd most powerful nation in world
after U.Ô. and China
 Banker Magazine¶s 2010 Innovation Award in Banking
Technology to ÔBI for project on Green ATM installation
 Jerome Kerviel a trader involved in the more than 4 billion
pounds scam in French bank Ôociete Generale convicted
 % +


% +


 RBI to introduce Cheque Truncation Ôystem (CTÔ) for
clearing of cheques
 The Mahatma Gandhi ational Rural 6mployment
Guarantee Ôcheme to be monitored by Central 6mployment
Guarantee Council and Ministry of Rural Development
 According to orld Investment prospects 2010-2012 China,
India and U.Ô. top three FDI destinations
 HÔBC Holdings Chairman Ôtephen Green to quit to join as
Minister of Ôtate for Trade and Investment in UK Cabinet
 International Financial Reporting Ôtandards (IFRÔ) to be
introduced in India from April 2011
 '

 Rio De Janiero 2016 Olympics
 2014 FIFA orld Cup in Brazil
 2011 orld Cup Cricket; India, Ôri Lanka and Bangladesh
 Australia win 74 Gold medals followed by India in 38 in
Commonwealth Games
 ICC Test Cricketer of Year 2010 is Virendra Ôehwag
 Ôhunglu Committee to probe Commonwealth Games
scam
 ICC Cricketer of Year 2010 is Ôachin Tendulkar
 Inaugural Youth Olympics in Ôingapore in 2010
 ë  

 Ôovereign debt default crisis in 6urope ± PIGÔ countries
affected
 Pranab Mukherjee and P. Chaidambaram unveil proposal
for a new Tax Code
 andan ilekani appointed chief of the Unique
Identification Authority
 C. Rangarajan is reappointed chairman of PM¶s
6conomic Advisory Council
 Barack Obama is youngest American president to win
obel Peace Prize
 Michelle Bachelet appointed Chief of U omen
 Aafia Ôiddiqui Pakistan neuro-scientist convicted for
collaborating with Al-Qaeda
 ë  

 Michele Obama most powerful woman in the world,
according to Forbes
 6TA a terrorist organization working for Ôpanish
homeland declares ceasefire in Ôeptember 2010
 P.J. Thomas new CVC ± controversy over appointment
 Lee Kun Hee former head of Ôamsung given five year
suspended jail sentence and a fine of $110 million
imposed
 ew CRPF Chief K. Vijay Kumar
 Anand Ôatyanand Governor General of ew Zealand in
limelight
 ë  

 6nvironmental clearance for bauxite mining in iyamgir Hills
Orissa for Vedanta Project cancelled
 Telecom rural penetration only 13% in India
 Ôwiss luxury goods giant Mont Blanc adopts Mahatma Gandhi
as brand ambassador for its `14 lakh pen later apologises
 ÔKÔ first MFI in India to issue IPO
 Current capacity of nuclear power in India is 4000 M
 Pranab Ôen Committee on slums suggests a new definition of a
slum
 Madhu Koda becomes first ex-chief minister to be charged
under PMLA
 UDI project launched at Tembhli village in Maharashtra
 Much acclaimed judicial verdict on Ayodhya ± opens up a
window for reconciliation
 he material given in the slides is indicative of where the focus of
preparation for the exam should be. The aspirant should use these
as probes for building knowledge base required for the exam.