indian economy

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INDIAN ECONOMY

Indian economy has been characterized as a developing economy. India is rich in natural resources

and has abundant manpower, but these resources have not yet been fully exploited. The British

rules had tried to convert India into a market for British manufactured goods by destroying India’s

indigenous industries and making India a source of food and raw materials for the West. Dadabhai

Naoroji had pointed out as early as 1876, that the drain of wealth and capital from India had been

mainly responsible for its underdevelopment. Details of Naoroji’s ideas are found in his famous

work Poverty and Un British Rule in India.

Types of World Economies

Socialist Economy-Government role is absolute is Economic activities.

Capitalist Economy-Private sector plays a leading role and State role complementary.

Mixed Economy-Combination of Capitalist & Socialist Economies.

Types of Competitive markets

Perfect Competition :In this market there are large number of buyers and sellers.

Monopolistic Competition:Number of manufacturers are limited. Market is responsive to changes.

Oligopoly Competition : Only a few sellers produce large number of products.

Monopoly Competition :In this market a single producer or seller controls entire market.

National Income can be defined as the money equivalent of the volume of goods and services

counted without duplication i.e., the money value of all the final goods and services, during an

accounting year.

National income Estimation Concepts National Income Concepts

1) Gross Domestic product (GDP)

2) Gross National product (GNP

3) Net national product (NNP)

1) Gross Domestic Product (GDP)

GDP is the total money value of all final goods and services produced within the geographical

boundaries of a country, during a given period.

GDP= C + I + G (C= Consumer Exp; I= Invest Exp ;G= Govt Exp)

2) Gross National Product (GNP)

GNP refers the money value of total output or production of final goods & services produced by

national of a country, in a year, to be included to the money value of goods & services

produced by nationals outside the country.

GNP = GDP + Net Foreign Income {(X-M) + (R-P)}

3) Net National Income

1. NATIONAL INCOME

INTRODUCTION





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NNP is the total domestic and foreign Income after deducting the depreciation.

NNP = GNP-Depreciation

N.I is calculated based on 2 costs/prices- Market Prices and Factors cost.

Market prices means the prices of that a particular current financial year.

Constant prices means prices of a particular past year called base year.

So far 5 times the base year was changed.

1960-61 1980-81 1970-71 1993-94

1999-2000 2004-05 (Its latest base yr. to calculate N.I)

Per Capita Income Per capita Income is calculated as: NNP at Factors Cost

Total Population of the country

National Income calculation methods 1) Product Method- also called as Inventory/Value Added/Net Product/Industrial origin method.

In this method, Net value of final goods and services produced in a country, in a year is

obtained.The total obtained value is called as Total final product.

Income Method

In this method, a total net income earned by working people in different sectors &

commercial Enterprises are obtained.(N.I = Total rent + Wages + Interest + Profit)

Expenditure Method

It is also called as consumption method / Saving method.

Hence, N.I is the addition of total consumption and total savings.

National Income Estimates in India 1876 -D.R.Nauroji for the 1

st time estimated India’s N.I for the year 1867-68. According to his

estimates India’s N.I in 1867-68 was Rs.340 cr. and Per capita income was Rs.20/-.

1925-29-V.K.R.V.Rao estimated N.I. in a systematic manner. He mentioned India’s N.I in his

books “An essay on India’s N.I”. He used Product and Income methods to estimate

National Income. At present India following the same methods.

1931-40-R.C.Desai wrote “Consumer Expenditure in India” and mentioned N.I. in his book. He

estimated N.I based on expenditure of the families.

1950 -The National Sample Survey (NSS) came into being in 1950.

1961 -Dept. of Statistics was set up in the Cabinet Secretariat and the CSO became a part of it.

1999 - Ministry of Statistics and Programme Implementation (MoS&PI) was established.

2006 -National Statistical Commission (NSC) was established.

Human Development Index (HDI)

Human Development Index (HDI) is the search for alternative to Gross national product (GNP)

as a measure of Economic Development has led to computation of HDI.

United Nations Development (UNDP) introduced the HDI in its first Human Development

Report (HDR).

HDR draft prepared by Mahabub-Ul-Haq of Pakistan and published in 1990.

UNDP - HDI





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From 1990 onwards UNDP taking 200 issues as measures, designed under 33 tables and

publishing HDI of various countries. Out of them the most important issues are

Per Capita Income Literacy Rate Infant Mortality rate Health Facilities

Equality of Men & Women Nutrition Life Span Gender Difference

The nature and scope of planning is largely determined by the type of economic system within

which, it is practiced. Planning in India derives its objectives and social p remises from Directive

Principles of State Policy enshrined in the constitution.

TYPES OF PLANS

Economic / Imperative Planning- Coordinated action to be or taken by the government.

Indicative Planning- Govt. set the broad Targets and private sector is directed to achieve them.

Rolling Plans- Leaving previous year achievements, present year targets are added.

Annual Plans- Its targets period is one year.

Perspective Planning- Plan for a period of 15-20 yrs.It is operationalised through 5 year plans.

Historical Perspective of Planning

1934 :1st Plan draft for India prepared by Mokshagundam Visweswarayya for 10 years period

in his book “Planned Economy for India”.

1943 :“ Bombay Plan” prepared by some 8 industrialists.

1944 :“Gandhian Plan” prepared by “Srimannarayan Agarwal”.

1945 :“Peoples Plan” prepared by M.N.Roy

1950 :“Sarvodaya Plan” Prepared by Jayaprakash Narayana.

1950 : Panning Commission was establish.

It is a Non-constitutional or Extra-constitutional body.

P.Cs main function is to prepare plan drafts & implementation of plans.

It Consists PM as chairman, by chairman & other members.

1952 : National Development Council (NDC) was established.

It was established on 6th

August, 1952.

It is a Non-constitutional body. It approves plans.

I FIVE YEAR PLAN (1951-56)

First five year plan was prepared by - Moksahgundam visweswarayya

Objective: The first plan accorded highest priority to Agriculture sector.

Target Allotments

Target was 2.1% of GDP. Achievement was 3.5% of GDP

Achievements

Bakranangal (on Sutlez), Hirakud (Mahanadi), Damodar (series of plans) and Nagarjuna

Sagar projects were started.

Sindri Fertilisers (Jharkhand) Chittaranjan rail engines locomotive (WB) were started.

Hindustan cables company (Durgapur, WB) and Hindustan Machine Tools

(HMT),Karnataka were started.

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Hindustan Shipyard Limited (vizag) was started. The 1st ship built by Hindustan Shipyard

was Jala usha).

II FIVE YEAR PLAN (1956-61)

It was Prepared by Prof. P.C.Mahalanobis (Director of Indian Statistical Institute, Calcutta.

This plan is based an the model of Mahalanobis, Nehru Model.

Objectives- Importance given to Industrial sector

Targets & Achievements - Target was 4.5% of GDP. Achievement was 4.21%

Bhilai Steel plant in MP, Rourkela Steel plant in Orissa

Durgapur Steel plant in West Bengal Heavy Engineering plant in Bihar.

Lignite corporation Steel Plant-Neiveli(TN) Integral coach Factory-Perumbur(TN)

Reasons for failure

1957-58 Unfavourable monsoons

1959-60 Slow progress in improved seeds, use of fertilizers & irrigation

High priority given to Industrial sector.

III FIVE YEAR PLAN (1961-66)

This plan was prepared by Ashok Mehata, Pitamberseth.

Objectives

The basic aim of this plan was to make India a ‘self reliant and self generating’ economy.

Importance given to Agriculture and Industrial sector.

Target & Allotments

Target :5.6%. Achieved was 2.72%

Reasons for failure

1962- Chinese aggression (Growth investment became Defence investment)

1965- Indo Pak war, Failure of Monsoons (65-66) except 1964-65

INTERIM PLANS (1966-69) The miserable failure of the Third Plan forced the Government to post-phone the plan for some

period. That is why its also called as Plan Holiday.

IV FIVE YEAR PLAN (1969-74) This plan prepared by D.R.Gadgil. That’s why its Called as Gadgil Formula.

Objectives- was ‘growth with stability’.

Targets & Allotments- Target : 5.7%. Achievement : 2.05%

Reasons for failure

Indo-Pak was in 1971 and Inflation

V FIVE YEAR PLAN (1974-79)

Objectives- 2 principal objectives ‘removal of poverty’ & ‘Attainment of self – reliance’.

This plan completely concentrated on the Removable of Poverty.

To fight against poverty Indira Gandhi introduced

20 points programme

Mini needs programme

Food for works programme

Mahalanobis Growth model and prepared a draft towards social Justice by D.P.Dhar.

Targets & Allotments

Target was 4.4%. Achievement was 4.83%





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However, Janata Government terminated this plan in 1978.

Rolling Plans (1978-80)

5th plan was cancelled by the Janta government in 1978 itself.

Rolling plan concept proposed by Gunnar Mirdak (Sweden) in his "Asian Drama".

In this plan Tiny and SSIs (Smell Scale Industries) were given importance.

VI FIVE YEAR PLAN (1980-85)

The basic objective of the Sixth Plan was Removal of poverty.

Objectives -Speedy development of indigenous sources of energy, Controlling the population

growth, Reduce the poverty and unemployment, Reduce regional inequalities

Targets and allotments

Target was 5.2% Achievement 5.7%.

VII FIVE YEAR PLAN (1985-90)

Importance- Mixed economy can be seen, This plan laid foundation for Privitisation

Objectives- Basic tenants of this plan is "Growth, Modernism, self-reliance and social justice”.

To reduce social and economic inequalities.

Targets and allotments- Target - 5% PA ; Achieved - 6.02%

Negative features of VII plan

Balance of payments (BOP) were bad

Deficit of Rs 29,000 cr was more than double the target of 14,000 cr

PLAN BREAK (1990-92)

Reasons

Political un-stability in USSR and India

Economic depression took place. High inflation ( 16.7%)

Deficit of foreign exchange results.

Due to this reasons 5 year plans stopped and annual plans were introduced.

VIII FIVE YEAR PLAN (1992-97)

Liberalization, Privatization and Globalizastion (LPG) was introduced by Manmohan singh

in this plan. That’s why it is called as Manmohan plan

Importance- Human resource development (HRD) main focus of planning

Objectives/Priorities

Basic tenants of this plan is "Growth, Modernism, self-reliance and social justice”.

Targets and allotments- Growth target was 5.6%. Achievement was 6.68%.

IX FIVE YEAR PLAN (1997-2002)

Objective -The focus of the plan is “Growth with Social Justice and Equity”.

Priority to agriculture and rural development

Targets & Allotments

Target was 6.5%. Achievement was 5.35%

This plan was failed to achieve its target- Reasond.

Floods in Orissa (2000)

Earth quake in Bhuj (2001,Jan 26th)





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Economic crisis in Asian Countries

Kargil war (1999)

Economic restrictions due to nuclearTest.

X FIVE YEAR PLAN (2002-2007)

Main Objective of this plan is “Regional approach than sectorial approach”

Vision- 2020 draft prepared by Syam Prasad Gupta.

Targets & Allotments-Target was 8%. Achievement was 7.8%

XI FIVE YEAR PLAN (2007-12)

The main objective of Eleventh plan is Faster and more inclusive growth

Targets of XI Plan- Growth Rate targeted as 9%.

Total outlay of 11th plan (both centre & state including their PSE's) has been placed at

Rs.36,44,718 cr. It is more than double of the total outlay of 10th Plan.

Agriculture Sector

Increase Agricultural GDP growth rate to 4% per year.

Importance will be given to Krishi Vigana Kendras to encourage the farmers.

Vaidyanathan Committee recommendations will be implemented to provide statutory

rights to land tenants and implement land reforms.

Mashelkar Committee recommendations to allot investments in Agricultural Research to be

implemented.

Industrial Sector- To raise Industrial growth rate from 9.2% in the 10th plan to between 10%

and 11%.

Poverty & Un-Employment - Generate 7 crore new employment opportunities.

Reduce educated unemployment to below 5%.

Education- Reduce dropout rates of children from elementary school from 52.2% in 2003-04 to

20% by 2011-12.

Health - To raise Public health spending to 2% of GDP during plan period.

Reduce Infant Mortality Rate (IMR) to 28 and Maternity Mortality Rate (MMR) to 1 per 1000

live births.

Women & Children

Raise sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17.

Environment- Increase forest and tree cover by 5% points

Agriculture is an important sector of economy. It is also called as Primary Sector in India.

It is the source of supply of basic wage goods, that is, food items to the industry as well as to the

people on the whole.

Agriculture sector included other allied sectors. They are Agriculture, Forestry, Fisheries,

Mines

TYPES OF CROPS

Agricultural crops can be divided into various groups: Cash crop, Commercial crops

Major Crops & their seasons

3. AGRICULTURE SECTOR IN INDIA

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Kharif crops .

Rabi Crops

Zaid Crop Fertilizers- Nitrogen (N), Phosphate (P) and Potash (K)

AGRICULTURE PRICE POLICY (APP)

APP was started in 1964.

In 1985, it was changed as Commission for Agriculture Cost & Price (CACP).

In APC if price fixation taken place, in CACP along with price, production expenditure of

the commodity also decides.

ACPC fixing 3 types of prices for the first time in 1967-68.

Under govt. control there are mainly 3 types of prices.

i) Minimum Support Price (MSP)

ii) Procurement Price (PP)

iii) Issue Price. (IP)

Minimum Support Price (MSP)

It is an assurance price given by the government to for 25 crops for the farmers to buy food

grains at any circumstances or up & down while the crop is in the field.

Procurement Price

Government collects food grains from millers & farmers to supply to poor and senior citizens

through subsidies or PDS or to supply through various government programms or to maintain

Buffer stocks.

Issue Price

The price at which govt. issues food grains to the public through Targeted Public Distribution

System (TPDS).

Difference between Procurement Price & Issue Price know as Subsidy.

Public Distribution System (PDS)

PDS was started in India in 1960's.

Targeted Public Distribution System (TPDS)

It is meant and useful for 32 cr. Below Poverty Line (BPL) families.

Antyodaya Anna Yozana

It is a food security programme started with the subsidy of 2,300 cr. on 2000 Dec, 25th.

Under this programme, BPL families are given 35 kg. rice at Rs.3/-

AGRICULTURAL FINANCE

There are two types of financial sources available to the Agriculture sector. They are,

Institutional Finance: Government, Co-operative Banks/ Societies, Commercial banks, and Land

development banks.

Non-Institutional Finance: Moneylenders, relatives, commission agents, traders, etc.

Institutional Finance

Credit Cooperatives have a 3-tier structure.

The State Co – operative Banks (SCB) at the state level

Central Co – operative Banks (CCB) at district level and

Primary Agriculture Credit Societies (PACS) at villages level.

The flow of loans is from SCB to CCB to PACS.





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Co-Operative finance is the cheapest and the best source of rural credit.

National Bank for Agricultural and Rural Development (NABARD) - 1982

It is the apex institution for providing credit facilities to agricultural and rural areas.

Lead Bank Scheme

Lead Bank Scheme means to coordinate the activities of Financial organisation, to estimate

necessary financial estimates of a district, a scheduled bank should adopt the district.

Kisan Credit Card Scheme

Kisan Credit card scheme was introduced in 1998-99 to facilitate access to credit from

Commercial Banks and Regional Rural Banks.

AGRICULTURAL MARKETING

To ensure a proper price spread between the producers and final consumers by ensuring

remunerative prices to the farmers and to create an environment for increased farm

production by eliminating malpractices and hurdles in the way of successful marketing by a

farmer. The government has taken various steps to improve the conditions of agricultural

marketing.

-Organised Marketing

-Unorganised Marketing

Unorganised Marketing facilities includes Money Lenders, Rural Traders Marketing.

Most of quantity of the produced crops of the farmers sell to Traders, Money Lenders in rural

areas. Rice, wheat, jute, cotton, chilli etc. 60-80% products selling to the farmers.

Organised Marketing

Primary markets

Secondary Markets

Regulated Markets

Cooperative Marketing System

Tribal Cooperative Marketing Development Federation (TRIFED)

AGRICULTURAL DEVELOPMENT

Green Revolution

Second Green Revolution

Ever Green Revolution

Other Revolutions

Revolutions Area(production)

Green Revolution Agriculture (Food)

White Revolution Milk

Yellow Revolution Oil Seeds

Blue Revolution Fish Production

Pink Revolution Shrimp

Brown Revolution Masaaley

Red Revolution Meat / Tomato

Golden Revolution Fruits / Apple

Gray Revolution Fertilizers

Silver Revolution Eggs

SEEDS





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Indian seed program envisages the participation of Central and State Governments, ICAR, State

Agriculture Universities public sector, Co-operative sector and private sector institutions.

However, private sector also maintaining seeds banks in the country.

a) National Seed Corporation (1963)

b) State farms corporation of India (1969)

c) Seed bank started by NDA govt. in 1999-2000.

AGRICULTURE INSURANCE

Indian Agriculture Sector monsoon based. That’s why it has ups & downs. And also the effects of

natural calamities. To come out from these problems Insurance sector taken initiative & entered

into Agriculture Sector.

Comprehensive Crop Insurance Scheme (CCIS)

National Agriculture Insurance Scheme (NAIS)

National Agriculture Insurance Scheme (NAIS)

Agricultural Insurance Corporation of India Ltd (AICIL)

Varsha Bhima programme (VRP)

Krishi Sramic Suraksha Yozana

Rastriya Krishi Vikas Yozana (RKVY)

Comprehensive Crop Insurance Scheme (CCIS)

LAND REFORM PROGRAMMES

Land Reform Programmes in India include,

Elimination of intermediaries

Tenancy reforms and Consolidation of holdings.

Determination of ceiling of holdings per family and to distribute surplus land to poor people.

Consolidation of holdings.

Smallest landholding country in world is - Japan (1.25 hectors)

Largest landholding country in world is - Australia (1993 hect)

Average landholding in India is - 1.57 hectors.

Smallest landholding State in India is - Kerala (0.6 hect)

Largest landholding State in India is - Rajasthan (4.34 hect) Latest 85-86 data

HORTICULTURE

Fruits, vegetable, root tuber, ornamental aromatic plants, medicinal spices & plantation crops like

coconut, cashew & Cocoa etc.

Government of India’s initiatives Community Development Programme (1952)

Accelerated Rural Water Supply Programme (1972-73)

Command Area Development Programme (1974-75)

Agricultural Export Zones (AEZs)

The EXIM Policy 2001 introduced the concept of AEZs. The intension is to transform these

zones into Regional Rural Motors of the export economy.

This scheme is cantered around the cluster approach of identifying the potential products.

1st AEZ was notified in 2001 and in 2005 at Guntur in Andhra Pradesh for Chillies exports.

Agriculture Research Institutes

1 Indian Council for Agriculture Research (ICAR) Delhi

2 International Crops Research Institute for Semi-Arid Tropic (ICRISAT) Hyderabad





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3 National Institute of Nutrition Hyderabad

4 National Institute of Banana Tiruchi (TN)

5 National Institute of Spices Calicut (Kerala)

6 National Institute of Cotton Mumbai, Nagpur

7 National Institute of Silk Mysore

8 National Institute of Jute Bharakpur (WB)

9 National Rice Research Institute Cuttak (Orissa)

10 National Tobacco Research Institute Rajamundry (AP)

11 National Vegetables Research Institute Varanasi (UP)

12 National Sugarcane Research Institute Lucknow (UP)

13 National Potato Research Institute Simla (HP)

14 National Mushrooms Research Institute Solan (HP)

15 National Groundnut Research Institute Junagarh (Guj)

Industrialization provides increasing avenues for employment to new and skilled labor force. I

It enables a diversified production base.

It provides infrastructure facilities like railways, power generation, etc. also helps in earning

foreign exchange.

TYPES OF INDUSTRIES

According to “Micro Small Medium Enterprises Act” 2006, Union Government defined the

industries as.

Enterprise Investment in manufacturing sector Investment in service sector

Micro Ind. Upto Rs. 25 lakhs Upto Rs.10 lakhs

Small Ind. > Rs. 25 lakhs – Upto Rs. 5 Crores > Rs.10 Lks – Upto Rs.2 Cr

Medium Ind. > Rs.5 Cr - Upto Rs.10 Cr. > Rs.2 Cr - Upto Rs.5 Cr.

INDUSTRIAL POLICY RESOLUTIONS

At the time of independence, India inherited an economy with a very weak industrial base and

problems like shortage of raw materials, deficiency of capital, bad industrial relations, etc. So there

was need for a strong and effective industrial policy. The Government of India issued the first

important industrial policy resolution on April 6, 1948. Since then industrial policies have been

modified, or a new policy for industries has been put forward several times.

1) Industrial Policy Resolution, 1948

Following were the main features of the 1948 industrial policy:

Acceptance of the importance of both private and public sectors Division of the industrial sector.

The Resolution divided industries into four categories.

Industries where State had a monopoly

Mixed sector

In the field of government control. 18 industries of national importance were included in this

category.

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The field of private enterprise - All other industries (not included in the above three

categories) were left open to the private sector.

2) Industrial Policy Resolution 1956

This may be described as the ‘Economic Constitution’ of India.

Emphasis was given to, accelerating the rate of economic growth and Speeding up

industrialization – expanding the public sector and building up a large and growing

cooperative sector.

Features

Division of the industrial sector: As against four categories in the 1948 Resolution, the 1956

Resolution divided industries into the following three categories.

(a) Monopoly of the state (Schedule-A)

(b) Mixed Sector of Public and Private

Enterprise (Schedule-B)

(c) Industries left for Private Sector

(Schedule-C)

Datt Committee – 1969

According to the recommendations in 1969. MRTP Commission was appointed. It was headed

by P.C. Mahalanobis.

3) Industrial Policy Resolution-1973

To have control over not only on domestic investments, but also on foreign invests Government

proposed Foreign Exchange Regulation Act (FERA).

4) Industrial Policy Resolution -1991

Main Focus On Deregulating Indian industry

Allow industrial freedom & fiexibility in responding to market forces and

Abolition of licensing policy.

Reduce PSU importance

Privitisation /Disinvestment.

Liberalise MRTP,FERA acts

Reforms for foreign technology & FDIs

Banking insurance reforms

PUBLIC SECTOR

Classification of PSUs

Departmental Industries / Companies: Maintained Under Ministry (Ex : Railways)

Government Corporations: Estimation as per separate act of parliament. Ex : LIC, IOC, FCI

Public Sector Companies: Estimate as per companies Act, 1956. Ex: HMT, BHEL etc.

MAHARATNAS

In Dec 24, 2009, High Profit earning PSU Navaratnas were announced as Maharatnas to

make them international organisations. They are

1) ONGC 2) SAIL 3) NTPC 4) IOC

5) Coal India Ltd.(April, 2011)

Provisions Have freedom take independent decisions for the investment upto Rs. 5000 cr.

NAVARATNAS (NRs)

In 1991 High Profit earning & PSUs were decided to give Navaratna status.





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It was announced in 1996. They were

At present there are 16 PSUs got Navartna status).

Provisions to Navaratnas Incurring Capital Expenditure (Up to Rs.1,000 Crores)

MINI RATNAS (MRs)

Government decided to declare Some of the PSUs as Mini Ratnas which are running under

continuous profits. The decision was taken in 1996 and declaring from 1997.

These Companies are called as Miniratnas. They are classified into 2 categories namely,

Category I

Category II

Provisions to Miniratna Miniratna-II Companies have the freedom to invest upto Rs. 300 cr.

Miniratna-I Companies have the freedom to invest upto Rs. 500 cr.

INDUSTRIAL FINANCE

Finance is the life – blood of industry. Lack of adequate and timely finance is one of the causes

of slow development of industries in India. Economic growth and growth of financial

infrastructure go hand in hand. The process of industrialisation is accompanied by massive

investment in capital goods industries and economic infrastructure. As a result the financing of

investment becomes an imperative of industrialisation.

Industrial Financial Corporation of India (IFCI) - 1948

National Small Industrial Corporation Limited (NSIC) – 1955

State Financial Corporations (SFCs) - 1951

Industrial Credit and Investment Corporation of India (ICICI) - 1955

Industrial Development Bank of India (IDBI) - 1964

Industrial Investment Bank of India (IIBI) - 1985

Small Industries Development Bank of India (SIDBI) - 1989

Exim Bank of India - 1982

Unit Trust of India (UTI) - 1964

Life Insurance Corporation of India (LIC) - 1956

General Insurance Corporation of India (GIC) - 1950

The Reserve Bank of India manages the present monetary system in India. It is based on

inconvertible paper currency. For internal purposes there are rupee coins and currency notes. For

external purposes, the rupee is convertible into other currencies of the world.

Reserve Bank of India

Commercial Banks Regional Rural Banks Co–operative Banks

(RRBs)

Public Sector Banks Private sector Banks State Co–operativeBank

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Indian Foreign Central Co-operative Bank

State Bank Group Other Nationalised Banks Primary Credit Societies

SBI & Associate Banks Public Sector Banks

Indian Money market

Indian money market is 2 types

Organised Sector

Unorganised Sector

Unorganised sector also known as ingenious bankers they are called as Shroffs, Seths,

Mahajans, Chettis, moneylenders etc. They lend money, act as moneychangers and finance the

internal trade.

The indigenous bankers finance according to the Committee on Finance for the Private Sector

(known as the Shroff Committee 1954) between 75% & 90% of the total internal trade of the

country.

Organised sector includes entire banking system in India.

STATE BANK OF INDIA

In 1921 Bengal, Bombay and Madras presidency banks were merged due to serious

financial troubles.

In order to make RBI more powerful, Government nationalised them on 1st January 1949

and named as Imperial Bank.

For the development of banking facilities in rural areas the Imperial bank of India was partially

nationalised on 1st July, 1955. And it was named as SBI (According to Rural Credit Survey

Committee recommendations)

Along with it other 8 banks were converted as its associate banks with name as SBI group.

Nationalised Commercial Banks

In order to have more control over the banks, 14 large commercial banks whose reserves were

more than Rs.50 cr each were nationalised on 19 July, 1969.

After one decade, on 15 April, 1980, 6 Private sector banks were nationalized.

Regional Rural Banks (RRBs)

According to Sarayu Committee recommendations in 1975, 5 RRBs were established in Oct,

1975 at Moradabad, Gorakhpur (U.P), Bhiwani (Haryana), Jaipur (Rajastan) and Malda (West

bengal)

Cooperative Banks (CBs)

C.Bs were constituted by different states under various acts related to cooperative societies of

various states. C.B organisations in India has 3 tier set up.

State Cooperative bank (Apex Cooperative institute in the state)

Central/District Cooperative banks (at district level)

Primary Credit Agency (village level)





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RESERVE BANK OF INDIA (RBI)

RBI It is India's Central Bank or Apex bank. RBIs head quarters situated at Mumbai.

On the basis of J.M.Keans Plan it was established on 1st April, 1934 with a capital of Rs.5 cr.

RBI was Nationalised on 1 January, 1949.

Functions of RBI Functions of RBI mainly classified into 2

Primary measures

Secondary measures

Credit Controls of RBI 1. Qualitative Credit Control

2. Quantitative Credit Control

1) Qualitative Credit Control Open market operations

Selective & Direct Credit Controls

Credit Authorisation Scheme (CAS)

2) Quantitative Credit Controls

They are used to control the volume of credit and to control the inflationary & deflationary

pressures caused by expansion and contraction of credit.

a) Bank Rate/ Discount rate - BR is the rate of interest at which the RBI charges on the money

lends to the lower banks or banking institutions.

b) Cash Reserve Ratio (CRR)- The rate at which Commercial banks to keep a certain amount in

the form of Cash with RBI.

c) Statutory Liquidity Ratio (SLR)- The rate at which Commercial bank has to maintain liquid

assets in the form of gold and unencumbered approved securities.

d) Repo Rate- And also, Repo Rate is the rate of interest charged by RBI from Commercial banks

on short term loans.

e) Reverse Repo Rate (RRR)-The rate of interest paid by RBI to Commercial banks for their

additional deposits with RBI.

Mints and Presses in India India Security Press (Nasik Road, Maharastra)

Postal material, Postal stamps, Non-postal stamps, Judicial & Non-Judicial stamps, Cheques,

Bonds, NSC, Kisan Vikas Patras, Securities of State govt., PSCs & Financial corporations.

Currency Notes Press (Nasik Road, Maharastra) - Prints Currency notes of Rs.1, 2, 5, 10,50, 10.

Bank Notes Press(Dewas, Near Indore, MP)- Currency notes of Rs.20, 50, 100, 500 printing.

Securities Printing Press (Hyderabad)

Established in 1982, to meet demand for postal material of Southern States. It fulfils demand for

Union Excise duty stamps of the country.

Modernised Currency Notes Press

Two new modernised currency notes presses are establishment at Mysore & Salboni (WB)

Security Paper (Hoshangabad, M.P)-Makes production of Bank & currency notes paper

Coins minting - Mumbai, Kolkata, Hyderabad, Noida.

Devaluation of Money

Devaluation of rupee in world market on par with USD.





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In 1947 India became the member if IMF and fixed the value of rupee as per IMF standards.

Indian rupee devalued for 5 times so far.

1st devaluation in June, 1949 by 30.5% (Finance Minister - John Mathai)

2 & 3rd devaluation in June, 1966 by 57% (Finance Minister - Sachindara Choudary)

4 & 5th devaluation in June, 1991 by 20% (Finance Minister - Manmohan Singh)

(on July , 1991 - 9%, July 3, 1999 - 11%).

Monetary Aggregates in India

RBI now calculates 4 concepts of money supply in India. These are known as money stock

measures or measures of monetary aggregates. These 4 are

a) M1 = Currency with public i.e coins and currency notes + Demand deposits of public.

M1 also known as narrow money.

b) M2 = M1 + Post office savings deposits

c) M3 = M1 + Time deposits of public with banks(also known as Broad money.)

d) M4 = M3+ Total post office deposits.

INFLATION Inflation means Continuous raise of prices in normal pricing stages or Continuous increase in

money value or more money chasing the less product quantity.

If the speedy increase of prices in terms of percentage known as rate of Inflation.

Inflation rate is zero means , prices are stable.

Inflation rate is negative means , prices are reducing.

Inflation rate is Positive means , prices are increasing.

Inflation rate is Reduces means , the raise of prices decreases.

Types of Inflation

Creeping / Soft Inflation

Walking Inflation

Running Inflation

Jumping Inflation

Hyper / Gallopping Inflation

Inflation causes more benefits to- Speculators & Rich people, Block marketers

Inflation causes more loss to- Daily wage labour, Poor people, pensioners

In India, to calculate Inflation, changes in Wholesale price Index (WPI) is taken in to

consideration.

Inflation is calculated every once in a week for one year period.

Previously, to calculate WPI, the year 1993-94 was used as base year.

At present, the year 2003-04 is being used as base year. (previously 1999-2000 was base year).

In Base year WPI = 100.

To prepare WPI, 1993-94 as Base year 435 commodities taken in to consideration.

6. INDIA’S FOREIGN TRADE

The Government of India has opted for a policy of trade liberalization in recent years, Massive

trade policy reforms were announced in 1991 to open up the economy to foreign trade and to

‘integrate’ the Indian economy in the new international economic order that is taking shape with the

setting up of the WTO (World Trade Organisation) in 1995.





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Pattern of Imports

According to the Directorate of General of Commercial Intelligence and Statistics Imports have

classified into Bulk Imports and Non-bulk Imports

Bulk Imports are further sub-divided into 3 components.

Petroleum, crude and products.

Bulk consumption goods comprises of cereals, pulses, edible oils and sugar.

Other bulk items comprise fertilizers, Non-ferrous metals, paper & paper boards, rubber, pulp

and waste paper, metallic ores, iron & steel.

Non-bulk Imports also divided into 3

(i)Capital goods include metals, machine tools, (ii) electrical and Non-electrical machinery, (iv)

transport equipment & project goods.

Mainly export related items consist of pearls,

precious and semi-precious stones, organic

and inorganic chemicals, textiles, yarn and

fabrics, cashew nuts.

Pattern of Exports

Export of India are broadly classified into 4 categories.

Agriculture and allied products include coffee, tea, oil cakes, tobacco, cashew kernels, spices,

sugar, raw cotton, rice, fish, and fish preparations, meat and meat preparations, vegetable oils,

fruits, vegetables and pulses.

Ores and minerals include manganese ore, mica & iron ore.

Manufactured goods include textiles. Ready-made garments, jute infers, leather and footwear,

handicrafts including pearls & precious stones, chemicals, Engineering Goods, iron and steel.

Mineral fuels & lubricants.

Terms of Trade

Balance of Trade

Values of Exports, Imports mentioned as Foreign Trade Balance.

If the values of Exports and Imports are equal it is known as Balance of Trade.

If the values of Exports are more than the Imports it is known as Surplus Balance of Trade or

Favourable Trade balance.

If the values of Exports are less than Imports it is known as Deficit Balance of Trade or

Unfavourable Trade balance.

Balance of payments

Total Values of Receipts and Payments mentioned as Balance of Payments.

If the Total values of Receipts and Payments are equal it is known as Balance of Payments.

If the values of Receipts are more than the Payments it is known as Surplus Balance of

Payments or Favourable Balance of Payments.

If the values of Receipts are less than Payments it is known as Deficit Balance of Payments or

Unfavourable Balance of Trade.

Balance of payments of India is classified into 2

BOP on Current A/c

BOP on Capital A/c

EPZ / SEZs





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The units undertaking to export their entire production of goods may be set up at Export

Processing Zones (EPZ) which have been set up as special enclaves.

India has 7 Export Processing Zones (EPZs) at

Kandla (Gujarat) Cochin (Kerala) Chennai (T.N) Noida (UP) Falta (W.B)

Vishakapatnam (A.P) Santacruz -Maharashtra),

Exclusive Economic Zones (EEZ)

The coastal area in which India having exclusive economic rights called as EEZ.

From coastal area to 200 nautical miles (1852 kms) on sea India having rights.

Fiscal Policy

Fiscal Policy refers to the use by the govt. of the various instruments such as taxation,

expenditure and borrowings to achieve the objectives of balanced economic growth &

development.

Budget

Budget is a annual financial statement of the govt. given expression to its fiscal policy.

Public Finance

It refers the government Revenue, expenditure loans and monetary values related to

government.

Government has two types of Income/Revenue.

Taxable Income

Non-Taxable Income

Tax Structure In India taxes are 2 types.

Direct Tax, Indirect Tax

Direct Tax

The burden or incidence of tax has to be borne by the tax payers themselves known as Direct

tax. In Direct Taxes, the burden of tax cannot be transferred on other person.

Ex:Income Tax, Property Tax, Gift tax, Profession tax, Corporate tax, Estate duty, Stamp

duty/Registration tax.

Indirect Tax

The burden or incidence of tax can be shifted to another person known as Indirect tax.

Ex:Excise duty, Sales tax / VAT, Service Tax, Octroi/Consumption tax.

Tax proposal – On what value is being imposed or the tax imposed on total sum known as Tax

proposal.

Tax Rate – What rate / % of tax is imposed known as Tax rate.

Tax Burden – What sum of tax to be paid known as Tax burden / incidence of tax.

CATEGORISATION OF TAXES

Due to changes in tax proposals and tax rates , taxes are categorised in to 3 types.

Proportionate Tax

Progressive Tax

7. PUBLIC FINANCE





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Regressive Tax

Digressive Tax

DIRECT TAXES

Income Tax (IT) Service Tax Corporation Tax Wealth Tax

Minimum Alternate Tax (MAT) Estate duty

INDIRECT TAXES

Customs duty Central Excise Duties(CED) Octoroi

Value Added Tax (VAT)

Businessmen having turnover of Rs.5 lakhs exempted from VAT.

Businessmen having turnover between Rs.5 lakhs to Rs. 40 lakhs can prefer either Turnover

Tax (TOT) or VAT.

If the turnover exceeds Rs.40 lakhs VAT is compulsory.

46 types of commodities were exempted from VAT

550 commodities added to VAT.

Presently, VAT is being implemented in 3 tier system

-on 280 commodities 12.5% VAT

-on 270 commodities 4% VAT (Ex:

Medicines, Agricultural products,

Industrial accessories)

-on Gold, Silver ornaments 1% VAT.

In India VAT is calculated on Invoice method.

Distribution of Tax income between Centre & States

Tax Imposed, collected and enjoyed by centre (Art. 271)

Tax Imposed, collected by centre & distributed, enjoyed by centre & states

Tax Imposed, collected and given to concerned states

Tax Imposed & collected by centre, distributed among states

Tax imposed by centre, collected & appropriated/enjoyed by states

Taxes giving more Revenue to centre

Finance Commission (F.C) Finance Commission distributes the funds between Centre & States. According to Art. 280,

president appoints FC for every 5 yrs.

F.C consists one chairman and other 4 members.

13th

Finance Commission

It was appointed on 14th Nov, 2007.

It submitted its report to the President of India 30th

December, 2009 and the same was

submitted in the Parliament on 25th

February, 2010.

Its recommendations will be implemented between 2010-15.

13th Finance commission Chairman was Vijay Kelkar.

13th

F.C Members are Sunita Bose (Commn. Secretary), Prof. Indira Raja Raman; Abulesh

Sharif; Atul Sharma and B.K.Chaturvedi will act as part time member.





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UNION BUDGET

Total Revenue Total Expenditure

Revenue A/c Capital A/c Plan Exp. Non-Plan Exp.

Tax Revenue Non-Tax Revenue Revenue Capital

Taxes on Fiscal & other Profits Dividend & Profits Interest Receipts

Income Property, Capital transactions Commodities & Services

Budget

The Budget or the annual financial statement of the government gives expression to its fiscal

policy.

Fiscal policy refers to the use by the government of the various instruments such as taxation,

expenditure and borrowings to achieve the objectives of balanced economic growth.

Revenue Budget - The estimates of receipts and disbursements on revenue A/c

Capital Budget - Relates to receipts and disbursements on capital A/c

REVENUE The estimates of receipts on Revenue A/c have been grouped under 2 broad heading viz.

i) Tax Revenue

ii) Non-Tax Revenue.

EXPENDITURE The central govt. adopted a new classification of public expenditure from 1987-88 budget.

Under this new classification all public expenditure is classified into

i) Plan Expenditure

ii) Non-Plan Expenditure

TYPES OF DEFICITS Revenue Deficit = Revenue Expenditure – Revenue Receipts

Budget Deficit = Total Expenditure – Total Receipts

8. FISCAL SYSTEM IN INDIA




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Fiscal Deficit

Fiscal Deficit = Revenue Receipts + Capital Receipts – Total Expenditure.

{Revenue Receipts (Net tax revenue + Non – tax revenue)

Capital Receipts (only recoveries of loans and other receipts)

Total Expenditure (Plan and Non-plan)}




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Capital / Stock market

India’s First Stock Exchange was started in 1887 at Bombay.

Securities Exchange Board of India (SEBI) was established in 1998 based on

the recommendations of Perwani Committee.

At present there were 21 Regional Stock Exchanges are working in India.

2 National Stock Exchanges –

-National Stock Exchange of India (NSE)

- Bombay Stock Exchange (BSE)

Functions

SEBI is a statutory body.

It has entrusted SEBI with the responsibility of dealing with various matters relating to the

capital market.

SEBI’s principal tasks are to:

regulate the business in stock exchanges and any other securities markets.

register and regulate the working of capital market intermediaries (brokers, merchant bankers,

portfolio managers and so on)

register and regulate the working of mutual funds.

prohibit fraudulent and unfair trade practices in securities markets.

prohibit insider trading in securities.

regulate substantial acquisition of shares and take – over of companies.

Common Terms Associated With A Stock Exchange

Blue Chips: Shares of first class companies giving consistent high return on investments.

Stag: Stags are those speculators who apply for shares of new issues and don't necessarily buy

any of these securities.

Broker: Brokers are those essential part of the Stock Exchange whose job is to effectively

advise their clients so that they can make beneficial investments and bargains at the stock

market. The broker is responsible for transferring business in securities on behalf of insiders

who are not the members of the stock exchange.

Bull: A Bull at the Stock Market are basically those speculators who based on their

expectations of a rise in prices, buys securities with an aim to sell them at a beneficial profit.

Bear: A Bear at the stock market refers to those speculators who sell their securities and

holdings as a result of their expectation of a fall in price, thus, attempting to make a profit on

the sales.

Investors: Investments are largely done with the aim of creating a financial security in the long

run. Investors refer to those people who buy securities with an aim to earn a fair return on their

investments. The main concerns of investors is to earn a regular income through the

investments they are holding.

8. STOCK MARKET IN INDIA




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International Stock Exchanges - Indexes

Hong Kong Hang Seng Index

India S&P CNX Nifty ; BSE Sensex ; CMIE COSPI

Japan Nikkei 225 ; Topix

Malaysia MESDAQ

Singapore FTSE

USA Dow Jones; Nasdaq

In Bretton Woods conference, 1944 it was decided to establish three International organisations.

They are

IMF (International Monitory Fund )

IBRD (International Bank for Reconstruction and Development)

ITO (International Trade Organisation.)

However, as American Congress Oppose, ITO was not established. The establishment of IMF

and IBRD took place in Bretton Wood Conference. Hence, IMF and IBRD are called as

Bretton Wood Twins.

1. United Nations Conference On Trade & Development (UNCTAD)

2. Asian Development Bank (ADB)

3. South Asian Free Trade Area (SAFTA)

4. Association of south Eeast Aasian Nations (ASEAN)

5. South Asian Association for Regiona Co-operation (SAARC)

6. Organisation of The Petroleum Exporting Countries (OPEC)

7. G-8 (FORMERLY G-7)

8. G-20

9. G-24

10. European Common Market / European Economic Community (EEC)

11. Asia Pacific Economic Cooperation (APEC)

12. North American Free Trade Agreement (NAFTA)

10. INTERNATIONAL ORGANISATIONS

11. POVERTY & UNEMPLOYMENT

http://en.wikipedia.org/wiki/Hong_Kong

http://en.wikipedia.org/wiki/Hang_Seng_Index

http://en.wikipedia.org/wiki/India

http://en.wikipedia.org/wiki/S%26P_CNX_Nifty

http://en.wikipedia.org/wiki/BSE_Sensex

http://en.wikipedia.org/w/index.php?title=CMIE_COSPI&action=edit&redlink=1

http://en.wikipedia.org/wiki/Japan

http://en.wikipedia.org/wiki/Nikkei_225

http://en.wikipedia.org/wiki/Topix

http://en.wikipedia.org/wiki/Malaysia

http://en.wikipedia.org/wiki/Singapore

http://en.wikipedia.org/wiki/FTSE_Group

http://en.wikipedia.org/wiki/Dow_Jones_%26_Company

http://en.wikipedia.org/wiki/Nasdaq

INDIAN ECONOMY of 23

Institute of Engineering Studies, Bangalore

POVERTY

The Planning Commission has defined the poverty line on the basis of recommended

nutritional requirements of 2,400 calories per person per day for urban areas.

Un-employment - Types

Unemployment refers to a situation when a person is able and willing to work but does not get

opportunity to work, and thus, he is involuntarily unemployed.

Structural Unemployment

Disguised unemployment

Under Employment

Open unemployment

Frictional unemployment

indian economy

Documents

gross national product

human development index

minimum support price

gross domestic product

annual financial statement

invest upto rs

regional rural banks

industrial policy resolution