Indian Economy 2022 ppt for Competitive Exams.pptx

Syllabus & Introduction
• Economic & Social Development –
• sustainable development, poverty, inclusion, demographics, social sector initiatives, etc.
Important area to focus in the UPSC economy syllabus:
• -Economic growth and development – basic concept and definition of economy and
economics, uses and transfer of resources, distributive effects, macro and micro economic
policy, micro-macro balance, distributive impact of economic policies, development versus
growth, determinant of growth and development, concepts such as HPI/MPI, HDI, PQLI,
GEM, GDI/GII, TAI, Green index, sustainable development, India’s ranking in the various
indices.
• Poverty – definitions, causes, distribution-deprivation, income versus calories,
measurement of poverty, status of poverty, eradication programmes, poverty and
resource policy, tribal rights and issues, livelihood mission.
• Inclusion – definition, relevance, types, financial inclusion, recent initiatives.
• Demographics – census data, populations by gender, by state, by age group, socio-
economic status, caste, religion, literacy levels, etc. Trends in human development –
interstate comparison, etc.
• Fiscal policy – definition, component, receipts, revenue and capital account, tax revenue,
expenditure, budget.

FOCUS (Correlation between Economy
& Development)
• Conceptual clarity ( संकल्पनाची समज)
• Application of economic concept for Development(विकासासाठी उपयोग)
• Current Affairs (चालू घडामोडी)
 Resources-
UPSC- NCERT 7th to 12th (Indian Economy)
 India Year Book 2021- Publication Division
 Economic Survey 2020-21(Later stages)
 Indian Economy by Ramesh Singh or
 Indian Economy by Sanjeev Verma (Avoid Dutta Sundaram or Uma Kapila)
 Special issue of Pratiyogita Darpan- ‘Extra Issue on Indian Economy’
 Gist of Economy by Kalinjhar Publications
 MPSC- NCERT 7th to 12th (Indian Economy)
 India Year Book 2019- Publication Division
 Economic Survey 2018-19(Later stages)
 महाराष्ट्राचे आर्थिक सर्वेक्षण 2018-19 (Later stages)
 दीपस्तंभ प्रकाशन भारतीय अथिव्यर्वस्था भाग १ आणण २ – डॉ ककरण देसले

PREVIEW OF TOPIC - INFLATION
 Money, Functions of Money, Evolution of Money.
 Various terms associated with Inflation
 Types of Inflation
 Causes of Inflation
 Effects of Inflation
 Inflation Indices
 Control of Inflation
 Monetary Policy measures

MCQs
Q.1 Consider the following liquid assets: (UPSC 2013)
1.Demand deposits with the banks
2.Time deposits with the banks
3.Savings deposits with the banks
4.Currency
The correct sequence of these assets in decreasing order of liquidity is
A.1-4-3-2 B.4-3-2-1
C.2-3-1-4 D.4-1-3-2
Q.2 Which of the following is not included in the assets of a
commercial bank in India?
(a) Advances (b) Deposits
(c) Investments (d) Money at call and short
notice
Q.3 The main functioning of the banking system is to________ (CDS-
2013)
1.Accept deposits and provide credit
2.Accept deposits and subsidies
3.provide credit and subsidies
4.accept deposits, provide credit and subsidies

4. Q. With reference to ‘Bitcoins’ sometimes seen in the news,
which of the following statements is/are correct? (CSE-2019)
1.Bitcoins are tracked by the Central Banks of the countries.
2.Anyone with a Bitcoin address can send and receive Bitcoins
from anyone else with a Bitcoin address.
3.Online payments can be sent without either side knowing the
identity of the other.
• Select the correct answer using the code given below.
1.1 and 2 only
2.3 only
3.2 and 3 only
4.1, 2 and 3
5.Which one of the following links all the ATMs in India? (CSE
-2018)
1.Indian Banks’ Association
2.National Securities Depository Limited
3.National Payments Corporation of India

6: Which one of the following correctly describes the meaning of legal tender
money? (Asked in UPSC-Pre-2018)
(a) The money which is tendered in courts of law to defray the fee of legal
cases
(b) The money which a creditor is under compulsion to accept in settlement
of his claims
(c) The bank money in the form of cheques, drafts, bills of exchange, etc.
(d) The metallic money in circulation in a country
7: Consider the following statements (Asked in UPSC-CDS2011II)
1. In India the minimum denomination coin acceptable for transaction is 50p
2. Coins below 50 praise is not a legal tender for payment. Which of the
statements given above is/are correct?
(a) Only 1 (b) Only 2 (c) Both 1 and 2 (d) Neither 1 nor 2

9. The term ‘Core Banking Solutions’ correct term? (UPSC Prelims-2016)
1. It is a networking of a bank’s branches which enables customers to
operate their accounts regardless of where they open their accounts.
2. It is an effort to increase RBI’s control over commercial banks through
computerization.
3. It is a detailed procedure by which a bank with huge non-performing assets
is taken over by another bank.
(a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
10. Find correct statement(s) about Bitcoin? [UPSC-CDS-2017-I]
1. It is a decentralized virtual currency.
2. It is generated through complex computer software systems.
3. The Reserve Bank of India recognized it as a legal tender in January 2016.
Answer Codes: (a) 1 only (b) 1 and 2 only (c) 2 and 3 only (d) 1, 2 and 3

Money
- Medium of Exchange
Functions of Money:
- Medium of exchange ( legal tender, Durable, Recognised by authorities, Hard to
counterfeit)
- Measure of value:Money serves as a common measure of value or unit of
account so, the relative comparison of goods is possible.
- Transfer of Value – money has the same value throughout the country and has
its value is transferrable.
- Store of Value – It can be kept as savings (in bank account) and could be used for
investment purpose e.g. buying property. Its storage costs are also considerably
lower.

Evolution of Money
1.Barter system
2.Commodity money
3.Metallic money
4.Paper money (Fiat money)
5.Bank money
6.Virtual (Crypto) currency

• - The RBI is required to maintain a reserve equivalent of Rs. 200 crores in
gold and foreign currency with itself, of which 115 crores should be in gold.

Digital Modes of payment
FEATURE NEFT RTGS IMPS
Introduced by RBI RBI NPCI
Settlement type Half- hourly batches One on one settlement One on one settlement
Min transfer limit Rs.- Rs. 2 lakh Rs. 1
Max transfer limit No limit (Rs. 50,000 per
transaction)
No limit Rs. 2 lakh
Funds Transfer Speed
2 hours Immediate Immediate
Service timings
24/7
Available on certain days of week
between stipulated time period
(till 6PM)
24/7
Mode
Online/ offline Online/ offline
Online

Q.1 Which of the following measures would result in an
increase in the money supply in the economy?
1. Purchase of G-Sec from the public by the Central Bank.
2. Deposit of currency in commercial banks by the public.
3. Borrowing by the government from the Central Bank.
4. Sale of government securities to the public by the
Central Bank.
(a) 1 only (b) 2, 4 only (c) 1, 3 (d) 2, 3,4

Q.2 Find correct statements about Statutory Liquidity Ratio (SLR)
1. To meet SLR, Commercial banks must keep cash only.
2. SLR is maintained by the banks with themselves.
3. SLR restricts the banks leverage in pumping more money into
the economy.
(a) 1, 2 and 3 (b) 1 and 3 (c) 2 and 3 (d) only 2

Q.3 When the Reserve Bank of India reduces the Statutory
Liquidity Ratio by 50 basis points which of the following is likely
to happen?
(a) India's GDP growth rate increases drastically.
(b) Foreign Institutional Investors may bring more capital into
our country.
(c) Scheduled Commercial Banks may cut their lending rates.
(d) It may drastically reduce the liquidity to the banking system.

Q.4 Which of the following is not an instrument of Selective Credit Control?
a) Regulation of consumer credit
b) Rationing of credit
c) Margin requirements
d) Cash reserve ratio
5. An increase in Bank Rate generally indicates that-
a) Market rate of interest is likely to fall.
b) Central Bank is no longer making loans to commercial banks.
c) Central Bank is following an easy money policy.
d) Central Bank is following a tight money policy.

6. Consider the following:
1) Bank rate 2) Open market operations 3) Public debt 4) Public
Revenue
Which of them is/are part of Monetary Policy?
(a) 1 only (b) 2, 3 and 4 (c) 1 and 2 (d) 1, 3 and 4
7. Open Market Operations refers to-
(a) borrowing by banks from the RBI
(b) lending by commercial banks to industry and trade
(c) purchase and sale of government securities by the RBI
(d) None of the above

8. Which of the following statements is/are correct regarding the
Monetary Policy Committee (MPC)? [CSE-2017]
1.It decides the RBI’s benchmark interest rates.
2.It is a 12-member body including the Governor of RBI and is
reconstituted every year.
3,It functions under the chairmanship of the Union Finance Minister.
Select the correct answer using the code given below:
A.1 only
B.1 and 2 only
C.3 only
D. 2 and 3 only

9. If you withdraw Rs. 1,00,000 in cash from your Demand Deposit
Account at your bank, the immediate effect on aggregate money supply
in the economy will be _ _ . (UPSC-Pre2020)
[a) to reduce it by ₹ 1,00,000
[b) to increase it by ₹ 1,00,000
[c) to increase it by more than ₹ 1,00,000
[d) to leave it unchanged

10. Indiahas experiencedpersistent andhighfood inflationin the recent past. What
could be the reasons?(2011)
1. Due to a gradual switchover to thecultivationof commercial crops, the area under the
cultivationof food grains has steadilydecreased in thelast five years by about 30%.
2. As a consequence of increasing incomes, the consumptionpatterns of the% people have
undergonea significantchange.
3. The food supply chain has structural constraints.
• Whichof the statements given above1 are correct?
• (a.) 1 and 2 only (b.) 2 and 3 only
• (c.) 1 and 3 only (d.) 1, 2 and 3

11. The monetary policy of Reserve Bank of India targets which of the
following Inflation Index?
a. Consumer Price Index (CPI) Rural
b. Consumer Price Index (CPI) Combined
c. Wholesale Price Index (WPI)
d. Consumer Food Price Index (CFPI)

Practice GS Mains Questions
1. RBI’s monetary policy which is based on inflation targeting needs
reform. Comment. (250 words)
2. With successive cuts in the policy rates, the RBI has been sending
a signal to the rest of the banking system that the lending rates
should come down. However, the monetary policy transmission
has been inefficient in India. Discuss. Suggest measures to tackle
the issue.
3. Monetary policy in India has been used more as an economic
stabilization device than an instrument for economic
development. Discuss.

INFLATION(मुद्रास्फिती)
• Def- General rise in price of goods & services over a period of time in an economy
• Terms:
 Stagflation(मुद्रा अिपात):Increased Unemployment & Increased Inflation(contrary to Philips curve on longer term)
 Deflation(चलनघट/मुद्रा अिस्फिती) & Disinflation(मुद्रा-अपस्फिती):Reverse of Inflation is Deflation & slowdown in rate of
inflation is Disflation.
 Slowdown, Recession (for 2 consecutive qtrs –ve growth rate )& Depression( 2 successive yrs –ve growth rate; more than
10% loss in GDP)
 Inflation spiral-Wages press prices up & prices pull wages up
 Reflation(मुद्रा संस्फिती)- Deliberately brought by Govt to decrease unemployment & increase demand by increasing public
exp & decreasing tax rates
 Philips Curve- Inverse relation between inflation & unemployment; In shorter term, inflationary policies of Govt lead to
employment; longer –unemployment.
 Skewflation - Term to denote episodic price rise in one / small group of commodities while Inflation in the remaining goods
and services remain usual. E.g. pulse / tomato / onion inflation in India.
 Greenflation- Inflation related to non conventional energy resources (green energy resources) due to sustainable
development concept
www.satishdhage.com You Tube- Lieutenant Colonel Dr Satish Dhage

INFLATION
• Types-
 Based on rate, CTG RH
Creeping रांगणारी(1-5%),
Trottingचालणारी (6-10%),
Gallopingपळणारी (11-20%),
Runawayबेसुमार (21-40%),
Hyperinflation (>100%)
 Based on content,
Headline inflation & Core inflation
 Based On cause,
Demand Pull मागणी ताणजन्य(Dem-pul)
Supply or Cost Push खचचदाबजन्य / Structural

Causes of INFLATION
1. Dem- Pul: Right ward shift of Demand curve;
Increased purchasing power of masses(लोकांच्या क्रयशक्तीमध्ये र्वाढ)
 Increased public expenditure(शासनाच्या खचाित र्वाढ)
 Deficit financing (तुटीचा अथिभरणा)
 Increased private expenditure by new private projects (खाजगी उदयोग)
 Decreased taxation (करांमध्ये कपात)
 Increased population (लोकसंख्यार्वाढ)
 Black money (काळा पैसा)
 Changed consumption patterns (खानपानाच्या सर्वयीमध्ये बदल)
2. Supply Push:
 Increased indirect taxation(अप्रत्यक्ष करांमध्ये र्वाढ);
 Decreased factors of production(अदानांची कमतरता);
 Natural calamities (नैसर्गिक आपत्ती);
 Industrial unrest(औद्योर्गक कलह);
 Hoarding of goods(साठेबाजी);
 Infrastructural bottlenecks(पायाभूत सुवर्वधांची कमतरता)
 Increased exports making less domestic goods available(ननयाित र्वृद्र्धमुळे कमी उपलब्धता)

INFLATION INDEX
• WPI (घाऊक ककमत ननदेशांक)– Index to measure the change in average
price level of goods traded in wholesale mkt.
- Headline inflation based on WPI; Macrolevel Inflation measurement
( But now Headline inflation is also measured by CPI since 2014)
- Measured by Economic Advisor, DIPP (Dept of Ind Promotion & Policy )Min
of commerce
- Base year- 2011-12 as per Abhijeet Sen committee report
- Policies like infl mgt,prices of essential commodities based on it. After
2014, RBI uses CPI for inflation mgt policies.
- 676 items mainly mfg products(555) followed by primary products
(102)and then fuel(19).
- Limitations- No consideration of services sector& no mfg products of
unorganised sector.

INFLATION INDEX
• CPI – Index to measure the change in avg price level of goods & services at consumer level;
- Larger weightage to primary articles, so food inflation reflected more in CPI. Total- 299 commodities + services
- Core inflation based on Core CPI or WPI excluding food/fuel .
Core CPI = Headline CPI MINUS (inflation in food & energy)
- Base year- 2012; By CSO under Min Statitstics & Pgme Implementation.Recent change to 2012 as base year.
- 7 CPI indices
1.CPI (IW):Labour Bureau; Govt Employees; DA & Pay commsn
2. CPI (Urban Non manual employees):DA of empl of foreign embassies ,banks,etc ; Discontinued by CSO since 2008.
3.CPI (AL):Revising min wages of Agri labours
4. CPI (Rural worker):Other than agri workers
5. CPI (Urban ), 6. CPI (Rural ) & 7.CPI (Urban-Rural)
• Core Inflation- CPI excluding FOOD & FUEL vs Headline inflation

• Measurement of Inflation on Period Basis
• 1. Annual average inflation rate: It is the average of 52 weeks of inflation
date but it could be available at the end of the year.
2. Point-to-Point inflation rate: It is measured on the basis of changes
taken place between particular week of the last year and the same week of
the current year. It is available throughout the year.
• Concept of Base Effect in Inflation measurement-
The Base effect relates to inflation in the corresponding period of the
previous year, if the inflation rate was too low in the corresponding period
of the previous year, even a smaller rise in the Price Index will
arithmetically give a high rate of inflation now.
SPI(Service Price Index)
-Currently in exp stage for selected services like tpt,airlines,rail,port,trade,etc
-NHB RESIDEX for Housing

INFLATION
• Effects-
Debtor(ऋणको) +
Creditor (धनको) –
 Demand (मागणी) र्वाढ
 loans (कजि) स्र्वस्त
 Investment (गुंतर्वणूक) र्वाढते
 Exchange rate(वर्वननमय दर) रुपयाची ककं मत कमी होते
 Export (ननयाित)- र्वाढते कारण रुपयाची ककं मत कमी झाल्याने
परकीयांना देशी र्वस्तू स्र्वस्त होतात
 Import (आयात)- कमी
 tax (कर)- करआकारणी जास्त कारण र्वस्तूंचे मुल्य जास्त

Remedial Measures to control Inflation
• Measures – 1.Monetary(मुद्रद्रक धोरण): By RBI in terms of
 Credit Control by Bank Rate, CRR, SLR, Repo rate,Reverse Repo Rate.
 Demonetisation of currency (stripping)
2. Fiscal(वित्तीय धोरण) : (Decreased money in market ) through
 Reduction in unnecessary Exp (अनार्वश्यक सरकारी खचि टाळणे-subsidy,कजि माफी)
 increased taxes (करांमध्ये र्वाढ)
 Increased savings through bonds (रोख्यांच्या माध्यमातून बचत)
 Surplus budget,public debt,etc
3. Direct measures:
 MSP
 Anti hoarding measures (साठेबाजीला अटकार्व)
• Urjit Patel Committee (Jan 2014): RBI should adopt new CPI;Infln should be 4+-
2%;0/12/24-10/8/6% CPI;Monetary Policy Committee.

- NDTL:
- The amount of money held in cash form vary inversely with interest
rates. If higher interest available in Bank Deposits, Bonds etc. →
people would invest money there, instead of keeping money in liquid
form (cash).

MONETARY POLICY
• MONETARY POLICY-(मौद्रद्रक धोरण)
1. EXPANSIONIST MONETARY POLICY or Cheap Money Policy i.e. EMP(Increases
supply of money in market;used during recession;risk of inflation)
2. CONTRACTIONIST MONETARY POLICY or Dear Money Policyi.e. CMP (Decreases
supply of money in market;used to control inflation;risk of deflation)
• Objectives of monetary policy-
1. Economic growth, 2. Price stability, 3.Exchange rate stability, 4. Generates
employment, 5. Equitable distribution of income.
• QUANTITATIVE MEASURES –(संख्यात्मक उपाय)
1.BANK RATE:By RBI to commercial banks for long term credit needs;4.25% (Against
mortgage of Bill of Exchange or Commercial Papers)
2. CRR(रोकड ननधी गुणोत्तर):Proportion of total deposits which commercial banks have
to keep with RBI in liquid form;4% as on date;3-20%; No interest paid on this.
3. SLR(संर्वैधाननक रोखतेचे गुणोत्तर):Proportion of deposits which commercial banks
have to keep in liquid form as cash or gold or Govt Securities; upto 40%; Presently
18%
- CRR,SLR are calculated on fortnightly basis.

MONETARY POLICY
4.REPO RATE:Rate at which banks borrow from RBI(short term as part of LAF); 4%
• It simply means the rate at which RBI lends money to commercial banks against the pledge of government securities
whenever the banks are in need of funds to meet their day-to-day obligations. Banks enter into an agreement with the
RBI to repurchase the same pledged government securities at a future date at a pre-determined price. RBI manages
this repo rate which is the cost of credit for the bank.
5. REVERSE REPO: Rate at which RBI borrows from commercial banks; Reason- profit; 3.35%; RR +RRR-Policy rates
6. OPEN MARKET OPERATIONS (OMO): Buying & selling of Govt securities in open mkt.
• Marginal Standing Facility (MSF)- Special window for banks to borrow from RBI against approved G- secs in an
emergency situations like acute cash shortage; Higher than Repo Rate; 4.25%

MSF mechanism is same as repo. But some differences
LAF (Repo) MSF
 Minimum Rs.5 crores.” Minimum Rs. 1 crore.
All clients are welcome i.e.
 Central and state governments
 Banks – be it commercial bank or RRB or cooperative bank
 Non-banking financial institutions.
 Only scheduled commercial banks can borrow under this window. SBI, PNB, BoB,
ICICI etc.
 This MSF facility is specially created to help them solve short-term cash mis-match.
Bankers cannot pledge securities from SLR quota to borrow from this window. Can use securities from SLR quota.
No limit.
Maximum 0.75% of NTDL. To put this in crude words, if SBI received 100 crores from aam-
admi under savings account, current account, fixed deposit etc. then SBI can borrow only upto
Rs.75 lakhs from RBI.
RBI decides Repo rate MSF = Repo Rate +1%

Policy Dear money (To reduce Inflation) Cheap money (To tackle deflation)
Tool To fight inflation To fight deflation
Reserve Ratio (CRR, SLR) Increase them. Decrease them.
Open Market Operation (OMO) RBI sell securities RBI buy securities
Bank Rate increase it decrease it
Repo rate increase it decrease it
Reverse Repo it’s value is linked with Repo, hence cannot be increased/decreased independently.
Marginal Standing Facility
it’s value is linked with Repo, hence cannot be increased/decreased independently. Besides MSF= temporary firefighting,
cash mismanagement.

Quantitative tools (SLR, CRR, Repo etc.)control the ‘volume’ of loans.
⇒ Whereas, qualitative tools (PSL,LTV etc.) control the “distribution” of loans to a
particular sector of Economy
(e.g. agriculture) or particular segment of society (e.g. farmers, women, SC/ST).
⇒ Hence, qualitative tools also known as SELECTIVE or DIRECT tools

• LTRO ( Long Term Repo Rate)
• Inflation targeting
• MPC ( 6 members)
• Concept of ‘Greenflation’

Qualitative/Selective/Direct Credit control
- Loan To Value Ratio(LTV Ratio)- Mortgage value percentage
- Consumer Credit Control ( Downpayment, No of installments)
- Rationing ( PSL 40%)
- Moral Suasion

MONETARY POLICY: QUALITATIVE TOOLS (गुणात्मक साधन)
While quantitative tools (SLR, CRR, Repo etc.) control the ‘volume’ of loans, these qualitative tools
(PSL,LTV etc.) control the “distribution” of loans to a particular sector of economy (e.g. agriculture) or
particular segment of society (e.g. farmers, women, SC/ST). Hence, also known as SELECTIVE or DIRECT
(प्रत्यक्ष) Tools.
1. Moral Suasion - “Persuasion” without applying punitive measures. RBI governor tries this tactic via
conferences, informal meetings, letters, seminars, convocation, panel discussion, memorial lectures. -
Example, RBI-Governor asking banks to transmit repo-rate cuts, open new branches in rural areas,
spread financial literacy, give loans to farmers beyond PSL quota etc. Similarly, Governor requesting
Chief Ministers or Finance Minister to control fiscal deficit & subsidy leakage to enhance the efficacy of
RBI’s monetary policy.
2. Direct Action - RBI can punish banks (and even non-banks) for not complying with its directives under
RBI Act, Banking Regulation Act, Payment and Settlement Systems Act, Prevention of Money
Laundering Act, Foreign Exchange Management Act (FEMA).
3. Margin Requirements / Loan to Value (LTV) - RBI can mandate Loan to Value (LTV) for a gold-loan,
home loan, auto loan or business loan etc. so a Bank/NBFC can’t lend more than x% of the value of the
collaterals. RBI can change this x% to boost / curb demand.
4. Selective Credit Control-
• e.g. Credit Rationing System where an individual can’t get more than prescribed amount of loans
for each category (housing, education, business).
- Consumer credit control e.g. During deflation / recession, RBI can relax the down payment / EMI
installment norms for durables like Vehicles, TV, Fridge etc. to boost consumption and demand.
- - Priority Sector Lending

- Priority Sector Lending
1968: First time RBI used the word “priority sector”: Banks must give 40% of their loans to 3 priority
sectors 1) agriculture 2) small industries 3) exporters by 1985.
Priority Sector Loans norms updated in 2015
- Weaker Sections: SC, ST, Women, PH, Minorities, Manual scavengers, Artisans, NRLM/NULM
beneficiaries, PMJDY Overdrafts upto Rs.10000.
10 %
- Agriculture: (all farmers small and big) -total 18%)
Agriculture: *Marginal Farmer (upto 1ht); *Small farmer (>1 upto 2ht)- 8% _🧵 Micro Enterprises, Khadi-
Village industries -7.50%
- Above parties, as well as Small & Medium Enterprises, Affordable housing loans to beneficiaries under
Pradhan Mantri Awas Yojana, food processing companies, Vermi compost, biofertilizer, seed
production, Exporters, Student-Education loans (upto Rs.10l), Social Infrastructure (schools, health
care, drinking water, sanitation facilities); Renewable Energy Projects (wind mills, biomass generators,
solar street light, micro-hydel plants etc.) 4.50%
- -Total PSL for SCB and (Foreign Banks with 20/> branches). _40%
- RIDF- If an underachiever bank can’t fulfil its PSL-quota through PSL-certificates purchase then
ultimately, it’ll have to deposit PSL-shortfall money to NABARD's Rural Infrastructure Development
Fund (RIDF), SIDBI, or National Housing Bank, MUDRA Ltd. etc as per the norms decided by RBI from
time to time. Under-achiever bank will earn interest from such deposited money, but it’ll be (usually)
linked with Bank-Rate & their money will be locked-in a long term project.

RBI
1. RBI acts as a bankers’ bank. What does it mean? (UPSC-Pre-2012)
1) Other banks retain their deposits with the RBI.
2) The RBI lends funds to the commercial banks in times of need.
3) The RBI advises the commercial banks on monetary matters.
(a) 2 & 3 only (b) 1 and 2 only (c) 1 and 3 only (d) 1, 2 and 3
2. RBI regulates the commercial banks in matters of (UPSC-Pre-2013)
1) Liquidity of assets 2) Branch expansion 3) Merger of banks
4) Winding-up of banks
(a) 1 & 4 only (b) 2, 3 & 4 only (c) 1, 2 & 3 only (d) 1, 2, 3 & 4

RBI Functions
- 4 regions: Northern: Delhi, Eastern: Kolkata, Southern: Chennai, Western: Mumbai
- Functions of RBI:
1) Controller of Money Supply: Issues M0 under RBI Act, Makes Monetary Policy.
2) Controller of Foreign Exchange: through FEMA Act.
3) Banker to Governments & Public Debt Manager
4) Banker’s Bank: Lender of Last resort, Advises in monetary matters.
5) Regulator of all “BANKS”: through BR Act’1949, Payment Systems’2007
6) Regulator of AIFI, NBFC-D & others.
7) Promotional Roles :
a. Customer protection through Ombudsman ,
b. Financial Inclusion through PSL norms. Requires bank to open 25% of branches in
rural areas
8) Data Publication & awareness e.g. Annual Financial Stability Report
9) International Cooperation e.g. BASEL, IMF, G20’s Financial Stability Board etc

BONDS
1. Find Correct statements(UPSC-Pre-2018)
1.The RBI manages and services Government of India Securities, but not any State
Government Securities.
2. Treasury bills are issued by the Government of India and there are no treasury bills
issued by the State Governments.
3. Treasury bills offer are issued at a discount from the par value.
(a) 1 and 2 only (b) 3 only (c) 2 and 3 only (d) 1, 2 and 3
2. With reference to ‘IFC Masala Bonds', sometimes seen in the news, which of the
statements given below is/are correct? (UPSC 2016)
1. The International Finance Corporation, which issues them, is an arm of the World
Bank.
2. They are the rupee-denominated bonds and are a source of debt financing for the
public and private sector.
(a) 1 only (b) 2 only (c) Both 1 and 2 (d) Neither1 nor 2

• Capital Market – Types of Bonds
• Ways to raise money from Market
• Borrow Money (Debt)
• Bonds
• Junk Bonds
• Gilt Edged Bonds
• Bearer bonds, Zero Coupon Bonds
• IIB(Inflation Indexed Bonds),Masala Bonds
• Give Partnership (Equity)
• IPO(Initial Public Offer) → Shares
• Venture Capitalist
• Angel Investors fund

Government borrowings
T-Bill (< 1 yr)
• Upto 364 days
• 14, 91, 182, 364 days
• Return method-@discounted price
• Rs.100 @Rs.80 (14 days)
• 1 to 20-30 years
• OMC, Fertilizer companies
• Return method- Principle + Interest
• Rs. 1000 @8% (20 years)
• Zero Coupon Bonds if bond is at discounted
price.
G- Sec (>1 yr)
•The central government issues both: treasury bills and bonds or dated securities.
•State governments issue only bonds or dated securities, which are called the state development loans.
•Since they are issued by the government, they carry no risk of default, and hence, are called risk-free gilt-edged
instruments.
•FPIs are allowed to participate in the G-Secs market within the quantitative limits prescribed from time to time.

• Junk Bonds (High Yield Bond)
• Credit rating companies like CRISIL, S&P, Moody’s etc. give credit ratings (AA, A, BBB, C, D etc.) to a
bond based on reliability & market value of a company
• If any Bond gets “C” or “D” rating, it means it is not creditworthy & may default on this loan; hence not
much people will not invest in it.
• Hence to allure investors they provide various schemes or higher Interest rates on bands
• For e.g. “If you give me Rs. 1000, I’ll give you 25% interest rate per year”
• Gilt Edged Securities
• Government Securities & Treasury Bills (via RBI) & well-known companies with high credit ratings
issues bonds
• High credit ratings assure an investor of its credibility & hence Gilt edged securities pay low rates
generally 4% annually
• Bearer Bonds
• Same as regular bonds, but don’t have “Holder’s Name” on them, instead have coupons attached with
them.
• So, if anyone doesn’t want to withdraw the whole money, he can cut a few coupons and sell them to a
broker to withdraw partial amount.

Masala Bonds
1.Masala bonds are bonds issued outside India but denominated
in Indian Rupees, rather than the local currency
2.The term was used by the International Finance Corporation
(IFC) to evoke the culture and cuisine of India
3.Unlike dollar bonds, where the borrower takes the currency risk,
masala bond makes the investors bear the risk.
4.The first Masala bond was issued by the World Bank-backed IFC
in November 2014

Elephant Bonds
• 1. An Elephant Bond is a 25-year sovereign bond (a bond issued by a
national government).
• This bond is issued to those people who declare their previously undisclosed
income and are then bound to invest 50% of that amount in these securities.
• The fund gathered by the issuance of these bonds is utilized to
finance infrastructure projects only.
• HLAG recommended these bonds in order to boost India’s growth by
utilizing the collected money (via this mechanism) to fund infrastructure
projects in the country.
• One of the key features of the proposed mechanism is that those disclosing
their black money will receive immunity from all local laws including those
under foreign exchange, black money laws, and taxation laws.

- Panda bonds
- Kangaroo bonds
- Blue bonds
- Green bonds

Colonial era Govt. to borrow money
1. Coupon Bonds: Contain detachable coupons. Coupons are presented to the issuer to claim the interest. Therefore, bond
interest rate is also called ‘coupon rate’.
2. Zero Coupon Bonds: Are sold on discount and repurchased at face value, do not have any coupons.
3. Bearer Bonds: Not linked to a PAN card, Aadhar card or passport, voter card or social security number. Anyone who presents it
to the issuer, will get interest and principal. Usually issued during the war time. Modern day Government to borrow money ⇒
Government securities, Dated securities, Sovereign bonds , ⇒ Also called Gilt Edged securities because repayment is assured by
Government. (But then, they give lower interest rate because of low risk to the investor). ⇒ Global Credit Rating Agencies gives
‘rating’ to sovereign bonds. “AAA” is the best and highest given to US Treasury Bonds. India’s rating is ~“BAA” = moderate risk of
default
⇒ Bonds by Modern day Govt. to curb Gold Consumption ⇒ Real Interest Rate = Nominal Interest minus Inflation. ⇒ When
Real Interest is negative, purchasing power ⏬despite ⏫in money quantity in bank account. Then people prefer to park money in
gold/real estate- which is not very beneficial to economy. So.. Inflation Indexed Bonds (IIB⇒ RBI launched in 1997, 2013, 2018 to
provide positive Real interest rate to household, thereby reducing the Gold consumption & Current account Deficit (CAD) &
weakening of rupee against dollar (else expensive crude oil → petrol, diesel inf ⇒ e.g. Inflation Indexed National Savings
Securities-Cumulative (IINSS-C) with Interest Rate = CPI + 1.5% [and Principal also protected against inflationSovereign Gold Bond
RBI issues them on behalf of govt. Denomination: gold grams. But, RBI/Govt doesn’t ‘promise’ to give you gold. They only
promise to give you ₹₹ equivalent of latest gold price on maturity. - Annual interest 2.5-2.75% - Tenure: after 8 years you get the
amount equivalent to prevailing gold prices at that time. - Eligible investor categories: Indian resident individuals, Hindu
Undivided Families (HUFs), trusts, universities and charitable institutions. ंं - How much can you buy? Minimum 1 gm to max
upto 20kg depending on investor’s category. - From where to buy? While RBI ‘sells’ it but customers buy it via following outlets:
banks (only selected types of banks), post offices, selected stock exchanges (NSE and BSE) and a few other institutions. -Benefit /
challenges ? reduce the import-demand for physical gold and shift a part of the domestic savings -- used for the purchase of gold
-- into financial savings.

Masala Bonds: These rupee denominated bonds issued outside India, to
borrow money for Indian companies. World Bank’s sister agency
International Financial Corporation (IFC) launched ‘Masala Bonds’ to
help Indian public sector and pvt sector companies. ⇒ 2015: RBI allowed
Indian entities to launch such Masala Bonds. ⇒ 2017: National Highways
Authority of India (NHAI) also issued Masala Bonds in London Stock
Exchange to mobilize money for Indian Highway projects. ⇒ 2019-May:
Kerala became the first state to issue Masala Bonds. Its Kerala
Infrastructure Investment Fund Board (KIIFB) issued Masala Bond at the
London Stock Exchange. Denomination: ₹ ₹ Total Size: ₹ 21.5 billion.
Tenure: 5 years. Masala Bonds are usually issued by institutions with
AAA rating. Since KIIFB has BB rating, hence offered higher interest rate:
~9.7%

SGB( 2015)
• - Sovereign gold bonds are issued by the RBI on behalf of the government.
• They are government securities denominated in grams of gold which are substitutes for holding physical gold.
- 6 tranche in 2021
• The nominal value of the 8-year bond is Rs 4,777 per gram of gold, based on the simple average closing price on the last three business days of the week
preceding the subscription period of Series I.
• Gold bonds bear interest at a fixed rate of 2.50% per annum on the amount of initial investment which will be credited semi-annually.
• These bonds are sold through offices or branches of nationalised banks, private banks, foreign banks, designated post offices, Stock Holding Corporation of
India Ltd., the authorised stock exchanges etc.
• What are the minimum and maximum limits for investment?
• The bonds are issued in denominations of 1 gram of gold and in multiples thereof.
• The minimum investment will be 1 gram, with a maximum limit of subscription of 4 kg for individuals, 4 kg for Hindu Undivided Family (HUF) and 20 kg for
trusts.
• Can these securities be used as collateral for loans?
• They can be used as collateral for loans from banks, financial Institutions and non-banking financial companies (NBFC).
• The loan-to-value ratio will be the same as applicable to ordinary gold loans prescribed by RBI from time to time.
• Granting loans against SGBs would be subject to the decision of the bank/financing agency, and cannot be inferred as a matter of right.
• What are the tax implications?
• Interest on the bonds will be taxable as per the provisions of the Income-Tax Act, 1961 (43 of 1961).
• But the capital gains tax arising on redemption of SGB to an individual has been exempted
• What will investors get on redemption?
• Investors gain from appreciation in gold prices as redemption of bonds will be based on the then prevailing prices.
• If gold prices rise, the investor will get the higher prices plus the 2.5% interest and vice-versa.
• On maturity, the gold bonds will be redeemed in Indian rupees and the redemption price will be based on a simple average of closing price of gold of the
previous 3 business days from the date of repayment.
• Although the tenure of the bond is 8 years, early redemption of the bond is allowed after the fifth year, on coupon payment dates.
• The bond will be tradable on exchanges, if held in demat form and can also be transferred to any other eligible investor.
• Why should investor buy gold bonds rather than physical gold?
• The quantity of gold the investor pays for is protected, since he receives the ongoing market price at the time of redemption/premature redemption.
• These bonds offer a superior alternative to physical gold as the risks and costs of storage are eliminated.
• Investors are assured of the market value at the time of maturity, and periodical interest.
• Also these bonds are free from issues like jewellery making charges and purity, risk of loss of scrip etc

FINANCIAL MARKET
(वित्तीय बाजार)

1.Which of the following is /are example (s) of ‘Near Money’? [UPSC-
CDS-2016-I]
1. Treasury Bill 2. Credit Card 3. Saving accounts 4. Money Market
Instruments
(a) 1 only (b) 2 only (c) 1, 2 and 3 (d) 1, 3 and 4
2. In Indian economy, non-financial debt includes which of the following
? (UPSC-Prelims-2020 )
1) Housing loans owed by households 2) Amounts outstanding on credit
cards 3) Treasury bills
[a) 1 only [b) 1 and 2 only [c) 3 only[d) 1, 2 and 3

3. Which of the following phrases defines the nature of the ‘Hundi’ generally
referred to in the sources of the postHarsha period? (UPSC-Prelims-2020)
[a) An advisory issued by the king to his subordinates
[b) A diary to be maintained for daily accounts
[c) A bill of exchange
[d) An order from the feudal lord to his subordinates
4.Find correct statement(s) (UPSC-Prelims-2020)
1) ‘Commercial Paper’ is a short-term unsecured promissory note.
2) ‘Certificate of Deposit’ is a long-term instrument issued by the Reserve
Bank of India to a corporation.
3) ‘Call Money’ is a short-term finance used for interbank transactions. 4)
‘Zero-Coupon Bonds’ are the interest bearing short-term bonds issued by the
Scheduled Commercial Banks to corporations.
Codes: [a) 1 and 2 only [b) 4 only [c) 1 and 3 only [d) 2, 3 and 4 only

5.
1. Which of the following is/are a component of organised Indian money
market?
1. Commercial Papers
2. Mutual Funds
3. Treasury Bills
4. Cash Management Bills
Which of the above statement is true?
a. 1, 2 and 3 b. 2, 3 and 4
c. 1, 3 and 4 d. All of the above

6. Consider the following statements regarding the financial market:
1. Money market and capital market are the two segments of the
financial market of an economy.
2. The long-term financial market is called money market while the short
time financial market is called capital market.
Which of the above statement is true?
a. Only 1 b. Only 2
c. Both 1 and 2 d. Neither 1 nor 2
7. Consider the following statements regarding the Call Money Market:
1. This is basically an inter-bank money market where funds are borrowed and
lend for one day.
2. Collateral Security is required to borrow from this market.
• Which of the above statement is true?
a. Only 1 b. Only 2
c. Both 1 and 2 d. Neither 1 nor 2

1.Find Correct statements:(Asked in UPSC-Pre-2018)
• 1. The Reserve Bank of India manages and services Government of
India Securities, but not any State Government Securities. 2. Treasury
bills are issued by the Government of India and there are no treasury
bills issued by the State Governments. 3. Treasury bills offer are issued
at a discount from the par value. Ans Codes:(a) 1, 2 only (b) 3 only (c)
2 , 3 only (d) 1, 2 and 3
2MCQ. Which of the following is /are example (s) of ‘Near Money’?
[UPSC-CDS-2016-I]
1. Treasury Bill 2. Credit Card 3. Saving accounts 4. Money Market
Instruments
• Answer codes: (a) 1 only (b) 2 only (c) 1, 2 and 3 (d) 1, 3 and 4

3.What does ‘Venture Capital’ mean? (Asked in UPSC-Pre-2014)
A. A short-term capital provided to industries
B. A long-term start-up capital provided to new entrepreneurs
C. Funds provided to industries at times of incurring losses
D. Funds provided for replacement and renovation of industries
4. An individual investor who invests in the e-project usually during an
early stage is (UPSC-IES-2020)
A) corporate strategic investor B) founder capital
C) angel investor D) venture capital

Financial Market
Money Market Capital Market
Primary
Secondary

Organised Indian Money Market
• Present since independence, its real development took place after the year 1985. Today
there are eight instruments or components of the Indian money market especially
designed to fulfill the short-term fund requirements (< 364 DAYS) of the different
categories of the individuals, institutions or the firms and companies:
(i) Treasury Bills (>91 days)
(ii) Call Money Market (interbank tfr)- Call/Notice/Term money
(iii) Certificate of Deposit
(iv) Commercial Bills
(v) Commercial Papers ( by listed company/5 cr capital/good credit rating)
(vi) Mutual Funds
(vii) Repo and Reverse Repo Markets.
(viii)Cash Management Bill(<91 days)
- Money market doesn’t need any mortgage/collaterals.
• - Money market in India is primarily regulated by the RBI except the Mutual Funds which
have dual regulators—the RBI and the SEBI

Govt
Short term debt instruments → by Government
1. State govt’s treasury bills (T-bill). But stopped since 2001.
2. Union govt’s treasury bills (T-bill: 91, 182 and 364 days)
& Cash Management bills (CMB: upto 90 days, started in 2009).
3. WMA (ways and means advances)

Short term debt instruments → by borrowers other than Govt
Company - Bill of Exchange, Hundi, Commercial Papers, Promissory
Note. Currency Note is a ‘Promissory Note’ issued by RBI Governor
however, he’s not bound to pay any interest. He just promises to
exchange it with other currency notes & coins of equal face
Merchant to bank -Commercial Bill.
Banks / NBFC Certificate of Deposits
Call Money It’s the interest rate when Financial Intermediaries
(Banks/NonBanks) borrow for ONE DAY among themselves.
Notice Money Same as above but for 2 to 14 days
Term Money- 15 days to 364 days

Rs.10
lakh
1 lakh 4 lakh
5 lakh
20% 80%
Equity:
Shareholders
Proprietors
Credito
rs

20k 80k 5 lakh
20% 80%
Rs.1 Lakh Credito
rs
Liquidation: 6
Lakh

• Short term debt instrument –
BORROWER- GOVT
1. State govt’s treasury bills (14 days). But stopped since 2001.
2. Union govt’s treasury bills (91, 182 and 364 days) &
Cash Management bills (CMB: upto 90 days, started in 2009).
3. WMA (ways and means advances): it’s the mechanism through which RBI
lends money to Govt, for temporary short term needs when there is
mismatch in receipt and expenditure of Govt. This WMA is not counted in
Fiscal Deficit formula.
BORROWER Company - Bill of Exchange, Hundi, Commercial Papers,
Promissory Notes.
- Merchant to bank Commercial Bill.
=Banks / NBFC Certificate of Deposits (जमा प्रमाण पत्र).

T-bill,CP,CDs
1. T-Bill: upto 364 days maturity, sold @discounted
price (Govt.)
2. Commercial Papers: same thing but by Corporates.
3. Certificate of deposits: same thing by Banks & Fin.
Institutes
(These are issued to the individuals, corporations and companies etc by scheduled commercial banks, excluding
local area banks and regional rural banks.
• The minimum amount issued through the certificate of deposit is rupees 1 lakh by a single user, and larger amounts
are in the multiples of rupees 1 lakh.
• For banks, the minimum maturity period of the certificate of deposit should not be less than 7 days and maximum
maturity period should not be more than 1 year. For Financial Institutions, the minimum maturity period should not
be less than 1 year and the maximum maturity period should not be more than 3 years)

Cash Management Bill
• The Government of India, in consultation with the Reserve Bank of India, decided to
issue a new short-term instrument, known as Cash Management Bills, since August
2009 to meet the temporary cash flow mismatches of the Government. The Cash
Management Bills are non-standard and discounted instruments issued for
maturities less than 91 days.
• The Cash Management Bills have the generic character of Treasury Bills (issued at
discount to the face value); are tradable and qualify for ready forward facility;
investment in it is considered as an eligible investment in Government Securities by
banks for SLR.
• It should be noted here that the existing Treasury Bills serve the same purpose but
as they were put under the WMAs (Ways & Means Advances) provisions by the GoI
in 1997 they did not remain a fluid route to government in meeting its short-term
requirements of funds at its will. The CBM does not come under the similar WMAs
provisions.

Money Market: Misc. Debt Instruments
Commercial Bills: Trade bill (will pay for xyz goods in future).
Same trade bill sold to Commercial bank @discounted price =
Commercial bills.
10,000 9,000
XYZ FIRM

Call Money & Notice Money
1. Short term borrowing among banks and Financial Institutions
2. No collateral. Mainly to fulfill CRR
3. 1 day: Call money
4. Over 1 day upto 14 days: Notice money
- This is basically an inter-bank money market where funds are
borrowed and lent for one day. Also known as over-night borrowing
(called as money at call) and for a period upto 14 days (called short
notice).
- No collateral is required to borrow from this market. Funds are
usually raised from this market upto three days—the higher the
interest, the longer the period for which the funds have been borrowed.

WMA (Ways and Means advances)
1. Government- temporary mismatch in
receipt and payment
2. RBI helps. But limits fixed.
3. Not counted in fiscal deficitl

Security- A ‘Security’ means a certificate/document indicating
that its holder is eligible to receive a certain amount of money at
a particular time.

Security Market
- 1.Primary Market (where new securities are issued for the first time).
Helps a company /govt to connect with the investor. It has no separate
physical existence
- 2. Secondary Market (where the old securities are resold). It has
physical existence such as Bombay Stock Exchange (BSE) at Dalal
Street, Mumbai. Provides liquidity & confidence to investors to buy
new securities in Primary Market.
-Asset - Depending on what asset is traded, market can be divided into
Bond (Debt) market, Share (Equity) market, Gilt-Edged Securities
Market, Foreign Currency Market, Commodity Market etc. - if there
was a supermall where all these products were available in one place it
will be called “Universal Exchange”. SEBI permitted BSE & NSE to launch
such thing (2018).

5 NATIONAL STOCK EXCHANGES IN INDIA
• BSE (1875)- sensex 30
• NSE (1991 Jun)- Based on MK Ferwani committee
recommendation; NIFTY 50
• OTCEI- Over the Counter Exchange of India ( < 3 cr
& < 3 yr track record of companies)
• Indo- Next- service sector Industries
• Inter Connected Exchange of India- Facilitates
Regional Exchanges trade

• Classification of Financial Market
• A financial market consists of two major segments: (a) Money Market; and (b)
Capital Market. While the money market deals in short-term credit, the capital
market handles the medium term and long-term credit.
• Financial Market Classification
– Money Market.
• Call Money.
• Treasury Bill.
• Commercial Paper.
• Certificate of Deposit.
• Trade bill.
– Capital Market.
• Securities Market
– Primary Market : IPOs, Book Building, Private Placements.
– Secondary Market : Equity Market, Debt Market, Commodity Market, Futures and Options Market. (Secondary Market
can be basically divided into two – spot market and forward market. Forward market has two divisions – futures and
options/derivatives. Again, there are two types of options – put option and call option.)
• Non-Securities Market
– Mutual Funds.
– Fixed Deposits, Savings Deposits, Post Office savings.
• Insurance.

Raising Capital in the Primary Market
• There are three ways in which a company raises capital in the primary market—
• Public Issue
• A public offer is open for all Indian citizens, the most broad-based method of
raising capital and the most prestigious, too (The Reliance Industries Ltd. is the
biggest company of India in this category).
• Rights Issue
• Raising capital from the existing shareholders of a company, it means it is a
preferential kind of issue restricted to a certain category of the public only.
• Private Placement
• Raising capital by selling shares to a select group of investors, usually financial
institutions (FIs) but may be to individuals also. This is done through a process of
direct negotiations (completely opposite to the public issue). The advantage of this
route is the substantial saving a share issuing company makes on marketing
expenses (but the risk of shifting loyalties of the investors in this route is also the
highest!).

• Capital Market – Types of Bonds
• Ways to raise money from Market
• Borrow Money (Debt)
• Bonds
• Junk Bonds
• Gilt Edged Bonds
• Bearer bonds, Zero Coupon Bonds
• IIB(Inflation Indexed Bonds),Masala Bonds
• Bank Loan
• Give Partnership (Equity)
• IPO(Initial Public Offer) → Shares
• Venture Capitalist
• Angel Investors fund

Debt → Interest Rate Benchmarks: LIBOR
London Inter-bank Offered Rate (LIBOR) is the average interest rate at which
banks in London give short term loans to each other.
Objectives/usage/application of LIBOR? - (some) global banks decide their
call money /notice money rates based on it. - (some) external commercial
borrowing (Indian businessmen taking loans from abroad), - (some) FCNR
deposit interest rates (Non resident Indians depositing foreign currency
savings in Indian banks to earn interest)
Controversy? LIBOR methodology had become unreliable & fraud-ridden in
recent years. So, UK regulator ordered stopping LIBOR by the end of 2021. ⇒
So accordingly, Financial intermediaries across the world are changing their
LIBOR based contracts/agreements to other benchmarks. e.g. TONAR
(Tokyo/Japan), SARON (Switzerland), SOFR (USA), SONIA (UK-Sterling-Pound),
ESTR (Euro) etc.
- LIBOR no more in existence

ADR,GDR
A non-American company wants to mobilize money from American
share market but does not want to go through the lengthy & complex
process of registration with the American sharemarket regulator. - Then
such non-American company gives its shares to an American bank. -
Based on those (non-American) shares, the American bank will issue
American Depositary Receipts & sell them to American investors.
Denomination: USD.
- Global Depositary Receipt (GDR): Same as above, but when single bank
issues receipts for investors in multiple countries. Denomination: usually
USD or Euro.

In the parlance of financial investment, ‘Bear’ denotes [UPSC-CDS-2012]
(a) an investor, who feels that the price of a particular security is going
to fall. (b) an investor, who expects the price of a particular share to
rise. (c) a shareholder, who has an interest in a company, financially or
otherwise. (d) any lender, whether by making a loan or buying a bond.
2.Which of the following statements is/ are correct? [UPSC-CDS-2012-I]
1. NIFTY is based upon 50 firms in India. 2. NIFTY is governed and
regulated by the Reserve Bank of India. 3. NIFTY is the stock index of
Bombay Stock Exchange. Answer Codes: (a) Only 1 (b) Only 2 (c) Only 3
(d) 1 and 3

3. Which of the following is issued by registered foreign portfolio
investors to overseas investors who want to be part of the Indian
stock market without registering themselves directly? (Pre2019)
(a) Certificate of Deposit (b) Commercial Paper (c) Promissory
Note (d) Participatory Note

SEBI
HQ- Mumbai ⇒ (1988) Formed by an executive order → (1992) Became Statutory Body → powers
increased through amendments in 1999 & 2014. Now it can order search and seizure, attachment of
properties, arrest and detention. (खोज अ�भग्रहण, सं प��यो क� ज�ंी/क
ु क� ंं , �गर�ंारी
और �नरोध) ⇒ SEBI Board Composition: Chairman + 1 officer from RBI + 2 officers from Union
Government + 5 members appointed by Union Government. ⇒ Chairman: upto 5 years / 65 age.
Reappointment possible. Ajay Tyagi (IAS) initially given 3 years term in 2017, could be extended in future.
His tenure was set to expire in 2020-Aug. But, the government extended it for another 18 months (till
2022) to ensure organizational stability amid the Covid-19 pandemic. (खामखा नया अ�� ढूंढने जाए
और र्वह अपनी तरंग से काम बबादि ना कर� इस�लए पुराने अ�� को नौकरी पे चालू रखा ) ⇒
Regulates Process of issuing securities (Bonds, Shares, IPO, ETF, ReIT, INVITs, etc.) using the Securities
Contracts Regulation Act, 1956 [SCRA: प्र�तभू�त सं �र्वदा �र्व�नयमन] ⇒ Regulates Places
(Depositories, Stock exchanges, Commodity Exchanges etc.) ⇒ Regulates Persons (Investors, Brokers,
Fund Managers, Public Limited companies etc.) ⇒ Regulates any Collective Investment Scheme (CIS) of
₹100 cr/> [In the aftermath of SAHARA scam & Chit Fund scams. सामूिंहक �नर्वेश योजनाए ] ⇒ Further
appeal: Securities Appellate Tribunal (SAT) → Supreme Court. ○ Same SAT also hears appeals against the
orders passed by Insurance Regulatory Development Authority of India (IRDAI) and Pension Fund
Regulatory and Development Authority (PFRDA).(More in 📑📑Pillar#1D) ⇒ SEBI has “SCORES” online
portal for complaint. (�नर्वेशक इधर ऑनलाइन फ़�रयाद करे) ⇒ SEBI has Securities Market Trainers
(SMARTs) Program for investor education (�नर्वेशक प्र�श�ण

P-Notes Foreign investor wants to invest in Indian share/bond market
without registering with SEBI. He wants to buy Indian companies’
shares/bonds in India.
Bharat-DR Foreign Company wants to Indian to invest in its foreign
shares, without registering with SEBI.
ADR/GDR Non-American Company wants to American people to invest in
its shares without registering with American SEBI.
GDR- similar concept
Masala/Panda/ Kangaroo Bonds etc Foreign company/org wants to
borrow money, in a particular currency from a particular country. Refer to
respective segment

CAPITAL ACCOUNT
1.Difference between FDI and FPI (FII)

FDI FII / FPI
•Long-term relation with company & its board e.g.
Walmart
•Short-term relation with the company e.g. Morgan
Stanley, Goldman Sach
•Also known as Hot money → Can leave country on
one phone call
•In any listed company → Investment of 10%
or more is termed as FDI
•In any Unlisted company → Any investment is
termed as FDI
•Any Public ltd. Company (listed) → Investment below
10% is termed as FII / FPI
•Sectoral caps applies for ex : 49% Defence; 74%
in Private banks
•If public listed then anyone can purchase below 10%
Arvind Mayaram Panel on FDI & FII(FPI)

P-Notes
P-Notes are instruments used by foreign funds and investors not registered with the
SEBI to invest in Indian securities.
They are generally issued overseas by associates of India based Foreign Institutional
Investor (FPIs) and domestic institutional investors.
Technically, P-Notes are Offshore Derivative Instruments (ODIs) issued by FPIs and
their subaccounts against underlying Indian securities (like shares).
- Problems with P-Notes;
It hides the identity of the investor
Hence is generally used as an instrument of investing black money into Indian market.
Hence norms pertaining to P -Notes have been tightened continuously by SEBI.
If P-Note owner sells his P-Notes to another foreign investor, Government of India
may be deprived of taxes.
In May 2016, SEBI has extended the KYC norms and anti-money laundering norms to
the PN subscribers also.

• - Benefits of FDI
• FDI brings in many advantages to the country. Some of them are discussed below.
1. Brings in financial resources for economic development.
2. Brings in new technologies, skills, knowledge, etc.
3. Generates more employment opportunities for the people.
4. Brings in a more competitive business environment in the country.
5. Improves the quality of products and services in sectors.
• Disadvantages of FDI
• However, there are also some disadvantages associated with foreign direct investment. Some of
them are:
1. It can affect domestic investment, and domestic companies adversely.
2. Small companies in a country may not be able to withstand the onslaught of MNCs in their sector.
There is the risk of many domestic firms shutting shop as a result of increased FDI.
3. FDI may also adversely affect the exchange rates of a country.

• Question UPSC CSE 20200 With reference to Foreign Direct Investment in
India, which one of the following is considered its major characteristic?
(a) It is the investment through capital instruments essentially in a listed
company.
(b) It is a largely non-debt creating capital flow
(c) It is the investment which involves debt-servicing.
(d) It is the investment made by foreign institutional investors in the Government
securities.

Q. Which of the following is issued by registered foreign portfolio
investors to overseas investors who want to be part of the Indian stock
market without registering themselves directly? (CSE-2019)
a. Certificate of Deposit
b. Commercial Paper
c. Promissory Note
d. Participatory Note

Financial Inclusion
1. Banking services
2. Credit facilities
3. Long term investment opportunities
4. Insurance facilities

Preview of Topic- POVERTY
 Types of Poverty (Absolute & Relative)
 Agencies involved & Methods for Poverty Estimation
 Historical perspective & Various Committees of Poverty
Measurement
 Indicators of Poverty Measurement
 SECC
 Poverty Alleviation Programmes

1. The Multi-dimensional Poverty Index of UNDP covers which of the
following?(Asked in UPSC-Pre-2012)
1.Deprivation of education, health, assets and services at household
level 2. Purchasing power parity at national level 3. Extent of budget
deficit and GDP growth rate at national level
Codes: (a) 1 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
2. In a given year in India, official poverty lines are higher in some states
than in other because (Pre-2019)
a) Poverty rates vary from state to state b) Price levels vary from state to
state c) Gross state product varies from state to state d) Quality of public
distribution varies from state to state

3. Among the following who are eligible to benefit from the “Mahatma
Gandhi National Rural Employment Guarantee Act”?(UPSC-Pre-2011)
a) Adult members of only the scheduled caste and scheduled tribe
households b) Adult members of below poverty line (BPL) households
c) Adult members of house holds of all backward communities d)
Adult members of any household
4. Which one of the following is not an objective of MGNREGA? (CDS-i-
2020)
a) Providing up to 100 days of skilled labour in a financial year
b) Creation of productive assets
c) Enhancing livelihood security
d) Ensuring empowerment to women

5. How does the NRLM seek to improve livelihood options of rural
poor?(UPSC-Pre-2012)
1. By setting up a large number of new manufacturing industries
and agribusiness centres in rural areas 2. By strengthening ‘self-
help groups’ and providing skill development 3. By supplying
seeds, fertilizers, diesel pump-sets and micro-irrigation
equipment free of cost to farmers
Codes: (a) 1 and 2 only (b) 2 only (c) 1 and 3 only (d) 1, 2 and 3
6. Which one of the following is the earliest launched scheme of the
Govt of India? (UPSC-CDS-i-2020)
a) Deendayal Antyodaya Yojana b) Pradhan Mantri Gram Sadak
Yojana c) Saansad Adarsh Gram Yojana d) Deendayal Upadhyaya
Grameen Kaushalya Yojana

7. To obtain full benefits of demographic dividend, what should India
do-
a. Promoting skill development
b. Introducing more social security schemes
c. Reducing Infant Mortality rates
d. Privatization of higher education

GS MAINS
1. ‘The poverty line in India may not permit a comfortable
existence, but allows above subsistence existence.’ Critically
examine the concept of Poverty line in India.
2. Examine the arguments in favour and against introduction of
universal basic income in India.

Poverty
-Poverty is the lack of sufficient money to meet the minimum standard
of living including food, clothing, shelter, health and education.
- 2019 Nobel for Economics: Abhijit Banerjee & his wife Esther Duflo
(France) and Michael Kremer (USA) received for “experimental approach
to alleviating global poverty." They suggested we should divide poverty
issue into smaller & manageable questions such as: ⇒ “How can we
improve educational outcomes? ⇒ ”How can we improve child health?”
→increase vaccination→ give foodgrains to parents if they bring child for
vaccination.

POVERTY- Types
 Def- ‘ Denial of choices & opportunities, a violation of human dignity. It means lack of basic capacity to
participate effectively in society.’- UN
- PPP <1.90 dollars per day (Extreme poverty)
 Types-
(a) Absolute poverty- Based on a pre-determined (subsistence) level of per capita consumption
expenditure of population.e.g.28 % BPL Population
- Amount required for basic human functioning
- Dr Amartya Sen’s Capability Based Approach
(b) Relative Poverty- Estimates poverty in relation to the economic status of other individuals in the
society.
e.g. Dalits poorer than Marwaris
- It captures inequality of income, rather than income levels in the society (per capita income of
lower 25% of the population as compared to upper 25% of population in a country.)
- Measures to capture income inequality Ginni’s Coefficient; Poverty Gap Index (PGI)
- Dr Kaushik Basu’s approach, Dr C Rangrajan’s approach for poverty estimation

Poverty Estimation
→ World Bank: 21% Indian population is poor ⇒ World Bank’s International Poverty Line
(IPL) stands at person living daily on US$1.90 (PPP exchange rate). ⇒ This is an example of
“Absolute Poverty” measured with an artificial line. The result is usually expressed in Poverty
Head Count Ratio (HCR) i.e. proportion of a population that lives, below this poverty line.
- Relative Poverty : Households are arranged in ascending order of annual income →
Households earning less than x% of median income is classified as poor. (e.g. UK uses
x=60%) Thus it measures poverty ‘relative’ or ‘compared‘ to how much others are earning.
- → UNDP: 28% Indian population is poor - By World bank definition, if a person is spending
$1.91 per day, he is NOT Poor. Although, he would be suffering from many deprivations.
So, United Nations Development Programme (UNDP)→ Multidimensional Poverty Index
(MPI) looks beyond income to understand how people experience poverty in multiple
ways. - Household survey with set of 10 questions spread across 3 dimensions viz. health,
education and standard of living. E.g. - A) Health → 1) nutrition, 2) child mortality - B)
Education → 3) years of schooling 4) school attendance C) Living standards → 5) cooking
fuel (dung, wood, charcoal or coal) 6) sanitation 7) drinking water 8) electricity, 9) housing
10) household assets (e.g. radio, TV, telephone, computer, animal cart, bicycle, motorbike,
refrigerator, car or truck?).
- These 10 Qs are assigned different weights add data → UNDP arrives at MPI Head count
ratio.

POVERTY- Agencies & Methods involved
 Agencies involved in Poverty Estimation-
- NITI Aayog (estimates poverty % using NSSO data)
- NSSO (Quinquennial Sample surveys for household consumption expenditure)
- Various Expert Groups Appointed by PC/NITI Aayog for poverty line estimation
- MoRD for BPL Census
 Methods used by PC for Poverty Estimation-
- URP (Uniform Recall Period-30 days recall period of all food & non food items)
- MRP (Mixed Recall Period- 1 yr recall period for 5 non food items like edu, med
care,clothing,footware,durable goods & 30 days recall period for all other food &
non food items)
- MMRP (Modified Mixed Ref Period- Varied ref period for different food & non
food items , ranging from 7 days to 1 yr)

POVERTY- Role & Approaches
 Role/Purpose of Poverty Estimation-
- Normative (for identifying the BPL so that welfare measures
can be directed)
- Monitoring (Monitoring the efficacy of Govt welfare
measures for poverty alleviation)
 Approaches for Poverty Estimation-
- Direct Approach- Measuring the standard of living;
Capability Approach- e.g Malnourished people, Illiteracy
rate, Houseless population, people dying of starvation & so
on.
- Indirect Approach- Money metric approach i.e. focus on a
particular value below which BPL e.g. 32 Rs/day;
Problem of money metric approach, poverty figures are
reducing in India but standard of living is not increasing in
that proportion in India.

POVERTY- Steps in calculation of Poverty
Line
Deciding the contents of Poverty Line Basket
 Calculating market value of Poverty Line Basket
content
 Based on monthly expenditure data of population,
estimating percentage of population BPL by
PC/NITI Aayog
 Conducting BPL Survey for identifying the
beneficiaries

POVERTY- Indices
• Indices- HPI (Life expectancy,Knowledge,Standard of living)
- Multidimensional Poverty Index (By OPHI- Oxford Poverty and
Human Development Initiative; complements income criteria with
overlapping deprivations, 10 indicators)
- Head Count Ratio
- Global Hunger Index (By IFPRI; Based on- Malnourishment, Child
wasting, Child stunting, Child Mortality Rate; India- 103/118)
• States with Poverty Data-
Lowest poverty – Andaman & Nicobar (1%)
Highest Poverty – Chhattisgarh (39.9%)

MPI
-Developed in 2010 by the Oxford Poverty & Human Development Initiative (OPHI) and the United Nations
Development Programme
- An international measure of acute poverty, complementing traditional income-based poverty measures by
capturing the severe deprivations that each person faces at the same time with respect to education, health and
living standards. The MPI assesses poverty at the individual level
- Replaced the Human Poverty Index (HPI);
- Analytical tool to identify the most vulnerable people - the poorest among the poor, revealing poverty patterns
within countries and over time, enabling policy makers to target resources and design policies more effectively .
- MPI= H X A; H: Percentage of people who are MPI poor (incidence of poverty) and A: Average intensity of MPI
poverty across the poor (%)
- While both HDI and MPI use the 3 broad dimensions health, education and standard of living, HDI uses only single
indicators for each dimension of poverty while MPI uses more than one indicator for each one (MPI calculated
for a limited number of countries)
- Been criticized for not taking "moral/emotional/spiritual dimensions" of poverty into consideration (GHI-Bhutan)
- 2015 Multidimensional Poverty Index (MPI) counts 1.6 billion people as multi-dimensionally poor, with the
largest global share in South Asia and the highest intensity in Sub-Saharan Africa

Oxfam Inequality Index
Oxfam Inequality Index ⇒ UK’s NGO Oxfam International’s
‘Commitment to Reducing Inequality (CRI) Index’ ⇒ It measures Govt’s
‘seriousness’ in reducing inequality by 3 dimensions 1) Govt’s spending
on social sector 2) progressive taxation 3) labour rights. ⇒ 2018 Ranking:
#1: Denmark, #147: India, #157: Nigeria (lowest) ⇒ 2020-Jan: Oxfam
presented a report in WEF-Davos summit that 1% Indian hold four times
more wealth than 70% of poor and it would take a female domestic
worker in India 22,277 years to earn what a top CEO of a technology
company makes in one year. ⇒ 2021-Jan: Report Theme ‘The Inequality
Virus’: Rich Indians’ wealth ⏫by 35% during lockdown = ₹13 trillion- This
amount is large enough to give cheque of ₹94,000 to each poor person /
run Health ministry for 10 years/MGNREGA scheme for 10 years.

POVERTY- Historical Perspective & Expert
Committees
 Perspective Planning Committee (1961)-
 Rural ( Rs 20/Month/Person) & Urban (Rs 25/Month/Person)
 Yoginder Alagh Committee (1979)-
 Calorie based Expenditure approach –
Rural 2400 C per person per day & Urban2100 C per person per day (Based on Dandekar
& Rath committee criteria)
 Not considered Health & education expenditure in calculation as it was supposed to be
given free of cost by Govt to people.
 Prof T Lakdawala Committee( 1993)-
 Continuation of Calorie based expenditure approach of 2400 & 2100 C for rural & Urban
areas respectively.
 Also recommended that Expenditure value should be indexed with inflation & State
specific different BPL values to be calculated.

POVERTY- Historical Perspective & Expert Committees
 Prof Suresh Tendulkar Committee (2009)-
 Radical departure from earlier approach of calculation of BPL on the basis of nutritional requirements only.
 Delinked Poverty Line from calorie requirements
 Focus on Non Nutritional requirements, especially Education & Health Care services (Expenditure for National Minimum
Living Standard)
 Single Poverty Line , instead of different Rural & Urban Poverty Line values.
 - Criteria- Per Capita Expenditure Per Month ; 816(R) & 1000 (U) i.e. 27&33 resp per day- PCE per month;
 27 cr poor(22% of population); MRP method used
 Dr C Rangrajan Committee report ( 2014)-
 Emphasis on Nutritional Requirements; Considered expenditure requirement of Calories + Proteins + Fats in calculation of
poverty line
 Also included 4 Non Nutritional items of expenditure for calculation of Poverty Line- Clothing+ Rent+ Conveyance+ Education
 Recommended that beneficiaries for welfare schemes should be selected on specific deprivation &not on generalised BPL
level.
 Recommended for Relative Poverty Estimation so as to monitor the efficacy of welfare/ poverty alleviation schemes.
 Criteria- per month expenditure for family of five (food + nonfood items such as education, healthcare, clothing, transport
(conveyance), rent. + non-food items that meet nutritional requirements)
4860 (R) & 7035 (U)i.e. 32 & 47 resp per day; 37 cr poor
 ICMR recommendation for calories, proteins & fat- 2155 C,48gm proteins & 28gm fats (Rural) and 2090C,50 gm & 26
gm(Urban)+-10%;
 MMRP method used.
 Arvind Pangarhia Task Force –
 Recommended Prof Suresh Tendulkar committee recommendations for poverty estimation.
- Summary BPL Population - Prof Suresh Tendulkar Committee report (22%); World Bank 1.9 dollars Per day; UNDP criteria of MPI

Poverty Measurement Committees

SECC & Poverty Estimation
• To reduce inclusion/exclusion errors, the Ministry of Rural Development launched the Socio-Economic
and Caste Census (SECC) — a door-to-door enumeration across both rural and urban India collecting
household-level socio-economic data. The SECC marked a shift from previous censuses by ranking
households in three stages:
• Households meeting exclusion criteria (like motorized vehicle, kisan credit card, etc) are automatically
excluded
• Households satisfying inclusion criteria are included (manual scavengers, households without shelter
etc.)
• The remaining households are identified through a seven-item binary scoring criteria, using
deprivation indicators like households with only one room, female-headed households with no adult
male member between 16 and 59, etc.
• The Government of India advised states to use SECC data to identify poor households under the
National Rural Livelihoods Mission, a livelihoods scheme, and Pradhan Mantri Aawaas Yojana
(PMAY), a housing scheme. For example, in PMAY, the beneficiary family cannot own a properly
constructed house to be eligible for the scheme. The rationale for shifting to SECC data is ensuring that
schemes are targeted better through deprivation indicators.
• The government is hoping to use the multi-dimensional SECC data for identifying beneficiaries in more
schemes while retaining a poverty line in India to track progress in combating extreme poverty.
Whether the SECC results in better scheme performance remains to be seen — but it has undeniably
resulted in an extremely detailed data set on rural households with rich block-level data that, if
analyzed properly, could inform policymakers at all levels.

SECC
Socio Economic Caste Census − SECC is different from poverty lines
because SECC’s primary objective is not to ‘measure’ poverty but rather
‘eligibility’ of a family for Govt schemes. − SECC is different from
Population Census because under Population Census Act, 1948 Govt
must keep individual's personal information confidential. But SECC is
done outside of it, so personal information can be uploaded online

Rural & Urban Poverty Committees
. Saxena Committee for BPL Census in Rural area(2009)-
Automatic exclusion like double the avg agri land of dist,four or three
wheelers , mechanised farm eqpt like tractor,thresher,salary 10000,
ITR
Automatic inclusion like primitive tribal group,mahadalit, family head as
minor or destitute or disabled or single woman.
. Hashim Committee for BPL fam in Urban Areas

MAJOR POVERTY ALLEVIATION
PROGRAMMES IN INDIA
• Major Poverty Alleviation Programmes in India –
• Since Independence Indian Government Has Launched Many Poverty Alleviation programmes in India.The programmes concerning
alleviation of poverty can be summed up into five categories:
1.Wage employment programmes,
2.Self-employment programmes,
3. Food security programmes,
4. Social security programmes and,
5.Urban poverty alleviation programmes.
• List of All Poverty Alleviation programmes Of India
• Jawahar Gram Samridhi Yojana (JGSY)
• National Old Age Pension Scheme (NOAPS)
• National Family Benefit Scheme (NFBS)
• National Maternity Benefit Scheme (NMBS)
• Integrated Rural Development Programme (IRDP)
• National Rural Employment Guarantee Act (NREGA)
• Annapurna
• Rural Housing-Indira Awaas Yojana (IAY)(initiated in 1985)
• SAMPOORNA GRAMEEN ROZGAR YOJANA
• NATIONAL FOOD FOR WORK PROGRAMME
• NATIONAL SOCIAL ASSISTANCE PROGRAMME
• SWARNAJAYANTI GRAM SWAROJGAR YOJNA
• DRDA ADMINISTRATION
• BASIC MINIMUM SERVICES
• DROUGHT-PRONE AREAS PROGRAMME
• Pradhan Mantri Awas Yojana
• Jeevan Jyoti Bima Yojana (PMJJBY)
• Krishi Sinchai Yojana
• Kaushal Vikas Yojana
• Garib Kalyan Yojana
• Gram uday Se Bharat Uday Scheme

PROGRAMMES IN INDIA
 Schemes-MNREGA, Urban and Rural livelihood missions
• Scheme#1: MNREGA Act 2005
• under Rural Development ministry(ग्रामवर्वकास मंत्रालय)
• Promises minimum 100 days of unskilled manual work
• To each rural household. (not to each person)
• In a financial year (1st April to 31st March)
• 1/3rd women participation
• ‘Core of the core scheme’ of Govt of India- 100% wages by central Govt
• Unemployment allowance: If work is not provided within 15 days, applicants are entitled to an
unemployment allowance: one third of the wage rate for the first thirty days, and one half thereafter.
• State governments have to appoint district level ombudsman to hear complaints
• Wages: Material ratio = 60:40
• MNREGA Wages are linked with CPI inflation for Agricultural laborers

PROGRAMMES IN INDIA
• Scheme #2: NRLM / Aajeevika
• Who? Rural Development Ministry
• 1999: Swarnjayanti Gram Swarozgar Yojana (SGSY). Later renamed to National Rural Livelihood
Mission (NRLM). Finally renamed to Aajeevika.
• Wants to lift rural families from abject poverty
• How?
– By 2024, get one person (preferably woman) from each household, into an income
generating Self-help groups (SHG).
– By Giving (Bank loans + subsidy + training) to those SHG.
• Scheme #3: National Urban Livelihood mission
• Who? Ministry of Housing & Urban poverty alleviation.
• Earlier called Swarnajayanti Sahari Swarojgar Yojana. Then renamed into National urban livelihoods mission, with
following features
• self-help groups: bank credit + subsidies + skill training
• street vendors also get easy loans and skill training
• Shelters for the homeless.
• Scheme- DEENDAYAL ANTYODAYA YOJNA (2011 by MoRD)
DAY (NRLM + NULM)

UBI
- Concept of Universal Basic Income (India spends approximately Rs 9 lakh
crore in welfare through thousands of schemes. MGNREGS, PM Kisan etc have
mammoth budgets and sweeping scales. Apart from the difficulty of reaching
the right beneficiaries, much bureaucratic energy is spent on verifying eligibility,
supervising the implementation etc.
It is time to implement universal basic income (UBI) in India. To give Rs 1,200 per
month to 150 crore Indians will cost the government Rs 21.6 lakh crore a year.)

Unemployment
• Types
• Concept of Unorganised sector, Gig workers
• Measurement
• Employment generation

MCQs
Q.1 A labour intensive industry means-
(a) Requires hard manual labour
(b) Pays adequate wages to the labour
(c) Employs more hands
(d) Provides facilities to labour
Q.2 As per Census, ‘Main Worker’ is a person who works for at least _ _
days in a year (UPSC-2020)
A) 100 days in a year. B) 153 days in a year.
C) 183 days in a year. D) 200 days in a year.

MCQs
Q.3 Find correct statement(s) about Indian economy after the 1991
economic liberalization (Prelims-2020)
1. Worker productivity per worker (at 2004-05 prices) increased in urban
areas while it decreased in rural areas.
2. The percentage share of rural areas in the workforce steadily
increased.
3. In rural areas, the growth in the non-farm economy increased.
4. The growth rate in rural employment decreased.
(a) 1 and 2 only (b) 3 and 4 only (c) 3 only(d) 1, 2 and 4

4. Which of the following statements about the employment situation in
India according to the periodic Labour Force Survey 2017-18 is/are
correct? (UPSC-CAPF-2020)
1. Construction sector gave employment to nearly 1/10th of urban male
workforce in India
2. Nearly 1/4th of urban female workers in India were working in
manufacturing sector
3. 1/4th of rural female workers in India were engaged in the agriculture
sector
(a) 2 only (b) 1 and 2 only (c) 1 and 3 only (d) 1, 2 and 3

5. Which of the following statements about India's unorganised sector
are true? [UPSC-CDS-2014-I]
1. Labour is more in number than that in the organised sector.
2. Job security and work regulation are better in unorganised sector.
3. They are usually not organised into trade unions.
4. Workers are usually employed for a limited number of days.
(a) 1, 2 and 4 (b) 1, 3 and 4 (c) 3 and 4 (d) 1 and 3

UNEMPLOYMENT(Involuntary)
• TYPES- URBAN UNEMPLOYMENT
1. INVOLUNTARY अनैस्चचक बेरोजगारी ( (No Demand)
2. STRUCTURAL संरचनात्मक बेरोजगारी (demand for labour less, supply more;problem of
urbanisation)
3. CYCLICAL चक्रीय बेरोजगारी (Unemployment during downtrend of business cycle
i.e. during recession of developed economies.Also known as Keynessian unemployment)
4. FRICTIONAL घर्चणात्मक बेरोजगारी (During change of job; transitional phenomenon; Also
known as ‘search unemployment’)
5. TECHNOLOGICAL UNEMPLOYMENT- Loss of jobs due to technological changes/innovations;
e.g. Artificial Intelligence
6. UNDEREMPLOYMENT
RURAL UNEMPLOYMENT-
1. SEASONAL हंगामी बेरोजगारी (mainly found in agriculturally dominant economy)
2. DISGUISED प्रच्छन्न /छ
ु पी बेरोजगारी ;सीमांत उत्पादकता शून्य (Marginal productivity of
labour is zero; More than necessary number of people employed for a specific work; typical
feature of agriculture sector of underdeveloped/developing economies)

- Unorganised Sector:
An unorganized sector firm is not registered under any law such as Shop
Establishment Act, Factory Act, Companies Act, Statutory Corporation,
Govt org etc.
⇒ Unorganized sector consists of individuals / self employed workers
engaged in non-tradeunionized casual / seasonal work with irregular
payments & lack of social security like EPFO/ESIC.
⇒ Government has enacted Unorganized Sector Workers' Social Security
Act, 2008 to provide them with life and disability cover, health and
maternity benefits, old age protection etc.

Gig Workers
1) He/she works in a digital technology enabled two sided market. In
the company's records/contracts- such workers are usually shown as
"independent service providers/contractor" and not as "employees". So
they are usually deprived of the EPFO/ESIC/And other social security
benefits Although Code on Social Security 2020 aims to fix this problem.
2) Their work-contract is usually shorter, temporary, Not permanent.
3) Their payment may include o a) piece rate (e.g. How many deliveries
made) o b) partly reward above a fixed salary (e.g. How many 5 star
ratings received on delivery) c) partly profit (e.g. Taxi owner, Amazon
seller)

- Labour force = Those who are employed + Those 'seeking or available
for work' (=involuntarily unemployed).
- Unemployment Rate (UR) =
No. of involuntarily unemployed persons/ Total Labour Force
ex: 2018 Unemployment Rate= (3 cr divided by 51.8cr) x 100 = 5.8%
- Economic Survey 2021: : High % of unemployment: Arunachal, Kerala,
Manipur, and Bihar
- Low % of unemployment: Gujarat, Karnataka, West Bengal and Sikkim
- Unemployment %: highest among urban youth (20%) and is lowest
among "illiterates" at 1.1%

Measurement of Unemployment in India
 Quinquennial survey (Every 5 yrs)
 3 Approaches-
a. Usual Principal & Subsidiary Status- UPSS (Ref period- 365 days preceding
survey & working for > 182 days). Measure of Chronic/Open unemployment.
b. Current Weekly Status- CWS (Ref period- 7 days; No work for one day in a
reference week).Most comprehensive measure of unemployment,including
chronic/underemployment
c. Current Daily status- CDS (Ref period- daily; no work for atleast one hour in a
day)
- NSSO surveys are conducted on quinquennial basis. In order to measure
employment-unemployment on an annual basis, Employment-Unemployment
Survey is being conducted by Labour Bureau since 2009.
- Problem of ‘jobless growth’ in India

Employment Generation schemes in India
 Skill development (Only 2.2% of workforce in India has undergone
formal vocational training vis-à-vis 75% in Germany & 80% in Japan).
 National Skill Development Council NSDC- Skill development to
Demographic dividend in India.
 National Policy for Skill Development & Entrepreneurship 2015
 National Skill Development Mission NSDM- Aiming at 300 million
skilled manpower by 2022; 7 sub-missions

Employment Generation schemes in India
 Make In India (Zero Effect, Zero Defect)
 Pradhan Mantri Kaushal Vikas Yojna (PMKVY)-
- Demand driven & reward based skill training scheme
-Skill training to class 10th & 12th drop-out youths.
- Covers 24 lakh persons; Implemented through NSDC by Min of Skill Devlt
& Entrepreneurship.
 USTAD scheme (Upgradation of skills& Training in Ancestral Arts/Crafts for
Development)for minority artisans; Banarasi saree workers.
 Deendayal Upadhyay Antyoday Yojna (2014) for rural & Urban areas
 TRYSEM (Training Rural Youth for Self-Employment)
 Pandit Deendayal Upadhyay Shrameva Jayate Karyakram- Aimed at
creating conducive envt for industrial devlt & doing business with ease.

Lokmat Times Article on Jobless Growth
dt 29 Jul 2017

Lokmat Times Article on Make In India dt
16 Jun 2017

Lokmat Times Article on Start Up dt 18
Aug 2017

Economic Growth, Development &National Income
(आर्थचक िृद्धी, विकास आणण राष्ट्रीय उत्पन्न)
• Meaning of Economics, Economy
• Concept of Socialist,Capitalist,Mixed economy (अथिव्यर्वस्थेचे प्रकार)
• Concept of Imperative & Indicative planning
• Primary, Secondary, Tertiary sectors of Economy (प्राथममक,द्वर्वतीयक
आणण तृतीयक क्षेत्रे)
• Difference between Growth & Development(आर्थिक र्वृद्धी आणण वर्वकास)
• Indicators (वर्वकासाचे ननदेशांक)
• GDP,GNP,NNP,NDP (संकल्पना)
• National Income estimation methods(Historical aspects,methods) राष्ट्रीय
उत्पन्न मोजण्याच्या पद्धती)
• Recent changes in National Income estimation (बदल )

MCQs
1. National product at factor cost is equal to [UPSC-CDS-2014-II]
(a) Domestic product + Net factor income from abroad.
(b) National product at market prices - indirect taxes + subsidies.
(c) Gross domestic-product - depreciation.
(d) National product at market prices + Indirect taxes + subsidies.
2. Which of the following equals Personal Disposable Income?
(CDS2019)
a) Personal Income - Direct taxes paid by households and miscellaneous
fees, fines , etc.
b) Private Income - Saving of Private Corporate Sectors - Corporation Tax
c) Private Income - Taxes
d) Total expenditure of Households - Income Tax - Gifts received

MCQs
3. Increase in absolute and per capita real GNP do not connote a higher
level of economic development, if - (UPSC-Pre-2018)
a) industrial output fails to keep pace with agricultural output.
b) agricultural output fails to keep pace with industrial output.
c) poverty and unemployment increase.
d) imports grow faster than exports.
4. Which of following are the 4 pillars of human development? (UPSC-
CDS-i-2020)
a) Equity, inclusion, productivity & empowerment
b) Equity, productivity, empowerment & sustainability
c) Productivity, gender, inclusion & equity
d) Labour, productivity, inclusion & equity

MCQs
5. Which one of the following educational development indicators is currently used by UNDP
to construct the Human Development Index ? (UPSC-CAPF-2020)
(a) Level of Literacy (b) Gross Enrolment Ratio (c) Mean Years of Schooling (d) Dropout rate
6. Human capital formation as a concept is better explained in terms of a process which
enables (Pre-2018)
1. Individuals of a country to accumulate more capital.
2. Increasing the knowledge, skill levels & capacities of the people of the country.
3. Accumulation of tangible wealth.
4. Accumulation of intangible wealth.
Answer Codes: (a) 1 & 2 (b) 2 only (c) 2 & 4 (d) 1, 3 & 4
7. In the context of any country _ _ would be considered as part of its social capital? (2019)
a) The proportion of literates in the population.
b) The stock of its buildings, other infrastructure & machines.
c) The size of the population in the working age group.
d) The level of mutual trust & harmony in the society.

UPSC Mains
Q. Define potential GDP and explain its determinants. What are
the factors that have been inhibiting India from realizing its
potential GDP?

BASIC TERMS (अथचशाफराचा श्रीगणेशा)
 ECONOMICS- अथिशास्त्र (What to produce,How to produce,distribute & consume goods/services using
finite & scarce resources;उत्पादन,वर्वतरण र्व र्वापर याचे वर्वश्लेषण
 Lionel Robbins called it as a ‘Science of Scarcity’
 ECONOMY - अथिव्यर्वस्था (Economics of a particular unit e.g Indian Economy, Maharashtra’s economy)
 Types of Economy-
(A)1. Socialist (समाजर्वादी अथिव्यर्वस्था)
2. Capitalist (भांडर्वलशाही अथिव्यर्वस्था)
3. Mixed (ममश्र अथिव्यर्वस्था)
(B) 1. Free Market/Laissez fair/Unplanned Economy(मुक्त अथिव्यर्वस्था)
2.Planned Economy(ननयोिजत अथिव्यर्वस्था)-
2a. Imperative/Command Economy/Centralised(आदेशात्मक)
2b. Indicative Economy(सुचकात्मक)-(Flexible plg system in which Govt decides about targets, but no
compulsion & achievement through inducement to pvt sector e.g.subsidies,tax exemptions,etc)
3. Mixed Economy (ममश्र अथिव्यर्वस्था)
 Components of Economy-
 Microeconomy(Decision making at indl entity)
 Macroeconomy (समेष्ट्ठी अथिव्यर्वस्था)- (Behaviour of aggregates i.e. at national level)

 Sectors in Indian Economy-(Pri,Sec,Tertiary OR Organised,Unorganised OR Public, Private)
1.Primary- प्राथममकक्षेत्र(Exploitation of natural resources; basic or primary for production of
further goods e.g.agri,dairy,forestry,fishing,)- Red collar workers
2. Secondary (द्वर्वतीयकक्षेत्र)- Manufacturing using primary goods –
e.g. Sugar from sugarcane,Cloth from cotton; steel,oil refinery
Blue collar professionals
3. Tertiary(तृतीयकक्षेत्र)- Don’t produce any goods but support primary or secondary sector
e.g. Transport,communication,banking,healthcare,education,etc-
White collar professionals
 Few believe in Quaternary & Quinnary- sectors
• चतुथिक क्षेत्र (Quaternary Sector)- उच्च बौद्र्धक क्षमतेचा र्वापर उदा. R & D.
• पंचम क्षेत्र (Quinnary Sector)- समाजातील र्व अथिव्यर्वस्थेतील सर्वोच्च स्तरार्वरील ननणिय
प्रकक्रयेचा समार्वेश – Gold collar professionals
- SHARE IN INDIAN ECONOMY-
AGRICULTURE ( 17% of GDP; 50% of working population) ; SECONDARY SECTOR( 30% of
GDP; 20% of working popln); TERTIARY(55% of GDP;30% of working popln)

 Organised & Unorganised sector (संघटीत र्व असंघटीत क्षेत्र- कांता र्व कमल उदाहरण )
(As per NSSO report of 2011-12, out of 47.41 cr workforce in India, 82.7% is in
unorganised sector & only 17.3% is in organised sector.)
 Public & Pvt sector (सािचजननक आणण खाजगी क्षेर)- In public sector, Govt owns assets &
responsible for provision of services e. Post,Telegraph. Where as in Pvt sector, ownership
of assets & delivery of services is in hands of companies or individuals.
• Core Industries
• Eight Core Industries are Electricity, steel, refinery products, crude oil, coal, cement,
natural gas and fertilizers. The Index of Eight Core Industries is a monthly production
index, which is also considered as a lead indicator of the monthly industrial performance.
The Index of Eight Core Industries is compiled based on the monthly production
information received from the Source Agencies.
• Sunrise industry- Sunrise industry is a term used for a sector that is just in its infancy but
shows promise of a rapid boom. E.g. Telemedicine sector, IT sector.
- Pink Collar workers- Pink-collar worker is one who is employed in a job that is traditionally
considered to be women's work e.g. florists,nurses.

Sectors in Indian economy
• India is the fastest growing large economy in the
world, with an enormous population, favourable
demographics and high catch-up potential due to
low initial GDP per head.
• As per the World Bank data, in 2017, India became
the sixth largest economy with a GDP of USD 2.59
trillion, relegating France to the seventh position.
• India is likely to surpass the United Kingdom in the
world's largest economy rankings in 2019, according
to a report by global consultancy firm PwC.
• According to World Economic Outlook report of
IMF, India's economy is expected to grow by 7.5 per

National Income(राष्ट्रीय उत्पन्न)
GDP (स्थूल देशांतगित उत्पन्न)
GNP (स्थूल राष्ट्रीय उत्पन्न)
NDP (ननव्र्वळ देशांतगित उत्पन्न)= GDP-Depreciation
NNP (ननव्र्वळ राष्ट्रीय उत्पन्न)= NNP-Depreciation
 National income= NNP(at Factor Cost)
=NNP(at Market Price)-Indirect Tax+Subsidy.
Ex. Carpenter making furniture
 Newer Concepts- Green GDP, GNH,etc
• (The three crucial adjustments required for deriving one aggregate from
the other are:
Gross - depreciation = Net
Market price = Factor cost – subsidies + Indirect Taxes
Domestic + NFIA = National

Gross Domestic Product (GDP)
• Introduced by: Economist Simon Kuznets in 1930s
• Value of the all final goods and services produced within the boundary of a
nation during one year (1st April to 31st March)
• A ‘quantitative’ concept and its volume/size indicates the ‘internal’ strength
of the economy
• Earlier GDP was computed keeping 2004-05 as base year ; Present Base
Year: 2011-12
• New Methodology-
• Movement of GDP from production to consumption
• Shifted from final goods to gross value added and from factories to
enterprise data under MCA
• Takes GDP at market prices into account, which includes indirect taxes and
excludes subsidies
• The universally accepted System of National Accounts has been adopted

Indian Economy 2022 ppt for Competitive Exams.pptx

Indian Economy 2022 ppt for Competitive Exams.pptx

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