Topper rushikesh-reddy-upsc-prelims-quick-revision-material-clearias

Topper's Notes
UPSC Prelims
Quick Revision Material
Rushikesh Reddy
Rank 95, UPSC CSE 2019-20

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Economy
1. Quantitative tools
1. Demand liabilities: Current Account (CA), Savings Account (SA), Demand
Draft. They are around 8,000 billion.
2. Time liabilities: Fixed deposits (FD), Recurring deposits (RD), cash
certificates and staff security deposits. They are around 78,000 billon. So Time
liabilities > Demand liabilities.
3. CRR: Cash Reserve Ratio is the ratio of total deposits of a bank which is to
be maintained with RBI in the form of cash.
4. SLR: Gold or cash or RBI approved securities. In India, historically, banks
SLR has been high as they need to bear the burden of the government’s fiscal
deficit. A cut in SLR indicates that RBI is confident of the government’s
commitment to fiscal consolidation.
5. Bank rate: It is long term lending rate. It is not the main tool to control the
money supply, as banks have secondary markets. All clients (Banks, State,
Union Govts and NBFI) can avail this facility. It is now same as the MSF rate.
6. LAF: Repo and Reverse repo come under Liquidity adjustment facility. Can’t
use SLR securities. All clients (Banks, State and union Govts and NBFI) can
avail this facility. No limit on borrowing. LAF is the difference between the
repo and reverse repo.
7. MSF is the rate at which the banks are able to borrow overnight funds from
RBI against the approved government securities. MSF is higher than repo.
Only scheduled commercial banks. Limit on borrowing upto 1% NDTL.
8. Overall idea behind the MSF is to contain volatility in the overnight inter-
bank rates. Increasing MSF reduces money supply for speculation which in
turn strengthens rupee value in international market.
2. Qualitative or direct or selective tools
1. Loan to value ratio or Margin requirements: RBI can change loan to value
ratio. Decreased to fight inflation and increased to fight deflation.
2. Consumer credit control: RBI can control downpayment and instalment
loans.
3. Rationing: RBI can change PSL requirements.
4. Moral suasion.
5. Direct action.
3. PSL
1. 40% of total loan given by banks should be given to priority sector. For
domestic banks and foreign banks (>20 branches), it is 40% (18% for
agriculture, 10% for weaker section and rest to others). If targets are not met,
money should be deposited to RIDF. It is managed by NABARD. Banks also
get interest on the deposits to RIDF.
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2. For foreign banks (<20 branches) it is 32% (No specific targets). If targets are
not met, money should be deposited to SEDF. It is managed by SIDBI. Banks
also get interest on the loans.
3. PSL do not apply to Non-banking companies and cooperative banks.
4. PSL categories includes agriculture, MSEs, education, housing, export credit,
loans to software industry, consumption loans for weaker sections. RBI
included renewable energy, sanitation and health care and drinking facilities
under PSL.
4. Banking
1. 3 initial banks setup were Bengal (1806), Bombay (1840), Madras (1842). In
1921 all the banks were merged and Imperial bank of India was formed. This
bank was nationalised in 1955 and was renamed SBI. The first entirely Indian
joint stock bank was the Oudh Commercial Bank (OCB), established in 1881
in Faizabad. It failed in 1958. The next was the Punjab National Bank (PNB),
which was established in Lahore in 1894 and has survived to the present and
is now one of the largest banks in India.
2. RBI act came in 1934 and RBI was established under the act. The Bank,
which was originally set up as a shareholder’s bank, was nationalised in the
year 1949.
3. Bank nationalisation happened in 1969.
4. Narasimhan committee-1: Deregulation of interest rates, liberal branch
expansion policy (25% rural), debt recovery tribunal (SARFAESI), reduction
of CRR, SLR and 3 rounds of banking licenses.
5. Narasimhan committee-2: Only two types of classification. Banks and
NBFI.
6. Commercial banks: Public, private, foreign and RRB. PSL applies to them.
CRR and SLR needed. Profit motive. Voting as per shareholding. They require
license from RBI to operate.
7. Cooperative banks: Urban, State, Central, Primary agricultural cooperative
societies (PACS). No PSL. CRR and SLR needed. No profit no loss. Equal
voting rights. These banks also have to take permission from RBI before
setup.
8. RRB: Operates in few selected districts. There is a sponsor banking which
provides training and Human resource management. Union (50%), State
(15%) and sponsor bank (35%). RRB act came in 1976. RRBs need to
maintain a minimum CRAR of 9%. RRBs were set up on the basis of the
recommendations of the Narasimhan Working Group (1975). The source of
funds of RRBs comprise of owned fund, deposits, borrowings from
NABARD, Sponsor Banks and other sources including SIDBI and National
Housing Bank. PSL target of RRBs is 75% of total outstanding advances.

RRBs are at par with commercial banks as far as compliance requirements to
CRR and SLR is concerned.
5. Non banking financial institutions
1. There are three types of NBFI’s — All India Financial institutions (AIFI),
Primary dealers (PD) and Non banking financial companies (NBFC).
6. AIFI
1. EXIM: 1982. Loan and credit finance to exporters and importers. 100% by
Government. EXIM bank extends Line of Credit (LoC) to overseas financial
institutions, regional banks, sovereign governments and other entities abroad.
Thus EXIM bank enable buyers in other countries to import developmental
and infrastructure, equipments, goods and services from India on deferred
credit terms.
2. NABARD: 1982. 100% owned by the Government. NABARD has regulatory
authority over RRB and cooperative banks. It also regulates the institutions
which provide financial help to the rural economy. It maintains RIDF and
funds state Govts for infrastructure development. It helps state cooperative
banks, RRBs, MFIs and cooperative societies. It facilitates credit flow for
promotion and development of agriculture, cottage and village industries.
3. NHB: 1988. 100% RBI. It is an apex institution for housing finance. Gives
finance to banks, NBFCs for housing projects. It gives RESIDEX index
measuring the movement of prices in the residential housing segment. It is
limited to few cities in India.
4. SIDBI: 1990. Owned by SBI, LIC, IDBI and other public sector banks,
insurance companies, etc.
7. PD
1. They directly buy Government securities through primary market. They trade
them in the secondary market. Can participate in OMO. Must get license from
RBI. Ex: Morgan Stanley.
8. NBFC
1. Non-bank financial companies (NBFCs) are financial institutions that provide
banking services without meeting the legal definition of a bank, i.e. one that
does not hold a banking license. A Non-Banking Financial Company (NBFC)
is a company registered under the Companies Act, 1956.
2. RBI is entrusted with the responsibility of regulating and supervising NBFCs
by virtue of powers vested under RBI Act, 1934. An NBFC is a company
registered under the Companies Act, 1956 of India.
3. These are not banks but provide loan and finance. Many institutions regulate
NBFCs. Ex: IRDA for insurance, SEBI for merchant banks, RBI for micro
finance. They cannot accept demand deposits. They can accept time deposits,
such NBFCs are called deposit taking NBFCs.

4. They cannot issue cheques, so do not form part of payment and settlement
system. No CRR. But 15% SLR for deposit taking NBFCs. They can only
accept time deposits and not demand deposits. No PSL requirements. Very
less initial capital requirements. Banks cannot invest depositors money in
sharemarket but NBFC can invest in sharemarket.
5. It can engage in the business of loans and advances, through acquisition of
shares/bonds/securities issued by Government or local authority or other
marketable securities, leasing, hire-purchase, insurance business, chit business
etc. They can also issue bonds. ECBs is also permitted.
6. Not all NBFCs lend. Under SARFAESI act, banks have loan recovery powers
but NBFCs do not have loan recovery powers except for housing finance
companies. Some NBFCs like insurance and mutual funds get money from
clients. Some borrow money from banks, like MFI. Some get funds from
NABARD, NHB, SIDBI, etc.
9. Inflation
1. WPI: It is prepared by DIPP on the monthly basis. Does not take into account
service sector. It’s components are manufactured products (chemical > metal >
food), primary articles (food > nonfood > mineral), fuel (mineral oil >
electricity > coal). Crude petroleum forms part of the primary articles and not
in fuel. Manufactured products have higher weightage, followed by primary
articles and then followed by fuel. WPI is measured on year-on-year basis i.e.,
rate of change in price level in a given month vis-a-vis corresponding month
of last year. This is also known as point to point inflation. WPI covers all
goods including intermediate goods transacted in the economy.
2. CPI: Prepared by Central Statistics Office (CSO), Ministry of Statistics and
Programme Implementation (MOSPI) on monthly basis. Now RBI will take
into account CPI (All India urban + rural) for inflation targeting. It contains
food, beverages, tobacco, fuel, light, housing and clothing. Food dominates in
it. It also includes some services. The inflation target is to be revisited once in
every five years. CPI is used in measurement of core inflation (excluding Food
and Fuel component). Core inflation is an indicator of long term trend in the
inflation.
3. Fuel has larger weight in the WPI as compared to the CPI. WPI is more or less
same throughout the country but CPI vary across the region. Urban CPI has
been experiencing lower inflation than rural CPI. Rural and Urban baskets of
CPI are different.
4. IIP covers 682 items comprising Mining (61 items), Manufacturing (620
items) & Electricity (1 item). IIP data is released by CSO. The eight core
industries comprise nearly 38% of the weight of items included in IIP. It
includes unorganised manufacturing sector along side organised sector.

5. Index of eight core industries is compiled and released by Office of the
Economic Adviser (OEA), DIPP.
6. The CSO and DIPP has shifted to 2011-12 base year from 2004-05 base year
for IIP, CPI and WPI.
7. The Producer Price Index (PPI) measures the average change in the prices of
goods and services, either as they leave the place of production called Output
PPI or as they enter the production process called Input PPI. PPIs measure
price change from the perspective of the seller. PPI contrasts with other
measures such as the CPI which measures changes in prices from consumers
perspective. The benefits of migrating from WPI to PPI are to cover bulk
transactions of all goods and services, do away with the bias of double
counting inherent in WPI and to compile indices that are conceptually
consistent with the National Accounts Statistics (NAS) for use as deflators.
8. CPI and WPI do not capture growth in labour wages. Even the CPI for
workers captures inflation in items consumed by the working class and not
wages per se.
9. Government has setup a price stabilisation fund scheme. The fund is under
ministry of consumer affairs. It gives interest free loans to Union and State
agencies. This fund will be used to support market interventions for managing
prices of perishable horticultural commodities. Procurement of commodities
will be undertaken directly from farmers and made available at a reasonable
price to the consumers. Funding for increased procurement of pulses will be
through Price Stabilisation fund scheme.
10. Market Intervention Scheme (MIS) is a price support scheme implemented on
the request of State Governments for procurement of perishable and
horticultural commodities in the event of a fall in market prices. The Scheme
is implemented when there is at least 10% increase in production or 10%
decrease in the ruling rates over the previous normal year.
11. To control inflation, monetary policy, fiscal policy (reducing private and Govt
spending) and price controls methods can be used.
12. Deflation: Simply negative inflation (below zero) is called deflation.
13. Disinflation: Considerable slowdown of inflation rate with respect to previous
period but still is in positive.
14. Reflation: This term is used to refer the situation where measures are taken to
curb deflation. Steps can be like fiscal policy (reducing taxes) or monetary
policy (increasing money supply or reducing interest rates).
10. RBI
1. RBI Governor is accountable to parliament and executive. Government can
also issue directives to RBI in the public interest. RBI is agent of the
Government of India in the IMF, WB. It does developmental and promotional

functions for the Government. RBI can supersede decisions of the Board of
Governors of PSBs in India. RBI regulates mergers and acquisition of banks.
2. RBI is a member bank of the Asian Clearing Union (ACU) (Headquarters in
Iran).
11. Money supply
1. M0: It is called reserve money or high-powered money. M0 is the base for
creating broad money supply (M3). M0 is the sum of currency in circulation,
banker’s deposits with RBI and other deposits with RBI.
2. M1: It includes currency with public (notes+coins), net demand deposit in
commercial banks, other deposits with RBI. It excludes India’s deposits with
IMF, World bank, foreign government etc, interbank deposits. The interbank
deposits are not to be regarded as part of money supply.
3. M2: M1 + post office bank savings. Similar to regular banks, post office also
offers their time savings account, recurring deposit account, time deposit
account. Here we count the post office savings (demand deposit) only.
4. M3: M1 + time deposits with commercial banks (FD, RD).
5. M4: M3 + total post office deposits. Post office deposits here include time
deposits and recurring deposits. But excludes national savings certificate etc.
6. M1 and M2 are known as narrow money. M3 and M4 are known as broad
money. These gradations are in decreasing order of liquidity i.e M1 > M2 >
M3 > M4. Liquidity means how quickly you can get value into cash. M3 is the
most commonly used measure of money supply. It is also known as aggregate
monetary resources. Money multiplier is the ratio of broad money (M3) to
reserve money (M0). In other words, when reserve money increases, broad
money will also increase.
12. Capital market
1. Equity holders of a company are called shareholders or proprietors and
Debenture holders are creditors. In case of liquidation, creditors have first
claim. Gilt-edged securities are those which are more reliable and offer low
returns on investment. Junk bonds have low reliability but offer high rate of
interests.
2. Bond yield = Interest / Price of the bond. As the price of bond decreases, bond
yield increases. So, bond yield and bond price has inverse relation. Interest vs
bond price also has inverse relation.
3. Bonds is terminology used in Britain while debenture is used in USA. Also
bond is used for PSUs or Govt given ones while debenture is used for private
ones.
4. SEBI issues guidelines for municipal bonds. SEBI also inspects and conducts
audit of stock exchanges. SEBI’s mandate is to protect the interests of
investors in securities, promote the development of securities market and to

regulate the securities market. SEBI has quasi-legislative, quasi-executive and
quasi-judicial functions.
5. The short term bonds of the Government are known as treasury bills. Treasury
bills are issued at a price which is lower than their face value and repaid at
par. The difference between the price at which the treasury bills are issued and
their redemption value is the interest receivable on them and is called
discount.
6. The long term bonds of the government are known as dated securities.
13. Capital gains tax: Suppose A sells something to B for 1000 crores, and Capital
gains tax of the deal is 100 crore. The capital gains tax need to be paid by A, but
in real situation, B deducts the tax amount before paying to A and B himself pays
the tax to Govt. So capital gains tax is paid by the buyer and not seller.
14. Balance of payment
1. It is a systematic record of the economic transactions between residents and
non-residents of a country during a specific time period. It is maintained by
RBI. World’s balance of payment is zero. It has two components namely
current and capital.
2. Current account
1. Visible: Goods. Balance of trade (BOT) takes into account only those
transactions arising out of the exports and imports of the visible items,
namely goods. It does not consider the exchange of invisible items like
services.
2. Invisible: Services, Income (profit, interest and dividend) and Transfers
(remittances, donations and gifts).
3. If a foreign investor invests in India, the money is in capital account. If the
same foreign investor gets some dividend, profits, out of the money he
invested it will be deducted in current account. So we have deficit in
Income, as our investors do not invest much outside. But if the share is
sold out, the money transaction will be in capital account.
4. There is full convertibility on current account transactions. But small
restrictions have been placed by RBI under FEMA. Ex: Betting, Gambling,
etc.
3. Capital account
1. Investment: FDI, FII. In listed companies, if 10% or more investment is
done, it is called FDI. If less than 10%, it is called FII. In FDI there are
sectoral caps. In FII, no sectoral caps, upto 10% you can buy any amount
of share. FDI applies only to equities. In FDI no G-secs and T-bills. FII can
invest in both debts, equities and G-secs but they can’t buy T-bills. FDI is
regulated by RBI. FII is managed by SEBI (individual), RBI (aggregate).
FIIs are also allowed to invest in inflation indexed bonds.

2. Loan: Sovereign loans and ECB. An ECB is an instrument used in India to
facilitate the access to foreign money by Indian corporations and PSUs.
Any money borrowed from foreign sources for financing the commercial
activities in India are called ECBs. ECB is not FDI.
3. Banking capital: NRI residents depositing money in banks. They have a
separate FCNR account.
4. There is no full capital account convertibility. RBI under FEMA has placed
various quantitative restrictions and RBI approval is necessary. Foreign
Institutional Investor (FII) may invest in the securities in the primary and
secondary markets including shares, debentures and warrants of companies
unlisted, listed or to be listed on a recognised stock exchange in India.
4. A country is said to be in balance of payments equilibrium when the sum of its
current account and its non-reserve capital account equals zero, so that the
current account balance is financed entirely by international lending without
the reserve movements.
5. Errors and Omissions constitute another element in the BoP (apart from the
current and capital accounts) which is the balancing item reflecting our
inability to record all international transactions accurately.
15. Exchange rate
1. Revaluation and devaluation is associated with fixed exchange rate regimes.
While appreciation and depreciation is associated with floating exchange rate
regime.
2. Real exchange rate is the ratio of foreign to domestic prices, measured in the
same currency. Real exchange rate = Nominal exchange rate * (Pf/P) where Pf
is the price level abroad and P is the price level here. If the real exchange rate
is equal to one, currencies are at purchasing power parity (PPP). If the real
exchange rises above one, this means that goods abroad have become more
expensive than goods at home.
3. The real exchange rate is often taken as a measure of a country’s international
competitiveness. In contrast to the nominal exchange rate, the real exchange
rate is always floating, since even in the regime of a fixed nominal exchange
rate price level in the countries can change.
4. REER is weighted geometric mean of real exchange rates of India with 6
countries, the weights being the shares of the respective countries in its
foreign trade. If REER is >100, currency is overvalued. Over valued means
the currency should ideally be valued less than the present exchange rate. An
increase in REER leads to loss in trade competitiveness as imports become
cheaper and exports become costlier. REER is an indicator of trade
competitiveness.

5. If REER is <100 means currency is undervalued. Under valued means the
currency should ideally be valued more than the present exchange rate. For
example 1$ = 6 Chinese yuan at present. But china’s REER is < 100. So China
is undervaluing its currency. It should ideally be 1$ = 3 Yuan.
6. If NEER is >1 means home currency is worth more than imported currency.
16. IMF
1. It is not an UN body. It is Head Quarters at Washington. All (188 countries)
nation’s Finance ministers or Central bank governors constitute its board of
governors (BOG). They meet annually. They take policy decisions. Executive
board of IMF looks after its daily work. It consists of 24 members. 5 are
reserved for largest quota holders (US, UK, Japan, Germany and France). To
become a member of World Bank a country must first join IMF.
2. For India the Governor and alternate Governor are Union Finance Minister
and RBI governor. India is represented at the IMF by an Executive Director,
who also represents three other countries in India’s constituency - Bangladesh,
Sri Lanka and Bhutan.
3. Most resources for IMF loans are provided by the member countries,
primarily through their payment of quotas. IMF supplements the currency
reserves of its members through the allocation of special drawing rights
(SDRs).
4. SDR is weighted value of 5 currencies (Yen, Dollar, Pound, Euro, Remnibi).
Each nation will get a interest on the SDR contributions. SDR can be
converted into member currency. SDR is an important component of India’s
foreign reserves along with gold, foreign currency and reverse tranche.
5. Changes in the voting shares require approval by a supermajority of 85% of
voting power. Each IMF member country is assigned a quota, or contribution,
that reflects the country’s relative size in the global economy. Each member’s
quota also determines its relative voting power. Thus, financial contributions
from member governments are linked to voting power in the organisation.
6. IMF publishes World Economic Outlook (WEO), Global Financial Stability
Report, Fiscal Monitor, Regional Economic prospects, Finance and
Development reports.
17. World bank
1. World bank gives out Universal Health Coverage (UHC) Index. WB also
gives out Women, Business and the Law report. World bank also gives out the
World Development Report (WDR), publishes International Poverty Line
(IPL). World Bank is all set to rank cities globally on a ease of living index.
WB also gives out logistics performance index (LPI). It also gives out Global
Financial Development Report. WB also releases Global Economic Prospects

and Global Investment Competitive report. Poverty and shared Prosperity
report is released by World Bank.
2. The Global Findex database is the world’s most comprehensive data set on
how adults save, borrow, make payments, and manage risk. World
Bank launched this initiative with funding from the Bill & Melinda Gates
Foundation, the database has been published every three years since 2011.
3. India is a member of 4 of the 5 constituents of the world bank group. They are
IBRD, IDA, IFC, multilateral investment Guarantee agency (MIGA). India is
not a member of international centre for settlement of investment disputes
(ICSID). IBRD is lending arm of the world bank. It lends to governments of
middle income and credit worthy low income countries. IDA helps the world’s
poorest countries. It provides loans and grants for programs that boost
economic growth. IFC is focused exclusively on the private sector in
developing countries. MIGA aims to promote FDI in developing countries to
support economic growth, reduce poverty, and improve people’s lives.
4. As per recently report of World Bank, India remained the world’s largest
remittance recipient in 2015. It was revealed by the World Bank’s annual
report Migration and Development Brief. Indian remittance has declined as
compared to last year. While global remittance has decreased, remittance for
developing countries increased in 2015.
18. WTO
1. The Marrakesh Agreement, manifested by the Marrakesh Declaration, was an
agreement signed in 1994, marking the culmination of the 12-year-long
Uruguay Round and establishing WTO. India is its founding member.
2. SPS: Sanitary and phytosanitary measures. Members can ban imports to
protect local plant, animal and human lives. These restrictions must be
scientific. FAO codex standards can be used.
3. WTO subsidies in AoA
1. Green: Subsidies for R&D, pest control, training. No limits on this.
2. Amber: Fertiliser, electricity, diesel and MSP. These are disruptive. Limits
set. 5% for developed and 10% for developing.
3. Blue: Do not fit into either category of subsidies. No limits placed. They
do not increase with production.
4. WTO agreement envisages two kinds of support to agriculture, viz. domestic
support and export subsidies. The domestic support is further classified into
aggregate measure of support (AMS) which includes product specific and
non-product specific support; green box support; blue box support; de-
minimus support and special and differential (S&D) treatment box. Out of
these, WTO agreement requires reduction only in AMS and export subsidies.

AMS includes subsidies on inputs like fertiliser, water, credit, power etc and
market price support.
5. WTO’s Special Safeguard Mechanism (SSM) is a protection measure allowed
for developing countries to take contingency restrictions against agricultural
imports that are causing injuries to domestic farmers. It is available only to
developing countries. It was provided under Doha round (known as Doha
development agenda). The Tenth Ministerial Conference of the World Trade
Organization (WTO) was held in Nairobi, Kenya. The conference included
Special Safeguard Mechanism (SSM) for developing countries, public
stockholding, abolition of export subsidies, preferential treatment to LDCs in
services.
6. Under the Generalised System of Preferences (GSP), developed countries
offer non-reciprocal preferential treatment (such as zero or low duties on
imports) to products originating in developing countries. Preference giving
countries unilaterally determine which countries and which products are
included in their schemes. India has been the biggest beneficiary of the GSP
regime and accounted for over a quarter of the goods that got duty-free access
into the US in 2017.
19. Fiscal policy
1. Budget is prepared by Department of economic affairs.
2. Economic survey draft is prepared by department of economic affairs with
CSO inputs. Chief economic advisor, Finance secretary and FM also plays a
role in drafting economic survey.
3. Article 112: Annual Financial statement.
4. Article 265: Finance bill. Parliament need to approve taxes collected.
5. Article 266: Appropriation bill. Permission from Parliament for spending
from Consolidated fund. Both bills regarding Article 265, 266 are money bills
and hence need to be passed only by Lok Sabha.
6. Contingency fund: Under President but operated by Finance secretary.
7. Public account: National investment fund (NIF), national calamity and
contingency fund (NCCF), small savings, postal insurance, money orders, etc.
The money which needs to be returned from here is called other liabilities
(NSSF, PLI).
8. Consolidated fund: The money which needs to be given away from here is
called public debt.
9. Total liabilities = Public debt + other liabilities.
10. So, Public account liabilities on the government with an interest component
are not a part of Public debt.
11. Direct tax

1. Union: Income tax, corporate tax, interest tax on banks (Now removed),
Hotel receipt tax (now removed), fringe benefits tax (Now removed).
Direct tax is not only levied on your income and property. They can also be
levied on expenditure, like hotel receipt and fringe benefits tax. Direct
taxes can be levied on STT (Securities transaction tax), capital gains tax,
banking cash transaction tax.
2. State: Agricultural income tax, professional tax (maximum limit set in
constitution). State can also impose tax on your property too such as land
revenue, stamp duty, property tax in urban areas.
3. Donations to Swachh Bharath Kosh (FinMin), Clean Ganga Fund (FM
trust) and National fund for control of drug abuse (Fin Min) is exempted
from paying tax. Clean Ganga fund will have voluntary contributions from
Indian residents, NRIs and PIO.
4. Both surcharge and cess are tax on tax. Surcharge goes to consolidated
fund of India. Cess also goes to consolidated fund of India but can be
spend only for the specific purposes.
5. Corporate tax is the highest contributor to the revenues (from taxes) of the
Govt.
12. Indirect tax
1. Union: Customs duty, Excise duty, Service tax, CST (Levied and collected
by centre but appropriated by states).
2. State: State tax/VAT (not on newspapers). Excise on liquor and narcotics
(Only for human consumption, but for medicinal purpose, it is levied by
centre), Motor vehicle tax, luxury tax, betting and gambling, Entertainment
tax, Electricity tax, Advertisement tax (But not on TV, radio, Newspaper).
3. Indirect tax is highly elastic. A small increase in it leads to high revenue.
4. Service tax: By 88th amendment, service tax was added into constitution.
Centre needs to share it with the states, except J&K. Service tax is levied
on providers whose turn over is greater than 10 lakhs.
5. Service tax doesn’t apply to negative list. To change this list finance act
need to be amended, so parliament permission is needed. Total 17
categories are in negative list. Ex: Basic post office, RBI services, Foreign
diplomatic services in India, road transport, agricultural related, sericulture,
pisciculture, educational services (but not tuition), Bank loans. There is
also a exempted list. Exempted list is not in finance act but is separately
notified by Govt.
6. VAT is levied both on local as well as imported goods.
13. NCCF is merged with NDRF. It is operated by Home ministry. It is in public
account of India.
14. Net tax revenue = Gross tax revenue - transfers to states (FC) - NCCF.

15. Non-tax revenue receipts: Interest, dividends, services, grants, UTs taxes
(With no legislative assembly).
16. Revenue expenditure: Interest payments, subsidies, grants to states, pension
and defence (uniforms, salaries), costs of three organs of state, MEA, tax
collection, social services, eco-services and costs of UTs without legislature.
17. Capital receipts: Debt (internal, external). Non-debt (loan recovery,
disinvestment and FDI). The main items of capital receipts are loans raised by
the government from the public, borrowing by the government from the
Reserve Bank and commercial banks and other financial institutions through
the sale of treasury bills, loans received from foreign governments and
international organisations, and recoveries of loans granted by the central
government. Small savings (post-office savings accounts, national savings
certificates, etc), provident funds and net receipts obtained from the sale of
shares in PSUs are also included in the capital receipts.
18. Capital expenditure
1. Plan: Central, state (GBS) and UT plans.
2. Non-plan: Defence (Production unit), Loan to PSUs, Loans to foreign
countries, Loans to state and UTs.
19. Effective revenue deficit = Revenue deficit - Grants to states for capital assets.
14th FC opposed ERD, as ERD is more of creative budgeting and accounting
manipulations to minimise RD.
20. Fiscal deficit = Budget deficit + market borrowing.
21. Fiscal deficit = Total expenditure – (Revenue receipts + Non-debt creating
capital receipts).
22. From the financing side, Fiscal deficit = Net borrowing at home + Borrowing
from RBI + Borrowing from abroad.
23. Primary deficit = Fiscal deficit - interest payments.
24. Fiscal drag describes the phenomenon whereby more people move into higher
tax brackets because tax allowances and tax are not adjusted in line with
inflation, therefore money income goes up, whereas real income goes down.
25. Expenditure: State’s share of taxes & duties (23%), Interest payments (18%),
CSS (9%), Subsidies (9%), Defence (8%), Pensions (5%).
26. Revenue: GST (21%), Corporation tax (21%), Borrowing and other liabilities
(19%), Income tax (17%), Non-tax revenue (8%), Excise duties (7%).
27. Subsidies: Food > Fertiliser > Petroleum > Interest subsidy > Others.
20. Tax devolution
1. Article 268: Levied by union but collected and appropriated by states. The
taxes under this are cheques, promisory notes, insurance policy and share
transfer. Excise duty on medical and toiletry preparation. This does not go into
consolidated fund of India. So, FC cannot share funds under this category.

2. Article 269: Levied and collected by union but assigned to states. CST comes
in this category. CST belongs to exporter states. Does not come under
consolidated fund of India, so FC cannot share it.
3. Article 270: Divisible taxes.
4. Article 271: Surcharge. Goes to consolidated fund of India. But FC cannot
share it.
5. All remaining central taxes can be shared by FC to states.
6. Horizontal distribution criteria: Population census (1971), Population
census (2011), area, income distance (How far the state is from top GSDP
state. More backward more money) and forest cover. Newly added areas are
Population (2011) and forest cover. Fiscal discipline is done away with.
21. GDP
1. GDP + income from abroad = GNP. Net factor income from abroad contain
segments such as trade balance, interest on external loans, foreign investment
and private remittances.
2. GDP at market price = GDP at factor cost + indirect taxes - subsidies.
3. IMF ranks nations as per their GNP in terms of Purchasing Power parity. GNP
also shows the external strength of the economy. It shows the financial
dependence of one economy over the other.
4. GNP - depreciation = NNP. Depreciation is the cost of the good divided by
number of years of its useful life. Depreciation does not take into account
unexpected or sudden destruction or disuse of capital as can happen with
accidents, natural calamities or other such extraneous circumstances.
5. NNP at factor cost is equal to National income (NI).
6. Per capita income = NNP / Total population. Per capita Real income is the
most appropriate measure of a country’s economic growth.
7. Personal Disposable Income (PDI) = PI - Personal tax payments - Non-tax
payments.
8. NNP at market price + current transfers = National disposable income.
Current transfer is the income from transfers (Remittances, donations and gift)
in the current account. National disposable income gives an idea of what is the
maximum amount of goods and services the domestic economy has its
disposal. This is the maximum amount of goods and services a country has
which could be used for purpose of saving and investment.
9. GVA at factor cost = Compensation + consumption of fixed capital + mixed
income/operating surplus.
10. GVA at basic price = GVA at factor cost + production taxes - production
subsidies. Production tax is independent of production volume. Ex: Land
revenue, stamps and registration fees and tax on profession. Production
subsidy is independent of the production volume. Ex: Subsidies to farmers,

small industries, railways and administrative subsidies to cooperatives and
corporates.
11. GDP at market price = Sum of GVAs at basic price + product tax - product
subsidies. If GDP at market price is adjusted with inflation, it is called GDP at
constant market prices. This is now the official GDP of India. Product taxes
are those levied on per unit production. Ex: VAT, Excise, Custom, Service tax
and Export and import duties. Product Subsidies are those levied on per unit
production. Ex: Food production, LPG, fertiliser, interest subvention to
farmers, subsidies for insurance households.
12. GDP deflator = Nominal GDP / Real GDP.
13. There are a few key differences between GDP deflator and CPI. GDP deflator
takes into account all domestic goods and services while CPI takes into
account only that are consumed by people. GDP deflator does not include
imported goods while CPI includes foreign goods. The weights are constant in
CPI, but they differ according to production level of each good in GDP
deflator.
14. A product will only be counted in GDP one time in its life. So, current
transactions involving assets and property produced in previous periods are
not counted in the current GDP. For instance, if a car produced in the year
2000 is resold in 2015, the GDP of 2015 will not include the resale value.
15. Purely financial transactions, such as the purchase of stocks, bonds, or
certificates of deposit, are not counted. We exclude these items because they
are not examples of production of goods and services. Other things not
included in the GDP are government social security and welfare payments.
Since GDP measures the market values of goods and services, economic
activities that do not pass through the regular market channels are excluded in
the computation of GDP.
22. Industrial policy 1991
1. 3 sectors reserved for public sector. They are atomic energy, atomic minerals
and rail transport. No private sector can be involved.
2. 6 sectors require industrial licensing. They are alcohol brewing, tobacco,
aerospace, defence, industrial explosives, hazardous chemicals and large
industry in SSI products. License for these 6 sectors is given by DIPP which is
under commerce ministry. Hazardous chemicals include Hydrocyanic acid
(known as prussic acid and is used in dyes, explosives and pesticide),
Phosgene (Used in plastic, pesticide), and Carbon isocyanates (MIC).
23. Industries
1. Cottage industries: Only family members employed. Capital investment is
negligible.

2. Village industry: Industry working in the area which has less than 10k
population. Capital investment is negligible.
3. Organised sector: EPF, maternity benefit is available. All factories registered
under the factories act, 1948 (10 workers with power = registered units).
Shops and commercial establishments of state Governments. Industrial
employment standing orders act, PSUs, cooperatives, plantation acts, bidis
and cigars. Only 17% of units come under organised industry.
4. Unorganised sector: Not covered under organised sector. But no consensus
over definition. To protect these workers, Govt has made an unorganised
workers social security act, 2008.
5. MSME: Depends on investment on plant machinery. If upto 25 lakhs, it is
called Micro industry. If greater than 25 lakhs and less than 5 crore it is called
small industry. If greater than 5 crore and less than 10 crore, it is called
medium industry. Even in service sector industry we have this classification
which is different from manufacturing industry. Majority of MSME are in
service sector. No excise duty upto 1.5 crore turnover. No service tax for less
than 10 lakhs/year. Capital subsidy is given.
6. Small scale industry(SSI): Investment upto 1 crore. It also varies by item.
Certain selected products are reserved for only small scale industry. If large
industry wants to enter these areas, they must get license and also must export
50% of the produce. Does’t apply to SEZ.
24. MUDRA bank
1. MUDRA Bank is a public sector financial institution in India. It provides
loans at low rates to MFIs and non-banking financial institutions which then
provide credit to MSMEs.
2. It will register, refinance and give rating to MFIs. Client protection in loan
recovery. MUDRA Bank will regulate banks only for the purpose of MUDRA
loaning. MUDRA is not the regulator MFIs. We already have the RBI as a
regulator for the MFIs registered as the non banking finance companies.
3. The bank will classify its clients into three categories. Shishu (Allowed loans
up to 50,000), Kishore (Allowed loans up to 5 lakh) and Tarun (Allowed loans
up to 10 lakh).
4. RBI will provide 20000 crore from PSL shortfalls. It will be used for
refinancing the MFIs for small scale industries. Also 3000 crore is given by
Govt under credit guarantee to micro enterprises.
25. SETU
1. Self employment and talent utilisation. Under NITI. Help start up companies
in tech expertise, finance, etc. Main focus on technology and electronic
sectors.
26. Labour reforms

1. Labour laws under concurrent list.
2. Factories act: original law in 1948. In 2014 amended. 4 benefits: Women
empowerment, amnesties for workers, self certification and no arrest on minor
issues.
27. Companies
1. 3 types of companies. One person companies (capital upto 50 lakhs), Private
limited companies (2-200 members), Public limited companies (7-unlimited).
Public listed are again subdivided into listed and unlisted companies.
2. Under companies amendment bill, 2013, Govt has done away with capital
requirements for private and public limited companies.
3. Under government there are two types of companies, PSU and Departmental
Undertakings. Under PSUs two types exist, Government companies and
public corporations. People employed under PSU are Non-government
employees.
4. Government companies: ONGC, SAIL, Coal India Ltd. Registered under
companies act. Government is major shareholder. People employed under this
are Non government employees. CAG appointed private auditors do auditing.
5. Public corporations: LIC, Air India, IDBI, UTI. Not registered under
companies act. Made by act of parliament. Wholly financed by Government
and audited by CAG. People employed under this are Non-government
employees.
6. Departmental undertakings: Indian railways, Commercial activity such as
engineering, manufacturing, etc. They are directly controlled by Government.
Not under companies act. People employed under Departmental Undertakings
are government employees. Directly audited by CAG. RTI also applies.
7. SBI is government owned public corporation. SBI act in 1955.
8. Under companies act, minimum number of directors for one person company
is one, two for private Ltd. company and 3-15 for public Ltd. company. Also
public ltd. companies must have minimum 1 women director and 1 Indian
resident and minimum 1/3 rd of board directors have to be independent
directors.
28. Skill India
1. Two objectives of skill India mission are employability and entrepreneurial
skills. Also traditional skills for welders, carpenters, etc., will be given. All the
skill development programmes are subsumed under Skill India mission. On
the top is the skill India mission. Below that there are PMKVY, Deen Dayal
Antyodaya Yojana.
2. PMKVY will be implemented through NSDC. Monetary reward is provided to
trainees who have successfully passed the skill course. Skill training under

PMKVY would essentially target drop out students after class 10 and class 12.
It replaces NSDC’s STAR scheme and provides complete training.
3. Deen Dayal Antyodaya Yojana has two components under it. One is Grameen
Kaushal yojana under ministry of rural development. Second is for urban
areas under Ministry of Housing and urban poverty alleviation. It is placement
linked skill development scheme launched as a skilling component of NRLM.
It is for rural youth who are poor.
4. Nai Manzil is an integrated education and livelihood initiative for the minority
communities. The scheme aims to benefit the minority youths who are school
dropouts or educated in the community education institutions like Madrasas,
by providing them an integral input of formal education. The scheme is
intended to cover people in between 17 to 35 age group. It also extends loans
for opening new enterprises. The scheme covers the entire country.
5. USTAAD aims for capacity building of traditional artisans and craftsman
belonging to minorities community, it is implemented by Ministry of
Minorities affairs.
6. Sector Skill Councils (SSCs) are industry led and industry governed bodies
which have been mandated to ensure that skill development efforts being
made by all the stake holders are in accordance with the actual needs of the
industry.
7. National Skill Development Corporation (NSDC) is a not-for-profit company
set up by the Ministry of Finance, under Companies Act. NSDC is a Public
Private Partnership (PPP) Company with the primary mandate of catalysing
the skills landscape in India. The Government of India through Ministry of
Skill Development & Entrepreneurship (MSDE) holds 49% of the share
capital of NSDC, while the private sector holds 51% of the share capital. It
creates vocational training institutions, fund patents and enable support for
skill development. It has been designated as the implementation agency for
Pradhan Mantri Kaushal Vikas Yojana (PMKVY).
8. National Skill Development Fund was set up in 2009 by the Government of
India for raising funds both from Government and Non-Government sectors
for skill development in the country. A public Trust set up by the Government
of India is the custodian of the Fund. Fund is operated and managed by a
Board of Trustees.
9. The creative productivity Index is published by the ADB. Copyright is looked
after by HRD. Patent is given by patent office under DIPP. Indian patent
offices to connect online under Madrid protocol. Design and trademark
registration process is simplified.
29. Debt

1. Total debt = Public debt + other liabilities of Govt (Such as National small
savings fund, etc).
2. Public debt = external debt + internal debt. Internal debt makes up around 90
percent of public debt.
3. State governments are not allowed to directly borrow externally hence their
entire debt is internal.
4. External debt includes Government and Non-government debt. External debt
(foreign debt) is the total debt a country owes to foreign creditors. The debtors
can be the government, corporations or citizens of that country. External debt
of India consists of multilateral and bilateral borrowings, IMF borrowing,
export credit, ECBs, NRI deposits and rupee debt. Long term debt dominates
the short term debt in external debt sector.
5. Present day debt of Government leads to burden on future generations as their
disposable income will go down and hence consumption. Thus, national
savings would fall. Also, government borrowing from the people reduces the
savings available to the private sector.
30. Other topics-1
1. The Factor market reforms are considered to be an important component of
Second Generation Economic Reforms in India. Factor market reforms may
include cutting down level of subsidies, dismantling the Administered Price
Mechanism (APM).
2. Rural household credit: Money lenders > commercial banks > cooperative
banks > Government.
3. The Government of India has the sole right to mint coins. The Government of
India is responsible for the designing and minting of coins in various
denominations. The role of RBI is limited to distribution of coins that are
supplied by Government of India. The Government of India decides on the
quantity of coins to be minted on the basis of indents received from the
Reserve Bank. Coins can be issued up to the denomination of Rs.1000 as per
the Coinage Act, 1906.
4. Blue chip companies are nationally recognised, well established and
financially sound company. Blue chips generally sell high quality, widely
accepted products and services. Blue chip companies are known to weather
downturns and operate profitably even in the face of adverse economic
conditions, which helps to contribute to their long record of stable and reliable
growth.
5. The postal service is under the Department of Posts, which is part of the
Ministry of Communications and Information Technology. The modern postal
system in India was established by Robert Clive in the year 1766 and it was

further developed by warren Hastings in 1774. The statute presently
governing the postal services in India is the Indian Post Office Act, 1898.
6. FDI is prohibited in retail trading, atomic energy, lottery, gambling and
betting, housing and real estate, agriculture. Recently government allowed 100
percent FDI in five plantation crops via the automatic route. In tea plantations,
100 percent FDI is allowed only through approval route. Government has also
approved 100% FDI in defence, pharmaceuticals, aviation, animal husbandry
and food products. DIPP issues industrial licenses and formulates FDI policy.
DIPP is the nodal agency for FDI.
7. The Insurance Act of 1938 was the first legislation governing all forms of
insurance to provide strict state control over insurance business. Life
insurance in India was completely nationalised in 1956, through the Life
Insurance Corporation Act.
8. In economics, Veblen goods are types of material commodities for which the
demand is proportional to its high price, which is an apparent contradiction of
the law of demand. Veblen goods also are commodities that function as
positional goods. Veblen goods are types of luxury goods, such as expensive
wines, jewellery, fashion designer handbags, and luxury cars, which are in
demand because of the high prices asked for them. Giffen goods are similar to
Veblen goods but the proportional price demand is mainly due to compulsion
such as Pulses.
9. Gross investment in an economy essentially means measure of final output
comprising capital goods.
10. If interest rates increase, more people would want to save in banks and less
people would hold bonds. This would reduce the demand for bonds and their
value. People holdings bonds would suffer a loss.
11. Debt trap is a situation when an economy is borrowing to repay even the
interest on its past borrowing.
12. Apart from currency notes and coins, the balance in savings, or current
account deposits held by the public in commercial banks is also considered as
money, since cheques drawn on these accounts are used to settle transactions.
Currency notes and coins are called fiat money, because they do not have any
intrinsic value like a gold or silver coin.
13. Legal tender is a medium of payment recognised by a legal system to be valid
for meeting a financial obligation. They cannot be refused by any citizen of
the country for settlement of any kind of transaction. Cheques drawn on
savings or current accounts can be refused by anyone as a mode of payment.
Hence, demand deposits are not legal tenders.
14. Sterilisation is used by RBI to fight external shocks to the economy and
counter inflation.

15. CAD along with Fiscal Deficit is called twin deficit.
16. The currency deposit ratio is the ratio of money held by the public in currency
to that they hold in bank deposits. CDR increases if people convert deposits to
cash.
17. Reserve deposit ratio (RDR) is the proportion of the total deposits,
commercial banks keep as reserves. Banks reserve money consists of two
things – vault cash in banks and the deposits with RBI. Banks use this reserve
to meet the demand for cash by account holders. RBI uses Bank Rate to
control the value of RDR. A high value of CRR or SLR helps in increase of
RDR, thus diminishing the value of the money multiplier and money supply in
the economy.
18. Of the final goods, we can distinguish between consumption goods and capital
goods. Goods like food and clothing, and services like recreation that are
consumed when purchased by their ultimate consumers are called
consumption goods or consumer goods. Consumption goods can be durable
(also called as consumer durables) and non-durable. Consumer durables are
not extinguished by immediate or even short period consumption include TVs,
computers, etc. Capital goods are not consumed but they are used to produce
other things.
19. A higher fiscal deficit need not always be inflationary. A high fiscal deficit if
accompanied by higher demand and greater output doesn’t lead to inflation.
20. High borrowing may lead to decrease in investment due to a reduction in the
amount of savings available to the private sector. But if government deficits
succeed in their goal of raising production, there will be more income and,
therefore, more saving. In this case, both government and industry can borrow
more.
21. Exchange rates in the market depend not only on the demand and supply of
exports and imports, and investment in assets, but also on foreign exchange
speculation where foreign exchange is demanded for the possible gains from
appreciation of the currency. In the short run, another factor that is important
in determining exchange rate movements is the interest rate differential i.e. the
difference between interest rates between countries. Thus, a rise in the interest
rates at home often leads to an appreciation of the domestic currency.
22. Purchasing power parity (PPP) theory is used to make long run predictions
about exchange rates in a flexible exchange rate system. According to the
theory, as long as there are no barriers to trade like tariffs (taxes on trade) and
quotas (quantitative limits on imports), exchange rates should eventually
adjust so that the same product costs the same whether measured in rupees in
India, or dollars in the US, yen in Japan and so on, except for differences in
transportation. Over the long run, therefore, exchange rates between any two

national currencies adjust to reflect differences in the price levels in the two
countries.
23. According to the PPP theory, differences in the domestic inflation and foreign
inflation are a major cause of adjustment in exchange rates. If one country has
higher inflation than another, its exchange rate should be depreciating. Most
economists contend that other factors are more important than relative prices
for exchange rate determination in the short run. However, in the long run,
purchasing power parity plays an important role. This is a popular method
used by the IMF and WB in studying the living standards of people in
different economies.
24. Fixed exchange rates are fixed and do not change. Pegged exchange rates are
maintained by the monetary authorities. The value at which exchange rate is
pegged is a policy variable. It may be changed. Repeated central bank
intervention to finance deficits and keep the exchange rate fixed will exhaust
all the official reserves.
25. RBI does not regulate the chit fund business. The Ministry of Finance enacted
the Chit Funds Act to regulate the sector. It is in concurrent list, so both the
centre and state can frame legislation regarding chit funds. SEBI regulates
collective investment schemes. However SEBI Act specifically excludes chit
funds. FDI in chit funds is prohibited under the Government route as well as
the automatic route. NRIs can invest in chit funds. Chit fund companies are
treated as NBFCs, so they cannot accept demand deposits.
26. The small finance banks will be required to extend 75 percent of its Adjusted
Net Bank Credit (ANBC) to PSL sector. SLR and CRR need to be maintained.
They can give out depositor’s money as loans. They are operated under
Companies Act 2013. They target MSME businessmen, unorganised workers,
small and marginal farmers. They can’t lend to big corporates and groups.
It cannot set up subsidiaries to undertake non-banking financial services
activities. They cannot be a business correspondent of any Indian/overseas
bank.
27. Payment banks cannot undertake lending activities. They can only invest
depositor’s money in Government securities (G-sec) only. They are allowed to
sell mutual funds, insurance and pension products, accept utility bill payments
etc. They can accept demand deposits. CRR should be maintained. 75% SLR.
They have to follow corporate governance norms. No PSL. Payment banks
can issue ATM/debit cards, however, cannot issue credit cards.
28. Disinvestment proceeds go into the National Investment Fund (NIF) which is
part of Public Accounts of India. NIF is managed by professional fund
managers. The allocations out of the NIF will be decided in the Govt budget.
As per this Scheme, 75% of the annual income of the NIF was to be used for

financing selected social sector schemes. The residual 25% of the annual
income of NIF was to be used to meet the capital investment requirements of
profitable and revivable PSUs.
29. Electricity, gas, water supply and construction sectors are examples of
secondary sector.
30. FSDC is headed by Finance Minister. Its members include the heads of the
financial sector regulators (RBI, SEBI, PFRDA, IRDA & FMC), finance
secretary, etc. FSDC also focuses on financial literacy and financial inclusion.
Project Insight is an initiative of the finance ministry to widen the tax base by
detecting tax evaders using technology. This will be also used for
implementation of FATCA.
31. GDR is a popular financial instrument used by listed companies in India to
raise funds denominated in US dollar or euros. GDRs are typically bank
certificates issued in more than one country for shares of a company, which
are held by a foreign branch of an international bank.
32. A foreign company can access Indian securities market for raising funds
through issue of Indian Depository Receipts (IDRs). An IDR is an instrument
denominated in Indian Rupees in the form of a depository receipt against the
underlying equity of issuing company to enable foreign companies to raise
funds from the Indian securities Markets.
33. Order of FDI receiving countries is China, Hong kong, USA, Singapore,
Brazil, UK, Canada, Australia, Netherlands, Luxembourg and India.
34. The Tendulkar committee, appointed before the Rangarajan committee, had
included the estimates of health and education in its estimation of poverty. But
the Rangarajan committee also included nutrition and a richer basket of
commodities for the poor’s consumption.
35. Revenue-to-GDP ratio in India is less as compared to emerging Asian
economies.
36. The major traits of depression
1. An extremely low aggregate demand in the economy causes activities to
decelerate.
2. The inflation being comparatively lower.
3. The employment avenues start shrinking forcing unemployment rate to
grow fast.
4. To keep the business going, production houses go for forced labour-cuts or
retrenchment (to cut down the production cost and be competitive in the
market) etc.
37. GAAR gives Indian authorities the right to scrutinise and tax transactions
which they believe are structured solely to avoid taxes. GAAR seeks to
prevent companies from routing transactions through other countries to avoid

taxes. GAAR is set of rules under the Income Tax Act. It contains provision
allowing the government to retroactively tax overseas deals involving local
assets. It could also be used by the government to target participatory notes
(P-Notes). GAAR will apply only when tax benefit exceeds Rs 3 crore. GAAR
will not apply to NRI investors in FIIs. GAAR is in force in nations like
Australia, Singapore, China and the UK.
38. An industry is considered as sick when at the end of a financial year,
accumulated losses are equal to or more than its net worth. It should have
completed five years of incorporation under the Companies Act, 1956. It must
have had more than 50 workers on any given day of 12 months prior to the
financial year in which sickness is claimed. It should have a factory license.
39. Members of the fragile five are Turkey, Brazil, India, South Africa and
Indonesia. Coined by Morgan Stanley.
40. Angel investor is an individual investor who provides financial backing to
entrepreneurs for starting their businesses. They are focused on helping the
business succeed, rather than reaping a huge profit from their investment.
Angel investors are essentially the exact opposite of a venture capitalist in
their intention who has high profit prospects as their prime focus. But an angel
investor and a venture capitalist can serve the same purpose for the
entrepreneur.
41. P-note is a derivative instrument issued in foreign jurisdiction against
underlying Indian securities. They are only open to foreign investors who
have not registered with SEBI. Investors in the P-note do not own the
underlying Indian security. P-note holder does not enjoy any voting rights in
relation to security/share referenced by Participatory note.
42. The unemployment due to workers quitting their previous jobs and are
searching for the new jobs is called frictional unemployment. It is sometimes
called search unemployment. Structural unemployment occurs when a labour
market is unable to provide jobs for everyone because of mismatch between
the skills of workers and skills needed for jobs. Cyclical unemployment is due
to fall in effective demand from consumers which leads to fall in production
and low demand for labour. Seasonal unemployment occurs during certain
seasons of the year. In some industries and occupations like agriculture,
holiday resorts etc., production activities take place only in some seasons.
43. Voluntary unemployment refers to a situation where workers are either not
seeking for work or are in transition from one job to another. Involuntary
unemployment refers to a situation where workers are seeking work and are
willing to work but are unable to get work.
44. Person who are willing to work, able bodied and above a certain age, but not
employed falls under open unemployment. Cyclical, frictional and structural

unemployment fall under open unemployment. Person who are actually
engaged, but their marginal utility out of that work is zero is disguised
unemployment.
45. A liquidity trap means consumers preference for liquid assets (cash) is greater
than the rate at which the quantity of money is growing. The liquidity trap is
the situation in which prevailing interest rates are low and savings rates are
high. Public choose to avoid bonds, making monetary policy ineffective. All
this happens under apprehension of belief that interest rates will increase. In
liquidity trap public do not want to hold an asset with a price that is expected
to decline.
46. Annual Employment-Unemployment Survey is conducted by the Labour
Bureau.
47. Inflation increases imports because of high domestic prices, residents prefer to
buy foreign goods. The result of falling exports and increasing imports, on
account of high domestic inflation, can increase BOP crisis. The BOPs crisis,
which India experienced in 1991, was of a similar nature. Policy mistakes in
the form of high fiscal deficit led to unprecedented growth in money supply.
The resulting inflation entailed high growth in imports than exports and finally
led to a very serious BOPs crisis.
48. Inflation tax is not an actual legal tax paid to a government, instead inflation
tax refers to the penalty for holding cash at a time of high inflation. During
inflation, if an investor is holding securities, real estate or other assets, the
effect of inflation may be negligible. If a person is holding cash, though, this
cash is worth less after inflation has risen.
49. Pigouvian tax is imposed on a party that is creating negative externalities.
Examples are taxes on tobacco products. It can be used to contain negative
externalities like pollution, etc by imposing taxes on pollution like carbon tax,
recent taxes on diesel vehicles, etc.
50. The Tobin tax was proposed to discourage short term currency speculation. It
is levied on every amount exchanged from one currency into another.
51. Call Money (funds borrowing for 1 day), Notice Money (2-14 days) and Term
Money (>14 days) markets are sub-markets of the Indian Money Market.
These refer to the markets for very short term funds. Interest rates in these
markets are market determined. In India, 80% demand comes from the public
sector banks and rest 20% comes from foreign and private sector banks. Since
banks work as both lenders and borrowers in these markets, they are also
known as Inter-Bank market. The intervention of RBI is prominent in the
short term funds money market. Call Money/Notice Money market is most
liquid money market and is indicator of the day to day interest rates. If the call
money rates fall, this means there is a rise in the liquidity and vice versa.

52. Inflation Indexed Bonds (IIBs) provide inflation protection to both principal
and interest payments. Tax provisions will be applicable on interest payment
and capital gains on IIBs. There will be no special tax treatment for these
bonds. IIBs would be Government securities (G-Sec) and the different classes
of investors eligible to invest in G-Secs would also be eligible to invest in
IIBs. FIIs would be eligible to invest in the IIBs.
53. Capital goods are tools, implements and machines etc., that make production
of consumption goods like furniture possible. If the limited resources
available are channelized for immediate consumption, a time would come
when demand would overshoot supply and economic stagnation would follow.
If however, a balance is maintained by sacrificing some consumption goods to
produce more capital goods, we can have more machines to fulfil demand.
Only this generates long-term growth. This is why the RBI Governor has
prescribed moving from consumption spending to investment spending for the
Indian economy.
54. If all the account holders of all commercial banks in the country want their
deposits back at the same time, the banks will not have enough to satisfy
needs of account holders. In case of a crisis like the above RBI stands by the
commercial banks as a guarantor and extends loans to ensure the solvency of
the latter. This role of the monetary authority is known as the lender of last
resort.
55. In economics, the term Social Marginal Cost (SMC) stands for costs that
occur to the society in addition to the producer. The total cost of producing
one extra unit of something is not simply the direct cost borne by the
producer, but also must include the costs to the external environment and
other stakeholders. The idea of SMC is taken into account in evaluating
investment projects.
56. The FRBM Act restricts the fiscal deficit of states by giving them a direction.
But, it gives them further freedom to borrow from the markets in case they
have enacted their own fiscal responsibility legislations. They can thus fulfill
their plan expenditure.
57. Washington Consensus refers to a set of economic reform prescriptions for
developing countries. It is considered to constitute the standard reform
package promoted for crisis wracked developing countries by Washington,
DC based institutions such as the International Monetary Fund (IMF), World
Bank (WB), and the United States Treasury Department.
58. According to Phillips curve, there is a trade off between inflation and
unemployment i.e. an inverse relationship between them. The curve suggests
that lower the inflation, higher the unemployment and higher the inflation,
lower the unemployment.

59. Lorenz curve is commonly used to depict income distribution. It maps the
cumulative percentage of people from the poorest up and their cumulative
share of national income. It is plotted with Population of a country vs Income.
It helps in the calculation of Gini coefficient. In Gini coefficient, Maximum
inequality is signified by 1 and absolute equal societies are shown by 0.
60. Kuznets curve is a hypothesis that as an economy develops, market forces first
increase and then decrease economic inequality. The hypothesis was first
advanced by economist Simon Kuznets in the 1950s and '60s.
61. The Matthew effect (or accumulated advantage) is the phenomenon where the
rich get richer and the poor get poorer.
62. India Financial Stability Report is published by the RBI. Financial stability is
now one of the three important objectives of monetary policy besides price
stability and credit support. UN Conference for Trade and Development
(UNCTAD) releases the World Investment Report. It also gives out Trade and
Development Report.
63. World Economic Situation and Prospects (WESP) is UN flagship publication
on expected trends in the global economy. UN agencies involved in the
publication are UN Department of Economic and Social Affairs (DESA),
UNCTAD and the five UN regional commissions.
64. Macroeconomics emerged as a separate subject in the 1930s due to Keynes.
Macroeconomics sees an economy as a combination of four sectors, namely
households, firms, government and external sector.
65. Major credit rating agencies give out the sovereign credit rating of each nation
as an absolute grade. A particular nation’s rating score is independent of the
performance of other nation. Comparative Rating Index of Sovereigns (CRIS),
introduced by India, performance of one nation is compared with all other
nations. It is introduced by the Finance Ministry.
66. Human Development Index (HDI) is calculated based on health (life
expectancy at birth), education (expected years schooling for school-age
children) and income (measured by GNI per capita). Between 1990 and 2017,
India’s HDI value increased from 0.427 to 0.640, putting the country in the
medium human development category. But development hasn’t been spread
evenly, with India’s income inequality the highest at 18.8%. In fact, when
corrected for inequality India’s HDI value falls by 26.8% to 0.468.
67. The Global Multi dimensional Poverty Index (MPI) was developed in 2010 by
the Oxford Poverty and Human Development Initiative (OPHI) and UNDP. It
measures multiple deprivations in the same households in education, health
and living standards on the basis of 10 indicators. A person is identified as
multi-dimensionally poor (MPI poor) if deprived in at least one third of the
dimensions. It uses same dimension used by HDI but with different indicators.

Though incidence of multidimensional poverty has almost halved, India has
the largest number of people living in multidimensional poverty in the world.
68. Global Multi-dimensional Poverty Peer Network (MPPN) is a south-south
initiative hosted under OHPI. The network provides south-south dialogue,
capacity building and, access to a repository of experiences and lessons
learned about measuring multidimensional poverty. MPPN was created in
2013 to provide support to policy makers who are implementing a
Multidimensional Poverty Index (MPI).
69. Headcount ratio shows the percentage of population whose per capita incomes
are below the poverty line. Poverty Gap is the difference between the mean
income among the poor and the poverty line.
70. The Gender Development Index (GDI), defined as a ratio of the female to
male HDI, measures gender inequality according to three basic parameters of
health (LEB), education and command over economic resources (estimated
GNI per capita). It is given by UNDP.
71. The Gender Inequality Index (GII) is an index for measurement of gender
disparity that was introduced by UNDP in the 2010 HDP report to remove
shortcomings in Gender development index. It uses reproductive health,
empowerment, and labour market participation. Empowerment is calculated
using women’s representation in Parliaments and women’s access to
secondary and higher education.
72. Global Hunger index (GHI) is calculated annually by International Food
Policy Research Institute (IFPRI).
73. National Investment and Infrastructure Fund (NIIF) is a fund created by the
Government of India for enhancing infrastructure financing (Greenfield and
brownfield) in the country. It is registered with SEBI as an category II
alternate investment fund (AIF). NIIF is India’s first sovereign wealth fund. It
is to attract investment from both domestic and international sources.
74. Output gap is the amount by which the actual output of an economy falls short
of its potential output. A positive output gap occurs when economy is over-
producing (high demand) and is inflationary and negative output gap when
economy is under-producing (due to weak demand) and is deflationary. Output
gap suggests that economy is inefficient. An inflationary gap is the amount by
which the actual GDP exceeds potential full employment GDP. It is one type
of output gap, the other being a recessionary gap.
75. The international intellectual property rights index is released by the US
chamber of commerce, Global intellectual property centre. India ranked 37 out
of 38 countries.
76. ILO is an organisation under UN. The ILO was created in 1919, as part of the
treaty of Versailles that ended World War I. It includes 186 of the 193 UN

member states plus the Cook Islands. It publishes the Global Employment and
Social Outlook. Apart from this it also publishes Global Wage Report, Global
Employment Trends, and World Social Protection Report etc. Work for a
brighter future is released by ILO’s Global Commission on Future of Work.
The Global Commission was set up under Future of Work Initiative of ILO.
Future of Work Initiative was launched by ILO in 2015 in order to understand
and to respond effectively to the new challenges posed by the changes that the
world of work is undergoing.
77. Government securities and bond instruments issued by banks and financial
institutions are regulated by RBI while non-government securities (i.e. issue
by corporates) are regulated by SEBI.
78. OECD is an inter-governmental economic organisation that aims to promote
policies that will improve the economic and social well being of the people
around the world. It has 35 member countries and was founded in 1960. USA,
Japan and South Korea are part of it. Not all EU states are part of it.
79. Labour force includes individuals who are actually engaged in economically
productive activities as well as those, who can be engaged (unemployed). So,
it includes individuals employed in organised sector, unorganised sector and
individuals unemployed due to structural unemployment.
80. Labour force participation rate (LFPR) is defined as the section of working
population in the age group of 16-64 in the economy currently employed or
seeking employment. India’s female labour force participation rate (LFPR)
fell from 35.8% in 1994 to merely 20.2% in 2012. It has fallen for other age
groups as well.
81. Managed floating exchange rate is a combination of flexible exchange rate and
fixed exchange rate system. Under this, central banks sometimes intervene by
selling foreign currencies in the exchange to stabilise the domestic currency,
this is called as dirty floating.
82. Extra-budgetary resources are the sum of domestic and foreign loans raised
directly by CPSUs. Broadly, the internal resources comprise retained profits
net of dividend to Government, depreciation provision and carry forward of
reserves and surpluses. The extra-budgetary resources consist of receipts from
the issue of bonds, debentures, external commercial borrowing (ECB),
suppliers credit, deposit receipts and term loans from financial institutions.
83. Wholesale banking involves providing banking services to other commercial
banks, mortgage brokers, large corporate, mid-size companies, real estate
developers, international trading businesses, institutional customers or other
corporations. The services which come under the net of wholesale banking
involves wholesaling, underwriting, market making, consultancy, mergers and

acquisitions, joint ventures, fund management etc. The focus is on high level
clients and high value transactions.
84. Red Label ATM is owned and operated by the respective bank. Brown Label
ATM is one in which the banks outsource the ATM operations to a third party.
They have logo of the bank. White Label ATM is owned and managed by
private operators who charge the card issuing banks a small fee. Ex: Muthoot
Finance ATM, TATA Indi-cash, etc. There is no bank logo.
85. Process of moving from self employment and regular salaried employment to
casual wage work as casualisation of workforce.
86. Austerity measures are reductions in government spending, increases in tax
revenues or both. These oftentimes harsh steps are taken to lower deficits and
avoid a debt crisis. Governments are unlikely to use austerity measures unless
they are forced to by the bond market or other lenders.
87. An APA is a contract, usually for multiple years, between a taxpayer and at
least one tax authority specifying the pricing method that the taxpayer will
apply to its related company transactions. The price at which divisions of a
company transact with each other is called transfer price. A transaction in
which buyers and sellers act independently and have no relationship with each
other is known as Arm’s length transaction.
88. The Financial Intelligence Unit (FIU-IND) was setup by Government in 2004
to provide quality financial intelligence for safeguarding the financial system
from the abuses of money laundering, terrorism financing and other economic
offences. It is an independent body reporting directly to the Economic
Intelligence Council (EIC) headed by the Finance Minister. FIU is not a
regulatory authority. Its prime responsibility is to gather and share financial
intelligence in cooperation with regulatory bodies like SEBI, RBI, IRDA etc.
The Directorate of Revenue Intelligence (DRI) is the apex anti-smuggling
agency of India. It is working under the CBIT, Ministry of Finance.
89. The Serious Fraud Investigation Office (SFIO) is the coordinating agency with
the Income Tax and CBI. It is under the jurisdiction of the Ministry of
Corporate Affairs. It was established in 2003, based on recommendations by
the Naresh Chandra Committee. It received statutory powers under the
Companies Act, 2013.
90. The Khadi and Village Industries Commission (KVIC) is a statutory body
under the MSME Ministry. The objectives of commission are providing
employment in rural areas, providing saleable articles and creating self-
reliance amongst people. KVIC is the nodal agency for promotion of cluster
development for Khadi as well as for village industry products. It is also
charged with the responsibility of encouraging and promoting research and

provide financial assistance for the Khadi and Village Industries sector. KVIC
is the implementation agency for PMEGP, SFRUTI and ASPIRE.
91. Scheme of Fund for Regeneration of Traditional Industries (SFRUTI) was
launched in 2005-06 for making traditional industries more productive and
competitive by organising the traditional industries and artisans into clusters.
KVIC is the implementation agency for the scheme.
92. The finance ministry has set up a Public Debt Management Cell (PDMC).
PDMC will have managers from Ministry and RBI. It will be upgraded to
PDMA. It will only have advisory functions.
93. Special Mentioned accounts (SMAs) are those standard accounts which show
earlier sign to fall between the standard and Sub-standard (NPA) category.
94. SWIFT, promoted in 1973 by banks globally, is used to transmit messages
relating to cross border financial transactions. It enables secure, seamless and
automated financial communication between users. Companies take recourse
to this form of funding as the costs of raising money overseas are relatively
low.
95. LIBOR (London Interbank Offer Rate) is the global reference rate for
unsecured short term borrowing in the interbank market. It acts as benchmark
for short-term interest rates. It is used for pricing of interest rate swaps,
currency rate swaps as well as mortgages. The Indian equivalent is known as
The Mumbai Inter-Bank Offer Rate (MIBOR).
96. BCs are individuals/entities who work as an agent of the bank for banking
services at locations other than a bank branch. They identify borrowers,
process loans, create awareness benefit of banking and finance and monitor
SHGs. They also attend to collection of small value deposit, disbursal of small
value credit. All BCs of any one particular bank can conduct business for
other banks as well.
97. The Banking Ombudsman is a quasi-judicial authority appointed by the RBI.
It aims to provide a grievance redressal mechanism to customers. All
Scheduled Commercial Banks, RRBs and Scheduled Primary Cooperative
Banks are covered under the Scheme. The complaint has to be first filed in the
respective banks before approaching the Ombudsman. The power of appellate
authority is vested with a Deputy Governor of the RBI. The RBI has recently
launched the Ombudsman Scheme for Non-Banking Financial Companies
(NBFC). Recently Reserve Bank of India (RBI) launched Ombudsman
Scheme for Digital Transactions (OSDT).
98. The 14th finance commission has not categorised states between normal states
or special category states as it is beyond its terms of reference. It suggested
that the resource gap of each state be filled through tax devolution, urging the
centre to increase its share of tax revenues to the states from 32% to 42%. If

devolution alone could not cover the revenue gap for certain states, the Centre
could provide a revenue deficit grant to these states. The concept of a special
category state was first introduced in 1969 by the 5th FC based on the Gadgil
formula.
99. The Goods and Services Tax (GST) is governed by the GST Council. Article
279 (1) of the amended Indian Constitution states that the GST Council has to
be constituted by the President within 60 days of the commencement of the
Article 279A. The GST council dictates tax rate, tax exemption, the due date
of forms, tax laws, and tax deadlines, keeping in mind special rates and
provisions for some states. Centre has 1/3 vote in council. States has 2/3 vote
in council. Decisions need 75% vote support to pass. GST council has already
met for more than 30 times till date.
100.Global financial system report is given by Bank of international settlements
(BIS). BIS is the bank to the central banks and aims to support global financial
and monetary stability. It is owned by 60 member central banks. Founded in
1930 it is world’s oldest financial organisation.
31. Other topics-2
1. NPCI is an initiative of RBI & Indian Banks Association (IBA) under
provisions of the Payment & Settlement Systems Act, 2007. It is the umbrella
organization for all retail payments and settlement systems in the country. It
also manages the UPI platform and links all the ATMs in India.
2. The NPCI offers to banks, financial institutions, Corporates and Governments
a service termed as “National Automated Clearing House (NACH)” which
includes both Debit and Credit. NACH (Debit) & NACH (Credit) aims at
facilitating interbank high volume, low value debit/credit transactions, which
are repetitive in nature, electronically using the NPCI service.
3. National Financial Switch (NFS) is the largest network of shared ATMs in
India. It was deployed in 2004, with the goal of inter-connecting the ATMs in
the country and facilitating convenience banking. It is run by the NPCI. NPCI
has successfully completed the development of a domestic card payment
network called RuPay.
4. The dependency ratio is an age-population ratio of those typically not in the
labor force (the dependent part ages 0 to 14 and 65+) and those typically in
the labor force (the productive part ages 15 to 64). It is used to measure the
pressure on the productive population.
5. Ministry of Statistics and Programme Implementation (MoSPI) has been
entrusted with the responsibility of developing the National Indicator
Framework (NIF) which will help in monitoring the progress of the SDGs and
associated targets.

6. Director General of Foreign Trade (DGFT) is a government organization
responsible for the formulation and implementation of Exim Policy. It is an
attached office of the Ministry of Commerce & Industry.
7. The Baba Kalyani committee constituted by the Ministry of Commerce &
Industry to study the existing SEZ policy of India submitted its report to the
government recently.
8. Gross National Income (GNI), Net National Income (NNI) and Per capita
Income has seen a steady increase in the last 5 years.
9. Tax Expenditures refers to the opportunity cost of taxing at concessional rates,
or the opportunity cost of giving exemptions, deductions, rebates, deferrals
credits etc., to the tax payers. Tax expenditures indicate how much more
revenue could have been collected by the Government if not for such
measures. In other words, it shows the extent of indirect subsidy enjoyed by
the tax payers.
10. The Qualified Foreign Investor (QFI) is sub-category of FPI and refers to any
foreign individuals, groups or associations, or resident, however, restricted to
those from a country that is a member of FATF or a country that is a member
of a group which is a member of FATF and a country that is a signatory to
International Organization of Securities Commission’s (IOSCO) Multilateral
Memorandum of Understanding (MMOU). QFIs are allowed to make
investments in G-Secs, T-Bills, Commercial Papers, Equities, corporate bond,
etc., by opening a demat account in any of the SEBI approved Qualified
Depository Participant (QDP).
11. In the wake of the 2008 global financial crisis, G20 finance ministers and
central bank governors came together to establish the Financial Stability
Board (FSB) in 2009. It is an international body that monitors and makes
recommendations about the global financial system. The FSB, which
comprises 24 countries, the European Commission and numerous
international bodies, is an outgrowth of the Financial Stability Forum (FSF)
founded in 1999 by the member countries of the Group of Seven (G7). It was
hosted and funded by the Bank for International Settlements (BIS).
12. The key features of Insolvency and Bankruptcy Code (IBC) are early
identification, distinct resolution processes, adjudication authorities, regulator,
insolvency professionals, insolvency professional agencies, Insolvency &
Bankruptcy Board of India, and Information Utilities (IU). IU process
financial information to be used in insolvency and bankruptcy proceedings.
Wilful defaulters, promoters of company having NPAs for over a year or
disqualified directors are prohibited from participating in the resolution
process. MSMEs are exempted from certain provisions of IBC. Committee of
Creditors can decide on liquidation by 66% vote. Earlier, once filed and

admitted by NCLT, an application couldn’t be withdrawn. Now, the
withdrawal is allowed for corporate insolvency resolution process, if approved
by 90% of the creditors. The IBC creates the distinction between a financial
and operational creditor based on the nature of transaction (purely financial
transactions or transactions related to day to day operations).
13. The government announced a comprehensive plan Project Sashakt for the
resolution of stressed assets in banking sector. It is a five pronged strategy
towards resolution of stressed assets, as recommended by Sunil Mehta
Committee. The plan can speed up the resolution as it doesn’t involve
government interference & would entirely be led by banks. Stressed assets is a
broader term and comprises of NPAs, restructured loans and written off assets.
14. NPAs are the assets on which interest/principle is overdue for period of 90
days. Sub-standard assets are the assets which has remained NPA for a period
less than or equal to 12 months. Doubtful assets are assets which have
remained in the substandard category for a period of 12 months. As per RBI,
loss asset is considered uncollectible and of such little value that its
continuance as a bankable asset is not warranted, although there may be some
salvage or recovery value.
15. Indian PM along with deputy PM of Singapore recently launched APIX. APIX
is a banking platform designed to reach two billion people world wide who
are still without bank accounts. It will help people in 23 countries including
the 10 ASEAN members as well as major markets such as India, and small
nations including Fiji.
16. Shadow banking system includes NBFIs that remain outside regular banking
system. The term was coined by economist Paul McCulley in 2007. They have
a higher cost of funding. But the lack of regulatory oversight allows them to
take on more risks than banks and earn higher returns. They provide a
valuable alternative to bank funding, specially providing credit to inaccessible
areas, niche sectors, small industries etc.
17. Global talent competitiveness index was launched for the first time in 2013
the annual report is published by INSEAD in partnership with the Adecco
Group and Tata Communications. It measures how countries and cities grow,
attract and retain talent, providing a unique resource for decision makers.
18. National Statistical Commission (NSC) was set up by the Government
through a resolution as an autonomous institution in 2005 on recommendation
of Dr. C. Rangarajan committee. It serves as a nodal organisation for all core
statistical activities of the country. It ensures statistical coordination among
the different agencies involved.
19. The CSO is one of the two wings of the National Statistical Organisation
(NSO). It is responsible for evolving and maintaining statistical standards. Its

activities include compilation of national accounts, economic census,
compilation of IIP and CPI. It also deals with various social statistics, training,
international cooperation, industrial classification etc. It also coordinates
human development statistics, gender statistics, Five Year Plan work relating
to Development of Statistics in the States and Union Territories.
Science(1)
1. In active immunisation, the vaccine prevents an infectious disease by activating
the body’s production of antibodies (proteins) that can fight off invading bacteria
or viruses. When ready-made antibodies are directly given to protect the body
against foreign agents, it is called passive immunity. Passive immunisation is
often used in children and adults who have weakened immune systems or may
not be good candidates for routine vaccinations for other reasons.
2. Recombinant DNA technology (laboratory method of genetic recombination) has
allowed the production of vaccines from bacteria or yeast. These vaccines have
greater production and hence greater availability for immunisation, e.g., hepatitis
B vaccine produced from yeast. Hepatitis B is transmitted through infected blood,
semen and other fluids. Hepatitis B is more infectious than AIDS. Hepatitis B can
cause liver cancer. AIDS can be transmitted from infected mother to her child
through placenta.
3. Heat and moisture help fungi to grow, which makes them thrive in skin folds
such as those in the groin or between the toes. Ringworms (fungal infection) are
generally acquired from soil and can be transmitted by infected individuals.
4. Benign tumours normally remain confined to their original location and do not
spread to other parts of the body and cause little damage. The malignant tumours,
on the other hand are a mass of proliferating cells called neoplastic or tumour
cells.
5. Higher the wavelength lesser the energy of the waves. In the wavelength
spectrum lower wave length (higher energy) rays are left most and higher
wavelength (lower energy) waves are right most. Spectrum: High energy gamma
rays, gamma rays, X-rays, UV rays, visible, infrared, microwave and radio. Night
vision uses infrared waves. Microwaves are used in radar communications and
cooking food.
6. The radiations from radioactive materials (alpha, beta and gamma radiation) are
all ionising radiations which can damage living cells. Ionising radiation is any
type of particle or electromagnetic wave that carries enough energy to ionise or
remove electrons from an atom. There are three types of electromagnetic waves
that can ionize atoms: Gamma rays, X-rays and higher UV spectrum rays.

7. Inbreeding is necessary if we want to evolve a pure line in any animal. However
continued inbreeding reduces fertility and productivity. This is called inbreeding
depression. To overcome this animals are mated with unrelated superior animals
of the same breed. This usually helps restore fertility and yield.
8. Out-breeding is the breeding of the unrelated animals, which may be between
individuals of the same breed (out crossing), or between different breeds (cross-
breeding) or different species (inter-specific hybridisation).
9. Out-crossing is the practice of mating of animals within the same breed, but
having no common ancestors on either side of their pedigree up to 4-6
generations. The offspring of such a mating is known as an out-cross. It is the
best breeding method for animals that are below average in productivity in milk
production, growth rate in beef cattle, etc. A single outcross often helps to
overcome inbreeding depression.
10. Cross-breeding is breeding of superior males of one breed with superior females
of another breed. Cross-breeding allows the desirable qualities of two different
breeds to be combined.
11. Interspecific hybridisation is a hybridisation in which male and female animals of
two different species are mated. In some cases, the progeny may combine
desirable features of both the parents, and may be of considerable economic
value, e.g., the mule.
12. Honeybee produce beeswax, which finds many uses in industry, such as in the
preparation of cosmetics, polishes and medicines.
13. Hybrid varieties of wheat, rice, sugarcane and millets such as jowar, bajra and
maize have been developed.
14. Breeding is carried out by the conventional breeding techniques or mutation
breeding. The conventional method of breeding for disease resistance is that of
hybridisation and selection. Mutation is the process by which genetic variations
are created through changes in the base sequence within genes. It is possible to
induce mutations artificially through use of chemicals or radiations (like gamma
radiations), and selecting the plants that have the desirable character as a source
in breeding. This process is called mutation breeding.
15. Bio-fortification is breeding of crops with higher levels of vitamins and minerals,
or higher protein and healthier fats. It is the most practical means to improve
public health. This can be done either through conventional selective breeding or
through genetic engineering.
16. Single-cell protein (SCP) typically refers to sources of protein extracted from
microbes such as algae, yeast, fungi or bacteria (grown on agricultural wastes)
used as a substitute for protein rich foods, in human and animal feeds. Microbes
are being grown on an industrial scale as source of good protein.

17. The capacity to generate a whole plant from any cell is called totipotency. The
nutrient medium must provide a carbon source such as sucrose and also inorganic
salts, vitamins, amino acids and growth regulators like auxins, cytokinins etc. By
applying these methods it is possible to achieve propagation of large number of
plants in very short durations. This method of producing thousands of plants is
called micro-propagation (genetically modified). Another important application
of the method is the recovery of healthy plants from the diseased plants. This
method does not require seeds. This also greatly reduces chances of transmitting
diseases, pests, and pathogens.
18. Microbes are present in soil, water, air, inside our bodies and that of other
animals and plants, deep inside the geysers, deep in the soil, under the layers of
snow several metres thick, and in highly acidic environments. Microbes are
bacteria, fungi, viruses, yeast, protozoa, viroids and prions. Microbes especially
yeasts have been used from time immemorial for the production of beverages like
wine, beer, whisky. Microbes are used to produce industrial products like lactic
acid, acetic acid. Microbes can also be used to kill harmful pests, a process called
as bio-control.
19. BOD is a measure of the organic matter present in the water. The greater the
BOD of waste water, more is its polluting potential. Once the BOD of sewage or
waste water is reduced significantly, the liquid waste is then passed into activated
sludge (bacteria is allowed to sediment). Sludge is pumped into large tanks called
anaerobic sludge digesters. Here bacteria which grow anaerobically digest the
bacteria and the fungi in the sludge. During this anaerobic digestion, bacteria
produce a mixture of gases such as methane, hydrogen sulphide and carbon
dioxide. These form biogas and can be used as source of energy as it is
flammable.
20. Chlorine, Bromine, H2O2, copper, silver, ozone and UV are disinfectants which
are released into water. Hydrogen peroxide (H2O2) is the only germicidal agent
composed of water and oxygen. Like ozone, it kills disease organisms by
oxidation. Hydrogen peroxide kills microorganisms by oxidising them, which can
be best described as a controlled burning process. Neem and Tulsi are
conventional disinfectants.
21. It has been suggested that we should plant eucalyptus trees all along sewage
ponds. These trees absorb wastewater rapidly and release pure water vapour into
the atmosphere. The waste water is utilized for tree growth which then could
yield fuelwood. Eucalyptus plantations can remove toxic metals, since the trees
are known to sequester, tolerate and accumulate high levels of various heavy
metals. But recent evidence suggests that they are invasive and crowd out space
where they are planted.

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