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Table of Contents

Indian Economy

Economy before British Rule

To understand the present level of the Indian economy, it is important to understand the economic system of India during the British rule and post-independence economic development policies.

  • Before the advent of British rule, India had an independent economy. It was largely primary sector economy and the major occupations were agriculture, handicrafts, and many other primary sector works.

Economy before British Rule

  • The economy was full of resources and a prosperous one. Therefore, high quality agricultural products and handicrafts made by the Indians were traded across the world.

Economy during British Rule

  • During the British rule, India’s economy became a net raw material supplier and a net importer of finished products.
  • No British economist attempted to measure the per capita income and national income of India.

Economy during British Rule

  • Some of the Indian economists Dadabhai Naoroji, V.K.R.V. Rao, R.C. Desai and British Findlay Shirras and William Digby attempted to measure India’s national income. Among all, V.K.R.V. Rao was the most successful.
  • Before independence, India’s economy was solely dependent upon agriculture.
  • 85 percent of the Indian population were rural and their main source of subsistence was agriculture.
  • During the British colonial period, agriculture (in spite of being the main occupation) was suffering from many problems and hence the effective growth was zero percent.
  • Land settlement system was totally in favour of the British.
  • Agricultural system was stagnant; however, later there was a gradual growth, but that was not because of improvement and development of the agricultural system, but because of the expansion of agricultural land.

Zamindari System

  • Many parts of India (especially Bengal region of east India, today’s West Bengal and Bangladesh) were practising Zamindari system (Land-lordship).
  • The main work of the Zamindars was to collect the land tax/rent. They almost did nothing either to improve the agriculture system or the conditions of the farmers.
  • Zamindars’ inhumane attitude affected farmers’ lives very badly. Most of the regions of the country were facing famine and many other social issues and problems.
  • Some of the regions, during the Zamindari system, evidenced growth that was only because of the commercialisation of agriculture. In these regions, the farmers had been forced to produce cash crops instead of staple food crops.

Major Problems

  • The major problems were −
    • Drought,
    • Flood,
    • Poor irrigation system,
    • Desalination of soil,
    • Absence of technology, and
    • Poverty.
  • India did not undergo any industrialisation as all the raw materials were exported to the UK.
  • Handicrafts and other small-scale industries suffered badly.
  • The main intention of British rule was to make India, a market of their finished products.
  • In India, many industries developed even in the time of crisis. For example, the jute industry in West Bengal and the cotton textile industry in regions of Gujarat and Maharashtra.

The Industries

  • Tata Iron and Steel Company (TISCO) was incorporated in the year 1907.

Tata Iron and Steel Company (TISCO)

  • By the middle of the 20th century, some other industries such as cement, sugar, paper, etc. were established.
  • As all the above discussed industries were concentrated in some specific pockets of the country; therefore, there was no improvement in the condition of the farmers.
  • During the colonial period, India became the exporter of jute, cotton, sugar, indigo, wool, etc. and importer of finished products such as cotton and silk fabrics, woollen cloth, machinery, and other items.
  • More than 50 percent of India’s trade was directed to Britain; remaining 50 percent were traded in other countries including China, Sri Lanka, and Persia (Iran).
  • Muslin’ is a type of cotton textile which originated in Bengal, particularly, places in and around Dhaka (previously Dacca), now the capital city of Bangladesh. Hence, it was also popular as ‘Daccai Muslin’.
  • Because of its quality, Muslin earned popularity across the world. Sometimes, foreign travelers also used to refer to it as malmal shahi or malmal khas implying that it was worn by, or fit for, the royalty .

The following image shows the dress made up of Muslin (the dress worn by the lady) and inset (image) shows the Muslin fabrics.

Muslin fabrics

Other Facts

  • The surplus income of India was used in setting up the official infrastructure for the British officers.
  • During the British period, some of the infrastructure such as road, rail, telegraph, ports, water transport, etc. were developed, but all these were developed not for the benefit of Indians, but, rather to serve the interests of British officials.

Railway was developed in 1850's

  • The railway, which was developed in the 1850s broke the barrier of long distance travel and trade. It also fostered the commercialisation of Indian agriculture. But this could hardly be of any help to the farmers.
  • The regional disparity was high, as the Madras Presidency (entire South India) was more into manufacturing and services sector and rest of India was in the agricultural sector.

Indian Economy – Planning


  • After independence, one of the most difficult choices that the leaders had to make was to decide the type of economic system that was capable enough to promote welfare equally across the country.
  • Among different types of economic system, Pandit Jawaharlal Nehru, the first Prime Minister of India, suggested Socialist Economy; however, it was not the same that was practiced in the USSR.
  • After great efforts, the planning committee decided to adopt a mixed economic system − a judicious mix of both socialist and capitalist systems.
  • Mixed economy was finally chosen with the help of Industrial Policy Resolution of 1948 and Directive Principle of Indian Constitution.
  • Planning Commission was set up in 1950, and the Prime Minister of India was made the chairperson of the commission.

Five-year Plans

  • The First Five-Year Plan was one of the most important as it paved for the development of the country then and for the years to come.

Economic Plan In India

  • Five-Year Plans are formulated very systematically in which all the problems are considered and addressed on priority basis. For example, agriculture development wasthe most important after independence, hence, the first five-year plan was drafted to strategically propel its growth and development.

Goals of Five-year Plan

Any plan should have a specific goal to fulfil. The goals of the Five-Year Plans are mentioned in the following image −

goals of the Five-Year Plans


  • This goal was directed towards an increase in Gross Domestic Product (GDP) of the country. The different sectors of the economy — the agricultural sector, the service sector, and the industrial sector are considered when a country’s GDP is derived.


  • For the swift growth and also to increase the productivity, modernization was necessary; hence, new agricultural technology (use of machinery and hybrid seed varieties) as well as advanced machinery for factories were used.
  • Apart from the modern technology, social status of women was also considered and they were granted equal rights.


  • To develop all the sectors and make India a self-reliant country, only indigenous resources and technology were promoted during the first seven five-year plans.
  • Another purpose of self-reliance was − India did not want to depend on any other country for food and important technologies, as it could be a threat to country’s sovereignty as well.


The above mentioned goals would not be fruitful or lead to the betterment of the people unless there is equality.

To ensure equity, the following steps have been taken −

  • Implementation of the Land Reforms Act was a turning point under which, the government abolished the existing ‘Zamindari’ system and the tillers (farmers) were made the owners of the respective land.
  • Land Ceiling was another commendable act under which the maximum size of land plots an individual can own was fixed.
  • The purpose of land ceiling was to prevent the concentration of land ownership in the hands of few people.
  • There were some loopholes in the land ceiling law and the implementation methods were also poor; therefore, the land ceiling was not as successful as it should have been. Only Kerala and West Bengal adopted this policy with full commitment.
  • The Green Revolution marked a significant change in the field of agriculture in India. It promoted the use of High Yielding Variety (HYV) seeds. This further increased the yield of wheat and rice.
  • Primarily, the use of HYV seeds was limited to a few states — Punjab, Andhra Pradesh, and Tamil Nadu, but after the late 1970s, many other states also started benefitting from the use of HYV seeds and improved the agricultural production on their fields.
  • Use of HYV seeds benefited farmers in the form of market surplus, i.e., farmers were now producing sufficient grains that could also be sold into the market.


  • For the equal distribution and fair opportunity among rich and poor farmers, the government made a policy to provide agricultural loans to farmers at subsidized rates.
  • Debate on Subsidy − Many economists accepted that the subsidies are good for the grass root level development, but there were a few who questioned it. However, unquestionably, subsidies brought change in India and proved beneficial for the farmers.
  • A major drawback is that about 65 percent of the population is still occupied in the agriculture sector and is not finding employment in any other sector.
  • Because of several problems and issues including poor infrastructure, lack of proper policy, lack of skilled human resources, the industrial sector could not undergo development until independence. Over a period of time, formulation of several industrial policies and the development of infrastructure merged in to mark the progress of the industrial sector in India.
  • The focus of the second five-year was industrial growth. All major industries, that drove the progress of the Indian economy were in the public sector and the government’s control over these increased during this period.

Industrial Policy

Industrial Policy Resolution is a resolution adopted by the Indian Parliament in 1956. It was formulated under the Second Five-Year Plan.

  • This resolution categorized industries into three sectors −
    • State owned industry;
    • Mixed i.e. state and private individual running industry together; and
    • Private sector.
  • According to the industrial policy, the private sector (industry) was also kept under the state control. To open a new industry or to expand an existing one, the first prerequisite was to obtain a license from the government. Small Scale Industry.
  • In 1955, Village and Small-Scale Industries Committee (which is also known as Karve Committee) proposed to promote small-scale industries for rural development.
  • To set up a small-scale industry in those days, maximum investment one could make was Rs.5 Lakh. The limit has gone up to Rs.1 Crore now.

Industry Policy

Trade Policy

  • As self-reliance was the primary objective, trade policy was not in favour of import of foreign goods.
  • Import taxes of various goods were very high. This thereby, increased the cost of the goods in the target market.
  • In addition to the above discussed conditions, quotas were also imposed and these quotas had an effect on the supply of these imported goods.
  • This system was practiced only to protect domestic firms from the foreign competition.
  • Thanks to these policies, results were also positive; GDP increased from 11.8 percent (1950-51) to 24.6 percent (1990-91) and the industrial growth rate was a remarkable 6 percent.
  • After the implementation of the Trade Policy, industries were no more limited to just jute and textile, rather, they expanded their operations and new units were started.
  • In spite of a significant growth, many economists criticized the economic policy, as it was largely controlled by the government. For example, in the telecommunication sector, people used to submit their applications months before they could actually get the connection.
  • There was a huge debate on public vs private sector. Many believe, emphasis on public sector restrained the potential economic growth of India.
  • On the other hand, the regulation of private sector through licensing system (which people call permit license raj) curtailed the industrial growth potential of the country.
  • High import tax and restriction on foreign trade also drew criticism.
  • With the introduction of the new liberal economic policy of 1991, Indian economy addressed the prevailing economic problems through the following −
    • Liberalization
    • Privatization
    • Globalization

Prasanta Chandra Mahalanobis

Many of the economists and other scholars contributed to the formation and nurturing of the Indian economic system.

Prasanta Chandra Mahalanobis Some of them were simply outstanding and their names cannot be forgotten. For example, statistician Prasanta Chandra Mahalanobis.

P.C. Mahalanobis is a well-known architect of Indian Planning

The second five-year plan (which in a real sense, was the beginning of economic planning in India), was based on the ideas of Mr. Mahalanobis.

Born and brought up in Calcutta, Mr. Mahalanobis went to Cambridge University (England) for his higher studies. Because of his contribution in the subject statistics, he was appointed as the Fellow (member) of Britain’s Royal Society.

The Indian Statistical Institute in Calcutta was established by Mahalanobis. He also started a journal namely ‘Sankya.’

Indian Economy – Sectors


  • Economy is normally categorized into three sectors namely −
    • Primary Sector
    • Secondary Sector
    • Tertiary Sector

Primary Sector

  • Primary Sector is directly dependent on environment for manufacture and production. For example, agriculture, mining, farming etc.

Primary Sector

Secondary Sector

  • Secondary Sector adds value to the produ by transforming raw materials into valuable products. For example, processing and construction industries.

Secondary Sector

Tertiary Sector

  • Tertiary Sector is involved in production and exchange of services. For example, transportation, communication, and other services of such kind.
  • Tertiary Sector is also known as Services Sector as it facilitates the production and exchanges of services.

Teritary Sector

Measurement of Economy

  • Gross Domestic Product (GDP) is the value of all goods and services produced by all the three sectors over a period of time.

Gross Domestic Product

  • The majority of workers employed in a particular sector illustrate the economic and technological advancement of the country. For example, if the majority of the people of a country is employed in a primary sector or secondary sector, it means, this country is at a developing stage; whereas, if most of the people are employed in the tertiary sector, it means the country is at a developed stage. Considering this statement we can say that India is a developing country.
  • India started its growth from the primary sector and over a period of time gradually developed itself in the other sectors too.
  • The tertiary sector contributes the most to the GDP of our country.
  • The primary sector still has a large portion of India’s population occupied in it.
  • Workers in the primary sector remain unemployed for most of the time in a year; hence, if some of these workers are transferred from the primary sector to other sector, there would be no change in the total production of the primary. This type of unemployment is known as disguised unemployment.
  • The problems of disguised unemployment can be mitigated by improving the level of transport and communication in the rural areas. This will help the people living in these parts to commute from place to another for employment reasons.
  • We need to promote alternative sources of income such as small scale industries. These industries generate employment opportunities for many who are under employed or totally unemployed.
  • As per the government’s policy known as National Rural Employment Guarantee Act 2005 (NREGA 2005), all people who are able to, and are in need of work will be given guaranteed 100 days’ employment in a year.

Organized Sector

  • The sector that is permanently established and offers permanent jobs is known as Organized Sector.

Organized Sector

  • Employees of organized sector work for fixed number of hours in a day. If any employee works beyond the fixed number of hours, then he/she will be paid for the overtime.
  • Besides, employees of the organized sector have many advantages such as paid leave, weekly off (paid), festival holiday (paid leave), provident fund, gratuity, and some other perks and incentives.

Unorganized Sector

  • Unorganized Sector consists of all unincorporated private enterprises owned by individuals or households engaged in the sale or production of goods and services operated on a proprietary or partnership basis and with less than ten total workers. The employees here are not guaranteed of any advantages as in the organized sector and there is no concept of overtime payment. Disadvantages like low wages and job insecurity prevail here.

Unorganized Sector

  • Because of faulty and weak government’s policies and corruption, employees of unorganized sectors are facing exploitation in the hands of their employers.
  • There are many organized sectors that (to evade the tax) manufacture their goods and services by informal means and for that force their employees to work for extra hours or work in unorganized sector. As these workers are largely illiterate and poor; hence, they don’t have any other option.
  • Government needs to make protective laws and take sincere action to protect the rights of these vulnerable workers.
  • In addition to the above discussed points, the government could also play a significant role in areas such as −
    • Children’s education.
    • Providing employment to poor people.
    • Giving subsidies to the people living below the poverty line.
    • Providing basic medical facilities, drinking water, and other sanitation facilities.

Indian Economy – Demography


  • Hauser and Duncan defined Demography as the study of the size, territorial distribution, and composition of population, changes therein, and the components of such changes.


Population Status B/W 1881 and 1941

  • The first synchronous Census in India was conducted in 1881.
  • Thereafter, censuses are being conducted at ten-year intervals.
  • India’s growth in population remained very low till 1921. Until 1921, India was it’s first stage of demographic transition.
  • The literacy rate was terribly low at 16 percent out of which female literacy accounted to 7 percent.
  • The lack of public health system was a major drawback. There were outbreaks of water-borne and other fatal diseases. These diseases caused more illnesses and deaths. This led to an increase in the mortality rates.
  • Infant mortality rate was 218 per thousand (at present, it is about 63 per thousand).
  • The average life expectancy was only about 44 years.
  • Agricultural Sector had the largest workforce i.e. about 70—75 percent. This sector was followed by the Service Sector at 15—20 percent, and the Manufacturing Sector at about 10 percent.

Phase of Population Growth

  • India’s population growth can be classified into four distinct phases −
    • Phase I, the period between 1901 and 1921: During this period, India experienced a fluctuating but more or less a stagnant growth in population. This period marked a high in both the birth and death rates.
    • Phase II, the period between 1921 and 1951: This period witnessed a steady declining trend in population growth.
    • Phase III, the period between 1951 and 1981: It was a rapid high growth period of population explosion in India.
    • Phase IV, from 1981 to till date: India continues to grow in size. But, its pace of net addition is on the decrease.

Phase of Population Growth

  • As per census 2011, 68.8 percent of the total population reside in villages and 31.2 percent reside in the urban areas.

Indian Economy – People As Resource


  • Knowledge is the most significant and valuable property of a human being.
  • Human resource has a great contribution to the Gross National Income.
  • Human resources development is the process of increasing the knowledge, the skills, and the capacities of all the people in a society. It is the accumulation of human capital.

people Resource

  • Human capital is more superior to other types of resources (such as land and other natural resources), as human capital has the capability to exploit these resources and use them for other developmental purposes.
  • Economists and experts of other fields have advocated that education should be made accessible to every stratum of the society. Education is indispensable for overall national growth.

Features of Human Capital

  • Transformation of a child into a successful educated man/woman after educational attainment (for example, doctor, engineer, teacher, government official, business man, etc.) facilitates the development of the human capital.
  • Human capital is the sole source of overall development of the nation; therefore, investment in a child’s education, health, and other activities related to his/her growth is equivalent to the capital formation.

Human Capital

  • Health expenditure includes preventive medicine (e.g. vaccination), curative medicine (medicines given during the illness), and social medicine (spreading the health literacy).
  • Providing training either in public sector or private sector is also a kind of investment that produces knowledgeable and expert employees.
  • Expenditure on human migration and acquiring information about the market is also a source of human capital formation.
  • The contribution of a skilled and highly educated person is much more valuable than that of an unskilled labourer.
  • The seventh five-year plan has emphasized on the need for human capital formation. It stated that Human resources development (read human capital) has essentially to be assigned a key role in any development strategy, especially in a country with huge population.
  • Though the two terms human capital and human development sound similar, there is a basic difference between them.
  • Education and health are the major assets of human capital that enhance the labour productivity.
  • On the other hand, human development considers education and health as an integral part of human well-being.
  • Human Capital considers human beings as a means to an end. So, if an educated person with good health does not increase productivity, then the investment made on goes futile.
  • The expenditure on education is measured on the basis of the percentage of total expenditure (by the government) and the percentage of Gross Domestic Product (GDP).
  • In 1998, the Government of India appointed Tapas Majumdar Committeeto estimate the expenditure in education sector.
  • The Right to Education Act of 2009, makes education a fundamental right for all children aged between 6 and 14.
  • The percentage of expenditure on education sector has also been increased in comparison to previous decades.
  • Various loan schemes have been made available for higher studies (in home country and also other countries).
  • Moreover, with consistent efforts by the Indian Government, the literacy rate of India is increasing at an appreciable rate.
  • Besides, the gap between male and female literacy rate has progressively narrowed.

Success Rate of Education in India

The following table illustrates the literacy growth rate −

Numbers Details 1990 2000 2008-12
1 Adult Literacy Rate (Age group 15+)












2 Youth literacy rate (Between 15 & 24)

Male 88

Female 54.2 64.8 74










3 Primary completion rate












Education and Life Expectancy Development Rate

The following table illustrates the life expectancy growth rate −

Details 1951 1981 1991 2001 2012
Per Capita Income 5,708 8,594 11,535 16,172 38,037
Literacy Rate (in %) 16.67 43.57 52.21 65.20 74
Life Expectancy at Birth (In Years) Male












Crude Death Rate (per 1,000/) 25.1 12.5 9.8 8.1 7
Infant Mortality Rate 146 110 80 63 42

Indian Economy – National Income


  • The economic wealth or well-being of a country does not only depend upon the possession of resources, it also depends upon the optimum utilization of resources is more important.
  • The consumer may refer to an individual or enterprise that purchases goods and services for their personal use or for industrial or household use.

National Income

  • When goods are used for further production, they lose their original characteristics and get transformed into other commodities.
  • An item that is meant for the final use and will not pass through any more stage of production or transformation is called a final good or an end product.
  • Cooking at home is not an economic activity because home cooked food is not to be sold in the market, but when the same food is cooked in a restaurant for the customers, it becomes an economic activity.

Types of Goods

  • Goods and services, which are purchased and consumed by their ultimate consumer are called consumption goods or consumer goods. For example, cloth, shoe, pen etc.
  • Goods, which are durable in nature and used in the production process like tools, machinery and implements are also called final goods because they can’t change themselves at the time of production.
  • Commodities like television sets, automobiles or home computers are also durable goods, which are used by their ultimate consumer. These commodities are also called consumer durables.
  • Goods, which are used as raw material or input for the production of other commodities are called intermediate goods. These are not final goods. For example, plastics used for making chair, iron & steel used for making vehicles, etc.

Calculating National Income

  • Money is the common measuring means for the calculation of total final goods and services produced in the economy.
  • The calculation of the value of final goods and services does not consider the value of intermediate goods.
  • Depreciation refers to a fall in the value of fixed assets due to normal wear and tear.
  • Net investment = Gross investment – Depreciation.
  • Total final output produced in an economy includes output of consumer goods and services and output of capital goods.

Net investment

  • More sophisticated and heavy capital goods raise the ability of a labourer to produce goods. For example, the traditional weaver would take months to weave a sari, but with modern machinery, thousands of pieces of clothing are produced in a day.
  • There are mainly four kinds if contributions that can be made during the production of goods and services −
    • Contribution made by human labour (remuneration which is also called wage);
    • Contribution made by capital (remuneration which is called interest);
    • Contribution made by entrepreneurship (i.e. profit); and
    • Contribution made by fixed natural resources/land (remuneration which is called rent).
  • In a simple economy, the aggregate consumption by the household of an economy is equal to the aggregate expenditure on goods and services produced by the firm in the economy.
  • There is no leakage from the economic system because in a simple economy, we assume that there is no government; where there is no government, there is no tax payment, there are no exports and imports and that the domestic economy is a closed economy.
  • Value added, is the term, which is used to denote the net contribution made by a firm during the production process.
  • The replacement investment is always the same as the depreciation of the capital.
  • If we include depreciation in the Value Added, we obtain Gross Value Added and when we deduct the value of depreciation from Gross Value Added, we obtain the Net Value Added.
  • The stock of finished goods, or semi-finished goods, or raw materials, which a firm carries from one year to the next year is called inventory.
  • Change of inventories of a firm during a year = production of the firm during the year – sale of the firm during the year.
  • Production of the firm = value added + intermediate goods used by the firm.
  • Change of inventories of a firm during a year = value added + intermediate goods used by the firm during a year.
  • The change in inventories taking place over a period of time is called flow variables.
  • Addition to the stock of capital (like inventories) of a firm is known as investment.
  • There are mainly three categories of investment −
    • The rise in the value of inventories of a firm over a year, which is treated as investment expenditure undertaken by the firm;
    • The fixed business investment, which is defined as the addition to the machinery, factory buildings, and equipment employed by the firms; and
    • The residential investment, which refers to the addition of housing facilities.
  • If there is unexpected fall in sales, there will be an unplanned accumulation of inventories, but if there is unexpected rise in the sales, there will be an unplanned shortage of inventories.
  • Gross value added (GVA) = Value of sales by the firm + Value of change in inventories – Value of intermediate goods used by the firm.
  • Net value added of the firm = Gross Value Added – Depreciation of the firm.
  • Net value added of the firm = Gross Value Added – Depreciation of the firm.
  • Gross Domestic Product of the economy is the sum total of the net value added and depreciation of all the firms of the economy. Summation of the net value added of all firms is called Net Domestic Product (NDP).
  • The final expenditure is calculated on the following accounts −
    • The final consumption expenditure on the goods and services produced by the firm.
    • The final investment expenditure incurred by other firms on the capital goods produced by a firm.
    • The expenditure that the government makes on the final goods and services produced by a firm.
    • The export revenues that a firm earns by selling its goods and services abroad.
  • According to the expenditure method, GDP = Sum total of all the final expenditure received by the firms in the economy.
  • When government expenditure exceeds the tax revenue earned by the government, it is called the budget deficit.
  • When import expenditure is more than the revenue earned from export, it is called the trade deficit.
  • Gross National Product = GDP + Factor income earned by the domestic factors of production employed in the rest of the world – Factor income earned by the factors of production of the rest of the world employed in the domestic economy.
  • If we deduct depreciation from GNP, the measure of aggregate income that we obtain is called Net National Product (NNP). Thus, NNP = GNP – Depreciation.
  • Income which is earned by a household is called Personal Income.
  • Personal Income (PI) = National Income – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments to the households from the government and firms.
  • Personal Disposable Income (PDI) = Personal Income – Personal tax payments – Non-tax payments.
  • National Disposable Income = Net National Product at market prices + Other current transfers from the rest of the world.
  • Private Income = Factor income from net domestic product accruing to the private sector + National debt interest + Net factor income from abroad + Current transfers from government + Other net transfers from the rest of the world.
  • Real GDP is calculated at constant price (base year price) of goods and services; on the other hand, Nominal GDP is calculated at the current price of goods and services.
  • In the calculation of real and nominal GDP of the current year, the volume of production is fixed.
  • The ratio of nominal to real GDP is known as index of prices it is also known as GDP Deflator.

Methods for Measuring National Income

There are different methods of estimating National Income. The methods are as follows −

Methods for Measuring National Income

  • In product method, national income is measured on the basis of the flow of goods and services. We calculate money value of all final goods and services produced in an economy during a year.
  • In expenditure method, national income is measured as a flow of expenditure. Government consumption expenditure, gross capital formation (Government and private) and net exports (Export-Import).
  • In income method, national income is measured as a flow of income factor. There are generally four factors of production −
    • Labor (gets wages/salary)
    • Capital (receives interests)
    • Land (receives rent)
    • Entrepreneurship (gets profit as remuneration)

Indian Economy – Poverty


  • Poverty in India is deep rooted. The 200 years under British further intensified it.
  • After independence, several programs have been brought forward through Five-Year Plans in an attempt to alleviate poverty.


  • Dadabhai Naoroji was the first person who talked about the concept of Poverty Line before independence.
  • Dadabhai Naoroji used ‘jail cost of living’ formula to calculate the poverty line.
  • The Task Force on Projections of Minimum Needs and Effective Consumption Demand constituted by the Planning Commission in 1979 also attempted to measure poverty.
  • Poverty is further categorized on parameters such as absolute poor, very poor and poor. Another categorization is based on parameters such as always poor, usually poor, chronic poor, churning poor, etc.

Poverty Measurement

  • To demarcate the poverty line normally per capita calorie intake parameters is used, under which the minimum calorie intake (which is 2,400 calories/day for people in rural areas and 2,100/day for people in urban areas) is considered.
  • Many economists criticize the minimum calorie intake technique of measuring poverty because it does not solve many issues and also does not identify the real poor people.
  • To remove the drawbacks of this technique, many other techniques were invented; significant of them are −
    • Sen Index (by Nobel Laureate economist Amartya Sen),
    • Poverty Gap Index, and
    • Squared Poverty Gap.
  • Head Count Ratio is the number of poor as the proportion of people living below the poverty line.
  • In 1973-74, there were more than 320 million people below poverty line; the number has come down to 270 million in 2011-12. Likewise, more than three-fourth of the country’s poor people live in rural areas.
  • Many of the states in past three and four decades improved and the ratio of poverty declined; however, four states i.e. Odisha, Madhya Pradesh, Bihar, and Uttar Pradesh still have poverty levels, less than the national poverty level.

Reasons of Poverty

  • The major causes of poverty in India are −
    • Illiteracy
    • Unemployment
    • Unequal distribution of wealth
    • Excessive population
    • Discrimination on the basis of caste and religion, etc.
  • The farmers’ plight is worst in many parts of India. There is an increase in the number of farmers’ suicides especially in Maharashtra, Telangana, and Andhra Pradesh.
  • There are many reasons that instigate the farmers to take this extreme step −
    • High interest rate loans
    • Lack of state investment
    • Low productivity
    • Availability of subsidised or low rate foreign products
    • Lack of infrastructure
    • No advice for farmers
    • Poor irrigation systems
    • Spurious seeds and pesticides
    • Crop failure (because of drought), etc.

Poverty Reduction Programs

  • Starting from the first five-year plan, the government has kept on introducing various poverty reduction programs and policies.

The Concept of Trickledown Theory

  • Growth oriented approach was adopted with the assumption that all sectors would grow, and percolate into every level of society and help to remove poverty.
  • But even after such growth orientation, the condition has not improved, rather the gap between rich and poor has further widened.
  • The green revolution further worsened the condition by creating disparity between large and small scale farmers.
  • A special program — Food for Work aimed at eradication of poverty was launched in the 1970s.
  • Many other programs including self-employment programmes (listed below) were also launched around the same time −
    • Rural Employment Generation Programme (REGP)
    • Prime Minister’s Rozgar Yojana (PMRY)
    • Swarna Jayanti Shahari Rozgar Yojana (SJSRY)
  • Later in 1990s, the government changed the policy and started promoting Self-Help Groups (SHG). It primarily encourages people to save their own money and lend among themselves. At a later stage, government through banks will facilitate partial financial support.
  • Swarnajayanti Gram Swarozgar Yojana (SGSY) is an example of SHG. SGSY has now been restructured as National Rural Livelihoods Mission (NRLM).

Swarnajayanti Gram Swarozgar Yojana

  • In the year 2005, the Parliament passed a new Act — Mahatma Gandhi National Rural Employment Guarantee Act. This Act guaranteed wage employment to those rural households whose adult members volunteer to do unskilled manual work for a minimum of 100 days in a year.
  • During the period 2013-14, about five crore households got employment opportunities and benefitted from this act.
  • Further, three major programs have been launched to improve the nutritional status of the poor −
    • Public Distribution System
    • Integrated Child Development Scheme
    • Midday Meal Scheme
  • Some other programs launched for the better of the people in rural areas are −
    • Pradhan Mantri Gram Sadak Yojana
    • Pradhan Mantri Gramodaya Yojana, and
    • Valmiki Ambedkar Awas Yojana

Reasons of Failure

  • Though a number of poverty reduction programs have been launched by the government the outcome has not been satisfactory enough. There are many areas, which are facing segregation and are being deprived of basic development. The reasons for the underperformance of these programs are −
    • Poor execution
    • Systemic corruption
    • Unequal distribution of land and wealth

Reasons of Failure

  • Pressure from the local elite
  • Lack of participation by the poor people, etc.
  • This calls for participation of people from every stratum of the society. This will further facilitate inclusive growth and successful poverty eradication. For this, we need to encourage and educate people to participate from the grass root level.

The following table illustrates the poverty ratio −

Poverty Ratio
Year Rural Urban Total
1993-93 50.1 31.8 44.3
2004-05 41.8 25.7 37.2
2011-12 25.7 13.7 21.9

Indian Economy – Food Security


  • Food Security is a comprehensive term that includes −
    • Availability
    • Accessibility
    • Affordability of food for all
  • Availability of Food means, there should be enough food for everyone irrespective of his or her income; no one should starve (from hunger). It also includes the availability of food in government’s stock.

Food Security

  • Accessibility means, every person can have it. Or in other words, its price should not be so high that only a class of people can afford it.
  • Affordability means, a person should have sufficient money to buy a balanced food for himself/herself and/or for his/her family.

Problems of Food Insecurity

  • A large section of people in India is facing food insecurity, as they don’t have affordability and accessibility to food even for two times a day.
  • In addition to this, natural calamities such as drought, heavy rainfall, earthquake, cyclone further increase the level of food insecurity.
  • Natural calamities directly affect the production of food and lead to food shortage. The demand remains high, but the supply level falls down. Further, natural calamities cause a rise in the price of food, which is beyond the affordability of the poor.
  • Food insecurity normally leads to Famine. Famine, in fact, is a curse to any society. It brings with it problems such as −
    • Food insecurity
    • Diseases
    • Unemployment, etc.

Vulnerable Groups

  • The most vulnerable groups that have been suffering with the problem of food insecurity in India are −
    • The people who don’t have their own land (for agriculture).
    • The traditional artisans.
    • The workers (working on daily wages especially on agricultural land).
    • The seasonal workers (who finds work only in certain seasons).
    • Self-employed workers such as rickshaw-pullers and hawkers.
  • The poor people in India normally belong to the Scheduled Castes, the Scheduled Tribes, or other backward classes. There is also a section of poor people in India, who have migrated from neighbouring countries.

Vulnerable Groups

  • These poor people are more vulnerable to natural calamities or any other disaster.

Hunger Problem

  • Hunger is another parameter of measuring food insecurity. It includes not only the unavailability of food, but it also reflects the overall poverty of a society.
  • Hunger could be temporary or seasonal (because of calamity) or permanent (chronic hunger).
  • Chronic hunger illustrates permanent food insecurity, inadequate food supply, and inability of people to buy food.
  • Seasonal hunger, on the other hand, occurs temporarily. It is normally related to cycles of food growing and harvesting. For example, people suffering with this problem have inadequate food availabilities for only part of the year.
  • As per the latest government report, the percentage of seasonal hunger, as well as chronic hunger, has declined over the years in India.

Regions of Food Insecurity

  • Some Indian states such as Odisha, Bihar, Uttar Pradesh, West Bengal, Jharkhand, Chhattisgarh, Madhya Pradesh, and Maharashtra have extreme levels of food insecurity.
  • There are still many districts (of a few states), which have permanent food insecurity and famine-like conditions. The districts are −
    • Kalahandi and Kashipur districts of Odisha.
    • Palamau district of Jharkhand.
    • Baran district of Rajasthan, etc.


  • India, after independence, experienced many remarkable achievements. For example, the introduction of ‘green revolution’ increased the agricultural produce many folds. But the substantial increase in the production of grains (especially rice and wheat) is not equal across the country.
  • The states Punjab and Uttar Pradesh achieved high growth rate; on the contrary, Jharkhand, Assam, Tamil Nadu, Uttarakhand, recorded decrease in their food grain production (for the year 2012—13).
  • In spite of all the disparities (discussed above), over the last few decades, India is self-sufficient in the production of food grains.
  • To mitigate adverse conditions, the Indian government has come up with initiatives such as special food security system (maintaining buffer reserves of food stock) and public distribution system.

Food Security and Governance

  • Government of India set up a special agency — Food Corporation of India (FCI). The agency is responsible for the execution of food policies of Central Government.

Food Corporation of India

  • FCI purchases food grains (wheat and rice) from the farmers in states where there is surplus production.
  • FCI purchases food grains on pre-determined rates (fixed by the government in advance). This price is known as Minimum Support Price.
  • Later, the government makes the food grains available (from the buffer stock) to the areas where the production of food grains was insufficient and to the poor section of the society.
  • Government provides a platform where the stock is sold at a lower price (lower than the market rate), which is known as Issue Price.
  • The system through which FCI makes the food grains available to the poor society is known as Public Distribution System (PDS). The ration shops in most localities, villages, towns, and cities serve as channels and facilitate this distribution system.

Public Distribution System

  • The government issues ration cards and the people who have low income can apply and get ration cards from the ration card offices and avail the benefits of PDS.
  • Only those people, who hold ration cards can purchase subsidised food.
  • The high levels of food insecurity forced the Indian Government to introduce three food intervention programmes during the 1970s. The programmes are as follows −
    • Public Distribution System (PDS) for food grains (though it was already existing, the execution of responsibilities was strengthened further).
    • Integrated Child Development Services (ICDS).
    • Food-for-Work (FFW).
  • Currently, there are dozens of such programmes functional across the country.
  • Targeted Public Distribution System was introduced in 1997. This system aims to focus on the Poor in all areas. For this system, different prices are fixed for the poor and non-poor group.
  • The following two schemes have been launched recently −
    • Antyodaya Anna Yojana (AAY)
    • Annapurna Scheme (APS)

Reasons of Food Insecurity

  • In spite of the various initiatives for food security in India, there are many regions suffering from food insecurity.
  • Some of the major reasons for the failure of these initiatives are −
    • Poor implementation
    • Corruption (ration shop owners often sell the food grains of better quality to other buyers and provide food grains of poor quality to the ration card holders);
    • The process involved in availing a ration card is a lengthy one; etc.

Indian Economy – Employment


  • The motive behind working is not only to earn for ourselves, but also to support our dependents.


  • Being employed gives a sense of self-worthiness and dignity as well as recognition in the society.
  • Above all, a working employee not only earns for himself/herself, but he/she also contributes to the national income of the country.

Features of Employment

  • A study on the employment types and the living style of people gives an information on the following areas −
    • National income
    • Employment structure
    • Management of human resources, etc.
  • The study helps us analyse the different levels of employment and the levels of income generated by different sectors that contributes to the national income.
  • On the basis of employment study, we can address the persistent social issues such as poverty, child labour, exploitation, etc
  • When we calculate all the goods and services produced in a year, it is known as Gross Domestic Product (GDP).
  • When we add all the earning of exports and deduct the amount paid for import, the final number is known as Gross National Product (GNP).
  • If the export is greater than the import, then the GNP’s measurement is on positive side and if the export is lesser than the import, then it is on negative side.

Seasonal Unemployment

  • Employment in India is multifaceted. There are people who are permanently unemployed; and there are people who are temporarily employed or temporarily unemployed (known as seasonal unemployment/employment).
  • On the other hand, a task that requires only 5 workers to handle it, is being handled by 12 workers. This condition is known as disguised unemployment.
  • Among all the workers of the country −
    • 70 percent of the workforce are men.
    • Three-fourth of the workforce is from rural areas.
    • Women workers account to one-fifth of the total workforce (in urban areas).
  • Population refers to a group of people living in a given area in a given time period.
  • As per the 2009-10 data, about 39 persons of every 100 persons, are employed.
  • In urban areas, the number of employed people is 36 per 100 persons, whereas, it is about 40 per 100 persons in rural areas.
  • People in the urban areas are more literate, and they have more options to look out for a permanent job. This could mainly be the reason for this gap.
  • The number of female workers in rural areas (25/100 women) is more than in urban (15/100 women) areas.
  • The income of the male counterpart in the urban areas is high. Hence, the need for a female member of a family to go and earn does not arise,
  • The disparity between self-employed workers and salaried workers is also high.
  • In India, there are more number of men as salaried workers than women.

Types of Service Sector

Service sector is categorised into the following −

  • Primary sector − It includes agriculture and other related works.
  • Secondary sector − It includes mining and quarrying, manufacturing, construction, and electricity, gas, water supply, etc.
  • Tertiary sectoror Services sector − It includes trade, transport and storage, and services.

Primary Sector

  • Primary sector has the maximum percentage of work force, i.e., about 66% in rural area and 9% in urban area.

Primary Sector

  • In the primary sector, men account to about 43% and women account to about 62.8% of the workforce.
  • The total percentage of workforce in the primary sector accounts to about 48.9%.

Secondary Sector

  • Secondary sector has 16% of the workforce in rural areas and 31% of the workforce in urban areas.
  • In secondary sector, women account to about 20% of the workforce and men account to about 25.9 percent of the workforce.

Secondary Sector

  • The total percentage of workforce in secondary sector accounts to about 24.3%.

Tertiary Sector

  • Tertiary or Service sector has 17.4% of the workforce in rural areas and about 60% of the workforce in urban areas.
  • In tertiary sector, women account to about 17.2% of the workforce and men account to about 30.5% of the workforce.

Tertiary Sector

  • The total percentage of workforce in tertiary sector is about 26.8%.

Trend of Employments

  • The pattern of employment has changed over the last four decades.
  • The percentage of workforce in primary sector has decreased from 74.3% (in 1972—73) to 48.9% (in 2011—12).
  • The percentage of workforce in secondary sector has increased from 10.9 (in 1972—73) to 24.3 (in 2011—12).
  • The percentage of workforce in tertiary sector has increased from 14.8% (in 1972—73) to 26.8% (in 2011—12).
  • Similarly, the percentage of self-employed workers has come down from 61.4% (in 1972—73) to 52% (in 2011—12).
  • The percentage of regular salaried employees has gone up from 15.4% (in 1972—73) to 18% (in 2011—12).
  • The percentage of casual labourers has gone up from 23.2% (in 1972—73) to 30% (in 2011—12).
  • The workers working in a public sector or other enterprises who hire other workers to get the work done are known as formal workers.
  • On the other hand, the workers working in a primary sector (farmers, agricultural labourers), owners of small enterprises, are self-employed and do not hire workers. They are known as informal workers.
  • Formal workers account to only about 6% of the workforce in India, while the other 94% of the workforce are informal workers.
  • In the formal sector, only 21% of the workers are women.
  • On the other hand, in the informal sector, about 31% of the workers are women.
  • Unemployment in India is of different types.

Indian Economy – Infrastructure


  • Infrastructure is an indispensable tool for the development of an economy, as it facilitates supporting services, such as −
    • Transportation
    • Aviation
    • Telecommunication
    • Power supply
    • Education system (research and development)
    • Banking system
    • Hospitals
    • Trade, etc.
  • Infrastructure facilitates not only economic development of a nation, but also improves the overall quality of life (of the people).


  • Initially, the development of infrastructure in India was seen as the responsibility of the Indian Government; however, later private players also came into the picture and started developing infrastructure as government alone was not in a position to take care of the entire development.
  • Still, a large portion of India has no basic infrastructure in place. People are using wood, cow dung patties, and other primitive means for cooking.
  • About 76% of the Indian population drinks water from open sources such as tanks, wells, ponds, etc.


Energy is an essential element for the development of any nation.

  • India has two sources of energy. They are −
    • Commercial sources of energy
    • Non-commercial sources of energy
  • Coal, petroleum, and electricity come under commercial sources of energy. They are exhaustible and non-renewable sources of energy (except hydroelectricity); that get depleted with use.


  • Firewood, dried dung, and agricultural waste come under non-commercial sources of energy. These are directly available from nature. They are renewable in nature.
  • The sources of energy, which are exhaustible and can be used only once, are known as conventional sources of energy. They could be both commercial and non-commercial sources of energy.
  • The major sources of non-conventional sources of energy are −
    • Solar energy
    • Wind energy
    • Tidal energy etc.
  • By virtue of being a tropical country, India has a great potential of non-conventional sources of energy.
  • 74% of the total energy production is consumed for the commercial purposes.
  • Coal energy contributes about 54%, oil energy contributes about 32%, natural gas contributes about 10% and hydro energy contributes about 2% of the total energy consumption.
  • Non-commercial sources of energy — cow dung, firewood, and agricultural wastes collectively contribute about 26% of the total energy consumption.
  • Power/Electricity is an essential element for the development of any economy. Research says that in order to have 8% growth rate in GDP, power supply needs to go up by 12% annually.
  • Thermal power produces about 70% of total electricity.
  • Wind and hydel power collectively contribute about 16% to the total power production.
  • Nuclear power contributes only about 2%; while the global average is 13%.

Challenges of Energy Generation

  • There are many challenges related to power generation and consumption.
  • India does not produce as much power as it actually requires.
  • There is a disparity in power distribution system.
  • Poor power sector management has given way to electricity thefts and distribution losses.
  • The Private sector has very little to contribute in the power sector.
  • High tariff rates and power cuts are the other challenges.
  • A major portion of India’s electricity is coming from thermal power, but the source (raw material i.e. coal) is getting exhausted.

Health Sector

  • Health status of a country reflects the level of development, i.e., overall development of the nation.
  • The development of health infrastructure leads to healthy manpower. And, healthy manpower ensures higher efficiency in production of goods and services.

Health Issues

  • Meeting the challenges of health infrastructure challenges is a tough one for India.
  • Major health-related issues that India has been facing since independence are −
    • Medical education,
    • Research and development for the medicines,
    • Adulteration of drugs or duplicate poisonous drugs,
    • Scarcity of medical professionals, etc.
    • Poor infrastructure (such as scarcity of hospitals, medicines, doctors, medical equipment, etc.)
  • In India, about 70% of the hospitals and 60% of the dispensaries are being run by the private sector.
  • They provide treatment to 80% out-patients and 46% in-patients.
  • The Government has implemented various healthcare policies and programs to overcome the health-related issues but, there is still a long way to go.

Indian Systems of Medicine

  • Indian System of Medicine (ISM) − The ISM integrates six systems of treatment under it. They are as follows −
    • Ayurveda
    • Yoga
    • Siddha
    • Unani
    • Naturopathy
    • Homeopathy

Indian Systems of Medicine

Other Facts

  • Medical infrastructure in India is poorly developed; there is a lack of funds as well as will-power to invest in the research and development of medicines.
  • Currently, there are about 7 lakh registered practitioners, 3167 ISM hospitals, and 26,000 dispensaries in India.
  • The health status of a country normally is evaluated on the basis of some indicators such as −
    • Maternal mortality rates
    • Infant mortality rate
    • Life expectancy
    • Nutritional level
  • In addition to these, current status of non-communicable and communicable diseases is also considered (to measure the health status).
  • Indian government expends about 8.2% of the total GDP on health sector, which is very low in comparison to other countries.
  • India has about 17% (population) of world’s total population, but unfortunately, it bears about 20% of global burden of diseases (GBD).
  • GBD is an indicator that measures the number of people who are dying prematurely because of a particular disease. It also considers the number of years they spent in a state of ‘disability’ (owing to the disease).
  • In India, maximum number of people die because of communicable diseases like malaria, diarrhoea, and tuberculosis.
  • About 5 lakh children die because of water-borne diseases.
  • 2.2 million children die because of poor supply of vaccines and malnutrition.
  • Though about 70% of the Indian population lives in rural area, rural areas account to only one-fifth of the total hospitals (collectively private and public).

Medical Infrastructure

  • There are only 0.36 hospitals per one lakh people, whereas urban areas have 3.6 hospitals per one lakh people. This figure is comparatively better, but even this is poor on an overall basis.
  • 20% of the poorest people in India, spend about 12% of their income on healthcare, whereas the rich people spend merely 2% of their income on healthcare.
  • There is a great disparity between women’s health and men’s health.
  • Women suffer many health problems and because of lack of health care systems, most of them are left at god’s mercy.
  • The discrimination between male child and female child is another big issue; this is the reason behind a very low sex ratio — 940 females /1000 males (2011 census), and 927 females/1000 males (2001 census).
  • More than 50% of married women aged between 15 and 49 suffer from the problem of anaemia and other nutritional problems. Surprisingly, this is the reason for 19% of maternal deaths.
  • Abortions (especially of girl child) are also a major cause of maternal deaths in India.
  • As discussed above, health of people is the symbol of nation’s growth. In addition to this, a better health is the right of every person that need to be taken care of in a proper manner.

The Following Table illustrates Share of Commercial Energy Consumption (in %) −

Sector 1953-54 1970-71 1990-91 2012-13
Household 10 12 12 22
Agriculture 1 3 08 18
Transport 44 28 22 02
Industry 40 50 45 45
Others 05 07 13 13

The Following Table illustrates Public Health Infrastructure in India −

Items 1951 1981 2000 2013-14
Hospital 2,694 6,805 15,888 19,817
Beds 1,17,000 5,04,538 7,19,860 6,28,708
Dispensaries 6,600 16,745 23,065 24,392
PHCs 725 9,115 22,843 24,448
Sub-centres 84,735 1,37,311 1,51,684

The Following Table illustrates Health status of India in Comparison to Other Countries (2012) −

Indicators India China USA
Infant Mortality Rate/1,000 live births 44 12 6
Birth by Skilled Attendants (% of total) 67 96 99
Fully Immunised 72 99 99
Health Expenditure as % of GDP 3.9 5.1 17.7
Govt. Health Spending to total Govt. Spending (%) 8.2 12.5 20.3
Private Expenditure on Health (%) 86 79 22

Indian Economy – Rural Development


  • About two-third of the total population in India lives in villages; so, integrated rural development will lead to the nation’s development.

Rural Development

Credit and Marketing in Rural Areas

  • In 1969, Indian government adopted social banking and multi-agency approach to meet the requirements of rural credit.
  • In 1982, the National Bank for Agriculture and Rural Development (NBARD) was established as the supreme body to administer financial activities of rural areas.
  • Later on many schemes and other commercial banks, regional rural banks, and cooperatives and land development banks came up for the rural credit at cheaper rate.
  • Self Help Groups (SHG) are also doing good job towards the betterment of the rural people.
  • The SHGs disburse micro-credits to the rural people under the Micro-Credit Programme.

Agricultural Marketing System

  • The agricultural marketing system and different agricultural commodities are assembled, stored, processed, packaged, transported, graded, and distributed to various parts of the country.
  • In recent years, various alternate marketing channels emerged under which farmers directly sell their products to consumers and make more incomes. For example −
    • Apni Mandi covering the areas of Punjab, Haryana, and Rajasthan.
    • Hadaspar Mandi covering the areas of Pune.
    • Rythu Bazars covering the areas of Andhra Pradesh and Telangana (it is especially for fruits and vegetables).
    • Uzhavar Sandies covering the areas of Tamil Nadu.
  • In addition to all these (discussed above), many fast food chains are also being run.

Diversification into Productive Activities

  • Many people believe that dependency on one occupation is risky; therefore, the concept of diversification is introduced with an objective to provide consistent means of subsistence and sustainable development.
  • Along with agriculture, other activities such as livestock farming, poultry and fisheries were introduced.
  • Under the ‘Operation Flood’, farmers can pool their milk produce according to different grading (based on quality) and the same is processed and marketed to urban centres.


  • The development of fisheries has come a long way in India. Fisheries is further categorized into inland water fisheries (accounts 64%) and marine fisheries (accounts 36%).
  • Fisheries account to 0.8% of the total GDP.
  • Andhra Pradesh, West Bengal, Kerala, Gujarat, Maharashtra, and Tamil Nadu are major fish producers.


  • Fishermen are facing many problems, among which poverty and illiteracy are the most common ones.


  • Cultivation of medicinal plants, fruits, vegetables, nuts, seeds, herbs, sprouts, mushrooms, algae, flowers, seaweeds and non-food crops such as grass and ornamental trees and plants is known as Horticulture.


  • Horticulture plays a significant role in Indian economy and contribute about 6% to the country’s GDP.
  • India is the second largest producer of fruits and vegetables in the world.

Organic Farming

  • In the recent years, campaigns and awareness programmes have been conducted to make the people aware of the devastating impacts of fertilizers and chemicals. People have now started supporting and promoting organic farming. The benefits of organic farming are as follows −
    • It restores the fertility of soil.
    • It maintains the food’s original taste and nutritional values.
    • It does not harm nature.
    • It enhances the ecological balance.
  • Though organic farming comes with its own drawbacks, but it has more advantages in the domestic as well as in the international markets, as it is produces heathy food and is a well-accepted means of sustainable development.

Major Problems

There are some major obstacles that come on the way of rural development. They prove to obstruct the developmental process. The obstacles are as follows −

  • Literacy (especially female literacy needs to be given additional attention)
  • Vocational training programs
  • Public health
  • Sanitation
  • Land reforms
  • Development of infrastructure including road, electricity, irrigation, marketing facilities, agricultural advancement and research, etc.

The Poor Women’s Bank − In Kerala, a small savings bank for poor women was started under the Kudumbashree movement– which is a women-oriented community-based poverty reduction program.

Kudumbashree movement This bank was set up in 1995 with the objective to encourage the habit of saving among poor women. In no time, it became the largest informal bank operating in Asia in terms of participation by the women and the savings mobilised.

Tamil Nadu Women in Agriculture(TANWA)

Tamil Nadu Women in Agriculture TANWA is a project started in Tamil Nadu with the objective to train women in the latest agricultural techniques.

Saansad Adarsh Gram Yojana(SAGY)

Saansad Adarsh Gram Yojana In October 2014, Government of India introduced a scheme — SAGY, under which parliamentarians need to identify and select one village from his/her constitution (not belongs to his/her spouse) and develop it as a model village.

Indian Economy – Money and Banking


  • Money is a commonly accepted medium of exchange.
  • Economic exchanges without the arbitration of money are called barter exchanges.
  • Barter exchanges become extremely difficult in large economies because of the high costs people would have to incur looking for suitable persons to exchange their surpluses with.
  • Money also acts as a convenient unit of account. The value of all goods and services can be expressed in monetary units.

Money and Banking

  • Money is not perishable and its storage costs are also considerably lower. It is also acceptable to anyone at any point of time. Thus money can act as a store of value for individuals.
  • Any asset other than money can also act as a store of value. For example, real estate, precious metals, livestock, stock, etc.
  • There are mainly two main reasons why people want to hold money. The reasons are as follows −
    • Transaction motive
    • Speculative motive
  • Bonds are papers bearing the promise of a future stream of monetary returns over a certain period of time.
  • Speculative demand for money is inversely related to the rate of interest.
  • If supply of money in the economy increases and people purchase bonds with this extra money, then −
    • Demand for bonds will go up
    • Bond prices will rise, and
    • Rate of interest will decline

Forms of Money

  • The balance in savings and deposits in current account, held by the public in commercial banks is also considered money. These deposits are called demand deposit.
  • Deposits which are fixed for a particular period of time and can only be drawn at the time of maturity are known as time deposits.
  • Every currency note bears on its face a promise from the Governor of RBI that if someone produces the note to RBI, or any other commercial bank, RBI will be responsible for giving the person purchasing power equal to the value printed on the note and coin.
  • Currency notes and coins are called fiat money. They do not have intrinsic value like a gold or a silver coin. They are also called legal tenders as they cannot be refused by any citizen of the country for settlement of any kind of transaction.
  • Demand deposits (cheques) can be refused by anyone as a mode of payment. They are not legal tenders.

Reserve Bank of India

  • RBI not only acts as a banker to the commercial banks. It also acts as a banker to the government of India and the state government.
  • In India, the currency notes are issued by the Reserve Bank of India (RBI), which is the monetary authority in India; however, the coins are issued by the Government of India.

Reserve Bank of India

  • When RBI purchase or sell government securities to the general public in a bid to increase or decrease the stock of high powered money in the economy is called Open Market Operation.
  • Bank rate is the rate of interest on which RBI lent money to the commercial bank at the time of shortage of reserves.
  • If the rate of Cash Reserve Ratio (CRR) and Statutory Liquid Ratio (SLR) increases or decreases, then it leads to a decrease or an increase the value of the money multiplier and money supply in the economy.

Money Supply

  • The total stock of money in circulation among the public at a particular point of time is called money supply.
  • According to RBI, there are four alternative measures of money supply known as M1, M2, M3 and M4.

M1 = CU + DD

  • CU refers to the currency held by the public and DD refers to the net demand deposits held by commercial banks.
  • M2 = M1 + Post Office Savings Deposits.
  • M3 = M1 + Time Deposits with commercial banks.
  • M4 = M3 + Total deposits with Post Office savings organisations (excluding National Savings Certificates).
  • M1 and M2 are called narrow money and M3 and M4 are called broad money.
  • M3 is the most commonly used measure of money supply. It is also known as aggregate monetary resources.
  • Money supply will change if the value of any of its components such as CU, DD or Time Deposits changes.

Other Facts

    • The Currency Deposit Ratio (CDR) is the ratio of money held by the public in currency to that they hold in bank deposits.
    • The Reserve Deposit Ratio (RDR) is the proportion of the total deposits commercial banks keeps as reserves.
    • The Cash Reserve Ratio (CRR) is the deposits that banks must maintain with the RBI.
    • The Statutory Liquidity Ratio (SLR) requires the banks to maintain a given fraction of their total demand and time deposits in the form of specified liquid assets.
    • Commercial banks can borrow money from RBI at bank rate when they run short of reserves. High bank rates make borrowing from RBI a costly affair.
    • The rate of interest offered by the bank to deposit holders is called the borrowing rate and the rate at which banks lend out their reserves to investors is called the lending rate.
    • The difference between borrowing rate and lending rate is called spread.
    • The creditworthiness of a person is judged by his/her current assets or the collateral (a security pledged for the repayment of a loan) he/ she can offer.
    • The total liability of the monetary authority of the country, RBI, is called the monetary base or high powered money.
    • High powered money then consists of currency held by the public and reserves of the commercial banks, which include vault cash and banks’ deposits with RBI.
    • The total amount of deposits held by all commercial banks in the country is much larger than the total size of their reserves. 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 means to satisfy the need of every account-holder and there will be bank failures.

Indian Economy – Government Budget


      • In a mixed economy, Government plays an important role.
      • On certain things, the government has an exclusive right, such as national defence, roads, government administration, etc. (these are known as public goods).

Government Budget

      • Government’s allocation function relates to the provision of public goods and services by agencies of the government.
      • Through its tax and expenditure policy, government attempts to bring about a distribution of personal income of households in a manner that is considered just and fair. It taxes the rich and designs schemes which benefits the poor.

Annual Financial Statement

      • According to the Article 112 of the Indian Constitution, the Government at the centre needs to present annual financial statement before the Parliament. It is a statement of estimated receipts and expenditures of the Government of India in respect of each financial year, which runs from 1 April to 31 March.
      • The Annual Financial Statement is also the main Budget document and is commonly referred to as the Budget Statement. The different types of budgets included in this are as follows −
        • Revenue Budget
        • Capital Budget

Annual Financial Statement

Revenue Budget

      • The Revenue Budget illustrates the −
        • The Revenue (current) receipts (of the government) and
        • The Revenue expenditure (that can be met from these receipts).

Revenue Receipts

      • Revenue receipts are receipts of the government which are non-redeemable, i.e., they cannot be reclaimed from the government.
      • Revenue receipts are categorized as −
        • Tax Revenue.
        • Non-tax Revenues.
      • Tax revenues consist of the proceeds of the taxes and other duties levied by the central government.
      • Tax revenues are further classified into direct taxes (levied directly from the individuals as income tax) and indirect taxes (levied on goods and products within the country).
      • Corporation tax contributes the largest share in revenue receipts, followed by income tax.
      • Non-tax revenue of the central government largely comprises of −
        • Interest receipts on account of loans by the central government.
        • Dividends and profits on investments made by the government.
        • Fees and other receipts for services rendered by the government.
        • Cash grants-in-aid from foreign countries and international organizations.

Revenue Expenditure

      • On the other hand, Revenue Expenditure largely includes −
        • The expenses incurred for the normal functioning of the government departments and various services.
        • Interest payments on debt incurred by the government.
        • Grants those are given to the state governments and other parties.
      • Budget documents classify total expenditure into plan and non-plan expenditure.
      • The plan revenue expenditure includes the central Plans (the Five-Year Plans) and central assistance for State and Union Territory plans.
      • Non-plan expenditure includes interest payments, defence services, subsidies, salaries, and pensions.
      • Subsidies are important policy instruments, destined to promote welfare in the society.

Capital Budget

      • The Capital Budget is an account of the assets as well as liabilities of the central government; it takes into consideration changes in capital.
      • The capital account is further categorized as follows −
        • Capital Receipts
        • Capital Expenditure (of the government).

Capital Receipts

      • Capital Receipts include all those receipts of the government, which create liability or reduce financial assets.
      • Main items of capital account are loans raised by the government from −
        • The public, which is known as market borrowings.
        • From the Reserve Bank and commercial banks.
        • Other financial institutions through the sale of treasury bills.
        • Loans received from the foreign governments and the international organizations.
        • Recoveries of the loans granted by the central government.
      • Some other items of capital account are −
        • Small savings – such as Post-Office Savings Accounts, National Savings Certificates, etc.)
        • Provident funds and net receipts obtained from the sale of shares in Public Sector Undertakings (PSUs.

Capital Expenditure

      • Capital Expenditure includes the expenditures of the government, which result in the creation of physical or financial assets or reduction in financial liabilities.
      • Examples of capital expenditure are as follows −
        • Acquisition of land, building, machinery, equipment, investment in shares, and
        • Loans and advances by the central government to the governments of state and union territory, PSUs and other parties.

Budget Deficit

      • When a government spends more than it receives by the way of revenue, it is known as the budget deficit.

Budget Deficit

      • The difference between revenue expenditure and revenue receipts is known as the revenue deficit.
      • The difference between the government’s total expenditure and its total receipts excluding borrowing is known as the fiscal deficit.
      • The growth of revenue deficit as a percentage of fiscal deficit points to a deterioration in the quality of government expenditure involving lower capital formation.
      • Government deficit can be reduced by an increase in taxes or/and reduction in expenditure.
      • Public debt is burdensome if it reduces the future growth in terms of output.

Indian Economy – Consumer Rights


      • All of us are consumers, as all of us go to the market and purchase products; this is irrespective of the fact that we buy salt for Rs. 20 or a smart television for Rs. 50,000.
      • It is legal as well as moral duty of sellers to provide quality products to their consumers and, it is the right of the consumer to buy products of good quality.
      • Various laws, rules, and regulations have been put into practice to protect consumer rights.

Consumer Rights

      • Providing bad, tampered, adulterated, or duplicate product is a violation of consumer rights. This may lead to legal action and the seller/producer may have to pay a huge compensation amount.

Consumer Movements

      • The consumer movement in India as a ‘social force’ originated with the necessity to protect and promote the interests of consumers against the unethical and unfair trade practices. This movement aims to fight bad practices such as −
        • Rampant food shortages.
        • Black marketing.
        • Adulteration of food and edible oil.
        • Hoarding, etc.
      • The consumer rights were legally recognized after the enactment of the Consumer Protection Act, (COPRA) of 1986 by the Government of India.

Consumer’s Right

      • COPRA governs all business conducts and ensures consumer’s rights.
      • If a producer/seller acts wrongly and causes harm to any consumer, then the consumer can exercise his right to ask for compensation. And, if the seller is not ready to pay the compensation amount, the aggrieved consumer can file a lawsuit in consumer’s court.
      • As per the law, all producers and sellers are liable to provide all details of respective products. For example, on a medicine bottle, you can find the manufacturing date, the composition, manufacture’s details, expiry date, etc. (as shown in the image given below).

Consumer Rights2

      • It is consumers’ right to have this information (right to be informed) of the product that they are buying.
      • If a consumer finds that the medicine, he has been given by a chemist is already beyond the expiry date or is a duplicate one, then he can take legal action against the medicine seller.
      • Government of India enacted the Right to Information (RTI) Act in 2005 to ensure citizen’s access to public information.
      • Right to Information Act is a comprehensive set of rules and guidelines that ensure and provide all the (asked/required) information to the (respective) citizens about the functioning of the government departments.
      • It is the duty of the respective department (where you put query) to provide the required information (that you asked) with a specific timeline; they cannot ignore your query.

Consumer’s Court

      • The place you can file a case for redressal of consumer dispute are categorized into three levels −

Consumer's Court

      • If your case is valued at less than 2 million and you are not satisfied with the DCDRF’s judgment; you can further appeal to the state level court and so on.
      • As a consumer, you have to be well informed about your rights; for that you need to acquire the knowledge and skill and become a well-informed consumer.
      • 24 December of every year is observed as ‘National Consumers’ Day’ as Consumer Protection Act of 1986 was enacted on this date.


      • In spite of so many years of COPRA enactment, lakhs of people are not able to exercise their consumer rights; they are being exploited.
      • Many of the consumers have no idea about their (consumer) right, but there are also many other reasons, such as corruption, faulty practices, negligence by the consumer, etc.
      • On the other hand, at many places neither sellers give memo (receipt) of purchased goods nor do buyers (consumers) ask for that; receipt supports the lawsuit.
      • It is indispensable to have the purchase receipt to file a lawsuit; it is a must to ask for the correct purchase receipt whenever you buy something.
      • To overcome the situation, consumers need to update themselves and participate and fight for their rights.
      • As a responsible consumer, one should also make others aware; this is the best way to spread the awareness among the masses.

Awareness among the Masses

Indian Economy – Reforms


      • 1991 was a landmark year in the history of Indian economy. There was a tectonic shift in the Indian economic policy (during this year).
      • In 1991, India suffered great economic crisis, which was uncontrollable, the condition was worsening gradually; resultantly, the inflation of the prices of daily use commodities hit the people hard.

Economic Reform

      • As the foreign currency reserves went down, the balance of payment crisis was a major challenge for the country to deal with.
      • The reason for this crisis was long standing decline in exports, since 1980. When we import some product (such as petroleum), we need to pay in dollars, which we earn through export of our products.
      • On the other hand, government’s income was inadequate to address the issue; the revenue that the Government generated through taxation was inadequate.
      • India borrowed a loan of $7 Billion from the International Bank for Reconstruction and Development (IBRD), i.e., the World Bank and the International Monetary Fund (IMF), on the condition to liberalise the economic policy and open doors for international trade in India.


      • The period from the late 1980s to now witnessed significant reforms. The reforms can be categorized into two groups −
        • Stabilisation measures.
        • Structural reform policies.
      • Stabilisation measures are short-term in nature and attempt to control the crisis situation by maintaining sufficient foreign exchange reserves.
      • Structural reform policies are long-term policies that attempt to improve the overall economic condition by increasing the international competitiveness and removing the rigidities and other restraining obstacles.


      • Under the liberalisation policy of 1991, there were many changes in the areas of licensing and procedures, import of technology, import of capital goods coupled with a reasonable rate of public investment and almost total protection to domestic industries from international competition through quantitative restrictions on imports as well as high tariff rates.
      • The industrial licensing system was almost abolished except for some industries such as cigarettes, alcohol, hazardous chemicals, electronics, aerospace, drugs and pharmaceuticals and industrial explosives.
      • Particular industries such as the defence equipment, atomic energy generation, and railway are kept exclusively under the public sector.
      • There are some industries that have been provided the liberty to fix the prices for their products by the government.
      • Financial sector, which includes banks, stock exchange operations, and foreign exchange market were to be regulated and controlled by Reserve Bank of India (RBI), but the policy brought in a change, wherein, many of the financial institutions have been given liberty to take NOT ALL, but some major financial decisions on their own.
      • Many Foreign Institutional Investors (FII) including merchant bankers, pension funds, mutual funds, etc. are allowed to invest in the Indian financial market.
      • Tax policies and public expenditure policies are collectively known as fiscal policy.
      • Tax is categorized into two parts — Direct Tax and Indirect Tax.
      • Direct taxes are taxes collected on the income of individuals as well as business enterprises. After liberalization, the share of direct tax is coming down.
      • Taxes levied on goods and commodities are known as indirect tax.
      • Foreign exchange market has also been reformed and this helps to resolve the crisis of balance of payments.
      • Trade and investment policy reforms increased the international competitiveness of the industrial sector.
      • To protect domestic products and industries, the government used to impose quantitative restrictions on imports by keeping the tariffs very high. This policy has also underwent reforms now.
      • Import licensing was removed; however, it remained active for the hazardous and environmentally sensitive industries.
      • Quantitative restrictions have been completely abolished from April 2001.
      • Export duties have also been removed to increase the competitive position of Indian goods in the international market.


      • Privatisation means opening the doors of the sectors and industries which were once preserved for the government. This also includes selling the government-owned enterprises to private companies.
      • Government companies transformed into private companies either by −
        • Government’s withdrawal from the ownership and management, or,
        • Selling the public sector companies to private companies.
      • Selling a part of the equity of government enterprises to the public is called Disinvestment.
      • Besides, to improve the efficiency of certain public sector industries, government has vested on them, the autonomy to take managerial decisions. And, some of the industries, which are highly regarded have been awarded the status of Maharatnas, Navratnas, and Miniratnas.


      • Maharatnas include Indian Oil Corporation Limited and Steel Authority of India Limited.
      • Navratnas include Hindustan Aeronautics Limited and Mahanagar Telephone Nigam Limited.
      • Miniratnas include Bharat Sanchar Nigam Limited, Airport Authority of India, and Indian Railway Catering and Tourism Corporation Limited.


Globalisation is a complex phenomenon, which was a result of the integration of world economy and trade interdependence.

      • Because of advanced development of information technology, many of the services now are getting outsourced. For example −
        • Business Process Outsourcing (BPO)
        • Voice-based business process
        • Record keeping
        • Banking services
        • Accountancy
        • Film editing
        • Music recording
        • Book writing
        • Research and editing, etc.


      • Globalization helped to promote many Indian companies in the international market. It led to Indian companies opening their branches in different countries of the world. For example, ONGC Videsh operates in 16 countries, Tata Steel operates in 26 countries, HCL in 31 countries.

World Trade Organization (WTO)

      • WTO was established in 1995.
      • It was preceded by GATT (General Agreement on Trade and Tariff), which was established in 1948, which had 23 member countries participating in it.
      • It was a multilateral trade agreement established with the objective to offer equal opportunity to all countries in the international market for the trading.
      • WTO agreement covers goods as well as services and intended to provide equal opportunity to all by removing the various tariff rates (in different countries) and non-tariff barriers.

World Trade Organization

      • As a member of WTO, India also follows the WTO’s agreements.

After the Reform Period

      • After the reform of 1991, agriculture sector witnessed a decline; there was a fluctuation in the industrial sector, and the service sector experienced a significant growth.
      • Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII) have increased from about USD 100 million (in 1990-91) to USD 467 (billion in 2012-13).
      • Though under the policy of globalisation, international market is open for all and there are equal opportunities for all; however, some economists are of the opinion that it is more beneficial for the developed countries.
      • Local industries of developing countries are also facing lot of problems, as they now have to compete with the companies in foreign countries.
      • Developing countries still have no access to developed countries’ local markets.
      • Indian government since 1991, sets the amount of disinvestment target every year; in 2013-14, the target was about Rs. 56,000 Crores and it has achieved target of only about Rs. 26,000 Crores.

Siricilla Tragedy − Power sector reforms has increased the power tariff, which has badly affected the workers working especially in small scale industries.

Siricilla Tragedy For example, Siricilla, a town in Telangana is widely known for its power loom textile industry. Here, wages of workers are directly linked with the amount of production. In such situations, power cuts have direct impact on workers’ wage. This often leads to the workers committing suicides.

Indian Economy – Open


      • In the modern world, most of the economies are ‘Open Economy’ because of the three following reasons −
        • Market Linkage − It means consumers and firms both have the opportunity to choose between domestic and foreign goods.
        • Financial Market Linkage − It means investors have the opportunity to choose between domestic and foreign assets.
        • Factor Market Linkage − It means firms can choose where to locate production and workers can choose where to work.

Open Economy

      • Total foreign trade (i.e., exports + imports) as a proportion of GDP is a common measure of the degree of openness of an economy.

Features of Open Economy

      • Every country has its own currency and in the international market, there are hundreds of currencies with different values; hence, the International Monetary System has been set up to handle these issues and ensure stability in international transactions.
      • The Balance of Payments (BoP) keep a record of the transactions in goods, services, and assets between residents of a country and with the rest of the world for a given period (typically a year).
      • The Current Account records exports and imports of goods and services and transfer payments.
      • When exports are greater than imports, it is known as trade surplus and when imports are greater than exports, it is known as trade deficit and the balance of exports and imports of goods is known as the trade balance.

Trade Deficit

      • Exchange rate is the rate at which one currency is exchanged with the other.
      • Bilateral nominal exchange rates refer to exchange rates for one currency against another and they are nominal because they quote the exchange rate in terms of money, for example, one pound or dollar is equal to many rupees.
      • The real exchange rate is often considered as a measure of a country’s international competitiveness.
      • In a system of flexible exchange rates (also called floating exchange rates), the exchange rate is determined by the forces of market — demand and supply.
      • Changes in the price of foreign exchange under the flexible exchange rates are referred to as currency depreciation or currency appreciation.
      • Managed Floating Exchange Rate System is a mixture of a flexible exchange rate system (the float part) and a fixed rate system (the managed part).
      • Managed Floating Exchange Rate System, also known as dirty floating, is the system under which central banks intervene to buy and sell foreign currencies in an attempt to moderate exchange rate movements whenever they feel that such actions are appropriate. Official reserve transactions are, therefore, not equal to zero.

Gold Standard System

      • Under the Gold Standard system, each participant country is committed to guarantee the free convertibility of its currency into gold at a fixed price, which means that the residents have, at their disposal, a domestic currency which is freely convertible at a fixed price into another asset (gold) acceptable for all international payments.
      • The gold standard system made it possible for each currency to be convertible into any other currency at a fixed price.
      • In 1967, gold was removed by creating the Special Drawing Rights(SDRs) (also called as ‘paper gold’), in the IMF with the purpose to increase the stock of international reserves.

Gold Standard system

Close Economy Vs Open Economy

      • In a closed economy, there are three sources of demand for domestic goods. The sources are as follows −
        • Consumption (C)
        • Government spending (G)
        • Domestic investment (I)
      • Closed economy = C + G + I.
      • On the other hand, in an open economy, exports and imports are the additional elements, considered to measure the economy.
      • An increase in foreign income leads to increased exports. This thereby increases domestic output and improves the trade balance.

Indian Economy – Micro Economics


      • Needs are the basic items required for human survival. And, goods and services are produced to satisfy those basic needs. Every individual in one or the other way is engaged in the production of goods and services.
      • As resources are limited; therefore, allocation of the resources and the distribution of the final mix of goods and services are the basic economic problems of our society.
      • The basic economic activities of our society are production, exchange, and consumptions of goods and services.
      • If production does not meet the demand, it leads to scarcity.


      • These problems can be solved either by a personal discussion with the individual (whose demands need to be fulfilled) as done in the market or by a planned approach initiated by the central authority, i.e., the government at the center.

Types of Economy

      • Based on the characteristics, an economy is divided into two types. They are −
        • Centrally planned economy
        • Market economy
      • In a centrally planned economy, the government or the central authority plans and makes decisions regarding all the important activities in the economy.
      • On the other hand, in the market economy, all the economic activities are planned and organized by the market.
      • Market in economics is an institution that facilitates people free interaction and ensures the economic activities run smoothly. So, market is basically a center where people can exchange their products with each other.
      • In economics, market is a place that regulates and manages the demand and prices of goods. For example, as the demand for product rises, prices of that product also rises.
      • In the present world, most of the countries have mixed economies; it is an economic system with a mixture of economic planning with government intervention and market. Here, the government intervenes and makes important decisions. Markets are given partial liberty to make decisions, which would benefit the market and the economy.

Types of Economy

      • India accepted the policy of mixed economy after independence. In 1948, India declared itself a mixed economy for the very first time.
      • Positive economic analysis describes how the different mechanisms of an economy work.
      • Normative economic analysis is the study of what economic mechanism should be adopted in order to achieve a particular goal.
      • Economics is broadly categorized into two groups. They are −
        • Microeconomics
        • Macroeconomics
      • Microeconomics largely describes the behavior of individual economic agents in the markets for different goods and services and tries to figure out how prices and quantities of goods and services are determined through the interaction of different individuals in the markets.

Micro Economics

      • Major questions answered in Microeconomics are −
        • What is the level of total output in the economy?
        • How is the total output determined?
        • How does the total output grow over time?
        • Are the resources of the economy (e.g. labor) fully employed?
        • What are the reasons behind the unemployment of resources?
        • Why do prices rise?
      • On the other hand, Macroeconomics describes the economy as a whole by focusing on aggregate measures, such as total output, employment, and aggregate price level.

Indian Economy – Macro Economics


      • Macroeconomics is a broader concept; it talks about the whole economics of the country. For example −
        • Growth of GDP
        • Total production of cereals in India
        • Total export in 2014
        • Unemployment
        • Inflation etc


      • In the economy of a country, the output level of all the goods and services in the company have a tendency to move together. For example, if output of food grain is experiencing a growth, it is generally accompanied by a rise in the output level of industrial goods.
      • The prices of different goods and services generally have a tendency to rise or fall simultaneously. We can also observe that the employment level in different production units also goes up or down together.
      • Macroeconomics simplifies the analysis of how the country’s total production and level of employment are related to attributes (called ‘variables’) such as prices, rate of interest, wage rates, profits and so on.
      • When these attributes start changing fast, like when prices are going up (in what is called an inflation), or employment and production levels are going down (heading for a depression), the general directions of the movements of these variables for all the individual commodities are usually of the same kind as are seen for the aggregates for the economy as a whole.

Types of Commodities

      • All kinds of the commodities in an economy are divided into three major parts −
        • Agricultural goods
        • Industrial goods
        • Services
      • Further, Macroeconomics tries to analyse how the individual output levels, prices, and employment levels of these different goods get determined.

Economic Agents

      • Economic agents are those individuals or institutions who have an effect on the economy of a country. For example −
        • Consumers who decide how much to consume.
        • Producers who decide the production level.
        • Other agents like government, bank etc. who decide the different policies.
      • Adam Smith, the father of modern economics, had suggested that if the buyers and the sellers in each market take their decisions following only their own self-interest, economists will not need to think of the wealth and welfare of the country as a whole separately.
      • Macroeconomic policies are generally controlled and operated by the State itself or statutory bodies like the RBI, Securities Exchange Board of India (SEBI), etc.
      • According to John Maynard Keynes (the writer of ‘The General Theory of Employment Interest and Money’), all the labours who are ready to work will be finding the employment and all the factories will be working at their full capacity.
      • The classical and traditional thinking (of Keynes) changed after the Great Depression of 1929.
      • The expenditure, which raises the production capacity of a firm or an enterprise is called investment expenditure.

Capitalist Economy

      • The characteristics of a Capitalist Economy are −
        • It is based on wage-labour and private ownership of the means of production.
        • Here, most of the inputs and outputs of production are supplied through the market (i.e. they are commodities) and essentially all production is in this mode.
        • The sale and purchase of labour service takes place at wage rate.

Capitalist Economy

      • The capitalist country is that country in which production activities are mainly carried out by capitalist enterprises or several entrepreneurs.
      • Land, Labour, and Capital are the key factors of production in a capitalist economy.
      • Profit is the part of revenue, which is left with the entrepreneur after the payment of rent for land and building and wages to the labourers or workers.

Indian Economy – Sustainable Development


      • The economic growth that a country and its people achieve over a period of time, is achieved at the cost of the environment.
      • Environment is badly damaged because of various economic activities — industrial activities, mining activities, and infrastructure development, etc.

Sustainable development

      • Sustainable development is the need of the hour. It has the potential to address the challenges of the environment and also of the economy.
      • All biotic and abiotic factors collectively constitute environment.
      • All living organisms, such as animals, human beings, plants, birds, insects, and all other single cell and multi-cell organisms are biotic elements.
      • All other non-living things, such as air, water, land, etc. are abiotic elements.

Significance of Environment

      • Environment plays a significant role in every aspect of life. The contributions of the environment are varied: It provides resources (both renewable and non-renewable resources).
        • It has the capacity to assimilate wastes.
        • It provides diversity, essential for the sustenance of life.
        • It provides aesthetic services.
      • Environment has the carrying capacity, i.e., it re-generates some sorts of resources provided the rate of exploitation is lesser than the rate of re-generation; if the rate of exploitation increases, the resources get exhausted.
      • Environment has the capacity to expel impurities (various pollution in the environment); it has limited capacity (absorption capacity); hence, if the rate of pollution is more than the rate of purification, then it is a threat to the environment (i.e. environmental crisis)

Major Problems

      • The environmental crisis creates many problems such as depletion of Ozonelayer and Global Warming at the global level.

Global Warming

      • Environment has a major impact on the life and living of people; it may cause health issues, natural calamities (floods, earthquakes, droughts, etc.).
      • India has abundant natural resources (both renewable and non-renewable resources).
      • An exponential increase in population threatened led to over-exploitation of the natural resources which thereby threatened the environment.
      • Some problems with the exploitation of resources in India are −
        • Water pollution
        • Air pollution
        • Land degradation
        • Deforestation
        • Desertification,
        • Wildlife extinction, etc.
      • The per capita forest land in India is about 0.08 hectare, while the requirement is 0.47 hectare.
      • India has about 17% of the world’s total human population and 20% of the world’s total animal population, whereas, it has only 2.5% of world’s total geographical area.
      • The number of vehicles in India increased from 3 lakhs (in 1951) to 67 crores in 2003.
      • The use of motor vehicles is one of the major sources of air pollution in India.
      • The Central Pollution Control Board (CPCB) of India has identified 17 categories of polluting industries.
      • Environmental crisis also leads to economic crisis.

Global Warming

Global warming is a human-induced impact on the environment, under which the temperature of the lower atmosphere is increasing.

consequences of global warming In the last two centuries, because of increasing industrial activities, burning of fossil fuels, deforestation, etc. emission of some of the greenhouse gasses (i.e. carbon dioxide, methane, CH4, etc.) have been increasing beyond the limit of environment’s absorbing capacity. The increased amount of greenhouses disrupted the cycle of heat budget; resultantly, the temperature of the lower atmosphere is increasing.

The major consequences of global warming are — melting of polar ice, sea level rise, coastal floods, extinction of various organisms, ecological imbalances, natural calamities, etc.

To arrest this alarming trend, international efforts have been made. The first attempt of that sort is the Kyoto Protocol, which was the result of the UN Conference held in Kyoto, Japan in 1997. The Kyoto Protocol set parameters to control the impacts of global warming by reducing the emission of greenhouse gases globally.

Ozone Depletion

Ozone depletion is the phenomenon of reduction of the ozone layer. Ozone layer is a Stratospheric layer of Ozone (O3) that filters the sun’s ultraviolet rays and protects us from many diseases including skin cancer, cataract, and sunburn.

Ozone DepletionBut because of the excessive emission of chlorofluorocarbons (CFCs), used as cooling substances in air-conditioners and refrigerators, or as aerosol propellants and bromofluorocarbons (halons), used as fire extinguishers, ozone layer is getting depleted (as shown in the above image – through a time period).

The Montreal Protocol was brought into existence to restrain the use of CFC compounds along other ozone depleting agents including carbon tetrachloride, trichloroethane (methyl chloroform), and halons (bromine compounds).

Sustainable Development

      • The notion of Sustainable Development was adopted by the United Nations Conference on Environment and Development (UNCED).
      • Sustainable Development is defined as the development that meets the needs of the present without compromising the ability of future generation to meet their own needs.
      • The Brundtland Commission suggested that meeting the needs of the future depends on how well we balance social, economic, and environmental objectives, or needs, when making decisions today.
      • Using the non-conventional sources of energy (such as Hydro power, wind power, geothermal energy, tidal power, etc.) is one the best strategies to protect the environment.
      • In rural India, a good number of people still use wood and other biomass products for cooking, and it has a great negative impact on the environment as the process involves cutting of trees; hence, providing them LPG as an alternative strategy would help save the environment.
      • Promoting the use of CNG for motor vehicles is another important alternative.
      • Solar power is very handy to use; a solar power plant can be established either for a single household and also for a big factory.
      • Promoting the use of traditional knowledge practices is also environmental friendly and also good for the human health.
      • Organic farming also needs to be promoted at large scale to improve the environmental condition, as conservation of the environment is the major objective of sustainable development.

Organic Farming

      • Pollution Control Boards − Central Pollution Control Board (CPCB), established in 1974, aims to address the environmental concerns especially, water and air pollution.
      • The CPCB is responsible to investigate, collect, and provide information related to water, air, and land pollution across the country. It also sets a standard for the sewage/trade effluent and emissions of various industrial pollutants.

Chipko or Appikco Movement

The meaning of Chipko is ‘to hug’. This movement was started A similar movement, known as ‘Appiko’, was started in Salkani jungle of Sirsi district of Karnataka (one of the southern states of India).


Economic Terms (Indian Economy)

1) Which major port of India does not possess a natural harbour?

Chennai Port does not posses a natural harbor because it has neither a rugged sea cost nor any river makes a mouth here.

2) What is Hydrogen Corpus Fund?

The Ministry of Petroleum & Natural Gas, Government of India has set up a Hydrogen Corpus Fund on the use of hydrogen as an auto fuel. The Indian Oil Industry has to work synergistically and in close coordination with reputed technological institutions to make headway in this frontier area. With this object in mind, the Ministry has set up a Hydrogen Corpus Fund of Rs. 100 crore with contribution from Oil PSUs/OIDB as follows

  1. OIDB – Rs. 40 crore
  2. ONGC, IOC, GAIL – Rs. 16 crore each
  3. HPCL, BPCL – – Rs. 6 crore each.

3) Which refinery was set up as per the provisions of “Assam Acord”?

Numaligarh Refinery was set-up as a grass-root refinery at Numaligarh in the District of Golaghat (Assam) in fulfillment of the commitment made by Government of India in the historic “Assam Accord”, signed on 15th August, 1985 for providing the required thrust towards industrial and economic development of Assam. It started operation in 2000.

4) What was the basic difference between the Economic Policy of Gandhi and Nehru?

The policy of the Congress Government led by Nehru was based upon the fact that there must be industrial development at all costs. Nehru wanted a country with Modern Large Scale Industries, a Large Army, a Strong Navy and Air Force and a socialist development in the country with “touch’ of capitalism.

Gandhi, who was in favor of autonomous villages where Panchayats should perform the legislative, executive and Judicial functions, did not find any place in the government. The objection of Gandhi of developing large cities was rejected but Panchayati Raj with ‘modifications’ was accepted later.

A basic difference between Gandhi & Nehru’s economic philosophies was thatGandhi wanted village as an independent unitwhileNehru wanted it a subordinate unit to a higher organization.Gandhi wanted a cottage based economy, Nehru dreamt of major Industries in India.

5) What is FDI limit in Agriculture ?

In India 100% FDI is permissible via automatic route in following sub sectors of Agriculture and Animal Husbandry:

Sub sectors:

Floriculture, Horticulture, Development of Seeds, Animal Husbandry, Pisciculture, Aquaculture and Cultivation of Vegetables & Mushrooms under controlled conditions and services related to agro and allied sectors.

  • Apart from the above FDI is not allowed in any other agricultural sector/activity.

Companies dealing with Transgenic Seeds:

For companies dealing with development of transgenic seeds/vegetables, the following conditions apply:

  1. When dealing with genetically modified seeds or planting material the company shall comply with safety requirements in accordance with laws enacted under the Environment (Protection) Act on the genetically modified organisms.
  2. Any import of genetically modified materials if required shall be subject to the conditions laid down vide Notifications issued under Foreign Trade (Development and Regulation) Act, 1992.
  3. The company shall comply with any other Law, Regulation or Policy governing genetically modified material in force from time to time.
  4. Undertaking of business activities involving the use of genetically engineered cells and material shall be subject to the receipt of approvals from Genetic Engineering Approval Committee (GEAC) and Review Committee on Genetic Manipulation (RCGM).
  5. Import of materials shall be in accordance with National Seeds Policy.

Meaning of Under controlled conditions

  • Floriculture, Horticulture, Cultivation of vegetables and Mushrooms

Cultivation under controlled conditions’ for the categories of Floriculture, Horticulture, Cultivation of vegetables and Mushrooms is the practice of cultivation wherein rainfall, temperature, solar radiation, air humidity and culture medium are controlled artificially. Control in these parameters may be effected through protected cultivation under green houses, net houses, poly houses or any other improved infrastructure facilities where microclimatic conditions are regulated anthropogenically.

  • Development of Seeds

Development of seeds will be considered to be ‘under controlled conditions’ when seed farms/laboratories use tissue culture or any other micro-propagation techniques for development and multiplication of seeds/planting material. Seed development in the case of anthuriums, orchids and other ornamental crops in green houses/net houses/poly houses is also be included in this category.

  • Animal Husbandry

In case of Animal Husbandry, scope of the term ‘under controlled conditions’ includes –

Rearing of animals under intensive farming systems with stall-feeding. Intensive farming system will require climate systems (ventilation, temperature/humidity management), health care and nutrition, herd registering/pedigree recording, use of machinery, waste management systems.

  • Poultry:

Poultry breeding farms and hatcheries where microclimate is controlled through advanced technologies like incubators, ventilation systems etc.

  • Pisciculture & Aquaculture:

In the case of pisciculture and aquaculture, ‘under controlled conditions’ includes –

  • Aquariums
  • Hatcheries where eggs are artificially fertilized and fry are hatched and incubated in an enclosed environment with artificial climate control.

6) What is a Turnkey project?

A contract under which a firm agrees to fully design, construct and equip a manufacturing or business or facility and turn the project over to the purchaser when it is ready for operation for a remuneration. Mostly used in International business.

7) What is a Cash and Carry store?

They differ from the regular retail chains. the C & C stores target professional customers rather than end-consumers. The concept involves self-service and bulk buying and serves registered customers such as hotels, caterers, traders and other business professionals. They prevent the middlemen.


8) What is Code Sharing?

The Code sharing is a common term in aviation industry which means that a seat is purchased on one airline (for example King Fisher) but is actually operated by a cooperating airline under a different flight number or code (for example British Airways). The term “code” here refers to the 2-character IATA airline designator code and flight number, which is used to identify the flights.


9) What are types of NBFCs?

Previously there were 3 types of NBFC’s classified by reserve bank of India:

  1. Asset Finance Company (AFC)
  2. Investment Company (IC)
  3. Loan Company (LC)

Which is 4th Category?

NBFCs engaged predominantly in the infrastructure financing represented to the RBI that there should be a separate category of infrastructure financing NBFCs in view of the critical role played by them in providing credit to the infrastructure sector. Accordingly the RBI declared in its Second Quarter Review of the Monetary Policy for the year 2009-10 as follows:

To introduce a fourth category of NBFCs as ‘infrastructure NBFCs’, defined as entities which hold minimum of 75 per cent of their total assets for financing infrastructure projects.

So, apart from the three categories viz., Asset Finance Companies, Loan companies and Investment Companies, a fourth category of NBFCs as “Infrastructure Finance Companies”(IFCs) has been introduced.

10) What is the major difference between an NBFC and a Bank?

Unlike the Banks, they cannot accept demand deposits, they are not part of the payment and settlement system and they cannot issue cheques drawn on them. The facility of deposit insurance by Deposit insurance and Credit Guarantee Corporation is not available for NBFC’s.

11) What is an NBFC?

NBFC or Non Banking Financial Companies is a company in India, which is registered under the Companies Act, 1956, and which provides banking services without meeting the legal definition of a bank. A NBFC is incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934.

What are the Businesses NBFC do?

The NBFCs do the business of loans and advances, acquisition of shares, stock, bonds, debentures, securities issued by Government. They also deal in other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business. They are no in agriculture activity, industrial activity, sale/purchase/construction of immovable property.

All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid Certificate of Registration with authorization to accept Public Deposits can accept/hold public deposits.

NBFCs authorized to accept/hold public deposits besides having minimum stipulated Net Owned Fund (NOF) should also comply with the Directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the Bank.

12) What are Bull Market, Bear Market and Chicken Market ?

The term ‘Chicken market’ in stock markets refers to one of the stock market trends. We mostly know about the bearish markets which represent the downward trend of the indices and Bullish markets where there is an upward trend in the index. In chicken market there is no significant movement of the stock market index. However, the investors who are not much risk loveres are also called “Chickens” in stock markets.

13) What is Corporate Hedging?

Hedging literally means reducing exposure to risk.

The word is used in share markets, commodity markets and currency markets where the prices are likely to fluctuate.

A contract to SELL a commodity or a currency over the period of time at a particular price leaves the seller in a open position and exposed to price fluctuations. However, this exposure is covered by the act of BUYING a Futures Contract.

  • A perfect hedge is basically a no risk no gain precaution.

In Corporate hedging, the corporate treasury officials try to save a firm from the exposure to the foreign exchange risk, maximize forex income and minimize costs. The minimizing of “transactional risks” is the main centerpiece of a Corporate Hedging Policy.

The Reserve Bank of India had issued the first guidelines on Corporate Hedging in 2005. The market determined exchange rates in the country have made the rupee more volatile against the major currencies. The strategy is useful for exim traders, who have to face the unpredictability in the currency movement.

14) What are Small Cap, mid cap and large cap shares ?

Cap refers to Capital. With the size of the Capital we can classify the companies and measure their size. Big/large caps are companies which have a market cap between 10-200 billion dollars. Mid caps range from 2 billion to 10 billion dollars. The small caps are young and new companies.

15) What is the difference in Green Field Projects and Brownfield Projects ?

The Greenfield project means that a work which is not following a prior work. In infrastructure the projects on the unused lands where there is no need to remodel or demolish an existing structure are called Green Field Projects. The projects which are modified or upgraded are called brownfield projects.

16) What are Demand Liabilities and Time Liabilities?

There are mainly two types of liabilities on any bank:
Demand Liabilities: The liabilities which bank have to pay on demand. Current deposits, demand liabilities portion of savings bank deposits, margins held against letters of credit/guarantees, balances in overdue fixed deposits, cash certificates and cumulative/recurring deposits, outstanding Telegraphic Transfers (TTs), Mail Transfer (MTs), Demand Drafts (DDs), unclaimed deposits, credit balances in the Cash Credit account and deposits held as security for advances which are payable on demand come under Demand Liabilities.
Time Liabilities: The liabilities which bank have to pay after specific time period. Fixed deposits, cash certificates, cumulative and recurring deposits, time liabilities portion of savings bank deposits, staff security deposits, margin held against letters of credit if not payable on demand, deposits held as securities for advances which are not payable on demand and Gold Deposits come under Time Liabilities.

17) What is REER Model in Currency Markets?

There is difference between the exchange rate of a currency and the real value of a currency. A Nominal Effective Exchange Rate (NEER) is weighted with the inverse of the asymptotic trade weights. A Real Effective Exchange Rate (REER) adjusts NEER by appropriate foreign price level and deflates by the home country price level. Thus REER model is more useful in determining the real value of a currency.

18) What is Alpha Factor in Financial Markets?

Alpha Factor is the concept which basically measures the inherent volatility of a particular share. For example, a share which has an Alpha Factor for example 1.5 is slated to rise in price by 50% in a year on its inherent strength such as growth in earnings per share , regardless of inherent strength such as growth in earning per share regardless of the market behavior.

19) What is FASAL in Agriculture?

In 1988, Government of India started a project “Crop Acreage and Production Estimation (CAPE)” to collect the statistics of Agricultural Output. But to forecast of Crops at sowing stage requires weather data and information of economic factors. So “Forecasting Agricultural output using Space, Agro meteorological and Land based observations (FASAL)” was designed. The main aim was to collect Monsoon data through remote sensing, economic data and monitoring of crops when growing.

The programme is sponsored by Ministry of Agriculture. A team of ISRO/Department of Space, State Remote Sensing Applications Centers, State Agricultural Universities and many other institutions are working on this project.

20) Which are Ultra Mega Power Projects (UMPPs) located in Indian States?

These projects are based on the vision “Power for All” by the end of The Eleventh Five Year Plan. The UMPPs each with the capacity of 4000 MW or above are being developed.
The Ministry of Power with the Central Electricity Authority and Power Finance Corporation Ltd. initiated coal based UMPPs in India.

Till now these four UMPPs have been awarded.
1. Coastal Gujarat Power Limited in Mundra awarded to M/s Tata Power Limited
2. Sasan Power Limited in Sasan (MP) awarded to M/s Reliance Power Limited
3. Coastal Andhra Power Limited in Krishnapatnam awarded to M/s Reliance Power Limited
4. Jharkhand Integrated Power Limited in Tilaiya awarded to M/s Reliance Power Limited
Apart from this SPVs (Special Purpose Vehicles) have been incorporated for another eight UMPPs.

21) What are Fiscal Policy, Monetary Policy and Macroeconomic Policy?

Fiscal Policy:

All the policies taken by the Government to control the economy of the country are called Fiscal Policies. The two main instrument of fiscal policy are government expenditure and taxation. How government decides taxes, collect them and spend them comes under the fiscal policy. In broad level all the action done by government to maintain the economy is collectively called fiscal policy.

Monetary Policy:

The actions taken by Reserve Bank of India, which is the monetary authority, to control the economy is collectively called Monetary Policy. Time to time RBI makes changes in the various rates like CRR, Repo Rate, Reverse Repo Rate, SLR etc. to maintain the supply of money that is liquidity in the system.


Microeconomic Policy

How the individual firms, markets, the households are using resources and making the country productive is being measured in Microeconomic policy. In these policies the centre of attraction is on very small level of the economy as it will collectively help the country to become more competitive.

22) What is Fringe Benefit Tax?

This tax is imposed on the fringe benefits provided by the company to their employee. Here fringe benefit means non wage compensation which are given to employees by their company. This duty was initiated from 1 April 2005 under the Finance Act 1995.

23) What is difference between Excise Duty & Custom Duty?

Excise Duty : According to Central Excise act 1944 and the Central Excise Tariff Act 1985, every manufacturer of the goods in the country has to pay Excise duty. Most of the products attract 16% excise duty But in case of some products it more than that.
Custom Duty: The custom duty in India is regulated by Customs Act of 1962. This duty is imposed on the imported and exported goods in the country. This duty is one of the most important duty because it hampers illegal import and export of goods

24) What is Service Tax?

Service tax is tax paid on the services provided in the country. According to Finance Act 1994, all service provider of the country except in the Jammu and Kashmir have to pay service tax. This tax comes under Indirect Tax. Currently 10% tax is surcharged as service tax.

25) What is Security Transaction Tax?

Security Transaction Tax (STT) is levied on all the transactions done on the stock exchange. This tax is levied on purchase of equity, sale of equity, derivatives, equity oriented funds and equity oriented Mutual Funds. Current rate of this tax is 0.075% on equity.

26) What are Corporate Tax & Capital Gain Tax?


Corporate Tax:

This tax is imposed on the profits of companies or organizations. It is also depend on the profits shared to the shareholders. Currently 33.9 % corporate tax is levied on the companies. But in Direct Tax Code, which is proposed to be implemented from 1 April 2012, it is proposed to be at 30%.


Capital Gain Tax

This tax is levied on the sale of capital assets/equities. The “Gain” here means the difference of price of asset/share when purchased and when sold. The tax is levied on that gain. For the Capital Assets the time limit is minimum three years but in the context of equities it is minimum one year.

27) What is Direct Taxes & Indirect Taxes?

Direct Taxes:

As the name suggests Direct tax means the tax which is directly paid to the government by individuals and the companies.

Ex: Corporate Tax, Personal Income Tax, Securities Transaction Tax, Banking Cash Transaction Tax, and the Fringe Benefit Tax

Indirect Taxes:

As the name suggests Indirect Taxes are those taxes which are paid indirectly to government by the individuals or the companies.

Ex: Sales Tax, Service Tax, Custom and Excise Duties, VAT and Anti-Dumping Duties

28) What is Green Revolution?

“Green Revolution” is the term first used by former USAID (United States Agency for International Development) director William Gaud. Green Revolution is series of reaserch, development and technology transfers by countries. This happened between 1943 and 1970. The father of Green Revolution was Late Mr. Norman Borlaug. But in India Mr. M S Swaminathan are called the father of Green Revolution because of his lot of contribution in the field of food security.

In Green Revolution high yielding varieties of grains, mass distribution of hybrid seeds, synthetic fertilizers, pesticides were given to farmers. And with this a lot was spent on creating irrigation infrastructure.

29) What is difference between CECA and CEPA?

CEPA stands for Comprehensive Economic Partnership Agreement and CECA stands for Comprehensive Economic Cooperation Agreement. Recently India signed a CEPA with Japan and CECA with Malaysia. India had also signed a Comprehensive Economic Partnership Agreement (CEPA) with South Korea. With Singapore signed CECA. The terms that make difference are “Cooperation” and “partnership”. Both these terms are synonymous with each other but the major “technical” difference between a CECA and CEPA is that CECA involves only “tariff reduction/elimination in a phased manner on listed / all items except the negative list and tariff rate quota (TRQ) items” , CEPA also covers the trade in services and investment, and other areas of economic partnership. So CEPA is a wider term that CECA and has the widest coverage.

Please note that usually CECA is signed first with a country and after that negotiations may start for a CEPA. For example, India-Sri Lanka Free Trade Agreement (CECA) was signed in December, 1998 and came into operation since March, 2000. India completed the tariff elimination programme in March 2003, Sri Lanka scheduled to reach zero duty by 2008. After that the two countries have since initiated negotiations in August 2004 on comprehensive Economic Partnership Agreement (CEPA) which covers trade in services and investment.

30) What is Free Look Period?


The Free look period means that customer has 15 days from the date of a ULIP (Unit Linked Insurance Product) or Insurance policy’s receipt to review his or her purchase decision. With the provision of the “free Look period” a policyholder gets 15 days time to go through the policy documents, understand how the policy is going to work and convince himself that he needs such a policy before deciding to commit funds every year over the plan tenure. This provision has the objective to make the process of buying insurance transparent, easy and fulfilling for the customer and curb the misselling by the agents. Usually a customer buys a policy and later realizes that it was inappropriate and was sold to him / her focusing on the company’s / agents profits / commissions rather than her / his own requirements. This leads him/ her to stop paying premiums and let the policy lapse or decides to surrender the policy. This earlier than expected drop out is also not good for the health of the company and the Free Look Period facility makes it more likely that a customer remains with the company for a longer term. Within 15 days a customer may return the policy and get the premium back after deducting the stamp duty charges and the cost of a medical check-up etc.

31) What is the meaning of Share INDEX Increasing or Decreasing by 1% ?


The share market index measures the relative values of the group of stocks of which it is composed of. When the value of stocks in this group changes when they are traded, the value of the index too changed. If an index goes up by 1%, the total value of the securities which constitute the index too goes up by 1%. When the index increases from 17000 to 17170, neither 17000 nor 17170 mean anything in isolation. They need to be compared with each other.

The most popular method of constructing a market index is the value weighted method in which the initial market value of the stocks is assigned as a base index value. For example, lets take base year 2000 (imaginary) and take 30 stocks, which have a market capitalization of Rs. 1000 crore. We assume that the base value was Rs. 100 on the first day. If the market capitalization of the 30 shares for which base value is 100 on the first day increases to Rs. 11,00 Crore on the next day, the new index would be


So, 110 will be the index rate on the next day. Neither 110, nor 100 have a meaning until and unless they are compared with each other.

In other words an index provides an historical comparison of returns on money invested. It provides the comparison of the returns in the stock market against other forms of investments such as gold or debt. Indices are used by financial services firms to benchmark the performance of their portfolios and to serve as a yardstick for measuring the performance of fund managers and their respective funds.

32) What is the issue of insufficient grains stock facilities of FCI?

The Economic Survey 2009-10 had suggested grain should be released in small batches to a large number of traders at prices significantly below the market price, but sufficiently above the procurement price. If the selling price is close to the procurement price, traders might just buy from the FCI and sell it back to the FCI, pushing grain off the market so that retail prices would stay high. (ET, Editorial March 15, 2010).

The issue of not sufficient grains stock facilities of Food Corporation of India was raised by Economic Times in March 2010. The newspaper said that 10 million tonnes (MT) of wheat, half of the Food Corporation of India’s (FCI) stock of the grain, is stored in the open and runs the risk of getting spoilt. By April 2010, the government was expected to procure another 24 MT of a record estimated 82 MT wheat output that would start arriving in the markets in April. Mountains of grain would be built and rot, even as food prices stay stubbornly up. The article in ET had urged the government to liquidate the 10 MT of wheat stored in the open, before fresh procurement begins. The newspaper further endorsed the recommendation as the buffer stocks of cereals are way too large — for wheat, five times the norm, and for rice, at 24 MT, twice the requirement.

33) Which country has indigenously produced the “Tiba” car?

Tiba is an Iranian car made by Saipa Car Manufacturing Company. The car was originally named “Miniator”. The automobile plan of Saipa Car Manufacturing Company was inaugurated in May 2010 by Iranian President Mahmoud Ahmadinejad at the Kashan city. The cost involved is around $ 400 Million. This new domestic automobile plant will produce over 150,000 “homemade” cars every year and provide employment to over 23,000 people.

34) In which part of India Slash and Burn agriculture is practiced?

Slash and burn practice involves the cutting and burning of forests or woodlands to create fields for agriculture or pasture. It is a part of the shifting cultivation and is practiced in Hilly Regions of the country particularly in North East Hills. In world, 200-500 million people practice the slash and burn farming and most of them are in tropical rain forests.

35) What is payment in due course?

Section 10 of the Negotiable Instruments Act 1881 deals with payment in due course. Payment is due course means payment made in good faith and without negligence in accordance with the apparent tenor of the instrument. This also includes that payment is made to the person in possession of the instrument. The payment must be made in money only.


36) Which are highest producer states of Cotton, Jute & Potato?

Gujarat is largest producer of Cotton, West Bengal is of Jute and Uttar Pradesh. Following is the list of largest producer states of various commodities in India.

Food Grains

Rice: West Bengal, Andhra Pradesh, Uttar Pradesh

Wheat: Uttar Pradesh, Punjab, Haryana

Maize : Karnataka , Andhra Pradesh, Bihar

Total Coarse Cereals: Maharashtra , Rajasthan, Karnataka

Total Pulses : Madhya Pradesh , Maharashtra, Uttar Pradesh

Total Food grains : Uttar Pradesh, Punjab, Andhra Pradesh


Oil Seeds:

Groundnut: Gujarat, Tamil Nadu , Andhra Pradesh

Rapeseed & Mustard: Rajasthan, Uttar Pradesh, Haryana

Soyabean : Madhya Pradesh, Maharashtra, Rajasthan

Sunflower Karnataka, Andhra Pradesh , Maharashtra

Total Oilseeds : Madhya Pradesh, Rajasthan, Maharashtra


Cash Crops:

Sugarcane: Uttar Pradesh, Maharashtra, Tamil Nadu

Cotton : Gujarat , Maharashtra , Punjab

Jute & Mesta : West Bengal, Bihar, Assam

Potato: Uttar Pradesh, West Bengal, Punjab

Onion: Gujarat, Maharashtra, Karnataka

37) What is Amortization?

To amortize means to pay off a debt by putting aside money regularly for a period of time. . We read sometimes, as “Capital cost is amortizable over a period of 10 years”. In other words, amortization is a schedule of payments in context with a debt such as personal loan or home loan and fixed over a period. The amortization schedule is the table, which gives details of the periodic principal and interest payments on a loan and the amount outstanding at any point of time. It also shows the gradual decrease of the loan balance until it reaches zero.

38) Who are the brand ambassadors of Canara Bank and Central bank of India?

Venkatesh Prasad had been associated with Canara Bank in past as its Brand ambassador. However later in 2007, Canara Bank appointed O&M for its image change. The new logo for Canara Bank two entwined triangles in blue (for stability, scale and depth), and bright yellow (for optimism, warmth and energy) was designed by the WPP owned Ray & Keshavan. The current advertisement theme of Canara bank is “we change for the ones we love”. The creative and heart touching ads have been produced relying on models.
Ms Perizaad Zorabian Irani has been associated as Brand Ambassador of the central Bak of India. However,recently , the Central bank of India has released two animated cartoon TV commercials “The Race” & ‘ The Trap.


39) What are dematerialization and Rematerialization?

A process by which paper certificates of an investor are taken back by the company (or Registrar) and equivalent number of securities is credited in electronic holdings of the same investor is called dematerialization. This is to avoid problems of the paper certificates such as mutilation of share certificates, forged certificates etc. Depository discharges the function of providing the paperless electronic or dematerialized security transactions. A bank is called depository where the securities are held in electronic form. Re-materialization is the conversion of electronic holding to papers by printing of new share certificates.

40) What is Baroda Sun?

The logo of the bank of Baroda is called by the Bank’s people as Baroda Sun. This new logo with dual B letters holds the rays of rising Sun. The logo is inspired by the Sun as single most powerful source of light and energy and indicates the Bank’s vision to become one stop reliable partner of the customers. The single color vermillion palette has been selected as a symbol of hope and energy. The Baroda Sun also indicates universal symbol of Dynamism and Optimism. The rays indicate the diversification of Business and network of Branches.

41) What is a NBFC?

NBFC or Non Banking Financial Companies is a company in India, which is registered under the Companies Act, 1956, and which provides banking services without meeting the legal definition of a bank.

The NBFCs do the business of loans and advances, acquisition of shares, stock, bonds, debentures, securities issued by Government. They also deal in other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business. They are no in agriculture activity, industrial activity, sale/purchase/construction of immovable property.

Unlike the Banks,they cannot accept demand deposits, they are not part of the payment and settlement system and they cannot issue cheques drawn on them. The facility of deposit insurance by Deposit insurance and Credit Guarantee Corporation is not available for NBFC’s.

There are 3 types of NBFC’s classified by reserve bank of India:

(i) Asset Finance Company (AFC)

(ii) Investment Company (IC)

(iii) Loan Company (LC)

A NBFC is incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should have a minimum net owned fund of Rs. 2 Crores.

All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid Certificate of Registration with authorization to accept Public Deposits can accept/hold public deposits. NBFCs authorized to accept/hold public deposits besides having minimum stipulated Net Owned Fund (NOF) should also comply with the Directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the Bank. RBI has a well documented FAQ page dedicated to NBFC.

42) What is the difference between Cheque Truncation and an Electronic Cheque?

Cheque truncation and electric cheques are two different things. In cheque truncation the physical movement of a paper cheque issued stops and electronic flow begins while the electronic cheque is issued electronically and no paper is involved.
In cheque truncation, at some point in the flow of the cheque, the physical cheque is replaced with an electronic image of the cheque and that image moves further. The processing is done on the basis of this truncated cheque and physical cheque is stored. MICR datais very useful in check truncation.

The electronic cheques are issued in electronic form with digital signatures / biometric signatures / encrypted data.

The negotiable Instruments (Amendment) Act of 2002 gives constitutional validity to the electronic cheques.

43) What is a Currency Chest?

India is the seventh-largest country by geographical area, the second-most populous country with over 1.18 billion people. The Reserve Bank of India is responsible for issuing coins and notes to the public on demand and for maintaining the quality of the notes issued. Several agencies are involved in the printing and distribution of the currency (notes and coins of various denominations). Some of them are Govt. mint, RBI press, Government press and banks designated as currency chests.

In order to satisfactorily discharge this duty without recourse, the RBI maintains currency chests of its own at treasuries and branches of the banks at all important centres. The currency notes printed at the press flow to the RBI offices and from the RBI office to these currency chests before they reach the public. The same is for coins which are minted in 4 mints then taken to 4 mint related RBI offices from where they are taken to currency chests to distribute in the market.
In summary: Distribution of notes and coins throughout the country is done through designated bank branches, called chests. Chest is a receptacle in a commercial bank to store notes and coins on behalf of the Reserve Bank. Deposit into chest leads to credit of the commercial bank’s account and withdrawal, debit.

The Functions of the Currency Chests are:

  1. The major functions of the currency chests are:
  2. To meet currency requirement of public
  3. To withdraw unfit notes
  4. To provide exchange facility from one denomination to another
  5. To make payment requirement of the Government
  6. To exchange the mutilated notes
  7. To avoid frequent movement of cash

Apart from having its own chests at certain places, RBI also has arrangements with other banks which are entrusted with custody of the currency notes and coins for the same purpose.

44) What is Cross Selling?

Cross selling means offering new products and services to the existing customers. In Banking cross selling is to offer new banking services to the existing customers of the bank. The purpose of the cross selling is twofold. One is to expand banking operations and another is to reduce the cost of operations. For example: a bank sells a loan product such as a credit card, home loan, personal loan etc. to a deposit customer or vice versa.

The cost of adding up a new customer to a bank is more than serving the existing customer with new products and this reduces the per person cost of running for a bank. However, please not its transaction that matters in cross selling. The value building, relationship building and winning a customer loyalty for bank does matter more when it promotes cross selling.
Its worth mention that in 2004, RBI had issued its guidelines to banks in context with the cross selling. The RBI said that banks should not share customer data with its affiliates and subsidiaries for cross-selling purposes.

RBI had constituted a committee on “Procedures and Performances Audit on Public Services” which was headed by S.S. Tarapore. The committee observed that the information collected from the customer is being used for cross-selling of services of various products by banks, their subsidiaries and affiliates.

The banks collect a database of the confidential and personal information about the customers to fulfill the Know Your customer requirements as directed by the RBI. This information was used by banks for retailing loan instruments such as aggressively selling credit cards and mortgage loans to the customers.

In this context RBI said that “ while this information which is collected as per KYC norms when a customer’s opens an account, using the same information for cross selling purpose is a breach of customer confidentiality obligations.

45) What are RBI’s qualitative and quantitative instruments of credit control?

The government through the reserve bank of India employs the monetary policy as an instrument of achieving the objectives of general economic policy. The main objectives of the monetary policy are as follows:

  1. Regulation of monetary growth and maintenance of price stability
  2. Ensuring adequate expansion of credit
  3. Assist economic growth
  4. Encourage flow of credit into priority and neglected sectors
  5. Strengthening of the banking system of the country

The quantitative or general measures influence the total volume of the credit while the qualitative measures influence the selective or particular use of credit.
Reserve Bank of India has the power to influence the volume of credit created by banks in India. The banking regulation act 1949 says that the Reserve Bank of India can ask any particular bank (or even all the banks i.e. banking system of the country) to not to lend to particular groups/ persons.

Apart from this RBI is armed with weapons to control the money market in India. For example each bank has to get a license from RBI to do banking business in India and this license is always subject to cancellation by RBI provided the bank does not fulfill the requirements stipulated by RBI. Each scheduled bank needs to send a weekly report to RBI which shows its assets and liabilities.

The quantitative measures of credit control are :

  1. Bank Rate Policy: The bank rate is the Official interest rate at which RBI rediscounts the approved bills held by commercial banks. For controlling the credit, inflation and money supply, RBI will increase the Bank Rate.
  2. Open Market Operations: OMO The Open market Operations refer to direct sales and purchase of securities and bills in the open market by Reserve bank of India. The aim is to control volume of credit.
  3. Cash Reserve Ratio: Cash reserve ratio refers to that portion of total deposits in commercial Bank which it has to keep with RBI as cash reserves.
  4. Statutory Liquidity Ratio: It refers to that portion of deposits with the banks which it has to keep with itself as liquid assets(Gold, approved govt. securities etc.) .
    If RBI wishes to control credit and discourage credit it would increase CRR & SLR.

Qualitative measures:

Qualitative credit is used by the RBI for selective purposes. Some of them are

  1. Margin requirements: This refers to difference between the securities offered and and amount borrowed by the banks.
  2. Consumer Credit Regulation: This refers to issuing rules regarding down payments and maximum maturities of installment credit for purchase of goods.
  3. Guidelines: RBI issues oral, written statements, appeals, guidelines, warnings etc. to the banks.
  4. Rationing of credit: The RBI controls the Credit granted / allocated by commercial banks.
  5. Moral Suasion: psychological means and informal means of selective credit control.
  6. Direct Action: This step is taken by the RBI against banks that don’t fulfill conditions and requirements. RBI may refuse to rediscount their papers or may give excess credits or charge a penal rate of interest over and above the Bank rate, for credit demanded beyong a limit.

46) What is the difference between Gold Exchange Traded Fund & Gold Fund?

Gold exchange Trade funds (ETFs) invest in Gold bars and hold them on a investor’s behalf. On the other hand in Gold Funds, the fund manager buys stocks and shares of those companies that produce Gold.. Gold ETFs were introduced in India in 2007 and yet to gain popularity. The prices of the Gold ETF’s are closely related to Bullion rates; however the same may or may not be applicable to Gold Funds. Thus, the prices of the Gold ETF and Gold Fund vary. Apart from this, the domestic movement of Gold affects the returns on Gold ETF, while in case of the Gold Funds; International Stock Price performance plays a very important role.

47) Is a Bank Account required for a Credit Card?

No. Its not mandatory for banks to issue credit cards for only those who have accounts with them. In fact, issuing unsolicited credit cards by banks was a big problem for customers in past.

RBI had issued its first comprehensive guidelines on November 21, 2005, as a sequel to an announcement made by RBI in Annual Policy Statement 2004-05. The guidelines were based upon the findings of the Working Group on Regulatory Mechanism for Cards, constituted by RBI in 2004-05.

In summary, the Reserve Bank of India has directed the banks & Non Banking Finance Companies (NFBC’s) to have a well documented policy and folow Fair Practices Code for credit card operations. RBI asked the banks to assess the credit limits of the customers on the basis of self declaration and credit information. Apart from this RBI asked also mandated that the card issuing banks will be solely responsible for fulfilling all the KYC requirements. The banks were clearly directed to fulfill the KYC requirements even in case where DSA’s & DMA’s (Direct Sales Agents and Direct Marketing Agents) solicited the business on their behalf.
Prior to this, In March 2005, the IBA (Indian banking Association) had released a Fair Practices Code for credit card operations.

In an effort to make the credit card business more transparent RBI directed the card issuers to quote annualized percentage rates (APRs) on card products and late payment charges and number of days.

The banks were given a time of 60 days for complaint redressal.
RBI said in this policy that, if an unsolicited card is issued and activated without the consent of the customer (recipient) and the customer is billed for the same, the bank shall not only reverse the charges but also pay penalty.

Further to the above developments, In July 2008, RBI took strict measures to the unsolicited cards issue. The RBI announced that the person in whose name the card is issued can also approach the Banking Ombudsman who would determine the amount of compensation payable by the bank to the recipient of the unsolicited credit card as per the provisions of the Banking Ombudsman Scheme, 2006 i.e. for loss of complainant’s time, expenses incurred, harassment and mental anguish suffered by him.

From August 1, 2009, RBI took one more step to increase online security measures. It directed the banks to make additional authentication mandatory for credit/debit card online transactions. Now the banks have to issue a PIN code, called as Verified by Visa or MasterCard Secure Code, which will be known only to the customers. Customers have to use this second verification PIN code, apart from the Card Verification Value Number (CVV), for making purchases.

Banks now issue credit cards to only their customers as a custom and to fulfill the RBI requirements and KYC requirements.

48) What is the exact current status of IDBI & IDBI Ltd?

Industrial Development Bank of India (IDBI) was set in July 1964 (under Industrial Development bank of India act 1964) as wholly owned subsidiary of Reserve Bank of India and to function as apex institution in the field of industrial development banking.

  • The basic functions of IDBI were to provide financial assistance to industrial enterprises and promote institutions engaged in industrial development.
  • IDBI remained as a subsidiary bank of RBI till in 1976. In 1976 (February 16, 1976) , it was separated from Reserve bank of India and the 100% ownership was transferred to Government of India.
  • After this arrangement IDBI became India’s principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in the country.
  • In 1995 IDBI’s domestic IPO came which reduced the Govt. of India’s stake to 72%. The post-capital restructuring lead to 58.1 % share of Government of India.
  • The current stake of Government of India in the bank is around 53%.
  • The Industrial Development Bank (Transfer of undertaking and repeal) Act 2003 was passed by the Parliament of India to form it a company under the companies act 1956 and repeal the IDBI act 1964.
  • Subsequently IBDI got the certificate of commencement of business on 2 September 2004.
  • This transformed IDBI to IBDI Ltd. on October 1, 2004. Subsequently IDBI became a company under the companies’ act 1956.
  • IDBI Bank Ltd was hitherto subsidiary of IDBI Ltd which got the status of a scheduled bank under the RBI act 1934 on October 11, 2004. It got merged with its parent company IDBI Ltd on April 2, 2005 (however ‘appointed date of merger was fixed October 1, 2004)
  • On 3 October 2006, United Western Bank Ltd (UWB), a private sector bank merged with IDBI. In 2006 IDBI forayed into Life Insurance Business jointly with Federal Bank and Fortis Insurance International N.V. Fortis.
  • IDBI Gilts Ltd was incorporated as a wholly subsidiary of IDBI Bank in 2006.

Thus we can understand that after October 2004 merger of the erstwhile IDBI Bank with its parent company IDBI Ltd, has now become a universal Bank. Today IDBI Ltd is one of the India’s largest Banks. RBI categorized IDBI as an “other public sector bank”. Currently IDBI is fourth Largest Bank in India.

49) What is the significance of schedule A, B, C, D enterprises with respect to central public sector enterprises?

The most popular categories of Central Public Sector Enterprises are Navratna, Miniratna (Category I & II) CPSEs based upon the powers vested in their Board of Directors. A new category, Maharatna has been recently added to this group. Other groupings are based upon profit making, loss making & sick units etc.

Apart from this, the Department of Public Enterprises (DPE) formulates policy guidelines on the Board structure of Public Enterprises and advises on the shape and size of organizational structure of CPSEs. The public enterprises are categorized in four Schedules namely ‘A’, ‘B’, ‘C’ and ‘D’ based on various quantitative, qualitative and other factors.

  • Quantitative factors: Quantitative factors include the investment, capital employed, net sales, profit before tax, number of employees, number of units and value added per employee.
  • Qualitative Factors: national importance, complexities of problems, level of technology, prospects for expansion and diversification of activities and competition from other sectors, strategic importance of the corporation etc.

How Schedules affect?

The pay scales of Chief Executives and full time Functional Directors in CPSEs are determined as per the schedule of the concerned enterprise. For example the Chief Executives of Schedules CPSEs is Rs. 80,000-1, 25000. The new pay scales start from Rs. 12,600-32,500 (for E-0 grade). These are revised rates. The revised pay scales are based upon the recommendations of 2nd Pay Revision Committee.

What is Second Pay Revision Committee (2nd PRC)?

Second Pay Revision Committee also known as 2nd PRC was headed by Justice M. Jagannadha Rao, a retired Supreme Court judge. The Government of India had constituted this committee via resolution (30.11.06) to recommend revision of scales of pay of Board level and below Board level executives (including non-unionized supervisors) of CPSEs following Industrial Dearness Allowance (IDA) pattern scales of pay w.e.f. 01.01.2007.

Based upon recommendation of this committee , the government had issued order on 26.11.08 and 09.02.09.

How Many Companies have been categorized?

As on 31.3.2009, there were 247 CPSEs in the country. Out of the 247 CPSEs, there are 58 Schedule ‘A’, 70 CPSEs in Schedule ‘B’, 46 CPSEs in Schedule ‘C’ and 6 CPSEs Schedule ‘D’. The rest are covered under the uncategorized category.

50) What is Business Facilitation Council?

The Business Facilities Council (BFC) has been established in December 2009 by State Government of Delhi as a single point clearence to encourage entrepreneurs intersted in setting up units in Delhi.

The idea is to facilitate the entrepreneurs in obtaining clearances from various departments/agencies for setting up of enterprises in a time bound manner and relieve entrepreneurs from the difficulties of running to various departments for clearences. The objective of BFC would be to ensure grant of all approvals required from various departments through a time bound, simplified and single point contact system.

Following are some of the features:

  1. Single point contact
  2. Common application form fulfilling the requirements of all departments dealing with statutory and non-statutory clearances
  3. Facility of filling up of the common application form by the entrepreneurs through officers of the BFC
  4. Prime role in suggesting policy changes and procedural reforms to remove bottlenecks in setting up of industrial unit
  5. Strive to improve the processing mechanism of applications

51) What is New Pension Scheme?

New pension System was introduced by the Government of India in 2004, when it was made mandatory for newly recruited employees (except personnel of armed forces). The scheme came into operation on April 1, 2008. In August 2008, a decision was taken by the government to offer NPS to all citizens of India. The Pension Fund Regulatory & Development Authority (PFRDA) opened the scheme to all citizens w.e.f. May 1, 2009.

What is the Product?

New pension Scheme is a pure defined contribution product. A subscriber can choose the fund option as well as the fund manager. The subscriber gets a retirement corpus when he/ she turns 60.

Permanent Retirement Account Number: (PRAN)

The PFRDA has appointed 22 points of presence (PoPs) which are mainly banks and 6 Pension Fund managers. (Interim arrangements have been made till appointments) . The branches of PoPs are called PoP Service providers. These PoP service providers act as initial points of contact and also collection point, for all citizens who need to get a Permanent Retirement Account Number or PRAN. This number is needed under the NPS


Who is eligible?

Resident & Non Resident Indians between the age of 18-55 years are eligible for new pension Scheme.

Where to open a account?

An account can be opened & operated from anywhere in India. If a subscriber changes a job & location, the pension fund manager can also be changed. To open an account one can approach any branch of bank designated by PFRDA.


The contribution amount is

  1. Minimum Rs. 600 per contribution
  2. Minimum per year Rs. 6000
  3. Minimum number of contributions per year 4


The subscriber gets the retirement corpus when he/ she turn 60, which is the normal age of retirement. On turning 60, he/she has to annuitize (convert a sum of money into a series of payments) at least 40% of pension wealth. The remaining 60% can be withdrawn in lump sum.

Tier I and tier II Accounts:

There are two separate accounts in New Pension Scheme.

  • Tier I
    The tier I account is the basic account in which withdrawals are not allowed till the age of 60. Employee’s contribution is @ 10% of pay +DA+DP and involves matching contribution by Govt.Payment only at the time of exit or after 60 years.
  • Tier II

In the tier II account from which withdrawals are allowed. 20 % of the sum is withdrawn in lump sum and 80% will have to be annuitized. There is no contribution by the government.


Investment Approaches:

One can invest in NPS in two ways:

Active Choice: The subscriber can allocate his / her funds across 3 fund options:

  1. Equity (E) : 50% of portfolio is allowed.
  2. Fixed Income instruments other than government securities (C)
  3. Government Securities (G)


Auto Choice:

In this approach, the funds of a subscriber automatically begin with a maximum equity exposure of 50% till the age of 35 and then regularly tapers off to 10% by age of 55. This is aimed to provide the customer stability as he / she approaches the maturity age.

Tax Savings:

The contributions to New pension scheme get benefit under section 80C. At the time of withdrawl, the lump sum would be taxable as per the slab of the subscriber.

Latest Decision: Swavalamban Scheme

A new initiative, ‘Swavalamban’, will be implemented for those who join the NPS with a minimum contribution of Rs 1000 and a maximum contribution of Rs 12000 per annum during financial year 2010-11, wherein the government will contribute Rs 1000 per year to each NPS account opened in 2010-11.

52) What is GST?

The goods and services tax (GST) is a comprehensive value-added tax (VAT) levy on manufacture, sale and consumption of goods and services at a national level.This makes India a single, unified market and expected to create a stronger economy.

53) What is the difference between Current Account and Savings Account?

The differences of the Current Accounts and Savings Accounts have been discussed as below:
Basic Objective:
The basic objective of a Savings Bank Account is to enable the customer save his / her liquid assets and also earn money on that saving. The Savings banks Accounts are preferred by individuals and provide liquidity for private and small businesses sometimes. On the other hand the current account is basically a transactional account which is preferred by business people. The basic objective of the current accounts is to provide flexible payment methods to the business people and entities. These payment methods include special arrangements such a overdraft facility, accommodation of standing orders, direct debits, offset mortgage facility.

Usually saving accounts have low transactions while current accounts have large transactions.

Savings accounts involve personal handling of assets, while current accounts are aimed to make the account holder free of personal handling of liquid funds. The current account facility helps the business to run without hurdles due to non availability of funds and short term deficits.

Interest Income:
Usually the current accounts don’t earn interests. The saving accounts earn 3.5% interest at present in India. The interest is compounded half yearly. (Please note that in case of death of the current account holder his legal heirs are paid interest at the rates applicable to Savings bank deposit from the date of death till the date of settlement)

As discussed above saving accounts have no overdraft facility, current accounts have. The money can be borrowed for short term and to be paid back with interest.

Minimum Balance:

Usually saving accounts need a minimum balance in the banks to keep the account active (however No Frill accounts require either nil or low minimum balance to be maintained). In current accounts there are no minimum balance requirements.

54) What is the difference between a Cheque and a Demand Draft?

Cheque has been defined in Negotiable Instruments Act 1881 section 6. A cheque is a bill of exchange drawn on a specified bank and not expressed to be payable otherwise than on demand.
A demand draft has been defined by Negotiable Instruments Act 1881 in section 85. A demand draft is an order to pay money drawn by one office of a bank upon another office of the same bank bank for a sum of money payable to order on demand.
Following are some more differences:

  1. A cheque can be made payable to bearer but a Demand Draft cannot.
  2. A demand draft can be cleared in a specified branch of the issuer bank
  3. A cheque can get dishonored but Demand draft is always honored.
  4. An issuer party of the cheque is liable to the cheque and not backed by a Bank Guarantee, A demand draft is backed by a bank guarantee

55) What does the SBI logo signify?

SBI and associate banks that fall under SBI, together constitute the State Bank Group. All use the same logo of a blue keyhole and all the associates use the “State Bank of” name followed by the regional headquarters’ name. This blue keyhole signifies security.

56) What is the difference between a Crossed cheque and A/C Payee cheque?

Before we understand the difference between the Crossed cheque and A/C Payee cheque, it is necessary to understand the concept of Endorsements. The section 15 of the Negotiable Instruments Act 1881 defines endorsing as “signing on the face or an instrument for the purpose of negotiating a negotiable instrument (such as Cheque). “

A person who signs the cheque and transfers the instrument is an endorser and in whose favor it is transferred is endorsee. The endorsee acquires a right to negotiate the instrument to anyone he / she likes. By making an endorsement the endorser promises that in case of dishonor, he / she provides a guarantee to compensate the holder. Crossing a cheque by making two parallel lines with or without such words as ___& company is general crossing. Section 126 of the NI Act says that this is a direction to the bank to not to pay the cheque across the counter.
This crossed cheque is no more a bearer cheque where anyone can negotiate and get payment across the counter.

In case of a crossed cheque, the payee is free to make further endorsements. For example , Ayesha receives a check from Rohan which has been crossed, Ayesha can get this payment in her account only and not across the counter. But in this case Ayesha is free to endorse the cheque in favor of Suresh and further Suresh is free to endorse the instrument in favor of Mukesh and so on…This means that crossing a cheque does not put restrictions on endorsements. In case the cheque gets dishonored, Mukesh can sue Suresh and Suresh can sue Ayesha and Ayesh can sue Rohan.

Now lets discuss A/C Payee cheques. The NI act does not talk about the A/C payee crossing. There is no definition of A/C payee crossing in the NI act and it is a child of banking practice. Making a cheque A/C Payee is a result of custom, use and practice and is now accepted legally.
But, the A/C payee cheque cannot be further endorsed. This means that if the cheque in the above example which is in favor of Ayesha bears “A/C Payee”, payment can be collected in Ayesha’s account only. The paying bank makes sure that amount is being credited to the account of the payee only.

57) With which country India shares longest border?

India has 15,106.7 km of land border and a coastline of 7,516.6 km including island territories. The length of our land borders with neighbouring countries is as under :
Name of the country:Length of the border (in km)

  • Bangladesh:4,096.7
  • China:3,488
  • Pakistan:3,323
  • Nepal:1,751
  • Myanmar:1,643
  • Bhutan: 699
  • Afghanistan: 106
  • Total :15,106.7

58) Which bank was established to for rehabilitating repatriates from Sri Lanka & Myanmar?

Government of India had launched REPCO BANK Ltd. in 1969 with main objective of rehabilitating repatriates from Burma and Sri Lanka. Repco Bank Ltd, whose operation is confined in South India is governed by the Ministry of Home Affairs, Govt. of India. Its shareholders are Govt. of India, State governments of Tamil Nadu, Andhra Pradesh, Karnataka, Kerala & individual Repatriate members. The bank operates in Tamil Nadu, Andhra Pradesh, Karnataka, Kerala, and the Union Territory of Pondicherry.

59) What is the difference between debit card & credit card?

Both Debit card and credit card and other cards like smart card are plastic money. Plastic money refers to plastic cards which play the role of medium of payment. In credit cards the customer (credit card holder) can avail the facility of buying goods and services at a Point of Sale (POS) from merchant establishments (provided such arrangements exist) without making a prior payment. This credit facility is provided by the issuer bank to the customer for a specific period.
However, in the case of debit cards, the customer (debit card holder) can buy goods and services by automatically debiting the payments to card holder’s banks account.

In case of a credit card, the card holder uses credit line by making drawings within a specified or sanctioned limit and makes payment on receiving the bill along with the applicable charges and interests.
In case of debit cards, the card holder uses the balance in his / her own bank account and payment is made immediately on purchases.

60) How are Rupee-Dollar rates determined?

The value of a currency against another is based on demand. Greater demand makes a currency stronger and vice versa. When there is a good inflow of dollars in India, the value of dollar will go down and value of Rupees will go up, because Rupees will be required to convert all dollars.
However, there are many determinants of the exchange rates of a particular currency against another currency. If these determinant factors are favorable to a country, there is a possibility that value of that country’s currency will rise.

Some of these determinants are:

  • International Parity Conditions
  • Balance of Payments
  • Economic Policies of a government (Fiscal Policy, Budget, Investment policy and Foreign Trade Policies) and a country’s central Bank (Cost of money, interest rates, monetary policy)
  • General macroeconomic conditions of the country
  • Inflation levels and trends
  • Balance of Trade
  • Market Psychology & perception
  • General political stability

There are two types of exchange rate regimes. One is fixed exchange rate regime where the exchange rates are decided by the government. Another is floating exchange rate regime (an example is China, but now the Chinese leaders say that it will switch to Floating Rate regime very soon). In most countries Floating Exchange Rate regime prevails. In floating exchange rate regime, the combined forces of the market and the above determinants decide the exchange rate.

The International parity conditions also include interest rate parity, Domestic fisher effect and international fisher effect.

The balance of trade affects the rates indicating a demand for a currency. Trade surplus may have a positive impact and trade deficit may have a negative impact on country’s currency. Inflation weakens the domestic currency. (However, in certain situations the inflation may lead to strengthening of the currency in anticipation of moves of central bank to hike the interest rates). The Economic viability and productivity of a country positively influences the value of its currency. Further, Internal, regional, and international political conditions and events have a profound effect on international currency markets. Market Psychology & market perception also have profound impact on Currency rates

61) How Cash Reserve Ratio affects loan rates?

The Cash Reserve Ratio is the amount of funds that the banks are bound to keep with Reserve bank of India. Present CRR is 6.0 per cent. It has been raised by 25 basis points from 5.75 to 6.00. RBI uses the method of CRR hike to drain out the excess liquidity from the banks. This is because; the banks will now have to keep more money with the Reserve Bank of India. On this money banks don`t earn any interest. Since they don’t earn any interest, the banks are left with an option to increase the interest rates. The increased rate may or may not be seen sooner or later in case of the present hike of 25 basis points, but if RBI hikes this rate substantially, banks will have to increase the rates. The home loans, car loans and EMI of floating Rate loans increase. The latest move by RBI of increasing the CRR will be sucking excess liquidity of 12500 crores of Rupees. This is the extra amount which now the banks will keep in the Central Bank.

62) What is Micro Credit?

The Reserve Bank of India defines Micro Credit as provision of thrift, credit and other financial services and products of very small amount to the poor in rural, semi-urban and urban areas for enabling them to raise their income levels and improve living standards. The institutions that provide these facilities are called Micro credit Institutions.


In terms of amount of money targets- loans of very small amount not exceeding Rs. 50,000 per borrower provided by the banks either directly or indirectly through SHG/JLG mechanism comes under the definition of Micro credit.


Reserve bank of India encourages the commercial banks to expand the coverage of micro finance in India. A pilot project for purveying micro credit by linking Self-Help Groups (SHGs) with banks was launched by NABARD in 1991-92. RBI had then advised commercial banks to actively participate in this linkage programme. The scheme has since been extended to RRBs and co-operative banks.


Government of India permits FDI in ‘Micro Credit/Rural Credit’. The Micro Credit/Rural Credit’ comes under non-banking financial company (NBFC) activities. NBFCs carrying on the business of a FI prior to the coming into force of RBI Amendment Act 1997 are eligible for providing microcredit provided their CoR (Certificate of Registration) has not been cancelled by the RBI.


The NBFCs are subject to Sec. 25 of Companies Act.


Following are the providers of Micro Credit in India:

  1. Domestic Commercial Banks: Public Sector Banks; Private Sector Banks & Local Area Banks
  2. Regional Rural Banks
  3. Co-operative Banks
  4. Co-operative Societies
  5. Registered NBFCs
  6. Unregistered NBFCs
  7. Other providers like Societies, Trusts, etc.

RBI does not specify any targets to be achieved in the Micro Credit. The banks have been advised to develop their own models and prescribe their own criteria for selection of micro credit organizations.

Banks are free to choose intermediaries, suitable branches, pockets, areas for implementation of microcredit programme. They are also free to devise appropriate lending and saving products. However banks have been instructed to include micro credit, in their branch, block and district & state credit plans. This has to be reviewed on quarterly basis.

63) With Which countries India has a Free Trade Agreement?

Free Trade Agreement negotiations with ASEAN started in 2002, and came into force from January 1, 2009.

India Sri Lanka Free Trade Agreement:

India Sri Lanka Free Trade Agreement was signed by the Prime Minister of India and the President of Sri Lanka on 28 December 1999.

Thailand & Malaysia:

India has a separate Free Trade Agreement with Thailand and Malaysia other than the India-ASEAN FTA.

CEPA with Singapore and South Korea:

India and South Korea had signed a comprehensive economic partnership agreement in August 2009. This was the second CEPA signed by India, the other being with Singapore. This was also India’s first bilateral trade agreement with an OECD country.

Apart from the above, India has PTA (Preferential Trade Agreements with) Chile, Afghanistan, Bhutan, Nepal & MERCOSUR

The Agreement on South Asian Free Trade Area (SAFTA) came into force from 1st January, 2006. India, Pakistan and Sri Lanka are categorized as Non-Least Developed Contracting States (NLDCS) and Bangladesh, Bhutan, Maldives and Nepal are categorized as Least Developed Contracting States (LDCS). Afghanistan which became the eighth member of SAARC during the 14th SAARC Summit held on 3-4 April 2007 in New Delhi is due to become a party to the SAFTA Agreement as an LDC member.

64) What is a micro, small and medium enterprise?

Two classes of enterprise –manufacturing and service are recognized by the MSME Act of 2006. The MSMED Act 2006 provides the legal framework for recognizing the concept of enterprise, facilitating its development and enhancing its competitiveness. These can be defined as micro, small and medium depending upon their investment levels. A manufacturing enterprise is termed as micro small and medium based upon its investment in plant and machinery – up to Rs. 25 Lakh for Micro, Rs. 25 lakh to Rs. 5 crore for small and Rs. 5 crore to Rs. 10 crore for Medium Enterprise. For a service enterprise, an investment in equipment up to Rs. 10 Lakh qualifies as micro, Rs. 10 Lakh to 2 Crore as Small and Rs. 2 Crore to 5 crore as medium.

65) Which is busiest airport in the world?

Hartsfield-Jackson Atlanta International Airport, Atlanta, Georgia, United States is the busiest airport in the world by traffic movements. The preliminary figures for 2009 from Airports Council United States estimate 970,235 Aircraft Movements (landing and take-off of an aircraft). Hartsfield-Jackson Atlanta International Airport is also world’s number 1 airport in passenger traffic. It recorded 6,448,193 passengers in January 2010. Top 5 busiest airports by passenger traffic are:

  1. Hartsfield-Jackson Atlanta International Airport Atlanta, Georgia, United States
  2. Beijing Capital International Airport Chaoyang, Beijing, China
  3. London Heathrow Airport Hillingdon, Greater London, England, United Kingdom
  4. Tokyo International Airport Ōta, Tokyo, Japan
  5. O’Hare International Airport Chicago, Illinois, United States

As far as International Traffic is concerned, the top slot is occupied by London Heathrow Airport Hillingdon, Greater London, England, United Kingdom. In Cargo Traffic , Memphis International Airport Memphis, Tennessee, United States is world’s most busy airport.

66) What is Statutory Liquidity Ratio (SLR)?

As per Section 24 (2A) of Banking Regulation Act 1949, every banking company in India has to maintain equivalent to an amount which shall not at the close of the business on any day be less than 25% of the total of its net demand and time liabilities. The components of SLR are Cash in hand, Gold owned by the bank, Balance with RBI, Net balance in current account & Investment in Government securities. SLR has to be maintained at the close of business on every day.

67) What is the difference between Nationalized Bank and Public Sector Bank?

What is the difference between Nationalized Bank and Public Sector Bank?
Please note that Nationalization is an act of taking an industry or assets into the public ownership of a national government. Nationalization refers to private assets being transferred to the public sector to be operated by or owned by the state. So there is no difference between a nationalized bank and a public sector Bank. The opposite of nationalization is privatization. The Banks which were earlier in private sector were transferred to the public Sector by the act of nationalization. The first nationalized bank was Imperial Bank of India (under the SBI Act of 1955) and re-christened as State Bank of India (SBI) in July 1955. In 1969 , 14 banks were nationalized and in 1980, the second phase of nationalization of Indian banks took place, in which 7 more banks were nationalized. Currently total 26 public sector banks in India all were Nationalized over a period of time.

68) What is the significance of crossing a cheque?

Crossing of cheques has been discussed in Negotiable Instruments Act 1881 Section 123-131. Crossing provides an additional security. Crossing means that sum of that cheque can only recovered from a specified banker and it will be credited to the holders account. The crossed cheques are not paid at the counter. Crossing is applicable in case of cheques only and not in case of Bill of Exchange or promissory notes. Crossing may be General crossing or Special crossing. General crossing (NI Act Section 123) is where a cheque bears two parallel lines with words such as a/c payee etc. In Special crossing (NI Act Section 124) the cheque bears the name of the banker also. Section 126 directs that such cheques shall be paid to the banker to whom it is crossed specially or to his agent for collection.

69) Which country is India’s Largest Trade partner?

By 2008-09 China had emerged as India’s Largest Trade partner, leaving behind USA, which has been India’s largest trade partner traditionally. The total trade with China was worth Rs. 1,63,202 Crore. However this included a trade balance of -92,676 crore Rupees which means India’s imports from china are much bigger than India’s exports to China. Total trade with USA stood at Rs. 1,55,353 Crore, where trade balance was Rs. 12,254 Crore. In continents , Europe has emerged as India’s single largest trading partner.

70) What is the Difference in Gross NPA & Net NPA?

Gross NPA is the amount outstanding in the borrowal account, in books of the bank other than the interest which has been recorded and not debited to the borrowal account. Net NPAs is the amount of grosss NPAs less (1) interest debited to borrowal and not recovered and not recognized as income and kept in interest suspense (2) amount of provisions held in respect of NPAs and (3) amount of claim received and not appropriated.

The Reserve Bank of India defines Net NPA as:

Net NPA = Gross NPA – (Balance in Interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held).

The Reserve Bank of India Banks has advised the banks to compute their Gross Advances, Net Advances, Gross NPAs and Net NPAs as per the following format w.e.f. September 2009.

71) What are Riders on an insurance policy?

The riders are meant to provide additional cover against risks. Depending upon the risk perception additional covers can be brought with the basic policy. These riders may cover accidental death, critical illnesses, disability etc. Though extra premium would be charged for each of the additional risk covers it would still be much less when compared to separate policies.

72) What is Free look period for insurance policies?

Free look period is a fortnight given to a new insurance policy holder to examine the life insurance contract that he has signed. In case he does not want to continue with it, he can rescind the contract and the insurance company shall refund the amount paid. In India IRDA has made it mandatory for all insurance companies to grant 15 days free look period. The free look period starts from the day of receipt of policy documents by an individual and the cancellation of the policy must be intimated to the insurance company within this time period.

73) What is Plastic Money?

With the increasing use of credit, debit cards for withdrawal of cash from ATMs, the use of the term plastic money is common. These cards being of plastic facilitating availability of cash or money to the card holder, have come to be referred commonly as plastic money.

74) What is meant by credit score?

It is the statistical summary of the individual bits of information on the credit report of an entity. A credit score predicts how likely it is that a company or individual will repay debts. Banks use this information to take a decision whether to sanction the loan or not and if so, the applicable rate of interest.

75) What is meant by insurance cover for deposits in banks?

All deposits upto Rs 1 lakh in a commercial or cooperative bank in India are insured by the Deposit Insurance and Credit Guarantee Corporation of India DICGC. The insurance protection is available free of cost to the depositors and covers the principal and interest dues taken together. Deposits in different banks are separately insured with each deposit eligible for Rs1lakh cover. Insurance cover is available across savings accounts, current accounts, recurring and fixed deposit accounts.

76) Who is a Banking Ombudsman?

An independent dispute resolution authority provided by RBI to deal with disputes that bank customers have with their respective banks. The authority is to be approached after the customer fails to get his grievance resolved from the concerned bank in terms of the grievance redressal mechanism.

77) What are Banking Codes and Standards Board of India BCSBI?

BCSBI is an independent and autonomous body set up by RBI to ensure that comprehensive code of conduct for fair treatment of customers was evolved and adhered to. In substance the board has been set up to ensure that the common consumer of banking services is in no way in a disadvantageous position and really gets what he has been promised by the banks.
Member banks of the board have voluntarily agreed to abide by the provisions enumerated in the codes which have been drawn up for the benefit of customers. These are:
Code of Bank’s Commitment to Customers, and

Code of Bank’s Commitment to Micro and Small Enterprises.

78) What is Capital adequacy ratio?

CRAR is the acronym for capital to risk weighted assets ratio, a standard metric to measure balance sheet strength of banks.

BASEL I and BASEL II are global capital adequacy rules that prescribe a minimum amount of capital a bank has to hold given the size of its risk weighted assets. The old rules mandate banks to back every Rs 100 of commercial loans with Rs 9 of capital irrespective of the nature of these loans. The new rules suggest the amount of capital needed depends on the credit rating of the customer.

79) What is Financial Inclusion?

Financial inclusion means providing to the large unbanked population of India access to financial products and services like:


Bank accounts, immediate credit, savings products, remittance and payment services, insurance, mortgage, entrepreneurial credit, financial advisory services.


Steps taken so far for promotion of financial inclusion have been – the cooperative movement, setting up of State Bank of India, nationalization of banks, lead bank scheme, regional rural banks, service area approach, self help groups.Out of 611 districts in the country, only 68 districts have been covered by so called financial inclusion (as of July 2009).

80) Who are forensic accountants?

Forensic accountants are trained to detect evidence of frauds in financial statements. They go beyond the numbers and attempt to analyze 100% of the data as against the sampling procedure adopted by auditors. When the extended procedures are invoked, cases like the overvaluation of the sales or the debtors become easy to investigate. In India there is an urgent need of large number of forensic accountants in view of the preponderance of corporate frauds.

81) What is India VIX?

India VIX is a volatility index based on the Nifty 50 Index Option prices. The implied volatility is captured by the volatility index which reflects risk associated with equity market. When the market is steadily moving upside or range bound then implied volatility is observed to be low, and when market declines sharply due to heavy selling or bad sentiments then implied volatility rises to high.

82) What are RBI guidelines to banks for ATMs for persons with disabilities?

The banks have to provide all the4 existing ATMs and future ATMs with ramps so that wheel chair users / persons with disabilities can easily access them and also make arrangement in such a way that height of the ATM does not create an impediment in its use by the wheel chair user. Banks make at least one third of the new ATMs installed as talking ATMs with Braille key pads place them strategically, in consultation with other banks so that Braille Keypad is generally available in each locality.

83) In which summit, decision to replace G-8 by G-20 was taken?

At the Pittsburgh Summit on September 24-25, 2009, the leaders determined that the G-20 will replace the G-8 as the permanent council for international economic cooperation. There are also proposals for an Economic Security Council elected by UN members or a representative Group of 20 (plus/minus) countries.”

84) What is Integrated Nutrient Management (INM)?

Integrated Nutrient Management (INM)is being promoted by Government of India and it involves conjunctive use of both inorganic and organic sources of nutrients to sustain good soil health and higher crop productivity in the country. For this purpose National Project on Management of Soil Health and Fertility (NPMSHF) has been introduced during 2008-09 to promote soil test based balanced and judicious use of chemical fertilizer in conjunction with organic manure and bio-fertilizer.

85) In which country Kiwi the first modern shoe polish was invented in 1906?

Kiwi brand was the first shoe polish which resembles the modern varieties of shoe polishes as it is aimed primarily at inducing shine. It was first manufactured in a very small factory in Melbourne Australia by two Scottish expatriates William Ramsay and Hamilton. The brand was named as Kiwi which is the national bird of New Zealand & Ramsay’s wife was a native of Oamaru, New Zealand. After success in Australia Kiwi expanded in other countries and adopted by both the British and American armies in World War I.

Today Kiwi is sold in 180 countries and dominated the market share in UK & USA. Currently it is owned by the Sara Lee Corporation which bought it in 1984.

86) In collboration with which countries India established Durgapur, Rourkela & Bhilai Steel Plants?

Durgapur Steel plant was established in collaboration with Britain, Rourkela Steel plant in collaboration with Germany and Bhilaisteel plant was started in collaboration with Russia.

87) What are primary, secondary and tertiary sectors of Economy?

Primary sector of the economy is mining, agriculture and fishing, Secondary sector is manufacturing, the tertiary sector of the economy is also known as the service sector or the service industry. Information sharing (knowldge economy) is also a part of tertiary sector, however now some people have started using quarternary sector for this sector.

88) What is the difference between Repo Rate and Bank Rate?

Repo rate is the rate at which our banks borrow rupees from RBI whenever they have shortage of funds. Repo rate is basically a short-term measure and it refers to short-term loans and used for controlling the amount of money in the market, bank rate is a long-term measure and is governed by the long-term monetary policies of the governing bank concerned. In broader term, bank rate is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. RBI uses this tool to control the money supply. Current bank rate at which RBI lends to Banks is 6%.

89) Which British Governor General is credited for initiation of constituting a central bank for India?

The efforts to constitute a central bank for India can be traced back to Warren Hastings’s proposal for a ‘General Bank of Bengal and Bihar’ in 1773. The initiatives with regard to central banking in the colonial era had to face stiff resistance. Many such proposals faced failures. The amalgamation of the three Presidency Banks and emergence of the ‘Imperial Bank of India’ in 1921 was the first concrete step in this direction. A sequence of events subsequently led to introduction of the Reserve Bank Bill (1933) and the Reserve Bank of India Act came into force on January 1, 1935. The Reserve Bank commenced operations on April 1, 1935. It was nationalized on January 1, 1949 in terms of the Reserve Bank of India (Transfer to Public Ownership) Act, 1948.

90) What is Beggar thy neighbour Policy?

The recession of late 1920s in the United States had become the Great Depression, due to three factors.

  1. Overly tight monetary policy
  2. Overly cautious fiscal policy especially under Franklin D Roosevelt in 1936 when tighter fiscal policy led to another sharp downturn in the US economy)
  3. Dramatic recourse to beggar-thy-neighbour policies, including competitive devaluations because countries went off the gold standard in the 1930s and increases in trade barriers worldwide.

Beggar thy neighbour policy refers to benefits for one country at the expense of others. This means that to remedy one country’s problem at the cost of other country and thus tend to worsen the problems of other countries. This involved country’s trying to cure domestic depression and unemployment by shifting effective demand away from imports onto domestically produced goods, either through tariffs and quotas on imports, or by competitive devaluation.

When there is a tough time, the government of a country enacts such policies that aim to boost its own domestic rate of growth. But these policies involve that negatively impact other countries. Some of the examples of these policies are hiking up import tariffs or other trade restrictions, devaluing currencies, imposing controls on the outward flow of capital, and subsidizing exports.

91) What is Circular Trading?

Circular Trading is a term related to share markets. Circulating trading involves the members of an exchange for a cartel and trade among themselves in order to create huge false volumes and rigging the price of the shares and thus misleading the common investorsinto a trap.

It is different from Insider Trading which involves a corporation’s stock or other securities (e.g. bonds or stock options) by individuals with potential access to non-public information about the company.

92) If there is no interest paid on Zero Coupon Bonds what is rerun to the holder?

Zero Coupon Bonds are those bonds which are issued at a discount and repaid at the face value. The difference between the issue price and redemption price represents the return to the holder. The buyer of these bonds receives only 1 payment which is at the maturity of the bond.

93) What is sweat equity?

Sweat Equity is a new equity instrument which was floated in the Companies (Amendment) ordinance 1998 (u/s 79A of the companies act 1956. It refers to the shares issued at discount to the employees and directors and shares issued for consideration other that cash for providing intellectual property rights, know how , value additions to the company or similar contributions.

94) What is Coca Colla?

Evo Morales, the president of Bolivia is famous for chewing coca leaves at UN meetings. He has now announced energy drink Coca Colla featuring coca leaves to be produced in Bolivia and with the use of coca extract as its base. Not only are the names and ingredients similar to Coca Cola, but the colors and logo are planned to be of a similar nature. The release of this product is part of the process of the industrialization of coca followed by the Morales administration as Tea, flour, toothpaste and liquor are already being produced using a coca base. The project could be either run by the state or a joint partnership with coca growers. It is interesting to note that International Narcotics Control Board has called for years for a ban on coca leaf chewing.

95) What is Selective Retention?

A person tends to remember only those facts, thoughts, incidences and messages which are closer to their interests, values and beliefs. For example, over a period of time, a person may only retain those things in memory about his / her school days which were interesting, pleasing and good ones forgetting the bitter experiences. Selective retention studied as a part of consumer behavior in marketing also. Buyers tend to remember information inputs that support their beliefs and forget inputs that do not.

96) What is India US MOU on Biofuel?

India and United states has signed a Memorandum of Understanding in which both country will cooperate in production and marketing of biofuels in a manner which is environment friendly. Mode of production and marketing will be in accordance with national priorities and in keeping in mind the socio economic developmental goal.


Importance will be laid down on production and development of quality planting materials and high sugar containing verities of sugarcane,sugar,sweet sorghum and cassava.

97) What is a Supply Shock ?

A supply shock is an event that suddenly changes the price of a commodity or service. It may be caused by a sudden increase or decrease in the supply of a particular good. This sudden change affects the equilibrium price. The increased supply due to over production and decreased supply due to under production cause supply shock.

98) Where is India’s First Aerospace SEZ?

The SEZ situated at Hattaragi, 37 km from Belgaum, in Karnataka is promoted by Quest Global, an aerospace engineering and manufacturing company. The SEZ houses an engineering services facility, a precision machining unit and Aerospace Processing India, a joint venture between Quest and Magellan, a processing facility, which is critical for the industry.

99) What is Arbitrage?

Arbitrage is the practice of taking advantage of a price differential between two or more markets. This involves striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. It is simply a risk-free profit. A person who engages in arbitrage is called an arbitrageur—such as a bank or brokerage firm. Arbitrage applies to bonds, stocks, derivatives, commodities and currencies.


100) What is aggregate demand?

Aggregate demand is a term from macro economics. It is the total demand for final goods and services in the economy at a given time and price level. This is also means a total demand for goods and services in a economy during a specific period. In other words, the amount of goods and services in the economy that will be purchased at all possible price levels. This is the demand for the gross domestic product of a country when inventory levels are static. It is often called effective demand or abbreviated as ‘AD’.

101) What is administered Price?

An administered price is a price fixed by policy makers in order to determine, directly or indirectly, domestic market or producer prices. This means that these prices are not set by the forces of demand and supply but the authorities like Government or a regulatory authority.

102) What is insider trading?

The sharemarket dealings by the persons who have inside knowledge of the companies whose shares are traded. They can be directors of the companies, top level managers and even auditors of the companies. Insider trading is a punishable offense.

103) What is dumping?

When goods are exported with prices far below the cost of production in the importing countries, it is called dumping. This ultimately cripples the manufacturers in the importing country .

104) What is Bank Rate?

Bank Rate is the offical rate at which RBI will rediscount the bills of commercial banks. it is used as a signal by the RBI to the commercial banks on RBI’s thinking of what the interest rates should be.

105) What is SCARDB?

State Cooperative Agriculture and Rural Development Banks (SCARDB) is a Central Sector Scheme of India which aims at raising resources of SLDBs(State Land Development Banks ) for long term lending to cultivators by way of floatation of debentures in vital areas such as Minor Irrigation, Farm Mechanization, Land Development, Horticulture, Wasteland Development, Rural Housing, Rural Godowns, Non-Farm Sector and Animal Husbandry. Under this scheme the SLDBs/SCARDBs raise resources for long term lending to cultivators by floatation of debentures in vital areas like Farm Mechanisation, Land Development etc. The debentures floated by the Banks are subscribed by NABARD, the concerned State Governments, Government of India and other financial institutions.

106) Know Your Customer

Know your customer (KYC) is a bank regulation that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them.

In India Banks were advised to follow certain customer identification procedure for opening of accounts and monitoring transactions of a suspicious nature for the purpose of reporting it to appropriate authority. These ‘Know Your Customer’ guidelines have been revisited in the context of the Recommendations made by the Financial Action Task Force (FATF) on Anti Money Laundering (AML) standards and on Combating Financing of Terrorism (CFT). These standards have become the international benchmark for framing Anti Money Laundering and combating financing of terrorism policies by the regulatory authorities. Compliance with these standards both by the banks/financial institutions and the country have become necessary for international financial relationships. Detailed guidelines based on the Recommendations of the Financial Action Task Force and the paper issued on Customer Due Diligence(CDD) for banks by the Basel Committee on Banking Supervision, with indicative suggestions wherever considered necessary are enclosed. Banks are advised to ensure that a proper policy framework on ‘Know Your Customer’ and Anti-Money Laundering measures is formulated and put in place with the approval of the Board within three months of the date of this circular. It may also be ensured that banks are fully compliant with the provisions of this circular before December 31, 2005.

107) Absolute Poverty

A situation where a population or a section of a population is able to meet only its bare subsistence essentials of food clothing and shelter in order to maintain a minimum level of living is called absolute poverty. Another term is poverty threshold, or poverty line. Thus it is the minimum level of income deemed necessary to achieve an adequate standard of living in a given country. As per the world Bank , the common international poverty line is $1.08 at 1993 purchasing-power parity (PPP).

108) ABC Method

It is a method of stock control in which each item is designated by the letter A, B or C depending upon its value to the total expenditure of production materials. A goods are low volume high cost items while C goods are low cost , items. This method is also called split inventory method.

109) Acid Test Ratio or Quick Ratio

The Ratio of current liabilities to current assets excluding stocks is called acid test ratio. Also known as quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to immediately extinguish or retire its current liabilities. Quick assets include those current assets that presumably can be quickly converted to cash at close to their book values.


Quick (Acid Test) Ratio= Cash + Markatable Securities + Accounts Receivables / Current Liabilities
Acid test ratio near to 1:1 is considered better for the company .



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