problems of indian economy - mcomentrance.com

7 PROBLEMS OF INDIAN ECONOMY

ECONOMIC GROWTH

Economic Growth is defined as the rise in the money value of goods and services produced by all the sectors of

the economy per head during a particular period. It is a quantitative measure that shows the increase in the number

of commercial transactions in an economy.

Measurement of Economic Growth

Economic growth can be expressed in terms of gross domestic product (GDP) and gross national product (GNP),

which helps in measuring the size of the economy. It lets us compare in absolute and percentage change, i.e. how

much an economy has progressed since last year.

According to the Ministry of Statistics and Programme Implementation (MoSPI), India‘s GDP growth rate was

4.4% in 2019-20. It is estimated to be –7.7% for 2020-21.

India ranks 6th in terms of GDP with an estimated nominal GDP of $2.8 trillion for 2021 and 142

nd in terms of Per

Capita GDP with an estimated value of $1,877 for 2020.

ECONOMIC DEVELOPMENT

Economic Development is defined as the process of increase in volume of production along with the improvement

in technology, a rise in the level of living, institutional changes, etc. In short, it is the progress in the socio-

economic structure of the economy.

Measures of Economic Development

1. Human Development Index

The Human Development Index (HDI) is a statistical tool used to measure a country‘s overall achievement in

its social and economic dimensions.

Pakistani economist Mahbub ul Haq created HDI in 1990 which was further used to measure a country's

development by the United Nations Development Program (UNDP).

HDI is a summary measure of average achievement in key dimensions of human development. The

dimensions of HDI are:

i. Long and healthy life

The health dimension is assessed by life expectancy at birth.

ii. Knowledge

The knowledge or education dimension is assessed with the help of:

a. The mean years of schooling (i.e. years that a person aged 25 or older has spent in formal education)

b. The expected years of schooling (i.e. total expected years of schooling for children under 18 years of

age)

iii. A decent standard of living

The standard of living dimension is measured by per capita gross national income at Purchasing Power

Parity.

2 Macroeconomics

HDI is computed as the Geometric Mean of the indices for the three dimensions.

This is used to rank countries into four tiers of human development i.e. Very high, High, Medium and Low

Human Development.

The Human Development Report (HDR) presents the Human Development Index (HDI) (values and ranks)

for 187 countries and UN-recognized territories, along with the Inequality-adjusted HDI for 145 countries, the

Gender Development Index for 148 countries, the Gender Inequality Index for 149 countries, and the

Multidimensional Poverty Index for 91 countries.

India's HDI value for 2019 is 0.645 which put it in the medium human development category. India has been

positioned at 131 out of 189 countries and territories, according to the report.

2. Green GDP

The green GDP is an index of economic growth considering environmental consequences of that growth into

a country's conventional GDP. Green GDP monetizes the loss of biodiversity, and accounts for costs caused

by climate change. It takes into account the use of natural resources as well as the costs involved. This

includes resource depletion, environmental degradation and protective environmental initiatives.

Environmental Accounting

The System of National Accounts (SNA) is the internationally agreed standard set of recommendations for

measuring the economic activities of production, consumption and accumulation of wealth in an economy

during a period of time. When information on economy's use of the natural environment is integrated into the

system of national accounts, it becomes green national accounts or environmental accounting.

The process of environmental accounting involves three steps viz. Physical accounting; Monetary valuation;

and integration with national Income/wealth Accounts. Physical accounting determines the state of the

resources, types, and extent (qualitative and quantitative) in spatial and temporal terms. Monetary valuation is

done to determine its tangible and intangible components. Thereafter, the net change in natural resources in

monetary terms is integrated into the Gross Domestic Product in order to reach the value of Green GDP.

3. Gender Inequality Index

The Gender Inequality Index is a composite measure reflecting inequality in achievements between The GII is

a composite measure, reflecting inequality in achievements between women and men in three dimensions:

i. reproductive health: measured by two indicators: maternal mortality ratio and the adolescent fertility rate

ii. empowerment: measured by two indicators: the share of parliamentary seats held by each sex and by

secondary and higher education attainment levels

iii. the labour market: measured by women‘s participation in the work force.

The GII is built on the same framework as the HDI and the IHDI — to better expose differences in the

distribution of achievements between women and men. It varies between zero (when women and men fare

equally) and one (when men or women fare poorly compared to the other in all dimensions).

The Gender Inequality Index is designed to reveal the extent to which national human development

achievements are eroded by gender inequality, and to provide empirical foundations for policy analysis and

advocacy efforts.

India was placed at 123rd

position in the gender inequality index in the Human Development Report 2020.

4. Gross National Happiness Index

GNH is a philosophy that includes an index which is used to measure the collective happiness and well-being

of a population.

Problems of Indian Economy 3

The term "Gross National Happiness" was coined in 1972 by Sicco Mansholt, one of the Founding Fathers of

the European Union and the fourth President of the European Commission. GNH is often misattributed to

Bhutan's fourth King, Jigme Singye Wangchuck who popularized the concept in the late 1990s.

Rather than focusing strictly on quantitative economic measures, gross national happiness takes into account

an evolving mix of quality-of-life factors.

According to the Bhutanese government, the four pillars of GNH are:

i. sustainable and equitable socio-economic development;

ii. environmental conservation;

iii. preservation and promotion of culture; and

iv. good governance.

According to the UN-World Happiness Report 2020, India ranks 144 out of 156 countries surveyed. Finland

tops the list.

SUSTAINABLE DEVELOPMENT

The term Sustainable Development was used by the Brundtland Commission which has become the most often-

quoted definition of Sustainable Development: "Development that meets the needs of the present without

compromising the ability of future generations to meet their own needs".

Sustainable development has gained momentum as a larger movement over the years. We now associate it with

improving living standards, poverty alleviation, nutritional improvements, minimizing social and cultural

instability and resource depletion.

The Pillars of Sustainable Development

The three pillars of sustainability are a powerful tool for defining the Sustainable Development problem. This

consists of three parameters: Economic, Social, and Environmental pillars. If any one pillar is weak then the

system as a whole is unsustainable.

1. Social Sustainability Social Sustainability is the ability of a social system, such as a country, family, or organization, to function at

a defined level of social well-being and harmony indefinitely. Problems like war, endemic poverty,

widespread injustice, and low education rate are symptoms of a system that is socially unsustainable.

2. Environmental Sustainability Environmental Sustainability is the ability of the environment to support a defined level of environmental

quality and natural resource extraction rates indefinitely. This is the world's biggest actual problem.

3. Economic Sustainability Economic Sustainability is the ability of an economy to support a defined level of economic production

indefinitely.

Sustainable Development Goals

Under the United Nations Millennium Declaration, signed in September 2000, the world leaders committed

themselves to combat poverty, hunger, disease, illiteracy, environmental degradation, and discrimination against

women. The Millennium Development Goals were derived from this Declaration.

The United Nations Millennium Development Goals or simply Millennium Development Goals (MDGs) are eight

goals that all 191 UN member states had agreed to try to achieve by the year 2015.

The Sustainable Development Goals (SDGs), also known as the Global Goals, are a universal call to action to end

poverty, protect the planet and ensure that all people enjoy peace and prosperity.

These 17 Goals are built on the successes of the Millennium Development Goals and include new areas such as

climate change, economic inequality, innovation, sustainable consumption, peace and justice, among other

4 Macroeconomics

priorities. The goals are interconnected – often the key to success on one will involve tackling issues more

commonly associated with another.

The 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, provides a

shared blueprint for peace and prosperity for people and the planet, now and into the future.

SDG Report 2020

According to the Sustainable Development Report 2020 – The Sustainable Development Goals and Covid-19,

India has ranked 117th out of 193 members. According to the report, India is also facing major challenges in 10 of

the 17 SDGs including zero hunger, good health, gender inequality among others. The index has been topped by

Sweden.

The SDG India - Index

The SDG India Index 2019-20, developed by NITI Aayog, was launched on December 30th, 2019.

The Index has been constructed spanning across 16 out of 17 SDGs with a qualitative assessment on SDG 17.

It tracks the progress of all the States and Union Territories (UTs) on a set of 100 National Indicators derived

from the National Indicator Framework, measuring their progress on the outcomes of interventions and schemes

of the Government of India.

Among the states Kerala has the top rank while Bihar has emerged as the worst performer. Among the union

territories, Chandigarh has topped the list.


ECONOMIC PLANNING IN INDIA

Economic Planning is a term used to describe the long term plans of government to co-ordinate and develop the

economy with efficient use of resources. Economic planning in India was stared in 1950 after independence, it

was deemed necessary for economic development and growth of the nation.

Planning Commission was set up in 1950, and the Prime Minister of India was made the chairperson of the

commission.

Overview of Various Five Year Plans

First Plan (1951-56) Based on Harrod-Domar model of Development

The plan addressed, mainly, the agrarian sector, including investments in dams and

irrigation.

Second Plan (1956-61) Based on Mahalanobis strategy of development

Main focus was on industrialization

The plan assumed a closed economy in which the main trading activity would be

centered on importing capital goods.

Third Plan (1961 - 66) Aim was to make India a 'self-reliant' and 'self-generating' economy.

Three Annual Plans

(1966-69)

Plan holiday for 3years.

Prevailing crisis in agriculture and serious food shortage necessitated the emphasis

on agriculture during the Annual Plans

Fourth Plan (1969 - 74) The government nationalised 14 major Indian banks and the Green Revolution in

India advanced agriculture.

Fifth Plan (1974-79) prepared and launched by D.D. Dhar

Stress was by laid on employment, poverty alleviation, and justice. The plan also

focused on self-reliance in agricultural production and defence.

Rolling Plan (1978 - 80) There were 2 Sixth Plans. Janta Govt. put forward a plan for 1978-1983. However,

the government lasted for only 2 years. Congress Govt. returned to power in 1980

and launched a different plan.

Seventh Plan (1985 - 90) Focus - rapid growth in food-grains production, increased employment

opportunities and productivity within the framework of basic tenants of planning.

Eighth Plan (1992 - 97) The eighth plan was postponed by two years because of political uncertainty at the

Centre

Worsening Balance of Payment position and inflation during 1990-91 were the key

issues during the launch of the plan.

During this plan the New Economic Policy was launched.

Ninth Plan (1997- 2002) It was developed in the context of four important dimensions: Quality of life,

generation of productive employment, regional balance and self-reliance.

Tenth Plan (2002 - 2007) Aimed to double the per capita income

Reduce poverty ratio and achieve growth rate of 8%

Eleventh Plan

(2007 -2012)

Prepared by C. Rangarajan

Aimed faster and more inclusive growth

Twelfth Plan

(2012 -2017)

Objective of faster, more inclusive and sustainable growth

NITI Ayog

Under the leadership of Prime Minister Narendra Modi, the Union Government replaced Planning Commission

with NITI (National Institution for Transforming India) Ayog on 1st January 2015. Planning Commission was an

advisory body, and so is Niti Ayog. But the key difference between them is that while the former had powers to

allocate funds to ministries and states; this function will be now of finance ministry. Niti Ayog is essentially a

think tank and a truly advisory body.

Members

Chairman: Prime Minster Narendra Modi

Vice Chairman: Aravind Panagariya CEO : Amitabh Kant

6 Macroeconomics

NATIONAL INCOME ESTIMATION IN INDIA

There were no specific attempts to measures India‘s national income in the pre-independence era.

The first estimate of National Income of India

In 1868, Dadabhai Naoroji wrote a book ‗Poverty and Un-British Rule in India‘. It was the first to estimate the

national income of India. He had estimated the value of agricultural production and added a certain percentage of

it as estimated income from non-agricultural sources.

Similar non-scientific attempts were made by Shah & Khambata, Wadia & Joshi among others.

The first scientific estimate of National Income of India

The first scientific estimation of national income was made by Dr. V. K. R. V. Rao in his doctoral thesis named

‗The national income of British India, 1931-1932‘.

He divided the Indian economy into:

i. Agricultural Sector: comprising of activities like agriculture, forestry, fishing and hunting. The product

method was used to estimate the national income of this sector.

ii. Corporate Sector: including activities like industries, construction, transport and public services. The income

method was used to estimate the national income of this sector.

The first official attempt to estimate the National Income of India

After independence, National Income Committee was appointed by the government of India in 1949 under the

chairmanship of Prof. P. C. Mahalanobis. Prof. Gadgil and Prof. V. K. R. V. Rao were the other members of the

committee. The committee presented its report in 1951.

Since 1955 the national income estimates are being prepared by Central Statistical Organisation. It has divided the

economy into 13 sectors, grouped under five main headings as follows:

1. Primary: i. Agriculture;

ii. forestry and logging;

iii. fishing; and

iv. mining and quarrying;

2. Secondary: v. manufacturing, subdivided into registered and non-registered

vi. construction;

vii. electricity, gas and water supply.

3. Transport, Communication and Trade: viii. transport, storage and communication, subdivided into

(a) railways, (b) transport by other means and storage, and (c) communication;

ix. trade and hotels and restaurants;

4. Finance and Real Estate: x. banking and insurance;

xi. real estate and ownership of dwelling and business services;

5. Community and Personal Services: xii. public administration and defence; and

xiii. other services.

The contribution to GDP from primary sector is estimated with the adoption of product method.

In the secondary sector the computations of national income are done by the production approach only for the

manufacturing industrial units.

For the remaining sectors, income method is adopted to estimate the national income.

At present, the existing base year for estimating national income is 2011-12.


DIFFERENT SECTORS OF INDIAN ECONOMY

I AGRICULTURE

Agriculture is the primary source of livelihood for about 58% of India‘s population.

India is the largest producer of spices, pulses, milk, tea, cashew, and jute, and the second largest producer of

wheat, rice, fruits and vegetables, sugarcane, cotton, and oilseeds.

Green Revolution

The introduction of high-yielding varieties of seeds after 1965 and the increased use of fertilizers

and irrigation are known collectively as the Green Revolution, which provided the increase in production needed

to make India self-sufficient in food grains, thus improving agriculture in India.

Famine, once accepted as inevitable, has not returned since the introduction of Green Revolution crops. This

strategy is often termed as High Yielding Varieties Programme (HYVP). In the period from 1967-68 to 1980-81

the spread of new technology was limited primarily to wheat and in small measures to rice and few other

commercial crops, though HYVP was spread to five crops viz. wheat, rice, bajra, jowar and maize.

Land Reforms

Before independence, the land owners exploited the actual tillers of the land or the tenants. A substantial portion

of the produce used to be taken away by the owners in the form of rent or land revenue. There were three types of

land tenure systems prevailing in the country at that time:

i. The Zamindari System,

ii. The Ryotwari System, and

iii. The Mahalwari System.

The three systems differed in the system of collecting land revenue. The farming was done for subsistence only,

as major part of the produce was to be paid as land revenue.

After independence, land reforms were introduced to stop the exploitation of the cultivators. The measures

undertaken to achieve this objective were:

i. Abolition of Intermediaries

Legislations were passed to abolish the land tenure systems that were prevailing in all the states with an

objective to stop exploitation of the actual tillers.

ii. Tenancy Reforms

The legislations were passed to a) regulate rent, b) provide security of tenure and c) confer ownership rights

on tenants. Ceilings were imposed on agricultural land holdings.

Accordingly a family could hold:

18 acres of wet land or 54 acres of unirrigated lands.

iii. Reorganisation of Agriculture

The problem of fragmentation of holdings was solved by reorganisation through consolidation of holdings by

giving one consolidated land equal to the total of land in different scattered plots under his possession.

Finance

As banks and other financial institutions in the organised sector have been reluctant in extending credit facilities

to the agriculture because of its seasonal nature, the main source of agricultural credit has been the moneylender

who used to charge exorbitant rates of interest and even cheated the poor farmers. After independence about 20

banks were nationalised till 1980 to provide credit to the rural sector.

In 1975 Regional Rural Banks (RRBs) were established to meet the requirements of the farmers.

In 1982 an apex bank called National Bank for Agriculture and Rural Development (NABARD) was set up for

this purpose.

8 Macroeconomics

Warehousing

Government agencies like Food Corporation of India (FCI) provides storage facilities, but they are proving to be

inadequate as traditional methods of storage are still being employed and a substantial portion of the agricultural

harvest gets destroyed by pests and rodents.

Government Initiatives in Agriculture

1. Pradhan Mantri Fasal Bima Yojana (PMFBY) is an affordable crop insurance scheme to compensate for

crop failure due to floods, drought etc.

2. National Mission for Sustainable Agriculture (NMSA) promotes location specific sustainable and best

farming practices.

3. Pradhan Mantri Krishi Sinchai Yojana (PMKSY) to extend the coverage of irrigation and improving water-

use efficiency in a focused manner.

4. Paramparagat Krishi Vikas Yojana (PKVY) encourages farmers for traditional and organic farming in India.

5. National Agricultural Market (e-NAM) connect the existing agricultural mandis on a common online market

platform for trading agricultural commodities.

6. Kisan Credit Card (KCC) to provide adequate and timely credit to the farmers.

7. Soil Health Card (SHC) scheme issues soil health cards to the farmers every two years to provide a basis to

address nutritional deficiencies in the fields.

8. Micro Irrigation Fund (MIF) for encouraging public and private investments in Micro irrigation. The main

objective of the fund is to facilitate the States in mobilizing the resources for expanding coverage of Micro

Irrigation.

9. Rainfed Area Development Programme (RADP) to minimise the adverse impact of possible crop failure due

to drought, flood or un-even rainfall distribution through diversified and composite farming system.

10. Gramin Bhandaran Yojana (GBY) to meet the requirements of farmers for storing farm produce, processed

farm produce and agricultural inputs.

II INDUSTRY

The industrial sector provides goods for the development of basic infrastructure of the country like power,

telecom etc, which then provides the basis for the growth of other sectors like agriculture and services.

Classification of Industries

The industries can be classified either on the basis of scale of operations or on the basis of end-use of their output.

On the basis of Scale of Operations

1. Large Scale Industries

A large-scale industry is the industry, which requires huge capital investment and employs a large number of

persons with a very high output. These industries generally form the basis of a country's index of industrial

production. These include:

i. mining and quarrying,

ii. manufacturing

iii. electricity, gas and water supply.

2. Medium Scale Industries

Under the new definition, a medium-scale industry will be one with investment in plant and machinery of `1

crore to `10 crore.

3. Small Scale Industries and Ancillary Units

Small-scale and Ancillary industrial units are those engaged in the manufacture, processing or preservation of

goods and whose investment in plant and machinery (original cost) does not exceed `1 crore. However, to


facilitate technology upgradation and enhance competitiveness, investment limit has been raised from `1

crore to `5 crore for 69 items in manufacturing sector and all items in pharmaceuticals sector.

The ancillary units cater to the requirements of the medium and large industrial units for material,

components, consumables etc.

4. Tiny or Micro Enterprises

Prior to 1991, a tiny unit was defined as the one having investment of less than `2 lakhs. In 1991, the limit

was raised to `5 lakhs and presently the limit has been raised to `25 lakhs.

Classification of Industries as per The Micro, Small and Medium Enterprises (MSME) Development Act,

2006:

Industry Investment

Manufacturing Service Providers

Medium Scale `5 Crore to `10 Crore ``2 Crore to `5 Crore

Small Scale `25 lakh to `5 Crore `10 lakh to `2 Crore

Tiny or Micro Enterprise Upto `25 lakh Upto `10 lakh

The Union Cabinet chaired by the Prime Minister Shri Narendra Modi changed the basis of classifying Micro,

Small and Medium enterprises from investment in plant & machinery/equipment to annual turnover in

February 2018.

Industry Annual Turnover

Manufacturing Service Providers

Medium Scale `75 Crore to `250 Crore `75 Crore to `250 Crore

Small Scale `5 Crore to `75 Crore `5 Crore to `75 Crore

Tiny or Micro Enterprise Upto `5 Crore Upto `5 Crore

Public Sector Undertakings (PSUs)

PSUs are the government-owned corporations in India, in which 51% or more of the paid up share capital is

owned by government of India. The ownership can be of only central government or only state government or

joint ownership of central government with any state government(s).

After independence, Public sector was seen as an instrument of development for self reliant and steady economic

growth. Hence, the Nation followed a planned economic development policy in which PSUs had a big role to

play.

Classification of PSUs

1. Central public-sector Enterprises (CPSEs) – Companies under the direct control of the Central government

or of other CPSEs by 51% or more of ownership in capital.

The Central Public-Sector Enterprises (CPSEs) are further classified as:

i. Strategic Central Public-sector Enterprises : include the Arms & Ammunition and the defense

equipment‘s, defense aircraft and other items related to Defense, and in the field of atomic energy and

Railways transport.

ii. Non-Strategic Central Public Sector Enterprises: The rest of the CPSEs are regarded as Non-strategic

CPSE.

2. Public Sector banks (PSBs) – Banks which are under the direct control of the Central government or of other

PSBs by 51% or more of ownership in capital.

3. State Level Public Enterprises (SLPEs) – Companies which are under the direct control of the State

Government or other SLPEs by 51% or more of ownership in capital.

Maharatna, Navratna and Miniratna Companies

The status of Maharatna, Navratna, or Miniratna to CPSEe is given by the Department of Public Enterprises to

Public Sector Enterprises according to their financial performance and growth. It provide them more autonomy

over financial and administrative matters.

10 Macroeconomics

Maharatna Company

A PSU needs to fulfill following parameters to be awarded the status of Maharatna Company:

i. it should be a Navratna company,

ii. it should have an average annual turnover of Rs20,000 crore during the last three years. The average annual

net worth should be Rs10,000 crore.

The Maharatna company‘s status empowers the board to take investment decisions up to Rs 5,000 crores as

against the previous limit of 1,000 crores, without seeking the approval of the government. The Maharatna

companies are free to decide on investment matters up to 15% of their net worth in a project.

List of Maharatna Companies

1. Bharat Heavy Electricals Limited

2. Bharat Petroleum Corporation Limited

3. Coal India Limited

4. GAIL (India) Limited

5. Hindustan Petroleum Corporation Limited

6. Indian Oil Corporation Limited

7. NTPC Limited

8. Oil & Natural Gas Corporation Limited

9. Power Grid Corporation of India Limited

10. Steel Authority of India Limited

Navratna Company

A PSU needs to fulfill following parameters to be awarded the status of Maharatna Company:

i. it should be a Miniratna category-1 company and having Schedule ‗A‘ status.

ii. it should have record of at least three ‗Excellent‘ or ‗very good‘ Memorandum of Understanding (MoU)

rating during the last five years.

Being a Navratna company empowers PSEs to invest up to 15% of their net worth or Rs1,000 crore on a single

project without asking for approvement of the government. In a year, a Navratna company can spend up to 30%

of their net worth not exceeding Rs 1,000 cr. A Navratna company has autonomy to enter into joint ventures, form

alliances and float subsidiaries abroad.

Currently there are 14 Navratna companies.

Miniratna Company

This category of CPSEs is further divided into two categories namely:

1. Miniratna category – I

To achieve the status of Miniratna Category-I status, the CPSE should have

i. made profit during the last three years continuously.

ii. Rs.30 crores or more as pre-tax profit in at least one year of the last three years

iii. a positive net worth.

There are 61 companies belonging to this category.

2. Miniratna category-II

To achieve the status of Miniratna Category-I status, the CPSE should have

i. made profit during the last three years continuously.

ii. a positive net worth.

There are 12 companies in this category.

National Manufacturing Policy 2020

In order to bring about a quantitative and qualitative change and to give necessary impetus to the manufacturing

sector, the Department for Promotion of Industry & Internal Trade (DPIIT) notified the National Manufacturing


Policy (NMP) with the objective of enhancing the share of manufacturing in GDP to 25% and creating 100

million jobs over a decade or so. The policy is based on the principle of industrial growth in partnership with the

States.

The policy envisages Industrial infrastructure development through the creation of large integrated industrial

townships called National Investment and Manufacturing Zones (NIMZs) with state-of-the-art infrastructure; land

use on the basis of zoning; clean and energy efficient technologies; necessary social and institutional

infrastructure in order to provide a productive environment to persons transitioning from the primary to the

secondary and tertiary sectors.

Government Initiatives

1. Make in India initiative with the primary goal of making India a global manufacturing hub.

2. Zero defect zero effect for MSMEs to deliver top quality products using clean technology.

3. Skill India – a multi-skill development programme with a mission for job creation and entrepreneurship.

4. Labour reforms through a dedicated Shram Suvidha Portal, Random Inspection Scheme, Universal Account

Number and Apprentice Protsahan Yojana.

5. Defence Procurement Policy (DPP) under which the priority will be given to the indigenously made defence

products.

6. Technology Acquisition and Development Fund (TADF) under the National Manufacturing Policy (NMP) to

facilitate acquisition of Clean, Green and Energy Efficient Technologies by MSMEs.

7. Pradhan Mantri MUDRA Yojana (PMMY) for providing loans to small-scale businesses.

III SERVICES

Services sector is the largest sector of India. It accounts for 54.40% of total India's GVA while Industry sector

contributes 29.73% and Agriculture and allied sector shares 15.87%.

It is worth mentioning that agriculture sector has maximum share by working force at near 53% while services

and secondary sectors shares are near 29% and 18% respectively.

In the National Income Accounting in India, service sector includes the following:

1. Trade, hotels and restaurants

2. Transport, storage and communication

i. Railways

ii. Transport by other means

iii. Storage

iv. Communication

3. Financing, Insurance, Real Estate and Business Services

i. Banking and Insurance

ii. Real Estate, Ownership of Dwellings and Business Services

4. Community, Social and Personal services

i. Public Administration and defense

ii. Health and other services

5. Education

6. Energy

7. Tourism etc.

The major services in most of the states are trade, hotels and restaurants, followed by real estate, ownership of

dwellings and business services.

The FDI inflows in service sector have mainly been into subsectors such as ‗Information & Broadcasting‘, ‗Air

Transport‘, ‗Telecommunications‘, ‗Consultancy Services‘ and ‗Hotel & Tourism‘.

12 Macroeconomics

ECONOMIC REFORMS

The reform process in India was initiated with the aim of accelerating the pace of economic growth and

eradication of poverty. The process of economic liberalization in India can be traced back to the late 1970s.

However, the reform process began in earnest only in July 1991.

First Generation Reforms (1991 onwards)

The economic reforms were initiated in India by the Narsimha Rao government in 1991 when India faced a severe

economic crisis due to external debt. This crisis happened largely due to inefficiency in economic management in

the 1980s. The revenues that the government was generating were not enough to meet the expenses.

To curb this crisis, India approached the World Bank and International Monetary Fund (IMF) and received loan to

manage the crisis. As a result of which, these international organizations expected India to open its door to trade

with other countries. Hence India adopted the LPG (Liberalisation, Privatisation & Globalization) reforms under the Economic Reforms.

The major reforms that were undertaken are:

i. Promotion to Private Sector

This included various important and liberalising policy decisions, i.e., ‗de-reservation‘ and ‗delicencing‘ of

the industries, abolition of the MRTP limit, abolition of the compulsion of the phased-production and

conversion of loans into shares, simplifying environmental laws for the establishment of industries, etc.

ii. Public Sector Reforms

The steps taken to make the public sector undertakings profitable and efficient, their disinvestment (token),

their corporatization, etc., were the major parts of it.

iii. External Sector Reforms

They consisted of policies like, abolishing quantitative restrictions on import, switching to the floating

exchange rate, full current account convertibility, reforms in the capital account, permission to foreign

investment (direct as well as indirect), promulgation of a liberal Foreign Exchange Management Act (the

FEMA replacing the FERA), etc.

iv. Financial Sector Reforms

Several reform initiatives were taken up in areas such as banking, capital market, insurance, mutual funds, etc.

v. Tax Reforms

This consisted of all the policy initiatives directed towards simplifying, broadbasing, modernising, checking

evasion,etc.

Second Generation reforms (2000–01 onwards)

The reforms India launched in the early 1990s were not taking place as desired and a need for another set of

reforms was felt by the governments, which were initiated with the title of the Second Generation of economic

reforms. These reforms were not only deeper and delicate, but required a higher political will power from the

governments. The major components of the reform are as given below:

i. Factor Market Reforms

It consists of dismantling of the Administered Price Mechanism (APM).

There were many products in the economy whose prices were fixed /regulated by the government, viz.,

petroleum, sugar, fertilizers, drugs, etc.

Though a major section of the products under the APM were produced by the private sector, they were not

sold on market principles which hindered the profitability of the manufacturers as well as the sellers and

ultimately the expansion of the concerned industries leading to a demand supply gap.

Under market reforms these products were to be brought into the market fold.


ii. Public Sector Reforms

The second generation of reforms in the public sector especially emphasizes on areas like greater functional

autonomy, freer leverage to the capital market, international tie-ups and Greenfield ventures, disinvestment.

iii. Reforms in Government and Public Institutions

This involves all those moves which really go to convert the role of the government from the ‗controller‘ to

the ‗facilitator‘ or the administrative reform, as it may be called.

iv. Legal Sector Reforms

Though reforms in the legal sector were started in the first generation itself, now it was to be deepened and

newer areas were to be included, such as, abolishing outdated and contradictory laws, reforms in the Indian

Penal Code (IPC) and Code of Criminal Procedure (CrPC), Labour Laws, Company Laws and enacting

suitable legal provisions for new areas like Cyber Law, etc.

v. Reforms in Critical Areas

The second generation reforms also commit to suitable reforms in the infrastructure sector (i.e., power, roads,

especially as the telecom sector has been encouraging), agriculture, agricultural extension, education and

healthcare, etc. These areas have been called by the government as ‗critical areas‘.

Third Generation reforms

Announcement of the third generation of reforms were made on the margins of the launching of the Tenth Plan

(2002–07).

This generation of reforms commits to the cause of a fully functional Panchayati Raj Institution (PRIs), so that the

benefits of economic reforms, in general, can reach to the grassroots.

Though the constitutional arrangements for a decentralized developmental process were already effected in the

early 1990s, it was in the early 2000s that the government got convinced of the need of ‗inclusive growth and

development‘.

Till the masses are not involved in the process of development, the development will lack the ‗inclusion‘ factor; it

was concluded by the government of the time.

Fourth Generation reforms

This is not an official ‗generation‘ of reform in India. Basically, in early 2002, some experts coined this

generation of reforms which entail a fully ‗information technology-enabled‘

They hypothesized a ‗two-way‘ connection between the economic reforms and the information technology (IT),

with each one reinforcing the other.

Various committees were set up to recommend and introduce reforms in various sectors of Indian economy:

Narsimham Committee I

The Narasimham Committee was established under former RBI Governor M. Narasimham in August 1991 to

look into all aspects of the financial system in India. Some of the recommendations of the committee are:

i. Establishment of 4 tier hierarchy for banking structure with 3 to 4 large banks (including SBI) at the top and

at bottom rural banks engaged in agricultural activities.

ii. A phased reduction in statutory liquidity ratio.

iii. Phased achievement of 8% capital adequacy ratio. Capital Adequacy ratio is the ratio of minimum capital to

risk asset ratio.

iv. Proper classification of assets and full disclosure of accounts of banks and financial institutions.

v. Deregulation of Interest rates.

Chelliah Committee

Raja Chelliah headed the Tax Reforms Committee. The recommendations of the committee aimed to raise

revenue through better compliance in case of income tax and excise and customs duties, and make the tax

structure stable and transparent.

14 Macroeconomics

Malhotra Committee

In 1993, the Government set up a committee under the chairmanship of RN Malhotra, former Governor of RBI, to

propose recommendations for reforms in the insurance sector. It recommended permission to the private sector to

enter the insurance industry. They stated that foreign companies be allowed to enter by floating Indian companies,

preferably a joint venture with Indian partners.

S. S. Tarapore Committee

RBI appointed a Committee on capital account convertibility headed by S.S.Tarapore, Deputy Governor of RBI,

in the year 1997, to review the international experience in relation to capital account convertibility, recommended

measures for achieving capital account convertibility.

Narsimham Committee II

In 1998 the government appointed yet another committee under the chairmanship of Mr Narsimham. It is better

known as the Banking Sector Committee. It was told to review the banking reform progress and design a

programme for further strengthening the financial system of India.

It submitted its report to the Government in April 1998 with the following recommendations.

i. The committee considered the stronger banking system in the context of the Current Account

Convertibility ‗CAC‘.

ii. it recommended ‗Narrow Banking Concept‘ where weak banks will be allowed to place their funds only

in the short term and risk-free assets to counter problem of the Non-performing assets (NPAs).

iii. In order to improve the inherent strength of the Indian banking system the committee recommended that

the Government should raise the prescribed capital adequacy norms.

Nachiket Mor committee

The Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households, set up

by the RBI in September 2013, was mandated with the task of framing a clear and detailed vision for financial

inclusion and financial deepening in India.

Dr. Arvind Mayaram Committee

In 2014, the government accepted the report of the committee headed by Finance Secretary Arvind Mayaram. The

committee recommended that a foreign investment of 10% to be treated as FDI.

The Lingam Committee and Chelliah Committee recommended simplification of the tax system in India.

Income tax returns have been made simple and handy. Several measures have been taken to live up to the criterion

of convenience viz. self assessment advance payment of tax, deduction of tax at source, assessment on the basis of

return submitted etc.


FOREIGN DIRECT INVESTMENT

Any investment from an individual or firm that is located in a foreign country into a country is called Foreign

Direct Investment. Under FDI, a foreign entity acquires ownership or controlling stake in the shares of a company

in one country, or establishes businesses there. It is different from foreign portfolio investment where the foreign

entity merely buys equity shares of a company.

In FDI, the foreign entity has a say in the day-to-day operations of the company.

FDI is not just the inflow of money, but also the inflow of technology, knowledge, skills and expertise/know-how.

FDI Routes

There are two routes through which FDI flows into India.

1. Automatic Route FDI

In the automatic route, the foreign entity does not require the prior approval of the government or the RBI.

2. Government Route FDI

Under the government route, the foreign entity should compulsorily take the approval of the government. It

should file an application through the Foreign Investment Facilitation Portal, which facilitates single-window

clearance. This application is then forwarded to the respective ministry or department, which then approves or

rejects the application after consultation with the Department for Promotion of Industry and Internal Trade

(DPIIT).

Sectors where FDI is prohibited

There are some sectors where any FDI is completely prohibited. They are:

1. Agricultural or Plantation Activities (although there are many exceptions like horticulture, fisheries, tea

plantations, Pisciculture, animal husbandry, etc.)

2. Atomic Energy Generation

3. Nidhi Company

4. Lotteries (online, private, government, etc.)

5. Investment in Chit Funds

6. Trading in TDR‘s

7. Any Gambling or Betting businesses

8. Cigars, Cigarettes, or any related tobacco industry

9. Housing and Real Estate (except townships, commercial projects, etc.)

New FDI Policy

According to the new FDI policy, an entity of a country, which shares a land border with India or where the

beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under

the Government route.

The earlier FDI policy was limited to allowing only Bangladesh and Pakistan via the government route in all

sectors. The revised rule has now brought companies from China under the government route filter.

Largest FDI Inflows

FDI equity inflows in India stood at US$ 30.0 billion in 2020-21 (between April 2020 and September 2020).

Data for 2020-21 indicates that computer software and hardware sector attracted the highest FDI equity inflows of

US$ 17.55 billion, followed by the service sector at US$ 2.25 billion, trading at US$ 949 million and chemicals

(other than fertilisers) at US$ 437 million.

In 2020-21 (between April 2020 and September 2020), India received the maximum FDI equity inflows from

Singapore (US$ 8.30 billion), followed by the US (US$ 7.12 billion), Cayman Islands (US$ 2.10 billion),

Mauritius (US$ 2.0 billion), the Netherlands (US$ 1.49 billion) and the UK (US$ 1.35 billion).

In 2020-21 (between April 2020 and September 2020), Gujarat received the maximum FDI equity inflows of US$

16.0 billion, followed by Maharashtra at US$ 3.61 billion, Karnataka at US$ 3.66 billion and Delhi at US$ 2.66

billion.

16 Macroeconomics

INFLATION

Inflation measures the average change in price of a basket of goods and services over a period of time. It indicates

a decrease in the purchasing power of the country‘s currency and may lead to a decelerated economic growth.

In India inflation is measured by Wholesale Price Index (WPI) and Consumer Price Index (CPI) which measures

wholesale and retail level price changes respectively.

WPI

It measures the change in wholesale prices on weekly basis. But since 2009 it has been made monthly. The index

covers 697 items with base year 2011-12.

In calculating the index, 65% weightage is accorded to manufactured products, 1% to primary articles and 14.9%

to fuel and lubricants.

CPI

Consumer Price Index in India is published monthly by the Central Statistical Organization (CSO). Consumer

Price Indices (CPI) measure changes over time in the general level of prices of goods and services that households

acquire for consumption.

Various CPIs calculated are:

i. CPI for Industrial Workers

ii. CPI for Agricultural Labourers

iii. CPI for Rural Labourers

iv. CPI (Rural/Urban/Combined)

The base year for CPI is 2012.

Headline Inflation and Core Inflation

Headline Inflation is the total inflation for the period comprising a basket of goods. India uses CPI as the measure

of headline inflation.

Core Inflation is calculated by excluding food and fuel items from headline inflation. Food and fuel are volatile

commodities and their prices fluctuate frequently. Thus, with the removal of food and fuel, the core inflation

becomes a more stable measure.

POPULATION

THEORY OF DEMOGRAPHIC TRANSITION

Theory of Demographic Transition explains the growth of population through three different stages of economic

development.

First Stage

This stage relates to the most backward stage of the country. Both birth and death rates are high in this stage. The

birth rate is high due to widespread illiteracy, early marriages, absence of the knowledge of family planning

methods etc. The death rate is high on account of poverty, malnutrition, absence of medical facilities etc.

Second Stage

This stage relates to the developing stage of a country when resources are utilised and industrial development sets

in. Birth rate continues to remain high as social customs and belief take a long time to change. Moreover, mass

illiteracy and poverty contribute to high birth rate. Death rate significantly falls due to improved medical

facilities, fall in infant mortality rate, better standard of living etc. A high birth rate matched with falling death

rate causes a rapid increase in population and thus this stage is known as the stage of Population Explosion.

Third Stage

The third stage relates to a developed country. During this stage the character of the economy changes from

agrarian to industrial. The birth rate falls sharply due to universal literacy, use of family planning methods and


high standard of living. The death rate remains low due to improved and advanced medical facilities. The net

result of this is that the population grows at a very slow rate.

During 1901-11, the growth rate of population was 5.74% over the decade. The rate of growth during this decade

was 0.56% p.a. During the decade from 1911 to 1921, the rate of growth was negative due to famines and

epidemics. But after 1921, the population has been continuously increasing; due to this the year 1921 is called the

Great Dividing Year or the Year of Great Divide.

POVERTY

In India, the most commonly used method to estimate poverty is through the measurement of income and

consumption levels.

A person is considered poor if his/her income level falls below a minimum level. This minimum level is known as

the ‗poverty line‘.

The Poverty Line calculation is now carried out by the NITI Aayog based on the data collected by the National

Sample Survey Office (NSSO).

Even though both income and consumption levels are measured while identifying the poor in India, its

consumption expenditure that is taken primarily into account because of the following reasons:

i. Fluctuation in income: Income of those who are daily wage labourers, contract workers etc, vary factoring in

the availability of work and the income offered although the consumption pattern is comparatively much

stable

ii. Additional Income: It‘s not always necessary that daily wage labourers or contract employees will have a

single source of income. There will be other avenues from which they can earn their wages and this will be

difficult to take into account

iii. Collection of Data: Sample-based surveys use a reference period of 30 days when estimating a consumption

level of a household and are taken as the representation of a general consumption pattern as tracing the

income pattern is not possible.

Poverty estimation in India is important for the following reasons:

i. To Measure the Impact of Welfare Schemes: It is important to estimate poverty as it helps to keep track of

the impact and success of various government schemes that have been introduced to eliminate poverty. In

addition, these schemes can be tweaked to address any shortcomings if any.

ii. Its a part of a Poverty Elimination of Plan: The poverty estimates are used to formulate new plans that will

ensure the elimination of poverty from the society.

iii. It’s a Constitutional Requirement: As the Constitution of India promises a just and equitable society,

estimation of poverty paves the way for such a society as it helps in identifying the vulnerable sections of

society an easy task.

The following are the data collection methods used to identify the poor in India

i. Uniform Resource Period (URP): From 1993 -1994, the poverty line was based on a Uniform Resource

Period, which involved asking people about their consumption expenditure across a period of over 30-days

ii. Mixed Reference Period (MRP): From 2000 onwards, the NSSO relied on an MRP method which measured

consumption of five-low frequency items over a period of 30 days. These items are clothing, durables,

education and institutional health expenditure.

Relative Poverty

Relative poverty is the poverty measured in relation to the distribution of income or consumption expenditure.

The concept of relative poverty is more relevant for the developed countries. It can be measured by the concept of

Lorenz Curve and Gini Coefficient.

18 Macroeconomics

Absolute Poverty

Absolute poverty is the poverty measured in absolute terms and not in relation to the distribution of income or

consumption expenditure. Absolute poverty is measured by laying some minimum standards of living. The

concept of Absolute Poverty is relevant in less-developed countries.

In India, the concept of absolute poverty is used to measure poverty. It is measured by the concept of Poverty

Line, which lays down the minimum level of consumption standard.

Earlier estimates of poverty line were based on recommendations of various committees set up for the purpose.

Some of these are:

i. Alagh Committee (1979)

ii. Lakadwala Committee (1993)

iii. Tendulkar Committee (2009)

iv. C. Rangarajan Committee (2012)

List of Poverty Alleviation Programmes in India

1. Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) – 2005

2. National Rural Livelihood Mission – 2011

3. National Urban Livelihood Mission – 2013

4. Pradhan Mantri Jan Dhan Yojana – 2014

5. Pradhan Mantri Jeevan Jyoti Bima Yojana – 2015

6. Pradhan Mantri Ujjwala Yojana (PMUY) – 2016

7. National Nutrition Mission (NNM), Poshan Abhiyan – 2018

8. Prime Minister Street Vendor‘s AtmaNirbhar Nidhi – PM SVanidhi – 2020

UNEMPLOYMENT

In India, unemployment is mainly structural. The urban unemployment in India is industrial unemployment and

educated unemployment. Industrial unemployment occurs when industrial sector of the economy fails to absorb

the increasing labour force, while educated unemployment occurs when large number of educated people remains

unemployed, as they do not get jobs in accordance with their qualification.

The rural unemployment in India is seasonal and disguised in nature. Seasonal unemployment occurs when a

large number of small and marginal farmers do not get employment during the off-season and disguised

unemployment occurs when people appear to be employed but does not add anything to the production. There is

disguised unemployment to the extent of approximately one-third of the India‘s work force.

According to Nurksey, the developing countries are entrapped into vicious circle of poverty which is reflected

into low incomes, low savings, low purchasing power, low investment, low capital accumulation, low

productivity and again, low incomes etc. In this connection, Prof. Nurksey writes that in UDCs, there exists

disguised unemployment on the supply side which is 20% to 30% of the total agricultural manpower. This

unemployment can be used for capital formation. When such unemployed are put into different projects the

process of capital formation and development will start. Thus, the disguised unemployed of agricultural sector can

be used for capital formation and economic development.

Labour Force

It refers to the proportion of the population aged between 15–64 years that is economically active i.e. all people

who supply labor for the production of goods and services during a specified period. This comprises those who

are either working or available for work producing goods or services of economic value.

Labour Force Participation Rate (LFPR) is defined as the number of persons in labour force per 1,000 persons.


Work Force

Work force is the part of labour force that is employed in production of goods and services. Work Force

Participation Rate (WPR) is the number of employed persons per 1,000 persons.

Rate of Unemployment or Unemployed Rate

It refers to the number of unemployed persons per 1,000 persons in the labour force.

Measures of Unemployment

1. Usual Status (US)

In this context, unemployment is measured through the employment status of an individual during a reference

period of one year. This measure considers a person as unemployed if he or she is out of work for a period of

more than six months. Thus this measure estimates the number of persons chronically unemployed. This measure

generally provides low estimates of unemployment as only a few people remain unemployed for a long period.

2. Current Weekly Status (CWS)

The reference period for which the data is collected under this measure is one week. According to this measure, a

person is considered working or employed for the week if the person was engaged for at least one hour on any one

day on any work related (economic) activity during the reference period of seven days preceding the date of

survey.

3. Current Daily Status (CDS)

The reference period for this measure is one day. A person is considered working for the entire day if he had

worked four hours (half-day) or more on any day of the reference week preceding the date of survey. It has been

stated by the Planning Commission 2001 that the CDS measure is widely agreed to be the one that fully captures

open unemployment in the country.

Government Initiatives to control Unemployment

i. MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) – launched in 2005 providing

the right to work to people. It aimed to provide social security by guaranteeing a minimum of 100 days paid

work per year to all the families whose adult members opt for unskilled labour-intensive work.

ii. PMKVY (Pradhan Mantri Kaushal Vikas Yojana) – launched in 2015 with an objective of enabling the

youth of the country to take up industry-relevant skill training in order to acquire a secured better livelihood.

iii. Start-Up India Scheme (2016) – The aim of Startup India programmes was to develop an ecosystem that

nurtures and promotes entrepreneurship across the nation.

iv. National Skill Development Mission (2014) – to drive the ‗Skill India‘ agenda in a ‗Mission Mode‘ in order

to converge the existing skill training initiatives and combine scale and quality of skilling efforts, with speed.

COMMERCIAL BANKS & RBI

The banks which have been included in the Second Schedule of RBI Act, 1934 are called Scheduled Banks. These

include all the public sector, private sector and foreign banks.

The banks which are not included in the Second Schedule of RBI Act, 1934 are called Non-scheduled Banks.

These include the local area banks.

Owing to various shortcomings of the banking system, government announced nationalisation of 14 major banks

in July 1969. Six more banks were nationalised in 1980.

The RBI was set up in April 1935, with its central office at Calcutta, under the Reserve Bank of India Act, 1934

as a private shareholders‘ bank with some subscription from government to enable those nominated by the

government to be directors. The bank was later nationalised in 1949.

Presently the RBI is the apex institution at the top of the Indian banking structure.

20 Macroeconomics

M3 is the most popular and essential measure of the money supply. The monetary committee headed by late Prof

Sukhamoy Chakravarty recommended its use for monetary planning in the economy. M3 is also called Aggregate

Monetary Resource

List of Mergers of Banks

2017

State Bank of India absorbed five of its associates and the Bharatiya Mahila Bank

The associate banks are State Bank of Bikaner and Jaipur (SBBJ), State Bank of Mysore (SBM), State Bank of

Travancore (SBT), State Bank of Hyderabad (SBH) and State Bank of Patiala (SBP).

April 2019

Vijaya Bank and Dena Bank merged with Bank of Baroda (BoB)

June 2019

1. Oriental Bank of Commerce (OBC), and United Bank of India merged with Punjab National Bank (PNB)

2. Syndicate Bank merged with Canara Bank

3. Andhra Bank and Corporation Bank merged with Union Bank of India

4. Allahabad Bank merged with Indian Bank

After the merger, the ranking of Public Sector Banks according to their business size is as follows:

1. State Bank of India (SBI)

2. Punjab National Bank (PNB)

3. Bank of Baroda

4. Canara Bank

5. Union Bank of India

6. Bank of India

7. Indian Bank

8. Central Bank of India

9. Indian Overseas Bank

10. UCO Bank

11. Bank of Maharashtra

12. Punjab & Sind Bank

BALANCE OF PAYMENTS

Balance Of Payment (BOP) is a statement which records all the monetary transactions made between residents of

a country and the rest of the world during any given period.

BOP statement of a country indicates whether the country has a surplus or a deficit of funds i.e when a country‘s

export is more than its import, its BOP is said to be in surplus. On the other hand, BOP deficit indicates that a

country‘s imports are more than its exports. The transactions under BOP are similar to the double entry system of

accounting. This means, all the transaction will have a debit entry and a corresponding credit entry.

The BoP account mainly consists of the current account and the capital account.

The current account includes the transaction of goods, services, primary income, and secondary income

between the residents and the rest of the world. The current account balance is largely driven by the movement of goods and services i.e. the export and imports of goods.

The capital account comprises credit and debit transactions under non-produced non-financial assets and

capital transfers between residents and non-residents. Thus, acquisitions and disposals of non-produced non-


financial assets, such as land sold to embassies and sales of leases and licenses, as well as transfers which are

capital in nature, are recorded under this account.

RBI publishes the balance of payments data every quarter, in two formats, an old format and a BPM6 format as recommended by the IMF.

The IMF accounting standards of the BOP statement divides international transactions into three accounts: the

current account, the capital account, and the financial account, where the current account should be balanced by

capital account and financial account transactions. But, in countries like India, the financial account is included in the capital account itself.

Current Account Deficit

India's current account balance recorded a deficit of 0.2% of GDP in Q3FY2021 after a surplus of 2.4% of GDP in Q2FY2021 and 3.7% of GDP in Q1FY2021;

A deficit of 0.4% of GDP was recorded a year ago [i.e. Q3FY2020].

PREVIOUS YEARS’ QUESTIONS

Tick the correct option.

2010

1. Public enterprises in India have developed in :

A Key and basic industries B Consumer industries

C Service industries D All types of industries

2. Occupational structure refers to the :

A Number of people living in a country

B Size of working force in a country

C Distribution of working force among the different occupations

D Occupations available in a country

3. The theory of demographic transition postulates a three-stage sequence of birth and death rates as typically

associated with economic development. Population explosion occurs in the second stage when :

A High birth rate meets with high death rates B Low birth rate meets with low death rates

C Low birth rate meets with high death rates D High birth rate meets with low death rates

4. Small scale industries are immensely suited to India‘s economic environment because these industries :

A Lead to decentralization of economic activities B Make possible the use of latent resources

C Are import light and skill light D All of the above

5. The largest share of savings in India accrues from :

A The household sector B The private corporate sector

C The government sector D None of the above

2011

6. In a regressive tax system :

A The amount of tax paid increase with income

B The marginal rate of tax decreases with more income

C The average rate of tax falls as income increases

D The average rate of tax is constant as income increases

7. Incremental Capital-Output Ratio (ICOR) is defined as :

A Increment in output/increment in capital

22 Macroeconomics

B Increment in capital/increment in output

C Increment in income/increment in consumption

D Increment in saving/increment in consumption

8. Who was suggested the utilization of ―disguised unemployment‖ as a source of savings potential in

underdeveloped counties?

A Ragnar Nurkse B W.A. Lewis C K.K. Kurihara D G. Myrdal

9. Capital formation means :

A Addition to the stock of capital goods

B Replacement of capital goods used in the process of production

C Employment of the capital goods in the process of production

D Consumption of fixed capital

2012

10. The second phase of banking sector reforms were initiated in India in the year :

A 1998 B 1995

C 1951 D 1985

11. Economic reforms have failed to :

A Fully deregularize B Fully open the economy to trade

C Achieve fiscal discipline D All of the above

2013

12. The core values of development are :

A Sustenance B Self esteem

C Freedom from servitude D All of the above

13. The macroeconomic reforms in India started in :

A 1990 B 1991 C 1992 D 1993

14. The service sector consists of :

A Agriculture B Industry C Manufacturing D None of the above

15. Land reform measures include :

A abolition of intermediaries B tenancy reforms

C ceiling on land holdings D All of the above

16. Mahalanobis model was used in in :

A first 5-year plan B second 5-year plan

C third 5-year plan D None of the above

17. Food management implies :

A procurement of food B distribution of food

C maintenance of food buffers D All of the above

2014

18. Economic development implies :


A Rise in output B Technological changes

C Institutional organization of production D All of the above

19. The foreign exchange crises in India occurred in :

A 1990 B 1980 C 1985 D 1991

20. The Macroeconomic reforms in India started in :

A 1990 B 1991 C 1992 D 1993

21. The service sector consist of :

A Agriculture B Industry

C Manufacturing D None of the above

22. Structural reforms were broadly in the area of :

A Industrial licensing B Foreign trade

C Financial sector D All of the above

2015

23. First nationalization of commercial banks took place in the year :

A 1969 B 1970 C 1968 D 1971

24. Malhotra Committee recommendations were for :

A Banking B Insurance

C Mutual funds D Non-banking financial corporation

25. First Five Year Plan stressed on :

A Agriculture B Industry

C Services D Export

26. Micro finance is :

A Credit to poor B Loan without collateral

C Based on social capital D All of the above

27. RBI was established in :

A 1935 B 1940 C 1947 D 1950

28. Which of the following sectors has the largest share in India‘s GDP?

A Industry B Agriculture C Services D Textiles

29. The state having the largest area of forest cover in India is :

A Assam B Maharashtra

C Kerala D Madhya Pradesh

30. Which institution has replaced planning Commission in India?

A Central Information Commission B National Knowledge Commission

C NITI Aayog D Finance Commission

31. The Second Five Year Plan of India was based on which of the following models?

A Mahalanobis model B Wage-goods model

C Theocratic model D EPRG framework

32. In terms of FDI inflows, which is the top investing country in India?

A USA B Singapore

C UK D Mauritius

24 Macroeconomics

2016

33. Which of these is a direct tax?

A VAT B Custom Duty

C Income Tax D Excise duty

34. The annual yield from which of the following Union Government taxes is the highest?

A Custom duties

B Excise duties

C Corporation tax and income tax

D Inheritance tax, wealth tax, interest tax and gift tax

35. In India, inflation is measured by the :

A Consumers Price Index for urban non-manual workers

B Consumers Price Index for agricultural workers

C Wholesale Price Index number

D National Income Deflation

36. In India, rural incomes are generally lower than the urban incomes, which of the following reasons account

for this?

I. A large number of farmers are illiterate and know little about scientific agriculture

II. Prices of primary products are lower than those of manufactured products

III. Investment in agriculture has been low when compared to investment in industry

Select the correct option

A I & II B I, II & III C I & III D II & III

37. Non-development expenditure involves :

I. interest payments

II. subsidies

III. defense

IV. irrigation

Select the correct option :

A I & II B I only C II, III, IV D I, II, III

2017

38. RBI was fully owned by Government in the year :

A 1959 B 1969 C 1965 D 1949

39. Narsimham Committee recommended to make banking structure of the country

A Two tier B Three tier C Four Tier D Five tier

40. Tenancy reforms included measures like :

A Regulation of rent B Cooperative farming

C Abolition of intermediaries D Redistribution of land

2020

41. How much health and educational cess in 2019 has been imposed by the government on all union taxes?

A 1% B 4% C 3% D 5%


42. Who recommends the Minimum Support Price (MSP) fixed by the government?

A Ministry of Finance B CACP

C Empowered group of Ministers D Minister of Agriculture

43. Identify the correct relationship between Marginal Standing Facility Rate (MSF), Repo rate (RR) and Reverse

Repo Rate (RRR)

A MSF > RR > RRR B MSF < RR < RRR

C MSF > RRR > RR D RRR > MSF > RR

44. The Asset Management Company managing Bharat ETF 22 is

A Bajaj Allianz B ICICI Prudential

C Axis D DHFL

45. Smart Metering System will be used for measuring

A Smart cities in meters B Consumption of electric energy

C Food intake by individuals D Consumption of energy fuels

46. The 2019 Ease of Doing Business Ranking in India is

A 60 B 66 C 69 D 63

26 Macroeconomics

ANSWER KEY

1 A 2 C 3 D 4 D 5 A 6 C 7 B 8 A 9 A 10 A

11 D 12 D 13 B 14 D 15 D 16 B 17 D 18 D 19 A 20 B

21 D 22 D 23 A 24 B 25 A 26 D 27 A 28 C 29 D 30 C

31 A 32 B 33 C 34 B 35 * 36 B 37 D 38 D 39 C 40 C

41 B 42 B** 43 A+

44 B 45 B 46 D

* In India inflation is measured using WPI and CPI (Combined)

** CACP stands for Commission for Agricultural Costs and Prices

+ MSF = a window for banks to borrow from the Reserve Bank of India in an emergency when inter-bank

liquidity dries up completely. The Marginal standing facility is a scheme launched by RBI while reforming

the monetary policy in 2011-12.

problems of indian economy - mcomentrance.com

Documents