Indian Economy — UPSC Notes | Exam-Ki-Aisi-Ki-Taisi.com

Topics Covered

1. National Income 2. Fiscal Policy 3. Monetary Policy 4. Banking 5. International Trade 6. Poverty & Schemes

National Income Concepts

Key Definitions

GDP: Market value of all final goods/services produced within a country in a year
GNP: GDP + Net factor income from abroad
NDP: GDP – Depreciation
NNP: GNP – Depreciation
National Income (NNP at factor cost): NNP – Net indirect taxes
Per Capita Income: National Income / Total Population

Measurement Methods

1. Value Added Method (Production Method): Sum of value added at each stage
2. Income Method: Sum of factor incomes (wages, rent, interest, profit)
3. Expenditure Method: GDP = C + I + G + (X-M) [consumption + investment + government + net exports]

Current Context

India is the 5th largest economy by nominal GDP (2024). India uses GDP at market prices as main indicator. Base year for national income calculation: 2011-12. CSO (now NSO under MOSPI) calculates national income.

Fiscal Policy

Union Budget

Annual Financial Statement (Art. 112 of Constitution). Presented on 1st February (since 2017). Budget Division under Department of Economic Affairs handles it.

Budget Concepts

Revenue Budget: Revenue receipts (taxes + non-tax) and Revenue expenditure (salaries, subsidies, interest)
Capital Budget: Capital receipts (borrowings, disinvestment) and Capital expenditure (infrastructure, loans)
Revenue Deficit: Revenue expenditure – Revenue receipts
Fiscal Deficit: Total expenditure – Total receipts (excluding borrowings) — key indicator of govt borrowing
Primary Deficit: Fiscal Deficit – Interest payments

Types of Taxes

Type	Examples	Who Levies
Direct Tax	Income Tax, Corporate Tax, Capital Gains Tax	Central Govt (CBDT)
Indirect Tax (GST)	CGST, SGST, IGST	Centre + States jointly
Customs Duty	Import/Export duty	Central Govt (CBIC)

GST — 101st Constitutional Amendment

Implemented 1 July 2017. One Nation, One Tax. 4 slabs: 0%, 5%, 12%, 18%, 28%. GST Council (Art. 279A) chaired by Union Finance Minister. Dual GST: Centre + State share revenues.

Monetary Policy

Key RBI Rates (approximate, check for current)

Repo Rate: Rate at which RBI lends to commercial banks (short-term)
Reverse Repo Rate: Rate at which RBI borrows from commercial banks
CRR (Cash Reserve Ratio): % of deposits banks must keep with RBI in cash
SLR (Statutory Liquidity Ratio): % of deposits in liquid assets (gold, govt securities)
MSF (Marginal Standing Facility): Emergency overnight borrowing at repo + 0.25%

Monetary Policy Committee (MPC)

Constituted under RBI Act. 6 members: 3 RBI officials (Governor chairs) + 3 external members appointed by Govt. Meets every 2 months. Target: CPI inflation 4% ± 2% (2–6% band).

Inflation Types

Index	Full Form	Base Year	Measures
WPI	Wholesale Price Index	2011-12	Price at wholesale level; 697 commodities
CPI	Consumer Price Index	2012	Retail price; 299 commodities; used by MPC
CPI-IW	Industrial Workers	2016	Labour Bureau; DA calculation for govt employees

Banking & Finance

Financial Regulators

Regulator	Full Form	Regulates
RBI	Reserve Bank of India	Banks, NBFCs, monetary policy, currency
SEBI	Securities and Exchange Board of India	Capital markets, stock exchanges, mutual funds
IRDAI	Insurance Regulatory and Development Authority	Insurance sector
PFRDA	Pension Fund Regulatory and Development Authority	Pension sector, NPS
IBBI	Insolvency and Bankruptcy Board of India	Insolvency resolution (IBC 2016)

Development Finance

NABARD, SIDBI, NHB, EXIM Bank

NABARD: Agricultural and rural development finance; apex bank for rural credit
SIDBI: Small Industries Development Bank — MSME finance
NHB: National Housing Bank — housing finance
EXIM Bank: Export-Import Bank — foreign trade financing

International Trade

Balance of Payments

BOP Components

Current Account: Trade in goods (visible), trade in services (invisible), transfers (remittances)
Capital Account: FDI, FPI, external borrowings, NRI deposits
Current Account Deficit (CAD) = India typically runs a deficit; oil imports are biggest contributor

FDI vs FPI

FDI: Foreign Direct Investment — ≥10% equity stake; long-term; creates jobs
FPI (FII): Foreign Portfolio Investment — stock/bond purchases; short-term; "hot money"
India's FDI routes: Automatic route (no approval needed), Approval route (Govt approval needed)

Poverty, Inequality & Government Schemes

Poverty Measurement

Key Committees & Lines

Tendulkar Committee (2009): Rs. 27/day urban, Rs. 22/day rural — poverty line
Rangarajan Committee (2014): Higher estimates — Rs. 47/day urban, Rs. 32/day rural
Multidimensional Poverty Index (NITI Aayog, UNDP): Health, Education, Living standards

Important Government Schemes

Scheme	Ministry	Purpose
PM-KISAN	Agriculture	Rs. 6000/year to small farmers (direct benefit transfer)
MNREGA	Rural Development	100 days employment guarantee to rural households
PM Awas Yojana	Housing	Housing for all — urban and rural
Jan Dhan Yojana	Finance	Financial inclusion — zero-balance bank accounts
Ayushman Bharat	Health	Rs. 5 lakh health cover to 50 crore poor beneficiaries
Startup India	Commerce	Promote entrepreneurship; tax exemption, fast registration
Make in India	Commerce	Promote manufacturing; FDI attraction
Digital India	Electronics & IT	Digital infrastructure, internet connectivity, e-governance

Economic Survey & Budget — Key Points to Remember

Economic Survey is presented before Union Budget; authored by Chief Economic Adviser (CEA). Finance Commission (set up every 5 years) recommends tax devolution between Centre and States. NITI Aayog replaced Planning Commission in 2015; has no constitutional status; prepares 15-year Vision Document, 7-year Strategy, 3-year Action Agenda.