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GLOSSARY
1
Gross Domestic Product
Total money value of all final goods &
services manufactured within the
country in one year.
Annual value of goods sold and services
paid for inside a country
2
Nominal & Real GDP
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Nominal GDP measures the value of all the
goods and services produced and expressed
at
current prices.
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Real GDP measures the value of all the
goods and services produced expressed at
the
prices of some base year
3
Different ways of arriving @ GDP

GDP at Constant Prices

GDP at Current Prices

Calculated at constant prices to know
“real growth”
4
Gross National Product
(GNP)
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GNP = GDP + Income accruing to domestic
residents from investments abroad – income
earned by foreigners in the country.
ú
Annual value of goods and services in a country
including income from other countries
5
National Income
V
Sum of total incomes of normal residents of a
country before deduction of direct taxes.
V
To calculate total income, add all payments
for
the use of factors of production , like wages,
salaries, profits & net income from abroad.
6
Per Capita Income
Income per head =
National Income
Population
• Average income of one person.
7
Inflation
Excess Demand in the economy
 High costs
 Increase in money supply
 More money chasing fewer goods
 Rise in prices, purchasing power of money
decreases
 High interest rates tend to increase inflation
 Zimbabwe classic case of gallopping
inflation
8
currency scrapped

INDICATORS OF ECONOMY
Poverty Line
F
Consumption expenditure required for getting
2100 calories per person in urban area and
2400 calories in rural areas.
F
Key parameters
F
F
No. of people BPL
% of population BPL
(Conti…)
9
F
Orissa highest percentage of BPL population
F
Some poverty zones are BIMARU and the KBK
belt in Orissa.
The BPL percentage in India differs according to
the methodology adopted.
F
10
INDICATORS OF ECONOMY
HDI - HUMAN DEVELOPMENT INDEX
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Developed by UNDP in 1996.
Measures physical quality of life in a country along
with 3 key parameters
Life expectancy at birth
No. of years in school
Per capita income
HDI 2009 – India at 134 (182 countries ranked)
HDI 2009 No. 1 is Norway
Niger ranked at 182
11
INDICATORS OF ECONOMY
WPI - WHOLESALE PRICE INDEX
F
F
F
F
F
Measures increase/decrease in industrial,
commercial prices of commodities under
3 broad categories.
Primary articles – 98 items
Fuel, power etc., – 19 items
Manufactured products – 318 items
Certain weightage to each category of
commodities
12
WPI – II
v
v
v
v
v
v
Base year – 1993 – 94
Used for calculating INFLATION.
WPI no longer a true indicator of inflation as it may
not reflect ground reality
The basket of commodities may be outdated
New series introduced from April 1st, 2000
435 commodities in the new series; as against 447
in the old series.
13
INDICATORS OF ECONOMY
CPI – CONSUMER PRICE INDEX



Calculates increase/decrease in retail price
Direct bearing on consumers
Different types of CPIs for



agricultural laborers
industrial workers
urban non-manual employee
14
FOREIGN DIRECT INVESTMENT
(FDI)

FDI supplements domestic investment

The investment made to acquire long term benefits
in enterprises operating outside the economy of
the investor

The FDI relationship consists of a parent
enterprise and a foreign affiliate which together
form a transnational corporation

Mauritius, Singapore and USA are the three biggest
sources of FDI
(Conti…)
15
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
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
FDI involves bringing scarce capital, technology
and managerial expertise
FDI creates jobs
FDI barred at present in retail trading except single
brand product retailing
FDI restricted to 26% in print media relating to
news and current affairs
FDI restricted to 26% in insurance and defence
16
Foreign Institutional Investor
(FII)
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FII means an entity established or
incorporated outside India which
proposes to
make investment in the financial markets
in
India
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FII is not stable money
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Unlike FDI the focus of FII is on making
17
Real & Nominal
Interest Rates
Real interest rate = Nominal interest
rate – rate of inflation
18
Key indicators of banking sector
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CRR Minimum 3% Maximum 20%
SLR Minimum 24% Maximum 40%
Cash Reserve Ratio (CRR) – 5%
Statutory Liquidity Ratio (SLR) – 25%
Bank Rate – 6%
Repo Rate – 4.75%
Reverse Repo Rate – 3.25%
(Conti…)
19
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Bank Rate is for a longer period say 6
months
to one year
Repo and reverse repo rates are for the
short
term. They are used to either increase
money
supply or mop up excess liquidity
Repo and reverse repo have now assumed
more importance than BR
PLR is benchmark rate
ú Concept of BPLR under scrutiny
20
FOREX
F
F
F
F
F
F
F
F
Exchange control
Fixed Exchange rates
Free/Floating exchange rates
Depreciation/appreciation
Devaluation
India’s forex reserves more than $120 billion
invested mostly in low yielding US securities
Countries like China and India are financing
consumption in the USA
China–largest forex reserves in the world more
than $ 1 trillion
21
Purchasing Power Parity (PPP)
ú
An exchange rate between two currencies
such
that the same basket of goods and services
could
be bought in each country if the cost were
converted at that exchange rate.
ú
It is often used to compare the standards of
living between countries.
ú
Rate of exchange between two countries
determined by comparing respective internal
22
Current A/c Convertibility
2
2
2
2
2
2
2
2
2
2
Free flow for purposes other than for capital
purchases and loans
Exports
Imports
Travel
Study abroad
Medical treatment
Employment abroad
Gifts
Consultancy
Intl. credit cards
23
Capital A/c Convertibility
2
2
2
2
2
2
2
The freedom to convert local financial assets
into foreign financial assets & vice versa at
market determined rates of exchange
Indicator of a developed economy
Gives confidence to investors
However, leaves the country at risk
Tarapore Committee 1997
Fiscal consolidation – low inflation
Financial sector reforms
24
TAXES

DIRECT TAXES
Direct incidence of tax on the person who pays the tax.
liability to pay tax is NOT passed on to someone else.
e.g.
INCOME TAX, CORPORATION TAX, WEALTH
TAX, LAND REVENUE, GIFT TAX etc….
v
INDIRECT TAXES
Levied on goods and services. Traders/producers pay it.
Liability passed on to end customer. e.g. VAT, EXCISE
TAX, CUSTOMS DUTY, SERVICE TAX…
 New Tax on Goods and Services [TGS] to be
implemented from April 1st 2010
 New Tax code proposed to replace Income Tax Act
25
SUBSIDIES
Grants to suppliers of goods and services
Used to keep consumer prices down (LPG &
Kerosine, PDS to BPL)
û
To prop up production (farm and fertilizer
subsidies)
û
To boost exports
û
To lower cost (tax subsidies)
û
To improve infrastructure
û
Meet social obligations (subsidy on food,
education)
û
Cross subsidies (petroleum products)
û
Cross subsidies in Banking through concept of
û
û
26
SUBSIDIES IN 2008-09
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



Food subsidy – Rs.32,667 cr.
Fertilizer subsidy – Rs.30,986cr.
Kerosine & LPG – Rs.30,000 cr.
Politically and socially sensitive issue.
LPG subsidy aimed at the middle class
27
CORE SECTORS






Coal
Cement
Power
Steel
Petroleum
Petroleum refinery products
28
DISINVESTMENT
1991-92 to July 2007
Target – Rs.96,800 crore
Achievement – Rs.51,608 crore
(14 companies privatised)
Issues
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Loss making units
Social responsibility
Method – Public issue, strategic sale
Valuation
Creating monopolies – (IPCL, VSNL)
Job loss
Loss of govt. control
(Conti…)
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Ministry of Disinvestment formed by NDA
Govt Abolished by UPA Govt
Present policy is to opt for the IPO model of
disinvestment rather than outright sale
Minimum Govt stake in PSU’s to be 51%
National Investment Fund created to pool
disinvestment proceeds
Focus on Investment rather than disinvestment
Investment Commission formed.
Some prominent disinvestments are BALCO
in 2001 and Hindustan Zinc Ltd in 2001-02 and
VSL in 2001
Current polices: Disinvestment to be used sparingly
Global financial trends do not favour disinvestment
30
INFRASTRUCTURE
Transport – Railways, roads, shipping , civil
aviation
û
Communication – Telecom, P & T
û
Energy – Electricity, Oil, coal, nonconventional
sources
û
Science & Technology
û
Banking, finance and insurance
û
Social – education, health
û
India lags behind China in development of
infrastructure
(Conti…)
û
31
û
û
û
û
û
Top priority to creation of infrastructure
Amartya Sen’s analysis that India has neglected
social infrastructure
Delhi Mumbai Industrial corridor [DMIC] in
2008 with Japan’s assistance
Aim is to create state-of-the art infrastructure to
activate local commerce
Petroleum Chemical Petrochemical Investment
Regions [PCPIR] proposed in 2007
32
PATENTS

Product patents
 Process patents
 Patents Act 1970
 Generic Drugs – $80 bn worth
 Reverse Engg
 Huge opportunity
 Compulsory Licensing
 India has created a digital data base of traditional
knowledge of healing systems like Yoga,
Ayurveda,
Unani and Siddha and registered with European
(Conti…)
Patent Office [EPO]
33





Frivolous patents granted in Western countries for
traditional Indian products like neem, turmeric and
even for Yoga
Geographical Indication (GI) is a patent associated
with a region
Ex: Kalamkari art, Darjeeling Tea, Coorg coffee
latest Tirupati Laddu
Mashelkar committee on patents
The patent regime of WTO can be overlooked in
times of medical emergencies like Swine Flu
34
SSI
Manufacturing
Micro
lakhs
Small
cr
Medium
♦
♦
♦
♦
25 lakhs
25 lac - 5 crores
5 – 10 crores
128.44 lakh units
Turnover – Rs.4,97,842 cr
Employs 312.52 lakh people
Exports worth Rs.86,013 cr
Services
10
10 lac – 2
2 - 5 cr
35
IMPORT RESTRICTIONS
û
Tariff Barriers
û
Non-Tariff Barriers
36
TARIFF BARRIERS






Customs Duty
Countervailing Duty
Anti-dumping duty
Transit duty
Cess
Additional duties or surcharges
37
Non-Tariff Barriers
Health, Safety regulations
 Quality norms (ISO & EN standards , FDA,
CE mark)
 Quarantine laws
 Local subsidies
 Channelised imports through governmental
agencies
(eg: sugar imports through STC)
 Licencing policy
 Quota restrictions
 Import bans
 Cumbersome Customs procedures

38
Fiscal Policy
The government’s policy of achieving economic
objectives (employment, per capita income…)
through government earning and spending related to
increase or decrease in taxes.
Government sources of funds :
Taxes and duties,
government
fines,
businesses,
borrowing from public,
investments
Government uses of funds
:
Infrastructure,
mining, public
welfare,
defense, power
generation,
research
and
Fiscal policy intimately linked to the Union Budget
development
39
Monetary Policy
The government’s policy of achieving economic
objectives (employment, per capita income, balance
of trade, economic parity…)
by controlling money supply through instrument
like interest rates
Decrease in supply : Deflation or decrease in
prices
Increase in supply : Inflation or increase in prices
Monetary policy intimately connected to RBI’s
policies
40
 Hyper Inflation
 Stagflation
 Deflation
 Reflation
 Highest inflation in world is in
Zimbabwe
 Currency made worthless due to inflation
41
Appreciation of the Rupee




Indication of economy doing well
Importers & borrowers in forex are happy
Domestic consumers are happy
Interest on government borrowings come
down
 Companies with forex loans will gain
 Debt of the government decreases
 Lowers inflation rate
 Exporters are hit
 Margins erode
 Producers have to cut costs
42
Agriculture
v
v
v
v
v
v
v
Contributes about 22% to GDP
60% of area sown dependent on rainfall
65 to 70% of population dependent on
agriculture
230.67 mt foodgrain production in 2007 – 08
National Food Security Mission launched to
enhance production of rice wheat and pulses
India second highest producer of fruits and
vegetables in world
(Conti…)
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Largest producer of milk in the world
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India is home of spices-largest producer,
consumer
and exporter of spices
India largest producer of cashewnuts and
basmati rice
National Horticultural Mission 2005
National Project for Organic Farming 2004
India has largest livestock population in world
National Fisheries Development Board set up
in Hyderabad
44
Energy
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Coal main source of energy [67%]
Installed power capacity is 149,391.91 MW as of
31st May, 2009.
Electricity Act 2003 - SERC’s formed
Coal based Ultra Mega Power Projects
[UMPP] of 4000 MW each
National Solar Mission to be launched on November
14th 2009
Nuclear energy to be key for India’s quest for energy
security. Hence 123 pact.
Nuclear energy at present contributes 3 to 4% to total
energy pie
45
Miscellaneous
û
India a services sector led economy defies
conventional logic
û
û
û
Conventional model is transition from
manufacturing to services
India is services sector led but still
predominantly
rural
Manufacturing and infrastructure are top
priorities
of the Government
(Conti…)
46
Disinvestment of sick PSU’s and profit
making
PSU’s is needed to generate huge funds for
infrastructure, specially social infrastructure
û Second generation economic reforms needed
in
power, agriculture, legal sector and financial
sector
û Massive transfer of population away from
unproductive agriculture to other sectors like
services and manufacturing
û
47
Polity – 
F
F
F
F
F
F
UPA –  in May 2009. Congress 206 seats
TMC second largest component of UPA
Verdict 2009 is the defeat of the Third and
Fourth Front primarily rather than of the
NDA
Highest tally contributed to NDA by
Karnataka
Left Front humbled in West Bengal
Agatha Sangma-youngest Union Cabinet
(Conti…)
48
F
Shashi Tharoor is MOS External affairs
F
Meira Kumar first woman to be the Lok
Sabha
Speaker
F
LK Advani and Arun Jaitley leaders of
opposition in Lok Sabha and Rajya Sabha
F
Oldest Cabinet Minister SM Krishna age
77 years
49
Polity – 
û
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Ramesh Pokhariyal new Chief Minister of
Uttarakhand
K. Rosaiah new Chief Minister of Andhra Pradesh
Sikkim creates history-all MLA’s belong to the
ruling party
Ashok Gehlot new Chief Minister of Rajasthan
Navin Chawla is the new chief Election
Commissioner
Mohan Bhagwat new RSS Chief
Congress retains power in Maharashtra, Haryana
and Arunachal Pradesh in October 2009.
50
INDIA – CHINA TIES
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8,3000 sq. km of India claimed by China
China objects to ADB’s loan to Arunachal Pradesh
Arunachal regarded by China as “Southern Tibet”
China objects to Dalai Lama’s and Manmohan Singhs
visits to Tawang
India bans Chinese mobiles, dairy products and toys
China says Agni - V can target most of China
China reveals a plan on its semi-official website to balkanise
India into 15 to 20 pieces by using Pakistan, Bangladesh and
taking the assistance of various terrorist organizations like
ULFA etc
The two fastest growing economies in the world are China
and India
India is the world’s largest democracy and China is the
world’s largest “free-market” and politically regimented
51
country
JASWANT SINGH
û
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Author of “Jinnah – India – Partition –
Independence”
Former Defence and External Affairs Minister in
NDA Govt
Expelled from BJP for sympathetic portrayal of
Jinnah and criticism of Sardar Patel Gandhiji and
Jawaharlal Nehru.
He is chairman of Public Accounts Committee
[PAC] in Lok Sabha.
Involved in controversy during NDA Govt for
escorting terrorists to Kandahar
52
AWARDS
û
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Deep Joshi awarded Magsaysay award for
social service
Alice Munro wins 2009 Man Booker
International Prize
President Barack Obama is “surprise” choice
for
2009 Nobel Peace Prize
Hilary Mantel wins 2009 Man Booker Prize
Herta Muller 2009 Nobel Prize for Literature
Elinor Ostrom and Oliver Williamson, Nobel
Prize Economics
Venkatraman Ramakrishnan wins Nobel Prize
for Chemistry
53
Business related awards [ET
Awards]
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Business Leader of Year-Anand Mahindra
Global Indian-Ram Charan
Businesswoman of Year-Vinita Bali
Corporate Excellence, Company of the YearHero Honda
Entrepreneur of the Year-G V Krishna Reddy
Corporate Citizen of the Year-TERI,
Reformer of the Year-Nitish Kumar
Life Time Achievement award-Keshub Mahindra
54
SPORTS
Rio De Janiero 2016 Olympics
2010 FIFA World Cup venue is South Africa
2010 Commonwealth Games venue Delhi
2010 World Cup Hockey venue Delhi
2011 World Cup Cricket; India, Sri Lanka and
Bangladesh
2009 Castrol Award Player of the Year, Gautam
Gambhir
ICC Test Cricketer of Year 2009 is Gautam
Gambhir
ICC, ODI player of Year 2009 is MS Dhoni
Union Minister for Sports, MS Gill
55
MISCELLANEOUS
Mamta Banerjee coins slogan of “Ma Maati
Manush”
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Pranab Mukherjee and P. Chaidambaram unveil
proposal for a new Tax Code
ú
Nandan Nilekani appointed chief of the Unique
Identification Authority
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C. Ranagarajan is reappointed chairman of PM’s
Economic Advisory Council
ú
Barack Obama is youngest American president to
win Nobel Peace Prize
(Conti…)
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ú
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Former President Pervez Musharraf indicted for
murder of Baluch nationalist leader Nawab Akbar
Bugti
Centenary of eminent Defence Scientist, Suri
Bhagwantam, observed
Angela Merkel most powerful woman in the world,
according to Forbes
Jean Dreze, Belgian economist is ET’s Policy
Change
Agent of Year
Nandita Das is chairperson of the Children’s Film
Society of India
Lee Kun Hee former head of Samsung given five
year suspended jail sentence and a fine of $110 57
MISCELLANEOUS – 
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Fortis acquires Wockhardt Hospitals
Telecom rural penetration only 13% in India
Swiss luxury goods giant Mont Blanc adopts
Mahatma Gandhi as brand ambassador for its
Rs.14 lakh pen
Swati Piramal is new president of Assocham
Current capacity of nuclear power in India is
4000 MW
Lunar Crater Observation and Sensing Satellite
[LCROSS] of NASA crashlands on moon to search
for water
Madhu Koda becomes first ex-chief minister to be
charged under PMLA
58