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Indian Economy: A Complete Study Material

The Complete Study Material of “Indian Economy” is segmented into 5 Sections to streamline the learning process for all students who are at a learning stage with the reference of NCERT economics book and some other academic books.

What is the role of Finance Commission in Fiscal Federalism?

The finance commission is constituted by the president of India under the provision of article 280 of the Indian constitution for five years. It decides the share of states in the total tax collection of the centre government. The 14th finance commission is headed by the former RBI governor Mr. Y.V. Reddy.

Group of Countries (G-8 and G-20)

The Group of Eight (G-8) refers to the group of eight highly industrialized nations—France, Germany, Italy, the United Kingdom, Japan, the United States, Canada, and Russia—that hold an annual meeting to foster consensus on global issues like economic growth and crisis management, global security, energy, and terrorism. The G6 was made up of France, Germany, Italy, Japan, the UK and America. It then changed to G7 when Canada joined in 1976 and G8 with Russia in 1998.

South Asian Free Trade Area (SAFTA) & ASEAN

South Asian Preferential Trade Agreement (SAPTA- 1993) was envisaged primarily as the first step towards the transition to a South Asian Free Trade Area (SAFTA) leading subsequently towards a Customs Union, Common Market and Economic Union. In 1995, the Sixteenth session of the Council of Ministers (New Delhi, 18-19 December 1995) agreed on the need to strive for the realization of SAFTA. At the12th SAARC Summit (Jan. 4-6, 2004) at Islamabad, the Capital City of Pakistan, SAPTA became SAFTA. ASEAN (1967) is a union of South-East Asian Nations.

International Finance Corporation & MIGA

The World Bank Group (WBG) is a family of five international organizations that are the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), The International Finance Corporation (IFC), The Multilateral Investment Guarantee Agency (MIGA) and the International Centre for Settlement of Investment Disputes (ICSID). IFC was established in July 1956 that provides loans to private industries for developing nations without any government guarantee and also promotes the additional capital investment in these countries. MIGA came into existence on April 1988.

BRICS Nations

BRICS (Brazil, Russia, India and China, South Africa) was initially formulated in 2001 by economist Jim O'Neill, of Goldman Sachs, in a report on growth prospects for the economies of Brazil, Russia, India and China – which together represented a significant share of the world's production and population. In 2006, the four countries initiated a regular informal diplomatic coordination, with annual meetings of Foreign Ministers at the margins of the General Debate of the UN General Assembly (UNGA).

The European Union (EU)

The European Union (EU) is a unique economic and political partnership between 28 European countries that together cover much of the continent. It was created in the aftermath of the Second World War. The first steps were to foster economic cooperation: the idea being that countries that trade with one another become economically interdependent and so more likely to avoid conflict. It is based on the rule of law: everything that it does is founded on treaties, voluntarily and democratically agreed by all members.

IBSA (India-Brazil-South Africa Dialogue Forum)

IBSA was Established in June 2003,as a coordinating mechanism amongst three emerging countries(India, Brazil, South Africa), three multi ethnic and multicultural democracies, which are determined to: contribute to the construction of a new international architecture, bring their voice together on global issues, deepen their ties in various areas. Trade between IBSA partners has increased significantly since the Forum's inception and indications are that the target of US$ 25 billion by 2015 will be readily achieved.

International Bank for Reconstruction and Development

The International Bank for Reconstruction and Development (IBRD) was created in 1944 to help Europe rebuild after World War II. Today, IBRD provides loans and other assistance primarily to middle income countries. IBRD is the original World Bank institution. It works closely with the rest of the World Bank Group (IBRD, IDA, IFC, MIGA) to help developing countries reduce poverty, promote economic growth, and build prosperity. IBRD is owned by the governments of its 188 member countries.

World Trade Organisation (WTO)

The World Trade Organisation (WTO) is an international organisation which sets the rules for global trade. This organisation was set up in 1995 as the successor to the General Agreement on Trade and Tariffs (GATT) created after the Second World War. It has 153 members. All decisions are taken unanimously but the major economic powers such as the US, EU and Japan has managed to use the WTO to frame rules of trade to advance their own interests.

International Monetary Fund (IMF)

The International Monetary Fund (IMF) is the inter-governmental organisation established to stabilize the exchange rate in the international trade. It helps the member countries to improve their Balance of Payment (BOP) condition thorough the adequate liquidity in the international market, promote the growth of global monetary cooperation, secure financial stability, facilitate international trade. It is one of the Bretton woods twins, which came into existence in 1945, is governed by and accountable to the 188 countries that make up its near-global membership.

Trade Related Aspects of Intellectual Property Rights (TRIPS)

Trade-Related Aspects of Intellectual Property Rights (TRIPS) is arguably the most important and comprehensive international agreement on intellectual property rights. Member countries of the WTO are automatically bound by the agreement. The Agreement covers most forms of intellectual property including patents, copyright, trademarks, geographical indications, industrial designs, trade secrets, and exclusionary rights over new plant varieties.  It came into force on 1 January 1995 and is binding on all members of the World Trade Organization (WTO).

Foreign Direct Investment in Retail Sector in India

The Foreign Direct Investment (FDI) means “cross border investment made by a resident in one economy OR in an enterprise in another economy, with the aim of earning profits in the targeted country.   Mostly the investment is into production by either buying a company in the targeted country or by expanding operations of an existing business in that country”.   These investments can be made for many reasons, i.e. to take advantage of cheaper wage rate, special investment facilities offered by the country or the conducive atmosphere in the country.

Export Promotion Policies in India

The government of India has liberalized the schemes for the export oriented units and export processing zones, agriculture, horticulture, poultry, fisheries and dairying have been included in the export oriented units.  Export promotion capital goods schemes (EPCGS) has been started to permit the exporters to import capital goods on concessional import duties. Under the EPCGS scheme, such importers of capital goods have to export goods of 4 times values of import within next five years. Establishment of the EXIM bank and SEZs promoted the export from country.

Composition of Indian Foreign Trade

In 1950 the Indian share in the world trade was 1.78% which came down to 0.6% in 1995. Currently it is 2.07% ($779 bn.) of the total world trade. The percentage of non traditional goods in total exports has increased the exports of chemical and engineering goods have shown a high growth rate. The manufactured goods constitute the bulk of export over 64% in recent years, followed by crude and petroleum products (including coal) with a 20% share and agriculture & allied with just 13% share.

Trade Related Investment Measures (TRIMS)

Under the Agreement on Trade-Related Investment Measures of the World Trade Organization (WTO), commonly known as the TRIMs Agreement, WTO members have agreed not to apply certain investment measures related to trade in goods that restrict or distort trade. The TRIMs Agreement prohibits certain measures that violate the national treatment and quantitative restrictions requirements of the General Agreement on Tariffs and Trade (GATT).

Exchange Rate Management in India

Foreign exchange market is the market in which foreign currencies are bought and sold. Being a member of IMF, India followed the par value system of pegged exchange rate system. But when the Breton Woods system collapsed in 1971, the rupee was pegged to pound sterling for four years after which it was initially linked to the basket of 14 currencies but later reduced to 5 currencies of India’s major trading partners. Currently India has adopted the managed exchange rate system.

FERA & FEMA in India

In the budget of 1997-98, the government had proposed to replace FERA-1973, by FEMA (Foreign Exchange management act). FEMA was proposed by the both house of the parliament in Dec. 1999. After the approval of president, FEMA 1999 has come into force w.e.f. June, 2000. Under the FEMA, provisions related to foreign exchange have been modified and liberalized so as to simplify foreign trade. Government hopes that the FEMA will make favourable development in the foreign money market.

Fiscal Policy of India: Meaning, Objectives and Impacts on the Economy

Fiscal policy deals with the taxation and expenditure decisions of the government. Some of the major instruments of fiscal policy are as follows: Budget, Taxation, Public Expenditure, public revenue, Public Debt, and Fiscal Deficit in the economy.

Foreign Trade Policy 2015-20

India aims to increase India’s export of merchandise and services from US $ 465 bn. in 2013-14 to approximately US$ 900 bn. by the 2019-20 and to raise India’s share in the world export from 2% to 3.5%. Commerce and Industry minister Nirmala Sita Raman unveiled foreign trade policy (FTP) 2015 -20, which seek to provide higher incentive to agriculture industry. FTP also seeks to establish an institutional framework to work with state governments to boost India’s exports.

Basel III Norms in India: Meaning, Requirement and Impacts on Indian Banking system

Basel III or Basel 3 released in December, 2010 is the third in the series of Basel Accords. These accords deal with risk management aspects for the banking sector. These Norms to be partially implemented from March 31, 2015 in phases and would be fully implemented as on March 31, 2018.

Components of Indian Financial System

The financial system enables lenders and borrowers to exchange funds. India has a financial system that is controlled by independent regulators in the sectors of insurance, banking, capital markets and various services sectors.

Components of Financial and Money market in India

Financial instruments are tradable assets of any kind. They can be cash, evidence of an ownership interest in an entity, or a contractual right to receive or deliver cash or another financial instrument. Documents such as Treasury Bills,Certificate of Deposits,Commercial Paper (CP) and Hybrid Instruments comes under this category.

 

 

 

Anti Poverty & Employment Generation Programmes in India

As per the estimation by the Ranjrajan Panel, the number of Below Poverty Line (BPL) declined to 21.9% of the population in 2011-12 from 29.8% in 2009-10 and 37.2% in 2004-05.

 

Convertibility of Currency in India

Prior to the First World War the whole world was having gold standard under which the currency in circulation was allowed to get converted either in gold or other currencies based on the gold standard.  But after the failure of Bretton woods system in 1971 this system changed. Presently convertibility of money implies a system where a country’s currency becomes convertible in foreign exchange and vice versa. Since 1994, Indian rupee has been made fully convertible in current account transactions.

Balance of Payment (BOP)

Balance of Payment (BOP) of ac country can be defined as a systematic statement of all economic transactions of a country with the rest of the world during a specific period usually one year. The systematic accounting is done on the basis of double entry book keeping (both sides of transactions credit and debit are included). Economic transaction includes all such transactions that involve the transfer of title or ownership of goods and services, money and assets.

Microfinance Institutions in India

Reserve bank of India defines NBFC-MFI as a non-deposit taking NBFC (other than a company licensed under Section 25 of the Indian Companies Act, 1956) with Minimum Net Owned Funds of Rs.5 crore (for NBFC-MFIs registered in the North Eastern Region of the country, it will be Rs. 2 crore) and having not less than 85% of its net assets as “qualifying assets”. Ultimate goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance.

Structure of Banking Sector in India

Reserve Bank of India is the Central Bank of our country. It was established on 1st April 1935 under the RBI Act of 1934. It holds the apex position in the banking structure. RBI performs various developmental and promotional functions. As of now 26 public sector banks in India out of which 21 are Nationalised banks and 5 are State Bank of India and its associate banks. There are total 92 commercial banks in India. Public sector banks hold near about 75% of the total bank deposits in India.

Public Debt and Deficit Financing

India's external debt stock stood at US$ 475.8 billion at end-March 2015 as against US$ 446.3 billion at end-March 2014. Notwithstanding the increasing external debt stock during 2014-15, crucial debt indicators such as external debt-GDP ratio and debt service ratio remained in the comfort zone. External debt of the country continues to be dominated by the long term borrowings. Government arranges money from deficit financing (borrowing from general public, printing new currency and borrowing from external sources) if its expenditure exceeds revenue.

Welfare Programmes by the Government of India

Government of India launched several programmes for poverty alleviation, employment generation, and better health and education facilities. some programmes are: Antyodaya Anna Yojna, National Gramin Awaas Mission (formerly Indira awas yojna), Bharat Nirman, etc.

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