Indian Economy And Development SPMB

Branches of Economics

1.      Microeconomics: Studies individual decisions on resource allocation (e.g., product purchases with limited money).

2.      Macroeconomics: Studies national economy as a whole (e.g., inflation, inclusive development).

Economic Systems

1.      Laissez-faire: No government involvement (market-driven).

2.      Command Economy: Government controls production and distribution.

3.      Mixed Economy: Combination of free market and government regulations (e.g., India).

Factors of Production

1.      Natural Resources: Land/raw materials.

2.      Labor: Human effort, paid as wages.

3.      Capital: Buildings, machinery, paid as interest.

4.      Organization: Entrepreneurs combining factors for profit.

·        Money moves between producers (wages) and workers (spending on goods/services) in a continuous loop.

Types of Goods

·        Intermediate Goods: Semi-finished, need further processing (e.g., steel sheets).

·        Capital Goods: Used to produce other goods (e.g., machinery).

·        Inferior Goods: Demand rises as income decreases (e.g., coarse cereals).

·        Giffen Goods: Demand increases with price (e.g., staple foods).

·        Veblen Goods: Luxury goods (e.g., gold, luxury cars).

·        Substitute Goods: Alternatives (e.g., tea vs. coffee).

·        Complementary Goods: Used together (e.g., car and petrol).

·        Public Goods: Non-excludable, non-rival (e.g., parks).

·        Private Goods: Rival, excludable (e.g., food).

Economic Sectors

1.      Primary Sector: Extracts raw materials (e.g., farming, mining).

2.      Secondary Sector: Manufactures products (e.g., steel, automobiles).

3.      Tertiary Sector: Provides services (e.g., retail, banking).

·        India’s GDP: Dominated by services sector.

·        National Income: Total value of income earned in a country.

·        GDP: Total production within a country’s borders.

·        GNP: Total production by residents, including income from abroad (GNP = GDP + Net Factor Income from Abroad).

·        NNP (Net National Product): GNP minus depreciation (also called National Income).

National Income Measures

·        GDP at Market Price (MP): Includes indirect taxes (e.g., GST).

·        GDP at Factor Cost (FC): Excludes indirect taxes, includes subsidies.

·        Real GDP: Adjusted for inflation, uses base year prices (current base year: 2011-12).

·        Nominal GDP: Measured at current market prices.

·        GDP Deflator: Adjusts nominal GDP to calculate real GDP (Formula: Nominal GDP / Real GDP * 100).

GDP vs GNP

·        GDP: Measures production within a country (e.g., Indian or foreign production within Indian borders).

·        GNP: Includes income from abroad, based on residency (e.g., Indian company’s income abroad).

Potential GDP

·        Potential GDP: Maximum sustainable output with fully employed factors of production.

Pre-Independence Estimates:

·        Dadabhai Naoroji (1868), William Digby (1899), V.K.R.V. Rao (1925-29): Rough estimates of national income without scientific basis.

Post-Independence Estimates:

·        National Income Committee (1949): Led by P.C. Mahalanobis, introduced scientific estimation of national income.

o   First report (1951): National income (1948-49) was Rs. 8,830 crore, and per capita income Rs. 265 per annum.

CSO and National Income Estimation:

·        Central Statistical Organisation (CSO): Took over national income estimates.

o   Mixed methods: Product Method for agriculture/mining, Income Method for other sectors.

CSO Base Year Updates:

·        Base years for real income calculation: 1948-49, 1960-61, 1980-81, 1993-94, 2004-05, 2011-12.

·        ACNAS recommendation: Consider 2020-21 as the next base year.

·        Definition: Total value of goods and services produced by a country in a given period.

·        Methods: Income Method and Expenditure Method are widely used for measurement.

Income Method:

·        Measures: Total income earned by factors of production (land, labor, capital, entrepreneurship).

·        Components:

o   Compensation of Employees: Wages, salaries, benefits.

o   Gross Operating Surplus: Profits of businesses and self-employed individuals.

o   Gross Mixed Income: Income of unincorporated enterprises/self-employed.

o   Taxes on Production and Imports: Sales tax, excise duty, etc.

·        Merits:

o   Comprehensive picture of income distribution across sectors.

o   Captures labor and capital income.

o   Useful for analyzing income inequality.

·        Limitations:

o   Difficulty in obtaining reliable data for informal sectors.

o   Excludes non-monetary activities (e.g., unpaid household work).

o   Inflation/deflation can distort estimates.

·        Measures: Total spending on final goods and services.

·        Components:

o   Personal Consumption Expenditures: Household spending on goods/services.

o   Gross Private Domestic Investment: Investments in capital goods, inventory changes.

o   Government Expenditure: Public consumption and investments.

o   Net Exports: Exports minus imports.

·        Advantages:

o   Reflects economic activity and demand.

o   Easier to collect data through surveys, tax records, etc.

o   Assesses impact of fiscal and trade policies.

·        Drawbacks:

o   Ignores non-market activities like barter trade.

o   Data accuracy may be affected by omissions or errors.

o   Changes in inventories are volatile and hard to predict.

Other Methods:

·        Production Approach: Adds value at each stage of production.

·        Value-Added Approach: Sums value added by each industry.

·        Exclusion of Non-Market Transactions: Informal sector activities (e.g., barter, household work) are not recorded.

·        Inaccurate/Incomplete Data: Developing countries often face outdated or missing data.

·        Inflation/Technology Effects: Price fluctuations and technological changes make it hard to capture real growth.

·        Non-Monetary Transactions: Environmental damage and human capital are not factored into national income.

·        Transfer Payments & Capital Gains: Not included as they don’t represent current production (e.g., pensions, stock value).

·        Valuation of Inventories: Difficult due to changing market conditions and production costs.

1. Growth Rate Targets Missed:

• Growth targets not met in Five-Year Plans (e.g., 3rd Plan targeted 5.6%, achieved 2.8%).
• Recent GDP contraction due to COVID-19.

2. Nominal vs. Real Per Capita Income:

• Nominal income has increased, but real per capita income growth lagged due to high population growth.

3. Insufficient Growth Rate:

• Target of 10% growth rate not achieved consistently.

4. Agricultural Dominance:

• Agriculture’s contribution to GDP decreased, but still provides employment to a large population.

5. Irregular Growth:

• National income growth varied across plan periods.

6. Current vs. Base Year Price Gap:

• Significant differences due to inflation between current and base year prices.

7. Sectoral Distribution Shifts:

• Agriculture: Share decreased from 56.5% (1st plan) to <13% (12th plan).
• Industry: Relatively stable share.
• Services: Increased from 28.5% to over 60% of GDP.

8. Increased Public Sector Share:

• Public sector’s share increased from 8% (1st plan) to 23% (2013-14).

9. Income Inequality & Standard of Living:

• Significant income inequality with the richest 20% holding a large share of total income.
• Regional disparities in income and development.

10. Regional Disparity:

• States like Punjab (highest per capita income) and Bihar (lowest) show large regional income disparities.

1. Agriculture & Allied Sector:

·        Initially the largest contributor, now around 15% of GDP.

·        Provides jobs to 51% of the population.

2. Industry Sector:

·        Contributes around 31% to GDP.

·        Includes mining, manufacturing, construction.

3. Services Sector:

·        Contributes around 53% to GDP.

·        Includes finance, real estate, trade, transport, and is the fastest-growing sector.

• Definition: Maximum sustainable economic output without inflation rise.
• Indicates: Full capacity and efficiency of the economy.

Determinants of Potential GDP:

1. Capital Stock: Higher physical assets boost output.
2. Labor Force: Size/skills of workforce impact potential GDP.
3. Technology: Increases efficiency and productivity.
4. NAIRU: Stable unemployment rate with no inflation rise.
5. Institutional Factors: Policies, regulations influence production capacity.

1. Global Slowdown: Trade disputes reduce export demand.
2. Declining Savings: Lower savings limit investment.
3. Skill Gaps: Workforce lacks needed skills.
4. Low Private Investment: Financial stress dampens investments.
5. COVID-19 Impact: Disrupted economy, reduced GDP.
6. Inequality/Informal Sector: Inefficiencies due to disparities.

• Enhance Skills: Address workforce skill gaps.
• Boost Investment: Increase savings and private investment.
• Reduce Inequality: Tackle disparities for better resource use.
• Strategic Reforms: Policy interventions to close output gap.

·        Nominal Income: Income not adjusted for inflation; reflects current price levels.

·        Real Income: Income adjusted for inflation; shows actual purchasing power.

·        Relationship: Real income decreases when inflation rises and vice versa.

Calculation of Real Income

·        Formula: Real income = Nominal income / Price index (e.g., Consumer Price Index – CPI).

·        Example: If nominal income in 2020 is $50,000 and CPI is 260 (base year 1983 with CPI = 100), the real income in 1983 dollars would be $19,231.

Consumer Price Index (CPI):

·        Advantages:

o   Widely used and available.

o   Reflects consumer preferences and substitution effects.

o   Includes imported goods and services.

·        Disadvantages:

o   Overstates inflation due to biases (substitution, quality, new products).

o   Does not include all household goods/services.

o   Does not reflect regional or individual price variations.

Producer Price Index (PPI):

·        Advantages:

o   Predicts future CPI changes as producers pass costs to consumers.

o   Covers a wide range of industries.

·        Disadvantages:

o   Excludes services and consumer price changes due to markups, taxes, subsidies.

o   Volatile due to commodity price fluctuations.

GDP Deflator:

·        Advantages:

o   Measures price changes for all goods/services produced in an economy.

o   Covers both final and intermediate goods.

·        Disadvantages:

o   Does not account for imports, consumer preferences, or substitution effects.

o   Affected by output composition or quality changes.

Personal Consumption Expenditures (PCE) Deflator:

·        Advantages:

o   Reflects changes in consumer preferences and substitution effects.

o   Measures prices for goods/services consumed by households.

·        Disadvantages:

o   Excludes producer price or production cost changes.

May not account for regional or individual price variations.

• OECD: Economic growth distributed fairly across society, creating opportunities for all.
• Inclusive Growth: Growth ensuring everyone benefits, regardless of class, gender, disability, or religion. Eleventh Plan: “Growth with social justice.”

Features of Inclusive Growth

• Address Marginalized: Inclusion of all, ensuring equality of opportunity.
• Participation: Involvement from all societal sections.
• Reduction in Disparities: Per capita income gaps reduced across sectors, regions, and genders.
• Non-discriminatory: Equality for all, higher poverty reduction potential.
• Access to Infrastructure and Services: Quality health and education for all.

Elements of Inclusive Growth

• Skill Development: Essential for leveraging demographic dividend; India faces skill gaps (30% NEET youth, Economic Survey 2017).
• Financial Inclusion: Affordable financial services to vulnerable groups, leading to economic development.
• Technological Advancement: Industrial Revolution 4.0 can reduce or increase inequality (Digital India).
• Economic Growth: Fast-growing economy but facing challenges (target: $5 trillion by 2024-25).
• Social Development: Empower marginalized groups (SC/ST/OBC/Minorities, women, transgender) through better healthcare, education, and infrastructure.

• Challenge: Inclusive growth for the rural majority is essential.
• Poverty: 22% poverty rate (Tendulkar Committee). Growth must be broad-based for sustainable reduction.
• Structural Transformation: Creative destruction in jobs and firms needed.
• Social Issues: Gender inequality, regional disparities, and poor access to education/healthcare hinder inclusion.

Challenges Hindering Inclusive Growth

• Low Agricultural Growth: Declining productivity impacts rural areas.
• Employment: Low-quality job creation, unemployment, particularly in informal sectors.
• Regional Inequality: Uneven development across states; Green Revolution benefitted some regions more.
• Financial Exclusion: Informal economy, corruption prevent inclusive growth.
• Environmental Impact: Climate change exacerbates issues for the poor.

Reasons for Inequality in India

1. Historical Discrimination: Social hierarchies affect opportunity and access.
2. Gender Disparity: Women face limited employment choices, lower education rates.
3. Informal Employment: 80% of labor in insecure, low-paying jobs without benefits.
4. Agriculture Dependency: Large population reliant on declining agricultural sector.
5. Poverty: Extreme poverty declined by 12.3% (2011-2019), but challenges persist.
6. Unemployment: Urban youth unemployment worsened post-COVID.
7. Rural-Urban Divide: Agriculture backwardness, climate impact, and digital disparities widen the gap.

• Planning Commission (1950): Oversaw centralized growth plans.
• Growth: Last two decades saw rapid economic expansion, poverty reduction, but benefits were not evenly shared.
• Government Initiatives: Jawahar Rozgar Yojana, MGNREGA, Swarnjayanti Gram Swarozgar Yojana promote inclusive growth.

Measures Taken for Inclusive Growth

1. 11th Five-Year Plan: Focused on access to services, employment, women empowerment, and governance.
2. MGNREGA (2005): 100 days of rural employment guarantee.
3. Mudra Bank Scheme (2015): Loans for non-farm small enterprises.
4. Sarva Shiksha Abhiyan (SSA): Universalization of elementary education.
5. Mission Ayushman: Digital infrastructure for healthcare integration.
6. New India @75 Vision (NITI Aayog): Focus on inclusive development.
7. Welfare Schemes: Food subsidies, public distribution, nutrition programs, microfinance support.

Growth vs. Development

• Economic Reforms: Post-reform growth did not always trickle down to the poorest.
• GDP vs. Inclusive Development: Growth rate increase has not equated to broad-based development for all sections of society.Bottom of Form

·        Poverty Line: Minimum expenditure/income to meet basic needs.

·        PLB (Poverty Line Basket): Goods/services required for basic human needs.

·        Poverty Ratio (Headcount Ratio): Proportion of population below poverty line.

History of Poverty Estimation

·        Pre-Independence: Dadabhai Naoroji (1868) estimated poverty line at Rs. 16-35 per year.

·        Post-Independence: Planning Commission (1962) set rural and urban poverty lines at Rs. 20 & Rs. 25 annually.

1.      Alagh Committee (1979): Established rural/urban poverty lines based on nutrition.

2.      Lakdawala Committee (1993): Recommended consumption expenditure-based – calorie intake; state-specific poverty lines updated by CPI-IW/CPI-AL.

3.      Tendulkar Committee (2009): Revised methods, recognizing changes in consumption, price adjustment issues, and non-state provision of health and education.

4.      Rangarajan Committee (2012): Introduced alternate methods, revisited consumption basket, and emphasized linking poverty estimates to government schemes.

Types of Poverty

1. Absolute Poverty: Severe deprivation of basic needs; $1.90/day (World Bank, 2015).
2. Relative Poverty: Based on living standards compared to societal norms; income inequality measure.
3. Situational Poverty: Temporary poverty due to events like disasters, job loss.

·        Fifth Plan (1974-78): Focus on employment, poverty alleviation (Garibi Hatao), minimum income guarantee.

·        Eighth Plan (1992-97): Aimed at controlling population, reducing poverty, generating employment.

·        MGNREGA (2005): Legal guarantee of 100 days of employment, enhancing rural livelihood.

·        Public Distribution System (PDS): Introduced in 1945, expanded post-Green Revolution for food security.

·        PM Ujjwala Yojana (2016): Provided 50 million LPG connections to BPL women.

·        Population Pressure: Rapid population growth dilutes resources and per capita income.

·        Unemployment: Chronic unemployment, underemployment reflect economic disparities.

·        Agricultural Sluggishness: Uneven adoption of high-yield technology limits rural productivity.

·        Inflation: Rising food prices increase poverty.

Way Forward

1.      Redefining Poverty Lines: Adjust thresholds to reflect changes in income, prices, and living standards.

2.      Hybrid Measurement: Combine absolute and relative poverty indicators for a comprehensive view.

3.      Political-Economic Equilibrium: Shift focus from subsidies to public goods provision; policy adjustment for a middle-income nation.

·        Head Count Ratio: Proportion of the population below the poverty line.

·        Poverty Gap Index (PGI): Average income shortfall of the poor from the poverty line as a percentage.

·        Squared Poverty Gap Index: Squares poverty gaps to highlight severity and inequality.

·        Sen Index: Combines head count ratio, poverty gap, and income inequality (Gini coefficient).

·        Multidimensional Poverty Index (MPI): Measures poverty across education, health, and living standards (MPI = H x A, where H is % of poor, A is average poverty intensity).

• Description: Cash transfers linked to conditions (e.g., healthcare, education).
• Objectives: Reduce immediate poverty, incentivize positive behaviors, integrate marginalized groups.
• Impact: Improved health (maternal, child), increased education rates (school attendance/retention), success in countries like Brazil (Bolsa Família) and Mexico (Oportunidades).

Formula:
Unemployment Rate = (Unemployed Workers / Total Labor Force) × 100

Causes of Unemployment

1.      Inadequate Economic Growth:

·       Slow growth fails to generate enough employment opportunities for the growing population.

2.      Seasonal Nature of Agriculture:

·       Agriculture provides employment only for part of the year, leaving many without work during off-seasons.

3.      Decline of Small-Scale Industries: Industrialization reduces demand for traditional cottage industries, causing job losses in those sectors.

4.      Specialization and Skill Mismatch: India’s education system doesn’t prepare workers with the necessary specialized skills for modern jobs.

5.      Lack of Skilling: A significant portion of educated youth lacks practical and future skills, contributing to unemployment.

Policy Responses to Unemployment

Short-term Measures:

1. Unemployment Benefits:

o   Provide temporary financial support to the unemployed.

1. Job Creation Programs:

o   Public works, infrastructure projects, and community services.

1. Skill Development:

o   Enhance workforce employability through training and education.

Long-term Strategies:

1.      Economic Diversification:

o   Expand sectors like manufacturing, services, and technology for broader employment opportunities.

2.      Education and Workforce Development:

o   Improve education quality and align it with labor market needs.

3.      Promoting Entrepreneurship:

o   Support SMEs to stimulate job creation.

4.      Labor Market Reforms:

o   Improve labor mobility, reduce rigidities, and enhance worker protections.

1.      Frictional Unemployment:

·       Temporary, short-term unemployment due to transitions between jobs.

2.      Structural Unemployment:

·       Mismatch between workers’ skills and job requirements due to technological changes, globalization.

3.      Cyclical Unemployment:

·       Occurs during economic downturns; employment improves during economic booms.

4.      Seasonal Unemployment:

·       Jobs tied to seasons or specific periods, common in agriculture, tourism, and retail.

5.      Hidden Unemployment:

·       Individuals not reflected in unemployment statistics because they’ve stopped looking for work or are underemployed.

6.      Long-term Unemployment:

·       Unemployment lasting 27 weeks or more, leading to skill erosion and difficulty in re-entering the workforce.

Government Schemes to Tackle Unemployment

·       MGNREGA (2005): Guarantees 100 days of paid work for rural households willing to do manual labor.

·       National Skill Development Mission: Aims to improve skill levels and quality of skilling efforts across India.

·       Startup India Scheme: Promotes entrepreneurship, generates employment, and fosters wealth creation.

1.      Labor Force Surveys:

·       Surveys by national agencies collecting data on employment status.

2.      Unemployment Rate:

·       The percentage of the labor force that is unemployed and actively seeking work.

3.      Labor Force Participation Rate:

·       Measures the proportion of the working-age population that is employed or actively seeking employment.

Unemployment Estimation in India

1.      Periodic Labour Force Survey (PLFS): Conducted by NSO, providing data on employment, labor force participation, and unemployment.

2.      National Sample Survey Organization (NSSO):Provides detailed data on employment and unemployment in different population segments.

3.      Centre for Monitoring Indian Economy (CMIE):Offers real-time data on employment through its Consumer Pyramids Household Survey (CPHS).

Measuring Unemployment and Underemployment

 National Sample Survey Office (NSSO) Surveys

Conducted quinquennially, these surveys provide comprehensive labor market data based on different employment statuses:

o   Usual Principal and Subsidiary Status (UPSS):

§  Measures long-term engagement in employment over the past year.

o   Current Weekly Status (CWS):

§  Captures short-term employment status over a week, identifying temporary unemployment.

o   Current Daily Status (CDS):

§  Tracks day-to-day employment fluctuations, highlighting daily variations in labor demand.

Global Trends:

1.      Economic Cycles:

·       Unemployment tied to recessions and expansions.

2.      Technological Advancements:

·       Automation and AI eliminate some jobs while creating others.

3.      Globalization:

·       Shifts jobs to regions with lower labor costs, affecting employment in higher-cost areas.

4.      Youth Unemployment:

·       Young people face higher unemployment due to skill mismatches and economic conditions.

India-specific Trends:

1.      Post-Independence:

·       High unemployment due to limited industrialization and agrarian economy.

2.      Economic Liberalization:

·       Growth post-1990s, but job creation didn’t keep pace, leading to “jobless growth.”

3.      Demographic Dividend:

·       India’s young workforce presents opportunities but requires job creation and skill development.

4.      Informal Sector:

·       A large portion of India’s workforce lacks job security and benefits.

5.      COVID-19 Impact:

·       Widespread job losses, particularly in the informal sector.

India’s demographic shift due to an aging population presents significant socio-demographic challenges.
Challenges (as per India Ageing Report 2023 – UNFPA & IIPS)

·       Marital Status:32% elderly widowed (women 54%, men 16%) – impacts financial security.

·       Living Arrangements: 20% elderly live alone or with spouse – changing caregiving dynamics.

·       Economic Status: 50% elderly men in workforce vs. 22% elderly women, mostly in agriculture.

·       Health Status:Chronic morbidity in 30% elderly women, 28% men – affecting daily functioning.

·       Mental Health: Higher depression rates among elderly women – need for mental health interventions.

Suggestions

·       Women Empowerment: Promote financial independence and education for elderly women.

·       Rural Healthcare Access: Improve healthcare infrastructure in rural areas.

·       Caregiver Support: Initiatives to aid caregivers, especially in rural settings.

·       Multi-Sectoral Collaboration: Healthcare, social services, and community collaboration.

·       Skill Development: Engage elderly in skill development programs.

·       Social Support Networks: Strengthen community support for elderly.

Addressing aging challenges requires a holistic approach incorporating economic, societal, and healthcare interventions.

Introduction

• NPP 2000 focuses on population stabilization by linking it with socio-economic development, improving healthcare and education

Objectives

1.      Immediate:

·       Address unmet contraception, healthcare infrastructure, and service delivery needs.

2.      Medium-term:

·       Reduce Total Fertility Rate (TFR) to replacement level by 2010.

3.      Long-term:

·       Stabilize population by 2045 for sustainable growth.

Key Features

4.      Voluntary Participation:

·       Emphasizes voluntary reproductive health choices.

5.      Education:

·       Ensures free, compulsory education up to age 14, and aims to reduce dropouts.

6.      Health Targets:

·       Reduce IMR to below 30 per 1,000 live births and MMR to below 100 per 100,000 by 2010.

7.      Universal Immunization:

·       Immunize children against all preventable diseases.

8.      Institutional Deliveries:

·       Achieve 80% institutional deliveries, 100% by trained personnel.

9.      Vital Events Registration:

·       Achieve 100% registration of pregnancies, births, deaths, and marriages.

10.   Contraceptive Access:

·       Ensure access to a wide range of contraceptive options.

11.   Disease Prevention:

·       Integrate efforts against AIDS, RTIs, STIs with NACO.

12.   Traditional Medicine:

·       Integrate AYUSH into reproductive and child health services

·       NPP 2000 integrates health, education, and empowerment, ensuring population stabilization benefits current and future generations.

• Establishment: Based on Hilton Young Commission, 1926. Nationalized in 1949. Member of Asian Clearing Union.
• Governor: First Governor – Sir Osborne Smith. First Indian Governor – C.D. Deshmukh. First Woman Deputy Governor – K.J. Udeshi. Manmohan Singh, only PM who was RBI Governor.

Composition

• Central Board of Directors: Includes Governor, 4 Deputy Governors, 2 Finance Ministry reps, 4 directors representing local boards (Mumbai, Kolkata, Chennai, New Delhi).

Key Functions

• Monetary Authority: Implements and monitors monetary policy; aims for price stability.
• Foreign Exchange Management: Manages FOREX reserves and foreign trade payments.
• Currency Issuer: Responsible for currency issuance and quality maintenance.
• Banker to Banks: Settles interbank transactions, clearinghouse services, and acts as the lender of last resort.
• Developmental Role: Supervises financial inclusion, promotes repo/forex markets, and government securities.
• Payment System Oversight: Oversees payment systems (e.g., NPCI, IMPS, UPI).

RBI as Lender of Last Resort

• Supports Banks: Maintains statutory reserves (CRR/SLR), settles interbank transfers, and provides short-term loans.

National Payments Corporation of India (NPCI)

• Systems Operated: UPI, Rupay, IMPS, AEPS, ACH.

·        Scheduled Banks:

o   Listed under the 2nd schedule of RBI Act; must maintain CRR and SLR.

o   Includes commercial banks, RRBs, and cooperative banks.

·        Non-Scheduled Banks:

o   Not listed under the 2nd schedule; no RBI borrowing privileges.

Cooperative Banks

• Rural Structure: Primary Agricultural Credit Societies (PACS), Central Cooperative Banks (CCBs), State Cooperative Banks (StCBs).
• Urban Structure: Urban Cooperative Banks (UCBs).
• Regulation: Dual-regulated by RBI and Registrar of Cooperative Societies. NABARD supervises cooperative banks.

Local Area Banks (LABs)

• Established: August 1996. Jurisdiction over 2-3 districts, focusing on priority sector lending (40%).

Non-Banking Financial Companies (NBFCs)

• Role: Supplement banks in credit creation; regulated by Scale-Based Regulation (SBR).
• Key Differences from Banks: Cannot accept demand deposits; no deposit insurance or RTGS/NEFT services.

Difference Between Banks and NBFCs

• Deposits: Banks accept all deposits; NBFCs cannot accept demand deposits.
• Regulation: Banks governed by Banking Regulation Act; NBFCs under Companies Act.

Payment Banks vs. Small Finance Banks

• Capital Requirements: Both require Rs. 100 crores (Small Finance Banks must increase to Rs. 200 crores in 5 years).
• Deposit Insurance: Available for both.
• Lending: Payment banks cannot lend; small finance banks must allocate 50% of loans to small borrowers (up to Rs. 25 lakh).

Small Finance Banks Examples

• Examples: Ujjivan, Utkarsh, Jana, Au.

Introduction:

• Money Supply: Total money available in an economy at a specific time.
• Importance: Indicator of economic activity and inflationary pressures.
• Regulator: Reserve Bank of India (RBI).

Components of Money Supply:

1.      M1 (Narrow Money):

·       Components: Currency notes and coins with the public, demand deposits (savings and current accounts) with banks, and banks’ other deposits with RBI.

·       Liquidity: Most liquid form, readily usable for transactions.

·       Significance: Represents transactional money, easily accessible for public use.

2.      M2:

·       Components: M1 + savings deposits of post office banks.

·       Liquidity: Less liquid than M1 but can still be withdrawn on demand.

·       Significance: Represents money for both transactions and savings.

3.      M3 (Broad Money):

·       Components: M1 + time deposits (fixed deposits) of commercial banks.

·       Liquidity: Less liquid due to fixed maturities; penalties for premature withdrawal.

·       Significance: Widely used measure of money supply, includes transactional, savings, and investment money. Known as aggregate monetary resources.

4.      M4:

·       Components: M3 + post office savings deposits not included in M2.

·       Liquidity: Least liquid, withdrawal restrictions apply.

·       Significance: Broadest measure, includes money for transactions, savings, investments, and other purposes.

Measurement:

·       Data collected from banks, post offices, currency chests, etc.

·       Published on the RBI website weekly or fortnightly.

Control Tools:

·       Repo Rate & Reverse Repo Rate: Influence the cost of borrowing and lending.

·       Cash Reserve Ratio (CRR): Regulates the amount of funds banks must hold with RBI.

·       Statutory Liquidity Ratio (SLR): Determines the percentage of deposits banks must maintain in liquid assets.

·       Open Market Operations (OMO): RBI buys/sells government securities to regulate liquidity.

·       Market Stabilization Scheme (MSS): Manages excess liquidity by issuing government bonds.

Types of Money Market Instruments in India

1.      Treasury Bills (T-Bills):

·       Issued by: RBI on behalf of the central government.

·       Purpose: Financing fiscal deficit.

·       Features: Issued at a discount, zero default risk, highly liquid, used in Open Market Operations (OMO).

2.      Commercial Paper (CP):

·       Issued by: Corporations, financial institutions, NBFCs.

·       Purpose: Raising short-term funds.

·       Features: Unsecured, higher interest rates than T-Bills, higher credit risk, used by mutual funds, banks.

3.      Certificate of Deposit (CD):

·       Issued by: Commercial banks, development financial institutions (DFIs).

·       Purpose: Mobilizing funds.

·       Features: Negotiable, issued at a discount, lower interest rates than CP, lower credit risk.

4.      Call Money:

·       Purpose: Inter-bank lending for one day or overnight.

·       Features: Interest rates influenced by demand, supply, and RBI’s repo/reverse repo rates. Used for liquidity ratios, reserve requirements, and liquidity adjustment facility (LAF).

• Apex development bank focused on agriculture and rural development.
• Provides refinance to SLDBs, SCBs, RRBs, and commercial banks for developmental purposes.
• Supports small industries, village industries, handicrafts, and artisans.
• Government holds 100% stake after divestment by RBI (2010, 2019).

MUDRA (Micro Units Development and Refinance Agency)

• Established to refinance and develop micro-enterprises in manufacturing, trading, and services.
• Provides financial support to banks and microfinance institutions lending to micro-enterprises.
• A subsidiary of SIDBI, offering loans up to Rs 10 lakh.
• Categories of loans: Shishu (up to Rs 50,000), Kishore (Rs 50,001 – 5 lakh), Tarun (Rs 5 – 10 lakh).

Non-Performing Assets (NPA)

• Loans categorized as NPAs when overdue for more than 90 days.
• Classified as: Sub-Standard Assets (90 days – 1 year), Doubtful Assets (> 1 year), Loss Assets (identified by bank or RBI).
• Stressed assets = NPAs + restructured loans + written-off assets.

Special Mention Accounts (SMA)

·        Identifies accounts showing early signs of stress before becoming NPAs.

·        Categories: SMA-0 (due < 30 days), SMA-1 (due 31-60 days), SMA-2 (due 61-90 days).

·        Accounts overdue for more than 90 days become NPAs.

·        Banks must set aside a portion of their profits to cover risks from NPAs.

·        Provisioning percentages: Standard Assets (0.40%), Sub-Standard Assets (15%), Doubtful Assets (25-40%), Loss Assets (100%).

Capital Adequacy Ratio (CAR)

·        Ensures financial stability and prevents bank failures.

·        CAR = (Tier-1 Capital + Tier-2 Capital) / Risk-Weighted Assets (RWAs).

·        Indian banks are required to maintain CAR of 9% along with a Capital Conservation Buffer (CCB) of 2.5%.

Domestic Systemically Important Banks (D-SIBs)

·        These are large banks considered “Too Big to Fail.”

·        In India, SBI, HDFC, and ICICI are designated as D-SIBs.

·        Criteria: Banks whose size is ≥ 2% of GDP.

• Empowers banks to auction properties pledged as security to recover loans from borrowers who default.
• Banks can take possession of assets and sell them after giving a 60-day notice if the borrower fails to repay.

Insolvency and Bankruptcy Code (IBC)

• Consolidates all insolvency laws in India to streamline the process.
• Applies to companies, LLPs, partnerships, and individuals (but not to banks).
• Minimum threshold for corporate insolvency is Rs 1 crore.

Difference Between SARFAESI and IBC

·        SARFAESI: Applicable only to secured creditors. Not available to operational creditors.

·        IBC: Applicable to both secured and unsecured creditors.

·        SARFAESI has a lower threshold (Rs 1 lakh), while IBC’s threshold for companies is Rs 1 crore.

Nationalization of Banks:

·       1969: 14 banks with deposits > Rs. 50 crore nationalized.

·       1980: 6 more banks with deposits > Rs. 200 crore nationalized.

·       Impact: Expanded geographical penetration, coverage density, and number of bank branches.

Pre-Liberalization Challenges:

·       Declining bank efficiency, poor service quality, low profitability by 1991.

Key Reforms:

·       1991 Narasimham Committee I: Recommended reducing SLR, CRR, introducing market-determined interest rates, allowing private/foreign bank entry, consolidating PSBs.

·       1998 Narasimham Committee II: Addressed capital adequacy, bank mergers, technology adoption, skills training, and governance.

·       2000s Financial Sector Reforms Committee: Focused on financial inclusion, regulatory frameworks, and domestic financial development.

·       2014 P.J. Nayak Committee: Suggested reforms to improve governance, management of PSBs.

Mission Indradhanush

·        Appointment:

o   Separation of Chairman/MD roles in PSBs.

·        Banks Board Bureau (BBB):

o   Responsible for PSB appointments, reforms, and governance.

·        Capitalization:

o   Infusion of capital to meet Basel III norms, tackle NPAs.

·        Empowerment: Autonomy given to PSBs for faster decision-making in commercial activities

Dominance of PSBs:

·       Over 70% of banking assets, 88% share of NPAs as of March 2016.

·       PSBs showing significant stress, with NPAs at 16%, higher than private banks.

NPAs Impact:

·       Rising NPAs caused declining profitability (ROA, ROE) in PSBs, turning negative in 2016.

·       High NPAs impair banks’ ability to lend, slow down industrial credit, and hinder Basel III capital requirements compliance by 2019.

Indradhanush Plan (2015-16):

·       7-point strategy for recapitalization, governance reforms (separate CEO/Chairman roles), Bank Board Bureau for PSB appointments, and accountability measures.

Insolvency and Bankruptcy Code (IBC):

·       Enacted to address NPAs, ensuring time-bound resolution (270 days) or liquidation. Banks, promoters mandated to agree on resolution plans.

Cyber Security

National Cyber Security Policy (2013):

·       Aims to protect India’s cyberspace, establish capabilities to prevent/respond to cyber threats.

Cyber Swachhta Kendra:

·       CERT-in initiative to combat cybersecurity threats using tools like USB Pratirodh, M-Kavach.

India’s Financial Depth:

·       India’s private credit to GDP ratio at 50.2% (2015) compared to China’s 140% and Brazil’s 71%.

Banking System Structure:

·       Highly concentrated with top 10 banks holding 58% of total assets by March 2016. Limited foreign bank presence (~6% of assets).

Next Generation Banking

1. Tech-Driven: Use of big data, cloud computing, and mobile banking innovations.
2. Outsourcing: Shift of back-office operations like fraud detection, customer verification to third parties.
3. Cashless/Branchless: Post-demonetization push for cashless economy and branchless banking.
4. Solar ATMs: Focus on cutting operational costs in rural power-deficient areas.
5. Infrastructure Financing Models: Innovative methods like 5:25 structure, PPP models, Green Banking initiatives.
6. Serving MSMEs: Expansion through MUDRA Bank, Cluster Financing, and Incubation Centres.
7. Competition: Measures like account number portability, big data analytics in lending.

Specialized Banks

1.      EXIM Bank (1981): Facilitates export credit.

2.      NABARD (1982): Focus on rural/agricultural finance.

3.      NHB (1988): Supports housing finance institutions.

4.      SIDBI (1990): Promotes MSMEs, integral to Indian GDP.

Causes of NPAs:

·       Over-lending, project delays, defaults, misallocation of funds, siphoning, fraud, poor credit appraisal.

NPA Resolution Strategies:

·       Forensic audits, IBC, RDDBFI, SARFAESI Act for recovery, monitoring defaulters, SFIO involvement.

Bank Recapitalization

·        Recapitalization Bonds: Government infuses capital into PSBs without adding to fiscal burden. Banks subscribe to bonds that enhance their capital base.

Financial Inclusion

·       Historical Initiatives: India pioneered financial inclusion with the Cooperative Credit Societies Act (1904), bank nationalization, and priority sector lending.

·       PMJDY: Aim to provide universal banking access to households. Strengthened by commercial banks’ outreach, mobile banking, and Business Correspondents (BCs).

Technological Upgradation in Banking

SWIFT (1973):

·       Global financial communication system ensuring secure transactions, replacing Telex.

e-Kuber (2012):

·       RBI’s Core Banking System, offering 24×7 services, integrating commercial and rural banks.

Quantitative Measures:

o   Bank Rate (Discount Rate): Rate at which RBI buys/rediscounts bills from Scheduled Commercial Banks (SCBs); affects overall money supply.

§  High Bank Rate: Decreases money supply.

§  Low Bank Rate: Increases money supply.

o   Reserve Requirements:

§  CRR (Cash Reserve Ratio): Portion of deposits banks must maintain with RBI; controls liquidity.

§  Increase in CRR: Reduces banks’ lending capacity, decreases money supply.

§  Decrease in CRR: Increases lending capacity, expands money supply.

§  SLR (Statutory Liquidity Ratio): Portion of NDTL (Net Demand and Time Liabilities) banks must hold in cash, gold, or government securities.

§  Increase in SLR: Limits banks’ lending ability, contracts money supply.

§  Decrease in SLR: Expands lending ability, increases money supply.

o   Liquidity Adjustment Facility (LAF): Repo and reverse repo operations to manage day-to-day liquidity.

§  Repo Rate: Rate at which RBI lends to SCBs; higher repo rate reduces borrowing, lowers money supply.

§  Reverse Repo Rate: Rate at which RBI borrows from banks; higher rate reduces banks’ lending capacity.

o   Marginal Standing Facility (MSF): Overnight funds borrowing at a higher rate than repo; safety valve for liquidity.

o   Open Market Operations (OMOs): Buying/selling government securities to regulate liquidity.

§  Purchase Securities: Increases liquidity, expands money supply.

§  Sell Securities: Reduces liquidity, contracts money supply.

o   Market Stabilization Scheme (MSS): Special bonds issued to control liquidity without affecting fiscal deficit.

o   Term Repos: Liquidity for longer durations (7/14/28 days); helps manage interest rates.

Sterilization (RBI)

·        Sterilization: Action by RBI to neutralize foreign exchange interventions’ impact on domestic money supply.

Mechanism:

o   Absorbing Liquidity: RBI sells government securities to absorb excess liquidity from forex interventions.

o   Stability Maintenance: Prevents foreign exchange interventions from altering domestic money supply significantly.

·        Margin Requirements: Controls credit flow by adjusting loan-to-value ratios.

·        Consumer Credit Regulation: Controls installment credit terms for consumer goods purchases.

·        Moral Suasion: RBI persuades banks to adhere to its policies.

·        Direct Action: Penalties or restrictions for non-compliant banks.

·        Credit Rationing: Imposes ceilings on lending to specific sectors.

·        Priority Sector Lending: Ensures a portion of loans is directed to agriculture, small enterprises, and weaker sections.

Significance of Monetary Policy:

·        Price Stability: Controlling inflation, protecting purchasing power.

·        Economic Growth: Ensuring credit availability to productive sectors.

·        Employment: Influences job creation by managing credit supply.

·        Financial Stability: Prevents asset bubbles and maintains systemic liquidity.

·        Exchange Rate Stability: Controls currency value fluctuations by managing money supply.

Limitations of Monetary Policy:

·        Banking Habits: Preference for cash transactions limits policy effectiveness.

·        Underdeveloped Money Markets: Restricts monetary policy impact.

·        Black Money: Unrecorded transactions complicate monetary management.

·        Conflicting Objectives: Balancing growth and inflation control challenges.

·        Complex Interest Rate Structure: Limits uniform impact of monetary tools.

Monetary Policy Transmission:

·        Interest Rate Channel: Policy rate changes affect lending/borrowing rates.

·        Credit Channel: Impacts availability of credit for consumption/investment.

·        Exchange Rate Channel: Influences exports, imports via currency adjustments.

·        Asset Price Channel: Affects value of stocks/real estate, influencing wealth and consumption.

·        Expectations Channel: Shapes public outlook on future economic conditions.

·        Liquidity Trap: Occurs when low interest rates fail to stimulate spending/investment; requires unconventional measures like Quantitative Easing (QE).

·        Quantitative Easing (QE): Central bank buys securities to inject liquidity, lower interest rates, and stimulate economic activity.

·        Objectives of QE: Increase liquidity, lower long-term interest rates, boost confidence in economic support.

Inflation Targeting

Inflation Targeting: Central banking policy to maintain a specified inflation rate for price stability and long-term growth.

Types:

·       Strict Inflation Targeting: Sole focus on keeping inflation within a target range without considering other factors.

·       Flexible Inflation Targeting: Targets inflation while also considering interest rates, employment, and exchange rates.

Benefits:

·       Price Stability: Anchors inflation expectations and reduces uncertainty.

·       Transparency: Clear policy objectives, improves credibility and accountability.

·       Economic Stability: Supports long-term economic growth by maintaining stable prices.

Challenges:

·       External Shocks: Commodity price volatility and global economic changes can complicate policy.

·       Data Limitations: Effective targeting depends on accurate and timely data.

·       Trade-offs: Balancing inflation control with other economic objectives like employment and growth.

• Receipts from sources other than taxes, e.g., fees, fines, penalties, income from public enterprises.

Tax Revenue

·        Definition: Compulsory payments by citizens to meet public expenditure, legally imposed by the government.

·        Types of Tax:

o   Direct Tax: Borne by the person on whom it is levied. Examples: income tax, wealth tax, gift tax.

o   Indirect Tax: Burden shifted to others. Examples: sales tax, excise duty, customs duty.

Direct Tax

1. Personal Income Tax: Levied directly on individual income by the Central Government.
2. Corporate Tax: Levied on company profits. Rate: 30%. MAT (Minimum Alternate Tax): 15% of book profit.
3. Estate Duty: Imposed on property passing after death. Abolished from April 1, 1985.
4. Wealth Tax: Levied on net wealth of individuals, families, companies. Abolished in 2015.
5. Gift Tax: Imposed on gifts above a certain limit. Donations by charitable institutions exempted.
6. Interest Tax: Levied on banks’ interest income (now abolished in India).

1.      Central Excise Duties: Imposed on goods produced domestically except specific state-taxed goods (e.g., liquor, drugs).

2.      Value Added Tax (VAT): Multistage sales tax introduced by states. Haryana was the first to introduce VAT (2003).

3.      CENVAT: Eliminates cascading effects of taxes via tax credit mechanism.

4.      Custom Duties: Levied on imports and exports. Significant contributor to revenue.

5.      Service Tax: Imposed on specified services, introduced in 1994-95. Expanded significantly since then.

6.      Goods and Services Tax (GST): Integrated taxation scheme, applied to both goods and services, introduced in 2017.

Key Features of GST

1. Dual Structure: Central GST (CGST) and State GST (SGST).
2. Coverage: Applicable to all goods and services except exempted items.
3. Rate Structure: Two rates for essential and general goods; special rate for precious metals.
4. Import Taxation: GST applies to imported goods/services.
5. Administration: Central GST managed by the Centre, State GST by the states.

Benefits of GST

1.      Economy: Simplifies tax structure, broadens tax base, creates a common market.

2.      Corporate: Reduces average tax burden on companies.

3.      Exporters: Reduces costs of locally manufactured goods/services.

4.      Manufacturing Sector: Reduces complexity and taxation burden.

5.      Government Revenues: Increases tax revenues, promotes employment, boosts economic growth.

6.      Individuals & Companies: Lower prices, increased consumption, benefitting companies.

Central Taxes

·       Income Tax: Levied by the central government on individual and corporate income.

·       Corporate Tax: Levied on the profits of companies.

·       Custom Duties: Levied on imports and exports.

·       Excise Duties: Imposed on goods produced domestically (now largely replaced by GST).

·       Central Goods and Services Tax (CGST): Part of GST collected by the central government on intra-state sales.

State Taxes

·       State Goods and Services Tax (SGST): Collected by state governments on intra-state sales.

·       Stamp Duty: Levied on legal documents, such as property transfers.

·       Property Tax: Imposed by local bodies on real estate properties.

·       State Excise Duty: Levied on alcohol, narcotics, and some other goods.

·       Entertainment Tax: Levied on movie tickets, events, etc. (pre-GST).

Government Expenditure

Revenue Account

o   Revenue Expenditure: Recurring, short-term in nature; does not create assets.

§  Examples: Salaries, subsidies, interest payments, pension payments, grants.

§  Objective: Day-to-day functioning of the government.

Capital Account

o   Capital Expenditure: Long-term, creates assets or reduces liabilities.

§  Examples: Infrastructure development (roads, hospitals), defense procurement, loans to states, repayment of loans.

§  Objective: Developmental expenditure, wealth generation, and asset creation.

·        Article 112: Mandates the presentation of an Annual Financial Statement (AFS) before Parliament.

·        Components: Appropriation Bill (Expenditure) and Finance Bill (Receipts) divided into:

o   Consolidated Fund of India

o   Contingency Fund of India

o   Public Account of India

·        Requirement: Distinguishes revenue expenditure from other expenditures.

·        Preparation: By the Budget Division, Department of Economic Affairs, Ministry of Finance.

Interim Budget:

·        Definition: Announced during an election year for part of the financial year until a new government takes over.

·        Features: Incumbent government usually avoids announcing new schemes or making tax changes but is not constitutionally barred from doing so.

·        Normally does not include a Finance Bill and Economic Survey.

• Interim Budget: Estimates both receipts and expenditures of the government.
• Vote-on-Account: Seeks Parliament’s approval to withdraw funds until the new government takes over.

Main Budget Documents:

1. Annual Financial Statement
2. Demand for Grants
3. Appropriation Bill
4. Finance Bill

Accounts of Government of India:

1.      Consolidated Fund of India (CFI):

·       All revenues and loans raised by the government are credited here.

2.      Contingency Fund of India:

·       For unforeseen expenses, corpus raised to Rs. 30,000 crores (2021-22).

3.      Public Account of India:

·       Includes provident funds, small savings, etc., and does not require parliamentary approval for use.

Revenue Budget: Short-term, recurring nature.

·       Revenue Receipts: Non-redeemable income (e.g., taxes, dividends).

·       Revenue Expenditure: Non-asset impacting (e.g., salaries, interest payments).

Capital Budget: Long-term in nature.

·       Capital Receipts: Lead to decrease in assets or increase in liabilities (e.g., disinvestment, borrowings).

·       Capital Expenditure: Creates assets or reduces liabilities (e.g., investments in infrastructure).

Government Deficits:

1.      Revenue Deficit:

·       Formula: Revenue Expenditure – Revenue Receipts

2.      Fiscal Deficit:

·       Formula: Total Expenditure – Total Receipts (except borrowing)

3.      Primary Deficit:

·       Formula: Fiscal Deficit – Net interest liabilities

Effective Revenue Deficit:

o   Formula: Revenue Deficit – Grants for the creation of capital assets

• Monetary Policy: Process by which RBI controls money creation and supply in the economy.
• Objectives: Price stability, credit flow to productive sectors, economic growth, financial stability.

Monetary Policy Framework (2015):

• Signed: Between Government of India and RBI (Feb 2015).
• Inflation Target: 4% with a band of +/- 2%.
• Responsibility: Government decides target, RBI ensures it meets the target.
• Failure Clause: If inflation targets are missed for three consecutive quarters, RBI must explain to the government.
• Inflation Measurement: Consumer Price Inflation Index (CPI) by NSO.

Monetary Policy Committee (MPC):

• Statutory Body: Under Section 46ZB of RBI Act, 1934 (amendment via Finance Act 2016).
• Purpose: Decides policy rates (Repo, Reverse Repo, etc.).
• Composition: 6 members (3 from RBI, 3 nominated by the government).
• Tenure: 4 years, no reappointment.
• Meetings: At least 4 times a year, reports published twice annually.

1.      Repo Rate:

·       Definition: Rate at which RBI provides overnight liquidity to banks against government securities.

·       Purpose: To inject money into the economy.

·       Facility: Part of Liquidity Adjustment Facility (LAF).

2.      Reverse Repo Rate:

·       Definition: Rate at which RBI pays banks for parking funds.

·       Purpose: To reduce money supply in the economy.

3.      Open Market Operations (OMO):

·       Definition: RBI’s sale/purchase of government securities in the open market to adjust liquidity.

·       Mechanism: Buying securities increases money supply, selling securities reduces it.

·       Platform: E-Kuber.

4.      Cash Reserve Ratio (CRR):

·       Definition: Percentage of depositor’s money banks must maintain with RBI in cash.

·       Interest: No interest paid by RBI on CRR deposits.

·       Legal Basis: RBI Act 1939.

5.      Statutory Liquidity Ratio (SLR):

·       Definition: Percentage of depositors’ money banks maintain in cash, G-Secs, or gold.

·       Profits: Allows banks to earn through investments.

·       Legal Basis: Banking Regulation Act 1949.

6.      Standing Deposit Facility (SDF):

·       Function: Banks deposit funds with RBI without collateral.

·       Interest: Lower than Reverse Repo Rate.

·       Eligibility: Not considered for CRR but eligible for SLR.

7.      Ways & Means Advances (WMA):

·       Function: RBI provides temporary loans to the central and state governments for 90 days.

·       Interest: Equal to Repo Rate.

·       Extended Tenure: Considered overdraft (OD).

·       Decision: RBI + Government.

Definition: Government’s use of revenue collection (taxes, loans, divestment) and expenditure (spending) to influence the economy.

·        Key Focus: Control tax revenues and public expenditure to manage economic activity, balancing deficits and surpluses.

Objectives of Fiscal Policy:

1. Economic Growth: Maintain growth to achieve economic goals.
2. Price Stability: Regulate prices, particularly during inflationary periods.
3. Full Employment: Achieve or maintain high employment.

FRBM Act, 2003:

• Objective: Institutionalize financial discipline, reduce fiscal deficit, improve public fund management.
• Key Features:

o   Fiscal deficit to be reduced to 3% of GDP by 2008-09.

o   Revenue deficit elimination by 2008-09.

o   Reduce public debt and borrowing from RBI.

o   Government to present Macro-Economic Framework Statement and Fiscal Policy Strategy Statement annually.

NK Singh Committee (2016):

• Recommendations: Fiscal deficit target of 3% of GDP by March 2020, reducing further to 2.8% by 2020-21, and 2.5% by 2023.

1.      Zero-Based Budgeting: Budgeting starts from zero, justifying all expenditures.

2.      Outcome Budget: Tracks progress and outcomes of ministries’ expenditures.

3.      Gender Budgeting: Budget allocation focused on gender equality and empowerment.

Objectives of Budgetary Policy:

1.      Economic Growth:

·       Invest in Basic Industries: Support sectors like steel, fertilizers, chemicals.

·       Infrastructure Development: Roads, railways, utilities.

·       Education and Health: Improve productivity through government spending on education and healthcare.

2.      Reducing Income Inequality:

·       Progressive Taxation: Higher taxes on wealthier individuals to fund welfare.

·       Welfare Expenditure: Direct benefit transfers and subsidies for the poor.

3.      Employment Opportunities:

·       Public Sector Enterprises: Job creation in sectors with limited private investment.

·       Support for MSMEs: Subsidies, tax incentives for labor-intensive industries.

4.      Price Stability:

·       Regulation of Essential Goods: Control prices through ration shops and stock maintenance.

·       Subsidies: Ensure affordability of essential services like electricity, gas.

5.      Balance of Payments:

·       Import Regulation: High import taxes to reduce foreign exchange outflow.

·       Export Promotion: Subsidies for exports to boost foreign exchange earnings.

6.      Effective Administration:

·       Public Services: Police, defense, judiciary for maintaining law and order.

·       Fiscal Discipline: Prudent management of public finances.

·        Deficits and Debt: Critical to government fiscal policy; affect economic stability, growth, and development.

·        Excessive Spending: Can lead to inflation if demand rises faster than supply, causing price increases.

Crowding Out Effect

• Crowding Out: Government borrowing reduces funds for the private sector, raises interest rates, and reduces private investment, slowing economic growth.

Borrowing Powers

• Centre’s Borrowing (Article 292): Unlimited borrowing powers domestically and internationally, subject to limits by Parliament.
• State’s Borrowing (Article 293): Requires Centre’s consent if previous loans are unpaid; states cannot borrow from external sources without conditions.

• Expansionary Fiscal Policy: Increases in government spending/tax cuts to stimulate growth.
• Contractionary Fiscal Policy: Reductions in spending/tax increases to cool the economy.
• Neutral Fiscal Policy: Balanced spending and revenue.

Taxation Terms

• Direct Tax: Levied directly on individuals (e.g., income tax).
• Indirect Tax: Levied on goods/services (e.g., GST).
• Ad Valorem Tax: Based on product value (e.g., customs duty).
• Progressive Taxation: Higher rates for higher incomes; reduces inequality.
• Tax Buoyancy: How tax revenue responds to GDP growth.
• Laffer Curve: Shows the relationship between tax rates and tax revenue.

Debt Structure of India

• Public Debt: Includes internal (domestic borrowing) and external debt (international agencies like World Bank, ADB).
• Total Debt: Public debt + public account liabilities (e.g., National Small Savings).
• Off-Budget Liabilities: Debts of government-controlled entities.

• Long-term: Private sector exceeds government debt.
• Multilateral Debt: From institutions like the World Bank, IMF.
• Bilateral Debt: From other countries (e.g., Japan, Germany).
• Non-Resident Deposits: Held by non-residents in Indian banks.

Finance Commission (FC)

·        Constitutional Body: Distributes taxes between Centre and states.

·        15th Finance Commission: Chaired by NK Singh.

o   Vertical Devolution: 41% tax share for states.

o   Fiscal Deficit Targets: Reduce Centre’s deficit to 4% by 2025-26; states’ deficit to 3% of GSDP.

o   Modernisation Fund: Non-lapsable fund for Defence and Internal Security.

Focus on 4 Major Castes:

o   Annadata (Farmer): Represents the agricultural community.

o   Garib (Poor): Focus on poverty alleviation and support for the economically disadvantaged.

o   Mahila (Women): Empowerment and welfare of women.

o   Yuva (Youth): Investment in the development and future of young people.

Budget Theme:

1.      Employment: Generating job opportunities.

2.      Skilling: Enhancing skills and capabilities for better employability.

3.      MSMEs: Supporting Micro, Small, and Medium Enterprises.

4.      Middle Class: Focus on easing the financial burden and providing support to the middle class.

·        Borrowing and Other Liabilities: 27%

·        Income Tax: 19%

·        GST & Other Taxes: 18%

·        Corporation Tax: 17%

·        Non-Tax Receipts: 9%

·        Union Excise Duties: 5%

·        Customs: 4%

·        Non-Debt Capital Receipts: 1%

Rupee Goes To:

·        States’ Share of Taxes and Duties: 21%

·        Interest Payments: 19%

·        Central Sector Scheme (excluding capital outlay on Defence and Subsidy): 16%

·        Subsidies: 6%

·        Defence: 8%

·        Pensions: 4%

·        Finance Commission and Other Transfers: 9%

·        Centrally Sponsored Scheme: 8%

·        Other Expenditure: 9%

·        Defence: ₹4,54,773 crore

·        Rural Development: ₹2,65,808 crore

·        Agriculture and Allied Activities: ₹1,51,851 crore

·        Home Affairs: ₹1,50,983 crore

·        Education: ₹1,25,638 crore

·        IT and Telecom: ₹1,16,342 crore

·        Health: ₹89,287 crore

·        Energy: ₹68,769 crore

·        Social Welfare: ₹56,501 crore

·        Commerce & Industry: ₹47,559 crore

Key Highlights

Productivity and Resilience in Agriculture

·        Objective: Enhance productivity and develop climate-resilient crops.

·        Initiatives: Released 109 new high-yielding, climate-resilient varieties of 32 crops (field and horticulture).

National Cooperation Policy

·        Objective: Systematic development of the cooperative sector.

Vegetable Production & Supply Chain

·        Objective: Promote Farmer Producer Organizations (FPOs), cooperatives, and startups for efficient supply chains in collection, storage, and marketing.

Natural Farming

·        Objective: Introduce 1 crore farmers to natural farming, support certification and branding over two years.

·        Initiatives: Set up 10,000 bio-input resource centers.

Atmanirbharta in Oil Seeds

·        Objective: Achieve self-reliance in oil seed production (e.g., mustard, groundnut, sesame, soybean, sunflower).

1.      Transforming Agriculture Research:

·       Comprehensive review of the agriculture research setup to focus on raising productivity and developing climate-resilient varieties.

2.      National Cooperation Policy:

·       For systematic, orderly, and all-round development of the cooperative sector.

3.      Atmanirbharta:

·       For oil seeds such as mustard, groundnut, sesame, soybean, and sunflower.

4.      Vegetable Production & Supply Chain:

·       Promotion of FPOs, cooperatives & start-ups for vegetable supply chains for collection, storage, and marketing.

5.      Release of New Varieties:

·       109 new high-yielding and climate-resilient varieties of 32 field and horticulture crops will be released for cultivation by farmers.

Natural Farming:

• 1 crore farmers across the country will be initiated into natural farming, supported by certification and branding in the next 2 years.
• 10,000 need-based bio-input resource centers to be established.

Shrimp Production & Export:

• Financing for shrimp farming, processing, and export will be facilitated through NABARD.

Digital Public Infrastructure (DPI):

• DPI for coverage of farmers and their lands in 3 years.
• Digital crop survey in 400 districts.
• Issuance of Jan Samarth based Kisan Credit Cards.

1.      Prime Minister’s Package (5 Schemes)

·       Target: 4.1 crore youth, 5 years.

·       Scheme A: ₹15,000 in three installments, for first-time EPFO-registered employees.

·       Scheme B: Job creation incentives, covering EPFO contributions for 4 years.

·       Scheme C: ₹3,000 monthly reimbursement for 2 years on EPFO contributions per additional employee.

2.      New Skilling Scheme

·       Target: 20 lakh youth, 5 years.

·       Initiative: Upgrade 1,000 ITIs with industry-aligned courses.

3.      Internship Scheme

·       Target: 1 crore youth, 5 years.

·       Loans: Up to ₹7.5 lakh for education; up to ₹10 lakh for higher education with vouchers & interest subvention.

Inclusive Human Resource Development & Social Justice

1.      Purvodaya

·       Objective: Develop Eastern states (Bihar, Jharkhand, West Bengal, Odisha, Andhra Pradesh).

·       Initiatives: Amritsar-Kolkata Corridor, Gaya industrial node.

2.      PM Janjatiya Unnat Gram Abhiyan

·       Objective: Improve conditions in 63,000 tribal villages, benefiting 5 crore tribals.

3.      Women & Girls Support

·       Allocation: ₹3 lakh crore+ for women-focused schemes.

4.      Northeast Infrastructure

·       Initiative: 100+ India Post Payment Bank branches in Northeast.

5.      Andhra Pradesh Support (Reorganization Act)

·       Funding: ₹15,000 crore in FY 24-25.

·       Projects: Polavaram Irrigation, Kopparthy, Orvakal nodes.

1.      MSME Credit Support

·       Initiatives: Enhanced Credit Guarantee, TReDS onboarding, new MSME credit model.

·       Mudra Loans: ‘Tarun’ category limit raised to ₹20 lakh.

2.      Food Irradiation

·       Objective: Establish MSME units for food irradiation & safety testing.

3.      Industrial Parks Development

·       Initiative: 12 industrial parks under National Industrial Corridor; rental housing with PPP & VGF support.

4.      Critical Minerals Mission

·       Objective: Domestic production, recycling, overseas acquisition of critical minerals.

5.      Tribunals Strengthening

·       Initiative: Faster insolvency resolutions, new appellate tribunals.

Urban Development

1.      Stamp Duty Reduction

·       Initiative: Encourage states to lower stamp duty for women-owned properties.

2.      Street Markets Development

·       Initiative: 100 weekly haats/street food hubs in select cities.

3.      Transit-Oriented Development

·       Initiative: Plans for 14 cities with populations above 30 lakh.

4.      Water Management

·       Initiatives: Water supply, sewage, solid waste management projects in 100 cities via bankable models.

5.      PM Awas Yojana Urban 2.0

·       Target: 1 crore urban poor, ₹10 lakh crore investment.

·       Initiative: Transparent rental housing market policies.

1.      Nuclear Energy Initiatives

·       Objective: Development of Bharat Small Reactors and Bharat Small Modular Reactors.

·       Initiative: R&D on new nuclear energy technologies.

2.      Pumped Storage Policy

·       Objective: Facilitate electricity storage and renewable energy integration.

3.      AUSC Thermal Power Plants

·       Initiative: Joint NTPC-BHEL venture to set up an 800 MW commercial plant.

4.      Energy Audit

·       Objective: Cleaner energy adoption in micro and small industries.

·       Initiative: Energy audits in 60 clusters, expansion to 100.

5.      PM Surya Ghar Muft Bijli Yojana

·       Objective: Free electricity up to 300 units monthly for 1 crore households.

Infrastructure

1.      Infrastructure Allocation

·       Provision: ₹11,11,111 crore (3.4% of GDP).

·       Support: ₹1.5 lakh crore interest-free loans to states.

2.      PMGSY Phase IV

·       Objective: Connectivity to 25,000 rural habitations.

3.      Irrigation and Flood Mitigation

·       Support: ₹11,500 crore for projects like Kosi-Mechi link.

·       Assistance: Flood management in Assam, Sikkim, Uttarakhand; reconstruction in Himachal Pradesh.

1. Temple Corridor Development

o   Initiatives: Vishnupad, Mahabodhi Temple Corridors modeled after Kashi Vishwanath.

1. Rajgir Development

o   Objective: Focused development for Hindus, Buddhists, Jains.

o   Nalanda: Reviving Nalanda University as a tourist hub.

1. Odisha Tourism

o   Assistance: Develop temples, monuments, landscapes, wildlife sanctuaries, beaches.

Innovation, Research & Development

1. Anusandhan National Research Fund

o   Objective: Viksit Bharat through research and prototype development.

o   Funding: ₹1 lakh crore for private-sector-driven R&D.

1. Space Economy

o   Initiative: ₹1,000 crore venture capital fund for space economy.

Next Generation Reforms

1.      Land Reforms

o   Initiatives: Bhu-Aadhaar, urban land record digitization, GIS mapping, land registries.

2.      Climate Finance

o   Objective: Increase capital for climate adaptation and mitigation.

3.      FDI & Overseas Investments

o   Initiative: Simplified FDI processes; promoting the Indian Rupee for international investments.

4.      NPS Vatsalya

o   Objective: Allow contributions by parents/guardians for minors.

5.      Data Governance

o   Initiative: Improve collection, processing, management of data and statistics.

6.      New Pension Scheme (NPS)

o   Objective: Address issues, protect citizens, maintain fiscal prudence.

Part B: Tax-Related Proposals

1.      Simplified New Tax Regime

o   Standard Deduction: Increased from ₹50,000 to ₹75,000.

o   Family Pension Deduction: Increased from ₹15,000 to ₹25,000.

2.      Revised Tax Rate Structure

o   0-3 lakh: Nil

o   3-7 lakh: 5%

o   7-10 lakh: 10%

o   10-12 lakh: 15%

o   12-15 lakh: 20%

o   Above 15 lakh: 30%

Simplification in Taxes:

• Review of Income Tax Act 1961
• Simplification of charities and TDS
• Litigation and Appeal
• Deepening the tax base

Sector-Specific Customs Duty Proposals:

• Comprehensive review of the rate structure for ease of trade, removal of duty inversion, and reduction of disputes.

Changes in Custom Duty:

• Fully exempt 3 more cancer medicines from custom duties → Beneficiaries: Affordable medicines
• Reduce BCD to 15% on Mobile phone, Mobile PCBA, and charger → Beneficiaries: Mobile industry
• Reduce custom duty on gold and silver to 6% and platinum to 6.4% → Beneficiaries: Domestic value addition
• Reduce BCD on shrimp and fish feed to 5% → Beneficiaries: Enhance competitiveness in marine exports
• Exempt more capital goods for manufacturing of solar cells & panels → Beneficiaries: Support energy transition
• Fully exempt custom duties on 25 critical minerals → Beneficiaries: Boost to strategic sectors

Direct Tax Proposals

Rationalisation of Capital Gains:

·       20% short-term tax on financial assets

·       12.5% long-term tax on financial/non-financial assets

·       Capital gains exemption limit ₹1.25 lakh per year

Other Proposals:

·       Abolish ANGEL tax

·       Simpler tax regime for domestic cruise

·       Safe harbour rates for foreign mining companies

·       Corporate tax rate cut from 40% to 35% for foreign com

·        Drain of Wealth: Led to extreme poverty, unemployment, and a ruined economy.

·        Agriculture Neglect: Focused on land revenue collection with minimal investment in agricultural improvement.

·        Artisans’ Displacement: Led to tenant agriculture and fragmented land holdings.

·        Industrial Lag: Absence of capital goods industries; foreign capital dominance.

·        British Capital Control: British capitalists controlled many Indian companies.

India After Independence

• Mixed Economy Model: Nehru pursued a middle path combining socialism and democracy.
• Centralized Planning: Initiated through Five-Year Plans and the Planning Commission (1950).

Planning Commission (1950)

• Functions: Resource allocation, plan implementation, appraisal of Five-Year Plans (FYPs).

Industrial Policy

1. Industrial Policy Resolution (IPR) 1948: Marked the start of the mixed economy; public and private sector roles defined; foreign investments restricted.
2. IPR 1956: Focus on public sector expansion; classified industries into three sectors (Public, Mixed, Private).
3. Industrial Policy Statements 1977, 1980: Focused on decentralization, small-scale industries, liberalization, competition promotion.

1.      1st Plan (1951-56): Focus on agriculture and irrigation, based on Harrod-Domar Model. Achieved 3.6% growth.

2.      2nd Plan (1956-61): Focused on heavy industry; Mahalanobis Plan; industrialization and public sector growth.

3.      3rd Plan (1961-66): Focused on agriculture; faced failure due to wars and led to “Plan Holidays”.

4.      4th Plan (1969-74): Indira Gandhi’s tenure; focus on self-reliance; nationalization of banks.

5.      5th Plan (1974-78): Focused on poverty alleviation (“Garibi Hatao”) and employment creation.

6.      Rolling Plan (1978-80): Transition phase due to political instability.

7.      6th Plan (1980-85): Economic liberalization began; successful growth rate of 5.7%.

8.      7th Plan (1985-90): Rajiv Gandhi’s era; focus on technology, productivity, employment generation.

9.      Annual Plans (1990-92): Economic instability; introduction of LPG (Liberalization, Privatization, Globalization).

10.   8th Plan (1992-97): Modernization of industries, WTO membership, Panchayati Raj, and Nagar Palika involvement.

11.   9th Plan (1997-2002): Focus on poverty elimination, export growth, and economic development.

12.   10th Plan (2002-07): Promoted inclusive growth; aimed at 8% GDP growth.

13.   11th Plan (2007-12): Focused on education, inclusive growth, environmental sustainability.

14.   12th Plan (2012-17): Emphasis on sustainable growth, gender equality, infrastructure, and education.

Key Focus Areas

• Agriculture: Central focus in early plans to achieve self-sufficiency.
• Industry: Heavy industries and public sector development from 2nd Plan onwards.
• Education: Major thrust in 11th Plan; Right to Education Act introduced.
• Economic Reforms: LPG reforms initiated during the Annual Plans (1991-92).
• Infrastructure and Sustainability: Major emphasis in 12th Plan.

Post-Independence Period (1947-1950s)

·        Challenges: Poverty, industrial backwardness, agrarian reform.

·        Mixed Economy: Nehru’s model (socialism + capitalism).

·        First Five-Year Plan (1951-56): Focused on agriculture, infrastructure, industrialization.

Import Substitution Industrialization (1950s-1960s)

·        Protectionism: Reduce imports, promote domestic industries.

·        Second Five-Year Plan (1956-61): Emphasized heavy industries (steel, chemicals).

·        Public Sector Undertakings (PSUs): Government-controlled key industries.

Green Revolution & Agricultural Reforms (1960s-1970s)

·        Green Revolution: High-yield seeds, fertilizers, irrigation—focused on wheat/rice.

·        Impact: Increased agricultural productivity, but regional disparities emerged.

·        1969: Nationalization of 14 banks, followed by 6 more in 1980.

·        Objective: Financial inclusion, priority sector lending, equitable distribution.

Economic Crisis & Balance of Payments (Late 1970s-1980s)

·        1970s-80s: Inflation, fiscal deficit, balance of payments crisis.

·        1991: Balance of payments crisis forced economic reforms under PM Narasimha Rao and FM Manmohan Singh.

Economic Reforms of 1991 (LPG Reforms)

·        LPG: Liberalization, Privatization, Globalization.

·        Objective: Stabilize economy, increase private sector role, attract foreign investment.

Liberalization Reforms

·        Trade Reforms: Import tariffs reduced, export promotion.

·        Industrial Policy: Abolition of License Raj.

·        Financial Sector: Banking sector deregulated, stock market reforms.

Privatization Reforms

·        Disinvestment: Partial privatization of PSUs.

·        PPP Models: Encouraged in infrastructure and services.

Globalization Reforms

·        WTO Membership: 1995, Free Trade Agreements.

·        FDI Encouraged: Liberalized foreign investment norms.

·        Technology & Culture Exchange: Promoted through tourism, media, education.

Fiscal Stabilization

·        Deficit Reduction: Cut subsidies, phased out loss-making PSU loans.

·        Expenditure Reform: Reallocated to social and economic infrastructure.

Industrial Policy

·        Public Sector Restrictions Reduced: Power, oil, telecom opened to private sector.

·        De-licensing for MSME Sector: Progressive de-licensing.

Foreign Investment Reforms

·        Investment Liberalization: 51% automatic approval for foreign investments in 34 industries.

Tax Reforms

·        Lower Tax Rates: Personal income tax reduced from 56% to 40%.

·        Corporate Tax: Reduced to 46%, customs duty cut from 200% to 65%.

Public Sector Reforms

·        Disinvestment: Partial sale of government equity, management control retained.

Financial Sector Reforms

·        Private Banks Allowed: New private banking licenses issued.

·        Capital Market Regulation: SEBI formed in 1988 to regulate stock markets.

·        Global Capital Access: GDRs allowed for Indian companies.

·        Replaced Planning Commission: Shifted focus from control and command to a more collaborative and advisory approach.

·        Composition:

o   Chairperson: Prime Minister

o   Vice-Chairperson: Appointed by Prime Minister

o   Governing Council: Chief Ministers of all states, Lt. Governors of Union Territories

·        Key Objectives:

o   Cooperative Federalism: Strengthen partnerships with states, recognizing that strong states build a strong nation.

o   Village-Level Planning: Develop mechanisms for village-level credible planning and progressive aggregation at higher levels.

o   National Security Integration: Ensure national security interests are incorporated into economic strategy.

o   Inclusive Growth: Special focus on at-risk sections of society.

o   Collaborations: Promote partnerships between national and international Think Tanks and research institutions.

o   Innovation and Entrepreneurship: Establish a knowledge and innovation support system with national and international experts.

·        Planning Commission:

o   Role: Extra-constitutional body.

o   Approach: Top-down approach.

o   States’ Role: Spectators in plan meetings.

o   Power: Allocated funds to ministries and states.

o   Policy: Imposed policies on states, linking fund allocation to approved projects.

·        NITI Aayog:

o   Role: Advisory Think Tank.

o   Approach: Bottom-up planning.

o   States’ Role: Equal partners in Cooperative Federalism.

o   Power: No power to allocate funds, focus on advisory role; finance allocation rests with the Finance Ministry.

o   Policy: Does not impose policies on states.Bottom of Form

1.      NPA Issue:

·       Reasons: Aggressive loans during 2004-09 in infrastructure sectors like roads, power, aviation; poor credit checks by banks.

·       Measures: Bank Recapitalization—infusion of capital to meet adequacy norms.

2.      Insolvency and Bankruptcy Code (IBC) 2016:

·       Objective: Resolve corporate insolvency, maximize asset value, promote credit.

·       Resolution time-bound process, saving businesses as going concerns.

3.      Merger of Banks:

·       Aim: Larger sector banks (e.g., Andhra Bank merged with Union Bank).

4.      Promotion of Digital Payments:

·       UPI System revolutionized payment system, surged transactions (from 2,071 crore in 2017-18 to 8,840 crore in 2021-22).

·       BHIM UPI: Preferred mode of payment—803.6 crore transactions worth ₹12.98 lakh crore (Jan 2023).

Tax Reforms

1.      GST (Goods and Services Tax):

·       Major indirect tax reform, replacing 17 taxes, 13 cesses; single tax from manufacturer to consumer.

2.      Corporate Tax Reform:

·       22% concessional tax for domestic companies (FY 2019-20), elimination of Minimum Alternate Tax (MAT).

3.      Demonetization (Nov 2016):

·       Rs 500 and Rs 1,000 notes invalidated, targeting black money, affecting 86% currency in circulation.

1.      Production-Linked Incentive (PLI) Scheme:

·       Incentives on incremental sales to encourage domestic manufacturing.

2.      Make in India:

·       Boosting manufacturing, incentivizing investments in domestic production.

3.      Prime Minister Employment Generation Programme (PMEGP):

·       Employment opportunities through MSMEs.

4.      Zero Defect, Zero Effect (ZED) Certification:

·       Government subsidies to MSMEs for quality and eco-friendly production.

Agriculture Initiatives

1.      National Nutrition Mission:

·       Focus on nutritional crops (millets, pulses); environment-friendly and nutrient-rich.

2.      Promotion of Oilseeds and Horticulture:

·       Shift in agriculture focus, sustained growth even during the pandemic.

3.      Agriculture Reforms (2020):

·       Farmers’ Produce Trade and Commerce Act; led to protests due to market reforms.

Divestment

1.      Disinvestment: Reducing government stake in public sector enterprises, increasing private sector growth and improving public services.

1.      Objectives:

o   Digital infrastructure for every citizen, on-demand governance services, digital empowerment.

Infrastructure Projects

1.      Logistics and Connectivity:

·       Projects to reduce logistics costs—highways, railways, smart cities—boosting economic growth.

2.      PM Awas Yojana, Swachh Bharat Abhiyan:

·       Housing for all and cleanliness campaigns, especially in rural areas.

Economic Growth and Challenges

1.      GDP Growth:

·       Maintained as one of the fastest-growing major economies, though slowed before COVID-19.

2.      FDI Growth:

·       Increased foreign investments with liberalized policies in sectors like retail, defense, insurance.

3.      COVID-19 Impact:

·       Lockdowns disrupted the economy; relief packages and reforms to mitigate impact.

4.      Unemployment, Income Inequality:

·       Persistent challenges, exacerbated by pandemic; inflation control through RBI measures (e.g., increased repo rates).

5.      Agrarian Distress:

·       Low crop prices, agrarian protests due to reforms.