Current Affairs UPSC

  An Introduction         Contents of the Chapter

• Introduction
• Types of Economics
• Keynesian theory of Macro Economics
• Mesoeconomics
• Socialist theory of Economics
• Structural Change
• Green Economics
• Measuring Growth
• National Income Accounting
• Market Price and Factor cost
• Factor Costs
• GDP/GNP
• Final Goods
• GDP
• Net National Product
• Business Cycles
• Benefits and Side Effect of Economic Growth
• Measure Of Real Progress FOR GDP
• High-income Economy
• Least Development Countries
• India’s Initiatives for Green Acounting
• Sarkozy’s Initiatives for GDP Alternative
• India GDP Base Year is changed

    INTRODUCTION Economics as a word comes from the Greek: oikos means ‘family, household, or estate’, and nomos stands for ‘custom, law’ etc. Thus, "household management" or management of scare resources is the essential meaning of economics. Economics encompasses production, distribution, trade and consumption of goods and services. Economic logic is applied to any problem that involves choice under scarity.   Intially, economics focused on “wealth” and later “welfare”. Still later, in recent years, it has given sufficient attention to the study of tradeoffs- giving up one to gain another. The focus on tradeoffs arises from the traditional assumption that resources are scare and that it is necessary to choose between competing alternatives. Choosing one benefit implies forgoing another alternative that opportunity cost (cost of foregoing an Opportunity).   Adam Smith, generally regarded as the Father of Economics, author of ‘An Inquiry into the Nature’ and Causes of the Wealth of Nations (generally known as The Wealth of Nations) defines economics as “The science of wealth.” Smith offered another definition, “The Science relating to the laws of production, distribution and exchange.”   Definitions in terms of wealth emphasize production and consumption, and do not deal with the economic activities of those not significantly involved in these two processes, for example, children and old people. The belief is that non-productive activity is a cost on society. It meant that man was relegated to the secondary position and wealth was placed above life. Thus arose the shift in the focus to welfare economics study of man and of human welfare, not of money alone. Economics involves social action connected with the attainment of human well being.   Types of Economics Economics is usually divided into two main branches:   Microeconomics which examines the economic behavior of individual actors such as consumers, businesses, households etc. to understand how decisions are made in the face of scarcity and what effects they have.   Macroeconomics, which studies the economy as a whole and features like national income, employment, proverty, balance of payments and inflation.   The two are linked closely as the behavior of a firm or consumer or household depends upon the state of the national and global economy.   Mesoeconomics ‘Mesoeconomics’ studies the intermediate level of economic organization in between the micro and the macro economics like institutional arrangements etc.   DIVISION OF ECONOMICS FOCUS There are broadly the following approaches in the mainstream economics. The basis of all the more...

Selectors of the Indian Economy       Contents of the Chapter

• SECTORS OF ECONOMIC ACTIVITIES
• COMPARING THE THREE SECTORS
• Historical Change in Sector
• PRIMARY SECONDARY AND TERTIARY SECTORS IN INDIA
• How to Create More Employment?
• DIVISION OF SECTORS AS ORGANISED AND UNORGANISED
• How to Protect
• Workers in the Unorganised Sector?
• SECTORS IN TERMS OF OWNERSHIP: PUBLIC AND PRIVATE SECTORS

    An ecomomy is best understood when we study its components or sectors. Sectoral classification can be done on the basis of several criteria. Her three / secondary / tertiary, organised / unorganized; and public / private. It is important to emphasise the changing roles of sectors.   This can be highlighted further by drawing attention of the students to the rapid growth of service sector. While elaborating the ideas need to be familiarised with a few fundamental concepts such as Gross Domestic Product, Employment etc. Another important issue to be highlighted is about the problems caused by the changes in the roles of sector.   SECTOR OF ECONOMIC ACTIVITIES There are many activities that are undertaken by directly using natural resources. Take, for example, the cultivation of son. It takes place within a crop season. For the growth of the Cotton plant, we depend mainly, but not entirely, on natural factors like rainfall, sunshine and climate. The product of this activity, Cotton, is a natural product. Similarly, in the case of an activity like dairy. We are dependent on the biological process of the animals and availability of fodder etc. The product here, milk, also is a natural product Similarly, minerals and ores are also natural products. When we produce a good by exploiting natural resources, it is an activity of the primary sector. Why primary? This is because it forms the base for all other products that we subsequently make. Since most of the natural products we get are from agriculture dairy, fishing, forestry, this sector is also called agriculture and related sector.   The secondary sector covers activities in which natural products are changed into other forms through manufacturing that we associate with industrial activity. It is the next step after primary. The product is not produced by nature but has to be made and therefore some process of manufacturing is essential. This could be in a factory, a workshop or at home. For example using cotton fiber from the plant, we spin yarn and weave cloth. Using sugarcane as a raw material, we make sugar or gur. We convert soil into bricks and use bricks to make houses and buildings. Since this sector gradually became associated with the different kinds of industries that came up, it is also called as industrial sector.   After primary and secondary, there is a third category of activities that falls under tertiary sector and is different from the above two. These are activities that help in the development of the primary and secondary sectors. These activities, by themselves, do not produce more...

Economy Planning         Contents of the Chapter  

• Planned Economy
• Market economy
• Indicative plan
• Difference between Planned Economy & Command Economy
• Main Goals of Indian Planning
• Planning has the following long term goals
• History of Planning
• First Plan (1974-56)
• Second Plan (1956-61)
• Third Plan (1961-66)
• Fourth Plan (1969-74)
• Fifth Plan (1974-79)
• Sixth Plan (1980-85)
• Seventh Plan (1985-90)
• Eight Plan (1992-1997)
• Ninth Five Year Plan (1997-2002)
• Tenth Plan
• Function of Planning Commission
• Organisational Structure or Planning Commission
• Planning Commission Division
• Mixed Economy
• Financial Resources for the Five year Plans
• Achievements of Planning
• Indicative Planning
• Rolling Plan
• Financial Planning
• Physical planning
• Nehru-Mahalanobis Model of Economic Growth
• Rao-Man Mohan Singh Model of Growth
• Economic Reforms in India
• Main Objective of 12th Five Year Plan
• Agriculture and Rural Development
• Education and Skill Development
• Issues for Special Category States
• Governance and Empowerment
• Increase bulk/container capacity

    PLANNED ECONOMY Planned economy is one in which the state owns (party or wholly) and directs the economy. While such a role is assumed by the State in almost every economy, in planned economies, it is pronounced: for example in communist and socialist countries- former USSR and China till the 1970’s. In such a case a planned economy is referred to as command economy or centrally planned economy or command and control economy. In command economies, state does the following –  

• Control all major sectors the economy

 

• Legislate on their use and about the distribution of income

 

• State decides on what should be produced and how much; sold at what price

 

• Private property is not allowed

  Market economy In a market economy, it is the opposite-state has a minimal role in the management of the economy- production, consumption and distribution decisions are predominantly left to the market. State plays certain role in redistribution. State is called the laissez faire state here. It is a French phrase literally meaning “Let do.”   Indicative plan Indicative plan is one where there is a mixed economy with State and market playing significant roles to achieve targets for growth that they together set. It is operated under a planned economy but not command economy.   Different between Planned Economy & Command Economy The difference between planned economy and command economy is that in the former there may be mixed economy and while in the latter Government owns and regulates economy to near monopolistic limit.   Command economies were set up in China and USSR, mainly for rapid economic growth and social and economic justice but have been dismantled in the last two decades as they do not create wealth sustainably and are not conducive for innovation and efficiency. Cuba and North Korea are still command economies.   An overview of History of Economic Planning in India India being devastated economically after more than two centuries of colonial exploitation resulting in more...

India's Economic Interaction with the World       Contents of the Chapter

• Developmental Path – A Snapshot View
• Demographic Indicators
• Gross Domestic Product and Sector
• Growth of Gross Domestic Products (%), 1980 - 2003
• Indicators of Human Development
• Some Select Indicators of Human Development, 2003
• Development Strategies- An Appraisal
• Conclusion

    Nations have been primarily trying to adopt various means which will strengthen their own domestic economies. To this effect, they are forming regional and global economic groupings such as the SAARC, European Union, ASEAN, G-20 etc. In addition, there is also an increasing eagerness on the parts of various nations to try and understand, the developmental processes pursued by their neighboring nations as it allows them to better comprehend their own strengths and weaknesses vis-a-vis their neighbors. In the unfolding process of globalization, this is particularly considered essential by developing countries as they face competition not only form developed nations but also amongst themselves in the relatively limited economic space enjoyed by the developing world. Besides an understanding of the other economies in our neighborhood is also required as all major common economic activities in the region impinge on overall human development in a shared environment.   Here we will compare the developmental strategies in pursued by India and the largest two of its neighboring economies – Pakistan and China.   It has to be remembered, however, that apart from the similarities in their physical endowment, there is little in wedded to a secular and deeply liberal constitution for over half a century, and the authoritarian militarist political power structure of Pakistan or the command economy of China that has only recently started moving towards a more liberal restructuring.   DEVELOPMENTAL PATH - A SNAPSHOT VIEW India, Pakistan and china have many similarities in their developmental strategies? All the three nations have started towards their developmental path at the same time. While India and Pakistan become independent nations in 1947, People’s Republic of China was established in 1949. In a speech at that time, Jawaharlal Nehru had said, “these new and revolutionary changes in China and India, even though they differ in content, symbolize the new spirit of the Asia and new vitality which is finding expression in the countries in Asia.”   All the three countries had started planning their development strategies in similar ways. While India announced its first five Year Plan. for 1951-56, Pakistan announced its first five year plan, called. The Medium Term Plan, in 1956 China announced its five Year Plan In 1953 till current planning in India is based on Tenth Five Year Plan (2002-07), India and Pakistan adopted similar strategies such as creating a large public sector and raising public expenditure on social development. Till the 1980s, all the three countries had similar growth rates and per capita.   China: After the establishment of People’s Republic of china under one party rule, all the critical sector of the economy, enterprises and lands more...

Liberalization       Contents of the Chapter

• Navaratnas and public Enterprise Policies
• Global Footprint!
• Privatization
• Globalization
• Who are the Poor?
• What is Poverty?
• How are poor people identified?
• What Causes Proverty?
• Towards Poverty Alleviation
• Poverty Alleviation Programmes – A critical Assesment

    Rules and laws which aimed at regulating the economic activities became major hindrances in growth and development. Liberalization was introduced to put an end to these restrictions and open up various sectors of the economy. Though a few liberalization measures were introduced in 1980s in areas of industrial licensing, export-import policy, and foreign investment, reform policies initiated in 1991.   Deregulation of industrial Sector: In India, regulatory mechanisms were enforced in various ways (i) industrial licensing under which every entrepreneur had to get permission from government officials to start a firm, close a firm or to decide the amount of goods, that could be produced (ii) private sector was not allowed in many industries (iii) some goods could be produced only in small scale industries and (iv) controls on price fixation and distribution of selected industrial products.   The reform policies introduced in and after 1991 removed many of these restrictions. Industrial licensing was abolished for almost all but product categories – alcohol, cigarettes, hazardous chemicals industrial explosives, electronics, aerospace and drugs and pharmaceuticals. The only industries which are now reserved for the public sector are defence equipments, atomic energy generation and railway transport. Many goods produced by small scale industries have now been deserved. In many industries, the market has been allowed to determine the prices. Financial Sector Reforms: Financial sector includes financial institutions such as commercial banks, investment banks, stock exchange operations and foreign exchanges market.   The financial sector in India is controlled by the Reserve Bank of India (RBI). You may be aware that all the banks and other financial institutions in India are controlled through various norms and regulations of the RBI. The RBI decides the amount of money that the banks can keep with themselves, fixes interest rates, nature of lending to various sectors etc. One of the major aims of financial sector reforms is to reduce the role of RBI from regulator to facilitator of financial sector. This means that the financial sector may be allowed to take decisions on many matters without consulting the RBI.   Navaratnas and public Enterprise Policies In 1996, in order to improve efficiency, infuse professionalism and enable them to compete more effectively in the liberalized global environment, the government chose nine PSUs and declared them as navaratnas. They were given greater managerial and operational autonomy, in taking various decisions to run the company efficiently and thus increase their profits. Greater operational, financial and managerial autonomy had also been granted to 97 other profit-making enterprises referred to as mini ratnas.   The first set of navaratna companies included Indian Oil Corporation Ltd (IOC), Bharat Petroleum Coporation Ltd (BPCL), Hindustan Petroleum Corporation Ltd (HPCL), Oil and Natural more...

Human Capital and Human Development       Contents of the Chapter

• HUMAN CAPITAL FORMATION IN INDIA: GREAT PROSPECTS
• EDUCATION SECTOR IN INDIA
• Education Achievements in India
• Future Prospects
• WHAT IS RURAL DEVELOPMENT?
• AGRICULTURAL MARKET SYSTEM
• SUSTAINABLE DEVELOPMENT AND ORGANIC FARMING
• Every village - a Knowledge Centre
• Organically Produced Cotton in Maharashtra

    The two terms sound similar but there is a clear distinction between them. Human development is based on the idea that education and health are integral to human wellbeing because only when people have the ability to read and write and the ability to lead a long and healthy life, they will be able to make other choices which they value. Human capital treats human beings as a means to a gad end being the increase in productivity. In this view, any investment in education and health is unproductive if it does not enhance output of goods and services. In the human development perspective human beings are ends themselves.   Human welfare should be increased through investments in education and health even if such investments do not result in higher labour productivity. Therefore, basic education and basic health are important in themselves, irrespective of their contribution to labour productivity. In such a view, every individual has a right to get basic education and basic health care, that is, every individual has a right to be literate and lead a healthy life.   HUMAN CAPITAL FORMATION IN INDIA: GREAT PROSPECTS In this section we are going to analyze human capital formation In India. We have already learnt that human capital formation is the outcome of investments in education, health, on-the-job training, migration and information of these education and health are very important sources of human capital formation. We know that ours is a federal country with a union government, state governments and local governments (Municipal Corporations, Municipalities and Village Panchayats). The Constitution of India mentions the functions to be carried out by each level of government. Accordingly, expenditures on both education and health are to be carried out simultaneously by all the three tiers of the government.   Do you know who takes car & of education and health in India? Before we take up the analysis of the education sector in India, we will look into the need for government intervention in education and health sectors. We do understand that education and health care services create both private and social benefits and this reason for the existence of both private and public institutions in the education and health service markets. Expenditures on education and health make substantial long-term impact and they cannot be easily reversed; hence, government intervention ‘essential. For instance, once a child is admitted to a school or health care centre where the required services are not provided, before the decision is taken to shift the child to another institution, substantial amount of damage would have been done.   Moreover, individual consumers of these services do more...

Growth and Changing Structure of Employment       Contents of the Chapter

• Informalisation of Indian Workforce
• Unemployment
• Government and Employment Generation
• What is infrastructure?
• Relevance of Infrastructure
• The State of Infrastructure in India
• Energy
• Sustainable Development
• Strategies for Sustainable Development
• Conclusion

    Here we will look at two developmental indicators- growth of employment and GDP. Fifty years of planned development have been aimed at expansion of the economy through increase in national product and employment.   During the period 1960-2000, Gross Domestic Product (GDP) of India grew positively and was higher than the employment growth. However, there was always fluctuation in the growth of GDP. During this period, employment grew at a stable rate of about 2 per cent.   In the late 1990s: employment growth started declining and reached the level of growth that India had in the early stages of planning. During these years, we also find a widening gap between the growth of GDP and employment. His means that in the Indian economy, without generating employment, we have been able to produce more goods and services. Scholars refer to this phenomenon as jobless growth.   We have seen how employment has grown in comparison to GDP. Now it is necessary to know how the growth pattern of employment and GDP affected different sections of workforce. From this we will also be able to understand what types of employment are generated in our country. Distribution of workforce by industrial sectors shows substantial shift from work to non-farm work.   In 1972-73, about 74 per cent of workforce was engaged in primary sector and in 1999- 2000, this proportion has declined to 60 per cent. Secondary and service sectors are showing promising future for the Indian workforce. You may notice that the shares of these sectors have increased from 11 to 16 per cent and 15 to 24 per cent respectively.   The distribution of workforce in different status indicates that over the last three decades (1972-2000), people have moved from self-employment and regular salaried employment to casual wage work. Yet self-employment continues to be the major employment provider. Scholars call this process of moving from self-employment and regular salaried employment to casual wage work as casualisation of workforce. This makes the workers highly vulnerable.   INFORMALISATION OF INDIAN WORKFORCE One of the objectives of development planning in India, since India’s independence, has been to provide decent livelihood to its people. It has been envisaged that the industrialization strategy would bring surplus workers from agriculture to industry with better standard of living as in developed countries. We have seen in the preceding section, that even after 55 years of planned development, three- fifth of India workforce depends on farming as the major source of livelihood.   Economics argue that, over the years, the quality of employment has been deteriorating. Even after working for more than 10-20 years, why do some workers not get maternity benefit, provident fund, gratuity and more...

Stock Markets in India       Contents of the Chapter

• Stock Markets (Specially in Indian context)
• Importance of Stock Exchanges
• Stock Exchanges in India
• Classification of companies listed in BSE
• Sensex
• SEBI
• Capital Market Reforms
• Foreign institutional investors (Fills)
• Primary Dealers
• Market Depth
• Negotiated Dealing System
• EPS
• Nasdaq
• Dow Jones index
• Ethical Investing
• Direct Tax
• Indirect Taxes
• Service Tax
• Tax Incidence
• Tax Buoyancy
• Tax Elasticity
• Tax Stability
• Wealth Tax
• Securities Transaction Tax
• Transfer Pricing
• Rupee Comes Like This
• Key Issues and Analysis
• India-Mauritius Tax Treaty

    STOCK MARKETS (SPECIALLY IN INDIAN CONTEXT) A stock exchange is an organization which provides a platform for trading shares- either physical or virtual. The origin of the stock, market dates back to the year 1494, when the Amsterdam Stock Exchange was first set up. In a stock exchange, investors through stock brokers buy and sell shares in a wide range of listed companies. A given company may list in one or more exchanges by meeting and maintaining the listing requirements of the stock exchange.   In financial terminology, stock is the capital raised by a corporation, through the issuance and sale of shares. In common parlance, however, stock and shares are used interchangeably. A shareholder is any person or organization which owns one or more shares issued by a corporation. The aggregate value of a corporation’s issued shares, at current market prices, is its market capitalization. Stock broker buys and sells for an investor and does the work of arranging the transfer of stock from a seller to a buyer.   Importance of Stock Exchanges

• For efficient working of the economy and for the smooth functioning of the corporate form of organization, the stock exchange is an essential institution.

 

• an efficient medium for raising long term resources for business
• Help raise savings from the general public by the way of issue of equity debt capital

 

• attract foreign currency

 

• exercise discipline on companies and make them profitable

 

• investment in backward regions for job generation

 

• another vehicle for investors’ savings

  Stock Exchanges in India The first company that issued shares was the VOC or Dutch East India Company in the early 17th century (1602). Since then we have come a long way. With over 25m shareholders today, India has the third largest investor base in the world after the USA and Japan. Over 9,000 companies are listed on the stock exchanges, which are serviced by approximately 7,500 stockbrokers. The Indian capital market is significant in terms of the degree of development, volume of trading and its tremendous growth potential.   Stock exchanges provide an organised market for transactions in securities and other securities. There are 24 stock exchanges in the country, 21 of them being regional ones with allocated areas. Three other are set up in more...

 Public Sector       Contents of the Chapter

• The Objectives of the PSUs are
• FAQ Food Price Index
• Public Sector and Economic Reforms
• Advantages and Disinvestment / Privatization
• Criticism of Disinvestment
• Government Policy on Disinvestment/ Privatization
• Approach for Disinvestment
• Miniratna companies
• Category I Miniratna
• Category II Miniratna
• Ad-hoc Group of Experts (AGE) Report
• Autonomy for PSEs
• Professionalisation of PSU Boards
• Problems and Prospects of PSU restructuring
• Multiple–Audit
• Department of Expenditure
• Cooperative Federalism
• Finance Commission Award
• Development Expenditure
• Market Capitalization of CPSEs
• (as on 31 January 2016)
• Public Sector Banks

      Q.1.     What do you mean by Public Sector? (Give your answer in Indian context). Ans.     In a public sector enterprise, the majority of equity shares is owned by the government directly or indirectly through governmental institutions and the government has decision making control .Public sector enterprise normally has the following forms of organisational structure  

• departmental undertakings

 

• statutory corporations

 

• companies registered under the Companies Act 1956

 

• boards

 

• cooperatives

  Departmental undertakings are not formed by or with the consent of the legislative authority. These are set up by the executive actions of government bodies and are charged with the duty of carrying out specially defined functions. These undertakings are not independent entities. They are subject to budgetary, audit and other controls of the government and are managed by civil servants. They are financed by annual budgets which also receives their revenues. A departmental undertaking is best suited where the main purpose of the enterprise is to collect revenue for the state and to provide public utilities and services at fair prices in larger public interest. Some examples of departmental undertakings are the Railway, Postal Department etc.   Statutory corporations are enterprises normally engaged in economic or manufacturing activities and are set up by act of legislature. These corporations are legal entities separate from the government and also the persons who conduct their affairs. ONGC, LIC are some examples. Shares of such corporations are in the name of the government and these are thus owned and controlled by the government. Statutory corporations enjoy extensive legal autonomy, and their rules, objectives, functions and duties are define and specified in the act. Financing statutory corporations is not part of the Budget and therefore, they can retain their revenues, and also spend as per the rules laid down by the state.   Control Boards are set up to manage government projects- for example, the river valley projects. Bhakra Management Board.   PSE can be in the form of cooperative society to support cooperative movement- Indian Farmers Fertilizer Cooperative Ltd (IFFCO), Krishi Bharati Cooperative Ltd (KRIBHCO) etc. They are registered under Multi State Cooperative Societies Act, Over 65% of the capital of the units is held by the Central Government. Government company is one where the government owns more...

Banking System in India       Contents of the Chapter

• Bank Nationalization
• Commercial Banks
• Commercial Banks and Their Weaknesses by 1991
• Narasimhan Committee
• Prudential Norms
• Bank consolidation
• RBI and Financial Stability
• Post-Lehman
• Toxicity Index etc RBI
• PLR
• Weak Bank - Narasimham Committee-II
• Narrow banking
• Bank run
• Core banking
• Banks stress tests
• World Bank recapitalization
• Financial sector reforms
• How Indian Banks Survived the Global Crisis
• Important Additional Data for Financial Inclusion
• What are its benefits? What are the exceptions?
• Composition

    Q.1.     Write a short notes on Commercial Bank. Ans.     A commercial bank is a type of financial intermediary. It is a financial intermediary because it mediates between the savers and borrowers. It does so by accepting deposits from the public and lending money to businesses and consumers. Its primary liabilities are deposits and primary assets are deposits and primary assets are loan and bonds.   “Commercial bank” has to be distinguished from another type called “investment bank”. Investment banks, assist companies in raising funds in the capital markets (both equity and debt), as well as in providing strategic advisory services for mergers, acquisitions and other types of financial transactions. It is also called merchant bank.   The commercial banking system in, India consists of public sector banks; private sector banks and cooperative banks.   Currently, India has 88 scheduled commercial banks (SCBs) – 26 public sector banks (that is with the Government of India holding majority stake) that include SBI and its associates and the IDBI Bank, 31 private banks and 38 foreign banks. Public sector banks hold over 75 percent of total assets of the banking industry, with the private and foreign banks holding 18.2% and 6.5% respectively.   Public Sector Banks They are owned by the Government-either totally or as a majority stake holder.  

• State Bank of India and its five associate banks called the State Bank group

 

• 19 nationalized banks

 

• Regional Rural Banks mainly sponsored by Public Sector Banks

  Private Sector Banks include domestic and foreign banks   Co-operative Banks are another class of banks and are not considered as commercial banks as they have social objectives and profit is not the motive.   Reserve Bank of India lays down the norms for banking operations and has the final supervising power.   Q.2.     What do you understand by Development Banks? Ans.     Development Banks are those financial institutions which provide long term capital for industries and agriculture: Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (IDBI), Industrial Credit and Investment Corporation of India (ICICI) that was merged with the ICICI Bank in 2000, Industrial Investment Bank of India (JIBI), Small Industries Development Bank of India (SIDBI), National Bank for Agriculture and Rural Development (NABARD), Export Import Bank of India, National Housing Bank (NHB).   The commercial banking network essentially catered to the needs of general more...