INDIAN ECONOMY

About Me

 Shubham Sharma
 Company Secretary and LLB.
 Experience
 5+ years of teaching experience to students of
UPSC
How to approach Economy
 “Trust yourself, you know more than you think you do”
 What to Study or I will Say what not to Study and What is
Relevant?
 For Prelims and Mains
 Syllabus

 Previous Year Papers

Syllabus Prelims

 Economic and Social Development - Sustainable

Development, Poverty, Inclusion, Demographics, Social
Sector initiatives, etc
Types of Questions Asked in Prelims

 Terminology Based
 Basic Understanding Based
 Interrelation Based
 Current Affair Based
 Government Scheme and Budget


How to Study
 "I find that the harder I work, the more luck I seem to have."
 Clear Understanding
 Revision
 Underlining
 Synopsis
 Focus on Basics
 Relate it with Current
 Realistic Targets
How to make notes and study Economy
Sources for Economy
 Newspapers

 NCERTS

 Class Notes
 Monthly Magazine (Only Ias)
Sources for Economy
 Yojna and Kurukshetra

 Economic Survey
Previous Year Question Analysis Prelims
2021 Question Analysis Prelims

No of Questions asked in prelims 2021 were 14

 5 Questions were from Economic Survey
Previous Year Question Analysis Prelims
Topics with Most Significance

Banking Finance:
 Budget
Balance of payment and currency exchange rate
mechanism
sectors of economy, agriculture and its schemes
Infrastructure
International organisations
Questions from Ncert

Q1.The money multiplier in an economy increases with which

one of the following?
a) Increase in the Cash Reserve Ratio in the banks
b) Increase in the Statutory Liquidity Ratio in the banks
c) Increase in the banking habit of the people
d) Increase in the population of the country
Questions from Ncert

Q2.In India, the central bank’s function as the ‘lender of last resort’
usually refers to which of the following?
1. Lending to trade and industry bodies when they fail to borrow from
other sources.
2. Providing liquidity to the banks having a temporary crisis
3. Lending to governments to finance budgetary deficits
Select the correct answer using the codes given below.
a) 1 and 2
b) 2 Only
c) 2 and 3
d) 3 Only
Topics with Most Significance from Newspaper
INDIAN ECONOMY
Economics vs Economy

 Economics is the study of making decisions in the presence of

scarcity of resources in the Country.
 Human activities which are performed in exchange for money are
called economic activities. The environment that facilitates these
activities is known as Economy
Economics vs Economy
Types of Economics

 Macro Economy
 Micro Economy
 Meso Economics
Liberal and Neo liberal Economics
DIFFERENT CONSENSUS
 WASHINGTON CONSENSUS
 Originally for the Latin American Countries
 ● Objective: to address the real problems occurring in Latin America
 ● US economist John Williamson coined the term.
 ● Set of neoliberal economic prescriptions made by the IMF, the World Bank, and the
U.S. Treasury to developing countries that faced economic crises.
 ● Recommended: structural reforms that increased the role of market forces in
exchange for immediate financial help.
 ● Many are of the opinion: the Washington Consensus was used to impose harsh
conditions that were unhelpful for economic recovery,
 ● Counter argument: although not perfect, it was favourable to long-term economic
growth in developing economies.
DIFFERENT CONSENSUS
 BEIJING CONSENSUS
 Idea by Joshua Cooper Remo
 ● Chinese Model of economic development based upon policies of Deng Xiaoping
since 1976
 ● An alternative to the Washington Consensus also called as
 anti-Washington Consensus view for the growth of developing
 countries.
 ● Based upon 3 main pillars
 ● Constant experimentation and innovation;
 ● Peaceful distributive growth with gradual reforms;
 ● Self-determination and inclusion of selective foreign ideas
DIFFERENT CONSENSUS
 SANTIAGO CONSENSUS

 ● Alternative to the Washington Consensus.

 ● By the then World Bank group President James D. Wolfensohn
 (in Santiago) for the developing countries.
 ● Core idea of this model is inclusion which should not be only
 economic but social too.
 ● This way, this is a socio-economic development model and is
 bound to have its local characteristics.
 ● Idea of Inclusive growth
 ● India Adopted it in 2002
The capitalist Economy
Type of Economies

 The capitalist Economy Features

 Private Property

 Freedom of enterprise

 Price Mechanism

 Free trade

 Government Interference

 Flexibility in labour markets

 Freedom of Ownership
Socialist Economy
Mixed Economy
Open economy v/s Closed economy
Behavioural Economics
Green Economics
INDIAN ECONOMY
Different Sectors of Economy
Different Sectors of Economy
Different Sectors of Economy
Different Sectors of Economy
Different Sectors of Economy

 Tertiary Sector/Service Sector

 This sector’s activities help in the development of the primary
and secondary sectors. By itself, economic activities in tertiary
sector do not produce a goods but they are an aid or a
support for the production.
 Goods transported by trucks or trains, banking, insurance,
finance etc. come under the sector. It provides the value
addition to a product same as secondary sector.
 This sector jobs are called white collar jobs
Different Sectors of Economy

 Quaternary Activities.
Different Sectors of Economy

 Quinary Activities.
Role of different sectors in Economy
Organised Sector
Unorganised Sector
Unorganised Sector vs organised sector
Public Sector
Private Sector
Private Sector vs Public Sector
PPP
POVERTY
.
INDIAN ECONOMY
Poverty in India
 What is Poverty?
 Poverty is a state or condition in which a person or community lacks the
financial resources and essentials for a minimum standard of living..
 In India, 21.9% of the population lives below the national poverty line in
2011.
 In 2018, almost 8% of the world’s workers and their families lived on less
than US$1.90 per person per day (international poverty line)
Poverty in India

 Types of Poverty
 Absolute Poverty
 Relative Poverty
Poverty in India
 Historical perspective
Causes of Poverty in India
Causes of Poverty in India
Poverty Estimation in India
Committees for Poverty Estimation

 YK Alagh Committee (1979):

Committees for Poverty Estimation

 Lakdawala Formula 1993:

 This formula included the calorific limits of Alagh committee and it also
included health and education components. basis of household per capita
consumption expenditure. Consumer Price Index-Industrial Workers (CPI-
IW) and Consumer Price Index- Agricultural Labourers (CPI-AL)
 Tendulkar Methodology 2005:
 It focused on nutritional outcomes and included health, education, transport
and electricity. It is based on spending per individual over a fixed period
for an essential basket of goods Ie., cost of living. India presently follows this
method for estimation of poverty. It set Rs 27 for rural areas and Rs 33 in
urban areas for consumer spending as the reference limit
Rangarajan committee on poverty:

 It has taken monthly consumption expenditure per person or per household as a tool
for calculating poverty lines. Based on this 972 INR (Rs 32 per day) in rural areas and
1407 INR (Rs 47 per day) in urban areas is calculated based on 2011 to 2012 prices.
According to this estimate, poverty in India stood at 29.5% in 2011-12 which is
significantly higher than the Tendulkar model. The group went for separate rural and
urban poverty lines as there is huge complexity associated with them. There are two
components in this method
1. Food component
2. Non food component such as:
a) Education
b) Clothing
c) Conveyance
d) House rent
e) Behavior related expenditures
Reasons for the ineffectiveness of the
poverty alleviation programs
Sustainable Development Index
Sustainable Development Index

The SDG Index is an assessment of each country’s overall performance on the 17 SDGs, giving equal weight to each Goal. The
score signifies a country’s position between the worst possible outcome (0) and the best, or target outcome (100)
India ranked 120th with a score of 60.07
Finland, Sweden, and Denmark in top 3

SDG India Index

The SDG India Index scores range between 0–100, higher the score of a State/UT

States and UTs are classified in four categories based on Index score:
Aspirant: 0–49.
Performer: 50–64.
Front-runner: 65–99.
Achiever: 100.

Kerala retained its position at the top of the rankings in the third edition of the index, with a score of 75, followed by Tamil
Nadu and Himachal Pradesh, both scoring 72.

Bihar, Jharkhand and Assam were the worst performing States

UNEMPLOYMENT

INDIAN
ECONOMY
Unemployment in India

 What is Unemployment?
 Unemployment is a situation in which a person who is willing to
work at the existing wage rate does not get a job.
Unemployment in India

 What is Unemployment?
National Statistics Office (NSO) under MoSPI – Ministry of
Statistics and Programme Implementation defines employment
and unemployment on the following activity statuses of an
individual:
 Working (engaged in an economic activity) i.e. 'Employed'.
 Seeking or available for work i.e. 'Unemployed'.
 Neither seeking nor available for work.
 Unemployment rate = (Unemployed Workers / Total labour
force) × 100
Measures of Unemployment
 Usual Status Unemployment:
 This measure estimates the number of persons who remained
unemployed for a major part of the year.
 Weekly Status Unemployment:
 According to this estimate a person is said to be employed
for the week even if he/she is employed only for an hour in
a day during that week.
 Current Daily Status Unemployment:
 It considers the activity status of a person for each day of
the preceding seven days.
 The reference period here is a day.
 If a person did not find work on a day or some days during
the survey week, he/she is regarded as unemployed.
CAUSES OF UNEMPLOYMENT IN INDIA
CAUSES OF UNEMPLOYMENT IN INDIA
CONSEQUENCES OF UNEMPLOYMENT
Types OF UNEMPLOYMENT

 Frictional Unemployment
Types OF UNEMPLOYMENT

 Structural Unemployment:
Types OF UNEMPLOYMENT

 Cyclical Unemployment
Types OF UNEMPLOYMENT

 Seasonal Unemployment: It is an unemployment that occurs during

certain seasons of the year.
Types OF UNEMPLOYMENT

 Vulnerable Unemployment
 Technological Unemployment
Types OF UNEMPLOYMENT

 Occupational structure in India

Occupational structure in India Sector Share in Employment Share in
GDP

Primary Sector 50% 14%

Secondary Sector 15% 21%

Tertiary Sector 30% 65%

Unemployment Trap
 It is a situation when unemployment benefits discourage the
unemployed to go to work. People find the opportunity cost of
going to work too high when one can simply enjoy the benefits by
doing nothing.
Periodical Labour Force Survey

 It was launched in April 2017 by the Ministry of Statistics &

Programme Implementation
 It was launched as a new regular employment and
unemployment survey with certain changes in survey
methodology, data collection mechanism and sampling design.
 According to monthly data from the Centre for Monitoring Indian
Economy, unemployment rate in India shot up significantly from
7.87% in June 2019 to 23.48% in May 2020.
four key pillars to fight covid-19 according to International labour standards
INFORMAL EMPLOYMENT

 What is informal economy and why is it important?

 Informal economy broadly comprises of two parts- informal enterprises
as economic entities and informal employees (employed both in formal
and informal enterprises)
Informal Employment Importance

 Backbone of the Economy

 Important for rural development

 Witnessed substantial growth in terms of output, share

of employment and earnings

 Forward and Backward linkages

Issues faced by Informal workers
 Large-scale unemployment

 Increased Poverty

 high incidence of indebtedness

 Increased food insecurity

 Disproportionate impact on Women in informal sector

SKILL DEVELOPMENT

 According to NSSO Report 2011-12, India’s formally trained workforce stand at merely
2.3%.
 According to Periodic Labour Force Survey (PLFS) 2017-18, only 1.8% of the population
reported receiving formal vocational/technical training. 5.6% reported receiving informal
vocational training (such as hereditary, self-learning, and on the job training).
 Moreover, around 33% of the formally trained youth was unemployed in 2017-18.
Nearly a third of trained young men and more than a third of trained young women were
unemployed.
Key Findings of India Skills Report 2020

 Employability of India’s youth has remained stagnant for the past three years,
lingering at 46.21% of participants who are job-ready.
 Female employability witnessed an upward trend at 47% while that of male
workforce declined from 47.39% in 2019 to 46% this year. This reflects the
opportunity for the industries to leverage female resource pool. o However,
Hiring Intent Survey for 2020 reflects a likely hiring ratio of 71:29 for Male to
Female candidates.
 It also indicated the rising share of gig workers in the economy at 13% share in
the overall hiring intent by employment type.
 Top 5 skills that Employers emphasize on are domain knowledge, adaptability to
the environment, learning agility and positive attitude and interpersonal skills.
 About 50% of employers acknowledge the role of government initiated
programmes in recruitments, of which almost 9 in 10 employers admit that
candidates meet their requirements.
Issues with Skill Development in India
 Poor accreditation process-.
 Multiplicity of norms, procedures, curricula, certification-
 Reluctance of the industry in providing a wage differential for
skilled workers.
 Poor Industry interface
 Lack of integration with formal education
Steps Taken by Government
 Integrated Rural Development Programme (IRDP) was launched in 1980 to
create full employment opportunities in rural areas.
 Training of Rural Youth for Self-Employment (TRYSEM): This scheme was
started in 1979 with objective to help unemployed rural youth between the
age of 18 and 35 years to acquire skills for self-employment. Priority was given
to SC/ST Youth and Women.
 Pradhan Mantri Kaushal Vikas Yojana (PMKVY), launched in 2015 has an
objective of enabling a large number of Indian youth to take up industry-
relevant skill training that will help them in securing a better livelihood.
 Start Up India Scheme, launched in 2016 aims at developing an ecosystem that
promotes and nurtures entrepreneurship across the country.
 Stand Up India Scheme, launched in 2016 aims to facilitate bank loans between
Rs.10 lakh and Rs.1 crore to at least one SC or ST borrower and at least one
women borrower per bank branch for setting up a greenfield enterprise.
Steps Taken by Government
Other recent initiatives taken by the Government

 WEF’s Reskilling Revolution: Reskilling Revolution is an initiative by the WEF to

provide one billion people with better education, skills and jobs by 2030. India
recently joined this initiative as a founding member
 SWADES (Skilled Workers Arrival Database for Employment Support): This is an
initiative to conduct a skill mapping exercise of returning citizens under Vande
Bharat Mission. It aims to create a database of qualified citizens based on their
skill sets and experience to tap into and fulfil demand of Indian and foreign
companies
 Skills Build Reignite (SBR) and Skills Build Innovation Camp (SBIC): SBR seeks to
provide job seekers and entrepreneurs, with access to free online coursework
and mentoring support designed to help them reinvent their careers and
businesses.
Recognition of Prior Learning
 The programme is being implemented under SANKALP Programme of Ministry
of Skill Development and Entrepreneurship (MSDE).
 The implementing agency for the programme is National Skill Development
Corporation (NSDC).
 Candidates receive exposure to concepts of digital and financial literacy and an
accidental insurance coverage for three years at free of cost.
 No fee is charged from a candidate for participating in the RPL program and
every successfully certified candidate will receive INR 500.
 This initiative is part of a larger programme on ‘Skill Development Planning at
the level of ‘Gram Panchayat’.
Deen Dayal Upadhyaya Grameen Kaushlaya Yojna
 DDU-GKY is being undertaken as PPP Project all over the country through
Project Implementing Agencies (PIAs) registered with the Ministry of Rural
Development.
 DDU-GKY Guidelines provide for setting apart 15% of the funds of the
funds at for national level beneficiaries from among minority groups.
 Beneficiary Eligibility:
 Rural Youth:15 – 35 Yrs
 SC/ST/Women/PVTG/PWD: upto 45 Yrs
Solar Charkha Mission
 Launched in 2018.
 It is a Ministry of Micro Small & Medium Enterprises (MSME)
initiative launched during June 2018.
 The Khadi and Village Industries Commission (KVIC) would
implement the programme.
 It seeks to generate employment in rural areas and contribute to
the green economy.
Mahatma Gandhi National Rural Employment
Guarantee Act

 MNREGA is one of the largest work guarantee programmes in the world.

 Objective: The primary objective of the scheme is to guarantee 100 days of employment
in every financial year to adult members of any rural household willing to do public
work-related unskilled manual work.
 Legal Right to Work: Atleast one-third of beneficiaries have to be women.
Economic Growth
Factor influencing Economic Growth

 Human resources
 Infrastructure development
 Planned utilization of natural resources
 Population growth
 Advancement in technology
ECONOMIC GROWTH VS ECONOMIC DEVELOPMENT

ECONOMIC GROWTH ECONOMIC DEVELOPMENT

Increase in the production of goods and Economic Growth leads to improvement in the
services general welfare of people → Economic
Development.
Quantitative in nature Qualitative in nature.
Uni-dimensional Multi-dimensional
Can happen without development Cannot happen without Growth.
Indicators → Real GDP, Real Per Capita Indicators → Human Development Index,
Income etc. Physical quality of life index etc.
GDP (Gross Domestic Product)

 Released by National Statistical office (nso), ministry of

statistics and program implementation
Nominal and Real GDP
Gross National Product (GNP)
DIFFERENCE BETWEEN GNP AND GDP

BASIS GDP GNP

MEANING Value of all final goods and services Value of all finished goods and
produced in the domestic territory in a services owned by a country's
specific time period. residents over a period of time.
METHOD OF Consumer spending + Government GDP+ NR (Net receipts from
CALCULATION spending +Investments + Net exports abroad or inflows from abroad) –
NP (Net payment outflow to
foreign assets)
PRODUCED BY produced in India → by an Only those goods and services →
WHOM? Indian or foreign national produced by Indians whether in
India or abroad.
NET FACTOR ● Exclusion of Net Factor ● GNP includes Net Factor Income
INCOME FROM Income Abroad. Abroad
Net National Product (NNP)
Factor of Production
Market Price vs Factor Cost
Practice
Practice
Estimating GDP
Estimating GDP
Estimating GDP
Transfer payments

 Transfer payments – is the payment by the government in grants, allowances, pensions etc
to people such as pensioners, widows, sick or unemployed people or others with little or
no income. This implies that the transfer is made without any exchange of goods or
services
PURCHASING POWER PARITY (PPP)

 The Economic size of the countries across the world can be compared either in terms of
 Nominal GDP or Purchasing Power Parity (PPP).
 ● Comparison using Nominal GDP: The Countries across the world measure their
GDP
 size in terms of their own currencies. This makes cross country comparison difficult.
 ● Hence, in order to compare the GDP size of the countries, we need a common currency.
 ● Therefore, the GDP size of the countries are converted into dollars using the average
 exchange rates
PURCHASING POWER PARITY (PPP)
GROSS CAPITAL FORMATION

 The percentage of the investment made each year out of the total
GDP is called Gross Capital Formation.
 ● High GCF → higher rate of savings in the economy. It requires
for high rate
 ● of production, capital formation, changes in production
techniques.
 ● GCF → capital formation in the public sector + private sector
+household sector.
GDP Deflator
 The GDP price deflator helps to measure the changes in prices when
comparing nominal to real GDP over several periods.
 Gross domestic product deflator shows the amount of change in GDP due
to inflation and not increase in output.
 GDP deflator, also known as the implicit price deflator,
Green GDP
GDP and its Limitation
 Underground Economy-The underground economy (or black market) refers to cash and
barter transactions that are not formally recorded in GDP
 Environmental Abuses
 Non-Market Production-produced for private consumption
 Income inequality-when a disproportionate share of a nation’s income is earned by a
small minority of households
 Depreciation of capital-GDP accounts for investment in new capital but does not subtract
the lost value of depreciated capital.
BUSINESS CYCLE
BUSINESS CYCLE
BUSINESS CYCLE
TYPES OF ECONOMIC RECOVERY
TYPES OF ECONOMIC RECOVERY
TYPES OF ECONOMIC RECOVERY
National Income
National Income
NATIONAL DISPOSABLE INCOME (NDI)
PERSONAL DISPOSABLE INCOME (PDY)
NATIONAL DISPOSABLE INCOME (NDY)
PERSONAL INCOME (PI)
PERSONAL INCOME (PI)
PERSONAL INCOME (PI)
Real income (RI)
Human Development Index
Approach to Human Development
Approach to Human Development
Human Development Index
 Issued by United Nations Development Programme (UNDP)
 Coined by The human development approach, developed by the
Pakistani economist Mahbub Ul Haq, is anchored in the Indian Economist
Nobel laureate Amartya Sen’s work on human capabilities.
Classification of countries in HDI
 Countries have been divided in 4 categories
 If HDI index is:
 0.800 or greater - Very high human development

 0.700 to 0.799- High human development

 0.550 to 0.699 - Medium human development

 Less than 0.550- Low human development

Gender Inequality Index
 162 countries are ranked in HDR’s Gender Inequality Index.
 India rank 123
MPI
 India rank 62 from 107 Countries 2020-21
DIFFERENCE BETWEEN GII, GGG, GPI
World bank Classification of Countries

The World Bank categorises the World's economies into four income groups-- low, lower-
middle, upper-middle and high-income countries.
Every year the World Bank classifies the countries based on GNI (Gross National Income)
per capita in the US Dollars.
Inflation, exchange rates, and population growth are some of the factors which influence
GNI per capita
Low-Income Economies ($1,035 Or Less)

List of Lower-Middle-Income Economies ($1,036 - $4,045)—India is in this category

List of Upper-Middle-Income Economies ($4,046 - $12,535)

List of High-Income Economies ($12,536 Or More)

WORLD HAPPINESS REPORT
WORLD HAPPINESS REPORT
WORLD HAPPINESS REPORT
WORLD HAPPINESS REPORT
WORLD BANK- HUMAN CAPITAL PROJECT
WORLD BANK- HUMAN CAPITAL PROJECT
WORLD BANK- HUMAN CAPITAL PROJECT
HUMAN CAPITAL INDEX, 2020
HUMAN CAPITAL INDEX, 2020
HUMAN CAPITAL INDEX, 2020
HUMAN CAPITAL INDEX, 2020
SUSTAINABLE DEVELOPMENT
SUSTAINABLE DEVELOPMENT
Inflation
INDIAN ECONOMY
Inflation Meaning

❑ Inflation is defined as a situation where there is sustained,

unchecked increase in the general price level of goods and services
in an economy.
❑ Deflation
❑ Dis-Inflation
INFLATION MEASUREMENT

❑ Inflation is defined as a situation where there is sustained,

unchecked increase in the general price level of goods and services
in an economy.
❑ Deflation
❑ Dis-Inflation
Types of Inflation
❑ On the Basis of Causes:
❑ Demand-Pull Inflation

❑ Cost-Push Inflation

❑ Built-in Inflation
Causes of Demand-Pull Inflation:

❑ A growing economy or increase in the supply of money – When consumers feel

confident, they spend more and take on more debt. This leads to a steady
increase in demand, which means higher prices.
❑ Asset inflation or Increase in Forex reserves– A sudden rise in exports forces a
depreciation of the currencies involved.
❑ Government spending or Deficit financing by the government – When the
government spends more freely, prices go up.
❑ Due to fiscal stimulus.
❑ Increased borrowing.
❑ Depreciation of rupee.
❑ Low unemployment rate.
Cost-Push Inflation

 Increase in price of inputs

 Hoarding and Speculation of commodities
 Defective Supply chain
 Increase in indirect taxes
 Depreciation of Currency
 Crude oil price fluctuation
 Defective food supply chain
 Low growth of Agricultural sector
 Food Inflation
 Interest rates increased by RBI
Built-in Inflation

 This type of inflation involves a high demand for wages by the

workers which the firms address by increasing the cost of goods
and services for the customers.
Types of Inflation
❑ On the Basis of Causes:
❑ Currency inflation:

❑ Credit inflation:

❑ PROFIT INDUCED

❑ STRUCTURAL Inflation
Types of Inflation
❑ On the Basis of Speed or Intensity:
Types of Inflation
❑ Others
❑ Open inflation: Situation where price level rises without any price control
measures by the government.
❑ Headline Inflation

❑ Headline Inflation is the measure of total inflation within an economy.

❑ It includes price rise in food, fuel and all other commodities.
Types of Inflation
❑ Core Inflation (Underline Inflation or Non-food Inflation)
❑ Benign Inflation – It means inflation is moderate not harmful i.e.
under control. It gives room to RBI to cut key policy rates for
economic growth.
TERMINOLOGIES
TERMINOLOGIES
TERMINOLOGIES
Is India facing Stagflation?
Reasons for Current Inflation in India
❑ Food Inflation
❑ Untimely rains, drought in some regions .

❑ Transmission of global food prices,

❑ Untimely imports in pulses

❑ Artificial scarcity
Phillips Curve

❑ It shows the inverse relationship between unemployment and

inflation
Inflation target

❑ Inflation target in India is set by the Govt. in consultation with RBI,

once in every five years.
Who measure Inflation in India
❑ Wholesale Price Index (WPI)
❑ The numbers are released by the Ministry of Commerce and Industry

❑ Consumer Price Index (CPI) – Retail Inflation

❑ It is released by Central Statistics Office (CSO) under Ministry of Statistics
and Programme implementation
❑ In April 2014, the RBI had adopted the CPI as its key measure of inflation
Difference WPI and CPI
PRODUCER PRICE INDEX (PPI) VS WHOLESALE PRICE INDEX (WPI)
PRODUCER PRICE INDEX (PPI) VS CONSUMER PRICE INDEX (CPI)
WHOLESALE PRICE INDEX(WPI)vsCONSUMER PRICE INDEX (CPI)vs Index of Industrial
Production (IIP)
Effects of Inflation
❑ Effects of Inflation on Distribution of Income and Wealth:
❑ Creditors and debtors
Effects of Inflation
❑ Effects of Inflation on Distribution of Income and Wealth:
❑ Salaried people and wage-earners
Effects of Inflation
❑ Effects of Inflation on Distribution of Income and Wealth:
❑ Savings
Effects of Inflation
❑ Effects of Inflation on Distribution of Income and Wealth:
❑ Investment
Effects of Inflation
❑ Effects of Inflation on Economy
❑ Interest rates
Effects of Inflation
❑ Effects of Inflation on Economy
❑ Exports

❑ Imports
Effects of Inflation
❑ Effects of Inflation on Economy
❑ Balance of trade
❑ Developed Country – Positive as they export more and import
less
❑ Developing Country – Negative as they import more and
export less
INFLATIONARY GAP Vs DEFLATIONARY GAP
❑ Effects of Inflation on Economy
❑ Balance of trade
❑ Developed Country – Positive as they export more and import
less
❑ Developing Country – Negative as they import more and
export less
MONETARY POLICY COMMITTEE (MPC)
MONETARY POLICY COMMITTEE (MPC)
MEASURES TO COMBAT INFLATION
MEASURES TO COMBAT INFLATION
MEASURES TO COMBAT INFLATION
IMPORTANT COMMITTEES RELATED TO INFLATION
Money & monetary
policy ECONOMY
Money and Monetary Policy

❑ What is Money??
❑ Money is a medium of exchange acceptable to all parties.
❑ A “medium of exchange” means an instrument which can be used to buy any goods and services.
❑ Acceptability – it depends upon Guarantee behind that instrument.
❑ Money must have value and that value must be quantified.
❑ For example, in India, ‘Rupee note’ satisfies above conditions:
❑ It is a medium of exchange.
❑ Every note has a promise from the Governor of RBI.
❑ Every note carry a monetary value.
What is Fiat Money?
FIDUCIARY MONEY
COMMODITY MONEY
LEGAL TENDER
SOURCES OF MONEY SUPPLY
Functions of Money
Functions of Money
❑ Medium of exchange
❑ Money efficiently eliminates the double coincidence of wants predicament by serving
as an intermediate of exchange that is acknowledged in all transactions, regardless
of whether the parties desire each others' goods & services
Functions of Money
❑ Unit of account
❑ A unit of account is something that can be used to value goods and services, record
debts, and make calculations. Money is considered a unit of account and is divisible,
fungible, and countable. With money being countable, it can account for profits,
losses, income, expenses, debt, and wealth
Functions of Money
❑ Store of value
❑ As a store of value, money is not unique. Other stores of value subsist such as art
works, land, stamps etc. Money perhaps is not the best store of value as it deflates
with inflation. Money is an easily transported store of value that is accessible in a
number of expedient denominations.
Functions of Money

❑ Standard of deferred payment

❑ A "standard of deferred payment" is a way to resolve a debt – a part in which
debts are denominated, & the status of money as lawful tender, in those jurisdictions
which have this impression, states that it may function for the emancipation of debts.
Purchasing power of Money

❑ The value of a currency expressed in terms of the amount of goods or services that one unit of money can buy.

❑ If the prices of all goods and services increases?

❑ it means a unit of money can now purchase less commodities. It is called as deterioration in the purchasing
power of money.

❑ Similarly, if a unit of currency of a country can buy less than a unit of currency of other country? – then the first
country’s currency has less purchasing power as compared to later. For example, Indian Rupee has less
purchasing power than US Dollar.

❑ When a currency’s purchasing power decreases due to excessive inflation, serious negative economic
consequences arise, including rising costs of goods and services contributing to a high cost of living, as well as
high interest rates that affect the global market
Demand for Money

❑ The demand for money depends upon following:

❑ Number of Transaction – Higher the numbers, more will be demand
for money.
❑ Value of Transactions – Higher the values, more requirements will be
there for money.
❑ Number of Cashless Transactions – Higher the number of cashless
transactions, less will be demand for money.
❑ Speculative Motives – Demand for money depends upon perception
of people and interest rates in the market.
Supply of Money
❑ The total stock of money in circulation among the public at a particular point of time is called
money supply.
❑ Types/Kinds of Money –
❑ Currency – It includes coin and paper currency.
❑ The right of minting coins is the monopoly of the government.
❑ Except Re.1 note, all other paper currencies are printed by RBI.
❑ Deposit Money - Deposit money or the bank money refers to the deposits held with the
banks on the basis of which cheques could be drawn. Such deposits can be of two types:
❑ Demand deposits - They are payable by the bank
on demand from the accountholder. For example,
balance in savings and current accounts.
❑ Time deposits – They have a fixed period to
maturity and are referred to as time deposits. For
e.g. fixed deposits, Certificate of Deposits etc.
Measures of Money Supply
Measures of Money Supply
Measures of Money Supply
Measures of Money Supply
Measures of Money Supply
Measures of Money Supply
❑ M1 = Currency and Coins with Public(CU) + Net Demand Deposits held by
Commercial Banks (DD).
❑ Net Demand Deposits = It includes only deposits of the public held by the banks
and it does not include interbank deposits, which a commercial bank holds in
other commercial banks.
❑ M2 = M1 + Savings deposits with Post Office savings banks.
❑ M3 = M1 + Net time deposits of commercial banks.
❑ M4 = M3 + Total deposits with Post Office savings organizations (excluding
National Savings Certificates).
Measures of Money Supply
Measures of Money Supply

❑ These measures are in decreasing order of liquidity.M1 is most liquid and easiest for transactions
whereas M4 is least liquid of all.

❑ M1 and M2 are known as “Narrow money”.Because they are more liquid as compared to “Broad
Money”.

❑ M3 and M4 are known as “Broad money”.

❑ Question – Which factor does make M1 and M2 more liquid as compared to M3 and M4??

❑ Answer – “Net time deposits”. those deposits with the commercial bank for a fixed period of time

❑ M3 is the most commonly used measure of money supply. It is also known as “aggregate monetary
resources”.
VELOCITY OF MONEY CIRCULATION
Important Terms
Important Terms
Central Bank
❑ A central bank is the apex banking and financial institution in
the country.
❑ Almost every country has one central bank. India got its central
bank in 1935. Its name is the ‘Reserve Bank of India’.
❑ Central Bank has several important functions like issuing currency,
controlling money supply, acting as banker government,
managing forex reserves etc.
❑ High Powered Money (also called reserve money/monetary
base) – It includes total liability of the central bank i.e. currency
with the public and commercial banks; and deposits held by the
Government of India and commercial banks with RBI.
Reserve Bank of India
❑ The Reserve Bank of India was established on April 1, 1935 in
accordance with the provisions of the Reserve Bank of India Act, 1934.
❑ This central banking institution was established based on the suggestions
of the “Royal Commission on Indian Currency & Finance” in 1926. This
commission was also known as Hilton Young Commission
❑ The Central Office of the Reserve Bank was initially established in
Calcutta but was permanently moved to Mumbai in 1937. The Central
Office is where the Governor sits and where policies are formulated.
❑ Though originally privately owned, since nationalization in 1949, the
Reserve Bank is fully owned by the Government of India.
Composition of RBI

❑ Reserve Bank of India is controlled by a central board of directors. The directors are appointed for
a 4-year term by the Government of India in keeping with the Reserve Bank of India Act.
❑ The Central Board consists of:
❑ Governor
❑ 4 Deputy Governors
❑ 2 Finance Ministry representatives
❑ 4 directors to represent local boards headquartered at Mumbai, Kolkata, Chennai, and New Delhi
❑ The executive head of RBI is Governor.
❑ The Governor is accompanied by 4 deputy governors.
❑ The First Governor of RBI was Sir Osborne Smith and the First Indian Governor of RBI was CD
Deshmukh.
❑ The First woman Deputy Governor of RBI was KJ Udeshi.
❑ The only Prime Minister who was the Governor of RBI was Manmohan Singh.
Main Functions of RBI
Main Functions of RBI
Main Functions of RBI
Main Functions of RBI
Important Summary Related to RBI
Important Summary Related to RBI
Important Summary Related to RBI
Types of Bank in india
Commercial Bank:
Types of Bank in India
Types of Bank in India
Types of Bank in India
Types of Bank in India
Types of Bank in India
Types of Bank in India
Types of Bank in India
Types of Bank in India
PRIORITY SECTOR LENDING
PRIORITY SECTOR LENDING
PRIORITY SECTOR LENDING
NON-BANKING FINANCIAL INSTITUTIONS
NON-BANKING FINANCIAL INSTITUTIONS
NON-BANKING FINANCIAL INSTITUTIONS
Monetary Policy
❑ Monetary Policy is laid down by Monetary Policy Committee which involves
management of money supply and interest rate in the country.
❑ Monetary policy is adopted by the monetary authority of a country that controls
either the interest rate payable on very short-term borrowing or the money supply.
The policy often targets inflation or interest rate to ensure price stability and
generate trust in the currency.
What is the main objective of the monetary policy?
What is the main objective of the monetary policy?
What is the main objective of the monetary policy?
Types of Monetary Policy
Types of Monetary Policy
Difference between Monetary Policy and Fiscal Policy
Which is more effective monetary or fiscal policy?
❑ Monetary policy is set by the Central Bank, and therefore reduces political influence (e.g.
politicians may cut interest rates in the desire to have a booming economy before a
general election)
❑ Fiscal policy can have more supply side effects on the wider economy. E.g. to reduce
inflation – higher tax and lower spending would not be popular, and the government may
be reluctant to pursue this. Also, lower spending could lead to reduced public services,
and the higher income tax could create disincentives to work.
❑ Monetarists argue expansionary fiscal policy (larger budget deficit) is likely to
cause crowding out – higher government spending reduces private sector expenditure,
and higher government borrowing pushes up interest rates. (However, this analysis is
disputed)
❑ Expansionary fiscal policy (e.g. more government spending) may lead to special interest
groups pushing for spending which isn’t really helpful and then proves difficult to reduce
when the recession is over.
❑ Monetary policy is quicker to implement. Interest rates can be set every month. A decision
to increase government spending may take time to decide where to spend the money.
Qualitative Tools- Margin Requirements
Qualitative Tools
 Consumer Credit Regulation:
Qualitative Tools

❑ Credit Rationing:
Qualitative Tools

❑ Control Through Directives:

Qualitative Tools

❑ Direct Action:
MONETARY POLICY STANCES

❑
MONETARY POLICY STANCES

❑
UNCONVENTIONAL MONETARY POLICY TOOLS

 ZERO INTEREST RATE POLICY (ZIRP)

UNCONVENTIONAL MONETARY POLICY TOOLS

 NEGATIVE INTEREST RATE POLICY (NIRP)

UNCONVENTIONAL MONETARY POLICY TOOLS

 HELICOPTER MONEY
FINANCIAL REPRESSION
Monetary Policy Tools (Quantitative tools)
Monetary Policy Tools (Quantitative tools)

❑ Bank Rate:
Monetary Policy Tools (Quantitative tools)

❑ CRR
Monetary Policy Tools (Quantitative tools)

❑ SLR
Monetary Policy Tools (Quantitative tools)
Monetary Policy Tools (Quantitative tools)
Monetary Policy Tools (Quantitative tools)
Monetary Policy Tools (Quantitative tools)

❑ Repo rate

❑ The reverse repo rate

Monetary Policy Tools (Quantitative tools)

❑ Open Market Operations (OMOs):

Marginal Standing Facility:

❑ Marginal Standing Facility is a liquidity support arrangement

provided by RBI to commercial banks if the latter doesn’t have
the required eligible securities above the SLR limit.
❑ It is a window for banks to borrow from the Reserve Bank of
India in an emergency situation when inter-bank liquidity dries
up completely.
❑ The MSF was introduced by the RBI in its monetary policy for
2011-12.
❑ Under MSF, a bank can borrow one-day loans from the RBI,
even if it doesn’t have any eligible securities excess of its SLR
requirement (maintains only the SLR). This means that the bank
can’t borrow under the repo facility
Monetary Policy Tools (Quantitative tools)
❑ Liquidity Adjustment Facility (LAF):
❑ LAF was introduced in June 2000.. LAF is a facility extended by the Reserve Bank of India
to the scheduled commercial banks (excluding RRBs) and primary dealers to avail of
liquidity in case of requirement or park excess funds with the RBI in case of excess
liquidity on an overnight basis against the collateral of Government securities including
State Government securities.
❑ On daily basis, the RBI stands ready to lend to or borrow money from the banking
system, as per the need of the time, at fixed interest rates (repo and reverse repo rates).
The LAF consists of overnight as well as term repo auctions. LAF is used to aid banks in
adjusting the day to day mismatches in liquidity (frictional liquidity deficit/surplus).
Together with moderating the fund mismatches of the banks, LAF operations help the RBI
to effectively transmit interest rate signals to the market
Monetary Policy Tools Transmission

❑ Liquidity Trap
❑ Once interest rates reach zero, the Central Bank can do no more. Such a situation is
referred to by the economists as the "liquidity trap”.
Targeted Long-term repo operation
❑ Under LTRO, RBI will conduct term repos of one year and three-year tenors of appropriate
sizes for up to a total amount of Rs 1 lakh crore at the policy repo rate.Through LTRO, liquid
funds will be available to banks so that they can provide credit to productive sectors. Banks
will be benefitted from this as usually, loans with higher maturity period (here like 1 year and
3 years) will have a higher interest rate compared to short term (repo) loans.It will also enable
better transmission of RBI’s monetary policy.
❑ Benefits of the LTROs
❑ Enhance Liquidity: It will enhance liquidity in the banking system by Rs 1 lakh crore.

❑ Bring down the cost of funds for banks: The introduction of long-term repo operations
(LTRO) will bring down the cost of funds for banks without effectively cutting deposit
rates. This decision is likely to make reverse repo rate as the operative policy rate over a
point of time.
❑ Boost Investment: It is a measure that is expected to bring down short-term rates and also
boost investment in corporate bonds.
❑ Ensure credit flow to productive sectors: This should encourage banks to undertake
maturity transformation smoothly and seamlessly so as to augment credit flows to
productive sectors.
Quantitative Easing
Ways and Mean Advances
Monetary Policy weakness
Monetary Policy
Flexible Inflation Targeting Framework (FITF)
The Monetary Policy Framework (MPF)
The Monetary Policy Process (MPP)
Terminologies Related to Banking
Terminologies Related to Banking
Operation Twist
What is ‘Operation Twist’?

❑ ‘Operation Twist’ is RBI’s simultaneous selling of short-term securities and buying of long term
securities through open market operations (OMO). Under this mechanism, the short-term securities are
transitioned into long-term securities.
❑ This operation involves buying and selling government securities simultaneously in order to bring
down long-term interest rates and bolster short-term rates.
❑ There is an inverse relationship between the bond prices and their yields. As the central bank buys
long-term securities (bonds), their demand rise which in turn pushes up their prices.
❑ However, the bond yield comes down with an increase in prices. Yield is the return an investor gets on
his (bond) holding/investment.
❑ The interest rate in an economy is determined by yield. Thus, lower long-term interest rates mean
people can avail long-term loans (such as buying houses, cars or financing projects) at lower rates.
❑ This also results in a dip in the expected returns from long-term savings which tilts the balance from
saving towards spending. Hence, cheaper retail loans can help encourage consumption spending
which is the largest GDP component in the economy.
Terminologies Related to Banking
Terminologies Related to Banking
BANKING SECTOR REFORMS

❑ CONSOLIDATION OF THE PUBLIC SECTOR BANKS:

BANKING SECTOR REFORMS
BANKING SECTOR REFORMS
BANKING SECTOR REFORMS
BANKING SECTOR REFORMS

❑ MISSION INDRADHANUSH
ATM - AUTOMATED TELLER MACHINE
ATM - AUTOMATED TELLER MACHINE
LTRO and TLTRO
LTRO and TLTRO
LTRO and TLTRO
Important Committee related to banking Sector
Important Committee related to banking Sector
Important Committee related to banking Sector
Important Committee related to banking Sector
Important Committee related to banking Sector
Important Committee related to banking Sector
Banking Regulation Amendment Bill 2020
❑ With this new Bill, the central government aims to bring cooperative banks under
the supervision of the Reserve Bank of India (RBI).
❑ With the amendments, RBI will be able to undertake a scheme of amalgamation
of a bank without placing it under moratorium.
❑ It will help the central bank to develop a scheme to ensure the interest of the
public, banking system, account holders in the bank and banking company’s
proper management, without disrupting any banking functionalities.
❑ The amendments also allow cooperative banks to raise money via public issues
and private placements of equity or preference shares as well as unsecured
debentures, with the central’s bank’s nod.
❑ Cooperative banks are currently under the dual control of the Registrar of
Cooperative Societies and RBI. While the role of registrar of cooperative
societies includes incorporation, registration, management, audit, supersession of
board and liquidation, RBI is responsible for regulatory functions such as
maintaining cash reserve and capital adequacy, among others.
CRYPTO-CURRENCY IN INDIA
CRYPTO-CURRENCY IN INDIA
CRYPTO-CURRENCY IN INDIA
CRYPTO-CURRENCY IN INDIA
CRYPTO-CURRENCY IN INDIA
CRYPTO-CURRENCY IN INDIA
CRYPTO-CURRENCY IN INDIA
NPA
NPA
NPA
NPA
NPA
NPA
NPA
NIDHI, CHIT FUNDS AND PONZI SCHEMES
NIDHI, CHIT FUNDS AND PONZI SCHEMES
NIDHI, CHIT FUNDS AND PONZI SCHEMES
Bad Bank
IBC
IBC
IBC
IBC
Fiscal system
&
Government
budgeting
INDIAN ECONOMY
Fiscal Policy

❑ The word fiscal has been derived from the word ‘fisk’ which means public
treasury or Govt. funds.
❑ Fiscal Policy deals with the revenue and expenditure policy of the Govt.
Objective of Fiscal Policy
Fiscal Policy
Fiscal Policy
Fiscal Policy
Tools of fiscal policy
 Component of Expenses
❑ Maintenance (including staff salaries)
❑ Loan payments
❑ Wasteful expenses
❑ Subsidies
❑ Welfare schemes
Tools of fiscal policy
 Component of Earnings
❑ Tax
❑ Borrowing
❑ Proceeds from sale/lease of assets
❑ Profits from PSU
Mobilisation of financial resources
❑ Reduction in inequalities of Income and Wealth
❑ Increases National Income
❑ Price Stability and Control of Inflation
❑ Foreign Exchange Earning
Mobilisation of financial resources
❑ Employment Generation
❑ Development of Infrastructure
❑ Balanced Regional Development
Fiscal Stimulus
❑
Fiscal Stimulus
❑
Component of Budget
Objectives of Government Budget
Objectives of Government Budget
Revenue Budget
❑ The Revenue Budget consists of the revenue receipts of the
Government and the expenditure met from these revenues
❑ Revenue Receipts
Revenue Receipts
❑ Tax Revenues
Revenue Receipts
❑ Non Tax Revenue
Revenue Receipts
Revenue Receipts
Revenue Receipts
Revenue Expenditure
❑ Non Tax Revenue
Revenue Expenditures
Revenue Expenditures
Revenue Expenditures
Effective Revenue Deficit
Effective Revenue Deficit
Capital Receipts
❑ The Capital receipts are of two types viz. Debt receipt and non-
debt receipts. The debt receipts are those which government needs
to repay along with interest. Non-debt receipts are those which
come to the government by sale of some assets.
Capital Receipts
Capital Receipts
Capital Expenditure
Capital Expenditure
Capital Expenditure vs Revenue Expenditure
Measures of Government Deficit
Measures of Government Deficit
Significance of fiscal deficit
What is off –Budget Finance?

➢.
How to Bridge this Fiscal deficit
How to Bridge this Fiscal deficit
How to Bridge this Fiscal deficit
Other Important Terms
❑ Fiscal Consolidation

❑ Fiscal Drag-It has the effect of raising government tax revenue

without explicitly raising tax rates.

❑ Fiscal Neutrality
Other Budgets
Other Budgets
❑ Gender Budgeting
Fiscal Responsibility and Budget Management Act, 2003
Fiscal Responsibility and Budget Management Act, 2003
FRBM Review Committee headed by NK Singh: Recommendations
Latest Changes
Performance Budgeting
Outcome budgeting
❑ It is a budgeting scheme that gives project-wise outlays
for all central ministries, departments and organisations
listed against corresponding outcomes (measurable
physical targets) to be achieved during the year. It
measures the development outcomes of all government
programmes.
Participatory Budgeting
❑ Participatory budgeting is the process by which citizens deliberate

and negotiate over the distribution of public resources for the final
budget.
❑ Improving state performance and enhancing the quality of
democracy.
Budget Transparency
❑ Budget transparency refers to the extent and ease with
which citizens can access information about and provide
feedback on government revenues, allocations, and
expenditures.
Weaknesses in the Budgetary Process
❑ Weaknesses in Resource Allocation and Use
❑ short-term approach
❑ micro-decision making
❑ Weak decision making
❑ Poor linkages between policy and resources
❑ Weak parliamentary control over finances
❑ difficult to quantify and measure.
❑ Unrealistic budget estimates
❑ Delay in implementation of projects
❑ Ad hoc project announcements
❑ Emphasis on compliance with procedures rather than on outcomes
What is Tax??
❑ Taxation refers to the practice of government collection money
from the citizens to pay for public services.
❑ 57.8 million Individuals filed the income tax return (~5% of the
population) of which only 15 million (~1.15% of the population)
actually paid taxes.
Why do we pay Taxes ??
❑ The prime reason for levy of taxes is that they are the basic source
of revenue to the government which can be utilized by the
government for its expenses like defence, healthcare, education
and different infrastructure facilities like roads, dams, highways etc.
TAX
TAX TO GDP RATIO
TAX TO GDP RATIO
TAX -INCIDENCE, IMPACT, SHIFTING, BASE
FEATURES OF A GOOD TAXATION SYSTEM
FEATURES OF A GOOD TAXATION SYSTEM
Type of Taxes
Type of Taxes: direct tax
Type OF direct tax
❑ Income Tax:
❑ Its two basic types are :
❑ Personal income tax: levied on incomes of individuals,
households, partnerships, and sole proprietorships, and
❑ Corporation income tax: levied on profits (net earnings) of
incorporated firms
Type of Direct Taxes
❑ Corporate Tax: .
❑ A domestic corporate entity with a turnover upto Rs. 250
Crore, pays a flat rate of 25% corporate tax.
❑ For a particular financial year, if the total revenue earned
by a company exceeds Rs. 1 crore, then a surcharge
corporate tax of 5% is levied on such a corporation.
❑ Additional Health and Education cess at the rate of 4 % will
be added to the income tax liability in all cases.
Type of Direct Taxes
❑ Google Tax or Facebook Tax or Equalization Levy:.
❑ As per the union Budget 2016, the budget states that any individual or
entity who use Non-Resident technology services shall pay 6% of the total
gross. on payment exceeding Rs 1 lakh a year
❑ Any payment made by non-residents in connection with an Indian user will
now attract a 2% levy. The levy would be imposed on those companies that
have a turnover or sales of over Rs.2 crore in the previous year .Also, the
compliance of the levy has been shifted to the non-resident service provider
❑ Now, expanded scope stretches beyond goods and services supplied to
Indian residents and includes supplies to any person using an Indian Internet
Protocol (IP) address.
Type of Direct Taxes
Type of Direct Taxes
Advantages of Direct Taxes
✓ Economy
✓ Equity

✓ Civil Consciousness

✓ Reduction in Inequality

✓ Certainty

✓ Elasticity

✓ Educative Value

✓ Easy to understand

✓ Control of Inflation

✓ Convenience

✓ Productive

✓ Ability to Pay
disadvantages of Direct Taxes
✓ Inconvenience
✓ Unpopular

✓ Uneconomical

✓ Possibility of Evasion

✓ Uncertainty

✓ Inequitable

✓ Narrow Scope

✓ Unsuitable for underdeveloped countries

✓ Curtails capital Formation

✓ Political Decision

✓ Extravagance of Money

✓ Inflation
Recent steps taken to improve direct tax ecosystem
❑ Abolition of Dividend Distribution Tax (DDT) - In order to increase the attractiveness of the Indian Equity Market and
to provide relief to a large class of investors and To make India an attractive destination for investment companies
are not required to pay DDT.

❑ Document Identification Number (DIN) - In order to bring efficiency and transparency in the functioning of the
Income Tax Department, every communication of the Department is mandatorily having a computer-generated
unique DIN.

❑ Simplification of compliance norms for Start-ups - Start-ups have been provided hassle-free tax environment which
includes simplification of assessment procedure, exemptions from Angel-tax, constitution of dedicated start-up cell
etc.

❑ Raising of monetary limit for filing of appeal - To effectively reduce taxpayer grievances/ litigation monetary
thresholds for filing appeals have been raised from Rs.20 lakh to Rs.50 lakh for appeal before Income Tax
Appellate Tribunal, from Rs. 50 lakh to Rs.1 crore for appeal before the High Court and from Rs. 1 crore to Rs. 2
crore for appeal before the Supreme Court.
Direct Tax Code Reforms: Major recommendations of the Akhilesh Ranjan Committee
DIRECT TAX VIVAD SE VISHWAS ACT, 2020 Features
Expected benefits of the Act
TRANSPARENT TAXATION – ‘HONOURING THE HONEST' PLATFORM
Indirect Taxes

❑ Indirect Tax Indirect taxes are those taxes that are levied on goods or services. They
differ from direct taxes because they are not levied on a person who pays directly to the
government; instead, they are levied on products and are collected by the person selling
the product.
Custom Duty
❑ The Customs Act was formulated in 1962 to prevent illegal imports and exports of goods.
Besides , all imports are sought to be subject to a duty with a view to affording protection
to indigenous industries as well as to keep the imports to the minimum in the interests of
securing the exchange rate of Indian currency. Basic Duty : This duty is levied on imports
goods under the Customs Act, 1962.
Excise Duty

❑ Excise duty is a form of tax imposed on goods for their production, licensing and sale.
❑ It is the opposite of Customs duty in sense that it applies to goods manufactured
domestically in the country, while Customs is levied on those coming from outside of the
country.
❑ excise duty is levied on the manufacture of goods and at the time of removal of goods
from the factory, while GST or sales tax or VAT are levied on the supply of goods and
services.
Countervailing Duty
Anti Dumping Duty
What is a safeguard duty?
❑ The provision is facilitated in GATT (General Agreement on Tariffs and Trade), 1994.
❑ It allows a WTO member to restrict temporarily, imports of a product if its domestic
industry is affected by a surge in imports.
❑ In contrast to antidumping duties and countervailing duties, safeguard measures are, in
principle, applied regardless of the exporting country.
Tax Avoidance Vs. Tax evasion
Double taxation Avoidance and Agreement
Base Erosion and Profit Shifting (BEPS)
Tobin Tax
It is a proposal of imposing a small tax on all foreign exchange transactions with the
objective to discourage destabilizing speculation and volatility in the foreign exchange
markets
Pigovian tax
Pigovian taxes are imposed on goods that have negative externalities. For example, tobacco,
alcohol, diesel. If A consumes some good that results in negative impact to others, then that good
can come under pigovian tax umbrella.
Securities Transaction tax
Securities transaction tax (STT) is a tax levied at the time of purchase and sale of securities
listed on stock exchanges in India. This tax came into effect from 1 October 2004. The rate
of STT differs based on the type of security traded
Sin Tax
Goods and Service Tax

❑ Applicable from July 1,2017.

❑ It is a destination based tax on consumption of goods and services.
❑ It is proposed to be levied at all stages right from manufacture up to final consumption
with credit of taxes paid at previous stages available as setoff.
❑ In a nutshell, only value addition will be taxed and burden of tax is to be borne by the
final consumer.
❑ In 2004, Dr. Vijay Kelkar committee recommended the GST.
❑ After the assent of the Hon’ble President on 8th September, 2016, the 101th
Constitutional Amendment Act, 2016 came into existence.
❑ The GST Council was constituted on 15.9.2016 as per Article 279A as a Constitutional
body.
Goods and Service Tax
Goods and Service Tax Rates
Goods and Service Tax Exemptions
Goods and Service Tax Council
Goods and Service Tax Council
GSTN Network
National Anti-profiteering Authority under GST

➢ Any reduction in the rate of tax on any goods or services or the benefit of input tax credit
must be passed on to the consumer by way of commensurate reduction in the prices of the
respective goods or services.
➢Traders are not realizing an unfair profit by charging high price from consumers in the name
of GST
Goods and Services Tax Appellate Tribunal is ??
➢It shall be situated at New Delhi.
➢Composition: Presided over by its President and shall consist of one Technical Member
(Centre) and one Technical Member (State).
➢It is the forum of second appeal in GST laws and the first common forum of dispute
resolution between Centre and States.
➢The appeals against the orders in first appeals issued by the Appellate Authorities under
the Central and State GST Acts lie before the GST Appellate Tribunal, which is common
under the Central as well as State GST Acts.
Merits of GST
GST recent Updates
HSN CODE
Green Tax
 INDIAN ECONOMY
Stock market
What are Shares and Who are Shareholders?

❑ Shares are the units into which the absolute share capital of a firm is
split into or divided into. Therefore, the share is a fractional portion of
the share capital and comprises the ground of ownership interest in a
company. The persons who contribute money through shares are called
shareholders.
What are Preference Shares?
❑ Preference shares, more commonly known as preferred stock, are shares of an
enterprise’s stock with dividends that are paid out to the members before equity shares
dividends are circulated.
❑ Features of Preference Shares :
❑ Preference shares are a long-term source of finance
❑ The dividend payable on preference shares (PS) is usually higher than the debenture
interest
❑ Preference shareholders (PSH) get a fixed rate of dividend regardless of the volume
of profit
What are Equity Shares?
❑ Equity shares were earlier called as ordinary shares. The shareholders of such shares are
the authentic owners of the enterprise. They possess voting right in the huddles of holders
of the enterprise
❑ Features of Equity Shares :
❑ Equity share capital remains with the company. It is given back only when the
enterprise is closed
❑ Equity shareholders possess voting rights and select the management of the
enterprise
Equity Shares vs. Preference Shares
Stock Market in India
❑ According to the Securities contract regulation act, 1956, any body of
individuals constituted for controlling, regulating, or assisting the
business of buying, selling or dealing in the securities such as shares
and bonds is called a stock exchange.
Functions of Stock Exchange
Features of Stock Exchange
Role of stock exchanges
Stock exchanges of India
❑ National Stock Exchange of India Limited (NSE)
❑ The National Stock Exchange is India’s biggest stock exchange in
terms of market capitalization. Its operation beginning in 1992, it
was the first exchange to bring in fully automated trading to India.
❑ Its Index is called as Nifty
Stock exchanges of India
❑ Bombay Stock Exchange (BSE)
❑ The Bombay Stock Exchange is one of Asia’s oldest
stock exchange, beginning operations on July 9, 1875
❑ Its Index is called as SENSEX The Sensex measures the
stock prices of 30 listed companies of the Bombay
Stock Exchange
Stock exchanges of India
SENSEX
❑ The Sensex was launched by "Bombay Stock Exchange" (BSE) on January
1, 1986.
❑ The Sensex measures the stock prices of 30 listed companies of the
Bombay Stock Exchange..
❑ This fluctuation in BSE keeps happening every minute. If the investors buy
more share from the list of 30 companies then the share prices of the
companies rises which is followed by the increment in the BSE
capitalisation and if the shares of the 30 companies are sold by many
investors then the share price falls and market capitalisation of the BSE
decreases which is termed as the abatement in the Sensex.
What is Nifty?
❑ Nifty basically means the index of the 50 most actively traded stocks from across
all sectors. Nifty represents the top stocks of the NSE and when we talk about
Nifty going up, it means that all the heavyweight stocks of NSE across all sectors
are moving up. Most of the stock trading in the country is done through NSE and
BSE.
❑ Nifty consists of top 50 companies from 24 different sectors. Nifty is computed
from the performance of top stocks from different sectors. Some mutual funds use
Nifty as a benchmark
NIFTY VS. SENSEX
Securities and Exchange Board of India
❑ The Securities and Exchange Board of India owned by the Government
of India was established on 12th April 1992 under the Securities and
Exchange Board of India Act, 1992 to protect the interests of the
investors in securities along with promoting and regulating the securities
market.
Securities and Exchange Board of India
Securities and Exchange Board of India

❑ Powers
❑ Power to Inspect Books of Accounts

❑ Powers as vested in civil court

❑ Power to regulate securities market intermediaries

❑ Power to investigate
Securities and Exchange Board of India

❑ Securities Appellate Tribunal (SAT)

What is a Depository?
❑ A depository is like a bank wherein the deposits are securities (viz. shares, debentures,
bonds, government securities, units etc.) in electronic form. At present there are two
depositories in India, National Securities Depository Limited (NSDL) and Central
Depository Services (CDS). The minimum Networth stipulated by SEBI for a depository is
Rs 100 crore. A depository provides the following services:
What is a Depository Participant (DP)?
❑ A Depository Participant (DP) is
an agent of the depository
through which it interfaces with
the investor and provides
depository services.
 What is Dematerialization ?
❑ Dematerialization is the process
by which physical certificates of
an investor are converted to an
equivalent number of
securities in electronic form and
credited to the investor’s
account with his Depository
Participant (DP).
National Securities Depository Limited
❑ NSDL is a depository of Indian securities that stores digitally securities such as investor
bonds, shares and debentures. It is India’s first and largest depository of national
securities dealing with issues related to paper-based securities settlement such as terrible
distribution and delayed transfer of title, etc.
❑ Industrial Development Bank of India (IDBI), Unit Trust of India (UTI), and National Stock
Exchange ( NSE) are promoting NSDL
Central Depository Services (India) Ltd (CDSL)
❑ CDSL is a depository that holds securities in dematerialized form and facilitates trading
and settlement of securities to be processed by book entry. It is the second largest central
depository of securities in India, based in Mumbai, Maharashtra. The depository began its
operations in February 1999. It is promoted by Bombay Stock Exchange in association
with prominent banks of the nation, i.e. State Bank of India, Union Bank of India, Bank
of Baroda, Bank of India, Standard Chartered Bank.
CDSL vs. NSDL
What is an Initial Public Offer (IPO)?
❑ An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is when an
unlisted company makes either a fresh issue of securities or an offer for sale of its existing securities or both
for the first time to the public. This paves way for listing and trading of the issuer’s securities. The sale of
securities can be either through book building or through normal public issue.
❑ Steps Involved in the IPO Process
❑ Start with Hiring an Investment/ Merchant Banker A company going public through IPO has to start
with taking assistance and guidance from the team of Underwriters and investment bankers. This team
will study the financials of the company, assess the assets and liabilities, and then fulfil their financial
requirements. An underwriting agreement will be framed and signed, describing the details involving
the amount to be raised and the securities to be issued.
❑ Register with the Securities Exchange Commission (SEC)
The underwriters, along with the company, then files a registration statement that mentions all the
financial data and business plans of the company regarding how the company will be utilizing the
raised funds. The Registration statement should be compliant with the SEC’s stringent regulations that
ensure and mention all the financial details a potential investor
❑ Underwriting is the process through which an investment bank (the underwriter) acts as a broker
between the issuing company and the investing public to help the issuing company sell its initial
set of shares.
What is an Initial Public Offer (IPO)?
❑ Drafting of the Red Herring Document: The Red Herring document contains the probable price
estimate per share, the public involved, and other important subscription details. This document is
drafted as an initial prospectus which actually tests what it is going to be like for the potential
investors.
❑ Marketing of the Upcoming IPO: Once the listing regulations comply, the company then goes on a
rip-roaring campaign of promoting the IPO around the country and its potential investors. The
executives of the listing company promote their IPO with various facts and figures to develop positive
interests among the public.
❑ Pricing of the IPO: The price band is then fixed depending on whether the company wants to float a
fixed price or go with a Book building issue. Floating a fixed price would have a fixed subscription
price mentioned in the document, whereas the Book building issue price will have a price band
between which the investors can bid. The company also decides which stock market it will list down its
shares and the number of shares to be sold. With the coordination of the SEC, the company announces
its registration statement to begin first-hand share purchases.
What is an Initial Public Offer (IPO)?
❑ Making it Available for the Public: A date is planned when the company issues
the prospectus and accepts application forms from the public through online as
well as offline mediums. Public investors can get this form from their respective
brokers and designated banks. These Public investors are usually availed a time
of 5 working days to subscribe for the IPO.
❑ Going Ahead with the IPO: Once the IPO is finalized with receiving applications,
the underwriters and the other stakeholders then decide the allotment of the
shares. Shareholders are allotted with all the shares applied for unless the shares
go oversubscribed. The oversubscribed shares are then rejected and refunded
back.
❑ The allotted shares get credited to the Demat accounts of the selected
shareholders. Once the company is done with the share allotment, the company
becomes ready to start trading of shares on the stock market.
What is FPO (Follow on Public Offer)
❑ FPO (Follow on Public Offer) is a process by which a company, which is already listed on
an exchange, issues new shares to the investors or the existing shareholders, usually the
promoters. FPO is used by companies to diversify their equity base.
❑ FPO, an acronym for Follow-on Public Offering, as the name suggests it is the public issue
of shares to investors at large, by a publicly listed company. The process is after an IPO;
wherein the company goes for a further issue of shares to the general public with a view to
diversifying their equity base. The shares are offered for sale by the company through an
offer document called prospectus.
IPO vs. FPO
Bull and Bear Market
Blue Chip Companies

❑ A blue chip is stock in a stock corporation with a national

reputation for quality, reliability, and the ability to operate
profitably in good and bad times
Anchor investor
❑ It is a concept launched by
Securities Exchange Board of India
(SEBI) in 2009. Anchor investors are
institutional investors who are
invited to subscribe the shares
before the Initial Public Offers
(IPOs) open so that it jazzes up the
popularity of the issue.
❑ Anchor investors are required to
take up the share at a fixed price
to make other investors confident
and improve the demand of share
❑ Each anchor investor needs to invest
a minimum of Rs 10 crore in the
issue.
Types of Capital
Debentures
Bond
Bond
Bond
Bond
EXCHANGE TRADED FUNDS (ETFS)
EXCHANGE TRADED FUNDS (ETFS)
REITS AND InVITs
Financial Action Task Force
❑ The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 during
the G7 summit in Paris.
❑ The objectives of the FATF are to set standards and promote effective implementation of legal,
regulatory and operational measures for combating money laundering, terrorist financing and other
related threats to the integrity of the international financial system.
❑ Money laundering is the process by which large amount of illegally obtained money, from drug
trafficking, terrorist activity or other serious crimes, is given the appearance of having originated
from the legitimate source. It allows the criminals to maintain control over their proceeds.
❑ The process by which large amount of dirty money (i.e. money obtained from serious crime- drug
trafficking, terrorist activity made to look clean money (i.e. legitimate) is known as money laundering.
Financial Action Task Force
❑ FATF has two lists:
❑ Grey List (“Jurisdictions Under Increased Monitoring”). Countries that are considered safe haven for
supporting terror funding and money laundering are put in the FATF grey list. This inclusion serves as
a warning to the country that it may enter the blacklist
❑ Black List(High-Risk Jurisdictions subject to a Call for Action): Countries known as Non-Cooperative
Countries or Territories (NCCTs) are put in the blacklist. These countries support terror funding and
money laundering activities. The FATF revises the blacklist regularly, adding or deleting entries.
❑ India is a member of the FATF.
Participatory Notes
❑ Participatory Notes or P-Notes (PNs) are financial instruments issued by a registered
foreign institutional investor (FII) to an overseas investor who wishes to invest in Indian stock
markets without registering themselves with the market regulator, the Securities and
Exchange Board of India (SEBI).
Participatory Notes Advantage
❑ Anonymity: Any entity investing in participatory notes is not required to register with SEBI,
whereas all FIIs have to compulsorily get registered. It enables large hedge funds to carry
out their operations without disclosing their identity.
❑ Ease of Trading: Trading through participatory notes is easy because they are like contract
notes transferable by endorsement and delivery.
❑ Tax Saving: Some of the entities route their investment through participatory notes to take
advantage of the tax laws of certain preferred countries.
❑ P-Notes also aid in saving time and costs associated with direct registrations.
❑ Disadvantages of P-notes
❑ Because of the anonymous nature of the instrument, the investors could be beyond the
reach of Indian regulators.
❑ P- Notes are being used in money laundering with wealthy Indians, like the promoters
of companies, using it to bring back unaccounted funds and to manipulate their stock
prices
Insider Trading
❑ Insider trading is the buying or selling of a publicly-traded company’s shares/debt
papers by someone who has confidential information about that shares/debt papers.
Insider trading is defined as a malpractice wherein trade of a company’s securities is
undertaken by people who by virtue of their work have access to the otherwise non-public
information/confidential information which can be crucial for making investment decisions.
Social Stock Exchange
❑ The panel was set up by Sebi in September 2019 under the Chairmanship of Ishaat Hussain, Director at SBI
Foundation and former Finance Director at Tata Sons, to suggest possible structures and regulations for creating SSE
to facilitate listing and fund-raising by social enterprises as well as voluntary organisations.

❑ It a novel concept in India and such a bourse is meant to serve private and non-profit sector providers by
channelling greater capital to them.

❑ As per the proposal, SSE can be housed within the existing stock exchange such as the BSE and/or National Stock
Exchange (NSE).

❑ This will help the SSE leverage the existing infrastructure and client relationships of the exchanges to onboard
investors, donors, and social enterprises (for-profit and non-profit
Buyback of shares

❑ A buyback is a mechanism through which a listed company buys

back shares from the market.
❑ Under the open market mechanism, the company buys back the
shares from the secondary market while under tender offer,
shareholders can tender their shares during the buyback offer on
Record Date.
Buyback of shares
Buyback of shares
Buyback of shares
Depository Receipts: ADR
Derivatives
❑ Derivative is a product whose value is derived from the
value of one or more basic variables, called bases
(underlying asset, index, or reference rate), in a
contractual manner. The underlying asset can be equity,
forex, commodity or any other asset.
Derivatives
DERIVATIVE CONTRACT INSTRUMENTS
❑ Options: An Option is a contract which gives the right, but not an
obligation, to buy or sell the underlying at a stated date and at a stated
price. While a buyer of an option pays the premium and buys the right
to exercise his option, the writer of an option is the one who receives the
option premium and therefore obliged to sell/buy the asset if the buyer
exercises it .
DERIVATIVE CONTRACT INSTRUMENTS
DERIVATIVE CONTRACT INSTRUMENTS
❑ Forwards: A forward contract is a
customized contract between two
entities, where settlement takes place
on a specific date in the future at
today’s pre-agreed price.No
transfers and No Trading
❑ Futures: A futures contract is an
agreement between two parties to
buy or sell an asset at a certain time
in the future at a certain price.
Futures contracts are special types of
forward contracts in the sense that
the former are standardized
exchange traded contracts.
DERIVATIVE CONTRACT INSTRUMENTS
DERIVATIVE CONTRACT INSTRUMENTS
Forward contract vs. futures contract
Forward contract vs. futures contract
DERIVATIVE CONTRACT INSTRUMENTS
❑ Commodity Derivatives-Commodity derivatives work almost the same way as financial
derivatives, however with some differences. In the case of financial derivatives, most of
these contracts are cash settled. Even in the case of physical settlement, financial assets
are not bulky and do not need special facility for storage. Done in 4 commodity- Agri
Commodity,Base Metals,Precious Metals and Energy
DERIVATIVE CONTRACT INSTRUMENTS
❑ Commodity Exchange is an association, or a company of any other body corporate organizing
futures trading in commodities. In a wider sense, it is taken to include any organized market place
where trade is routed through one mechanism, allowing effective competition among buyers and
among sellers – this would include auction-type exchanges, but not wholesale markets, where trade is
localized, but effectively takes place through many non-related individual transactions between
different permutations of buyers and sellers.
❑ The National Commodity & Derivatives Exchange Limited (NCDEX) is an online commodity
exchange based in India
❑ NCDEX has a broad-based array of permitted agricultural commodities that amount to a total of 23
(which is also the highest).
DERIVATIVE CONTRACT INSTRUMENTS
❑ Multi Commodity Exchange (MCX) as the name suggests is an exchange like BSE and NSE
where commodities are traded.
❑ It is a platform for commodity traders that facilitate online trading, settlement and
clearing of commodity futures transactions, thereby providing a platform for risk
management (hedging).
❑ In 2016, the FMC was merged with SEBI and MCX as an exchange falls under the
regulatory purview of SEBI.
Difference between Commodity & Financial derivatives

❑ In the case of financial derivatives, most of these contracts are cash settled. Even in the
case of physical settlement, financial assets are not bulky and do not need special facility
for storage.
❑ Due to the bulky nature of the underlying assets, physical settlement in commodity
derivatives creates the need for warehousing. Similarly, the concept of varying quality of
asset does not really exist as far as financial underlyings are concerned.
❑ However in the case of commodities, the quality of the asset underlying a contract can
vary at times.
❑ Shares future are for 3 months but commodity futures can be more than that