Stages of development of

economics
1. Underdeveloped economy
2. Developing economy
3. Highly developed economy
 New Economy
• New economy is a term often used in the
media to describe the changes that have taken
place in the world of business since the
widespread adoption of internet technology.
• New economy is actually the old economy but
with technological breakthroughs integrated
into existing businesses
 5-Year Planning In India
• Securing an increase in national income
• Reducing the inequality in distribution of income
and wealth
• Removing poverty
• Providing additional employment
• Adopting measure to remove bottlenecks – both
internal and external, to ease out processes
• Achieving a planned rate of investments in a
given period
• Accelerating the pace of economic development
• Bringing balanced regional development
 First Plan (1952-1956)
• To correct the disequilibrium caused by world war II
(1939-1945)
• Y balance the state of India after independence and
partition in 1947
• To imitate an all round balanced development of the
country
• To combat the inflationary trends in the economy
• Reduction of inequalities of income
• To carry out programs of reconstruction and
development
• To increase employment
• To build economic overheads like irrigation and
transport
 Types Of Economic Systems
• 1.capitalism
• capitalism is an economic system in which the
means of production are mostly privately
owned, decision-making is left to the
individual prices are fixed by the market and
capital is invested in the production
distribution and other trade of goods and
services, for profit in a competitive free
market.
 features of capitalism
• Free enterprise –private organization are able to obtain resources or to
organize production or to sell the resultants product in any way in which
they want. There are no restriction from government.
• Private ownership – all the factors of production land, labour and capital
are privately owned. All the firms are privately owned and production
occurs at the individual’s initiative
• Freedom to save and invest all individuals and business are free to spend
or save as they like
• Consumer’s freedom this is an essential feature. Consumers have a free
choice of consumption. production is determined by what the consumers
want.
• Absence of central control and plan any of the activities are not guided or
controlled by the states. Resources allocation and investments decisions
are influenced by the market forces that the government
• Competition there is adequate competition between the buyers and seller.
This ensures consumers protection and a sufficiently flexible prices system
• Absence of government’s strong role although there is no central plan the
government does strive to protect property rights, enforces contractual
agreements among the private enterprises and ensures the satisfaction of
certain communities
•
 Features of socialism
• Central authority on enterprise all businesses are controlled by the state.
There is no scope for any individual decision-making
• Restriction on occupation the freedom of occupation is absent in socialist
countries. Even if individual is qualified for a particular profession, he may
not have the freedom to practice it.
• Fixation of wages the government fixes the rate of the wages and there is
no private say in the matter .
• Fixation of prices the prices are controlled and regulated by the
government and not by market forces
• Central authority the government decides the plans for development and
focus areas. They direct resources ,mobilisation , allocation and
investments decisions to achieve the targets
• Absence of consumer freedom consumers are not free to choose products
and decide on what to buy . They are supposed to buy what is offered and
produced by the government.
 Socialism
• Socialism is at the other end of the spectrum
from capitalism .it is an economic system in
which the means of production are either
owned or controlled by the government and
where the resource allocation, investment
pattern, consumption choices, income
distribution and prices are directed and
regulated by the states.
 Mixed economy
• A mixed economy is an economy that has a
mix of the two economic system . It is usually
defined as an economy that contains both
private –owned and state-owned enterprises
or one that combines elements of capitalism
and socialism, or a mix of market economy
and command economy
 Features of mixed economy
• Consumers are given choices about the products
they buy
• Business owner can sell their product and keep
the profits
• Governments provides services for people in
remote areas
• Individuals are free to use their money or
resources as they choose
• Government provides services to people in
economic need
 Economic indicators
• 1. gross domestic product(GDP)
• GDP is defined as the total market value of all
final goods and services produced in a
country, equal to total consumer investment
and government spending, plus the value of
exports minus the value of import
GDP = consumption + investment + government
spending +(export-import)
• Gross means that depreciation of capital stock is
not included, consumption and investment in this
equation are the expenditure on final goods and
services.
• the major advantage of using GDP per capita as
an indicator of standard of living is that it is
measured frequently, widely and consistently
• The major disadvantage of using GDP as an
indicator of standard of living is that it is not
strictly speaking, a measure of standard of living.
• For example, a country which exported 100% of
its production would still have high GDP, but very
poor standard of living.
2. Gross national product(GNP)
• GDP include goods and services produced within the
geographic boundaries of India, regardless of the
producers natinality.GNP doesn't include goods and
services produced by foreign producers, but include
goods and services produced by Indian firms operating
in foreign countries.
• GNP is the basic measure of a nation’s output stated in
terms of money. the money value of final goods and
services are only included. it include all the economic
production in a country –oranges to airplane and
aluminum to milk, done in a particular year.
3. National income(NI)
• . National income is defined as the income
earned by a country’s people, including labour
and capital investment . It represent the total
amount of money that factor of production
earn during the course of year. This includes,
mainly, payments of wages, rents profits and
interest to workers and owners of capital and
property.
4. Per capita income
• Per capita income for a group of people may
be defined as their total income divided by
total population, usually reported in units of
currency per year. It is a measure of wealth.
• It is usually expressed in terms of a
commonly-used international currency such as
euro or dollar,
5.Disposable income
• This denotes the income that is available for
spending by the individual and household in
the country after paying tax.
Disposable personal income= personal income –
(personal taxes + property taxes +insurance
payment)
• we can also say,
Disposable personal income= consumption +
saving
6.inflation
• Inflation is an increase in the price of a basket of
goods and services that is representative of the
economy as whole. It is upward movement in the
average level of prices.
• Inflation is caused by the combination of four
factors:
1. The supply of money goes up
2. The supply of goods goes down
3. Demand for money goes down
4. Demand for goods goes up
7.Balance of payment(BOP)
• BOP measure the payment that flow between
any individual country and all other countries.
It is used to summaries all international
economic transactions for that country during
a specific time period, usually a year.
• It reflects all payments and liabilities to
foreigners(debits) and all payments and
obligations received from foreigners(credits)
8.Fiscal deficit
• Fiscal deficit is basically the difference between
expenditures and receipt. In public finance, it means
government is appending more than what it is earning.
Government expenditure and revenue can be spilt into
capital and revenue.
• Capital expenditure generally includes those expenses
that results in creation of assets. Revenue expenditure is
primarily which does not result in to asset creation—
such as interest payments, salaries, subsidies, etc..
• Similarly, what government receives as tax is revenue
receipt. Receipt which are not of recurring nature are
generally o capital receipts.eg. Domestic borrowing,
recovery of loans by union government etc.
9. Wholesale index price
• To calculate inflation, the inflation-computing
agency has to collect prices of identified
commodities. As the wholesale markets are few, it is
easier to collect the prices of goods traded there,
wholesale price of 400 commodities is taken into
account for the base year 1993-1994. the 100 –
point index is subdivided into three groups:
1. Primary articles, including food and non food
agriculture product has a weight of 22.02%
2. Manufactured goods have the highest weight of
63.75%
3. Fuel and power has a weight of 14.23%
10. Consumer price index(CPI)
• CPI takes into account the retail prices. This
index is worked by ministry of Labour and
Employment is used to measure the cost of
living.
• This index is also used to compute dearness
allowance (D.A.) for government employees,
private sectors employees, embassy staff, etc.
Industrial policy
• Industrial policy can be defined as the wide range
of government actions designed to promote growth
and increase the competitiveness of a particular
sector in an economy.
• The industrial policy document states the
government policy toward establishment of
industries, their working and management .
Traditional industrial policy include macro
economics, and tax policies ,subsidies, government
procurement program, support to R&D, Procedure
for elaborating technical standards, education and
infrastructure improvement program, export
assistance, and foreign trade and investment
policies.
• In 1948 immediately after independence the government
introduced industrial policy resolution. Again it is
comprehensively revised in 1956 to meet up new challenges it
is modified in 1973,1977 and 1980.
• In 1956 industrial policy resolution gave primary importance to
the state role and direct responsibility for industrial
development.
• In 1973, identified high priority industries where investment
from large industrial house and foreign companies would be
permitted.
• In 1977 laid emphasis on decentralization and on the role of
small scale tiny cottage industries.
• Industrial policy statement of 1980 focused on need for
promoting competition in domestic market , technological up
gradation and modernization.
• In 1991, under prime minister Narsimha Rao, and Dr.
manmohan singh as the finanace minister opened the door of
 SECTION 5
• FINANCIAL ENVIRONMENT :
This environment sets the basis of developmental activities
There are numerous element of this environment :
1. The central banks of country eg., reserve bank of india.
2. The health and vision of the commercial banks.
3. The presence and focus of the developmental banks.
4. Non-banking financial institutions
5. Prevailing interest rates
6. Policies governing disbursement of loans.
• Any financial system includes:
• 1.credit market
• 2. money market with long term claim
• 3.G-sec market
• 4.Debt market
• 5.Foreign exchange market
• 6.capital market with short term claims.
• financialsystem

Financial
institution Financial market Financial products

Organised
Unorganised
sector
sector
Central bank
Indigeno
us banks
banks
NBFCS Money
COMMERCIAL lenders
BANKS
Pawn
AGRICULTURE
brokers
BANK
COOPERATIVE
BAKKS
DEVELOPMENT
BANKS
EXCHANGE BANKS
 Role of banks in the economy
• In India first bank was established in a1786, Called
‘General Bank Of India’ which was followed by
‘’Hindustan bank of India’ was followed by ‘Bengal
Bank’.
• The reserve bank of India act was passed in 1934 and
after independence was taken over by government of
India.
• Banks provide:
• Short term loans for buying seeds, fertilizers, pesticides
to the farmer, long-term loans for machinery for
farming
• Loans for industry for machinery
• Loans for service sectors like insurance, transport,
marketing trade etc.,
 Central bank
• Functions:
• 1.issue of bank notes
• 2.banker to the government
• 3.banker’s bank and Lender to scheduled bank
• 4.Clearing house
• 5. controller of the credit
• 6. custodian of foreign exchange reserves
• 7. compilation of statics
• 8. supervising and regulation of banking
 Commercial banks
• A commercial bank is a financial institution that
provide credit to trade, commerce and industry.
commercial banks also be grouped into–
scheduled and non-scheduled banks they can be
Indian or foreign origin.eg. State banks of India,
Punjab national bank
• Standard chartered bank, American express,
Citibank etc.,
• Commercial banks have 1,00,000 branches
spread all over the country.
 Function of the commercial banks
1.Primary function:
1.Acceptance of deposits
current bank account
saving bank account
fixed deposit account
recurring deposit account
2. Discounting of bills
3. granting loans
loans
cash credit
overdraft
Secondary function:
• 1. agency services : this help to build a relationship
between the bank and its customer.
• Collect cheques, bills and pronotes for the customer
• Collecting dividend and interest on various securities.
• Dispensing salary to the employees on instruction of the
employers.
2. general utility services—
• On permission of RBI, they sell and buy foreign currency
• It accept income tax
• It verifies signature of the customers
• They issue LoU on behalf of exporter.
• ATMs for convenience of withdrawal and remittance
• They provide stock option
 Commercial bank

Indian foreign

Indian commercial bank

Public sector
Private sector

State bank group

Other nationalized banks ICICI BANKS
Regional rural banks HDFC BANKS
post office banks AXIS
 AGRICULTURAL BANKS
• Agricultural banks are established to help
provide loans, both long-term and short-term For
agriculture :
• To purchase new land
• To purchase heavy agricultural machinery like
tractors, harvesters, etc.
• To repay debts
• In soil conservation and land reclamation
• To buy seeds
• For purchasing fertilizers and pesticides
NABARD
• IN July, 1982 an act was passed in parliament to
set up NABARD with capital share of Rs. 500cr
Functions of NABARD
 Refinancing to agriculture, SSIs, and other village
and cottage industries by lending to commercial
banks.
 It sponsors minor irrigation projects
 It refinances rural banks
 It helps in R&D activities of rural industries
 It provides refinance to commercial and co-
operative banks during natural calamities so
that can tide over the difficult times.
 Co-operative banks
• Co-operative banking has its origins in the co-
operative movement which began in India in
1904 for the benefits of the weaker section of
the society
• present at three level:
• Primary level—village
• Secondary level---in districts
• Higher level---in the state
• Function :
• Agricultural finance
• Non-agricultural activity
• Promoting small scale industries
• engaging in commercial bank activity to small
extent
• promotes industries in backward areas.
 Exchange banks
• Eg. EXIM bank( export-import bank)set up in
1981 apex financial institution wholly owned by
the government of India
• Developmental banks
• Provide export finance
• Provide fixed capital to industries
• To speed up economic growth
• To development SSIs.to help in research and
development
• Eg.ICICI BANK, IDBI BANK, SIDBI, IFCI