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The Indian Economy PDF

412 Pages·2020·5.03 MB·english
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CONTENTS PART A DOMESTIC ECONOMY 1. Output of an Economy 3 1.1 Concept of Output 3 1.2 Concept of Depreciation 5 1.3 GDP—as a Measure of Growth 6 1.4 GDP/National Accounts Revised Series With 2017-18 As Base Year 8 1.5 Gross Happiness Index (GHI) 11 2. Towards Inclusive Growth 13 2.1 Growth Rate of Indian Economy 13 2.2 Development—Inclusive Growth 14 2.3 Growth With Equity. 18 3. Sustainable Development and Climate Change 20 3.1 Sustainable Development 20 3.2 Sustainable Development and Climate Change 21 3.3 Sustainable Development Goals (SDGs) 23 3.4 Green GDP 23 3.5 Climate Financing. 24 4. Poverty and Social Sector 25 4.1 What is Meant by Poverty in India? 25 4.2 Social Sector 25 4.3 Micro Finance 34 4.4 Pradhan Mantri Mudra Yojana (PMMY) 35 4.5 Spreading Jam Across Indian Economy 35 4.6 Universal Basic Income 37 5. Food Security 41 5.1 Food Security 41 5.2 Challenges Before India in Achieving Food Security. 46 6. Agriculture Sector 48 6.1 'Why' is Agriculture Sector Important for India? 48 6.2 Pink Revolution 51 6.3 New Agricultural Policy 2000 53 (xi) 6.4 Agriculture Export Policy, 2018 53 6.5 Rainbow Revolution 54 6.6 Minimum Support Price (MSP) 55 6.7 Indian Agriculture—Ten New Thoughts 55 6.8 Second Green Revolution 57 6.9 National Mission For Sustainable Agriculture 57 6.10 Food Processing Industry—An Overview, Opportunities and Challenges 57 6.11 Agriculture Policy: Vision 2020 66 7. Land Reforms—Another Perspective 70 7.1 Land Reforms—Aspects 70 7.2 Land Acquisition Act 71 71 7.3 NationalL and UseP olicy—Efficiency in theU seo fL and 7.4 Leasing ofA griculturalL and 72 7.5 Moving FromP resumptiveT o ConclusiveT itle 72 72 7.6 Computerization ofL and Records 7.7 Beyond Land and Land Rights 73 7.8 HurdlesI n Land Reformsi n India. 73 8. Salient Features—‘New India 76 8.1 New India 76 8.2 New Philosophies 77 8.3 India’s Economy-A Stellar Performance 81 83 8.4 Eight Interesting Facts About India 9. Industrial Sector And Liberalization 87 9.1 Role of Industry in an Economy 87 9.2 Public Sector in India 88 9.3 Industrial Policies 89 90 9.4 New Economic Policy 1991 9.5 Role of Public Sector in Future 95 9.6 National Manufacturing Policy, 2011 96 9.7 Emerging Role of Private Sector 100 9.8 Ease of Doing Business in India 104 106 9.9 Vision of a New India 10. Infrastructure 111 10.1 Infrastructure in Global Context 111 10.2 Issues in Indian Infrastructure 112 10.3 Recent Measures Taken by the Government 112 10.4 Infrastructure and Its Key Challenges 116 10.5 Environmental Issues and Infrastructure 117 10.6 Ports in India—An Economic Perspective 118 10.7 Indian Railways—A Carrier of the Nation 122 10.8 Regional Connectivity Through UDAN 128 10.9 Adarsh Railway Station Scheme 129 11. Investment Models 130 11.1 Traditional Models 130 11.2 Neo-Investment Models 132 11.3 Public Private Partnership Model (PPP) 135 (Xii) 12. Integrated Energy Policy (2031-32) 138 12.1 Importance 138 12.2 The Policy 138 12.3 Government Initiatives 139 12.4 Structural Bottlenecks 141 13 Government Finances 143 13.1 Fiscal Policy in India 143 13.2 Public Expenditure of Government 143 13.3 Receipts by the Government 144 13.4 Ways and Means Advances 145 13.5 Nature of Government Budget 145 13.6 Nature of Deficits 146 13.7 Tax Reforms—Indirect Taxes 147 13.8 Tax Reforms—Direct Taxes 149 13.9 Goods and Services Tax: Progressive Tax Regime 150 13.10 Black Money 154 13.11 Views on Tax Compliance 157 13.12 Merger of Rail Budget With Union Budget 159 13.13 Some Other Forms of Budgeting 161 14. Reserve Bank of India and Monetary Policy Committee 163 14.1 Reserve Bank of India 163 14.2 Monetary Policy Committee 164 15. Banking 167 15.1 Banks in India 167 15.2 Banking Structure in India 167 15.3 Major Areas of Reform in the Banking Sector 170 15.4 Capital Adequacy (Basel Norms) 171 15.5 Liquidity Management By RBI 172 15.6 Directed Lending of RBI 174 15.7 Rural Infrastructure Development Fund (RIDF) 176 15.8 Overview and Outlook—Public Sector Banks 177 15.9 Financial Inclusion 178 15.10 Small Finance Bank 180 15.11 Payments Banks 181 15.12 Gold Investments Scheme 183 15.13 Banking Related Initiatives 184 15.14 Merger of SBI Associates with State Bank of India (SBI) 189 16. Inflation 190 16.1 Meaning and Measuring Inflation 190 17. Capital Market 196 17.1 Capital Market 196 17.2 Disintermediation 197 17.3 Stock Exchanges. 197 17.4 Various Indices of Stock Market. 197 17.5 Role of Securities Exchange Board of India (SEBI) 198 (xiii) 17.6 Market Capitalization and Wealth 199 17.7 Mutual Funds and Unit-Linked Insurance Plans (ULIPS) 199 18. Planning In India 202 18.1 Genesis 202 18.2 Planning and Market Economy 202 18.3 India and Five-Year Plans 203 18.4 Inclusive Growth : Theme of 12th Plan 206 18.5 Challenges Before Twelfth Plan (2012-2013 To 2016—2017) 207 18.6 Niti Aayog: The Premier Policy Think Tank 208 18.7 Recent Initiatives of Niti Aayog. 211 PARTBE X TERNALSE CTOR—LOOKINGOU TWA RDS TowardsGlo balizationand Be yond 19. Looking Outward—Towards Globalization 215 19.1 Need to Look Outward 215 19.2 Need for Imports and Exports 215 19.3 Flip Side to Trade 216 19.4 New Globalization Report: Three Mega-Trends. 217 20. Inward and Outward-Looking Economies’ Globalization 218 20.1 Closed Economies 218 20.2 What are these Facilitators? 218 20.3 Globalization Indicators 220 20.4 While Being Driven into the Global Village ,can have its Own Fallout Too 221 20.5 Globalization Would also Bring its Own Set ofCha llenges 221 20.6 Impact on Indian Society So Far 222 21. Going Forward—India and Globalization 226 21.1 Trade Strategies 226 21.2 Branding India Through Make In India 227 21.3 National IPR Policy, 2016 235 21.4 National IPR Policy- Achievements So Far. 236 22. Export-Led Growth Strategy—SEZs 238 22.1 Export Strategies 238 22.2 Special Economic Zone (SEZ) 238 22.3 Agri Export/Economic Zones (AEZs) 243 22.4 Technology Parks and EOUs 244 22.5 Report of SEZ Policy Review Committee. 245 23. Foreign Trade Policy 247 23.1 Foreign Trade Policy 2015-2020 247 23.2 Concessions Available to Exporters in DTA 250 23.3 India’s Major Trade Partners. 254 24. Balance of Payments of Economies (BOP) 255 24.1 Concept 255 24.2 BOP—Kinds of Accounts 255 24.3 Is Current Account Surplus (CAS) Better For Open Economies? 258 (xiv) 25. Trade Reforms and Foreign Exchange Management Act (FEMA) 1999 259 25.1 Trade Reforms 259 25.2 Foreign Exchange Regulation Act (FERA) 259 25.3 Rupee Convertibility 260 25.4 External Commercial Borrowings 265 26. Foreign Investment in India 268 26.1 Changing Notions 268 26.2 Foreign Direct Investment (FDI) 269 26.3 Foreign Portfolio Investment (FPI) 273 26.4 FDI in Agriculture Sector 274 26.5 Differences Between FDI and FPI 274 27. Multilateral Financial Institutions 276 27.1 International Monetary Fund (IMF) 276 27.2 The World Bank Group 279 27.3 Asian Development Bank (ADB) 280 27.4 New Development Bank 281 27.5 Asian Infrastructure Investment Bank (AIIB) 282 28. External Debt of India 283 28.1 External Debt 283 28.2 India’s External Debt Highlights 284 29. Exchange Rate Determination 287 29.1 Exchange Rate 287 29.2 Exchange Rate in India 289 29.3 Depreciation of Indian Rupee-Reasons, Implications and Possible Solutions 295 30. Foreign Exchange Reserves 301 30.1 Foreign Exchange Reserves (FEX) of India 301 32. Regional Trading Blocs 305 31.1 Regional Trading 305 31.2 Preferential Trade Agreements 309 31.3 India’s Experience With Regional Trade Agreements 310 PART C GLOBAL ECONOMY AND OUTLOOK Post-nC • risis a• nd• Beyoinn d... i 32. India and the Global Economy 313 32.1 Global Output 313 32.2 India and Human Development Index (2018) 316 33. Global Economy—A Transition 317 33.1 Global Transition 317 33.2 Global Village 318 34. Lessons From Crises in Open Economies 320 34.1 Genesis 320 (xv) 35. Global Financial Meltdown 322 35.1 De-Coupling Theory 322 35.2 Global Crisis and India 324 35.3 Collective Intervention 325 35.4 Future of Globalization 326 36. Overview of Recent Crises Since 2008 328 36.1 US Crisis 2008 And 2011 328 36.2 Euro Zone Crisis 329 36.3 Cyprus Crisis 330 36.4 Greece Debt Crisis 330 36.5 Brexit 331 37. Global Consensus—Going Forward 332 37.1 Post Crisis 332 37.2 Structural Issues 333 38. Global Unresolved Issues 334 38.1 Unaddressed Issues 334 39. World Trade Organization (WTO)—Issues And India 336 39.1 GATT and WTO 336 PARTDINDIANECO NO MYRE VISITED, OUTLOOKANDCHALLEN GES 40. India’s Efforts Towards Economic Reforms 343 40.1 Economic Reforms Encapsulated 343 40.2 First-and-Second Generation Reforms 343 40.3 Review of Economic Reforms in India 344 40.4 Unfinished Agenda of Economic Reforms 349 40.5 Big Bang Economic Reforms Centred at Economic Growth 349 41. Indian Economy—Outlook and Challenges 351 41.1 Global Perspective—India And China 351 41.2 Domestic Outlook 352 41.3 Outlook for Reserve Bank of India (RBI) 352 41.4 Indian Outlook—Challenges Ahead 353 41.5 India 2020: Top 7 Challenges. 355 The Igniters: Thought Provoking Questions 357 (xvi) PART A DOMESTIC ECONOMY CHAPTER 1 OUTPUT OF AN ECONOMY CONCEPT OF OUTPUT What would we understand if we were told that today the largest economy in the world is the US? Surely, we would wonder about the parameter of such a—land area, population or output! In every economy, ‘goods’ are being produced, that is, raw materials are being converted into finished goods, agricultural crops, forestry, livestock, steel, cement, cars, cycles, bread etc. Similarly, services’ are also being rendered like banking, insurance, shipping etc. All of these have a monetary value in the local currency like the USD in the US and the INR in India. Thus, output per se implies aggregation of monetary value of all the goods and services produced in an economy in a given time period which may be a quarter (3 months), half- a-year (6 months) or a year (12 months). In other words, output’ includes all goods and services exchanged for money. For example, a fisherman catching fishes, may use some of it for self-consumption and the remaining may be used for selling in the market; thus, the monetary value of all the fishes would be considered under the concept of output. It sounds simple so far, but delving a little deeper output may as well comprise of intermediate goods like steel and cement, which in turn are inputs for other goods referred to as ‘final goods’. These final goods cannot be put to further use, except for use like cars, buildings etc. If we were to include both the intermediate and final goods in our definition of output, then that would effectively mean counting the same thing twice and in the process inflate the output of an economy. For example, production of wheat and its milling as flour results in the making of bread; thus for output purposes, only the monetary value of bread would be considered and not that of wheat and flour. Therefore, we can conclusively derive that the output should have only final goods in order to avoid double counting. But, what about a sale of second hand goods like say a second hand car? Should they be reflected in the output of an economy? The answer is no, as they have already been included once when manufactured and therefore does not amount to a fresh production. Thus, output of an economy is the monetary value of the final goods and services in a given time period. 4 THE INDIAN ECONOMY The production of goods and rendering of services are referred to as economic activities; but who are the producers of goods and services in an economy? They could either be individuals, small and petty businesses, private companies like the Tatas, Birlas, Reliance Industries etc., or even government like the public sector companies ONGC, SAIL etc., or even foreign companies like Nokia, Sony, Samsung etc. If we were to take the monetary value of all the final goods and services produced within the geographic boundary of a country, irrespective of who the producer of the goods and services are, then it is called ‘domestic output’ of the economy. Thus, in the Indian context, domestic output consists of the monetary value of all final goods and services produced/rendered by individuals, private sector, public sector and foreign companies. Having looked into who are the producers in an economy, let us look now at how the goods are produced. In order to produce goods, at first we need some place/infrastructure where the goods can be produced. Thus we would need to have a some land (or building); money as seed capital, in order to buy machines and raw material, invest in marketing, arrange for transportation etc.; labour for production and then a person whom we call the entrepreneur as the producer of goods. These are known as ‘factors of production’ in an economy. Thus, in a ‘production life cycle’, each factor of production will have an associated cost—be it the seed capital for investment, rent for the place/infrastructure, or for that matter the labour wages and salaries; as an entrepreneur, the profit that an entrepreneur gains at the end of the day, is principally for the risk that he/she takes for production. It is important to note that profit is a cost for any economic activity; but then what is cost is also income for factors of production. For example, rent is an income for land, interest is the income for capital, wages and salaries are the income for workers and supervisors and profit per se is the income for the risks taken by the entrepreneur. Let us illustrate this example further with numbers. Following are the details of a manufacturing company: Land (rent) ₹ 10,000 Labour (Wages & Salaries) ₹ 1,000 Capital (Interest) ₹ 750 Entrepreneur (Profit) ₹ 500 Total ₹ 12,250 In this example, the totalc ost( allc osts in cluded)to an entrepreneur is ₹1 2 ,250;wh at ist he output!Itisthesameamountas₹12,250;and whatistheincomeofallthefactorsofproduction! Itisagain thesameas₹12,250.Thisbasically meansthatoutput/costisincome forfactorsof production.Thus,outputand theincomearetwo sidesofthesamecoin.Whetherwesay output orincome,itimpliesthesamething. At times, output is also referred as the product of an economy, (quantity multiplied by factorcost)thusdomesticproductand domesticincomeofan economy arethesame. OUTPUT OF AN ECONOMY 5 So far, we has discussed about the domestic output/product/income, but what about the income of Indians staying abroad? For a more comprehensive analysis of the output, it .$ necessary to look beyond the geographic boundaries that would include the income of all the Indian nationals irrespective of the country they currently reside. But if we include the income of Indian nationals outside the country, it will also be logical to deduct the income of foreign nationals residing in our country. This is also referred to as Net Factor Income From Abroad (NFIAD). Thus, Domestic Product + Income of Indians Abroad - Income of Foreigners in India = National Product or Domestic Product (+/-) NFIAD = National Product Net factor income from abroad can be positive or negative depending up on which is more— income of Indian nationals abroad or income of foreign nationals in India, that is, national product is less than the domestic product, if the income of Indian nationals abroad is less than the income of foreigners in India and vice versa. An increased foreign currency denominated debt of a country or selling domestic assets to foreign entities would tend to reduce the national product leaving domestic product unchanged. CONCEPT OF DEPRECIATION The output of an economy also consists of production of machines/machineries which are consumed every year, referred to as ‘depreciation and much of the output of such machines could be replacement in nature and not signifying additions to machine or capital stock in the economy. Let us assume that cars are being produced in an economy and there is also depreciation of cars , that is ,the car s would eventually ha ve to be replaced a fter t heir shell -life .For example, a car is priced at ₹ 3,00,000 and ha s alif eof ,say 10 years .Then ,depreciation or consumption ) of car is ₹ 30,000 a year.Thus,if the output of an economy ignores consumption (ordepreciation)ofitsmachinestocks,itisreferred asa‘gross’conceptand ifitisaccounted foritisknown as‘net’concept. Accordingly, there is Gross National Product (GNP) and Gross Domestic Product (GDP). Hence, GNP-Depreciation =NetNationalProduct(NNP) GDP— Depreciation =NetDomesticProduct(NDP) Thus, there are four concepts in the output of an economy—GNP, GDP, NNP and NDP. Let us now try to understand which method is technically the best measure of growth. Clearly,itistheNNPasitfirstcoversallthenationalsofacountry and isalso anet

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