Indian Economy

Characteristics of Indian Economy

 The Economy of India is the 10th largest in the world by nominal GDP and the third-largest by
purchasing power parity (PPP).
 Purchasing Power Parity is a technique used to determine the relative value of different
currencies.
 Indian Economy is 2nd and 3 rd largest in Asia in terms of PPP and Nominal GDP respectively and
largest Economy in South Asia.
 It is the world’s 2nd fastest-growing major Economy just after China, with growth rates
averaging 7.7% over the past 10 years.
 Agrarian Economy: Even after more than six decades of Independence, 58% of the work force of
India is still agriculturist and its contribution to Gross National Product (GNP) is approximately
17.5%.
 Mixed Economy: Indian Economy is a unique blend of public and private sector, i.e. a mixed
economy. In its entire Plan period, the government has invested 45% capital in public sector.
Developing Economy:
The following facts show the Indian Economy is a developing economy:
 Low per capital income.
 Low rate of capital formation
 Underutilization of resources
 Level of unemployment is very high
 Low human development indicators
 Heavy Population Pressure
 National Income of India

 National income measures the net value of goods and services produced in a country during a
year and it also included net earned foreign income. In other words, a total of national income
measures the flow of goods and services in economy.
 National income is calculated by CSO-Central Statistical Organization.
 From 2005 base year for any calculation of national income is taken as 1999-2000. Before 2005,
base year was 1993-94.
 The national income of India is established mainly through production and income methods.
 The ‘Primary Sector’ of Indian economy includes agriculture, livestock and allied activities,
forestry, logging, fishing, mining and quarrying.
 The ‘Secondary Sector’ includes manufacturing, building construction, electricity, gas and
drinking water supply.
 The ’Tertiary sector’ of an economy refers to the service sector.
 Indian economy is the ideal model of a ‘mixed economy’.

National Income Aggregates Gross Domestic Product (GDP)

 Gross Domestic Product is the total money value of all final goods and services produced within
the geographical boundaries of the country during a given period of time.

Gross National Product (GNP)

 Gross National Product refers to the money value total output of production of the final goods
and services produced by the nationals of a country during a given period of time, generally a
year.
In equation form:
 GNP=GDP+X-M
 Where,
 X= Income earned and received by the nationals within the boundaries of foreign country.
 M=Income received by the foreign nationals within the country.
 If X=M then GDP=GNP
 Similarly in closed economy X=M=0 then also GDP=GNP

Net National Product (NNP)

 NNP is obtained by subtracting de-preciation value (i.e. capital stock consumption) from GNP.
 In equation form:|
NNP = GNP-Depreciation

National Income

 GNP, explained above, is based on market prices of produced goods which include indirect
taxes and subsidies.
 NNP can be calculated in two ways-
 At market prices of goods and services
 At factor cost
 When NNP is obtained at factor cost, it is known as national Income. National Income is
calculated by substracting net indirect taxes (i.e. total indirect tax-subsidy) from NNP at market
prices. The obtained value is known as NNP at factor cost or National Income.

In equation form

 National Income or NNP at factor cost = NNP at Market Price – (Indi-rect taxes-Subsidy)
 National Income = NNPMP =

Personal Income

 Personal income is that income which is actually obtained by substracting corporate taxes and
payments made for social securities provisions from national income and adding to it
government transfer payment and net interest paid by the government.

In equation form

 Personal Income = (National Income-undistributed profit of corporation – payment for social

security provisions – corporate taxes + Government transfer payments + Business transfer
payments + Net interest paid by Government ).

Disposable Personal Income

 When personal direct taxes are subtracted from personal income, the obtained value is called
disposable personal income (DPI)
In equation form:
 DPI = Personal Income-Direct Taxes.

Estimates of National Income

 Dadabhai Naoroji, fondly called the Grand Old Man of India, prepared the first estimates of
National Income in 1876. He estimated the national income by first estimating the value of
agricultural production and then adding a certain percentage as non-agricultural production.
 However, such method can only be called as a non-scientific method. The first person to adopt a
scientific procedure in estimating the national income was Dr. V.K.R.V. Rao in 1931.
 He divided the Indian Economy into two parts:
 Agricultural Sector which included agricultural, forests, fishing and hunting.
 Corporate Sector which included industries, construction, business, transport and public
services.
 Two different methods were used for estimating the income in the two sectors. Product
method was used for estimating income in the corporate sector. Finally, Net Factor Income
earned from abroad was added to the sum of the above two to obtain national income.
 The Government of India appointed National Income Committee in 1949. The committee was
chaired by Prof. P.C. Mahalanobis and had Prof. D.R, Gadgil and Dr. V.K.R.V. Rao as members.
 The first report of the committee was presented in 1951. According to the first report, the
National Income of India for 1948-49 was 225.
 Since 1955, the national income estimates are being prepared by Central Statistical
Organisation.
 The CSO uses different methods like the Product Method, Income Method and Expenditure
Methods for various sectors in the process of estimation the National Income.
 National Income does not include data from the following activities:
 Income from illegal activities like smuggling, gambling, etc.
 Income from work done without remuneration like domestic work by housewives.
 The Government of India ordered setting up of National Statistical Commission on 1 June 2005
on the recommendation of C. Rangarajan Commission. The National Statistical Commission
(NSC) of India is an autonomous body which was formed in July 2006 to reduce the problems
faced by statistical agencies.
 The NSC is headed by Economist Suresh Tendulkar.
 Planning in India

 First attempt to initiate economic planning in India was made by Sir M. Visvesvarayya, a noted
engineer and politician, in 1934 through his book, ‘Planned Economy for India’.
 In 1938, ‘National Planning Commission’ was set up under the chairmanship of Jawaharlal
Nehru by the Indian National Congress. Its recommendations could not be implemented
because of the beginning of the Second World War and changes in the Indian political situation.
 In 1944, ‘Bombay Plan’ was presented by 8 leading industrialists of Bombay.
 In 1944, ‘Gandhian Plan’ was given by S.N. Agarwal.
 In 1945, ‘People’s Plan’ was given by M.N. Roy.
 In 1950, ‘Sarvodaya Plan’ was given by J.P. Narayan. A few points of this plan were accepted by
the Government.
 The Planning Commission was setup on March 15, 1950 under the chairmanship of J.L. Nehru,
by a resolution of Union Cabinet.
 It is an extra-constitutional, non-statutory body.
 It consists of Prime Minister as the ex-officio Chairman, one Deputy Chairman appointed by the
PM and Some full time members.
 The tenure of its members and Deputy Chairman is not fixed. There is no definite definition of
its member also. They are appointed by the Government on its own discretion. The number of
members can also change according to the wishes of the Government.

National Development Council

 All the plans made by the Planning Commission have to be approved by National
Development Council first. It was constituted to build co-operation between the States and the
Planning Commission for economic planning.
 It is an extra-constitutional and ex-tra-legal body.
 It was set up on August 6, 1952, by a proposal of the Government. The PM is the ex-officio
chairman of NDC. Other members are Union Cabinet Ministers, Chief Ministers and Finance
Ministers of all States, Lt. Governors of Union Territories and Governors of Centrally-ruled
States.

State Planning Board

 Apex planning body at State level is generally a State Planning Board comprising the Chief
Ministers as Chairman, Finance and Planning Ministers of that State and some technical experts.
 District Planning Committee is also there comprising both official and non-official members.

12th Five-Year Plan (2012-17) The theme of the Approach Paper is “faster, sustainable and more
inclusive growth”.

 Average growth target has been set at 8.2 per cent.

 Growth rate had been lowered to 8.2 per cent from the 9.0 per cent projected earlier in view of
adverse domestic and global situation.
 Area of main thrust are-infrastructure, health and education.
 The commission had accepted then Finance Minister P. Chidambaram’s suggestion that direct
cash transfer of subsides in food, fertilizers and petroleum be made by the end of the 12th Plan
period.
 The 12th Plan seeks to achieve 4 per cent agriculture sector growth during the five-year period.
 On poverty alleviation, the commission plans to bring down the poverty ratio by 10 per cent. At
present, the poverty is around 30 per cent of the population.
 Health and education sectors are major thrust area and the outlays for these in the Plan have
been raised.
 The outlay on health would include increased spending in related areas of drinking water and
sanitation
 The target is to generate 50 million new jobs while achieving 8% growth target.
 The plan aims at increasing investments in infrastructure to 9 per cent of the GDP by the end of
the Plan period (2012-17).
 The aggregate Plan resources are estimated at 37.16 lakh crore during the five-year period.
 The other targets include increasing green cover by one million hectare every year and adding
30,000 MW of renewable energy generation capacity in the Plan period.
 It also seeks to reduce emission intensity of the GDP in line with the target of 20-25 reduction by
2020 over 2005 levels.

Three different economic scenarios for 12th Five-Year Plan

 The Five-Year Plans earlier used to present single growth projection. However, this time the
Planning Commission has come out with three different economic scenarious for 12th Five-Year
Plan. They are presented as follows.
 As per the aspirational scenario one-of strong inclusive growth-India’s economic growth will be
average 8 per cent in the five years.
 In the scenario of insufficient action, the GDP growth is likely to be in the range of 6.5-7.0 per
cent.
 The document also cautions that in scenario of policy logjam, the GDP growth could slow down
to 5.5 per cent.
 The Planning Commission is banking on reinvigorating a few existing policies while expecting
vastly improved performance in certain key areas. For example, gross fixed capital formation
rate to go up to 35 per cent from the present 32 per cent, with the private sector playing a
major role in catalyzing such investment; a new industrial policy that focuses on better
coordination between the government and the private sector to vastly improve business
sentiment; stressing the importance of national industrial manufacturing zones in a scheme of
reviving industrial output.
 New Economic Policy, 1991

 New Economic Policy is related to economic reforms. Its aim is to bring about reforms in
production pattern, to obtain new technology and to use full capacity expeditiously and in toto.
 The New Economic Policy was devised and implemented, for the first time in the year 1985
during the period of Prime Minister Rajiv Gandhi.
 The second wave of new economic reforms came in the year 1991 during the period of P.V.
Narsimha Rao government.
 The main reason to start economic policy (1991) was Gulf-War and problem of balance of
payments in India.
 Three main objectives of new economic policy were Privatisation, Liberalisation and
Globalisation.

The following four main steps were taken under the Fiscal Policy, 1991:
 To control public expenditure strictly
 To expand Tax Net
 To observe discipline in management of funds of Central and State governments.
 To curtail grants (subsidy)

Measures implemented under the Industrial Reforms Policy, 1991 were:

 Number of reserved industries decreased to 8. Presently, these are only four.
 The work of rehabilitation of sick industries handed over to Board for Industries handed over to
Board for Industrial and Financial reconstruction (BIFR). Industries were made powerful with the
help of Memorandum of Understanding (MoU).
 Voluntary Retirement Schemes started to cut down the size of work force.
 Poverty and Unemployment

Poverty

 Poverty line is defined on the basis of nutritional standards. The calorie intake is fixed at 2400
Cal/person/day for rural area and 2100 Cal/person/day for urban area. The people below these
nutritional standards are considered to be below the poverty line (BPL).
 In India, Planning Commission estimates the number and proportion of people living below the
poverty line at national & State levels, separately for rural & urban areas.
 It makes poverty estimates based on a large sample survey of household consumption expenditure
carried out by the National Sample Survey Organisation (NSSO) after an interval of approximately
five years.
 The Commission has been estimating the poverty line and poverty ratio since 1997 on the basis of
the methodology spelt out in the report of the Expert Group on ‘Estimation of Number and
Proportion of Poor’ (popularly known as Lakdawala Committee Report).
 In India, there are two methods of estimation namely Uniform Recall Period (URP) and Mixed
Recall Period (MRP).
 Uniform Recall Period (URP): In URP, consumer expenditure data for all the items are collected for a
30-day recall period.
 Mixed Recall Period (MRP): In MRP, consumer expenditure data for five non-food items, namely
clothing, footwear, durable goods, education, and institutional medical expenses, are collected for a
365-day recall period and the consumption data for the remaining items are collected for a 30-day
recall period.

Planning Commission on Poverty

Tendulkar Committee

 Using the Tendulkar methodology for determining the poverty line, the national poverty line in
rural areas has been estimated at 816 per capital month in villages and 1,000 per capital per
month in urban areas in 2011-12.
 It implies that persons whose consumption of goods and services exceed 33.33 in cities and
27.20 per capital per day in village are not poor.
 For a family of five, the all India poverty line in term of consumption expenditure would amount
of 4,080 per month in rural areas and 5,000 per month in urban areas. The poverty line,
however, will vary from state to state.
 In 2011-12, the percentage of BPL (Below Poverty Line) people is estimated at 25.7 % in rural
areas, 13.7 % in urban areas and 21.9 % for the country as a whole.
 It shows an improvement in poverty figures if compared to those in 2004-05 when it was 41.8%
in rural areas, 25.7% in cities and 37.2% in the country as a whole.
 In terms of numbers, there were 26.93 crore people below poverty line in 2011-12 as compared
to 40.71 crore in 2004-05.
Unemployment

 Unemployment simply means a situation when able and willing people are not getting jobs as
per their own capabilities.

Structural Unemployment

 This type of Unemployment is associated with economic structure of the country, i.e.,
productive capacity is inadequate to create a sufficient number of jobs. Rapidly growing
population causes this.
 This type of Unemployment is of long run nature. Indian Unemployment is basically related to
this category of Unemployment.

Under- employment

 Those labourers are under-employed who obtained work but their efficiency and capability are
not utilized at their optimum and as a result they contribute in the production up to a limited
level.

Open Unemployment

 When the labourers live without any work and they don’t find any work to do, they come under
the category of open Unemployment. Educated Unemployed and unskilled labour
Unemployment is included in open Unemployment.

Disguised Unemployment

 If a person does not contribute anything in the production process of in other words, if he can
be removed from the work without affecting the productivity adversely, he will be treated as
disguisedly Unemployed. The marginal productivity of such Unemployed person is zero.
 Agriculture sector of underdeveloped / developing economies possesses this type of
Unemployment at a large scale.

Frictional Unemployment

 The Unemployment generated due to change in market conditions (change in demand and
supply conditions) is called frictional Unemployment.

Seasonal Unemployment

 It appears due to change in demand based on seasonal variations. Labourers do not get work
round the year. They get employed in the peak season of agricultural activities and become
Unemployed when these activities are over.

Employment in 12th Plan

 The government is looking at creating 25 million new jobs and two million additional seats in
higher education in the 12th Plan (2012-17) to leverage India’s demographic dividend.
  Creating more jobs is key to foster economic growth of 8.5% to 9% in 12th Plan as India’s working
population (15-64 age group) is expected to increase from 781 million in 2010 to 916 million in
2020.

Agriculture

 At 179.9 million hectares, India holds the second largest agricultural land globally.
 The country possesses 15 major climates and 46 soil types in the world.
 Agriculture is the primary source of livelihood for about 58 per cent of India’s population.
 The average of annual growth rates of GDP in agriculture and allied sectors during the Eleventh
Five Year Plan is now placed at 3.3 per cent. This is short of the target of 4 per cent but is
significantly better than the achievement of 2.4 per cent in the Tenth Plan. Horticulture at 4.7
per cent was only marginally short of the 5 per cent target.
 During Twelfth Plan, the Agriculture Forestry and Fishing Sector is projected to grow at 4 per
cent, an improvement over the 3.7 per cent rate achieved in the Eleventh Plan.
 Contribution to GDP: The share of agriculture and allied sectors in India’s GDP had declined to
13.7 per cent in 2012-13 (at constant prices) due to swift from traditional agrarian economy to
industry and service sector. The share of agricultural products/Agriculture and Allied Sectors in
Gross Domestic Product (GDP) of the country was 51.9 per cent in 1950-51.
 Agriculture’s share in India’s exports increased to 13.08% in 2012-13 from 12.81% in the year
2011-12. India’s share of global agri-food product exported is 2.1%.
 The country ranks 10 th in terms of global agricultural and food exports.
 India is the world’s largest rice exporter and second, in term of wheat exports.
 Livestock contributes 25 per cent of gross value added in the agriculture sector and provides self
employment to about 21 million people.
 Indian fisheries and aquaculture is an important sector of food production, providing nutritional
security to the food basket. Constitution about 4.4% of the agricultural GDP. The total fish
production of 6.57 million metric tonnes presently has nearly 55% contribution for inland sector
and nearly the same from culture fisheries. It accounts for around 3 % of the total exports of the
country and nearly 20% of the agricultural exports.

Programmes

Flagship Scheme

 Rastriya Krishi Vikas Yojana

Five Missions
 National Food Security Mission
 National Horticulture Mission
 National Mission on Oilseeds & Oil palm
 National Mission on Agriculture Extension and Technology
 National Mission on Sustainable Agriculture
Four Central Sector Schemes

 Integrated scheme on agricultural marketing

 Integrated scheme on agricultural cooperation
 Integrated scheme for farmers’ income security
 Integrated scheme on Agriculture Census & Statistics.

Green Revolution

 Green Resolution implies large increase in agricultural production, which is the result of new
agricultural strategy.
 The term “Green Revolution” was first used in 1968 by former United States Agency for
International Development (USAID) director William Gaud.
 Introduced in India with the name of HYVP-High Yielding Varities of Programme, 1966-67.
 Started by Norman Borlaug of Mexico.
 In India, Green Revolution was introduced by M.S. Swaminathan.
 Punjab was selected by the Indian government to be first site to try the new crops because of its
reliable water supply and a history of agricultural success. India began its own Green Revolution
programme of plant breeding, irrigation development, and financing of agrochemicals. It was
mainly confined to Punjab, Harayana and western U.P.
 The introduction of dwarf high-yielding varieties of wheat like Lerma Rojo and Sonora 64, on
Indian soils during the mid-60s coupled with farm technology, use of other inputs like chemical
fertilizers and pesticides and backed by a strong governmental support allowed cereal
production to increase manifolds, thus bring about the Green Revolution.
 As a result of the Green Revolution, our country has become self-sufficient in food grains.
 At the same time, it has created ecological imbalances. Since the nutrient requirements of the
high yielding varieties are very high, the nutrient content of the soil has to be replenished after
each cultivation. The excessive use of fertilizers make the soil alkaline or acidic.
 Excessive use of these chemicals has adverse effect on the soil fertility and also on the health of
human beings and animals.

Second Green Revolution

 The 11th Five-Year Plan has targeted 4% growth in agriculture sector. However, the growth has
not been achieved.
 The approach paper to the 11th Five-Year Plan had highlighted a framework which envisaged
improvements such as doubling the rate of growth of irrigation area, improvement of water
management, rainwater harvesting, watershed development, reclamation of degraded land,
focusing on soil quality, bridging the knowledge gap, diversification into high value outputs, etc.
 The National Commission on Farmers had laid a foundation on such a network.
 The second Green Revolution had spread to Eastern and Central states including West Bengal,
Bihar, Odisha, M.P. and Eastern U.P.
White Revolution

 The White Revolution in the country has been achieved by means of Operation Flood.
 It was carried out in three phases.
 Operation Flood I …. 1970-1981
 Operation Flood II …. 1981-1985
 Operation Flood III …. 1985-1996.
 White Revolution launched to increase the quality and quantity of milk and dairy products.
 The Father of the White Revolution in India is Dr. Varghese Kurien. He is also known as
Milkman of India.
 India is the largest milk producer and second largest cow’s milk producer, accounting for 8.7%
of world production.
 While Andhra Pradesh has recorded highest growth in term of both milk production and per-
capita milk availability thereby clocking a growth rate of over 41 per cent and about 36 per
cent (approx) during the five-year period of 2006-10, however, the state ranked third in terms
of milk production with over 1.1 million tons of milk produced annually.
 Apart from AP, the state of Rajasthan (28 per cent), Kerala (24.8 per cent), Karnataka (24 per
cent) and Gujarat (23.7 per cent) are among top five states in terms of clocking high growth in
milk production.
 Uttar Pradesh commands highest share over 17 per cent in total milk production followed by
Rajasthan (11 per cent share), Andhra Pradesh (nine per cent), Punjab (about eight per cent)
and Gujarat (about eight per cent) which are among top five states with a combined share of
over 53 per cent.
 Despite being the largest milk producer in the world, per capita milk availability in India at 252
grams fall below the global average of 279 grams per person per day.
 Punjab has recorded highest per capital milk availability of 937 grams as per latest available
data followed by Harayana (679 grams), Rajasthan (538 grams), Himachal Pradesh (446 grams)
and Gujarat (435 grams).
 New Zealand (9773 grams), Ireland (3260 grams) and Denmark (2411 grams) are top three
countries in terms of per capita milk availability.

Indian’s Crop Production

 The 11th Five-Year Plan has seen an increase in total food grain production of over 173.38 million
tons over the 10th Five-Year Plan period. This is despite two years of brought in various parts of
the country in 2009-10 and 2010-11.
 The target food grains production for 2013-14 is 263.2 million tons.
 There has been substantial increase in production of fruits and vegetables in recent years.
 Per capita availability of fruits and vegetables had increased to about 174gms/person/day and
346gms/ person/day respectively in 2012.
 Fertilizer subsidy accounts for about 37% of all subsidies of the Central Government put
together.
 Tea in India is grown over an area of 600000 hectare which accounts for 16% of the total area
under tea cultivation in the world.
  In West Bengal and Assam, there are around 8,500 tea estates, while in the southern states of
Kerala, Karnataka and Tamil Nadu there are another 5,500 tea estates. Assam produces over
half of India’s tea.
 With an export of approx. 210 million kg of tea, India stands as the fourth largest exporter of tea
in the world with China ranking at the first position.

India’s Ranking in Food Production

 India is largest producer of milk, pulses, livestock, jute, jute like fibers, tea and cauliflower.
 India is second largest producer of wheat, rice, fruit, sugar cane, ground-nut and tobacco.
 India ranks second worldwide in farm output.
 India is also the world’s second or third largest producer of several dry fruits, agriculture-based
textile raw material, roots and tuber crops, pulses, farmed fish, eggs, coconut, sugarcane and
numerous vegetables.
 India ranked within the world’s five largest producers of over 80% of agricultural produce items,
including many cash crops such as coffee and cotton.
 India is also one of the world’s five largest producers of livestock and poultry meat.

Agriculture Finance Regional Rural Banks in India

 Set up in 1975. Their main objective is to develop the rural economy by providing credit and
encouraging other productive activities in the rural areas.
 The paid-up capital of each rural bank is 25 lakh, 50 per cent of which is contributed by the
Central Government, 15 per cent by the State Government and 35 per cent by the sponsoring
public sector commercial banks which are responsible for the actual setting up of the RRBs.
 The Reserve Bank of India Act, 1934 has classified the banks as Scheduled Banks and non-
Scheduled Banks.

National Bank for Agriculture and Rural Development (NABARD)

 NABARD was established on the recommendations of Shivaramam Committee. NABARD was

established by an Act of Parliament on 12 July 1982 to implement the National Bank for
Agriculture and Rural Development Act 1981.
 NABARD replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell
(RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation
(ARDC).
 It acts as the regulatory authority for cooperative banks and regional rural banks.
 NABARD lends it downwards to State Cooperative Banks (RRBs), Microfinance institutions,
cooperative credit societies, etc.
 Government of India holds 99% stake. In NABARD and currently 1% is held by the RBI.
 The Union Cabinet of India on 7 February 2013 approved raise in the authorized capital of
National Bank of Agriculture and Rural Development, to 20,000 crore from 5000 crore.
 NABARD operates the Rural Infrastructure Development Fund (RIFD) which was setup in 1995-
96. This fund provides cheap loans to states and state-owned corporations.
Modified National Agriculture Insurance Scheme (MNAIS)

 National Agriculture Insurance Scheme was launched in the Rabi season of 1999-2000 to
provide insurance coverage and financial support to the farmers in the event of failure of any
of the notified crops as a result of natural calamities, pests and diseases. The scheme was not
for all crops but only those crops which were notified under the scheme
 To address the implementation issues of the NAIS, the government launched the Modified
National Agriculture Insurance Scheme (MNAIS).
 The Modified NAIS has more crops under its coverage than the NAIS. The Modified NAIS does
the calculation of premium on actuarial basis.
 The minimum indemnity level in previous scheme was 60%. In modified scheme, it was made
to 70%.

Agriculture Insurance Company of India Limited (AICIL)

 A separate organization for Agriculture Insurance called Agriculture Insurance Company of India
Ltd. has been incorporated under the Companies Act, 1956 on December 20, 2002 with the
capital participation from General Insurance Corporation of India (GIC), four public sector
general insurance companies viz.,
 National Insurance Company Ltd.,
 New India Assurance Company Ltd.,
 Oriental Insurance Company Ltd.,
 United India Insurance Company Ltd. and NABARD.

Extension Reforms

 ATMA scheme has been extended to 630 rural districts in the country.
 SMS Portal has been launched on 16.07.2013 for disseminating topical and seasonal advisories
to farmers using the language of the State.
 Under the scheme of Kisan Call Centres, a countrywide common eleven-digit number ‘1800-
180-1551’ is available to provide replies to the queries of the farming community from all the
States/UTs in 22 languages from 6.00 A.M. to 10.00 P.M. on all 7 days of the week.
 The Cabinet Committee on Economic Affairs has approved the implementation of the National
Mission on Agricultural Extension and Technology (NMAET) during the 12th Plan period.
 NMAET consists of 4 Sub Missions:
 Sub Mission on Agricultural EXTENSION (SMAE).
 Sub-Mission on Seed and Planting Material (SMSP).
 Sub Mission on Agricultural Mechanisation (SMAM).
 Sub Mission on Plant Protection and Plant Quarantine (SMPP).

National Agricultural Innovation Project (NAIP)

 Govt. launched a 6-year aspirational agricultural research programme, the National Agricultural
Innovation Project (NAIP) which grants high priority to generation and transfer of agricultural
technologies, and proposes innovations in the technology system.
Mega Food Parks Scheme (MFPS)

 The 10th Plan Scheme of Food Parks was revised for the 11th Plan and it was rechristened Mega
Food Parks Scheme (MFPS). The scheme was approved by the Government in September 2008.
 The idea is to provide excellent infrastructure facilities for food processing industries along the
value chain from the farm to the market.

Agriculture in 12th Plan

 51 schemes being run at present in DAC are being restructured into five Missions, five Central
Sector schemes and one State Plan scheme (RKVY) in order to have more focused approach and
to avoid overlap and would be implemented in restructured from w.e.f.2014-15.
 The Cabinet Committee on Economic Affairs (CCEA) has approved implementation of the
National Mission on Oilseeds and Oil Palm (NMOOP) during the 12th Plan period and has
allocated 3,507 crore for the purpose.
 Industry

Industrial Policy of India

 Industrial policy, inter-alia, covers the procedures, principles, rules & regulations, which impact
the industrial establishments of a country & shape the pattern of industrialization.
 The first industrial policy of the Government of India was announced in April 1948.
Subsequently, Industrial Policy resolutions were announced in 1956, 1980, 1990 & 1991.
 New Industrial Policy 1991: The watchword for the New Industrial Policy thus became
liberalization, globalization and privatization and towards this end, the Government introduced
three sets of reforms:-
 First, deregulation, delicencing, decontrol and debureaucratisation of industrial licensing
system;
 Second, liberalization of foreign trade and currency transactions and
 Third, institute several measures to facilitate foreign direct investment inflows.

Public Sector in India

 The government-owned corporations are termed as Public Sector Undertakings (PSUs) in India.
 In a PSU, majority (51% or more) of the paid, up share capital is held by Central government or
by any state government or partly by the Central government and partly by one or more state
governments.
 There were as many as 277 CPSEs (excluding 7 Indurance Companies) with a total investments
of 8,50,599 crore as on 31st March, 2013. Out of which 229 are operating CPSEs.
 The Central Public Sector Enterprises (CPSEs) are also classified into ‘strategic’ and ‘non-
strategic’. Areas of strategic CPSEs are:
 Arms & Ammunition and the allied items of defense equipment, defence aircraft and warships.
 Atomic Energy (except in the areas related to the operation of nuclear power and applications of
radiation and radioisotopes to agriculture, medicine and non-strategic industries)
 Railways transport.
 All other CPSEs are considered as non-strategic.

Maharatna Status

 The CPSEs meeting the following eligibility criteria are considered for ‘Maharatna’ status:
 Having ‘Navratna’ status.
 Listed on Indian stock exchange with minimum prescribed public shareholding under SEBI
regulations.
 An average annual turnover of more than 25,000 crore during the laast 3 years.
 An average annual net worth of more than 15,000 crore during the last 3 years.
 An average annual net profit after tax of more than 5,000 crore during the last 3 years.
 Should have significant global presence/international operations.
 Presently, there are 7 Central Public Sector Enterprises (CPSEs) which have been granted
Maharatna status.
Navratnas

 The Central Public Sector Enterprises (CPSEs) fulfilling the following criteria are eligible to be
considered for grant of Navratna status:
 Having Schedule ‘A’ and Miniratna Category-1 status.
 Having at least three ‘Excellent’ or ‘Very Good’ Memorandum of Understanding (MoU) rating
during the last five years.
 The grant of Navratna status to CPSEs is not directly linked to their turnover.
 Presently, there are 16 Central Public Sector Enterprises (CPSEs) which have been granted
Navratna status.

Miniratnas

 The companies called ‘Miniratnas’, are in two Categories. The eligibility conditions and criteria
are:
 Category I: Miniratna CPSEs should have made profit in the last three years continuously, the
pre-tax profit should have been 30 crore or more in at least one of the three years and should
have a positive net worth.
 Category II: MIniratna CPSEs should have made profit for the last three years continuously and
should have a positive net worth, category II miniratns have autonomy to incurring the capital
expenditure without government approval up to 300 crore or up to 50% of their net worth
whichever is lower.
 Presently, there are 71 Miniratnas (53 Category-I Miniratnas and 18 Category-II Miniratnas).

Public Sector Undertaking under Various Ministries

 Department of Space
 Antrix Corporation Ltd.
 Electronics Corporation of India Ltd.
 Indian Rare Earths Ltd.
 Nuclear Power Corporation of India Ltd.
 Uranium Corporation of India Ltd.
 Ministry of Defence
 Bharat Dynamics Ltd.
 Bharat Electronics Ltd.
 Garden Reach Shiobuilders and Engineers Ltd.
 Goa Shipyard Ltd.
 Hindustan Aeronautics Ltd.
 Mazagaon Dock Ltd.
 Mishra Dhatu Nigam
 Ministry of Railways
 Bharat Wagon & Engg. Co. Ltd.
 Container Corporation of India Ltd.
 Indian Railway Catering and Tourism Corporation
 Ircon International Ltd.
  Konkan Railway Corporation Ltd.
 Rail Vikas Nigam Ltd.
 Railtel Corporation India Ltd.
 Rites Ltd.

MSMEs in India

 Parliament passed the Micro Small and Medium Enterprises Act in 2006 as a comprehensive
legislation looking into all the matters related to the MSME sector.
 The Ministry of Micro, Small and Medium Enterprises is the nodal Ministry for formulation of
policies, programmes and schemes, their implementation and related coordination, for the
promotion and development of small scale industries in India.
 As per available statistics (4th Census of MSME Sector), this sector employs and estimated 59.7
million persons spread over 26.1 million enterprises. It is estimated that in terms of value,
MSME sector accounts for about 45% of the manufacture output and around 40% of the total
export of the country.
 As per the Abid Hussain Committee’s recommendations recommendations on small*scale
industry, the Government of India has, in March 1997, raised investment ceiling to 3 crore for
small-scale and ancillary at an original cost not exceeding 100 lakh.

Large Scale Industries Iron and Steel Industry

 The first attempt to start an iron and steel mill at Portonova in Tamil Nadu was made in 1830 by
Joshia Heat with the help of East India Company. This attempt failed.
 Later, in 1870 a plant was set up at Kulti (near Kolkata). This plant was taken over by the Bengal
Iron and Steel Co. in 1889. Then, first modern steel plant was set up in 1907.
 Jamshed Ji Tata set up Tata Iron and Steel Company (TISCO) at Sakchi (now Jamshedpur, in
Jharkhand). This plant produced iron in 1911 and steel in 1913.
 In 1919, Indian Iron and Steel Company established a steel plant, at Burnpur (Hira Pur-Kolkata).
 In 1923, Visvesvaraya Iron and Steel Works Limited (Mysore) started functioning at Bhadravati
(Karnataka).
 Till 1950, there were only three iron and steel manufacturing plants in India namely TISCO,
IISCO and VISWL.
 During the Second Five-Year Plan. Three new integrated steel plants under Hindustan Steel
Limited were set up at Rourkela (Odisha), Bhilai (Madhya Pradesh) and Durgapur (West Bengal).
 In the Third Five-Year Plan, emphasis was given on the expansion of three plants under H.S.L.
and a new plant at Bokaro (Jharkhand) was set up.
 Fourth Five-Year Plan further emphasized on having maximum production from existing plants
and starting new plants at Salem (Tamil Nadu), Vijaynagar (Karnataka) and Vishakhapatnam
(Andhra Pradesh).
 The Salem Steel Plant started commercial production in 1982.
 The Government of India set up an organization named Steel Authority of India Limited (SAIL) in
January 1973, to manage the affairs of execution of steel plant.
  The management of the Indian Iron and Steel was taken over by the Government on 14th July,
1976. SAIL also took over Maharashtra Elektrosmelt Limited, a mini steel plant, in January 1986.
Visweswaraya Iron and Steel Limited was also taken over by SAIL in August 1989.
 Indian steel industry can be divided into two main sectors – Public sector and Private sector.
Further on the basis of routes of production, the Indian steel industry can be divided into two
types of producers: Integrated producers and Secondary producers.
 Integrated producers convert iron ore into steel. There are three major integrated steel players
in India, namely Steel Authority of India Limited (SAIL), Tata Iron and Steel Company Limited
(TISCO) and Rashtriya Ispat Nigam Limited (RINL).
 Secondary producers are the mini steel plants (MSPs), which make steel by melting scrap or
sponge iron or a mixture of the two. Essar Steel, Ispat Industries and Lloyds Steel are the largest
producers of steel through the secondary route.

Jute Industry

 Its first modernized industrial unit was established at Reshra in West Bengal in 1855.
 There are 84 composite jute mills in India. Out of the total 83 jute mills, 64 jute mills are
located in West Bengal, 3 each in Bihar and U.P., 7 in Andhra Pradesh, 2 each in Assam, Odisha
and Chhattisgarh, and 1 in Tripura.
 Jute Corporation of India (JCI) is the Price Support Agency of the Govt. of India for jute. It was
set up in April 1971.
 India ranks number one in the raw jute production and number two in export of jute goods in
the world, accounting for about 70% of estimated world production.
 Public Sector Undertakings under Ministry of Textiles are (i) Jute Corporation of India (JCI) Ltd.,
Kolkata (ii) National Jute Manufactures Corporation Ltd. (NJMC), Kolkata and (iii) Birds Jute &
Exports Ltd. (BJEL), a subsidiary of NJMC.
 Jute Packaging Material (Compulsory Use in Packaging Commodities) Act, 1987 (JPM Act) has
been enacted to provide for the compulsory use of jute packaging material in the supply and
distribution of certain commodities.
 The Jute Technology Mission is a major component of the National Jute Policy and is the
vehicle for implementation of multifarious programmes in the jute sector, both present and
future.

Cotton and Textile Industry

 Oldest industry of India, and employees largest number of workers.

 It is the largest organized and broad-based industry which accounts for 4% of GDP, 20% of
manufacturing value-added and one-third of total export earnings.
 The first Indian modernized cotton cloth mill was established in 1818 at Fort Gloaster near
Calcutta (Kolkata) but this mill was not successful.
 The second mill named “Mumbai’s Spinning and Weaving Co”. was established in 1854 at
Bombay (Mumbai) by KGN Daber.
Sugar Industry

 Sugar industry is the second largest industry after cotton textile industry among agriculture-
based industries in India.
 India is now the largest producer and consumer of sugar in the world.
 Maharashtra contributes over one-third of the total sugar output, followed closely by Uttar
Pradesh.
 B.B. Mahajan Committee recommended complete decontrol of sugar in order to provide level
playing field to domestic industry vis-a-vis imported sugar.
 Rangarajan Committee on sugar industry was formulated by the government to look into all
issues relating to the deregulation of the sugar sector which recommended a 70:30 revenue-
sharing mechanism between farmers and mills.

Fertilizer Industry

 The first fertilizer manufacturing unit in India was set up in the year 1906 at Ranipet in Chennai.
 The fertilizer industry in India is in the core sector and second to steel in terms of investment.
 Urea is the only fertilizer under price and partial movement control of Government. DAP, NPK
and MOP are the major decontrolled and decanalised fertilizers, which may be imported freely.
 India is the third largest producer of nitrogenous fertilizers in the world.

Paper Industry

 The first machanised paper mill was set up in 1812 at Shrirampur in West Bengal.
 The paper industry in India is ranked among the 15 top global paper industries.

Silk Industry

 India is the second largest country in the world in producing natural silk. At present, India
produces about 16% silk of the world.
 India enjoys the distinction of being the only country producing all the five known commercial
varieties of silk viz. Mulberry, Troipical Tussar, Oak Tussar, Eri & Muga.

Petroleum and Natural Gas

 First successful oilwell was dug in India in 1889 at Digboi, Assam.

 At present, a number of regions having oil reserves have been identified and oil is being
extracted in these regions.
 For exploration purpose, Oil and Natural Gas Commission (now Corporation) (ONGC) was
established in 1956 at Dehradun, Uttarakhand.

Automotive Industry

 The automotive industry in India is one of the larger markets in the world.
 India’s passenger car and commercial vehicle manufacturing industry is the sixth largest in the
world.
Foreign Direct Investment

 An Indian company may receive Foreign Direct Investment under the two routes as given under.
(i) Automatic Route where FDI is allowed under the automatic route without prior approval
either of the Government or the RBI.
(ii) Government Routes which requires prior approval of the Government.

 There are four different types of foreign investments. These are Foreign Direct Investment (FDI),
Foreign Portfolio Investment (FPI), official flow, and commercial loans. These types of foreign
investment differ primarily in who gives the loan and how engaged the investor is with the
receiver of the loan.
 Sectors where FDI is not allowed in India:
 Atomic Energy
 Lottery Business
 Gambling and Betting
 Business of Chit Fund
 Nidhi Company
 Agricultural and Plantations activities
 Housing and Real Estate business).
 Trading in Transferable Development Rights (TDRs)
 Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.
 In 2013, the government relaxed FDI norms in several sectors, including defence, PSU oil
refineries, telecom, power exchanges and stock exchanges, among others.
 The foreign investment known as official flow occurs between nations instead of between
companies.
 Foreign Trade

Composition of India’s Exports

 The merchandise exports of India are broadly classified into the following categories:
 Agriculture and allied products
 Ores and minerals which mainly include manganese, mica, iron ore.
 Manufactured goods such as textiles, readymade garments, jute, leather, footwear, handicrafts
& handloom, jewellery, pearls and precious stones, chemicals, engineering goods, iron steel etc.
 Mineral fuels and lubricants.

Composition of India’s Imports

 Around one-third of Indian’s imports are POL (Petrol, Oil and Lubricants) products.

Foreign Exchange Reserves in India

 The foreign exchange reserves of the country

 Foreign Currency Assets
 Gold
 SDRs
 Reserve Position in the IMF
 The object of FERA 1973 was to conserve foreign exchange and prevention of leakage of it due
to adverse position of foreign exchange balance in India.
 The object of FEMA which replaced FERA from 1st June, 2000 was to consolidate and amend the
law relation to foreign exchange.
 So, the new law is for the management of foreign exchange instead of regulation of foreign
exchange.
 The violation of FERA was criminal offence while it is civil offence under FEMA.

Special Economic Zones

 Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and shall be deemed
to be foreign territory for the purpose of trade operations and duties and tariffs.
 SEZ is a geographical region that has economic laws different from a country’s typical economic
laws.
 The category SEZ includes free trade zones (FTZ), export processing zones (EPZ), free zones (FZ)
or free economic zones (FEZ), industrial parks or industrial estates (IE), free ports, bonded
logistics parks and urban enterprise zones.
 The Special Economic Zone (SEZ) policy in India first came into inception on April 1, 2000.
 The SEZ Act, 2005 provides the umbrella legal framework, covering all important legal and
regulatory aspects of SEZ development as well as for units operating in SEZs.
 Asia’s first EPZ was set up in Kandla in 1965.
 At present, there are eight functional SEZs located at Santa Cruz (Maharastra), Cochin (Kerala),
Kandla and Surat (Gujarat), Chennai (Tamil Nadu), Visakhapatnam (Andhra Pradesh), Falta (West
 Bengal) and Noida (Uttar Pradesh) in India. Further, an SEZ in Indore (Madhya Pradesh) is now
ready for operation.

Foreign Trade Policy

 The Union Commerce Ministry announces the integrated Foreign Trade Policy (FTP) every five
years. This is also called EXIM policy.
 This Policy is updated every year with some modifications and mew schemes.
 The objectives of Foreign Trade Policy 2009-14 are:
 To arrest and reverse declining trend of extorts is the main aim of the policy. This aim will be
reviewed after two years.
 To double India’s exports of goods and services by 2014.
 To double India’s share in global merchandise trade by 2020 as a long-term aim of this policy.
 Money and Banking

Indian Financial System

 A Financial System is a composition of various institutions, markets, regulations & laws,

practices, money manager, analysts, transactions and claims and liabilities.

Indian financial system consists of:

 Financial Market
 Financial Intermediation
 Financial Instruments

Indian Money Market

 The money market is a mechanism that deals with the lending and borrowing of short-term
funds or debt securities.
 Money market securities are generally very safe investments which return a relatively low
interest rate.
 The main credit instruments of the money market are trade bills, promissory notes and
Government papers or bills.

In India, money market is broadly divided into 3 parts:

 Reserve bank of India: It occupies the central position in Indian money market. It regulates the
control of the credit supply of the country.
 Organized Sector: It comprises State Bank of India and its 7 associate banks, other nationalized
banks, Regional banks, rural banks and cooperative banks.
 Unorganized Sector: It comprises money lenders & indigenous bankers.

Indian Capital Market

 Capital market is meant for medium to long-term lending/borrowing.

 The main instrument used in the capital market are stocks, shares, debentures, bonds and
securities of the Government.

Components of Capital Market

Capital market has three components namely:

(1) The Equity Market

(2) The Debt Market
(3) The Derivative Market
Equity and Debt Market both have two segments:
(a) Primary Market: It deals with new issues of equity and debt instruments
(b) Secondary Market: It facilitates trading in equity (already existing equities/shares and not the
new ones) and debt instruments
 The Indian capital market is divided into gilt-edges market and the industrial securities
market.
 Gilt edges securities or G-secs refers to the market for government and semi-govt.
securities, backed by the RBI. The securities traded in this market are stable in value and are
much sought after by banks and other institutions.
 The industrial securities market refers to the market for shares and debentures of old and
new companies. This market is further divided into the new issues market and old capital
market meaning the stock exchange.
 Stock Exchange of India

 Stock Exchange or share market plays a dominant role in mobilising resources for corporate
sector.
 It is a market for dealing in shares, debentures and financial securities.
 In the stock exchange, shares and debentures are bought and sold for investment as well as for
speculative purposes.
 Bombay Stock Exchange (BSE) is one of the oldest stock exchanges in the world (since, 1875) and
the oldest of Asia. The share sensex of BSE includes 30 shares.
 National Stock Exchange (NSE) share sensex includes 50 shares.
 There are 21 stocks Exchanges in the country. The Hyderabad Securities and Enterprises Ltd.
(erstwhile Hyderabad Stock Exchange), Coimbatore Stock Exchange Ltd., Saurashtra Kutch Stock
Exchange Ltd. and Mangalore Stock Exchange have been granted exit by SEBI vide order dated
January 25, 2013, April 4, 2013, April 5, 2013 and March 3, 2014 respectively.

Securities and Exchange Board of India (SEBI)

 SEBI (Securities and Exchange Board of India) was initially constituted on April 12, 1988 as a non-
statutory body for dealing with all matters relating to development and regulation of securities
market.
 SEBI was given statutory status and powers through an Ordinance promulgated on January 30,
1992.
 Functions of SEBI in India:
 To safeguard the interest of investors and to regulate capital market with suitable measures.
 To regulate the business of stock exchanges and other securities market.
 To regulate the working of Stock Brokers, Sub-brokers, Share Transfer Agents, Trustees,
Merchant Bankers, Underwriters, Portfolio Managers, etc. and also to make their registration.
 To register and regulate collective investment plans of mutual funds.
 To encourage self-regulatory organizations.
 To train the persons associated with security markets and also to encourage investor’s
education.
 To check insider trading of securities.
 To promote research and investigations for ensuring the attainment of above objectives.

Stock Market Indices

 Stock market indices are the barometers of the stock market. They mirror the stock market
behavior.
 Some of the stock market indices are BSE Sensex, BSE-200, Dollex, NSE-50, CRISIL-500, Business
Line 250 and RBI Indices of Ordinary Shares.

International Stock Markets

 BBC Global 30: World stock market index of 30 of the largest companies by stock market value
in Europe, Asia and the Americas.
  iShares MSCI EAFE Index (EFA) – provides investments results generally equivalent to publicly
traded securities in the European, Australian and Far Eastern markets. Maintained by Morgan
Stanley Capital International.
 MSCI World – free-float weighted equity index. Index includes stock of all the developed
markets. Common benchmark for world stock funds.
 S&P Global 12000 – global stocks index covering 31 countries and around 70 per cent of global
market capitalization.
 Dow Jones Indexes – leading global index provider.
 NASDAQ –board market index of all of the common stocks & similar securities traded on the
NASDAQ stock market.
 NYSE – covers all common stocks listed on the New York Stock Exchange.
 S&P 500 – stock market index containing the stock of 500 Large-Cap corporations. Comprise
over 70% of the total market cap of all stocks traded in the U.S. Owned by Standard & Poor’s.
 Hang Seng Indexes – represented about 67% of capitalization of the Hong Kong Stock Exchange
 Nikkei 225 – stock market index for the Tokyo Stock Exchange.
 FTSE Bursa – Malaysia Index
 KSE 100 – index acting as a benchmark into compare prices on the Karachi Stock Exchange,
Pakistan
 MICEX Index – Russia
 FTSE 100 Index – UK
 The BSE Sensex or Bombay Stock Exchange Sensitive Index is a value-weighted index composed
of 30 stock with the April 1979 = 100. It consists of the 30 largest and most actively traded
stocks, representative of various sectors, on the Bombay Stock Exchange. These companies
account for around one-fifth of the market capitalization of the BSE.
 BSE-200 Index (BSE200-BY) – Tracks 200 stocks on the Bombay Stock Exchange (BSE). The
companies are selected with specific selection criteria.
 Dollex-30 (DOL30-BY) – BSE Sensex (SENSEX-BY) quoted in U.S. Dollars.
 BSE PSU Index (BSEPSU-BY) Tracks major Public Sector Undertakings listed on Bombay Stock
Exchange (BSE).
 NSE: In all, there are 50 companies listed in NSE. Collectively, they are known as NIFTY 50 and
the Movement of Nifty depends on the Movement in the Stocks of these Companies.
 MCX Stock Exchange Limited (MCX-SX), India’s new stock exchange, is recognized by Securities &
Exchange Board of India. MCX-SX is majority-owned (51%) by India’s Multi Commodity
Exchange.
 sX40 is the flagship Index of MCX-SXAT. A free float based index of 40 large cap-liquid stocks
representing diversified sectors of the economy.

India’s Credit Rating Agencies

 The credit rating market takes a definite shape in India after the SEBI made it mandatory for any
debenture that has maturity of more than 18 months.
 CRISIL is India’s first credit rating agency, incorporated in 1987 and was promoted by the
erstwhile ICICI Ltd along with UTI and other financial institutions. In 1995, in partnership will
National Stock Exchange, CRISIL developed CRISIL 500 Equity Index. In 1996, it made a strategic
alliance with the Standard & Poor’s (S&P) Ratings Group.
 ICRA: Indian’s second credit rating agency is ICRA (Investment Information and Credit Rating
Agency) which was set up in 1991. It was promoted by Industrial Finance Coroporation of India
(IFCI), other leading financial/investment institutions, commercial banks and financial services
companies.
 CARE: The third credit rating agency in India was credit analysis and Research Ltd (CARE),that
started working in 1993. It was mainly promoted by the IDBI.
 ONICRA: Later, another credit rating agency ONICRA was established which is now known as
Onicra Credit Rating Agency of India Ltd. This is a private Sector Agency set up by Onida Finance.
It provides assessment, grading and rating models for individuals and MSMEs.
 CIBIL: Credit Information Bureau India Limited (CIBIL) maintains records of an individual’s
payments related to credit cards and loans.
 ICRA Limited: ICRA Limited is a joint venture between Moody’s Investors and various financial
services companies and is a part of ICRA group.
 SMERA: SMERA a joint venture of SIDBI, several private sector banks in the country and Dun &
Bradstreet Information Services India Pvt. Ltd. (D & B).
 Banking in India

 The oldest joint stock bank of India was Bank of Upper India established in 1863 and failed in
1913.
 The first bank of India with limited liability to be managed by Indian Board was Oudh
Commercial Bank. It was established in 1881 at Faizabad. This bank failed in 1958.
 The first bank purely managed by Indians was Punjab National Bank, established in Lahore in
1895. The Punjab National Bank has not only survived till date but also is one of the largest
banks in India.
 The first Indian commercial bank which was wholly owned and managed by Indians was Central
Bank of India which was established in 1911.
 The oldest public sector bank in India having branches all over India and serving the customers
for the last 145 years is Allahabad Bank. Allahabad Bank also known as one of India’s Oldest
Joint Stock Bank.
 The first major step was nationalization of the Imperial Bank of India in 1995 via State Bank of
India Act. In a major process of nationalization, 7 subsidiaries of the State Bank of India were
nationalized by the Indira Gandhi regime. On 19th July, 1969, 14 major private commercial banks
with a deposit base over 50 crores were nationalized.
 In 1980, when Government of India acquired the ownership of 6 more banks, thus bringing the
total number of Nationalised Banks to 20. In September 1995, the New Bank of India was
merged with the Punjab National Bank.
 Banks in India can be classified into:
 Public Sector Banks
 Private Sector Banks
 Cooperative Banks
 Regional Rural Banks
 Foreign Banks

Reserve Bank of India (RBI)

 The Central Bank of the country is the Reserve Bank of India (RBI).
 It was established in April 1935 with a share capital of 5 crores on the basis of the
recommendations of the Hilton Young Commission.
 The RBI commenced operation on April 1, 1935, under the Reserve Bank of India Act, 1934. The
Act (II of 1934) provides the statutory basis of the functioning of the Bank.

Functions of the RBI

 Bank of Issue: The Bank has the sole right to issue currency notes of all denominations.
 Bankers to the Government: RBI acts as the government’s bankers, agent, and adviser.
 Bankers Bank and Lender of the Last Resort: The RBI acts as the bankers’ bank. Since
commercial banks can always expect the RBI to come to their help in times of banking crisis, the
RBI becomes not only the banker’s bank but also the lender of the last resort.
  Controller of Credit: The RBI is the controller of credit, i.e., it has the power to influence the
volume of credit created by banks in India.
 Custodian of Foreign Reserves: The RBI has the responsibility to maintain the official rate of
exchange.
 Supervisory Functions: The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949, have
given the RBI wide powers of supervision and control over commercial and co-operative banks,
relating to licensing and establishment and methods of working, amalgamation, reconstruction,
and liquidation.

Quantitative Measures of Credit Control

 Bank Rate Policy: The Bank Rate is the official interest rate at which RBI rediscounts the
approved bills held by commercial banks. For controlling the credit, inflation and money supply,
RBI will increase the Bank Rate.
 Open Market Operations: The Open Market Operations refer to direct sales and purchase of
securities and bills in the open market by Reserve Bank of India. The aim is to control volume of
credit.
 Cash Reserve Ratio: Cash Reserve Ratio refers to that portion of total deposits in commercial
bank which it has to keep with RBI as cash re-serves.
 Statutory Liquidity ratio: It refers to that portion of deposits with the banks which it has to keep
with itself as liquid assets (Gold, approved govt. securities etc.)
 If RBI wishes to control credit and discourage credit it would increase CRR & SLR.

Qualitative Measures of Credit Control

 Margin requirements: This refers to difference between the securities offered and amount
borrowed by the banks.
 Consumer Credit Regulation: This refers to issuing rules regarding down payments and
maximum maturities of instalment credit for purchase of goods.
 RBI Guidelines: RBI issues oral, written statements, appeals, guidelines, warnings etc. to the
banks.
 Rationing of Credit: The RBI controls the credit granted / allocated by commercial banks.
 Moral Suasion: Psychological means and informal means of selective credit control.
 Direct Action: This step is taken by the RBI against banks that don’t fulfill conditions and
requirements. RBI may refuse to rediscount their papers or may give excess credits or change a
penal rate of interest over and above the bank Rate, for credit demanded beyond a limit.

State Bank of India (SBI)

 In 1921, the Presidency Banks (Bank of Madras, Bank of Bombay, Bank of Bengal were merged
to form a single entity, Imperial Bank of India.
 In 1955, the nationalization of Imperial Bank of India resulted in the formation of the State Bank
of India, which then becomes a primary factor behind the country’s industrial, agricultural, and
rural development.
 SBI through the central Reserve Bank of India also operates the world’s largest branch network,
with branches offices throughout India.
  SBI is also present worldwide, with seven international subsidiaries in the United State, Canada,
Nepal, Bhutan, Nigeria, Mauritius, and the United Kingdom, and more than 50 branch offices in
30 countries.
 The Five subsidiaries of SBI are:
 State Bank of Bikaner and Jaipur (SBBJ)
 State bank of Hyderabad (SBH)
 State Bank of Patiala (SBP)
 State Bank of Travancore (SBT)
 SBI has a total of nine non-banking subsidiaries/joint venture in India. These include
 SBI Capital Markets
 SBI Funds Management
 SBI Factory & Commercial Services
 SBI Cards & Payments
 SBI DFHI Ltd
 SBI General Insurance
 SBI Life Insurance
 SBI Pension Funds
 SBI-SG Global Securities Services

Private Sector Banks in India

 Private Banks in India are the Banks which, like the public sector banks, don’t have any
government stake.
 The Indian private banks may be listed publicly. Those can be treated on stock exchanges as
well.
 Top five private banks in India are:
 HDFC Bank
 ICICI Bank
 Kotak Mahindra Bank
 Yes Bank
 Axis Bank

All India Financial Institutions

 All India Financial Institutions (ALFI) is a group composed of Development Finance Institutions
(DFI) and Investment Institutions that play a pivotal role in the financial markets. Also known as
“financial instruments”.
 Insurance in India

In India, the advent of Life Insurance started in the year 1818 with the establishment of the Oriental Life
Insurance Company in Calcutta in the year 1829.

 Until recently, insurance services were provided by the public sector, i.e., life insurance by the
Life Insurance Corporation of India and general insurance by the General Insurance Corporation
and its four subsidiaries.

Life Insurance Corporation of India (LIC)

 LIC was established on Sept. 1, 1956 when the life insurance business was nationalized.
 HeadOffice: Mumbai;Zonaloffices:7 (Mumbai, Kolkata, Delhi, Chennai, Kanpur, Hyderabad and
Bhopal)
 LIC Building is “Yogakshemam”
 LIC Anthem is “Nigam Geetham”

General Insurance Corporation (GIC) of India

 1907: The Indian Mercantile Insurance Ltd. was set up which was the first company of its type to
transact all general insurance business.
 Established: Jan. 1, 1973
 It has four subsidiary companies:
 National Insurance Company Ltd, Kolkata.
 The New India Assurance Co. Ltd, Mumbai.
 The Oriental Fire and General Insurance Co. Ltd, New Delhi.
 United India Fire and General Insurance Co. Ltd, Chennai.
 General Insurance Corporation has been sanctioned as the “Indian reinsurer” for underwriting
only reinsurance business.

Agriculture Insurance Company of India Limited (AICIL)

 A separate organization for Agriculture Insurance Company of India Ltd. has been incorporated
under the Companies Act, 1956 on Dec. 20, 2002 with the capital participation from General
Insurance Corporation of India (GIC), four public sector general insurance companies viz.,
 National Insurance Company Ltd.
 New India Assurance Company Ltd.
 Oriental Insurance Company Ltd.
 United India Insurance Company Ltd. and NABARD

Insurance Regulatory and Development Authority (IRDA) India

 IRDA was constituted on 19 April, 2000 to protect the interest of the holders of insurance
policies and to regulate, promote and ensure orderly growth of the insurance industry.
Functions of IRDA

 Concentrates on LIC development.

 Protects the interest of policy holders.
 Indian Currency System

Monetary Aggregates in India

 During the 1970s, RBI introduced the Money Stock Measures. These were appropriately
changed on the recommendation of the Y B Reddy Committee in the late 1990s.
 Currency Component: This consists of all the coins and notes in the circulation, as issued by the
Reserve Bank of India.
 Deposit Component: Deposit component is the money of the general public with the banks,
which can be withdrawn by them using cheques, withdrawals and ATMs.
 The Reserve Bank of India calculates the 4 concepts of Money supply in India. They are called
Money Stock Measures. They are as follows:
 M1: This is currency with the public as mentioned above + Demand Deposits of the public as
mentioned above. It is called Narrow Money.
 M2: This is Narrow Money i.e. M1 + Post Office Saving Deposits.
 M3: M3 is Narrow Money i.e. M1 + Aggregate Deposits of the public which is made up of
Demand Deposits and Time Deposits.
 M4: M4 refers to M3 and Post Office Deposits.
 Now-a-days, only Narrow Money (M1) and Broad Money (M3) are relevant.
 Reserve Money: Reserve Money is basically Government Money or the Real Cash Money held
with both the public and the banks. This has the following components:
 Currency with the public
 Other Deposits with the RBI
 Cash Reserves of the Banks held with themselves
 Cash Reserves of the banks held with RBI.
 Inflation

 Inflation means a rise in general level of prices of goods and services in an economy over a
period of time.
 Inflation is divided into two categories i.e.
 Demand-Pull Inflation: In this type of inflation, price increase results from an excess of demand
over supply for the economy as a whole.
 Cost-Push Inflation: This type of inflation occurs when general price levels rise owing to rising
input coasts.
 Deflation is the opposite of inflation. Deflation refers to situation, where there is decline in
general price levels.
 Stagflation refers to economic condition where economic growth is very slow or stagnant and
prices are rising.

Headline Inflation

 Headline inflation refers to inflation figure which is not adjusted for seasonality on for the often
volatile elements of food & energy prices, which are removed in the Crore CPI.

Wholesale Price Index

 Base year 2004.

 Doesn’t cover services.
 It’s calculated using Laspeyres formula.
 Items are classified into three categories
 Primary articles
 Fuel, power, light, lubricants
 Manufactured products

Consumer Price Index

 Now only three subtypes of CPI

 Entire urban population
 Entire rural population
 Urban + Rural (consolidate from above two)

Common base year (2010) for all three subtypes

GDP deflator

 GDP deflator is the most comprehensive number to measure inflation, but RBI / Government
doesn’t use it much for policy-making because GDP deflator data comes quarterly (and not
weekly/monthly basis).
 Tax Structure in India

 India has a three-tier taxing structure comprising the three units of government-Union
Government, State Government and Local Government. Each unit levies tax as per the
provisions of the Indian Constitution.
 Main Taxes that Come under Union Government- Income Tax (Except on agricultural income),
Custom Duties, Central Excise and Sales Tax and Services Tax.
 Main taxes that Come Under the State Government are- Income tax on agricultural income,
Sales tax on intra-state sale of goods, Stamp duty on Property transfer, State excise duty (on
manufacture of alcohol), Land revenue, Duty on Entertainment and Tax o Profession.
 The Local Bodies Levy Taxes Such as-Tax on properties (Wealth tax), Octroi (tax on goods
entering the area of Local bodies for use/consumption), Tax on Markets and Tax/User Charges
for utilities like water supply, drainage etc.
 Direct taxes-are those which are directly levied on your income or your possession. Like Income
Tax, Wealth Tax and Corporate tax.
 Indirect Taxes-are those which are levied indirectly, means when you use something or consume
or take the services of anything. Eg-VAT, Sales Tax, Custom duties, Central Sales Tax, Service Tax
etc.

Financial Relations Between Centre and States

 India possesses a federal structure in which a clear distinction is made between the Union and
the State functions and sources of revenue. Our Constitution provides residual powers to the
Centre. Article 264 and 293 explain the financial relations between the Union and State
Government.
 Although the State have been assigned certain taxes which are levied and collected by them,
they also have a share in the revenue of certain union taxes and there are certain other taxes
which are lived and collected by the Central Government but whole proceeds are transferred to
the States.
 The Constitution provides residuary powers to the Centre. It makes a clear division of fiscal
powers between the Centre and the State Governments.
 International Economic Organizations

International Monetary Fund (IMF)

 The International Monetary Fund (IMF) is an international organization that was initiated in
1944 at the Bretton Woods Conferences and formally created in 1945 by 29 member countries.
 The IMF has 188 member countries. It is a specialized agency of the United Nations but has its
own charter, governing structure, and finances.
 Its members are represented through a quota system broadly based o their relative size in the
global economy.
 A country must pay its subscription in full upon joining the IMF: up to 25 per cent must be paid
in the IMF’s own currency, called Special Drawing Rights (SDRs) or widely accepted currencies
(such as the dollar, the euro, the yen, or pound sterling), while the rest is paid in the member’s
own currency.
 SDR allocations: SDRs are used as an international reserve asset. A member’s share of general
SDR allocations is established in proportion to its quota.
 Voting power: The quota largely determines a member’s voting power in IMF decisions. Each
IMF member’s votes are comprised of v=basic votes plus one additional vote for each SDR
100,000 of quota.
 Access to Financing: The amount of financing a member country can obtain from the IMF is
based on its quota. For instance, under Stand By and Extended Arrangements, which are types
of loans, a member country can borrow up to 200 per cent of its quota annually and 600 per
cent cumulatively.

World Bank Group

 The World Bank was created at the 1944 Bretton Woods Conference, along with three other
institutions, including the International Monetary Fund (IMF).
 The World Bank Group (WBG) is a family of five international organizations that make leveraged
loans to poor countries. These are:
 The International Bank for Re-construction and Development (IBRD).
 The International Development Association (IDA).
 The International Finance Corporation (IFC).
 The Multilateral Investment Guarantee Agency (MIGA).
 The International Centre for Settlement of Investment Disputes (ICSID).
 To become a member of the bank, under the IBRD Articles of Agreement, a country must first
join the International Monetary Fund (IMF). Membership in IDA, IFC and MIGA are conditional
on membership in IBRD. It has 188 members.
 The World Bank Group has set two goals for the world to achieve by 2030:
 End extreme poverty by decreasing the percentage of people living on less than 1.25 a day to no
more than 3%.
 Promote shared prosperity by fostering the income growth of the bottom 40% for every
country.
World Trade Organization

 Aim: To liberalise international trade.

 When: Formed in 1995, replaced GATT. (Marrakech Agreement)
 Headquarters: Geneva, Switzer-land.
 Membership: 160 member states (Yemen became 160th WTO member)
 Conflict: On free trade vs protectionism and subsidies (as pushed by developing and welfare
nations).
 Most of the issues that the WTO focuses on derive from previous trade negotiations, especially
from the Uruguay Round (1986-1994) which was concerned with two aspects of trade in goods
and services.
 The organization is attempting to complete negotiations on the Doha Development Round,
which was launched in 2001 with an explicit focus on addressing the needs of developing
countries.
 The highest decision-making body of the WTO is the Ministerial Conference, which usually
meets every two years.
 The WTO has 160 members and 25 observer governments.
 In addition to states, the European Union is a member.
 GATT was established after World War II in the wake of new multilateral institutions formed-
notably the Bretton Woods institutions known as the World Bank and the International
Monetary Fund.

Asian Development Bank (ADB)

 The Asian Development Bank (ADB) is a regional development bank established on 22 August
1966 to facilitate economic development of countries in Asia.
 From 31 members at its establishment, ADB now has 67 members.
 ADB was modeled closely on the World Bank, and has a similar weighted voting system where
votes are distributed in proportion with member’s capital subscriptions.
 Important Terminology

 Cash Reserve Ratio (CRR): It is the amount of fund that the banks have to keep with the RBI. If
the central bank decides to increase the CRR, the available amount with the banks comes down.
The RBI uses the CRR to drain out excessive money from the system.
 SLR Rate: SLR (Statutory Liquidity Ratio) is the amount of commercial bank needs to maintain in
the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its
customers.
 Repo Rate: The rate at which the RBI lends money to commercial banks is called repo rate. It is
an instrument of monetary policy.
 Reserve Repo Rate: It is the rate at which the RBI borrows money from commercial banks.
 Bank Rate: Bank Rate, also referred to as the discount rate, is the rate of interest which a
central bank charges on the loans and advances that is extended to commercial banks and other
financial intermediaries.
 PLR: The Prime Lending Rates is the interest rate charged by banks to their most creditworthy
customers (usually the most prominent and stable business customers).
 FII: FII (Foreign Institutional Investor) used to denote an investor, mostly in the form of an
institution established outside India.
 FDI: FDI (Foreign Direct Investment) occurs with the purchase of the “physical assets or a
significant amount of ownership stock of a company in another country in order to gain a
measure of management control” (Or) A foreign company having a stake in a Indian company.
 IPO: IPO id Initial Public Offering of shares to the general public from a company wishes to list
on the stock exchanges.
 Fiscal Deficit: It is the difference between the government’s total receipts (excluding
borrowings) and total expenditure.
 Revenue Deficit: it defines that, where the net amount received (by taxes & other forms) fails to
meet the predicted net amount to be received by the government.
 GDP: The Gross Domestic Product or GDP is a measure of all of the services and goods produced
in a country over a specific period; classically a year.
 GNP: Gross National Product is measured as GDP plus income of residents from investments
made abroad minus income earned by foreigners in domestic market.
 National Income: National Income is the money value of all goods and services produced in a
country during the year.
 Per Capital Income: The national income by its population.
 Vote on Account: A vote-on account is basically a statement, where the government presents
an estimate of a sum required to meet the expenditure that it incurs during the first three to
four months of an election financial year until a new government is in place, to keep the
machinery running.
 Difference between Vote on Account and Interim Budget: Vote-on-account deals only with the
expenditure side of the government’s budget, an Interim Budget is a complete set of accounts,
including both expenditure and receipts.
 Bancassurance: It is the term used to describe the partnership or relationship between a bank
and an insurance company whereby the insurance company uses the bank sale channel in order
to sell insurance products.
 Banking Ombudsman Scheme: The Banking Ombudsman Scheme enables an expeditious and
inexpensive forum to bank customers for resolution of complaints relating to certain services
rendered by banks.
 Capital Account Convertibility (CAC): It is the freedom to convert local financial assets into
foreign financial assets and vice versa at market determined rates of exchange.
 Current Account Convertibility: It defines that one can improve and export goods or receive or
make payments for services rendered. However, investments and borrowings are restricted.
 Capitalism: Capitalism as an economy is based on a democratic political ideology and produces a
free market economy, where businesses are privately owned and operated for profit; in
capitalism, all of the capital investments and decisions about production, distribution, and the
prices of goods, services, and labour, are determined in the free market and affected by the
forces of supply and demand.
 Socialism: Socialism as an economy as based on a collectivist type of political ideology and
involves the running of businesses to benfit the common good of a vast majority of people
rather than of a small upper class segment of society.
 Corporate Governance: Corporate governance is the set of processes, customs, policies, laws,
and institutions affecting the way a corporation (or company) is directed, administered or
controlled.
 E-Governance: E-Governance is the public sector’s use of information and communication
technologies with the aim of improving information and service delivery, encouraging citizen
participation in the decision-making process and making government more accountable,
transparent and effective.
 Right to Information Act: The Right to Information Act is a law enacted by the Parliament of
India giving citizens of India access to records of the Central Governments and State
Governments. The Act applies to all States and Union Territories of India, except the State of
Jammu and Kashmir – which is covered under a State-level law.
 Credit Rating Agencies in India: The credit rating agencies in India mainly include ICRA
(Investment Information and Credit Rating Agency of India Limited) and CRISIL (Credit Rating
Information Services of India Limited). Their main function is to grade the different sectors and
companies in terms of performance and offer solutions for upgradation.
 NASSCOM: The National Association of Software and Services Companies (NASSCOM) is a
consortium that serves as an interface to the Indian software industry and Indian BPO industry.
 ASSOCHAM: The Associated Chambers of Commerce and Industry of India (ASSOCHAM) was
established in 1920 by promoter chambers, representing all regions on India to represent the
interests of industry and trade, interfaces with Government on policy issues and interacts with
counterpart international organizations to promote bilateral economic issues.
 SENSEX and NIFTY: SENSEX is the short term for the words “Sensitive Index” and is associated
with the Bombay (Mumbai) Stock Exchange (BSE). The SENSEX was first formed on 1-1-1986 and
used the market capitalization of the 30 most traded stocks of BSE, whereas NSE has 50 most
traded stocks of NSE. Sensex is the index of NSE. Both will show daily trading marks. Sensex and
 Nifty both are an “index”. An index is basically an indicator, it indicates whether most of the
stocks have gone up or most of the stocks have gone up or most of the stocks have gone down.
 SEBI: SEBI is the regulator for the securities market in India. Originally, set up by the
Government of India in 1988, it acquired statutory form in 1992 with SEBI Act 1992 being passed
by the Indian Parliament.
 Mutual Funds: Mutual funds are investment companies that pool money from investors at large
and offer to sell and buy back its shares on a continuous basis and use the capital thus raised to
invest in securities of different companies.
 Foreign Exchange Reserves: Foreign exchange reserves (also called Forex reserves) in a strict
sense are only the foreign currency deposits and bonds held by central banks and monetary
authorities. However, the term in popular usage commonly includes foreign exchange and gold,
SDRs and IMF reserves positions.
 Monetary Policy: A monetary policy is the process by which the government, central bank, of a
country controls (i) the supply of money, (ii) availability of money, and (iii) cost of money or rate
of interest, in order to attain a set of objectives oriented towards the growth and stability of the
economy. It’s the mandate of RBI to frame and maintain MP.
 Fiscal Policy: Fiscal policy is the use of government spending and revenue collection to influence
the economy. These policies affect tax rates, interest rates and government spending, in an
effort to control the economy. Fiscal policy is an additional method to determine public revenue
and public expenditure.
 Core Banking Solution (CBS): Core banking is a general term used to describe the services
provided by a group of networked bank branches. Bank customers may access their funds and
other simple transactions from any of the member branch offices.
 Scheduled Bank: All banks which are included in the Second Schedule to the Reserve Bank of
India Act, 1934 are scheduled banks. These banks compromise Scheduled Commercial Banks and
Scheduled Cooperative Banks. Almost all banks are Scheduled Banks in India.
 Commercial Banks: Commercial banks may be defined as, any banking organization that deals
with the deposits and loans of business organizations. Commercial banks issue bank checks and
drafts, as well as accept money on term deposits.
 Public Sector Banks: These are banks where majority stake is held by the Government of India.
Examples of public sector banks are: SBI, Bank of India, Canara Bank, etc.
 Private Sector Banks: These are banks majority of share capital of the bank is held by private
individuals. These banks are registered as companies with limited liability. Examples of private
sectors banks are: ICICI Bank, Axis Bank, HDFC, etc.
 Foreign Banks: These banks are registered and have their headquarters in a foreign country but
operate their branches in our country. Examples of foreign banks in India are: HSBC, Citibank,
Standard Chartered Bank, etc.
 Regional Rural Banks: Regional Rural Banks were established under the provisions of an
Ordinance promulgated on the 26th September 1975 and the RRB Act, 1976.
 Cooperative Banks: A co-operative bank is a financial entity which belongs to its members, who
are the same time the owners and the customers of their bank. Co-operative banks functions on
the basis of “no-profit no-loss”. Anyonya Co-operative Bank Limited (ACBL) is the first co-
operative bank in India located in the city of Vadodara in Gujarat.
 NABARD: NABARD was established by an Act of Parliament on 12 July 1982 to implement the
National Bank for Agriculture and Rural Development Act 1981. It replaced the Agricultural
Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and
Agricultural Refinance and Development Corporation (ARDC).
 SIDBI: The Small Industries Development Bank of India is a state-run bank aimed to aid the
growth and development of micro, small and medium scale industries in India.
 NBFC: A non-banking financial company (NBFC) is a company registered under the Companies
Act, 1956 and is engaged in the business of loans and advances, acquisition of
share/stock/bonds/debentures/securities issued by government, but does not include any
institution whose principal business is that of agricultural activity, industrial activity,
sale/purchase/construction of immovable property. NBFCs are doing functions akin to that of
banks; however there are few differences: (i) An NBFC cannot accept demand deposit (demand
deposit are funds deposited at a depository institution that are payable on demand-immediately
or within a very short period-like your current or saving accounts.); (ii) it is not a part of the
payment and settlement system and as such cannot issue cheques to its customers; and (iii)
Deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks.
 Micro Credit: It is a term used to extend small loans to very poor people for self-employment
projects that generate income, allowing them to care for themselves and their families.
 Micro Finance: Micro finance offers poor people access to basic financial services such as loans,
savings, money transfer services and micro insurance.
 Non-Performing Assets: Non-performing assets, also called non-performing loans, are loans,
made by a bank or finance company, on which repayments or interest payments are not being
made on time.
 Retail Banking: Banking services for individual customers. Retail banking refers to banking in
which banking institutions execute transactions directly with consumers.
 Investment Bank: A financial institution that deals primarily with raising capital, corporate
mergers and acquisitions, and securities trades. It aids companies in acquiring funds.
 Commercial Bank: An institution which accepts deposit, makes business loans, and offers
related services.
 Globalization: Globalization is a process of interaction and integration among the people,
companies, and governments of different nations.
 Privatization: Privatization can also be called denationalization or disinvestment. Privatization
refers to the transfer of ownership from the government (public sector) to the private business
sector either partially or totally.
 Liberalization: The process of reducing or removing restrictions or international trade. This may
include the reduction or removal of tariffs, abolition or multiple exchange rates, and removal of
requirements for administrative permits for imports or allocations.
 Stock Market/Share Market: A market where securities are bought and sold. Its basic function is
to enable public Ltd. companies, government and local authorities to raise capital by selling
securities to investors.
 Equity: Ownership interest in a corporation in the form of stock.
 Stock: The capital raised by a corporation through the issue of shares entitling holders to an
ownership interest (equity).
 Balance of Payments: A balance of payments is a strategy used to analyse the relationship
between money that is flowing into a country and money that is going out of that same country.
The BOP is divided into three main categories: the current account, the capital account and the
financial account.
 Balance of Trade: The difference between a country’s imports and its exports.