Unit 1 LECTURE 1. Indian economy measures of national income

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1 1.0 INTRODUCTION The path to success is to take massive, determined action. Unit 1 LECTURE 1 Indian economy measures of national income PT s IAS Academy P A P E R I V G E N E R A L S T U D I E S - I I I Technology, Economic Development, Bio diversity, Environment, Security and Disaster Management. Unit 1 Indian Economy and issues relating to planning, mobilization of res ources, growth, development and employment. India is a mixed economy. In such an economy, the public sector (government owned) business enterprises exist alongside the private sector to achieve a socialistic pattern of society, in a welfare state model. Ever since gaining i n d e pe n de n c e, I n d i a s economic development has been gu ided by the twin objectives of developing: 1. to rapidly develop the economy, ensuring it becomes technologically progressive and achieve this through democratic means; and 2. a social order based on justice, offering equal opportunity to every citizen of the country. PT Education, All rights reserved. India is a federal economy. It has strong powers vested in th e Cen tr e with fin an cial independence and adequacy, t h u s c r ea t in g a f ed e r a l f in a n c e s y s t e m. Mo n ey, c u r r en c y, ba n ki n g, an d sources of revenue which are exclusive and high yielding are under central jurisdiction. C on c u r r en t t a xa t io n i s avoided and efficient financial powers vest with both the C en t r e a n d t h e S t at e Governments. The Indian economy, even today, displays the characteristic features of a typical underdeveloped economy. These are: more than one third of the population below poverty line, very low per capita income, low life expectancy, agriculture as the chief occupation of the economy, swift population growth, high dietary deficiencies and mortality rates, and so on. Regd. Office: Indore PT centres spread across India ~ Established 1993 Our motto Kar Ke Dikhayenge is delivered through our unique Technology Driven Process Engine (TDpro engine). ias@pteducation.com Web: PT education HQ, Indore 4th Floor, Yeshwant Plaza, Opp. Railway Station, Indore Tel : Fax : (1) of (8)

1.1 Size of the Indian economy Since the advent of economic planning in 1950, the Gross Domestic Product (GDP) of India has grown a little over eight times.

Since then, with the implementation of economic reforms from 1991 to 1992 onwards, growth rates have stabilized around 5 6 per cent.

Table 1 : Size of the Indian Economy Year GD P at Factor Co st (Rs '000 cr) (at 200 4 2005 ) Percentag e of Chang e O ver Previous Period (2) of (8) 2005 06 3,249 9.48 2006 07 3,564 9.

2 1.1 Size of the Indian economy Since the advent of economic planning in 1950, the Gross Domestic Product (GDP) of India has grown a little over eight times. GDP growth rates, which used to be quite low (barring a few exceptionally good years) till 1991 to 1992, have been reasonably respectable thereafter. Since then, with the implementation of economic reforms from 1991 to 1992 onwards, growth rates have stabilized around 5 6 per cent. However, if one looks at India in a global scenario, India accounts for a small percentage of the total world GDP. Table 1 : Size of the Indian Economy Year GD P at Factor Co st (Rs '000 cr) (at ) Percentag e of Chang e O ver Previous Period (2) of (8) , , , , , , , , (provisional) 5, India s GDP at constant prices in was Rs. 17, billion. The GDP value of India represents 3.03% of the world economy. In purchasing power parity (PPP) terms, India is new the world s third largest economy behind USA and China. Year Sectors Agrciculture and allied Industry Services P: Provicional estimate 2.0 NATIONAL INCOME AND STRUCTURAL CHANGES 2.1 Definition National Income is the sum of domestic output and net income earned from abroad. As per the official statement of the National Income Committee, National Income statistics provide a wide view of the country s entire economy, as well as the various groups in the population who participate as producers and income receivers, and that, if available over a substantial period, they reveal clearly the basic changes in the country s economy in the past and suggest, if not fully r e veal, tr en d s fo r th e f u tur e. As compared to National Wealth, which Table 2: Sectoral Structure of Indian Economy (at prices) measures the stock of commodities held by the nationals of a country at a point of time, National Income measures the productive power of an economy in a given period to convert commodities or National Wealth into goods and services for final consumption. USA European Union Japan China India (P)

3 2.2 Concepts of National Income The various concepts of National Income are as follows: (E) Gross National Product (GNP): It is the money value of the total output produced or production of final goods and services by the nationals of a country during a given period of time. Gross Domestic Product (GDP): It is the money value of the total output produced or production of final goods and services within the boundaries of a nation by the nationals of the country during a given period of time. Net National Product (NNP): It is the value obtained by subtracting the depreciation value from the Gross National Product of a country. Thus, NNP = (GNP Depreciation). It can be calculated in two ways: (i) at the market prices of goods and services; and (ii) at factor cost. Personal Income: It is that income which is actually obtained by the nationals of a country. Thus, Personal Income = National Income (undistributed profits of a corporation) (payment of the social security provisions) + (government transfer payments) + (business transfer payments) + (net interest paid by the government). Disposable Personal Income: It is obtained by subtracting personal direct taxes from the personal income of the national of a country. 2.3 Calculation of National Income 1. GNP Method: The GNP can be obtained by adding the income earned and received by the nationals of a country outside the boundaries of its country to the GDP, and subtracting the income received by foreign nationals from within the country. Therefore, GNP = [GDP + (income earned by nationals outside the country) (income received by foreigners within the country)]. 2. NNP Method: When NNP is obtained at the factor cost, it is called National Income. In other words, National Income is calculated by subtracting the net indirect tax from the NNP at market prices. Therefore, NNP at factor cost, or National Income = NNP at market prices (indirect tax) + (subsidy) (Indirect Taxes Subsidy) = Net Indirect Taxes. 2.4 India's National Income estimates for 2013 (at ) The Gross National Income (GNI) at factor cost at prices is now estimated at Rs lakh crore during In terms of growth rates, the GNI is estimated to have risen by 4.7% during , in comparison to the growth rate of 4.1% in The per capita national income in real terms at prices is estimated to be Rs. 39,904 during The growth rate in per capita income is estimated at 2.7% during as against 2.1% during Answer key (DPQ) Indian economy measures of national income (3) of (8)

4 New Series of National Statistics (Base Year ) Historical Background: The development of official estimates of national income and related aggregates to meet the requirements of planning and policy purposes began after Independence. Recognizing the need for providing estimates of national income on a regular basis, Government of India set up a High Powered Expert Committee in 1949 known as 'National Income Committee under the Chairmanship of Prof. P.C. Mahalanobis. It was for the first time that this Committee provided the estimates of national income for the entire Indian Union. The estimates of national income and details of methodology adopted by the Committee were published in the First and Final reports of the National Income Committee brought out in April 1951 and February 1954 respectively. Following the methodology recommended by the National Income Committee, the Central Statistical Organisation (CSO) prepared the first official estimates of national income with base year at constant prices. The CSO published these estimates at constant ( ) prices alongwith the corresponding estimates at current prices and the accounts of the Public Authorities in the publication, "Estimates of National Income" in With the gradual improvement in the availability of basic data over the years, a comprehensive review of methodology for national accounts statistics has constantly been undertaken by the CSO with a view to updating the data base and shifting the base year to a more recent year. As a result, base years of the National Accounts Statistics series were shifted from to in August 1967, from to in January 1978, from to in February 1988, from to in February 1999, from to in January 2006 and from to on 29th January Alongwith the shifting of base years of national accounts series, the CSO also had been making improvements in the compilation of national accounts series, in terms of coverage of activities, incorporation of latest datasets and latest international guidelines. Why a change in the Base Year was needed: The reason for periodically changing the base year of the national accounts is to take into account the structural changes which have taken place in the economy and to depict a true picture of the economy through macro aggregates like GDP, consumption expenditure, capital formation etc. For examining the performance of the economy in real terms through the macro economic aggregates like Gross Domestic Product (GDP), national income, consumption expenditure, capital formation etc., estimates of these aggregates are prepared at the prices of selected year known as base year. The estimates at the prevailing prices of the current year are termed as "at current prices", while those prepared at base year prices are termed "at constant prices". The comparison of the estimates at constant prices, which means "in real terms", over the years gives the measure of real growth. Guiding Principles for New Series: The three major components influencing the present revision exercise include (i) revision of base year to a more recent year (for meaningful analysis of structural changes in the economy in real terms), (ii) complete review of the existing data base and methodology employed in the estimation of various macro economic aggregates including choice of the alternative databases on individual subjects and (iii) to the extent feasible, implementing the recommendations of the System of National Accounts (SNA), 1993 and 2008 prepared under the auspices of the Inter Secretariat Working Group on National Accounts comprising of the European Communities (EUROSTAT), International Monetary Fund (IMF), Organisation for Economic Cooperation and Development (OECD), United Nations and the World Bank. Choice of as the Base Year: In the past, National Accounts Statistics were revised decennially changing the base to a year, which ends with 1. It was primarily because in the base year estimates of national accounts aggregates, the information on work force plays an important role and work force estimates were obtained from the Population Census conducted decennially in the years ending with 1. This practice continued upto the series with base year Since then, the CSO started using the work force estimates from the results of Quinquennial Employment and Unemployment Surveys of National Sample Survey Organisation (NSSO), which are conducted once in every five years, and consequently started revising the base years of national accounts statistics once in every five years coinciding with the years for which the NSSO conducts the Quinquennial Employment and Unemployment Surveys. In continuation with this practice, the new series of national accounts has been released with base year on 29 January, 2010 using the work force data from the results of NSS 61st round ( ) on Employment and Unemployment Survey. The new government in 2014 declared the scrapping of the Planning Commission, and its replacement by a new body more reflective of the needs of today. The new regime is yet to be created and entrusted with its mandate. Wait and watch! (4) of (8)

Ta ble 3: Gross National Product and Net National Product (2004 2005 Series ) Index numbers (1950 51=100) Y ear Gr oss National P roduct at Factor Cost ( Rs.

5 Ta ble 3: Gross National Product and Net National Product ( Series ) Index numbers ( =100) Y ear Gr oss National P roduct at Factor Cost ( Rs. Crore) Net National Product at F actor Cost (Rs. Crore) Per C apita N et National P roduct (Rs.) Net National Per Capita Net P roduct N ational Product 2005 Pr ices A t Current A t A t Price s ,995 2,78,67 7 9,464 2,5 5, , ,5 61 2,85,55 8 9,985 2,6 2, , ,4 24 2,93,79 1 9,840 2,7 1, , ,3 59 3,11, ,803 2,8 9, , ,6 60 3,24, ,154 3,0 5, , ,8 51 3,33, ,309 3,1 4, , ,9 48 3,52, ,362 3,3 2, , ,2 35 3,47, ,581 3,2 6, , ,7 92 3,74, ,078 3,5 2, , ,5 17 3,81, ,754 3,5 8, , ,9 77 4,08, ,169 3,8 5, , ,8 94 4,20, ,998 3,9 6, , ,1 30 4,29, ,159 4,0 4, , ,8 74 4,51, ,790 4,2 4, , ,5 41 4,85, ,301 4,5 6, , ,7 31 4,67, ,338 4,3 6, , ,3 83 4,72, ,750 4,3 9, , ,7 18 5,09, ,851 4,7 5, , ,6 83 5,23, ,685 4,8 6, , ,4 51 5,57, ,152 5,1 8, , ,0 98 5,85, ,294 5,4 1, ,00, ,9 30 5,91, ,852 5,4 5, , ,6 41 5,90, ,216 5,4 2, , ,3 33 6,17, ,221 5,6 7,937 1,021 9, ,6 39 6,25, ,342 5,7 2,741 1,169 9, ,3 27 6,82, ,064 6,2 6,779 1,204 10, ,3 12 6,91, ,505 6,3 1,897 1,266 10, ,4 00 7,43, ,072 6,8 1,442 1,421 10, ,04,774 7,84, ,663 7,1 9,996 1,492 11, ,14,653 7,44,77 2 1,04,766 6,7 7,340 1,578 10, ,37,183 7,98,50 4 1,25,761 7,2 7,359 1,852 10, ,60,253 8,42,32 4 1,46,332 7,6 7,481 2,115 11, ,78,351 8,64,28 8 1,62,236 7,8 5,134 2,291 11, ,08,412 9,32,05 1 1,90,443 8,4 8,950 2,634 11, ,33,689 9,67,48 5 2,12,713 8,7 8,609 2,878 11, ,61, ,07,999 2,36,151 9,1 3,143 3,128 12, ,91, ,51,071 2,62,781 9,5 0,457 3,408 12, (5) of (8)

Index numbe rs ( 1950 51=100) Year Gross N ational Product at F actor Cost (Rs. Crore) N et National P roduct at Factor Cost (Rs. Crore) Per Capita Net National Product (Rs.

6 Index numbe rs ( =100) Year Gross N ational Product at F actor Cost (Rs. Crore) N et National P roduct at Factor Cost (Rs. Crore) Per Capita Net National Product (Rs.) N et National Product P er Capita N et National Product 2005 Price s 2005 At Curre nt 2005 At Curre nt 2005 Price s ,29,449 10,86,2 09 2,96,2 57 9,78,46 4 3, , ,91,799 11,93,6 97 3,52, ,80,137 4, , ,50,809 12,66,7 67 4,05, ,46,446 4, , ,24,268 13,31,0 40 4,71, ,02,305 5, , ,03,451 13,49,5 41 5,38, ,11,877 6, , ,92,078 14,22,6 92 6,17, ,76,845 7, , ,05,881 15,06,1 38 7,23, ,54,116 8, , ,42,302 16,03,2 64 8,45, ,40,972 9, , ,0 5,102 17,20,0 69 9,92, ,47,480 10, , ,8 8,706 18,59, ,58, ,75,759 12, , ,3 4,408 19,43, ,87, ,45,160 13, , ,5 3,771 20,73, ,90, ,61,252 15, , ,3 1,842 22,29, ,45, ,01,250 16, , ,6 9,249 23,18, ,62, ,74,858 17, , ,4 7,677 24,50, ,18, ,90,737 18, , ,2 1,510 25,51, ,75, ,78,363 19, , ,0 1,508 27,57, ,29, ,66,093 21, , ,4 9,089 29,49, ,29, ,29,198 24, , ,6 4,387 32,28, ,00, ,77,284 27, , ,2 0,042 35,34, ,01, ,49,149 31, , ,6 1,574 38,79, ,76, ,51,829 35, , ,7 0,644 41,33, ,05, ,64,388 40, , ,5 3,585 44,79, ,95, ,59,653 46, , ,7 8,512 48,33, ,25, ,68,715 53, , ,1 4,861 51,71, ,34, ,68,249 60, , ,7 2,110 NA 82,55,948 N A NA NA NA NA NA NA (P) 1 0,344,507 56,74, ,71,045 N A NA NA NA NA NA NA P = Provisional NA = Not Av ailable ~ (6) of (8)

7 1. A growing country best defined as one with a/an rising GNP at constant prices rising GNP at current prices constant GNP at constant prices None of these 2. A major part of a country's output is normally used for private consumption public consumption investment exports 3. A major trade partner of India in the pre independence period was USA UK USSR Australia 4. A market economy is one in which products are sold products and factors are bought products and factors are bought and sold All the above 5. The role of the Planning Commission from 1950 to 2014, was primarily collection, planning, allocation of financeial resources planning and allocation of entire government budget broad planning and allocation of financial resources to several stakeholders supervising the entire funds disbursement process of the governments of India, and the various States 6. When the process of liberalisation was initiated in 1991, the biggest change that happened was that the Indian State left large ground vacant to be filled by notorious private sector players public sector was substantially reduced in scope private sector was made supreme State s role as the only, and primary, driver of economic policy implementation was significantly reduced 7. One of the topmost agenda items for Prime Minister Modi seems to be to remove all rules and regulations in business getting non resident Indian diaspora to invest getting Indians to invest abroad in a big way getting foreign investments to kickstart the economy DAILY PRACTICE QUIZ Paper IV General Studies III Unit 1 (LECTURE 1) Indian economy - measures of national income Suggested Time : 15 min T otal questi ons : Which of these problems has the world economy been going through since 2008? inflationary problems in the Rich World zero growth in Europe very slow or negative growth in the Rich Western world very rapid growth in China, and consequent inflation 9. On which of these indices does India fare really badly? HDI FII in stock markets Space research All the above 10. Why was it decided to scrap the Planning Commission of India? The Planning Commission became extremely corrupt The pressure from the WB and IMF forced it The rate of GDP growth was not as per expectations Ground realities have changed in Indian economy, needing a fresh approach now 11. An acknowledgement under the seal of the company, of a debt or a loan is called a warrant share zero coupon bond debenture 12. As a result of the Green Revolution, the yield per hectare of wheat touched a record figure of 1,500 kg 2,000 kg 2,222 kg 3,000 kg 13. As in other countries, money in the Indian economy consists of metallic coins paper currency current deposits All the above 14. At the commencement of the First Five Year Plan, the total production of foodgrain in India was million tonnes and it touched a record figure of... under the Seventh Five Year Plan. 150 million tonnes 170 million tonnes 160 million tonnes 190 million tones (7) of (8)

8 15. All the coins, and currecy notes of more than one rupee are issued by the Reserve Bank of India Finance Ministry of India State Bank of India Government of India 19. Today, how many young people seeking employment enter the work field (as seekers) in India, each year? approx. 50 lacs approx. 5.2 crore approx. 12 lacs approx. 1.2 crore 16. Children below... are considered illiterate. 3 years 4 years 5 years 6 years 17. Socialisam, as a concept, in India was a part of the Preamble to the Constitution since the very beginning has failed completely was constitutionally adopted in the 1970s has succeeded significantly 20. Deficit financing implies a situation where printing of new currency notes takes place new currency is replaced with with worn out currency public expenditure is in excess of public revenue public revenue is in excess of public expenditure 18. The debate on trickle down effect of globalisation has not existed in India at all gained strength recently, as the effect has succeeded changed a lot in recent years, with a growing realisation that it may not really be happening None of the above Please make sure that you mark the answers in this score sheet with an HB pencil/pen. The marking of answers must be done in the stipulated time for the test. Do not take extra time over and above the time limit. SCORE SHEET 1 A B C D E 2 A B C D E 3 A B C D E 4 A B C D E 5 A B C D E 6 A B C D E 7 A B C D E 8 A B C D E 9 A B C D E 10 A B C D E 11 A B C D E 12 A B C D E 13 A B C D E 14 A B C D E 15 A B C D E 16 A B C D E 17 A B C D E 18 A B C D E 19 A B C D E 20 A B C D E (8) of (8)

Distance Learning Programme. IAS Prelims INDIAN ECONOMY

Distance Learning Programme. IAS Prelims INDIAN ECONOMY Distance Learning Programme IAS Prelims INDIAN ECONOMY CONTENTS 1. Introduction to Economics 5-11 2. Concepts of National Income 12-20 3. Human Development 21-30 4. Poverty, Unemployment & Inequality 31-49