GLOSSARY

1. GLOSSARY

2. Gross Domestic Product Total money value of all final goods & services manufactured within the country in one year. Annual value of goods sold and services paid for inside a country

3. Nominal & Real GDP • Nominal GDP measures the value of all the goods and services produced and expressed at current prices. • Real GDP measures the value of all the goods and services produced expressed at the prices of some base year

4. Different ways of arriving @ GDP GDP at Constant Prices GDP at Current Prices Calculated at constant prices to know “real growth”

5. Gross National Product (GNP) • GNP = GDP + Income accruing to domestic residents from investments abroad – income earned by foreigners in the country. • Annual value of goods and services in a country including income from other countries

6. NationalIncome • Sum of total incomes of normal residents of a country before deduction of direct taxes. • To calculate total income, add all payments for the use of factors of production , like wages, salaries, profits & net income from abroad.

7. Per Capita Income Income per head = • Average income of one person.

8. Inflation • Excess Demand in the economy • High costs • Increase in money supply • More money chasing fewer goods • Rise in prices, purchasing power of money decreases • High interest rates tend to increase inflation • Zimbabwe classic case of gallopping inflation currency scrapped

9. INDICATORS OF ECONOMY Poverty Line • Consumption expenditure required for getting 2100 calories per person in urban area and 2400 calories in rural areas. • Key parameters • No. of people BPL • % of population BPL (Conti…)

10. Orissa highest percentage of BPL population • Some poverty zones are BIMARU and the KBK belt in Orissa. • The BPL percentage in India differs according to the methodology adopted.

11. INDICATORS OF ECONOMYHDI - HUMAN DEVELOPMENT INDEX • Developed by UNDP in 1996. • Measures physical quality of life in a country along with 3 key parameters • Life expectancy at birth • No. of years in school • Per capita income • HDI 2009 – India at 134 (182 countries ranked) • HDI 2009 No. 1 is Norway • Niger ranked at 182

12. INDICATORS OF ECONOMY WPI - WHOLESALE PRICE INDEX • Measures increase/decrease in industrial, commercial prices of commodities under 3 broad categories. • Primary articles – 98 items • Fuel, power etc., – 19 items • Manufactured products – 318 items • Certain weightage to each category of commodities

13. WPI – II • Base year – 1993 – 94 • Used for calculating INFLATION. • WPI no longer a true indicator of inflation as it may not reflect ground reality • The basket of commodities may be outdated • New series introduced from April 1st, 2000 • 435 commodities in the new series; as against 447 in the old series.

14. INDICATORS OF ECONOMY CPI – CONSUMER PRICE INDEX • Calculates increase/decrease in retail price • Direct bearing on consumers • Different types of CPIs for • agricultural laborers • industrial workers • urban non-manual employee

15. FOREIGN DIRECT INVESTMENT (FDI) • FDI supplements domestic investment • The investment made to acquire long term benefits in enterprises operating outside the economy of the investor • The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a transnational corporation • Mauritius, USA and Japan are the three biggest sources of FDI (Conti…)

16. FDI involves bringing scarce capital, technology and managerial expertise • FDI creates jobs • FDI barred at present in retail trading except single brand product retailing • FDI restricted to 26% in print media relating to news and current affairs • FDI restricted to 26% in insurance and defence

17. Foreign Institutional Investor(FII) • FII means an entity established or incorporated outside India which proposes to make investment in the financial markets in India • FII is not stable money • Unlike FDI the focus of FII is on making quick profits.

18. Real & Nominal Interest Rates Real interest rate = Nominal interest rate – rate of inflation

19. Key indicators of banking sector • CRR Minimum 3% Maximum 20% • SLR Minimum 24% Maximum 40% • Cash Reserve Ratio (CRR) – 5% • Statutory Liquidity Ratio (SLR) – 25% • Bank Rate – 6% • Repo Rate – 4.75% • Reverse Repo Rate – 3.25% (Conti…)

20. Bank Rate is for a longer period say 6 months to one year • Repo and reverse repo rates are for the short term. They are used to either increase money supply or mop up excess liquidity • Repo and reverse repo have now assumed more importance than BR • PLR is benchmark rate • Concept of BPLR under scrutiny • Majority of Banks lending is under BPLR

21. FOREX • Exchange control • Fixed Exchange rates • Free/Floating exchange rates • Depreciation/appreciation • Devaluation • India’s forex reserves more than $120 billion invested mostly in low yielding US securities • Countries like China and India are financing consumption in the USA • China–largest forex reserves in the world more than $ 1 trillion

22. Purchasing Power Parity (PPP) • An exchange rate between two currencies such that the same basket of goods and services could be bought in each country if the cost were converted at that exchange rate. • It is often used to compare the standards of living between countries. • Rate of exchange between two countries determined by comparing respective internal price levels

23. Current A/c Convertibility • Free flow for purposes other than for capital purchases and loans • Exports • Imports • Travel • Study abroad • Medical treatment • Employment abroad • Gifts • Consultancy • Intl. credit cards

24. Capital A/c Convertibility • The freedom to convert local financial assets into foreign financial assets & vice versa at market determined rates of exchange • Indicator of a developed economy • Gives confidence to investors • However, leaves the country at risk • Tarapore Committee 1997 • Fiscal consolidation – low inflation • Financial sector reforms

25. TAXES • DIRECT TAXES Direct incidence of tax on the person who pays the tax. liability to pay tax is NOT passed on to someone else. e.g. INCOME TAX, CORPORATION TAX, WEALTH TAX, LAND REVENUE, GIFT TAX etc…. • INDIRECT TAXES Levied on goods and services. Traders/producers pay it. Liability passed on to end customer. e.g. VAT, EXCISE TAX, CUSTOMS DUTY, SERVICE TAX… • New Tax on Goods and Services [TGS] to be implemented from April 1st 2010 • New Tax code proposed to replace Income Tax Act 1961.

26. SUBSIDIES • Grants to suppliers of goods and services • Used to keep consumer prices down (LPG & Kerosine, PDS to BPL) • To prop up production (farm and fertilizer subsidies) • To boost exports • To lower cost (tax subsidies) • To improve infrastructure • Meet social obligations (subsidy on food, education) • Cross subsidies (petroleum products) • Cross subsidies in Banking through concept of Below PLR loans

27. SUBSIDIES IN 2008-09 • Food subsidy – Rs.32,667 cr. • Fertilizer subsidy – Rs.30,986cr. • Kerosine & LPG – Rs.30,000 cr. • Politically and socially sensitive issue. • LPG subsidy aimed at the middle class

28. CORE SECTORS • Coal • Cement • Power • Steel • Petroleum • Petroleum refinery products

29. DISINVESTMENT • 1991-92 to July 2007 • Target – Rs.96,800 crore • Achievement – Rs.51,608 crore • (14 companies privatised) • Issues • Loss making units • Social responsibility • Method – Public issue, strategic sale • Valuation • Creating monopolies – (IPCL, VSNL) • Job loss • Loss of govt. control (Conti…)

30. Ministry of Disinvestment formed by NDA Govt Abolished by UPA Govt • Present policy is to opt for the IPO model of disinvestment rather than outright sale • Minimum Govt stake in PSU’s to be 51% • National Investment Fund created to pool disinvestment proceeds • Focus on Investment rather than disinvestment • Investment Commission formed. • Some prominent disinvestments are BALCO in 2001 and Hindustan Zinc Ltd in 2001-02 and VSL in 2001 • Current polices: Disinvestment to be used sparingly • Global financial trends do not favour disinvestment

31. INFRASTRUCTURE • Transport – Railways, roads, shipping , civil aviation • Communication – Telecom, P & T • Energy – Electricity, Oil, coal, non-conventional sources • Science & Technology • Banking, finance and insurance • Social – education, health • India lags behind China in development of infrastructure (Conti…)

32. Top priority to creation of infrastructure • Amartya Sen’s analysis that India has neglected social infrastructure • Delhi Mumbai Industrial corridor [DMIC] in 2008 with Japan’s assistance • Aim is to create state-of-the art infrastructure to activate local commerce • Petroleum Chemical Petrochemical Investment Regions [PCPIR] proposed in 2007

33. PATENTS • Product patents • Process patents • Patents Act 1970 • Generic Drugs – $80 bn worth • Reverse Engg • Huge opportunity • Compulsory Licensing • India has created a digital data base of traditional knowledge of healing systems like Yoga, Ayurveda, Unani and Siddha and registered with European Patent Office [EPO] (Conti…)

34. Frivolous patents granted in Western countries for traditional Indian products like neem, turmeric and even for Yoga • Geographical Indication (GI) is a patent associated with a region • Ex: Kalamkari art, Darjeeling Tea, Coorg coffee latest Tirupati Laddu • Mashelkar committee on patents • The patent regime of WTO can be overlooked in times of medical emergencies like Swine Flu

35. SSI Manufacturing Services Micro 25 lakhs 10 lakhs Small 25 lac - 5 crores 10 lac – 2 cr Medium 5 – 10 crores 2 - 5 cr • 128.44 lakh units • Turnover – Rs.4,97,842 cr • Employs 312.52 lakh people • Exports worth Rs.86,013 cr

36. IMPORT RESTRICTIONS • Tariff Barriers • Non-Tariff Barriers

37. TARIFF BARRIERS • Customs Duty • Countervailing Duty • Anti-dumping duty • Transit duty • Cess • Additional duties or surcharges

38. Non-Tariff Barriers • Health, Safety regulations • Quality norms (ISO & EN standards , FDA, CE mark) • Quarantine laws • Local subsidies • Channelised imports through governmental agencies (eg: sugar imports through STC) • Licencing policy • Quota restrictions • Import bans • Cumbersome Customs procedures

39. The government’s policy of achieving economic objectives (employment, per capita income…) through government earning and spending related to increase or decrease in taxes. Government sources of funds : Taxes and duties, government businesses, fines, borrowing from public, investments Government uses of funds : Infrastructure, mining, public welfare, defense, power generation, research and development Fiscal Policy Fiscal policy intimately linked to the Union Budget

40. Monetary Policy The government’s policy of achieving economic objectives(employment, per capita income, balance of trade, economic parity…) by controlling money supply through instrument like interest rates Decrease in supply : Deflation or decrease in prices Increase in supply : Inflation or increase in prices Monetary policy intimately connected to RBI’s policies

41. Hyper Inflation • Stagflation • Deflation • Reflation • Highest inflation in world is in Zimbabwe • Currency made worthless due to inflation

42. Appreciation of the Rupee • Indication of economy doing well • Importers & borrowers in forex are happy • Domestic consumers are happy • Interest on government borrowings come down • Companies with forex loans will gain • Debt of the government decreases • Lowers inflation rate • Exporters are hit • Margins erode • Producers have to cut costs

43. Agriculture • Contributes about 22% to GDP • 60% of area sown dependent on rainfall • 65 to 70% of population dependent on agriculture • 230.67 mt foodgrain production in 2007 – 08 • National Food Security Mission launched to enhance production of rice wheat and pulses • India second highest producer of fruits and vegetables in world • Largest producer of milk in the world (Conti…)

44. India is home of spices-largest producer, consumer and exporter of spices • India largest producer of cashewnuts and basmati rice • National Horticultural Mission 2005 • National Project for Organic Farming 2004 • India has largest livestock population in world • National Fisheries Development Board set up in Hyderabad

45. Energy • Coal main source of energy [67%] • Installed power capacity is 149,391.91 MW as of 31st May, 2009. • Electricity Act 2003 - SERC’s formed • Coal based Ultra Mega Power Projects • [UMPP] of 4000 MW each • National Solar Mission to be launched on November 14th 2009 • Nuclear energy to be key for India’s quest for energy security. Hence 123 pact. • Nuclear energy at present contributes 3 to 4% to total energy pie

46. Miscellaneous • India a services sector led economy defies conventional logic • Conventional model is transition from manufacturing to services • India is services sector led but still predominantly rural • Manufacturing and infrastructure are top priorities of the Government • Among infrastructure, social infrastructure is a very vital area (Conti…)

47. Disinvestment of sick PSU’s and profit making PSU’s is needed to generate huge funds for infrastructure, specially social infrastructure • Second generation economic reforms needed in power, agriculture, legal sector and financial sector • Massive transfer of population away from unproductive agriculture to other sectors like services and manufacturing

48. Polity –  • UPA –  in May 2009. Congress 206 seats • TMC second largest component of UPA • Verdict 2009 is the defeat of the Third and Fourth Front primarily rather than of the NDA • Highest tally contributed to NDA by Karnataka • Left Front humbled in West Bengal • Agatha Sangma-youngest Union Cabinet Minister, Age 28 years (Conti…)

49. Shashi Tharoor is MOS External affairs • Meira Kumar first woman to be the Lok Sabha Speaker • LK Advani and Arun Jaitley leaders of opposition in Lok Sabha and Rajya Sabha • Oldest Cabinet Minister SM Krishna age 77 years

50. Polity –  • Ramesh Pokhariyal new Chief Minister of Uttarakhand • K. Rosaiah new Chief Minister of Andhra Pradesh • Sikkim creates history-all MLA’s belong to the ruling party • Ashok Gehlot new Chief Minister of Rajasthan • Navin Chawla is the new chief Election Commissioner • Mohan Bhagwat new RSS Chief • Congress retains power in Maharashtra, Haryana and Arunachal Pradesh in October 2009.