Best available Notes on Indian Economy for Competitive Exams in 2025

Best available Notes on Indian Economy for Competitive Exams in 2025. Here are comprehensive notes on the Indian Economy chapter-wise to cover all the expected points from it. This is equally must read for all PSC aspirants.

Indian Economy SET-II

Chapter 6: Inflation and Related Concepts

• Inflation is a consistent and appreciable rise in the general price level, where purchasing power of currency falls.
• The rate of inflation is measured on the basis of price indices: Wholesale Price Index (WPI) and Consumer Price Index (CPI).
• India calculates its inflation on WPI and CPI.
• The current WPI base year is 2011-12.
• Types of Inflation:
  • Demand-Pull Inflation occurs when demand is high and supply is low, increasing prices.
  • Cost-Push Inflation occurs when the cost of raw materials and other inputs raises inflation.
  • Creeping Inflation is slow-moving and mild, with prices rising in single-digits over a long period.
  • Walking Inflation is when prices rise moderately, with an annual rate of 3%-9%.
  • Running Inflation is when prices rise rapidly at a rate of 10%-20% per annum.
  • Galloping Inflation is very high inflation, running in the double or triple digits (20%, 100%, 200% in a year).
  • Hyperinflation is large and accelerating inflation, potentially in millions or trillions annually.
  • Credit inflation occurs when banks are liberal in lending credit, increasing money supply.
  • Currency inflation is caused by the excess supply of money in circulation, often through printing notes.
  • Deficit induced inflation is caused by deficit budgets financed through printing currency.
  • Tax induced inflation results from an increase in indirect taxes.
  • Scarcity induced inflation happens due to a fall in production or hoarding and black marketing.
  • Profit induced inflation occurs when firms aim for higher profits and fix prices with a higher margin.
• Effects of Inflation:
• Increases employment in the short-run.
• Gives an economy the advantage of lower imports and import substitution as foreign goods become costlier.
• A high rate of inflation hits the export industry by raising production costs, making exports less competitive.
•  Fixed-income groups are the worst hit during inflation. During inflation, debtors are gainers, and creditors are losers. The currency with the higher inflation rate loses value and depreciates.

• Measures to control inflation include Monetary Measures, Fiscal Measures, and Other Measures (like increasing production, wage and price controls).
• Monetary policy is helpful in controlling inflation due to demand-pull factors. Direct tax helps in controlling inflation.
• Deflation is characterized by falling prices, reduced money supply and unemployment.
• Stagflation is a combination of stagnant economic growth, high unemployment and high inflation.
• Disinflation is the slowing down the rate of inflation by controlling credit without causing unemployment.

Chapter 7: Business Cycles

• The study of periodic ups and downs in economic activity is called the study of Business cycle or Trade cycle or Industrial Fluctuation.
• The four phases of the business cycle are Boom, Recession, Depression, and Recovery.
• Boom is a strong upward fluctuation in economic activities, characterized by full employment or beyond.
• Recession is the turning point from boom conditions, with reduced investment, production, income, and profits.
• Depression is the phase where the level of economic activity becomes extremely low, with losses, business closures, and unemployment. The extreme point of depression is called “trough”.
• Keynes advocated autonomous investment of the government to help the economy recover from depression.
• Recovery is the turning point from depression towards an upswing.

Chapter 8: Economic Planning and NITI Aayog

• Economic planning is a process to achieve desired targets of economic development within a specified period.
• Early Attempts at Planning in India:
  • Sir M. Vishveshwarya made the first attempt through his book, “Planned Economy of India” (1934).
  • Jawaharlal Nehru set up the “National Planning Commission” in 1938.
  • The “Bombay Plan” (1940) was a 15 Year Investment Plan presented by 8 leading industrialists.
  • S. N Agarwal gave the “Gandhian Plan” (1944) focusing on agriculture and rural economy.
  • M.N. Roy drafted ‘People’s Plan” (1945) aiming at mechanization of agricultural production and distribution by the state.
  • J.P. Narayan advocated the “Sarvodaya Plan” (1950) inspired by Gandhian Plan, giving importance to agriculture and small industries.
• The Planning Commission was set up on March 15, 1950, to formulate Five Year Plans.
• Jawaharlal Nehru was the first Chairman of Planning Commission.
• The concept of economic planning or five year plan in India is derived from Russia.
• India has launched 12 five year plans so far; the twelfth was the last one.
• Specific Five Year Plans:
  • The First Five Year Plan (1951-1956) was based on the Harrod-Domar Model and focused on agricultural development.
  • The Second Five Year Plan (1956-1961) was based on the P.C. Mahalanobis Model and focused on industrial development.
  • Third Five Year Plan (1961-1966) is also called ‘Gadgil Yojna’. The main target was to make the economy independent and reach self-propelled position.
  • Plan Holiday or Three Annual Plans occurred between 1966-1969 due to the Indo-Pakistan war & failure of the third plan.
  • The Fourth Five Year Plan (1969-1974) objectives were growth with stability and progressive achievement of self-reliance.
  • The objective of self-reliance and zero net foreign aid was declared in the Fourth Five year plan.
  • The Fifth Five Year Plan (1974-1979) gave top priority to agriculture, then industry and mines, focusing on poverty alleviation and self-reliance.
  • The Twenty Point Programme (TPP) was launched in 1975 during the Fifth Plan.
  • The Fifth Plan was terminated by the Janata party government in 1978.
  • The plan period 1978-1980 is called the Rolling plan.
  • The Sixth Five Year Plan (1980-1985) had the slogan of ‘Garibi Hatao’ and focused on poverty eradication and technological self-reliance.
  • The Seventh Five year Plan(1985-1990), aimed to accelerate food production ,increase employment and enhance productivity.
  • Two Annual Plans (1990-1992) were formulated due to the volatile political situation before the Eighth Plan.
  • In the Eighth Five Year Plan (1992-1997), top priority was given to development of human resources (employment, education, public health).
  •  During the Eighth Plan, New Economic Policy of India was introduced.
  • The Ninth Five Year Plan (1997-2002) focus was “growth with justice and equity”, giving priority to Agriculture and Rural Development.
  • The Tenth Five Year Plan (2002-2007) aimed to double the per capita income of India in 10 years and reduce the poverty ratio to 15% by 2012.
  • The Eleventh Five Year Plan (2007-2012) emphasized ‘faster and more inclusive growth’.
  • The Twelfth Five Year Plan (2012-2017) theme is “Faster, More Inclusive and Sustainable Growth”.
  • The Thirteenth Five Year Plan (2017-2022)was not implemented .
  • The Five Year Plan has been replaced by NITI Aayog in 2017.
• NITI Aayog (National Institution for Transforming India) was formed on January 1, 2015, as a policy think-tank replacing Planning Commission.
• The Planning Commission was replaced by the NITI Aayog on 1st January 2015.
• The Prime Minister is the Chairperson of NITI Aayog.
• The Vice-Chairperson is the functional head of NITI Aayog.
• The first Vice Chairman of NITI Aayog was Arvind Panangariya.
• NITI Aayog promotes Cooperative and Competitive Federalism. NITI Aayog aims to restructure the planning process into a bottom-up model.

Chapter 9: Taxation and Public Finance

• Taxation:
  • Tax is a compulsory payment by the citizens to the government. According to modern economics, tax is a mode of income redistribution.
  • Article 256 of the Constitution of India states that “No tax shall be levied or collected except by the authority of law”.
  • The tax structure in India is levied and collected by the Central Government, State Governments, and local authorities.
  • Direct tax is levied on person’s income and wealth and paid directly to the government (e.g., Income tax, Corporate tax). The burden of direct tax cannot be shifted. Direct taxes are progressive in nature.
  • Indirect Tax is levied on a person who consumes goods and services and paid indirectly to the government (e.g., Sales Tax, GST, Customs Duty).
  • The burden of indirect tax can be easily shifted. Indirect taxes are levied on all persons equally whether rich or poor.
  • Progressive taxation imposes a lower tax rate on lower income earners and a higher rate on higher income earners.
  • Indian income tax is Direct and progressive. Indian income tax is a typical example of Progressive tax.
  • Regressive taxation applies uniformly but takes a larger percentage of income from low-income earners.
  • Proportional taxation (flat tax) assesses the same tax rate on everyone regardless of income or wealth. Sales tax is an example of proportional tax.
  • Major Central Taxes include Income Tax, CGST, IGST, Customs Duty, Corporate tax, Gift Tax.
  • Major State Taxes include SGST, Stamp Duty & Registration, Professional tax.
  • Local Bodies Taxes include Property tax and Water tax.
  • The plans and policies of Direct Taxes are recommended by the Central Board of Direct Taxes (CBDT).
  • Taxes imposed on commodities harmful to health (e.g., tobacco, liquor) are known as sin taxes.
  • GST (Goods and Service Tax) is an Indirect Tax which replaced many Indirect Taxes in India.
  • The Goods and Service Tax Act was passed on 29th March 2017 and came into effect on 1st July 2017.
  • The motto of GST is one nation, one market, one tax.
  • GST is a comprehensive, multistage, destination-based tax. GST is levied on every value addition. Components of GST are CGST (Central), SGST (State), and IGST (Integrated for inter-state sale).
  • GST is applicable on all goods and services except alcoholic liquor for human consumption and petroleum products.
  • France was the first country to implement the GST in 1954.
• Public finance is a study of the financial aspects of Government, dealing with government revenue and expenditure.
• The budget is an annual financial statement showing the estimated income and expenditure of the Government.
• The Union Budget is submitted under Article 112,
• The State Budget under Article 202 of the Indian Constitution.
• Union Budget of India is presented by the Finance Minister in Lok Sabha.
• Gender Budget Statement (GBS) was first introduced in the Indian Budget in 2005-06.
• Economic survey is prepared by the Ministry of Finance.
• A budget can be presented as Revenue Budget (revenue receipts and expenditure) and Capital Budget (capital receipts and expenditure).
• Revenue receipts do not lead to a claim on the government and are non-redeemable (e.g., taxes, interest receipts, dividends, grants).
• Revenue Expenditure is incurred for purposes other than creating government assets (e.g., salaries, pensions, subsidies, interest payments).
• Capital receipts create liability or reduce financial assets (e.g., loans, sale of assets like PSU disinvestment, provident fund).
• Capital Expenditure results in creation of physical or financial assets or reduction in financial liabilities (e.g., expenditure on land, building, machinery, investments, loans by government).
• A substantial increase in capital expenditure or revenue deficit leads to Fiscal Deficit.
• A balanced budget is when government’s estimated revenue equals proposed expenditure.
• A surplus budget is when estimated revenues are greater than anticipated expenditures.
• A deficit budget is when estimated government expenditure is more than expected revenue.
• Budget deficit occurs when a government spends more than it collects by way of revenue.
• Budget deficit is the difference between total expenditure and total revenue.
• Revenue deficit is the excess of government’s revenue expenditure over revenue receipts.
• Fiscal deficit is the difference between the government’s total expenditure and its total receipts excluding borrowing.
• Primary deficit is equal to fiscal deficit minus interest payments.
• Fiscal policy is the policy of the government regarding the level of government purchases, transfers, and the tax structure.
• Fiscal Policy instruments are Government expenditure, taxation, and borrowing (public debt).
• Fiscal policy is formulated by the Ministry of Finance in India.
• Finance commission is a quasijudicial body set up under Article 280 of the Indian Constitution.
• A Finance Commission is set up once in every 5 years. The 15th Finance Commission Chairman is N. K. Singh.

Chapter 10: External Sector

• The External sector includes all economic activities in foreign currency (export, import, foreign investment, BoP etc.).
• The Balance of Payments (BoP) records transactions in goods, services and assets between residents of a country and the rest of the world.
• There are two main accounts in BoP: Current account and Capital account.
• Current Account records trade in goods and services and transfer payments.
• Balance of Trade (BOT) is the difference between the value of exports and imports of goods.
• Trade surplus arises if a country exports more goods than it imports.
• Trade deficit arises if a country imports more goods than it exports.
• Balance on Invisibles is the difference between export and import value of invisibles (services, transfers, income flows).
• Capital Account records all international transactions of assets.
• An asset is any form in which wealth can be held (money, stocks, bonds, debt).
• Favorable BoP is when receipts exceed payments, Unfavorable BoP is when receipts are less than payments.
• FOREX is the system of converting one national currency into another.
•  FOREX Reserves are an economy’s foreign currency assets, gold reserves, SDRs, and Reserve Tranche Position in the IMF.
• The foreign exchange market is where national currencies are traded. The price of one currency in terms of another is the foreign exchange rate or exchange rate.
• Fixed exchange rate system keeps currencies at a fixed rate determined by the government.
• Flexible exchange rate system determines exchange rates freely by market forces of demand and supply.
• India follows a Managed Floating Exchange Rate system.
• Inflation and exchange rates are inversely related. A deficit in the current account lowers a country’s exchange rate due to excess demand for foreign currency.
• Appreciation means an increase in the value of a currency against other foreign currency.
• Depreciation is when domestic currency loses value against a foreign currency due to market forces in a floating exchange rate system.
• Devaluation is an official reduction in the value of a domestic currency by its government against any foreign currency.
• Revaluation is a government increasing the exchange rate of its currency against any foreign currency (official appreciation).
• Soft currency is a currency easily available in an economy’s FOREX market (e.g., Rupee in India).
• Hard currency (safe-haven/strong currency) is a globally traded currency that serves as a reliable and stable store of value (e.g., US Dollar, Euro, Yen, Pound).
• Cheap currency (cheap money) refers to money flowing into the economy when the government repurchases bonds or a period of lower interest rates.
• Hot currency is a temporary name for any hard currency exiting an economy at a fast pace.
• Heated currency (currency under heat/hammering) denotes a domestic currency under pressure of depreciation due to hard currency exiting.
• Dear currency (dear money) refers to money flowing from the public to the government when bonds are issued or a period of higher interest rates.
• Brent Index is associated with the price levels of light Crude oil.

Chapter 11: Foreign Investment

• Foreign Direct Investment (FDI) is an investment in a foreign country involving control and participation in management. FDI is different from portfolio investment, which is primarily motivated by short term profit and does not seek management control.
• Foreign Portfolio Investment (FPI) is the entry of funds into a nation’s bank deposits, stock, or bond markets.
• Foreign Institutional Investment (FII) is investment in hedge funds, insurance companies, pension funds, and mutual funds.
• FDI in India is allowed under Automatic Route, not requiring prior government/RBI approval.
• Sectors prohibited for FDI in India include Lottery Business, Gambling and betting, Chit fund, Nidhi Company, Trading in transferable development rights (TDRs), and Atomic Energy.

Chapter 12: Development Indicators and Schemes

• Human Development Index (HDI) is published annually by the United Nations Development Programme (UNDP).
• HDI was developed by Pakistani Economist Mahbub ul Haq and Indian Economist Amartya Sen in 1990.
• HDI is constructed based on Life Expectancy Index, Education Index, and GDP Per Capita.
• The three indicators for HDI are longevity (life expectancy), educational attainment, and standard of living (real GDP per capita).
• As per the 2023 Human Development Report, India was ranked 130th out of 193 countries and is in the Medium Human Development bracket.
• Top three countries in HDI (2019) were Norway, Switzerland, and Ireland.
• In the Gender Inequality Index (GII), India is ranked 122 out of 162 countries.
• Government schemes for financial inclusion include Pradhan Mantri Jan Dhan Yojna (PMJDY) and RuPay Card.
• Pradhan Mantri Jan-Dhan Yojana (PMJDY) was launched on 28 August 2014 to achieve financial inclusion.
• Government schemes for employment generation include PMEGP, MGNREGS, DDU-GKY, and DAY-NULM.
• Poverty is a condition where basic needs (food, clothing, shelter) are not met.
•  Income inequality is a major determinant of poverty.

Chapter 13: Other Economic Concepts

• Economic Growth is measured by Gross Domestic Product.
• SEZ (Special Economic Zone) is an area with different business/trade laws aiming at increasing trade, investment, and job creation.
• Globalization stands for the consolidation of various economies of the world.
• Unemployment is when people willing and able to work cannot find suitable jobs.
• Open Unemployment is when unemployed persons are identified as remaining without work.
• Seasonal Unemployment occurs only in a particular season. Software industry is not affected by seasonal unemployment.
• Full employment is when all persons willing and able to work have employment.
• Liberalization refers to relaxation of government restriction in social and economic policies.
• Value is the power of a commodity to command other commodities in exchange. Price is the value of a commodity expressed in terms of money.
• Consumption is the use of goods and services for satisfying wants.
• Monopsony is an economic condition when there is one buyer and many sellers.
• An increase in price will decrease consumer surplus.
• When output is zero, the variable cost is zero.
• The Khadi and village Industries Commission Act was passed in 1956.
• The Micro, Small and Medium Enterprises Development Act was passed in 2006.
• ‘Capital and growth’ was written by John Richard Hicks.
• GATT was the earlier name of the WTO.
• A Golden Handshake Scheme is associated with voluntary retirement.
• The International Monetary Fund (IMF) is an organization of 189 countries.
• The symbol of the Indian rupee was prepared by Udaya Kumar.