Revision Notes on Indian Economy for Competitive Exams in 2025

Revision Notes on Indian Economy for Competitive Exams in 2025.

Indian Economy- Set I

Chapter 1: Basic Economic Concepts and Systems

• The term economy is defined by A. J. Brown as, “A system by which people earn their living”.
• J. R. Hicks defined an economy as, “A cooperation of producers and workers to make goods and services that satisfy the wants of the consumers”.
• Economics is classified into two branches: Micro Economics and Macro Economics.
• The terms ‘micro economics’ and ‘macro economics’ were first used in economics by Norwegian economist Ragner Frisch in 1933.
• John Maynard Keynes is considered the father of macroeconomics.
• Macro-economics studies the behavior and performance of an economy as a whole. It is the study of aggregates such as national output, inflation, unemployment and taxes.
• Micro Economics is the study of the economic actions of individual units like households, firms or industries.
• Microeconomics is also called Price theory.
• Adam Smith is the ‘Father of Capitalism’.
• A Capitalistic economy is also termed as a free economy or market economy, where the role of the government is minimum.
• In a capitalistic economy, the means of production are privately owned. Examples of capitalistic economies include the USA, Germany, Australia and Japan.
• Hire and Fire is a policy of capitalist economy.
• The Father of Socialism is Karl Marx. A Socialist economy is also known as ‘Planned Economy’ or ‘Command Economy’. In a socialist economy, all the resources are owned and operated by the government. Public welfare is the main motive behind all economic activities in a socialist economy.
• In a mixed economy system, both private and public sectors co-exist and work together. Examples of mixed economy include India, England, France and Brazil.
• A closed economy is one that has no trading activity with outside economies.

Chapter 2: National Income Accounting

• National Income provides a comprehensive measure of the economic activities of a nation. National Income means ‘The total money value of all final goods and services produced in a country during a particular period of time’.
• Gross Domestic Product (GDP) is the value of the all final goods and services produced within the boundary of a nation during a year period.
• India’s GDP is 3rd largest in the world in terms of purchasing power parity(PPP).
•  GDP is an indicator of the financial health of a country.
• Net Domestic Product (NDP) is the GDP calculated after adjusting the weight of the value of ‘depreciation’. NDP = GDP – Depreciation.
• NDP of an economy has to be always lower than its GDP for the same year.
• Gross National Product (GNP) is the total measure of the flow of final goods and services at market value resulting from current production in a country during a year, including net income from abroad. GNP = GDP + Income from Abroad.
• In India’s case, Income from Abroad has always been negative.
• India’s GNP is always lower than its GDP.
• Net National Product (NNP) of an economy is the GNP after deducting the loss due to ‘depreciation’. NNP is considered the purest form of the income of a nation. NNP at factor cost is the total of income payment made to factors of production.
• Personal income is the total income received by the individuals of a country from all sources before payment of direct taxes in a year.
• Disposable Income is also known as Disposable personal income. Disposable Income = Personal income – Direct Tax.
• The average income of a person of a country in a particular year is called Per Capita Income. Per Capita income = National Income/ Population.
• Real income is the income of individuals or nations after adjusting for inflation.
• The GDP deflator is an index of price changes of goods and services included in GDP. GDP deflator = Nominal GDP/ Real GDP x 100.
• Gross value added (GVA) is the measure of the value of goods and services produced in an area, industry or sector of an economy.
• India officially used to calculate its national income at factor cost, but since January 2015, the CSO has switched over to calculating national income at market cost.
• The new GDP series calculates GDP based on Market price.
• The national income estimation is the responsibility of the Central Statistical Organisation (CSO).
• Purchasing Price Parity (PPP) is an economic theory that estimates the amount that needs to be adjusted to the price of an item.
• India is the third-largest economy in terms of Purchasing Price Parity (PPP).
• India is the world’s fifth-largest economy by nominal GDP and the third-largest by purchasing power parity (PPP).

Chapter 3: Economic Sectors

• Economic activities are broadly divided into three main sectors: Primary, Secondary, and Tertiary.
• The Primary Sector includes activities exploiting natural resources, such as agriculture, mining, and oil exploration.
• The Secondary Sector includes activities where raw materials from the primary sector are processed (also called industrial sector).
• The Tertiary Sector includes activities where services are produced, such as education, healthcare, banking, and communication (also called service sector).
• When the agriculture sector contributes at least half of the national income and livelihood, it is called an agrarian economy.
• When the secondary sector contributes at least half of the national income and livelihood, it is called an industrial economy.
• When the tertiary sector contributes at least half of the national income and livelihood, it is called a service economy.
• Current Indian GDP composition is approximately: Agriculture (16.5%), Industry (29.01%) and Services (53.09%).
• From the livelihood point of view, still 48.7 per cent of the people of India depend on the agriculture sector. Agriculture is the biggest unorganized sector of the economy.

Chapter 4: Banking and Financial System

• The Reserve Bank of India (RBI) was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934.
• The central banking functions in India are performed by the Reserve Bank of India.
• The Central Office of the Reserve Bank’s Headquarter moved from Calcutta to Mumbai in 1937.
• Osborne Smith was the first Governor of Reserve Bank of India.
• RBI was Nationalised on 1 January 1949.
• The only Prime Minister who was the Governor of RBI was Manmohan Singh.
• The Reserve bank is referred to by the name ‘Mint Street’.
• RBI Functions:
• Controls the supply of money in the economy to stabilize exchange rate, control inflation, etc..
• RBI is the sole authority to issue currency (Except one rupee notes and coins issued by Ministry of Finance).
• As per Section 22 of the Banking Regulation Act, 1949, every bank needs a banking license from RBI.
• RBI is the bank of all banks in India and acts as banker to the central and the state governments.
• RBI acts as the lender of last resort for banks.
• RBI acts as a custodian of foreign exchange reserves.
• The Payment and Settlement Systems Act of 2007 (PSS Act) gives RBI oversight authority for payment and settlement systems.
• RBI introduced the Banking Ombudsman Scheme in 1995.
• RBI set up developmental banks like IDBI, SIDBI, NABARD, NEDB, Exim Bank, NHB.
• Monetary policy is laid down by the Central Bank towards the management of money supply and interest rate.
• The Monetary Policy Committee (MPC) determines the policy interest rate required to achieve the inflation target.
• The interest rate which the RBI charges on its long-term lendings is known as the Bank Rate.
• In Open Market Operations, the Central Bank purchases and sells Government securities.
• Cash reserve Ratio (CRR) is the amount of Cash that the banks have to keep with RBI.
• Statutory Liquidity Ratio (SLR) is the amount which a bank has to maintain in the form of cash, gold or approved securities.
• Repo rate is the rate at which the central bank lends money to commercial banks. The rate at which the RBI is willing to borrow from the commercial banks is called reverse repo rate.
• Repo Rate is always greater than Reverse Repo Rate in India.
• The call money market is where borrowing and lending of funds take place on over night basis. Money lent for one day is call money, if it exceeds one day, it is notice money (2-14 days).
• The RBI decided to shift its financial year to April- March from 2020-21 (from July-June).
• The first bank of India was Bank of Hindustan (1770).
• 14 major commercial banks were nationalized on 19 July 1969, and another 6 in 1980. The main objective of nationalization was to attain social welfare and curb private monopolies.
• Nationalisation is transforming private assets ownership into government ownership.
• Commercial banks deal with deposit and loan services for corporations and businesses.
• Commercial banks accept Demand Deposits (withdrawn anytime) and Time Deposits (withdrawn after a specific period).
• Commercial banks grant loans in the form of overdraft, cash credit, and discounting bills of exchange.
• Commercial banks act as agents by collecting cheques, income, and paying expenses for customers.
• Commercial banks provide services like transferring funds, issuing letters of credit, underwriting securities, and electronic banking.
• Commercial banks also help in providing foreign exchange and locker facilities.
•  Commercial banks help in increasing money supply and are involved in Credit Creation.
• Credit Creation means the multiplication of loans and advances by commercial banks.
• The Regional Rural Banks (RRBs) were first set up on 2 October, 1975.
• RRBs were established based on the recommendations of Narsimham Committee working group.
• The share capital of RRBs is contributed by the Government of India (50%), concerned state government (15%), and sponsoring nationalised bank (35%).
• First RRB was Prathama Grameen Bank.
• RRBs have to provide 75 per cent of their total credit under Priority Sector Lending (PSL).
• NABARD has the responsibility to inspect RRBs and co-operative banks (except primary societies).
• Small banks and payment banks are ‘niche’ or ‘differentiated’ banks aiming for financial inclusion.
• Small finance banks accept deposits and lend to sections not served by other banks.
• Payments Banks accept demand deposits (up to ₹1 lakh initially) and provide payment/remittance services, but are not allowed credit lending.
• Payments Banks Formation was based on Nachiket Mor Committee recommendations.
• Banks in India are broadly classified under commercial banks and co-operative banks. Rural Cooperative Banks operate with a three-tier system: State Cooperative Banks, District Central Cooperative Banks, and Primary Agricultural Credit Societies.
• Pradhan Mantri MUDRA Yojana (PMMY) was launched on April 8, 2015, for providing loans to non-corporate, non-farm small/micro-enterprises.
• MUDRA loans are categorized into Shishu (up to ₹50,000), Kishor (₹50,000 to ₹5 lakh), and Tarun (₹5 lakh to ₹10 lakh).
• MUDRA scheme refinances collateral-free loans.
• A non-bank financial company (NBFC) is a financial institution without a full banking license or not supervised by the central bank. NBFCs cannot have demand deposits like current and saving accounts.
• NABARD was established on the recommendation of B. Sivaramman Committee on 12 July 1982.
• NABARD took over the functions of ARDC and RBI’s refinancing functions for co-operative banks and RRBs.
• On July 12, 1982, the ARDC was merged into NABARD.
• NABARD acts as a refinancing institution for agriculture and rural development.
• Small Industries Development Bank of India (SIDBI) was set up on April 2, 1990.
• Export-Import bank of India was established in 1982.
• RTGS full form is Real Time Gross Settlement.
• DD is called a banker cheque.
• Balance Sheet shows assets and liabilities.

Chapter 5: Money and Monetary Concepts

• Monetary Economics is a branch of economics analyzing money and its functions.
• Money is anything generally accepted as payment for goods, services, and debts, serving as a medium of exchange.
• Before money, exchange took place by Barter, where commodities and services were directly exchanged.
• Barter system was introduced by Mesopotamia tribes.
• Under the metallic standard, metal (gold or silver) is used to determine the standard value, with face value equal to intrinsic value.
• Gold Standard is a system where the value of the monetary unit is directly linked with gold.
• Paper currency standard is a system where paper currency notes circulate as unlimited legal tender, with value determined independent of gold.
• Plastic money includes cash cards, credit cards, debit cards, etc..
• Crypto Currency is a digital currency using encryption, operating independently of a Central Bank (Example: Bitcoin).
• Barren Money is money that is not earning any interest or invested.
• Fiat money is declared legal tender by a country’s government and is not backed by a physical commodity.
• Money supply means the total amount of money in circulation in an economy at any given time.
• In India, currency notes are issued by RBI, and coins are issued by the Ministry of Finance.
• One Rupee note bears the signature of the Finance Secretary of India.
• Short-term finance is usually for a period ranging up to 12 months.