Indian Economy Basics – 60-Minute Quick Revision
Indian Economy Basics – Quick Revision
Key Points (One-Liners)
- GDP = total market value of all final goods & services produced within India in a year.
- GNP = GDP + Net income from abroad (Indians’ income abroad – foreigners’ income in India).
- Base year for GDP calculation – 2011-12 (presently); shift to 2017-18 under process.
- NITI Aayog replaced Planning Commission on 1 Jan 2015; no Five-Year Plans after 2017.
- Finance Commission (Art. 280) recommends sharing of Union taxes with States (15th FC: 2021-26).
- Revenue Deficit = Revenue expenditure – Revenue receipts; Fiscal Deficit = Total expenditure – (Revenue receipts + non-debt capital receipts).
- Primary Deficit = Fiscal Deficit – Interest payments.
- Inflation target (RBI + Govt.) = 4 % ± 2 %; measured mainly by CPI-C (Consumer Price Index – Combined).
- Repo rate – rate at which RBI lends short-term to banks; Reverse repo – RBI absorbs liquidity.
- SLR – % of NDTL to be kept in liquid assets; CRR – % of NDTL kept as cash with RBI (no interest).
- Priority-sector lending – 40 % of Adjusted Net Bank Credit (ANBC) for domestic banks.
- SEBI (1992) – capital market regulator; IRDAI (1999) – insurance regulator; PFRDA (2003) – pension regulator.
- GST rolled out 1 July 2017; 4-rate structure 5-12-18-28 % (+ 0 % & cess).
- FDI cap – 100 % in railways, 74 % in insurance, 49 % in banking (private).
- MSME definition (2020) – Micro: ₹1 cr turnover; Small: ₹10 cr; Medium: ₹50 cr.
- e-RUPI – 2 Aug 2021, NPCI launched voucher-based, person-specific digital payment.
- Atmanirbhar Bharat – 5 pillars: Economy, Infrastructure, System, Demography, Demand.
- PM-KISAN – ₹6,000/year in 3 instalments to land-holding farmers (₹2,000 each).
- MPLADS – MP Local Area Development Scheme (₹5 cr/yr/MP); Gram Sabha is the cornerstone of Panchayati Raj (73rd CAA).
- India became 5th-largest economy (nominal GDP) in 2019; 3rd-largest in PPP (IMF 2023).
Important Formulas/Rules
| Formula/Rule | Application |
|---|---|
| GDP at market prices = GDP at factor cost + Indirect taxes – Subsidies | Convert factor-cost GDP to market-price GDP |
| GNP = GDP + Net factor income from abroad | Compare domestic vs national income |
| Per-capita income = National Income ÷ Mid-year population | Standard-of-living indicator |
| Revenue Deficit = Revenue exp. – Revenue receipts | Measure of current-account imbalance |
| Fiscal Deficit = Total exp. – (Revenue receipts + Recoveries of loans + Other capital receipts) | Borrowing requirement of Govt. |
| Primary Deficit = Fiscal Deficit – Interest payments | Borrowing excluding legacy interest |
| Inflation rate = [(CPI₂ – CPI₁) ÷ CPI₁] × 100 | YoY price-rise calculation |
| Dearness Allowance (DA %) = [(Avg CPI of past 12 months – Base CPI) ÷ Base CPI] × 100 | Salary/pension adjustment |
| Credit creation multiplier = 1 ÷ (CRR + SLR) | Approx. money multiplier of banks |
| GST Compensation = (Projected Revenue – Actual Revenue) × 5 yrs | To states for revenue loss |
Memory Tricks
- GGN – GDP → GNP: add Net income from abroad.
- FRI – Fiscal, Primary, Revenue deficits: Full → Remove Interest → Primary.
- 4-5-6 – Inflation target 4 %, ±2 % → remember 4-5-6 (4 centre, 5-6 edges).
- CRR-SLR – “Cash is CRR, Savings+Bonds is SLR”.
- GST slab rhyme – “5 survive, 12 delve, 18 date, 28 great”.
Common Mistakes
| Mistake | Correct Approach |
|---|---|
| Confusing GNP with GDP | GNP includes Indian incomes abroad; GDP is domestic only |
| Treating disinvestment as revenue receipt | It is a capital receipt, not revenue |
| Adding interest to Fiscal Deficit for Primary Deficit | Subtract interest: Primary = Fiscal – Interest |
| Using WPI for consumer inflation | Use CPI-C for RBI’s inflation targeting |
| Forgetting SLR securities earn interest | CRR balance earns zero interest; SLR assets earn interest |
Last-Minute Tips
- Scan tables: GDP growth, inflation, repo-rate trends of last 3 years – 1 direct Q almost sure.
- Acronyms first: SEBI, IRDAI, PFRDA, NPCI – know full-forms & 1-line mandate.
- Deficit order: Revenue ≥ Fiscal ≥ Primary (Primary can be negative); keep numerical example ready.
- GST Council = Union + States; decisions need 3/4 majority with Centre having 1/3 weight – possible Q.
- Eliminate extremes: in options, 0 % & 100 % are rarely correct for SLR/CRR; current SLR 18 %, CRR 4.5 %.
Quick Practice (5 MCQs)
Q1. Which of the following is NOT included while calculating GDP at market prices?
A) Value of final goods
B) Indirect taxes
C) Subsidies
D) Second-hand car sale commission → Ans: D (Transfer/used good)
Q2. If CRR is 4 % and SLR is 18 %, approximate credit-creation multiplier is:
A) 25
B) 5
C) 4.5
D) 20 → Ans: B (1 ÷ 0.22 ≈ 4.5 ≈ 5 among nearest options)
Q3. The 15th Finance Commission recommended vertical devolution of divisible pool to States at:
A) 32 %
B) 41 %
C) 42 %
D) 45 % → Ans: B
Q4. Primary deficit can be negative when:
A) Revenue deficit is zero
B) Fiscal deficit < Interest payments
C) Fiscal deficit > Interest payments
D) Capital receipts exceed capital expenditure → Ans: B
Q5. India’s present inflation target band (2021-26) is:
A) 3 % ± 1 %
B) 4 % ± 2 %
C) 5 % ± 1 %
D) 6 % with upper tolerance 2 % → Ans: B
BETA
