Indian Economy
Syllabus
Indian Economy tests basic concepts, national income, inflation, money and banking, public finance, budget, taxation, agriculture, industry, services, poverty and schemes. AP-specific economy includes agriculture, aquaculture, horticulture, textiles, ports and industrial corridors.
Core rules
- GDP measures output produced within a country's borders; GNP measures income of residents, including net factor income from abroad.
- Real GDP is adjusted for inflation; nominal GDP is at current prices.
- Inflation reduces purchasing power; the RBI uses repo rate, reverse repo, CRR and open market operations to manage liquidity.
- Direct taxes are paid directly by the taxpayer (income tax); indirect taxes are levied on goods and services (GST).
- Fiscal policy uses government spending and taxation; monetary policy is the RBI's domain.
Worked example
Nominal GDP grows 10% and prices rise 6%. Approximate real growth is about 4%. Using the relationship real growth ≈ nominal growth − inflation gives 4%. More precisely, real growth = (1.10/1.06) − 1 ≈ 3.8%. The reasoning is that part of the nominal increase is merely a price effect; real output has risen by less.
Traps
- Treating GDP and GNP as identical.
- Mixing repo and reverse repo: repo is the rate at which banks borrow from the RBI.
- Calling GST a direct tax.
- Confusing the Union Budget with a State Budget.
- Assuming all AP growth comes from agriculture; services and industry matter too.
For AP, remember aquaculture and horticulture are major allied activities.