Economics and Indian Economy
Economics and Indian Economy covers basic concepts, national income, money and banking, inflation, government budget, sectors of the economy and Kerala's economic features. The exam often tests definitions and policy tools rather than complex theory.
Core rules
- GDP is the market value of final goods and services produced within a country in a year; GNP adds net factor income from abroad.
- Nominal GDP uses current prices; real GDP uses constant prices and adjusts for inflation.
- RBI monetary policy: repo rate is the rate at which RBI lends to banks; reverse repo absorbs liquidity; CRR and SLR are reserve requirements.
- Fiscal policy uses government spending and taxation; fiscal deficit = total expenditure − total receipts excluding borrowings.
- Sectors: primary (agriculture), secondary (industry), tertiary (services). India's economy is services-heavy.
- Kerala: high human development, dependence on remittances, tourism, spices and marine products; low industrial base relative to services.
Worked example
If nominal GDP grows 10% and prices rise 6%, real growth is approximately 4%. Reasoning: real growth ≈ nominal growth − inflation for small rates. Exact calculation would divide the nominal index by the price index, but the approximation is enough for objective questions.
Traps
Repo rate is not the rate banks charge customers. GDP counts domestic production; GNP counts income of residents. Do not treat CRR and SLR as the same; CRR is cash with RBI, SLR is liquid assets held by banks. Inflation hurts fixed-income earners but may help borrowers.