Indian Economy and Development
Indian Economy and Development tests basic concepts, sectors, planning, banking, inflation, public finance and welfare schemes. The exam favours definitions, policy instruments and current development indicators over advanced theory.
Core rules
- National income: GDP is output within borders; GNP adds net factor income from abroad.
- Sectors: primary (agriculture, mining), secondary (manufacturing), tertiary (services).
- Planning: Five-Year Plans ran from 1951 to 2017; NITI Aayog replaced the Planning Commission in 2015.
- Banking: RBI regulates money supply; repo is the rate at which it lends to banks; reverse repo absorbs liquidity.
- Inflation: demand-pull versus cost-push; monetary policy is RBI's tool, fiscal policy is the government's budget tool.
- Reforms: GST under the 101st Amendment, implemented on 1 July 2017; GST Council under Article 279A.
Worked example
If the RBI raises the repo rate, what is the likely effect on inflation? Borrowing becomes costlier, credit growth slows and demand pressures ease, so inflation tends to moderate. Reasoning: trace the chain from policy rate to borrowing cost to spending, not just the first step.
Traps
- Confusing repo with reverse repo.
- Treating fiscal policy as an RBI function.
- Using GDP and GNP interchangeably.
- Assuming every scheme is centrally sponsored.
- Forgetting that GST is a destination-based indirect tax.