Select Aspects of Indian Economy_2

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Common Proficiency Test (CPT)

Subject

ECONOMICS

Topic:

Chapter 6: Select Aspects of Indian Economy

(Unit 4 to Unit 8)Terms & Conditions

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Praveen BalduasSmartNotes ECONOMICS CACPT

Prepared by: Praveen Baldua www.pravinsir.com/www.freecsnotes.com Page 1

CHAPTER 6 UNIT 4

INFRASTRUCTURAL CHALLENGES

4.0] ENERGY:INTODUCTION EXPLANATION

1 Important of economic

development

Economic growth & Demand of energy have Direct relationship (PositivelyCo

related) For e.g. Study shows a 3% rise in Industrial production in the world is

accompanied by a 2% increased in energy consumption.

2 Indias position in the

world

Worlds 7th largest energy producer (Producing 2.79% of worlds totaenergy)

Worlds 5th largest energy consumer (Consuming 3.45% worlds totaenergy)

Per capita energy consumption is one of lowest in the world.3 Source of energy in India ( Non commercial (Traditional) energy.

It contributes 27% of total energy consumption in India. Firewood, Dung cakes & Biogas Agriculture wastes are the main types o

Non commercial energy( Commercial energy

It contributed 73% of total energy consumption in India Types of commercial energy

1) Thermal electricity (Resource Oil, Gas & coal)2) Hydro electricity (Resource Water)3) Atomic energy (Resource Radio active element like uranium, Thorium

& plutonium)

4) Wind energy (ResourceWind / Air)5) Solar Energy (ResourceSun)

DEFFRENCE BETWEEN

MAJOR USERS OF COMMERCIAL ENERGY

USERS SHARE IN TOTAL ENERGY PRODUCTION (%)

Industry 38%Domestic 24%

Agriculture 22%

Commercial establishment 9%

4.0.0] ELECTRICITY: Total installed capacity of generating power in India is 175000mw in 200809, i.e. over a period of 58 years

from 195051 there has been 75 times increase in installed capacity.

Thus roughly we are adding 40005000mw every year.

Primary Energy Resource Final Energy Resource

When any resources consumed indirectly byIndustry are called primary energy resource.

When any Resources Consumed Directly byIndustry is called final energy Resources.

For e.g. Coal Electricity IndustryIndirect consumption

For e.g. Electricity IndustryDirect Consumed

Note: Electricity always final energy Resource

BUT

Coal, Petroleum products & Natural gas are both primary as well as final energy resources.


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4.0.1] SOURCES OF ELECTRICITY: Present capacity & actual contribution of diff sources

SOURCE % IN TOTAL INSTALLEDCAPACITY

% ACTUAL

PRODUCTION.

Thermal & Non conventional energy 62% 73%

Hydel & Wind 21% 13.5%

Nuclear 2.5% 2%Other sources 14.5% 11.5%

Total 100% 100%

Central Govt., State government & Private Sectors are working together in generation of power. Central government operate through, National thermal power corporation (NTPC), National

Hydroelectric power corporation (NHPC) & Nuclear power corporation of India ltd (NPCIC)

State Govt operates through State electricity Boards (SEBs) Also exist Central Electricity authority & Central electric regulatory commission.

4.0.2 & 4.0.3] Difficulties & Problems relating to energy & Recent steps taken to

meet the problems:4.0.2 & 4.0.3 Difficulties & Problems relating to energy

in India

Steps taken to solve the Problems.

Demand & Supply

imbalance in

commercial fuel.

There is a Huge gap in demand &supply of Energy

In order to improve the production opower:

a) Electricity ACT was passed in 2003.b) Electricity amendment bill 2005

passed in 2005.

Govt. is encourage private sectoinvestment in power by allowing:

a) To set up Coal, Gas or Liquid basedprojects

b) Foreign equity & FDIc) Tax Incentives.

All India power grid (National grid) isbeing developed by 2012 will help to

even out demand & supply

Mismatches.

Nine sites were identified to developUltramega power plant with capacity

of4000MW each.

Bureaus of energy efficiency(BEE) wasset up to encourage conservation oenergy by:

a) Giving energy conservation awardto Industry

b) Promotion CLFS & Energy efficientequipment.

Oil Prices &

Inflationary

pressure

Organisation of petroleum exportingcountries (OPEC) increased price of oil

due to which price levels increased in

Govt. is encouraging the use of Hydel &Wind energy source to reduce the rely

on fossil fuels & avoid carbon emission.


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India.

Petroleum, Oil & Lubricant (POL)constitute around 1/3 of import bill

Transmission &

distribution losses

The total transmission & Distributionloss (T&D) on an average is 23% in

many states of India.

Out of total T & D losses, thesubstantial loss is due to theft ofpower.

In order to reduce transmission lossesPower sector was privatized in Delhi in

2002, which was very effective.

Sick SEBS Many SEBs have become financially sickdue to :

a) Free supply of power to agriculture

b) Operational Inefficiencies

c) High cost structure

d) Low power tariffs etc.

Steps have been taken to turnaroundSEBs i.e.:

a) Rationalization of tariff structure

b) Monitoring cost structure

c) Optimum utilization of existing

capacity.

Operational

Inefficiently

Plant load factors (PLF) measures theoperational efficiency of a thermal

plant.

PLF is lowest in north eastern region(47.5) & Highest in South region (83)

PLF in :a) SEBs 68%

b) Central sector 81%

c) Private sector 88%

To improve generation of powePartner ship in Excellence

Programme was launched & under this

programme 26 thermal stations with

PLF less than 60% were identified to

improve their efficiency.

Inadequate

electrification

Till date nearly 19% of villagers are notelectrified.

Rajiv Gandhi Vidhutikaranprogramme was started in 2005 to

provide electricity to all areas including

villages & Hamlets as well as provide

free electricity connections to below

poverty line (BPL) household. Hence, Rural electrification

corporations were step under this

programme, who electrified nearly

60000 villages & Provided free

connections to 54 lakh BPL households

4.1] TRANSPORT

Railways Roadways Waterways Airways

4.1.0] Railways: Indian Railways is Asias largest& worlds 3rd largest rail network under a single management. There are two main segments of railways for revenue i.e. Freight segment contributed 70% of revenue. Passenger segment contributes 30% of revenue.


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4.1.1] Roadways: The Indian road network is one of the largest in the world. The National highways comprise only about 2% of total length of roads BUT Carry more than 40% of

total road traffic.

The rural road network connects around 65% of all weather roads. Road carries nearly 61% of fright & 87% of passenger traffic. National highways development project (NHDP) involves developing Golden quadrilateral (Mumbai,

Delhi, Chennai, and Kolkata)

4.1.2] Water Transport:

Inland water transport Shipping

Coastal Shipping Overseas Shipping

1) Inland water transport:

India has 14500Km Navigable rivers. It includes Natural modes as Navigable Rivers & Artificiaincludes as canals.

The importance of this mode of transport has declined considerably due to expansion of Roads &Rail.

The Government approved Inland water transport policy to encourage private sector participationin this transport.

2) Shipping (Coastal shipping & overseas shipping): It includes 12 major parts & 200 minor parts. Coastal shipping is very energy efficient & cheapest mode of transport for carrying bulk goods over

a long distance.

Indias overseas shipping has the largest merchant & shipping fleet among developing countries. India ranks 20thin the world shipping tonnage. The 12 major parts carry about 3/4th of total traffic. Vishakhapatnam as the top traffic handles in each of last 7 years. Almost 95% of Indias global merchandise is carried through the sea route.

4.1.3] Air Transport:

Operational Infrastructural Developmental

Air transport is Fastest & preferred mode of transport especially for long distance, Business Travel & fortransporting high value & perishable (Lighter) goods.

1) Operational: There are 11 scheduled passenger, 99 Non scheduled airline operators& 1 cargo operator in the

country.

Indian Airlines & Air India was amalgamated with National Aviation Company Ltd but brand nameAIR INDIA was retained.


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This merged entity has entered the list of top 30 airlines globally in terms offleet size i.e. 140Aircrafts.

Private operators accounts for 78.5% share in total Domestic traffic & their shares are:a) Jet airline 31.2% (Market Leader)

b) Indian airlines 21.5%

c) Air Deccan 18.3%

d) Kingfisher 8.7%

2) Infrastructural facilities: Air port authority of India manages 92 airports including 5 International airports at Delhi, Mumbai,

Kolkata, Chennai & Triuvanthapuram & 28 civil enclaves at the defense airports.

Green field airport of International standards are constructed at Hyderabad, Bangalore & Goa. An International green field airport is already operational in Kochi. Proposals to setup green field airports in Navi Mumbai, Kerala & Sikkim are also in pipelines.

3) Regulatory cum developmental aspects: The department of civil aviation & Government of India is responsible for regulation & dev. Aspects. International services are governed by Bilateral agreements. The growth in domestic & International Traffic are:

Growth In Domestic International

PESSANGER

TRAFFIC

CARGO

TRAFFIC

PESSANGER

TRAFFIC

CARGO

TRAFFIC

10TH

PLAN 21.8% 12.6% 13.6% 12.8%

11TH

PLAN(ESTIMATES)

20% 10% 16% 12%

4.2] Communication:

Postal Service Telecommunication

Telex Service Telephone/Mobile Service Emails

1) Postal services: Our postal network is the largest network in the world. We have more than 1.55lakh post offices & on an average, one post office serves 7174 persons. To improve the speed & volume of money order transmission 140 VSATs (very small aperture

terminals.) have been setup, which handle more than 1millon money orders a month.

Presently more than 9600 post office are computerized & Automatic mail processing centers(AMPC) have been setup at Mumbai, Chennai, Kolkata & Delhi.

Logistics posts & Retail posts services are latest services being provided. Post offices also provide financial products like saving bank facility, saving certificate, Postal life

insurance, Non life insurance products & Mutual fund etc.

Department of posts has launched a pilot projectProject arrow for providing fast & reliable postaservice.


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2) Telecommunications:a) Telex service Telex & Telegraph services are gettingout of fashion.b) Telephone services / Mobile services.

Indias telephone network is 3rd largest in the world. At present there are 414 million telephones& 376 million mobile connections in India. There are two public sector units i.e. a) Bharat Sanchar Nigam ltd. (BSNL) & b) Mahanagar

Telephone Nigam ltd (MTNL)

Tele communication regularly frame work & Function is carried out by TRAIc) Internet Services:

Internet connections & Broad band services are gradually involving. At present there are 35million Internet connections & 6 million broad band connections in March

2009.

Internet traffic originated & destined by NIXI (National internet exchange of India)

4.3] Health: For good health two things are essentials: Balanced & Nutritional diet & Medical care.

Health development programme have been integrated with family welfare & Nutritionaprogrammes for vulnerable section Children, Pregnant women & Nursing women.

There has been a fall in incidence of certain diseases like T.B, Leprosy & Polio. But the incidence of diseases like AIDS, Blindness & Cancer are increasing. The general health standard in India is quite low (not satisfactory)

4.3] Education: It plays important role for development of a human being & a society. There fore education made free for children below 14 years. India has a second largest education system in the world. National policy on education (NPE) emphasizes. On following 3 aspects i.e.:

(a) Universal access & enrolment.(b) Universal retention of children ap to 14 years of age.(c) A substantial improvement in to quality of education.

NPE had set a good of expenditure on education at 6% of GDP but actual expenditure made was3.49% of GDP.

Elementary education for (614 year)Gross enrolment.


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CHAPTER 6 UNIT 5

INFLATION

5.0] MEANING AND TYPES OF INFLATION & DEFLATION:I] INFLATION

Inflation refers to a persistent upward movement in the general price level. Inflation does not occur unit price increased average less than 5% p.a.

Types of Inflation

1) Demand pull Inflation:When demand for goods & Services is more than their supply, Demand pull Inflation taken place.

2) Cost push Inflation: Cost push inflation refers to rise in factors cost, especially wages. Such inflation once set in Motion, Spreads throughout the economy. Cost push Inflation is more difficult to control than Demand pull inflation. Often the demand pull inflation precedes (come first) the cost push inflation.

3) Stagflation: Stagflation refers to Low rate of growth (economic stagnation) combines with the rise in general price

level.

Hence stagflation = Demand pull + Cost push Inflation. Such inflation may lead to hyper or galloping inflation (i.e. Price increase up to 40% or 100% every year)

if not controlled by Monetary & Fiscal measures.

During 199194, India was experiencing stagflation.II] DEFLATION

It is opposite of Inflation. Deflation refers to fall in the prices level. During deflation purchasing power of money increases.

5.1] PRICE TREND IN INDIA: The inflation rate in 200809 recorded the highest average inflation of the decade in terms of

wholesale price index (WPI) i.e. 8.4%p.a.

5.2] CAUSES OF INFALTION IN INDIA: Inflation take place either due to Increase demand or due to fall in supply

A] Increase in demand due to:1) Increase in public expenditure:

During 200708 total public expenditure made government was 35% ofNNP. Out of total expenditure 45% of govt. expenditure is on Non developmental activities i.e. Defense,

Low & Order etc.

Such Unproductive expenditure increases the purchasing power of govt. employees, creates thedemand for goods & Services without increasing it supply.

2) Deficit Financing (DF) It means financing a budget deficit by borrowing from bank or Printing currency


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A small dose of Deficit financing is helpful for growth. But large dose of DF, increase the purchasing power of people, Creates demand for Goods &

Services thus Inflation.

3) Rapid growth of population leads to increase in demand for Basic goods & Service, thus leads toInflation.

B] Fall in supply due to:

1) Erratic agricultural growth because ofbad monsoons & Crop failures.2) Inadequate increase in Industrial production pushed up the price.3) Upward revision of administered prices leads to cost push inflation.

5.3] MEASURES TO CHECK INFLATION:Inflation can be (controlled) checked by:

a) Check or controlling the supply of money.b) Making available of more goods & service(i.e.by controlling the Demand)

1. Monetary measure: This method is used to check the supply of Currency & Credit. This Measure includes : a)Open market operation

b) Bank rate policy

c) Variable reserve requirement etc.

2. Fiscal Measure:

This measure is used to control government expenditure & public borrowings. Government expenditure & Public borrowings are controlled by increasing Tax rates, introducing new type

of Taxes etc.

3. Control over Investment:

Controlling investment is also considered necessary during inflation due to the multiplier effects.4. Other measure:

a) Short term Measure: Scare essential commodities making available at fair price. Control over movement of goods from one state to another Imports of Goods.

b) Long term measure: Some restrictions on present Consumption for improving saving & Investment.


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CHAPTER 6 UNIT 6

BUDGET & FISCAL DEFICITS IN INDIA

6.0] MEANING: Budget is prepared every year, which shows Expected receipts & Expected expenditure for coming

financial year (Next/Future year).

Budget

Expected / Receipts Expected total expenditure

Taxes (Direct & Indirect) Profits from financial inst. Developmental Exp. Non Dev. Exp. Interest from loans given to other govt. Development of Infrast a) Defense

ructure like Roads, Power b) Int. Paym.

Railways etc. c) Subsidies.

Types of Budget

Balanced Budget Surplus Budget Deficit Budget

TR = TE TR > TE TR< TE

BUDGET DEFICIT FISCAL DEFICIT

Budget deficit is the difference between TR & TE i.e. Budget Dficit = TR TE Where as :

TR = Revenue + Capital receipts

TE = Revenue + Capital expenditure

If Borrowings & other liabilities are added tobudget deficit we get fiscal deficit.

i.e. Fiscal deficit = BD(TRTE) + Loans &Borrowings. (OR)

FD= [ RR+CR(excludes Borrows & Loans)] TE

It does not show true picture ofGovernment Liabilites& Financial health.

It is calculated to show RBI lending to Govt. through 91days treasury bill.(It is recorded as capital receipt)

It is calculated to measure that part of Govt.expenditure financed by Borrowings.

(OR)

It measure excess expenditure over Govts own

Income.

6.1] TRENDS IN INDIAS BUDGET AND FISCAL DEFICIT: Non plan expenditure particularly on defense, interest payments & Foods & Fertilizer Subsidies rose

sharply during 1980.

Fiscal responsibility & Budget management (FRBM) bill was introduced in 2000 & FRBM Act waspassed in 2003.

FRBM Act aims at reducing gross fiscal deficit by 0.5% of GDP every year. In 200708 Fiscal deficit as a proportion of GDP has declined to 2.7% respectively.


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CHAPTER 6 UNIT 7

BALANCE OF PAYMENTS

7.0] MEANING OF BALANCE OF PAYMENTS & BALANCE OF TRADE:1) Balance of payments (BOP)

It is a systematic record of all economic transactions between the residents of one country & theresidents of the rest of the world in a year.

Balance of payment = Balance of Current A/c. + Balance of Capital A/C. The BOP must always tally in bookkeeping sense. Balance of payment can be.

SurplusAdd of external reserve DeficitLess from external reserve

It helps to evaluate counters performance on the international front.2) Balance of Current A/C Balance of current A/C = Balance of trade + Balance of service + Balance of unilateral transfer. Balance of current A/C could be Positive, Negative or Zero It does not record Borrowings (Loan takers) & Lending (Loan given) Components of current account are:

BALANCE OF TRADE BALANCE OF SERVICE BALANCE OF

UNILATERAL TRANSFER

Balance of trade records all the

goods (merchandise trade)

exported & Imported by a

country in a year.

Balance of service records all

the service exported & Imported

by a country in a year,

Unrequited transfers records

amount of money sent or

received as gift.

Balance of trade can be:

a) Surplus(Positive) : Whenexports is more than

Imports (Export> Import)b) Equilibrium (Zero): When

exports is equal to Imports

(Export = Import)

c) Deficit (Negative) : WhenExports is less than Imports

(Export< Imports)

Balance of service can be:

a) Surplus (Positive):(Export> Import)

b) Equilibrium (Zero):(Export = Import)

c) Deficit (Negative) :(Export< Imports)

Balance of Unilateral transfer

can be:

a) Surplus (Positive):Gift recd.> Gift sent

b) Equilibrium (Zero):Gift recd = Gift sent

c) Deficit (Negative) :Gift recd< Gift sent

For e.g.

All tangible & Visible things

goods.

For e.g.

All intangible or Invisible

services

For e.g.

Gift, Donetions, Grants etc.

3) Balance of capital Account: Balance of capital deals with Borrowing (Debts) or Lending (Claims) of the country. It includes, Balance of private direct investment, Private portfolio investment & Govt loans to

foreign government.


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7.1] TRENDS IN BALANCE OF PAYMENT OF INDIA: Normally a developing countries experience a deficit in BOP.Period BOP

Situation

Details

5th plan

( 197479)

Surplus During whole of 5th plan, India experienced a surplus due to invisibleremittances (money sent by a foreign worker to his home country).

197980 Deficit After 5th plan India started experiencing adverse BOP.6th Plan

(198084)

Deficit(ACUTE) During 6th plan BOP position was ACTUE199091 BOP situation was worsened because ofGulf war

8th & 9th plan

(19922002)

BOP situation was comfortable in 19959910th plan

(200207)

North America (Occupying 1st place) contributed to be an importantdestination of Indias exports i.e. Contributed 16% of Indias exports.

European union country (27th in number) had a 21% in Indias exports Asia & ASEAN countries accounted for nearly Half (50%) of India exports

(Association of south east associate nation)

11th Paln (2007

2012

During December 200809, the current account deficit ratio to GDP is4.1%

During December 200809, the India ranked 9th in terms of global FDinflows

North America accounts for 12% of total exports UAE accounts for 10.8% of total exports China accounts for 5.1% of total exports Singapore accounts for 4.8% of total exports Honkong accounts for 3.7% of total exports UK accounts for 3.6% of total exports. Asia & ASEAN continued to be the major source of Indias Imports.


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CHAPTER 6 UNIT 8

EXTERNAL DEBT

8.0] EXTERNAL DEBTS IN INDIA: External Debt in India has been of two forms i.e.

a)

Grants:i. Grants do not involve any repayment Obligationii. For e.g. Gift, Donation etc.

b) Loans:i. Loan carries a repayment Obligation ofInterest & Principal Amount.

About 90% of external debt received by India is in form ofLoan. The share ofConcessional debt in total debt now is about 20%. At one time(198081)it was as high

as 75%

In March 2008 the external debt stood nearly 9, 00,000 crores. As a percent of GDP, External debt is 19% in March 2008.

The Debt Service ratio (Principal + Interest Amount/Total Export) is 5.4 in 2007

08, which is veryhigh as International Standards.

At, present India ranks 6th among top 15 debtors after Russia, China, Turkey, Brazil & Poland in2008.

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