JAIIB Paper 1: Indian Economy & Indian Financial System PDF

Ambitiousbaba.com Paid Course Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 1  Ambitiousbaba.com Paid Course JAIIB Paper 1: Indian Economy and Indian Financial System (...

Ambitiousbaba.com Paid Course Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 1  Ambitiousbaba.com Paid Course JAIIB Paper 1: Indian Economy and Indian Financial System (IE & IFS) Capsule PDF No. of Module Module Name Page No. Module A Indian Economic Architecture 2 - 98 Economic Concepts Related Module B 99 - 144 to Banking Module C Indian Financial Architecture 145 - 248 Financial Products and Module D 249 - 400 Services JAIIB Paper 1: Indian Economy & Indian Financial System MODULE A: INDIAN ECONOMIC ARCHITECTURE Module A, Unit 1: An Overview of Indian Economy Evolution Of Indian Economy According to the Angus Maddison database, India and China contributed: 1000 AD : 50.5% of global GDP (GDP computed in 1990 dollars and in purchasing power parity terms). 1600 AD: 52% 29% - China 23% - India A century later, China’s GDP share had declined, while India’s had risen to 24.4% of world output. British colonialism altered the dynamics, and by 1820, India’s share had plummeted to 16.1%. 2021 : According to the International Monetary Fund (IMF), India’s contribution of global GDP reached 7.3%. However, in terms of GDP purchasing power parity (PPP), India is ranked 3rd in the world only after USA and China. Today, India is one of the world’s fastest growing major economies. India’s economic performance during the British Raj was dismal. The British East India Company ignored industrialisation in the nation, and infrastructure was created not to industrialise India but to exploit its raw materials. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 2  Ambitiousbaba.com Paid Course When India gained independence, the administration of the time had a significant challenge in systematic organisation of the economy. Basic Characteristics of Indian Economy World Bank classifies economies considering per capita income. Indian economy in terms of ▪ Purchasing Power Parity (PPP) is the 3rd largest economy in the world but ▪ in terms of PCI, India ranked very low. The low per capita income is mainly attributed to high levels of poverty, unemployment, illiteracy, etc. India was a backward nation at the time of its independence. The government addressed the developmental issues through five-year plans by setting targets and ensuring the allocation of funds for the development of various sectors. A number of factors influence the nature and characteristics of the Indian economy. Some of these factors include: (i)low per capita real income, (ii)rapid population growth, (iii)a high rate of unemployment, underemployment, and disguised unemployment, (iv)excessive reliance on the primary sector, (v)a vicious circle of poverty, and (vi)rising unemployment. Following extract of India’s macro-economic aggregates from RBI publication dated 15th September, 2021, will give an overall view of the economic status of India Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 3  Ambitiousbaba.com Paid Course India was an agricultural economy, with a very low per capita income. After independence, agriculture’s share of GDP fell during the development process, while industry and services increased. ✓ 1950 : Agriculture was a dominant sector : 53.1% of GDP. ▪ Industry : 16.6%, ▪ services : 30.3%. ▪ Following independence and the start of the planning process, agriculture’s share decreased while industry and services increased. ✓ 1980–81, the services sector (38%) surpassed ▪ agriculture (36.1%) to become the largest contributor to India’s GDP. ▪ The industry : 25.9% Indian Economy In British Period During British colonialism, India’s commerce, trade, and investment were hampered by the unilateral transfer of capital and raw materials to Britain. Under British rule, India remained a low-quality labour market. According to statistics, less than 1/6 of Indians were only literate. 1867-68 : Dadabhai Naoroji published the first estimates of national income in India in his book “Poverty and Un-British Rule in India” Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 4  Ambitiousbaba.com Paid Course According to him: British India’s national income was Rs. 340 crore, Per capita income was Rs. 20 per annum at current prices 1948-49: Rs. 142 p.a Other economists of the period (William Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai) produced estimates of India’s national income, and the findings were almost identical. Atkinson: India’s per capita income to be Rs. 172 Horne: it to be Rs. 158 in 1948–1949 prices for the years 1875 and 1891, respectively. Curzon projected per capita income in 1902 to be Rs. 148 in 1948–1949 prices. However, by 1947, the per capita income had risen to Rs. 250 per year. According to the work of Cambridge economist Angus Maddison Note: India’s share of global income 1600 A.D= 23% but by the time the British left in 1947, it had shrunk to only 3% Similarly, India accounted for 33% of global trade in 1600 but fell to less than 3 per cent in 1947. According to former Prime Minister Manmohan Singh, at the turn of the twentieth century, India was the brightest jewel in the British Crown and the poorest country in the world, in terms of per capita income. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 5  Ambitiousbaba.com Paid Course BRITISH ERA: Discussed in 3 different phases ▪ 3rd Phase : began in 1857 (Sepoy Mutiny) Period marked by colonial exploitation through de-industralisation, agricultural commercialisation, wealth drain & westernisation of Indian education systems ▪ British withdrew: India as a destitute economy Global GDP : 1600 AD (23%) to 1947 (3%) Global export: from 33% to 3% Introduced: Zamindari, Mahalwari & Ryotwari system – to take excessive land tax from farmers. Commercialisation created a new class of intermediaries, increased the frequency of famines, & reduced farmers to landless labour. ▪ Deindustralisation: in mid 19th century The fall of the Mughal Empire, The decline of Indian agriculture, An increase in nominal wages, A reduction in Indian textile competitiveness, and An increase in transportation facilities Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 6  Ambitiousbaba.com Paid Course Trade policy that was unfavourable to India also contributed to trade decline and aggravated deindustrialisation. Railways assisted the British in moving commodities from the hinterlands to ports and vice versa. It also enabled British investors to make attractive profits on their cash spent in railway infrastructure building and development. The fundamental goal of introducing Western education to India was to generate a group of Indians who neither good in English nor Indian culture. Important Point ▪ The wealth drain : unilateral movement of riches from India to Britain, without a sufficient economic, commercial, and material return. It occurred through remittances, home charges, and the transfer of revenue from private business or investment, among other things. ▪ Many British philosophers and Indian nationalists, including Dadabhai Naoroji, R.C. Dutta, and C.N. Vakil, have done research and written about the wealth drain from India to Britain. ▪ In 1783, Edmund Burke explained the mechanism of economic drain and rising poverty in Indian situations. ▪ In 1776, Philip Francis studied the drain economy and classified it into four broad streams ▪ As per the findings of Angus Maddison, ▪ India’s share of world economy went down from 23% in 1600 to 3% in 1947. ▪ Clive took quarter of a million pounds for himself as well as a Jagir worth £27,000 a year. ▪ British salaries were high: The Viceroy received £25,000 a year, and governors £10,000. ▪ The starting salary in the engineering service was £420 a year or about sixty times the average income of the Indian labour force. ▪ Under the rule of the East India Company, official transfers to the UK rose gradually, until they reached about £3.5 million in 1856, the year before the mutiny. ▪ Private remittance: From 1858 to 1947, the colonial government’s official transfers of monies to the United Kingdom were referred to as “Home Charges”. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 7  Ambitiousbaba.com Paid Course Dividends to East India Company shareholders; interest on loans raised by the Government of India in England; Expenditure on British army stationed in India and bringing them to India; pensions, annuities, etc., of retired British officers; payment of guaranteed interest to railway companies; and salaries of the secretary of state for India and his staff were all included in home charges. ▪ According to Dadabhai Naoroji’s calculations, India paid Britain £10 crores in house costs between 1829 and 1865. ▪ By the 1930s, these residential levies were in the £40–50 million level each year. India’s per capita income from 1600–1947 increased by 12% whereas the increase for Britain for the same period was 55%. India’s total GDP during 1600–1947 increased by 2.44 times, but for Britain the rise was 52 times. Economy Till 2008 & After 2008 1951–1980 1st three decades: India’s growth rate was slow In 1978, Professor Raj Krishna coined the phrase “Hindu rate of growth” to describe the slow growth of the Indian economy. ▪ The term refers to ▪ India’s planned economy’s low annual growth rate - around 3.5% from the 1950s to the 1980 ▪ Per capita income growth : averaged 1.3%. 1980-90 Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 8  Ambitiousbaba.com Paid Course Period of Economic buoyancy and recovery. During the 6th five-year plan (1980–1985) India could break the curse of the ‘Hindu Rate of Growth’. Higher government spending, fiscal stimulus to the economy, higher economic growth. The liberalised import policies- increased imports of capital goods and raw materials for manufacturing, boosting the production of luxury goods in the country. 2008 to 2021 The 2008 growth euphoria: widespread belief that the Indian economy was decoupled from that of the developed world in the days following the Lehman collapse (September 15, 2008). In September 2008: India took unprecedented action. In order to mitigate the effects of the crisis, the government provided fiscal stimulus to the economy. 3 stimulus packages totalling Rs. 1.86 lakh crore (3.5% of GDP). The RBI eased monetary conditions and injected Rs 5.6 lakh crore (roughly 9% of GDP), in domestic and external liquidity. Economy recovered but at the expense of a larger fiscal deficit, which continued to grow beyond the limit set by the Fiscal Responsibility and Budget Management Act. The fiscal stimulus was never phased out, the current account deficit (CAD) increased. The previous decade’s high economic growth drove credit growth in the system as the economy’s productive capacity expanded dramatically. Revolutionary policies such as the Goods and Services Tax (GST), the Insolvency and Bankruptcy Code (IBC), corporate tax cuts, and demonetisation were implemented. Prior to the COVID-19 pandemic, the economy’s average annual growth rate between 2008-09 and 2019-20 = 6.5% (base year 2011-12 prices) In 2019-20, the economy expanded by only 4.0 per cent. Structural Changes In Indian Economy Indian Economy Post COVID-19 Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 9  Ambitiousbaba.com Paid Course In the last four decades, India has faced three major shocks: Mar 11, 2020: COVID-19 was declared as pandemic End of Dec 2019: First reported officially in Wuhan, China Jan 30 2020: 1st COVID-19 case was recorded in India has had three waves of infections as on June 2022, pushing its total case load to the world’s second highest. A stringent lockdown during the initial wave On January 16, 2021, India launched its vaccination programme. A number of factors responsible for the most severe economic impact on India, with the severity of the lockdown being the most frequently stated explanation. GDP contraction was more severe in countries with a higher stringency index — India, Argentina, Italy, and the United Kingdom. Sectoral Impact of COVID-19 Due to stringent restrictive measures, contact-intensive services were almost halted during the pandemic. The services sector, which encompasses the bulk of contact-intensive and non- essential activities in India suffered the brunt of the pandemic’s impact. The pandemic has reduced the profitability of contact-intensive businesses such as retail trading, hotels and restaurants, air transportation services, transportation logistics services, and education. The real estate and automobile sector: was severely impacted by the pandemic, but there were signs of slowdown in these sectors prior to the pandemic. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 10  Ambitiousbaba.com Paid Course The Indian labour market: ▪ severe decline during the first wave of the epidemic ▪ unemployment hitting an all-time high ▪ labour force participation plummeting. ▪ Reverse migration from urban to rural areas raised demand for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) employment in rural areas ▪ The second and third waves had a little impact, and work conditions had stabilised. Because of the lockdown, investment demand ceased during Q1:2020-21 and experienced the most severe contraction. The recovery in gross fixed capital formation (GFCF) has been expedited, mainly mostly to active government investment – the only sector that positively contributed to investment demand in 2020-21. Agriculture remained robust in terms of production during the pandemic since agriculture and allied activities were spared from the lockdown restrictions. Manufacturing, mining and quarrying, and electricity, gas, and water supply all saw significant drops Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 11  Ambitiousbaba.com Paid Course Manufacturing, which had led the recovery following the first wave, remained strong during the second wave Economic Recovery Dynamism Post COVID During the first wave of infections, India had one of the world’s worst recessions, with ▪ In the Q1 of 2020-21: GDP contracting by as much as 23.8% ▪ Q3: 0.7% & Q4: 2.5%: A gradual recovery - resulting in a substantially less severe contraction of 6.6% for the entire fiscal year, placing India in a relatively better position among the G-20 countries in terms of annual GDP growth for 2020. Regardless of the second wave: economic activity rebounded fast in June 2021 and remained persistent, indicating a steady recovery through October 2021. 3rd wave: Shortage of Coal and semiconductor chip led in a reduction in momentum beginning in November 2021. Rural demand, in particular, dropped after the second wave, but urban demand rebounded. Contagion from the Russia- Ukraine conflict impeded activities beginning in March 2022, eroding and delaying recovery. The COVID-19 pandemic disrupted global supply chains, shipping, and logistics, as well as affecting the Indian economy through mass lockdown, loss of life, and destruction in permanent demand. According to the provisional estimates of annual national income, 2021-22, GDP growth in 2021-22 at Constant (2011-12) Prices in the year 2021-22, is Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 12  Ambitiousbaba.com Paid Course estimated to attain a level of Rs. 147.36 lakh crore. Supported by low base, economy recovered handsomely in 2021-22. Economy expanded in 2021- 22 Q1- 20.1%, Q2- 8.4%, Q3 - 5.4% and Q4- 4.1%. The growth in GDP during 2021-22 Estimated at 8.7% as compared to a contraction of 6.6 % in 2020-21. Nominal GDP or GDP at Current Prices in the year 2021-22, Estimated to attain a level of Rs. 236.65 lakh crore, as against Rs. 198.01 lakh crore in 2020-21, ( growth rate of 19.5%) The pre COVID trend growth rate is 6.6% (CAGR from 2012-13 to 2019-20). Using the growth rate of -6.6% for 2020-21, 8.9 per cent for 2021-22, and 7.2 per cent for 2022-23 and 7.5 per cent beyond that, RBI has predicted that India to offset COVID-19 losses in 2034-35. Hence, India is expected to overcome COVID-19 pandemic losses in 12 years’ period. Structural change refers to the fundamental changes that have occurred in the critical components of the Indian economy over time. The primary sector’s contribution to GDP decreases over time, while the secondary and tertiary sectors increase. In the long run, the tertiary sector surpasses the secondary sector, as the major contributor to the economy. In India, the services sector has largely replaced the industrial sector, and it now dominates the economy. The role of the primary sector declines as income rises, and India is no exception. Agriculture’s share of GDP has steadily declined from 26.9% in 1990 to 21.6% in 2000, and the decline has continued to 17.8% in 2010 and 17.7% in 2019 owing to service-led growth in India. The onset of the pandemic has increased the primary sector’s contribution to the economy as agriculture was the only sector allowed to function smoothly during the economic lockdown. In 2020-21, the services sector contributed 60.9% Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 13  Ambitiousbaba.com Paid Course followed by the secondary sector (19.8%) and the primary sector (20.1%). An empirical examination of the nature and causes of structural change in the Indian economy reveals that the services sector drives the industry and the overall economy, and the sector’s growth and dominance is influenced by external factors such as foreign direct investment. Paper IE and IFS Module A, Unit 2: Sectors of the Indian Economy Sectors of the Indian Economy Economic activities in an economy are usually classified into three major sectors, and economies achieve development via their dominance in such areas. ROLE & IMPORTANCE OF PRIMARY, SECONDARY, TERTIARY SECTOR, QUATERNARY & QUINARY SECTORS Primary Sector This sector includes all those economic activities where there is the direct use of natural resources as ▪ agriculture, forestry, fishing, fuels, metals, minerals, etc. An agrarian economy exists when the agriculture sector (one of the key sectors) provides at least 50% of a country’s national revenue and livelihood. Primary sector constitutes (a)agriculture, (b)forestry, and (c)fishing Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 14  Ambitiousbaba.com Paid Course Secondary Sector Includes all economic activities that involve the processing of raw materials extracted from the primary sector also called industrial sector. Manufacturing, one of its sub-sectors, has proven to be the largest employer in the Western developed economies. An industrial economy is one, in which, the secondary sector generates at least half of a country’s national GDP and employment. Tertiary Sector This sector includes all economic activities that produce services, such as education, healthcare, banking, communication, and so on. A service-based economy exists when this sector generates at least half of a country’s national income and livelihood. Along with these 3 main sectors, the quaternary and quinary sectors have been introduced. In a broader they are tertiary sector sub sectors Quaternary Sector Also known as the ‘knowledge’ sector. Includes activities such as teaching, research, and development. Most important in assessing the strength of an economy’s human resources. The intellectual aspect of the economy is represented by the quaternary sector. This group includes: Employees in office buildings, Elementary schools and university classrooms, Hospitals and physicians’ offices, Theatres, Accountancy and Brokerage businesses, and so on. Quinary Sector Includes activities in which key choices are made. Includes the highest level of decision makers in governments (including their bureaucracy) and the private corporate sector. The number of people participating in this sector is quite small, yet they are regarded the “brain” behind an economy’s socioeconomic performance. This group includes occupations such as Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 15  Ambitiousbaba.com Paid Course Senior company executives, Government officials, Research scientists, Financial and legal advisors and others. DIFFERENCE BETWEEN THE SECTORS The differences in activities are the foundations of their classification. The following are some of the most significant variations. DIFFERENT REVOLUTIONS IN PRIMARY SECTOR Agriculture has always been the most important industry in India. Traditional, subsistence and livelihood, rain fed farming, food grain oriented, and deficient in diversification and commercialisation characterise India’s agricultural sector. To overcome the decreased supply in recent time, the government carried out a series of revolutions in the primary sector to increase capacity. The multiple revolutions influencing agricultural production: Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 16  Ambitiousbaba.com Paid Course Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 17  Ambitiousbaba.com Paid Course GDP CONTRIBUTION OF DIFFERENT SECTORS By the late 1990s, : India had transitioned from agricultural dominance to services supremacy, with services accounting for over half of her national GDP. The agriculture sector - 18% of total GDP. The services sector - more than 55% secondary sector - 27%, with only 14% coming from the manufacturing sector. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 18  Ambitiousbaba.com Paid Course AGRICULTURE Most significant sector in India. Not only the largest sector, but also the biggest private sector. Main unorganised sector of the economy, accounting for more than 90% of all unorganised labour ▪ (93.4% of the total labour force of the economy, i.e., 40.0 crore is employed in the unorganised sector). Agriculture’s share in gross income has been declining, while the industrial and service sectors’ shares have been steadily increasing. Agriculture has recently had satisfactory development as a result of: improved technology, irrigation, inputs, and pricing strategies In recent years, livestock, poultry , fisheries, and horticulture have led the way in terms of output increase. Despite all these structural changes, agriculture remains a critical sector, offering employment and livelihood opportunities to a large segment of the population. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 19  Ambitiousbaba.com Paid Course Government of India Report of 2020-21 by Ministry of Agriculture & Farmers’ Welfare ▪ “Agriculture plays a vital role in India’s economy. ▪ 54.6% of the total workforce is engaged in agricultural and allied sector activities (Census 2011) and accounts for 17.8% of the country’s Gross Value Added (GVA) for the year 2019-20 (at current prices). ▪ Given the importance of the agriculture sector, Government of India has taken several steps for its development in a sustainable manner. Steps have been taken to improve the income of farmers. Further, to mitigate risk in the agriculture sector, a scheme ‘Pradhan Mantri Fasal Bima Yojana’ (PMFBY) was also launched in 2016. Schemes such as Formation & promotion of 10,000 FPOs & the Agriculture Infrastructure Fund have also been launched recently to benefit the sector.” As per the Land Use Statistics 2016-17 Agriculture Gross Value Added (GVA): As per the provisional estimates of Annual National Income released by Central Statistics Office (CSO), Ministry of Statistics & Programme Implementation, the agriculture and allied sectors contributed approx 17.8% of India’s GVA at current prices, during 2019-20, marginally higher than 17.7% in 2015-19. INDUSTRY The industrial sector is equally vital, since it promotes ▪ Economic growth, ▪ Provides self-sufficiency and employment, ▪ Generates demand for agricultural commodities and produces a ‘ripple effect Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 20  Ambitiousbaba.com Paid Course Manufacturing = Around 18% of total gross value added (GVA), construction = Around 8% of total GVA. Mining and quarrying, as well as power, gas, water supply, and other utility services = Approx 3% and 2% respectively. Industry’s share of GVA has increased ▪ 1950-51 : nearly 17% ▪ 2021-22 : 29% The journey of Indian industry can be summed up into 4 phases including both pre-reform and post-reform period. IIP : The Index of Industrial Production (IIP) measures the change in volume of production in a given year (base year 2010-11). It is an index reflecting growth in the broad sectors of mining, manufacturing and electricity and also the growth in use-based sectors of basic goods, capital goods and intermediate goods. Calculated by the National Statistical Office which also calculates the Index of Core Industries (ICI). 8 Core industries: Refinery Products Electricity, Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 21  Ambitiousbaba.com Paid Course Steel, Coal, Crude oil, Natural gas, Cement Fertilisers. SERVICES The sector produces ‘intangible or invisible goods’ for businesses as well as consumers, Trade, repairs, hotels & restaurants, transport, storage, communication & broadcasting services, railways, road transport, water transport, air transport, services incidental to transport, storage, financial, real estate, and professional services are all sub-sectors of the services sector. Financial services, real estate, property ownership, and professional services, communal, social, and personal services, government administration and defence, and other services are all a part of the services. The services sector’s proportion has increased from 33% in 1950 to 53% in 2021-22. As per Government of India publication, chapter 9 of Union Budget 2019-20 – ▪ “The services sector accounts for 54% of India’s Gross Value Added (GVA). ▪ Its growth rate moderated to 7.5% in 2018-19 from 8.1% in 2017- 18. ▪ The segments that saw deceleration are tourism, trade, hotels, transport, communication and services related to broadcasting, public administration and defence. ▪ Financial, real estate and professional services category accelerated. ▪ An important finding is that India’s services sector does not generate jobs in proportion to its share in GVA. ▪ Foreign Tourist: 2017-18 : 10.4 million ▪ 2018-19 : 10.6 million ▪ Foreign exchange earnings from tourism in India ▪ 2017-18: US$28.7 billion ▪ 2018-19: US$27.7 billion ▪ Many of the high frequency indicators, such as bank credit to services sector, decelerated in 2018-19. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 22  Ambitiousbaba.com Paid Course ▪ However, the IT-BPM industry grew by 8.4% in 2017-18 (US$167 bn) & is estimated to have reached US$181 bn in 2018-19”. As per the findings of the Ministry of Statistics and Programme Implementation (MoSPI), in the year 2019-20 As per the World Investment Report 2021 by the UN Conference on Trade and Development (UNCTAD), India in 2020 was the 5th largest recipient of FDI. India has made a global impact by being amongst the top ten service exporter countries. India’s and Indians dominance in Software is globally respected. Of the total net Service Exports, about 40% pertains to Software. Employment Growth Rate In Secondary Sector Manufacturing employs roughly 12% of the labour force. ▪ Known throughout the world for creating mass employment for low- skilled workers in the modern economy. With agriculture’s capability to provide jobs rapidly dwindling and the modern services sector’s limited ability to absorb relatively unskilled labour displaced from agriculture, hopes are that the manufacturing sector will generate mass employment. The construction sector : 2nd largest employment sector in the country, only after agriculture. Construction activity is an essential component of a country’s industrial and infrastructure growth, as well as a key input for socioeconomic development. This sector provides significant employment and growth input to other sectors via backward and forward linkages. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 23  Ambitiousbaba.com Paid Course Cement, steel, bricks, tiles, sand, aggregates, fixtures, fillings, paints & chemicals, construction equipment, petro-products, timber, mineral products, metal, glass, and plastics are all important components of the construction industry. The Indian construction sector is an important element of the economy, and it is positioned for strong expansion as a result of industrialisation, urbanisation, and economic development, as well as people’s aspirations of higher living standards. The construction industry employs over 31 million people and accounting for around 8% of total employment. SUNRISE SECTOR OF INDIAN ECONOMY A sunrise sector is one that is still in its infancy, but has the potential for significant growth. CHARACTERISTICS: ▪ strong growth rates, ▪ a high degree of innovation, ▪ a high level of public awareness, with investors attracted to its long-term growth prospects. Existing Indian industries that may be categorised as Sunrise sectors are likely to benefit the economy in terms of job creation and business growth, in the future. ▪ Green Energy, ▪ Fintech, Information Technology, ▪ Electronics, ▪ Pharmaceuticals, ▪ Automobiles, ▪ Healthcare, ▪ Infrastructure Sector, ▪ Retail Sector, ▪ Processing Plants, ▪ and other emerging sectors of the Indian economy ORGANISED AND UNORGANISED SECTORS Organised Sector : where the job terms are fixed and regular, and the employees are guaranteed work and social security ▪ Comprises : Manufacturing, enterprise, business, school, hospital, and unit registered with the government. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 24  Ambitiousbaba.com Paid Course ▪ Also comprises legally licenced stores, clinics, and offices. ▪ Lower unemployment than the unorganised sector. Unorganised sector: where employment terms are not defined and regular, and enterprises are not registered with the government. ▪ Construction workers, domestic workers, street workers, and those operating in tiny workshops unaffiliated with the government are all part of the unorganised sector. ▪ A home-based worker, self-employed worker or wage worker in the unorganised sector is an unorganised worker. ▪ Characteristics: Low wages, unstable and irregular work, and a lack of protection from legislation or trade unions Relies heavily on labour and indigenous technologies. ▪ According to the NCEUS (National Commission for Enterprises in Unorganised Sector) categorisation, “the unorganised sector comprises of all unincorporated private enterprises owned by individuals or households engaged in the sale and production of goods and services operated on a proprietary or partnership basis and with fewer than ten total workers.” ▪ However, “informal workers” are defined as “those who work in unorganised firms or families, excluding regular workers with social security benefits, and workers in the formal sector who do not get any employment benefits/social security from their employers.” Difference between Organised and Unorganised sectors BASIS FOR ORGANISED SECTOR UNORGANISED SECTOR COMPARISON Meaning The sector in which the The sector that comprises of employment terms are fixed small scale emterprises or units and employees have assured and are not registered with the work is Organised sector. government. Governed by Various acts like Factories Act, Not governed by any act. Bonus Act, PF Act, Minimum Wages Act etc. Government rules Strictly followed Not followed Remuneration Regular monthly salary. Daily wages Job security Yes No Working hours Fixed Not fixed Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 25  Ambitiousbaba.com Paid Course Overtime Workers are paid remuneration No provision for overtime. for overtime. Salary of workers As prescribed by the Less than the salary prescribed government. by the government. Contribution to Yes No Provident fund by the employer Increment in salary Once in a while Rarely Benefits and Employees get add-on benefits Not provided. perquisites like medical facilities, pension, leave travel compensation, etc. Paper IE and IFS Module A Unit 3 Economic Planning in India & NITI Aayog Definition Of Economic Planning Economist H. D. Dickinson - “the making of major economic decisions–what and how much is to be produced and to whom it is to be allocated by the conscious decision of a determinate authority, on the basis of a comprehensive survey of the economic system as a whole.” National Planning Committee, set up in 1938 by the Indian National Congress defined planning in India as “Planning, under a democratic system, may be defined as the technical coordination, by disinterested experts of consumption, production, investment, trade, and income distribution, in accordance with social objectives set by bodies representative of the nation. Such planning is not only to be considered from the point of view of economics, and raising of the standard of living, but must include cultural and spiritual values, and the human side of life.” Planning is the skill of reaching any sort of objective utilising the resources at hand. Types Of Planning Depending on the goal, planning may be categorised into several types. Territorial standpoint: Planning may be regional or national. Political standpoint: Federal, state, or local. Participation : Centralised or decentralised planning Temporal standpoint: long-term or short-term. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 26  Ambitiousbaba.com Paid Course Similarly, planning may be sectoral as well as geographical Sectoral planning : Focuses on a single sector of the economy, Spatial planning : Focuses on development in the geographical context (which aims at influencing the distribution of people and activities in places). Some of the key forms of planning that are a part of the Indian planning process are as follows: National Planning: Joseph Stalin was the first person to implement the Five-Year Plan in the Soviet Union, in the year 1928-1933. Various Industrialists came together in 1944 and drafted a joint proposal for setting up a planned economy in India. It is famously known as the Bombay Plan. The government sought national strategy in order to take an active role in resource allocation and mobilisation for equitable growth and development as a result of the abject poverty. Regional Planning: 1st country : US in 1916 It was a huge success in achieving its well-defined goals. Planning is implemented at the regional level and is targeted to a wide geographical area (i.e., a region consisting of rural and/or urban communities), guaranteeing optimal space utilisation and human activity distribution. Objectives Of Economic Planning In India In India, the primary goals of planning are not only broad, but also open-ended. However, the following are some of the broad objectives of planning in India. Economic Growth: It aims for a sustainable growth in the economy’s output levels. Sustained growth in economic output, is one of the primary goals of planning in India. Poverty Alleviation: One of the goals of Indian planning is to alleviate poverty. Several programmes aimed at alleviating poverty have been introduced in India, by all governments, till date. Employment Generation: Fundamental goals of planning has been to reduce unemployment. Employment generation in India has therefore been an integral aspect of poverty alleviation programmed in India. Social justice and reducing the inequalities: Economic disparities have far-reaching negative consequences in any society, and there were visible economic inequalities in India at both the interpersonal and intra-personal levels. By the time India started planning, economic planning was widely acknowledged, as a technique for addressing all types of economic inequities and injustices. Self-reliant economy: Self-reliance was characterised as an endeavor, to combat a subservient position in the global economy, not as autarchy. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 27  Ambitiousbaba.com Paid Course Modernisation of the economy: India’s plans prioritised the industrialisation. Began with agriculture, a traditional sector that necessitated the quick integration of modern farming, dairying, and other practices. Note: Modernisation also refers to changes in social outlook such as the recognition that women should have the same rights as men. History Of Economic Planning In India By the 1930s, there was political agreement that independent India would be a planned economy By early 1950s, India had begun economic planning. Directed by five-year plans, with a mid-term review. In unusual years of wars and other such crises, India has opted for yearly plans, commonly denoted as ‘plan holidays’, as a departure from five-year plans. In 2015, - established the NITI (National Institution for Transforming India) Aayog, [nature of the economy had shifted to a market-dominated system and that state rights required to be prioritised, necessitating the establishment of a new structure with dynamic purposes. Centralised Planning Procedure: Offers a broad framework for the economy’s developmental and investment requirements. Also aims for equal resource mobilisation to accomplish targeted socioeconomic progress. Planning Commission In charge of planning in India since 1950. Chairman : Prime Minister and headed by a Deputy Chairman [ Not a statutory entity] Plans are approved for implementation by the National Development Council (NDC), which is chaired by the Prime Minister. Meanwhile, the central government sought to redefine the parameters of decentralised planning throughout the country. GoI established the NITI Aayog, to replace the Planning Commission. This was done to better serve the needs and ambitions of the people of India NITI Aayog, serves as the Government of India’s primary platform for bringing States together in national interest, fostering Cooperative Federalism. Established as a Think Tank, to provide relevant strategic and technical assistance to governments at the federal and state levels, on a wide range of policy issues. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 28  Ambitiousbaba.com Paid Course Five Year Highlights Plan ▪ The First Five Year Plan laid the thrust of economic development in India. ▪ It was presented by the first Indian Prime Minister, Jawaharlal Nehru to the Parliament of India. ▪ K.N Raj, a young economist, argued that India should "hasten slowly" for the first two decades. First Five- ▪ It mainly addressed the agrarian sector, including Year Plan investment in dams and irrigation. Ex- Huge (1951-56) allocations were made for Bhakhra Nangal Dam. ▪ It was based on the Harrod Domar Model and emphasised increasing savings. ▪ By the end of 1956, five Indian Institutes of Technology were established. ▪ The target growth rate was 2.1% and the achieved growth rate was 3.6%. ▪ The Second Five year Plan stressed rapid industrialisation and the public sector. ▪ It was drafted and planned under the leadership of P.C Mahalanobis. Second Five Year Plan ▪ It emphasised quick structural transformation. (1956-61) ▪ The government imposed tariffs on imports to protect domestic industries under this plan. ▪ The target growth rate was 4.5% and the actual growth rate was slightly less than expected, 4.27%. ▪ The focus was on agriculture and improvement in the production of wheat. Third Five ▪ States were entrusted with additional development Year Plan responsibilities. Ex- States were made responsible for (1961-66) secondary and higher education. ▪ Panchayat elections were introduced to bring democracy to the grassroots level. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 29  Ambitiousbaba.com Paid Course ▪ The target growth rate was 5.6% and the actual growth rate only achieved 2.4% ▪ This indicated a miserable failure of the Third Plan, and the government had to declare "Plan Holidays" (1966- 67, 1967-68, and 1968-69). The Sino-Indian War and the Indo-Pak War, which caused the Third Five Year Plan to fail, were the primary causes of the plan holidays. ▪ It was introduced under the Prime Ministership of Indira Gandhi and attempted to correct the previous failures. ▪ Based on Gadgil Formula, a great deal of emphasis was laid on growth with stability and progress towards self- Fourth Five- reliance. Year Plan: ▪ The government nationalised 14 major Indian Banks (1969-74) and the Green Revolution boosted agriculture. ▪ The Drought Prone Area Programme was also launched. ▪ The target growth rate was 5.6%, but the actual growth rate was 3.3%. ▪ It laid stress on increasing employment and poverty alleviation (garibi hatao). ▪ In 1975, the Electricity Supply Act was amended, enabling the central government to enter into power generation and transmission. ▪ The Indian National Highway System was introduced. Fifth Five- Year Plan ▪ The Minimum Needs Programme introduced in the first (1974-78) year of this plan, aimed to provide basic minimum needs. MNP was prepared by D.P. Dhar. ▪ The target growth rate was 4.4% and the actual growth rate turned out to be 4.8% ▪ In 1978, the newly elected Morarji Desai government rejected this plan. Rolling Plan (1978-80) This was a period of instability. The Janata Party government rejected the fifth five-year Plan and introduced a new Sixth Five-Year Plan. This, in turn, was rejected by the Indian National Congress in 1980 upon Indira Gandhi's re-election. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 30  Ambitiousbaba.com Paid Course A rolling plan is one in which the effectiveness of the plan is evaluated annually and a new plan is created the following year based on this evaluation. As a result, throughout this plan, both the allocation and the targets are updated. ▪ It underlined the beginning of economic liberation by eliminating price controls. ▪ It was seen as the end of Nehruvian Socialism. ▪ To prevent overpopulation, family planning was Sixth Five introduced. Year Plan (1980-85) ▪ On the recommendation of the Shivaraman Committee, the National Bank for Agriculture and Rural Development was established. ▪ The target growth rate was 5.2% and the actual growth rate was 5.7%, implying that it was a success. ▪ This plan was led by the Prime Ministership of Rajiv Gandhi. ▪ It laid stress on improving Industrial productivity levels through the use of technology. ▪ Other objectives included increasing economic productivity, increasing the production of food grains and generating employment by providing Social Justice. Seventh Five ▪ The outcome of the Sixth Five-Year Plan provided a Year Plan robust base for the success of the seventh five-year plan. (1985-90) ▪ It emphasised anti-poverty programmes, the use of modern technology, and the need to make India an independent economy. ▪ It focused on attaining prerequisites for self-sustained growth by 2000. ▪ The target growth rate was 5.0%. However, the actual growth rate grew to reach 6.01% Annual Plans (1990-92) The Eight Five Year Plan was not introduced in 1990 and the following years 1990-91 and 1991-92 were treated as Annual Plans. This was largely because of the economic instability. India faced a crisis of foreign exchange reserves during this time. Liberalisation, Privatisation, Globalisation (LPG) was introduced in India to grapple with the problem of the economy under prime minister P.V Narasimha Rao. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 31  Ambitiousbaba.com Paid Course ▪ The Eighth Plan promoted the modernisation of Industries. ▪ India became a member of the World Trade Organisation on 1 January 1995. ▪ The goals were to control population growth, reduce Eighth Five poverty, generate employment, strengthen the Year Plan development of infrastructure, manage tourism, focus on (1992-97) human resource development etc. ▪ It also laid emphasis on involving the Panchayats and Nagar Palikas through decentralisation. ▪ The target growth rate was 5.6% but the actual growth rate was an incredible 6.8%. ▪ It marked India's fifty years since Independence and Atal Bihari Vajpayee led the prime ministership. ▪ It offered support for social spheres to achieve complete elimination of poverty and witnessed the joint efforts of public and private sectors in guaranteeing economic development. ▪ The focus was also to balance the relationship between Ninth Five rapid growth and the quality of life for the people. Year Plan ▪ The objectives, further included, empowering socially (1997-2002) disadvantaged classes, developing self-reliance and primary education for all children in the country. ▪ Strategies included enhancing the high rate of export to gain self-reliance, efficient use of scarce resources for rapid growth etc. ▪ The target growth rate was estimated at 7.1% but its actual growth rate fell shorter to 6.8% ▪ The features of this plan were to promote inclusive growth and equitable development. ▪ It intended for an 8% GDP growth per year. Tenth Five ▪ It aimed at reducing the poverty by half and creating Year Plan employment for 80million people. Further, it aimed to (2002-07) reduce regional inequalities. ▪ It also emphasised reducing the gender gaps in the field of education and wage rates by 2007. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 32  Ambitiousbaba.com Paid Course ▪ The target growth rate was 8.1% while the actual growth was 7.6%. ▪ The Eleventh Plan was significant in its aim to increase enrolment in higher education and focused on distant education as well as IT institutes. Ex: The Right to Education Act was introduced in 2009, and came into effect in 2010, making education free and compulsory for children aged between 6-14 years. ▪ Its main theme was rapid and more inclusive growth. Eleventh Five Year Plan ▪ It is aimed at environmental sustainability and reduction (2007-2012) in gender inequality. ▪ C.Rangarajan prepared the Eleventh Five Year Plan. ▪ The focus was also laid on providing clean drinking water for all by 2009. ▪ The target rate was 9% and the actual growth rate was 8%. ▪ The last Five Year Plan had "Faster, More Inclusive and Sustainable Growth" as its theme. ▪ The plan aimed at strengthening infrastructure projects, and providing electricity supply in all villages. ▪ It also aimed at removing the gender and social gap in Twelfth Five admissions at school and improved access to higher Year Plan education. (2012-17) ▪ Further, it aspired to enhance the green cover by 1 million hectares each year and to create new opportunities in the non-farming sector. ▪ The target growth rate was 9% but in 2012, National Development Council approved a growth rate of 8% for this twelfth plan. Assessment Of Five-Year Plan Performance Fundamental goal : To raise national income as well as per capita income. However, both national and per capita income growth were quite modest during the planning era. 7 of the 12 five-year plans experienced lower growth rates than expected. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 33  Ambitiousbaba.com Paid Course Growth rates were modest during the first three decades of planning, but then picked up. Massive fluctuations were another aspect of growth story. Negative per capita income growth has recorded in times such as 1971–72 and 1991–92. Agriculture growth has indeed been highly volatile, due to the change in environmental factors. The green revolution of the 1960s and the government’s efforts to promote agriculture via different programmes have worked splendidly for the country. Today, India, has not only attained self-sufficiency in food grains production, but also a leading exporter of many agricultural products. With the expansion of the iron and steel, machine tool, and heavy engineering industries, India has made major strides toward capital equipment self- sufficiency. Engineering items account up a significant portion of India’s exports, contributing for around 86 per cent of overall merchandise exports. National Institution For Transforming India (Niti Aayog) Established: January 1, 2015, by a resolution of the Union Cabinet. Government of India’s top policy “Think Tank,” offering both directional and policy suggestions. Gives relevant technical assistance to the Centre and States in designing strategic and long-term policies and programmes for the Government of India NITI Aayog serves as the Government of India’s central platform for bringing states together to work in the national interest, fostering Cooperative Federalism. The creation of NITI Aayog is focused on two hubs: i)Team India ii)Knowledge and Innovation Hub. Team India Hub : coordinates state involvement with the central government, while the Knowledge and Innovation Hub : strengthens NITI’s think-tank capabilities. These hubs reflect the NITI Aayog’s two primary responsibilities. NITI Aayog is also transforming itself into a cutting-edge resource centre, with the requisite resources, expertise, and abilities to move quickly, promote research and innovation, provide strategic policy vision for the government, and cope with unforeseen situations. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 34  Ambitiousbaba.com Paid Course Chairman : Prime Minister. Govering Council Functions of NITI Aayog NITI Aayog has following important functions to perform: To develop a shared vision of national development priority sectors and strategies, with active state participation, in the light of national objectives. To promote cooperative federalism on a constant basis through organised support programmes and process with the states, understanding the strong states make a strong nation. To create procedures for developing viable plans at the village level and gradually aggregating these at higher levels of government. To ensure that national security considerations are included into economic strategy and policy in areas explicitly referenced to it. To give special attention to those segments of our society, who may be at danger of not benefiting adequately from economic advancement. Create strategic and long-term policy and programme frameworks and initiatives, as well as track their development and efficacy. Lessons learned through monitoring and feedback will be utilised to make novel changes, including midcourse adjustments. To give guidance and foster collaboration between important stakeholders and like-minded think tanks on a national and worldwide level, as well as educational and policy research organisations. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 35  Ambitiousbaba.com Paid Course To establish a collaborative network of national and international specialists, practitioners, and other partners to encourage knowledge, innovation, and entrepreneurship. To provide a forum for the resolution of cross-sectoral and cross-departmental issues in order to expedite the execution of the development plan. Maintaining a cutting-edge Resource Centre, serving as a repository for research on good governance and best practices, in sustainable and equitable development, and assisting in their dissemination to stakeholders Actively monitor and assess programme and initiative execution, including the identification of required resources, in order to increase the likelihood of success and scope of delivery. To concentrate on technological advancement and capacity building for programme and initiative execution. To carry out any additional actions that may be required to enhance the implementation of the national development strategy and the previously indicated goals. The case for NITI Aayog Planning Commission-not in tune with new development strategy The Planning Commission is out of sync with the current development strategy: ▪ Over the years, there were two inconsistencies between the Indian development strategy and the five-year planning model that hampered the economic climate. ▪ 1st : Between the planning framework and the market’s role. ▪ In the early years after independence, a planning framework was necessary to distribute the low levels of savings to invest in badly needed infrastructure and priority sectors in order to overcome serious infrastructure deficiencies and the economy’s lack of competitiveness. ▪ However, the framework did not adjust to the transition phase, following the 1991 economic reform era. ▪ With budgetary restrictions tightening and political economic concerns crowding out infrastructure expenditure with subsidies and transfers, the planning process has lost much of its importance. ▪ 2nd: between centralised authority over resource allocation and the states’ developmental role, in a federal system of government. ▪ The loss of single-party dominance, as well as the rise of coalition governments and regional parties as members of the central coalition, Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 36  Ambitiousbaba.com Paid Course highlighted the conflict between centralised planning in a federal structure. ▪ As a result of the above, the two major sources of economic dynamism, the private sector and the states, were forced to operate in a limited environment. Paper IE and IFS Module A Unit 4: Role of Priority Sector and MSME in the Indian Economy Role of Priority Sector and MSME in the Indian Economy Development of Priority sectors are much needed, for balanced and inclusive growth. The RBI’s Priority Sector Lending classifications and standards are meant to match with emerging national priorities and bring a deeper focus on inclusive development, thereby building consensus among all stakeholders. Banks are entrusted with encouraging the growth of such sectors, by providing appropriate and timely financing Micro, Small, and Medium Enterprises (MSMEs) : country’s strongest drivers of economic growth, innovation, and employment. ▪ vast network of over 64 million enterprises, the MSME sector contributes significantly to the growth of the Indian economy. The sector contributes ▪ manufacturing output = roughly 45 % ▪ Exports= >40% ▪ GDP = >28% Employing = approximately 120 million people ▪ Ranking 2nd only to agriculture, in terms of size of employment. Diverse: In terms of enterprise size, product and service diversity, and level of technology deployed. Driver of economic growth : Potential to grow faster and viewed as a driver of economic growth and a means of promoting equitable development. The MSME sector’s primary benefit is its employment potential, at a low capital cost. The importance of the MSME sector in ▪ employment creation, Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 37  Ambitiousbaba.com Paid Course ▪ innovation, ▪ entrepreneurship, and ▪ supply chains is critical. Definition & Role Of Priority Sector Social Control over banks : Banking Laws (Amendment) Bill 1967, tabled in the Lok Sabha on December 23, 1967 Banks were directed to align their activities with national objectives through social control. The current framework of Priority Sector Lending (PSL) Dec 14, 1967: States in Lok Sabha by Morarji Desai, then Deputy Prime Minister and Minister of Finance ,that persistent complaints that several priority sectors, such as agriculture, SSI, & exports, had not received their fair share of bank credit. This appears to be the first time the phrase priority sector has been used. As a result, the concept of priority sector lending was born. July 1968: At a National Credit Council meeting , it was stressed that commercial banks should boost their involvement in financing priority sectors such as agriculture and small-scale industries. PSL comprises those sectors that have a substantial influence on vast portion of the population, the weaker sections & sectors that are employment intensive List Of Priority Sectors Identified In India To align it with emerging national priorities and bring a sharper focus on inclusive development, the RBI revised PSL guidelines on September 4, 2020, by including ▪ Bank finance to start-ups (up to Rs. 50 crores); ▪ Loans to farmers for the installation of solar power plants for solarisation of grid-connected agriculture pumps; ▪ And loans for the establishment of Compressed Biogas (CBG) plants. The following are the priority sector categories: I)Agriculture II)MSMEs III)Export Credit IV) Education V)Housing Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 38  Ambitiousbaba.com Paid Course VI)Social VII)Renewable Energy VIII)Others IX)Weaker sections Priority Sector Lending Norms The priority sector lending targets and sub-targets are to be computed based on the Adjusted Net Bank Credit (ANBC)/ Credit Equivalent of Off-Balance-Sheet Exposures (CEOBE) as applicable on the corresponding date of the preceding year and are as follows. Definition Of MSME In terms of Government of India Gazette Notification S.O. 2119(E) dated June 26, 2020 the definition of Micro, Small and Medium Enterprises is changed as under: Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 39  Ambitiousbaba.com Paid Course All enterprises are required to register online on Udyam Registration Portal and obtain ‘Udyam Registration Certificate’. The new definition of MSMEs will make it easier for small businesses to expand and flourish. The resulting economies of scale can boost productivity without depriving MSMEs of government benefits such as market support, export promotion, preferential procurement in the public sector, and incentives through the Micro Small Enterprises-Cluster Development Programme (MSE-CDP), Prime Minister Employment Generation Programme (PMEGP), and Scheme of Fund for Regeneration of Traditional Industries (SFURTI), as well as the enabling of IT ecosystems. This favourable atmosphere will encourage competitiveness and help MSMEs avoid growth retardation. The launch of the new Udyam Registration Portal in July 2020 is one of the recent efforts made by the government to boost the ease of doing business for MSMEs. The registration procedure is entirely online, digital, and paperless, and it is based on self-declaration. There are no documents or proof necessary to be supplied while registering. Role & Significance Of Msme In Economic Development Feature : Employment potential at a low capital cost. Small and Medium Enterprises (SMEs) account for around 90% of businesses and more than 50% of employment globally. The significance of the MSME sector is critical. Hence, it is important to foster, nurture, and assist new business ideas, as they develop into enterprises. The sector has benefited the economy, by encouraging the development of industries in all parts of the country. Factors such as SME finance from both domestic and foreign investors, as well as new technologies, are supporting SMEs in bringing substantial value to their businesses Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 40  Ambitiousbaba.com Paid Course I)Job creation, II)Innovation, III)Entrepreneurship IV)Supply chains MSME – Present Status In India Contributing significantly to the expansion of entrepreneurial endeavours through business innovations. The MSMEs are widening their domain across sectors of the economy, producing diverse range of products and services to meet the demands of domestic as well as global markets. Contribution to GDP As per the data available with Central Statistics Office (CSO), M/o Statistics & Programme Implementation, the contribution of MSME sector in Country’s Gross Value Added (GVA) and Gross Domestic Product (GDP) at current prices from 2014-15 to 2018-19 is as below: Bank Credit to MSME Sector The banking sector lending to industry has picked up, led by disbursals to the micro, small and medium enterprises (MSME) sector. Bank credit to industry improved 12.6% year-on-year in September 2022, compared to a muted 1.7% growth in the same month in FY 2021. Banks’ lending: ▪ Micro and small businesses: Grew 27% YoY ▪ Medium enterprises: Increased 36% during the month. The higher credit growth for the MSME sector may have come due to the extension of the Emergency Credit Line Guarantee Scheme till March 31,2022. Employment Generation Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 41  Ambitiousbaba.com Paid Course MSME sector has been creating ▪ 11.10 crore jobs in the rural and the urban areas across the country. o 360.41 lakh in Manufacturing, o 0.07 lakh in non-captive Electricity Generation and Transmission, o 387.18 lakh in Trade o 362.82 lakh in Other Services Trade, import and export for MSMEs’ share in exports assumes significance as the government has been targeting $1 trillion in exports by FY27. In accordance with the target, the government had added ‘Capacity Building of First-Time MSME Exporters’ (CBFTE) scheme to enhance the quality of MSME products globally and increase exports. MSME Sector has helped the country to achieve the following objectives: High contribution to domestic production Significant export earnings Low investment requirements Operational flexibility Location wise mobility Low intensive imports Capacities to develop appropriate indigenous technology Import substitution Contribution towards defence production Technology-oriented industries Competitiveness in domestic and export markets. Contribution Of Msme In GDP MSMEs are among the most powerful engines of economic development, innovation, and employment generation. With a broad network of over 64 million firms, the MSME sector contributes significantly to the growth of the Indian economy. ▪ Industry generates o Manufacturing output = roughly 45 % o Exports= >40% o GDP = >28% Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 42  Ambitiousbaba.com Paid Course ▪ Employing = approximately 120 million people o Ranking 2nd only to agriculture, in terms of size of employment. As India grows to a $5 trillion economy, the Ministry of MSME has set a goal of increasing the MSME sector’s contribution to GDP to 50 per cent, by 2025. RECENT INITIATIVES IN MSME SECTOR, VIZ., ATMANIRBHAR BHARAT PACKAGE, MAKE IN INDIA, START-UP INDIA, STAND-UP INDIA, ETC. The government revised the definition of the MSME in 2020, and the new MSME definition includes around 99% of all enterprises. AIMS: to assist MSMEs in expanding and creating more jobs. Abolish the difference between manufacturing and service MSMEs The Government of India has taken deliberate measures to guarantee that the benefits of these MSME initiatives reach MSMEs on time. Numerous announcements under the Atmanirbahar Bharat Package to offer urgent help to the MSME sector. The ‘Make in India’ initiative and the ‘Atmanirbhar Bharat Abhiyaan’ (Self Reliant India Campaign) have played significant role in enhancing business and local manufacturing in the country, with a special emphasis on MSMEs To maintain business continuity during the COVID-19 pandemic, the national government has also undertaken fast response measures in the guise of the Atmanirbhar Bharat Package. Some of the most important measures are listed below. Make in India Introduced: by The Prime Minister in September 2014 As part of a larger set of nation-building initiatives. Objective: Turning India into a global design and manufacturing hub. Built on four pillars established to boost entrepreneurship in India, not just in manufacturing but also in other sectors. Aims: to increase the manufacturing sector’s contribution to GDP to 25%, by 2020–2022. Four Pillars: 1.New Processes, 2.New Infrastructure, 3.New Sectors, 4.New Mind-set Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 43  Ambitiousbaba.com Paid Course Emergency Credit Line Guarantee Scheme (ECLGS) During COVID, the government introduced a Rs. 3 lakh crore collateral-free credit scheme that is intended to benefit 45 lakh MSMEs. Aims to provide much-needed relief to the MSME sector by incentivizing Member Lending Institutes (MLIs), to provide extra credit at reasonable interest rates, allowing MSMEs to fulfil operational liabilities and restart their businesses. Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE) Individual Micro and Small Enterprises can apply for collateral-free loans (up to Rs. 1 crore) from the Ministry of MSME and the Small Industries Development Bank of India (SIDBI). To strengthen the credit delivery system and facilitate the flow of credit to the MSE sector: Acknowledging that the availability of bank credit without the hassles of collaterals or third-party guarantees would be a substantial source of support to first generation entrepreneurs, in realising their dream of having established their own Micro and Small Enterprise (MSE), the Ministry of MSME launched the Credit Guarantee Scheme (CGS) The CGTMSE supported the pandemic affected MSME sector in regaining its footing Interest Subsidy Eligibility Certificate (ISEC) The plan has been implemented as a funding mechanism for the khadi programme run by the country’s khadi institutions. It facilitates borrowing from banks and bridges the gap between the availability of funds from budgetary sources and the real financial requirements. Start-up India Started : In January 2016 Tagline : “Start-up India and Stand-up India.” The initiative intends to create a robust environment for fostering innovation, promoting longterm economic growth, and creating large-scale employment opportunities. Apart from the technology sector, the start-up movement will expand to agriculture, manufacturing, healthcare, and education; and from current tier 1 cities, it will spread to tier 2 and tier 3 cities, including semi-urban and rural areas. Aims: to support individuals or businesses that have recently formed their own start-ups, by offering better finance, including tax breaks, and ensuring that the process of establishing a start-up in India is smooth and quick. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 44  Ambitiousbaba.com Paid Course Aimed at catalysing start-up culture and creating a robust and inclusive environment for innovation and entrepreneurship Start-ups promote economic development and wealth creation, create jobs, and foster an innovation culture, transforming millennials from job seekers to job givers—and so, potentially emerge as a vehicle to capture the demographic dividend. Stand-up India Launched : To provide a business opportunity to those who are either females or belong to the SC/ST category and require financial assistance to start their greenfield business ventures. These individuals are given special loans ranging from Rs. 10 lakhs to Rs. 1 crore, at a low interest rate. Production Linked Incentive Scheme(PLI) Keeping in mind India’s ambition of becoming an ‘Atmanirbhar,’ an allocation of Rs. 1.97 lakh crore has been earmarked in the Union Budget 2021-22 for PLI programmes, for 13 important sectors over a 5-year period, beginning with fiscal year (FY) 2021-22. The PLI is a traditional and widely employed government method, for increasing the production of products considered important for job creation, social welfare, and taxation. PLIs are simply financial incentives for enterprises to increase output. They might take the form of tax breaks, reduced import and export levies, or reduced land acquisition requirements. The PLI scheme is a Government of India initiative that encourages not only international enterprises to locate workers in the country and so produce employment, but also domestic and local industry to create micro jobs. The PLI schemes provide ▪ Qualifying manufacturers, incentives ranging from 4%-6% on additional sales, above the base year of 2019-20, for a 4 to 6 year period. ▪ It is comparable to a subsidy provided through direct payments as budgeted for locally made items by the selected beneficiaries. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 45  Ambitiousbaba.com Paid Course ▪ These specialised sectors would make Indian firms globally competitive, encourage investment in core competencies and cutting-edge technologtechnology, assure efficiencies, produce economies of scale, boost exports, and integrate India into the global supply chain. Furthermore, it would promote the digital economy, boost exports, safeguard communications infrastructure, and double farmers’ income. Some of the other schemes to promote MSME are, ▪ Udyami Mitra Portal: Launched by SIDBI to improve accessibility of credit and handholding services to MSMEs. ▪ MSME Sambandh: To monitor the implementation of the public procurement from MSMEs by Central Public Sector Enterprises. ▪ MSME Delayed Payment Portal: This will empower Micro and Small entrepreneurs across the country to directly register their cases relating to delayed payments by Central Ministries/Departments/CPSEs/ State Governments. ▪ Digital MSME Scheme: It involves usage of Cloud Computing, where MSMEs use the internet to access common as well as tailor-made IT infrastructure. ▪ Prime Minister Employment Generation Programme: A credit linked subsidy programme under Ministry of MSME. ▪ Scheme of Fund for Regeneration of Traditional Industries (SFURTI): Organises traditional industries and artisans into clusters and make them competitive by enhancing their marketability & equipping them with improved skills. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 46  Ambitiousbaba.com Paid Course ▪ A Scheme for Promotion of Innovation, Rural Industries & Entrepreneurship (ASPIRE): It creates new jobs & reduce unemployment, promotes entrepreneurship culture, facilitates innovative business solution, etc. ▪ National Manufacturing Competitiveness Programme (NMCP): To develop global competitiveness among Indian MSMEs, by improving their processes, designs, technology, and market access. ▪ Micro & Small Enterprises Cluster Development Programme (MSE-CDP): Adopts cluster development approach, for enhancing the productivity and competitiveness as well as capacity building of MSEs. ▪ Credit Linked Capital Subsidy Scheme (CLCSS): It is operational for upgradation of technology for MSMEs. Paper IE and IFS Module A Unit 5: Infrastructure Including Social Infrastructure Infrastructure Including Social Infrastructure Infrastructure investment increases the capital stock required for economic development. Historically, infrastructure in India has always been funded by the government. However, considering the paucity of public resources and the necessity to redirect precious public resources to health and education, attempts have been made to encourage private sector investment in the development of this infrastructure. Currently, the source of finance differs greatly between sectors. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 47  Ambitiousbaba.com Paid Course Infrastructure & Economic Development Infrastructure is the foundation for economic growth, and it encompasses the physical, natural, and organisational structures required for long-term economic development. Economic infrastructure facilitates labour and capital mobility, within and between economies. Infrastructures provide a large number of job creations and possibilities. The availability of high-quality infrastructure ensures a rise in output and productivity. Facilitates the circulation of commodities and raw materials, eliminating inefficiencies and resulting in the effective use of scarce resources. Infrastructures include Roads, Ports, Airports, Bridges, Railways, Water supply, Sewerage, Power, Telecommunications Irrigation, and so on. A solid infrastructure facilitates the production of high-quality goods and services, as well as the transport of finished items to marketplaces and builds essential social institutions such as schools and hospitals. Infrastructure can be either Hard or soft. It is also segregated as physical and social infrastructure. Hard Infrastructure : Refers to major physical networks such as roads, ports, airports, pipelines, etc., that are required for the operation of a modern industrial nation. Soft Infrastructure : Refers to institutions that are essential to keep the economy running, such as financial, educational, healthcare, and law-enforcement organisations. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 48  Ambitiousbaba.com Paid Course Energy, Power, Transport System, Viz., Rail, Road, Civil Aviation Some of the major infrastructures are presented below. Energy Infrastructure Energy infrastructure is the organizational framework that permits large-scale energy transmission from producer to consumer, as well as energy flow direction and management. Many components make up energy infrastructure: Natural gas pipelines, storage and distribution terminals; petroleum pipelines, specialized coal handling facilities for washing, storing, and transporting coal; renewable energy infrastructure, such as wind power, solar power, hydro power, geothermal power, and biomass or biofuel facilities, etc. Renewable Energy India has achieved a cumulative installed renewable energy capacity (excluding large hydro) of 92.54 GW out of which 5.47 GW was added in the period April 2020 till January, 2021. During the period from April 2014 to January 2021, the installed RE capacity of India has increased by two-and-half times, and in the same period, the installed solar energy capacity has increased 15 times. Water Management Infrastructure This comprises drinking water supply, wastewater collection and disposal, drainage systems, major irrigation systems (reservoirs, irrigation canals), major flood control systems, and other infrastructure. Untreated sewage waste is one of the major causes of surface water and groundwater pollution in India. The Water (Prevention and Control of Pollution) Act, 1974 was the first legislative measure taken to directly address the issue of water pollution and conservation in the country. This Act provides for establishing Central and State Pollution Control Boards responsible for the prevention and control of water pollution. Communications Infrastructure Communication infrastructure includes postal services, telephone networks, including mobile phone networks, television and radio broadcast stations, the internet, communication satellites, and so on. Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 49  Ambitiousbaba.com Paid Course Few of the initiatives taken by Government to boost Communication Infrastructure in India are: FDI cap in the telecom sector has been increased to 100% from 74%. In 2020, the government approved the Production Incentive Scheme (PLI) for Large-scale Electronics Manufacturing. Department of Telecommunication launched ‘Tarang Sanchar’ – a web portal sharing information on mobile towers and EMF Emission Compliances The government has approved a project at a cost of 20,000 crores for creating a National Optical Fiber Network (NOFN) which will provide broadband connectivity to 2.5 lakh gram panchayats for various applications like eHealth, e- education, and e-governance. Critical Infrastructure The assets on which the broader economy is dependent are referred to as critical infrastructure. Electricity generation, transmission, and distribution; gas production, transport, and distribution; oil and oil product production, transport, and distribution; telecommunication; water supply, agriculture, food production and distribution, public health (hospitals, ambulances), transportation systems (fuel supply, railway network, airports, harbours, inland shipping), financial services (banking, clearing), and security services including police, military, etc., are included in the critical infrastructure category. Transport Infrastructure Road Transport National Highways Network to be expanded by 25000 Km in 2022-23. Rs 20000 Crore to be mobilized for National Highways Network expansion. Multimodal Logistics Parks Contracts to be awarded through PPP mode in 2022-23 for implementation of Multimodal Logistics Parks at four locations. Railways One Station One Product concept to help local businesses & supply chains. 2000 Km of railway network to be brought under Kavach, the indigenous world class technology and capacity augmentation in 2022-23. 400 new generation Vande Bharat Trains to be manufactured during the next three years. 100 PM GatiShakti Cargo terminals for multimodal logistics to be developed during the next three years. Parvatmala Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 50  Ambitiousbaba.com Paid Course National Ropeways Development Program, Parvatmala to be taken up on PPP mode. Contracts to be awarded in 2022-23 for 8 ropeway projects of 60 Km length. Urban Infrastructure Urbanization is an integral part of the process of economic growth. As in most countries, India’s towns and cities make a major contribution to the country’s economy. With less than 1/3 of India’s people, its urban areas generate over 2/3 of the country’s GDP and account for 90% of government revenues. Hard infrastructure systems owned and operated by municipalities, such as roadways, water distribution, and sewage, are referred to as urban or municipal infrastructure. It may also contain certain soft infrastructure assets, such as parks, public pools, and libraries. Green Infrastructure Green infrastructure is a concept that highlights the value of natural environment. The life support service provided by a network of natural ecosystems are emphasized. Examples include green belts, wildlife sanctuaries, environmentally sensitive areas, tiger, lion, and elephant reserves, bird sanctuaries, and the conservation of the Western Ghats.. Concept Of Social Sector & Social Infrastructure The Indian social sector is very important to the country’s growth and development. It comprises multiple key components, all of which contribute to general human development. The expenditure on these elements is a critical indicator of the government’s commitment to India’s social sector. Positive externalities are associated with social infrastructure. Plays an important role in a country’s economic development and wellbeing. Social Sector: Health, Education, Water supply, Transportation, Agriculture and allied activities, Best Study Materials – Videos, Mock Tests, PDF for JAIIB Exams | test.ambitiousbaba.com 51  Ambitiousbaba.com Paid Course Infrastructure, Irrigation, Management of natural resources such as water, forest, land, energy, Welfare programmes and services, and so on Investing in human capital including education, skill development, training, and the provision of healthcare facilities increases labour productivity and societal welfare. For inclusive development: Public investments in social infrastructure such as education, health, housing, and connectivity are critical. At the time of independence: ▪ Literacy level: barely 17% ▪ Life expectancy: 32.5 years at birth. Present time: ▪ Literacy rate = 74.04% ▪ Average life expectancy =70 years. ESG ESG has gained a foothold among the stakeholders and is considered a modern dimension of corporate social responsibility. ESG (Environmental, Social, and Governance) refers to the three most essential factors which determine the long-term and ethical impact of a business or company investment. The majority of socially responsible investors use ESG criteria to screen investments. Health, Education, Family Welfare Health Health is the most crucial component of social infrastructure. Healthcare has evolved to be one of India’s most important industries, both in terms of income and employment. Hospitals, medical devices, clinical trials, outsourcing, telemedicine, medical tourism, health insurance, and medical equipment are all part of the i