Indian Economy Revision PDF

# Chapter 5: Indian Economy ## Primary Sector (Agriculture & Allied Activities) - Involved in obtaining natural resources and raw material from the planet. - Produces goods that are offered or sold to the general population. ### Categories - **Genetic Industry** - Extraction or gathering of...

# Chapter 5: Indian Economy ## Primary Sector (Agriculture & Allied Activities) - Involved in obtaining natural resources and raw material from the planet. - Produces goods that are offered or sold to the general population. ### Categories - **Genetic Industry** - Extraction or gathering of raw material. - Then enhanced through labour intensive manufacture. - E.g. Agriculture, forestry, fisheries etc. - **Extractive Industry** - Extraction or manufacture of finite raw material that cannot be replanted or replenished by aquaculture. - E.g. Mineral fuels extracted. - Stone quarried. ### Primary Sector Classifications - **Farming** - Ability to make raw food using agricultural methods. - Rough materials (textile separated from food). - **Mining** - Extraction of raw material from ground (Rock, Sand, & Metal). - Significant source of raw materials for secondary sector. - **Forestry** - Crucial supplier of raw material. - **Fishing** - Fish farms provide about half of world's seafood. ## Agriculture - Primary source of livelihood for about 58% of Indian population. - Share of agriculture and allied sector in - 17.8% in FY 20. - India's Food and Grocery market - 6th largest - India's food processing industry - 5th largest - GVA< 8.80% - Manufacturing - GVA < 8.39% - Aquaculture - India - World's 2nd largest producer of rice, wheat, sugarcane, cotton, groundnuts and fruit & vegetables. ### Major Investments - Indian Food Processing Industry - FDI - 9.08 Billion USD (2000 - 2014). - 8,500 GR - Ethanol Production. - Mega food Park - Rajasthan, 1.66 Billion. - Agri Food Start-up - Funding (2013 - 17) - India will rank 3rd - Agri-tech funding and number of agri start-ups. ### Major Government Initiatives - **PM-Kisan - Pradhan Mantri Kisan Samman Nidhi Yojana - 2021 Cr** - to bank accounts of 10 million beneficiaries. - **TMA (Transport & Marketing Assistance)** Scheme - Financial Assistance. - Boost Exports ## Aquaculture Export Policy 2018 - Aim - Increase India's exports to USD 60 Billion by 2022. ### PM-AASHA - Pradhan Mantri Annadata Aay Sanrakshan Abhiyan - 415,053 Cr - Fair prices for farmers - Collaboration with private agencies ### AGRI-UDAAN - Mentoring start-ups. ### PMKSY - PM Krishi Sinchar Yojana - 50,000 Cr. - Permanent solution for droughts. ### Krishi-UDAAN 2.0 - Assistance & Incentive for movement of agri-produce by air transport. ## Budgets - Key Highlights ### 2023 - Agri Audit Raised to 20 trillion USD - PM Matsya Sampada Yojana - Further enable activities of fish vendors - Investment - Rs 6000Cr. - 10 Million farmers - shift to natural farming. - Encourage state & UTs to encourage the use of alternative fertilizers. ### 2022 - 2.37 Lakh Cr direct payments - 1.63 crore farmers. - Chemical Ferre Natural farming - 5 Km wide corridor of Ganga. - Kisan Drones - 9.08 Lakh hectare land - Ken-Betwa link project - Agriculture credit increased - 16.5 lakh Cr. - Swarna AMITVA scheme - Operation Green Scheme # Secondary Sector (Manufacturing) - PM launched 'Make in India'. ### Major Investments - One Plus - India will become it's largest R&D base. ### Major Government Initiatives - National Policy on Electronics - Creation of 400 Billion USD electronics industry. - 2018 - 401 - Exempted 35 machine parts from basic custom duty - Mobile Phone - Phased Manufacturing Programme (PMP) - Add more smartphone components under make in India. - MITRAL Mega - Investment (Textile Parks) Scheme - Build world class infrastructure. ### Budget Key Highlights - Rs 18,73,32,30 Cr allocated for manufacturing. - 35.4% higher than previous year. - TIES - Trade Infrastructure for Export Scheme - Promote Indian Exports. # Tertiary Sector (Services) - India's Services Sector - Biggest recipient of FDI. - GVA - USD 85.95 Billion (2000 - 2021) - Tata Tele - Collals with Zoom - Ministry of Education & UAC - Ease of doing business - Indian Healthcare industry - going digital - IGNITE - Develop highly trained technicians. ### Major Government Initiatives - **SEIS (Service Export from India Scheme)** - 3-5% of net foreign exchange earned. - Le given for Model 1 & Model 2 services. - **National Digital Communications Policy 2018** - Connect India - Propel India - Secure India - **National Tourism Policy (2018)** - I must see destinations. - **National Education Policy (2020)** - ( 5+3+3+4) - 157 new medical colleges. - **PM Ayushman Bharat Health Infrastructure Mission** - Strengthen critical healthcare network. - **India - UK - 11th Economic & Financial Dialogue** - Discuss FTA opportunities in services. - **India - Australia - Collaboration - Cyber enabled critical technology** - **US - 2021 - 22 - Rs 7000 cr - Bharat Net** - boost digital connectivity - **PM Kaushal Vikas Yojana** - Train & Labn candidates - COVID-19 related skills. # Agricultural & Industrial Policies of India ## (A) Agricultural Policies ### 1st Five Year Plan (1951-56) - Highest priority - Agriculture. - One third / 31% of total plan funds allocated. - River valley projects developed. - Irrigation facilities developed. ### 2nd Five Year Plan (1956-61) - Industrial growth. - Only 20% to agriculture. ### 3rd Five Year Plan (1961-66) - Self-sufficiency in food grains. - Raw material needs of industries. - Green Revolution plan started on small scale. - Failed due to: - Chinese Aggression (1962) - Indo-Pak War (1965) - Severe Drought (1965-66) - Food crisis ### 4th Five Year Plan (1969-74) - Aim - 5% annual growth in food grains. - Irrigation facility improved. - HYV seeds, fertilizer use, new agriculture techniques. ### 5th Five Year Plan (1974-79) - Self-sufficiency in food grain & poverty eradication. - Dry farming propagated. - Achieved target successfully with 4.6% growth. ### 6th Five Year Plan (1980-85) - Land reforms. - Use of HYV seeds. - Annual Growth Rate - 6% - Highest ever during this plan. ### 7th Five Year Plan (1985-90) - Highest growth in food grains. - Areas of Green Revolution expanded. ### 8th Five Year Plan (1992-97) - Stagnation in food grains. ### 9th Five Year Plan (1997-01) - Mixed Success. ### National Agricultural Policy 2000 - Sustainable management of water land & natural resources. ### 10th Five Year Plan (2002-2007) - Development of rural infrastructure. - Dissemination of agriculture technology to support agriculture. - Marketing reforms. ### 11th Five Year Plan (2007-12) - Achieve inclusive growth. - Target GDP - 4% per annum. - National Food Security Mission (NFSM) (2007) - Improve country's overall crop production - Rice, Wheat, Pulses. - Primary objective - Introduce technological components. - Achievements (Rashtriya Krishi Vikas Yojana) - Green Revolution in ration region. - Encouraging use of palm oil. - Initiative on vegetable protein clusters. - National mission for protein supplement initiative. - Saffron mission. ### 12th Five Year Plan (2012-17) - Agriculture sector grew by 1.6 % per annum in first four years. - Due to lower production against targeted 4%. ## (B) Industrial Policies - Aim - Industrial Development. Rules & Procedures that govern growth and patterns of Industrial Activity. ### 1. Industrial Policy Resolution 1948 - Large Industries classified: - **Strategic (Public)** - Central Gov - Monopoly (Arms, Atomic Energy, Rail). - **Basic (Public-cum-Private)** - Coal, Iron & Steel, Aircraft manufacture, Ship building, Telephone, Sugar, Cotton, Textile etc - **Important (Controlled Private)** - Heavy chemicals, Leather, open for private sector - Mineral fuels extracted - Stone quarried. - **Other (Private, Co-operative)** - All other sectors. ### 2. The Industries (Development & Regulation) Act 1951 - Investment & Production - according to planned priorities. - Protection of Small entrepreneurs against competition from larger industries. - Prevention of monopoly. - Balanced regional development. - Provisions - Restrictive & Reformative. ### 3. Industry Planning Resolution (IPR) 1956 - Speeding up the pace of industrialization. - Expansion of Public Sector & growth of Co-operative sector. - Setting up new Industrial set-up. - Prevent private monopolies. ### 4. New Industrial Policy 1991 - Announced in the mid of severe economic instability in the country. - **Features:** - Strengthening of private sector. - Greater contraction for public sector. - Abolition of licensing role & system of private sector. - Dismantling of controls. - Dispersing Industries. - Shift industries favoured agro-based industries near farming areas. - Shift industries away from big concentrated entities. - Limiting role of public sector. - Pointed out grey areas - not fit for PSUs. - Liberalization of foreign investment. - Promotion of small scale industries (SSI). - **Domestic Regulatory Reforms** - Redundancy of reserved industries. - Security & industries of strategic concern reserved for public sector. - Abolition of industrial licensing. - Abolish licensing for all industries except community, social, safety and manufacture of hazardous industries. # Balance of Payments (BOP) - Method countries use to monitor all international monetary transaction at a specific period. - Calculated every quarter and every calendar year. - All trades conducted by both private and public sectors are accounted for in BOP. - Country received money - Debit - Country paid/given - Credit. - Theoretically, Bop should be zero i.e. assets and liabilities should balance. - Bop can tell observed if country has deficit or surplus. ## Structure of Bop - **Current Account** - Inflow and outflow of goods & services. - **Financial Account** - Funds to & from foreign countries. - **Capital Account** - Monetary sale, purchase of assets like properties. - **Three Major Elements** - Investment - Foreign exchange reserves - Loans & Borrowings # Balance of Trade (BOT) - Difference between monetary value of exports & imports of output in an economy. - **Favourable** - Trade Surplus (Excess of Exports) - **Unfavourable** - Trade Deficit (Excess of Imports.) ## Foreign Investment in India ### 1. Foreign Direct Investment (FDI) - Purchase of an interest in a company by a company or an investor located outside its borders. - Intention of establishing a lasting interest. ### 2. Foreign Portfolio Investment (FPI) - Securities & other financial assets held by investors in another country. - Does not provide investor with direct ownership. - Just a common way for investors to participate in overseas economy. ### 3. Foreign Institutional Investment (FII) - Include Hedge funds, insurance Companies, Pension funds, investment banks & mutual funds. - Fill - important source of capital in developing economies. # Chapter 1 : Basics of Demand & Supply and Forms of Market Competition - **Demand** - Desire, willingness to pay, ability to pay. - **Law of demand** - Inverse relationship - Price & quantity demanded. - Price ↑, Quantity demanded ↓. - Price ↓, Quantity demanded ↑. - Condition - 'Other things being equal'. - Ceteris Paribus. ## Ceteris Paribus (Assumptions) - Consumer's Income - Preferences - Fashion - Price of related goods (Substitute & complementary). - Expectation of future price changes or shortages. - Size, age composition & sex ratio - Range of goods available. - Distribution of Income & Wealth of community. - Government policy. - Weather conditions. ## Exemptions - **Giffen Goods** - Inferior Goods - When prices fall - less quantity purchased than before. - Reason - Negative income effect. - E.g. Bread, rice, etc. - **Articles of Snob Appeal** - Expensive, prestige goods. E.g. gold, luxury cards etc. - **Speculation** - Speculate about future changes in price - don't behave accordingly to law of demand at present price. E.g. COVID 19 - Sanitiser. - **Consumer's Psychological Bias / Illusion** - Wrongly biased against quality of commodity with price change. - **Supply** - How much market can offer. - Total quantity of commodity - Stock - Quantity actually being - Supply (offered for sale) - **Law of supply** - Direct relationship between price and quantity demanded. - Other things being equal - Price ↑, Quantity supplied ↑ ## Ceteris Paribus (Assumptions) Of Supply - State of technology - Price of factors of production. - Number of firms in the market. - Goals of the firm - Sellers expectations regarding future prices. - Tax & Subsidy policy. - Price of other goods ## Equilibrium - No shortage, no surplus. - Equilibrium price - quantity of goods supplied = quantity of goods demanded. # Elasticity of Demand - How sensitive demand is - to change in other economic variables. - % change in quantity demanded / % change in other economic variables. ## Types of Elasticity of Demand - **Price Elasticity** - % change in quantity demanded / % change in price. - **EP** = Change in quantity / original quantity. - **EP** = Change in Price / Original price. - **EP** = Change in quantity / original quantity x original price / change in price. ### Types: - **Perfectly elastic** - Small change in price - Major change in demand. - **Perfectly Inelastic** - Change in price - No change in demand. - **Relatively Elastic** - Proportionate change in demand is greater - proportionate change in price. - **EP>**1. - **Relatively Inelastic** - Percentage change in demand is less - Percentage change in price. - **EP<**1. - **Unitary Elastic demand** - Proportionate change in demand is same - change in price. - **EP =** 1. ## Factors affecting price elasticity of demand - **Price level** - Moderately - Elastic. - Very cheap - Elastic. - Very costly - Inelastic. - **Availability of substitute** - Close substitute - Very elastic - No close substitute - Inelastic. - **Necessities** - Inelastic. E.g. Drinking water, Salt. - **Habit** - Inelastic. E.g. Cigarettes. - **Time period** - Overtime, it becomes elastic. - **Nature of commodities** - Necessities - Inelastic. - Comfort / Luxuries - Elastic. - **Various uses** - Several uses - Elastic. E.g. Milk, wood. - Few uses - Inelastic - **Postponing Consumption** - Elastic. # Income Elasticity of Demand - % change in quantity demanded / % change in income. ## Types: - **Negative** - Demand ↑, Income ↓. - Inferior goods - **Zero** - Demand - No change as income changes. - Essential goods. - **Greater than zero** - Demand ↑, Income ↑. - Less than one. - **Unity** - Both rise in same proportion - **Greater than unity** - Demand rises more in proportion to rise in income. # Cross Elasticity of Demand - Responsiveness of demand to changes in prices of related commodities. ## Types: - **Perfect Substitutes** - Cross Elasticity = 0 - **Not related** - Cross Elasticity = 0. - **Complementary** - Cross Elasticity = Negative. # Increase & Decrease in Demand - **Increase** - More demand at same price. - Demand increases - not because of price but change in other determinants. - Shifts right. - **Decrease** - Less demand at same price. - Demand decreases - not because of price but change in other determinants. - Shifts left. # Expansion & Contraction in Demand - **Expansion** - Quantity demanded ↑ - Price ↓ (Increase) - **Contraction** - Quantity demanded ↓ - Price ↑ (Fall) # Forms of market competition - **1. Perfect Competition** - Large number of buyers & sellers. - Homogeneous products. - All sellers are small sellers - No big seller. - All firms are price takers. - Theoretical concept. - Free Entry & Exit from market. - Aim - Profit maximization. - No concept of consumer preference. - **2. Monopolistic competition** - More realistic. - Large no. of buyers & sellers. - Sell similar products - not homogeneous. - Consumers have preference. - Sellers can enjoy some market power. - Sellers are price setters - to some extent. - **3. Oligopoly** - Only few firms - 3 - 5 - Buyers are far quieter than sellers. - Firms either compete or collorate. - Firms have market influence - set prices. - Various entry barriers. - Difficult for new firms to establish themselves. - **4. Duopoly** - A kind of oligopoly. - Only two firms. - Duo - action of influence. - Their actions shape the industry. - Imperfectly competitive. - **5. Monopoly** - Only one seller - control entire market. - Has all the market power. - Consumers have no alternative - must pay price set by seller. Extremely undesirable. # Elasticity of Supply - Major factor controlling supply of commodity in its price. So, we calculate price elasticity of supply. - **Es** = % change in quantity supplied / % change in price. - **Es** = Change in quantity supplied / original quantity supplied x original price/ change in price ## Types - **Perfectly Inelastic Supply** - Given quantity can be supplied whatever might be the price. Es=0. - E.g. Painting of Mona Lisa. - **Relatively Less Elastic Supply** - Change in supply - relatively less - change in price. Es<1. - **Relatively Greater Elastic Supply** - Change in supply - relatively more - compared to change in price. - **Es>** 1. - **Unitary Elastic Supply** - Change in Quantity supplied is exactly equal to change in price. - **Es=**1. - **Perfectly Elastic Supply** - Slight fall in price - supply zero. - Slight rise in price - supply infinity. # Chapter 2: National Income Accounting & Related Concepts - **National Income** - Total value of goods and services produced annually in a country. ## Methods - **1. Product or Value added method** - Identify the sectors. Enter prices. Classify. Estimate net value. Add up net value of each sector. E.g. Agriculture, Manufacturing, Construction, Transport, Communication, Banking, Admin & Defence, Distribution of Income. - **Precautions:** - Double counting - Value Addition in particular year - Production for consumption. - Stock appreciation - **2. Expenditure method** - Total spending on final goods & services produced in a nation during a year. Add up all expenditures on final goods & services at current market prices. Consumption + Investment + Gov. Exp. + Net Exports (X-M). - **Precautions:** - Expenditure on second-hand goods not included. - Purchase of old shares & debentures not included. - Expenditure on transfer payments by government not included. - **3. Income method** - Measure National Income at the phase of distribution. Factors of production are paid monetary incomes. National Income - Sum of wages, rents, interest & profit received or accrued to factors of production. Wages + salaries + rents + interest + profits. - **Profits** - Incorportated, Unincorporated ( Transfer payments - Gifts, donations, scholarships - NOT) - **Precautions** - ( 1) (2) Illegal money - smuggling - NOT) (3) Windfall Gains - Prizes, lotteries - NOT (4) Receipts from sale of financial assets - Shares, bonds - NOT. ## Gross Domestic Product (GDP) - Calculated at market prices. - Domestic territory. ### Methods - **1. Product method** - GDP at factor cost - by industry of origin. Sum of gross value added. - **2. Income method** - Wages + salaries + rent + interest + profit. - **3. Expenditure method** - C + I + G + (X-M) - **GDP at Factor Cost** - Net value added by all consumer producers. Net value added is distributed as income to owners of factors of production. Net value added + depreciation = GDP at FC. - **Conceptually, GDP at FC & MP must be identical, but it is not.** ### GDP at market price - Indirect taxes included. Subsidies by government excluded. - GDP at FC = GDP at MP - Indirect Taxes + Subsidies. - GDP at MP = GDP at FC + Indirect Taxes - Subsidies. ## Net Domestic product (NDP) - Some capital equipment wears out or becomes obsolete each year during production. - **NDP** = GDP at FC - Depreciation. ## Nominal & Real GDP - **GDP - current prices** - Nominal GDP. - **GDP - fixed prices/constant prices** - Real GDP. - **Nominal GDP doesn't show reality - Rupee is not stable.** ### Real GNP - Base year is taken. - **Real GNP** = GDP for current year x base year (100) / current year index. ## GDP Deflator - Index of prices, changes of goods & services included in GDP. - **Nominal GDP / Real GDP x 100** ## GNP (Gross National Product) - Total measure of the flow of goods & services at market value. Includes net income from abroad (NIPA). - **Includes:** - Consumers & &$$ - Gross Private domestic investment. - Goods produced by government. - **Net exports of goods.** - - **Precautions:** - Only final products to be taken into account. - Goods - free of charge not included ( E.g. Mothering). - Income from illegal activity & social security not included. - Transactions not from produce of current year - not included. ### Methods - **1. Income method** - Wages & salaries + rent + interest + dividends + undistributed corporate profits + mixed income + direct taxes + indirect taxes + depreciation + NIFA. ### 2. Expenditure method - Private consumption expenditure (C) + Gross domestic private investment (I) + Net foreign investment (X-M) + Gov. expenditure on goods & services (G) = C+I+G+(X-M) ### 3. Value Added method - Gross Value Added + NIFA. - **GNP at market prices** = GDP at MP + NIFA. - **GNP at factor cost** = GNP at MP - Indirect taxes + subsidies. ### E.g. - Pen - FC - 45. - Taxes added - Rs 3. - Subsidy - Rs 1. - Per unit market price now = 5 + 3 - 1 = Rs 7. # Net National Product (NNP) - **NNP** = GNP - Depreciation. - **NNP at MP** = GNP at MP -Deprecation - **NNP at FC** = NNP at MP - Indirect Tax + Subsidies - **NNP at FC** = GNP at MP - Depreciation - Indirect Tax + Subsidies # NATIONAL INCOME - **MP** - Market Price - **FC** - Factor cost # Domestic income - Income generated by factors of production within the country. - From own resources. - **Includes:** - Wages & salaries. - Rents - including imputed house rents - Interests. - Dividends - Undistributed Corp. Profits - Mixed Income - Direct Taxes. # National income - National income - NIFA. - National income = Domestic income + NIFA # Private income - Obtained by private individuals from any source. Productive or unproductive. - Retained income of corporations. - **National income (NNP at FC) + Transfer payments + Interest on public debt + Social security - profits of surpluses of public undertakings.** # Personal income - Total income received by all individuals of a country - Before payment of direct taxes. - **Includes transfer payments.** - **Personal income = Undistributed corp. profits + profit tax + social security contribution + Transfer payments + Interest on public debt.** - **Personal income excludes undistributed corporate profits which is included in private income.** # Disposable income - Actual income that can be spent on consumption by individuals or families. - **Actual income - Direct Taxes (amount of income that has actually been paid)** - **Disposable Income = Personal Income - Direct Taxes** - **Disposable income = Personal Income - Direct Taxes** - **Disposable income = Consumption expenditure + savings** # National income = Business savings - Indirect Taxes + Subsidies - Direct Taxes on persons - Direct Taxes on business - Social security payments + Transfer payments + NIFA. # Per capita income - Average income of the people of the country. - In a particular year. - **Per capita income = National Income for 2018 / Population for 2018.** - **Real Per capita income = Real H.I. for 2018 / Population for 2018.** # Chapter 4: Indian Financial Markets ## Types: - **1. Stock markets** - Companies list their shares. - Bought & sold by traders & investors. - Used by companies to raise capital via IPO. - **Typical Participants -** Investors & traders, market makers and specialists who maintain liquidity . - **2. Over the counter markets** - Decentralized - No physical location. - Trading conducted electronically. - Trades securities directly between parties. - No Broker. - Only handles certain stocks - most trading done in stock market exchanges. - **3. Bond markets** - Investor loans money - defined period - pre-established rate of interest. - Agreement between lender & borrower. - **Issued by** - Municipalities, state & sovereign gov. - To finance projects & operations. - **4. Money markets** - Highly liquid short term maturity - less than one year. - High degree of safety - low ROI. - **5. Derivatives markets** - Contract between two or more parties - value based on an agreed upon underlying financial asset. - **Primary security.** - **Derivative secondary security.** - **Itself -** It is worthless - **Derivatives market trade in futures & options.** - **6. Forex market** - Participants - buy, sell, hedge & speculate on the exchange rate between currency pairs. - Most liquid market in the world. - More than $5 billion daily transactions - Decentralized. - Global network of computers from all over the world. - **7. Commodities market** - Producers & consumers meet to exchange physical commodities. - Agricultural products, energy, precious metals, 'soft' commodities. - Also known as spot commodity markets. - **8. Cryptocurrency markets** - Digital wallet for traders to swap one cryptocurrency for another. - Direct P2P Trading of digital currencies. # Indian Financial Ecosystem - **1. Financial Institutions** - **2. Financial Assets** - **3. Financial Services** - **4. Financial markets** ## Financial Institutions ### Types: - **Banking or depository institutions** - Banks & other credit unions. - Count money from public. - **Non-banking institutions** - Insurance, Mutual funds. - Cannot ask for monetary deposits. ### Categories - **Regulatory** - RBI, SEBI, etc. - **Intermediaries** - Commercial banks. - **Non-intermediaries** - Provide financial aid to corporate customers. - NABARD, SIDBI, etc. # Financial Assets - **1. Call money** - One day repaid. - No Collateral. - **2. Notice money** - More than a day - less than 14 days. - No collateral. - **3. Term money** - Maturity period beyond 14 days. - No Collateral - **4. Treasury Bills** - Gov. Bonds or debt securities. - Maturity by less than a year. - Buying treasury bill means lending money to government. - **5. Certificate of Deposits** - Demat form. - For funds deposited in bank for specified period. - **6. Commercial Paper** - Unsecured, short term debt instrument. - Issued by corporations. ## Financial Services - **Products & Services by Financial Institutions** - Business management & liability management. - Assist in obtaining the necessary capital efficiently. - Ensure investing efficiently. - Lending & borrowing. - Making & authorizing payments. - Buying & selling assets. ## Financial Market - **1. Capital market** - Long term investments - longer than a year. - Finance long-term investments. - **2. Money market** - Highly liquid - short term instruments - little risk. - Funds - One day to one year. - **3. Forex Market** - **4. Credit Market** - Short term or long term loans. - Individual or organization. - By banks & financial & non-financial institutions. ## Money - Anything that is accepted as payment for goods & services or means of repaying debt. # Banking sector ## Banks - **1. Commercial banks** - **2. Small Finance banks** - **3. Payment banks** - **4. Cooperative banks** ### Commercial Banks - **1. Public Sector** - 75% majority stakes by government. - **2. Private sector** - Major stake by private SH. - **3. Foreign banks** - HQ in a foreign country - operated in India. - **4. Regional Rural Banks** - Work within certain sections of society. - A gen labourers, marginal farmers & small entrepreneurs. - **Refer to module for a list of banks.** ## Small Finance Banks - **Aim:** Financial inclusion to those sections of society who are not served by other banks. - **Customers:** Micro industries, marginal farmers and small business units. - **Governed by:** RBI Act, 1934 & FEMA. ## Payment Banks - **New model of bank** - **Aimed to accept restricted deposits.** - **Offer ATM Cards, net banking & mobile banking.** ## Cooperative Banks - **State Co-op banks (Apex)** - **Central co-op bank (district).** - **Primary Agricultural credit societies (village level).** - **Collect funds through shares, accept deposits and grant loans.** - **Started to deal with problem of rural credit.** - **Started with co-operative societies act 1904.** - **Broadly -** Agricultural & Non-agricultural. # Public Sector Banks - **Banking developed -** British era. - Bank of Bengal (1809) - Bank of Bombay (1840) - Bank of Madras (1843) - Merged into Imperial Bank - Taken over in 1955. - **State Bank of India** - **Reserve Bank of India -** 1935 - **July 19, 1969** - 14 major scheduled commercial banks nationalized - (alone 50 Cr deposit) - **1980** - 6 more banks. - **Largest merger** - PNB + Oriental bank + United bank. - April 2020. - **Second largest public sector bank** - Punjab National Bank. # Private Sector Banks - **Old private sector** - Less than 50 Cr. - **New private sector** - Established after nationalization. ## NBFC ### Principal Business - **1. Asset finance company** - Financing physical assets supporting productive/ economic activity. - E.g. Tractors, Lathe machines, etc. - **2. Investment company (IC)** - Acquisition of Shares. - **3. Loan company (LC)** - Providing finance (loans/ advances). - Any activity other than its own. - Doesn’t include asset finance company. - **4. Infrastructure finance company (IFL)** - At least 15% of its total assets in infrastructure loans. - Min. Net owned funds - 300 Cr. - CRAR 15%. - Credit Rating - A. - **5. Systematically Important Investment company (CIC - ND - 51)** - Acquisition of shares and Securities - satisfies some conditions. - **6. Infrastructure Debt Fund (IDF - NBFC)** - Flow of long term debt into infrastructure projects. - Raise funds - Issue of Rupee or Dollar denominated bonds - min. 5 year maturity. - **7. NBFC - Micro Finance Institution (MFI)** - At least 85% of assets in the form of micro-finance to be given as loans. - Annual income - 120,000 (urban) & 60,000 (Rural). - No collateral, not exceeding 50,000. - Loan tenure not less than 24 months. - **8. NBFC - Factors** - Factory Business - At least 50% of total assets. - Income derived from factory business - not less than 50% of its gross income. - **9. Mortgage Guarantee companies (MGC)** - At least 90% of business turnover is mortgage guarantee business. - 90% of gross income from mortgage guarantee business. - **10. NBFC - Non-operative financial holding company (NOFHC)** - Through which - Promoter/ Promoter groups -