- Introduction
- Why Economic Survey = Boring?
- Timeframe
- Link between GDP FC/MC?
- Why India can’t bounce back easily?
- Crude oil prices
- Forex Reserve
- Mock questions
Introduction
- Finally economic survey is released.
- For UPSC, economic survey is important, because just like yearbook, this one also provides you with truckload of facts for MCQs, and fodder for descriptive/essay/interview.
- Even for SBI PO, this is important, because lot of MCQs come from current based economy + fodder necessary for GDPI stage.
Why Economic Survey = Boring?
- On HBO, Star movies, they show movie for 15-20 minutes and advertisement for 5 minutes.
- But on Zee Cinema, 9x etc. channels, they show advertisements for 20 minutes and movie for 5 minutes.= movie is shown in between advertizements. (advertisements are not shown in between movies.)
- That’s the first reason why economic survey is boring, because it gives facts/fodder in between useless numbers and data.
- Second reason why economic survey is boring, because the authors assume that you’re already aware of the basic economic terms, concepts and the connections in between.
- Therefore, to enjoy the first chapter, make sure you already know following terms and concepts, if not visit Mrunal.org/economy
Now let’s start with the gist of first chapter from Economic Survey. (I’ve further subdivided it into three articles, else it’ll lead to information overload= boredom + frustration.)
Timeframe
2007 |
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2008-10 |
|
2010-11 |
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2011-12 |
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Feb 2013 | Economic survey is released. |
- When there was global financial crisis, Government of India and RBI gave monetary and fiscal stimulus (e.g. giving tax-soaps to industries, higher depreciation on commercial vehicles, lowered interest on loans etc.)
- This lead to increase in consumption. => later inflation.
- Now to curb the inflation, RBI sharply raised the borrowing rates = again problem, it slowed down the demand.
Link between GDP FC/MC?
- GDP at factor cost (FC)= GDP at market prices MINUS indirect taxes PLUS subsidies.
- GDP (FC)=GDP(MP) – indirect taxes + subsidies.
- in years of sharply higher growth, GDP growth @MP >> GDP at FC.
- In the years of slowdown, GDP @MP << GDP @FC.
- Why? Because when there is slowdown, indirect taxes falldown and subsidy burden on Government increases.
Why India can’t bounce back easily?
- Few years back, America faced the sub-prime crisis and recession. But now it seems to be slowly getting back on track.
- But if we look @India, it seems as if inflation and slowdown is going to continue forever!
- Why can’t India bounce back quickly? Reasons are following
- First, International investors and their risk taking. Compared to American Economy, the Indian economy is more exposed this “shifts” of foreign investors. (the whole GAAR, Vodafone controversy, retrospective taxation, policy paralysis, environmental clearances ruined the mood of foreign investors.)
- If they pump in money, Indian economy quickly improves, when they pull out money suddenly, our rupee weakens against dollar = crude oil becomes costly.
- Second, India’s import bill is strongly tied to the price of oil.
- Third, because of ongoing inflation, people prefer to invest in gold. Gold import= CAD = rupee weakens = crude oil import becomes expensive =even more problems.
Rupee weakening?
Suppose on Jan 2012: $1= Rs.50 And on Feb 2012: $1=Rs.60
That means rupee has weakened and dollar has strengthened. But is it good or bad? Theoretically, for Importers = bad. Because now they’ve to pay more money to import same quantity of goods. And for Exporters, call centers= good. Because they get more rupee.(even if they’re paid same amount of dollars.)
Ok so Rupee weakens = good for exporters. But here is the problem: US, EU still not fully recovered from slowdown, so the demand of Indian goods and services, is not as high as it was few years back.
So export sector isn’t really doing great. On the other hand, imports are getting more and more expensive, especially crude oil => petrol diesel become expensive= inflation.
Crude oil prices
In the global market, the price of crude oil have increased last year.
It could be because of two things
- The demand of petroleum has increased globally. In a way this is good, because it shows the economy of USA/EU etc slowly getting better. (otherwise they wouldnot be importing so much). So in a few months, the demand of indian exports should increase. = this is a good Development.
- The crude oil price has increased due to geopolitical reasons (Iran blockade, Libya crisis etc.) If this is the main reason for rise in crude oil price= this is a bad Development.
Bottomline is that India cannot take the external environment (recovery of US/EU economies, crude oil politics of middle east) for granted.
Forex Reserve
India’s foreign exchange reserve, is made up of following components
- Foreign currency assets
- Gold
- SDR and RTP in IMF.
As per Economic Survey, Forex reserve is:
March 2012 | $294.4 |
January 2013 | $295.5 |
- As you can see, there is hardly any increase in Forex reserve during this time. Why?
- One reason is current account deficit (esp. gold+petroleum)
- second is that foreign investors are not pumping enough money due to ‘policy bottlenecks’.
Mock questions
Q1. Which of the following is correct formula?
- GDP (Market Price)=GDP(Factor Cost) + indirect taxes + subsidies.
- GDP (Market Price)=GDP(Factor Cost) – indirect taxes – subsidies.
- GDP (Factor Cost)=GDP(Market Price) + indirect taxes – subsidies.
- GDP (Factor Cost)=GDP(Market Price) – indirect taxes + subsidies.
Q2. Which of the following is correct statement?
- In the period of high growth, GDP (Market Price) is greater than GDP (Factor Cost)
- During economic slowdown, GDP (Market Price) is less than GDP (Factor Cost)
Choice
- Only 1
- Only 2
- Both
- None
Q3. Which of the following is/are not a component of Foreign Exchange reserve of India?
- Gold
- Foreign currency assets
- Special drawing rights in IMF
- Diamonds
Choice
- Only 1 and 3
- Only 2 and 2
- Only 3 and 4
- Only 4
Hello Mrunal sir
I have already read FM speech in economic times bt there is the finance bill and explanatory memorandum left for me to read.
Shud I read t from upsc pt of view??
RESPECTED MRUNAL SIR,PLEASE PROVIDE HINDI YEARBOOK IMPORTANT PAGE NO. FOR PT and MAINS
MRUNAL JEE AND GAUTAM JEE WHEN WE LOAD HINDI SURVEY THEN LOAD ARE COMPLETE BUT MEDIUM ARE ENGLISH WHY
try individual pdfs from this page: http://indiabudget.nic.in/hindex.asp
can any one explain with suitable examples
1.Security Transaction Tax
2.Commodity Transaction Tax
3.Dividend distribution tax
STT= TAX LEVIED ON ALL TRANSACTION DONE ON THE STOCK EXCHANGE(SECURITIES LIKE SHARES,DERIVATIVES ETC..)]APPLICABLE FOR BOTH BUYERS AND SELLERS..EG..X SELLING SHARES AT NSE OR BSE AND U PURCHASE THE AUTOMATICALLY U WILL BE LIABLE TO PAY TAX AND ALSO APPLICABLE WHEN U SELL THE SECURITIES INITIALLY…
CTT=TAX ON NON AGRICULTURAL ITEMS ITEMS AT MCX(MULTI COMMODITY EXCHANGE)..EG..TAX WHEN U TRADE AT MCX FOR METAL AND ENERGY ETC UNLIKE IN NCDEX WHERE YOU TRADE FOR AGRI COMMODITY…
DDT=TAX LEVIED ON COMPANIES ACCORDING TO THE DIVIDEND PAID TO A COMPANY’S INVESTOR..(SELF EXPLANATORY)…JUS KNOW WHAT IS DIVIDEND=MONEY PAID BY THE COMPANY TO ITS SHAREHOLDERS FROM ITS PROFIT…
I couldn’t understand this in chap 1 of economic survey (Page 6):
“An increase in people’s disposable income
tends to reduce the share of food in total consumption
(the National Sample Survey Organization’s [NSSO]
Survey on Consumption Expenditure provides clear
evidence of the downward trend in share of food in
total consumption).”
how increase in people’s disposable income will effect in reducing share of food? Plz explain
it is engels law if I’m not mistaken. As proportion of income increases, amount spent on food, decreases.
yes…absolutely it is an “Engels law”.
Engel’s Law
“The poorer is a family, the greater is the proportion of the total outgo which must be used for food. . . . The proportion of the outgo used for food, other things being equal, is the best measure of the material standard of living of a population.”
Engels coefficient(high value)—–>poor country
Engels coefficient (low value)—–>high standard of living .
what is generation based incentive
Sir, plz explain security transaction tax and commodity transaction tax????
plz suggest me book for ancient history
Sir, plz come up with strategy to crack the new UPSC pattern (GS)… and please guide which optional should we take ?(keeping in mind that only 8 months remain for mains and maximum Overlapping)…waiting eagerly for your post…..
sir, would you mind enlightening us more on the focus chapters in economic survey? Hope to get cover quickly with your guidance.. thank you.
A great thanks to Mrunal Sir for providing us with these amazingly simple,lucid and interesting articles.I am a student of B.Tech IInd year and i could not keep myself away from reading these articles since i first stumbled upon them( ie for the last 72 hours).Believe me,nothing ever made me so addicted other than sherlock holmes novels!!!You r superb…Now i can follow those business news channels more easily…:)
sir how to prepare union budget?
sir ,whether chapter 12,13 of economic survey r important or not?
d
c
d
what is the benefit of speculative forces in the market?
Speculators help in quicker price discovery & corrections in the market by bringing necessary liquidity since they play in volumes.
e.g: they start buying or selling in bulk just at the instance of slight hint of change in economic parameters. Even though it definitely results in price swings in quick succession but eventually the price settles at a correct market price.
Thanks to inflation, People start investing in gold. = less money for business investment + crude price high = CAD = rupee’s value declines.
I don’t get this one Mrunal.Why did people invest in gold in times of inflation?
dear mrunal its really simple and lucid explanation for such lenthy e.s.
d
c
d
Mrunal sir, when will UPSC declare final results for civil service exam 2012? interviews over on 26 april 2013..any idea sir?
Mrunal Sir,
Can you generate link to download all your articles published till now at one time (in PDF form)? All new articles will go on adding on to that link. It will be easier for those who join in new!
I also suggest this because I had a tough time in downloding the articles and organising them in the order in which they were piblished. It would definitely help the new comers.
…
dcd
Sir i am just beginner and want to take IAS exam,so please guide me. it is necessary to study NCERT books.
read the second article:
मृणाल भाई, मजा आ गया…..सलाम…
What is difference between SDR and RTP .
Every country has some quota in IMF, part is payable in SDR’s or specified currency and part in own’s currency.
difference b/w a member’s quota & IMF holding of its currency is reserve Tranche position
1. d
2. c
3. d
hi, mrunal
please give detailed study plan for upcoming SBI clerical exam
Thanks for all these efforts, Mrunal sir !