Investment Funds

Investment Funds

This article deals with ‘Investment Funds.’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .


  • It is quite difficult for common people to understand economic concepts and invest in bonds and equity after doing full analysis of the market. For such people, there is an easy option to invest in Investment Funds which gather money from common people to invest in such securities and other projects and are managed by Fund Managers having expertise in financial matters.
  • Fund Managers take money from investors and give them Units made with backing of investments .
  • Later, Manager gets return from the investments in form of  interest, dividend, charges etc. and distribute this return  among Investors based on the share they have in Fund after cutting his fee.

1 . Mutual Funds

Mutual Funds
  • Mutual Fund Manager is a financial intermediary. 
  • Mutual Fund Manager mops up money from group of investors to invest in different asset classes like shares, bonds etc.  so as to generate returns for investors .  In return, Manager  will give Units backed by the assets to the Investors. 
  • When Mutual Fund manager will get returns in form of dividend and interest from the assets in which money of investors was invested, he will distribute it among investors in proportion of Units held by them.
  • Each unit has  fixed maturity period . After that time, Investor can return the unit & get back his initial investment /money. 

Latest regarding Mutual Funds :Large number of Mutual Fund managers had invested money in bonds issued by IL&FS which suffered loss after the crisis. In fear, people stopped investing money in all Mutual Funds , hitting this sector very hard.

Types of Mutual Funds

It can be classified in many ways

1 . Portfolio Nature

Equity Mutual Funds Invest only in Equity
Debt Mutual Funds Invest only in Debt instruments
Gilt Edged Mutual Funds Invest only in Gilt Edged Bonds only ( and thus have very less return )

2. Income & Risk

Growth Fund Eg : Equity (80%) & Debt (20%)
Balanced Fund Eg  : Equity : Debt = 50:50
Income Fund Eg :  Equity : Debt = 20:80

2. Hedge funds

Hedge funds
  • Hedge fund is open to very limited range of very high net worth individuals (HNI)  . One can say, it is private Mutual Fund for High Net worth Individuals
  • Their only aim is to get maximum return in quickest time.
  • HNI individuals will give money to Hedge Fund Manager who give  back some units with promise of high returns . Hedge Fund Manager will then play in market to make money  in  different ways like investing in junk bonds, Arbitrage, Leverage, Short Selling etc.
  • SEBI Regulations on hedge Funds
    • One can open Hedge Fund in India but in  the scheme, each member must be paying atleast ₹1 crore .
    • SEBI has placed strict norms on Hedge Funds.
  • Examples of Hedge Funds Managers in India : Karvy Capital , Motilal Ostwald etc.
  • Technically they are Alternate Investment Funds (AIF) Cat III.

Side Topic : Alternative Investment Funds

It is  a technical classification under SEBI norms:

AIF Category I They generate positive  spill over effects on the economy.
Eg: Venture Capital Funds, Angel investors fund, SME Funds, social venture fund, Infrastructure funds.
– SEBI norms are easy on them.
AIF Category II Neither in Cat-1 nor in Cat-3 . E.g. Private Equity or debt fund. 
AIF Category III They undertake excessive risk to generate high returns in short period of time.
E.g. Hedge Funds.
– SEBI norms are stricter on them, else they may destabilize the capital market.

3. REITs : Real Estate Investment Trusts

  • They too are for High Networth Individual (HNI) and  Minimum Investment in REITs can be ₹ 2 Lakh .
  • REIT Fund Managers are regulated by SEBI .
  • Fund Manager will give Units to investors and invest money in Real Estate Projects which are on verge of completion but are not getting loans from Banks or other NBFCs. 
  • When Real Estate Project Completes and start generating rent, they will get their share of rent from that which will be paid to investors based on proportion of Units held by him after cutting fee of Fund Manager.

4. InvITs

  • Infrastructure Investment Trust.
  • Same as REITs with only difference that they invest in Infrastructure Projects like Airport, Highways, Ports , Gas Grid etc.

Benefits of REITs & InvITs

  • Tried & tested in US, UK, Australia , Japan etc .
  • Stressed developer gets new finance and save his project => Helps in completion of projects facing financial crunch.
  • Will help in saving banks from NPAs .
  • Provide new investment opportunity to people .
  • They will help to channelize household savings towards nation building.

Note : RBI has allowed Banks to invest 10% of net owned funds in REITs & InvITs .

5 . Sovereign Wealth Fund

  • These funds are sovereign in nature i.e. under the direct control of nation-state.
  • Sovereign Wealth Funds are state owned investment funds, wherein country park it’s surplus budget . This money is later used in doing investments and earn more money in return .
  • Examples :  Abu Dhabi Investment Authority (ADIA)’s funds, Qatar Investment Authority (QIA), Saudi Arabia’s Public Investment Fund  etc.
Sovereign Wealth Fund

6. P Notes / Participatory Notes

P Notes
  • If a foreigner wishes to invest in India but does not want to go through the hassles of registering with SEBI, getting PAN card number,  opening a DEMAT account etc. So, he will approach a SEBI registered foreign institutional investor (FII) such as Morgan Stanley, Citigroup or Goldman Sachs. He will pay them & instruct them to purchase particular shares  and bonds on his behalf and store them in their Demat account.  FII will give him P-Notes in return, and he will receive interest and dividend accordingly. He may also sell those P-notes to a third party.  The P-Note holder also does not enjoy any voting rights in relation to security referenced by the P-Note.
  • In simple terms, P-Notes are Offshore derivative Instruments that derive the value from the underlying Indian shares and bonds. 

P-Notes are considered harmful to Indian economy because:

  • P-note investors are not directly registered with SEBI, the identity of the actual investor and source of funds remain disguised . Hence, it may be allowing the ‘black money’ of India stashed away from India through ‘hawala’  to get invested back in the market. Again, ‘terrorist organisations’ might have been using this route, too.
  • If P-Note owner sells his P-Notes to another foreign investor, Government of India will be deprived of taxes. (Compared to a scenario where Indian share owner is selling his shares to another Indian investor, then government gets securities transaction tax and capital gains tax on his profit).

=> Therefore, SEBI is tightening the control over P-Notes .

Stock Exchanges

Stock Exchanges

This article deals with ‘Stock Exchanges.’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .


  • Shares are issued through IPO in Primary market. Then, they can be resold at secondary market, commonly known as Share market or Stock Exchange.
Financial Markets


  • Worlds first stock market was opened in Amsterdam Stock Exchange in 1631 followed by London Stock Exchange in 1773.
  • Bombay stock Exchange was the first to be opened in India (and Asia) in 1875 followed by Ahmedabad and Kolkata .
  • States have their own Stock Exchanges as well. Eg : Punjab’s  Stock Exchange is in Ludhiana .
  • World’s five largest stock exchanges are (1) New York Stock Exchange , (2) NASDAQ, (3) Tokyo Stock Exchange, (4) London Stock Exchange and (5) Bombay Stock Exchange .
  • In 2018 , Bombay Stock Exchange(BSE) has become the first Indian exchange to be designated as a ‘Designated Offshore Securities Market’ (DOSM) by the U.S. Securities and Exchange Commission (SEC). DOSM status allows sale of securities to US investors through the trading venue of BSE without registration of such securities with the US SEC, which eases the trades by US investors in India.  Other Stock Exchanges with DOSM Status are London Stock Exchange, Bourse de Luxembourg, Tokyo Stock Exchange and Toronto Stock Exchange.
  • 2019 Budget : India will open Social Stock Exchange that will help social enterprises and voluntary organizations to raise capital .

Players in Stock Exchanges

1. Broker

  • Broker is a registered member of a stock exchange who buys or sells shares/securities on his client’s behalf and charges a commission .

2 . Jobber

  • Jobber is a broker’s broker or one who specialises in specific securities catering to the need of other brokers.

3 . Market-Maker

  • Market Maker is an intermediary in the market ready to buy and sell securities and quotes two-way rates.

Stock Exchanges in India

There are 27 Stock Exchanges in India – 7 at national level and 20 at regional level.

Bombay Stock Exchange (BSE)

  • BSE was earlier a regional stock exchange and converted to national exchange in 2002.
  • It is the biggest stock exchange in India accounting for 75% of total stocks traded in India and fifth largest in the world based on market capitalization.
  • BSE’s flagship index is Sensex .

Side Topic : Specific problems of share market before 1992

1 . Monopoly of Bombay Stock Exchange (BSE)

  • There were almost 20 regional stock markets in 1992 but BSE enjoyed monopoly.
  • Users from outside Bombay found it extremely difficult to trade in BSE due to poor technology & high cost of telecommunication.
  • BSE imposed high entry barrier so that competition among brokers was absent.  Services provided by brokers were highly inefficient & costly.

2. Open outcry system

  • Trading used to take place in trading ring where non brokers were not allowed in & these traders will use to shout prices like we have in vegetable markets.
  • There wasn’t any mechanism to verify the prices at which trading actually took place .


  • Under Badla System, settlement of share used to happen on T+72 days basis. This means that, if investor has bought shares today, he will get real possession of shares after 72 days .

4. Bad Delivery of Shares

  • Once you buy share, you have to send these shares to registrar of company to register ownership of share on your name .
  • But problem of bad delivery of share can happen. Eg : if signature of seller don’t match with one maintained with registrar ,share would be send back.

To tackle all these problems

  1. Government made law to give power to SEBI to control primary & secondary markets .
  2. And to end monopoly of BSE , a new national level stock exchange NSE was opened.
  3. BADLA System (T+72) system was changed to T+2 i.e. settlement has to be completed in 2 days.

NSE (National Stock Exchange)

  • It is located in Mumbai . It was established in 1992 & started trading in 1993 .
  • Promoted & managed by public sector financial institutions – IDBI , UTI,  LIC, GIC, SBI& IDFC & foreign investors like Citigroup.
  • It is professionally managed (as opposed to brokers).
  • NSEs flagship index is S&P’s CRISIL NIFTY-50.

4 Innovations of NSE which changed all stock exchanges in India

Computerized Trading Trading was done in front of investor leading to Transparency .  
Satellite Communication To spread the reach of exchange to all over country.  
Professional Managers Traditional stock exchanges were managed by Brokers leading to  rise in malpractices. Since Brokers themselves were in-charge of enforcement , they never took decisions against themselves.
In NSE, enforcement was entrusted to professional managers.  
Weekly settlements If you buy share from me, you have to give me money in one week & I have to give you share in one week.
Traditional Badla System was not allowed in this.  


  • Equity trading at NSE commenced in 1993 .
  • Within one year ,NSE surpassed BSE in terms of turnover.

Good things happened due to NSE

  • Cartelisation of brokers ended
  • Led to higher Transparency
  • More brokers leading to competition & less commission
  • No more bad delivery of shares (due to Demat account)
  • Investors from outside Mumbai were also able to invest.

Later, BSE also introduced similar changes to remain in market .

Regional Exchanges

There are total of 20 regional stock exchanges in India .

Ludhiana(1983) Jaipur Ahmedabad(1894 – first Regional Exchange) Indore Pune
New Delhi Meerut Rajkot Vadodara Hyderabad
Mangalore Bangalore Ernakulam Coimbatore Madras
Patna Kanpur Bhubaneshwar Kolkata Guwahati


  • Sensex = Sensitive Index (Full Name –  S&P BSE SENSEX)
  • It is popular Equity Index of Bombay Stock Exchange (BSE).
  • It was started in 1986 .

Concept of Free Float Market Capitalization

  • To understand how SENSEX is calculated, we must know what is Free Float Market Capitalisation.
  • Free Float Market Capitalisation =  Total price of all the shares in market on that day (excluding with company)
  • Suppose in 1979, Company launched IPO with 1 Lakh  shares. 30,000 shares were bought by Promoter (owner) and 70,000 shares were  bought by public. Assume Price of each share in 1979 was ₹10.  Hence, Free Float Market Capitalisation of Company in 1979 was ₹ 7 lakh (10 X 70,000) .
  • Later, if price of Shares increase, Free Float Market Capitalisation will change as well (as explained in infographic below)

How SENSEX is calculated??

  • SENSEX = (free float market capitalization now/ free float market capitalization in base year)X 100
  • Base  Year –  1978-79
  • Measured using weighted average of 30 largest companies traded in BSE & these companies keep on changing on basis of market capitalization.

When Share Market go up or down?

When Share Market/SENSEX Go Down 1. War
2. Inflation
3. Political Instability
When Share Market/SENSEX Go up 1. Soft monetary Policy
2. Relaxing FDI norms
3. Merger & Acquisition Rumours

Other Such indexes

SENSEX BSE + (S&P)  => 30 Companies
NIFTY NSE (+ CRISIL) => 50 Companies
Nikkei Tokyo Stock Exchange (225 Companies)
Dow Jones USA

Securities & Exchange Board of India (SEBI)

  • SEBI is the regulator of Indian stock market.
  • Headquartered in Mumbai.
  • Board of SEBI comprises nine members excluding the chairman


  • Regulator of Securities (Shares, Bonds, Debentures etc.).
  • Regulatory oversight over places (Stock Exchanges , Depositories etc. ) and Persons (Brokers, MF Managers, Inside Trader)
  • Regulates any Collective Investment Scheme of or more than ₹100 crore .
  • Promote Financial Literacy of Investors .

Journey till now

1988 SEBI was formed via Executive Order .
1992 SEBI became Statutory Body .
2014 SEBI Act amended to give powers to search, seize and arrest to SEBI and all Collective Investment Schemes of more than ₹ 100 crore placed under regulation of SEBI.
2015 Forward Market Commission scrapped and Commodity markets placed under regulation of SEBI .

Commodity Exchanges

  • Commodity trading happens similar to ‘stock trading’  in the stock market. But in contrast to stocks , commodities are actual physical goods such as wheat, oil, gold etc.
  • Futures are contracts for commodities that are traded on exchanges. Commodity futures serve a great purpose by hedging participants against the price fluctuations. Take the example of agriculture
    1. A corn farmer can sell ‘corn futures’ on a commodity exchange. This will lock the sale price of a specified quantity of wheat at a future date, protecting the farmer from price fluctuations.
    2. Corn mill can purchase the corn futures from the exchange and can fix its future purchase cost for a specified quantity of corn.
  • There are 21 commodity exchanges in India including three ‘national level’ exchanges i.e. Multi-commodity Exchange of India Ltd. (MCX), Mumbai; National Commodity and Derivatives Exchange Ltd. (NCDEX), Mumbai and National Multi-commodity Exchange of India Ltd. (NMCE), Ahmedabad.
  • Commodity Exchanges are regulated by SEBI. Earlier, Forward Market Commission (FMC) was the regulator of Commodity Exchanges but Government of India merged the FMC with the SEBI in September 2015.

Type of Securities

Type of Securities

This article deals with ‘Type of Securities.’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .

Security Market

  • Segment of financial market of an economy from where long term capital is raised via security instruments such as Debt, Equity and Derivatives .
  • There are different ways to classify Security Markets.

Classification 1 : Type of Security being traded

Type of Securities

Classification 2 : By Tenure of Securities

Type of Securities

Classification 3 : By Freshness of Security

Type of Securities

Classification 4 : By Settlement of Security

Type of Securities

Type of Securities

Securities are fungible and tradable financial instruments that are used to raise capital from public and private markets. 

There are three type of Securities i.e. (1) Debt , (2) Equity and (3) Derivatives .

Type of Securities

Different instruments to raise money from market

  • Consider a hypothetical situation – I have ₹5 Lakh & to start a business I need ₹10 Lakh. Now question arises that , how can I arrange rest  5 Lakhs ? Answer – I can approach Security Market to raise capital via  Debt or Equity.
  • In general, if anybody wants to start a business , he/she will need 4 factors of  production
Entrepreneurship Land
Capital Labour

And to arrange these factors of production, one need truckload of money which can be raised via Debt or Equity. Both these instruments have their own advantages and disadvantages which we will discuss in detail in the chapter.

Different instruments to raise money from market

Debt Instruments

  • Self explanatory –  you borrow money from someone & say that I will give you 10% annual interest for 5 years & at end will pay you principle (minimum period more than 1 year) .
  • This is a  type of security paper.
  • Company will have to pay debt owner whether company is making profit or not.
  • Examples : Bonds, Debentures , External Commercial Borrowing, T Bills , Commercial papers, Certificate of deposit etc.
  • If you buy such instrument , you will be called Creditor of the Company (not owner) .
  • Benefits of becoming Creditor
    1. Fixed Income whether company is making profit or loss .
    2. First claim during liquidity .

Short and Long Term Debt Instruments

Short and Long Term Debt Instruments

#1 : Short Term Debt Instruments

  • They have maturity period of   less than 1 year.
  • Market where they are sold is called Money Market .
  • They are highly liquid as they can be sold and resold very easily.
  • These are sold at discount to face value and then bought at face value after fixed number of days (all Short Term Debt instruments that are mentioned below are sold and bought in this way)
  • Eg : T-Bill which is for period upto 14 days and issued by government .
Short Term Debt Instruments

Short Term Debt Instruments issued by various agencies

1 . Government

T-Bill Treasury Bills
Maturity Period of  upto 14 , 91, 182 or 364 days    .
– Note : State Governments don’t issue T-Bills (till 2001, they used to issue but RBI stopped this in 2001) (2018 Prelims question)
CMB Cash Management Bills
They can have maturity period of upto 90 days .
Ways & Means Advances Mechanism through which RBI lends money to Government, for temporary short term needs when there is mismatch in receipt and expenditure of Government.

2 . Companies

  • Commercial Papers
  • Promissory Notes

Both work same as T-Bills but are issued by Companies .

3 . Banks

  • Certificate of Deposits : Work same as T-Bills.
  • Call Money : Banks inter borrow among themselves for 1 day for CRR Adjustment.
  • Notice Money : Same as Call Money but for period between 2 to 14 days .
  • Repo Agreements : Already studied in Monetary Policy (Bank lends from RBI for period upto 14 days).

4 . Merchant

  • Commercial Bill : Merchant sells his unpaid invoice to bank at discount and then again buys invoice at face value when recovery date of invoice arrives .

5 . MSMEs

  • Trade Receivables Electronic Discounting System (Treds): An electronic system in which MSME owner pledges his unpaid invoice made to Corporates to bank or NBFC at discount and then again buys invoice at face value when recovery date of invoice arrives .

Before reading about Long Term Debt Instruments , we need to have knowledge of Credit Rating and Bond Yield.

Side Topic : Credit Rating

  • Credit Rating is the process to access the credit worthiness( credit record, integrity, capability) of a prospective borrower to meet the future debt obligations.
  • Credit Rating can be given to individual companies & even countries .
  • SEBI Rule : Credit Rating of Company is required if it wants to raise Debt Instrument having maturity period greater than 18 months .
  • Usually equity share is not rated here.
  • Interest rate paid on Bonds is not fixed  & depend on the credit rating  :-
    1. Companies and Countries having high credit ratings are least to default on their loans and rate of interest on Bonds issued by them is lowest (Gilt Edged) .
    2. Companies and Countries having low credit ratings are most likely to default on their loans and to attract buyers they have to offer high rate of interest.
  • Companies which do the work of Credit Rating are known as Credit Rating  Companies . These include  CRISIL, S&P, Moody’s etc. and they give rating like   AAA,A,BBB,BB,C,D etc.
Credit Ratings

Side Note : Gilt Edged vs Junk Bond

Junk Bond – Also known as High Yield Bond .
If company having low rating like C& D issue bonds , nobody would invest in them because they are insecure .
To seduce investors they offer high interest rate like 15-17% .  
Gilt Edged Bond Companies high in Credit rating & government of country also issue bond.
These are highly secure  .
They offer very low interest like 4% .  

Side Topic : Bond Yield

  • Bond Yield is the  profit percentage that investor is earning from the given bond. It is calculated by dividing Interest earned by the investor  with Par Value of Bond for that investor 
Bond Yield

Bond Yield increases in two cases

  • During Boom Period : In this period , investor is interested to invest his money in companies likely to grow faster and sell his existing Bonds at lesser value to invest his money in growing companies .
  • When economy of country is about to collapse , investor will think that it is better to sell sovereign bonds at very less value and get whatever he can . Implication is – When government will issue new shares government has to offer very high interest (greater than Bond Yield of earlier floating bonds) to attract investors toward new bonds.

#2 : Long Term Debt Instruments

  • When period of maturity is greater than 1 year   .
  • Market where it is sold is called Capital Market .


Long Term Debt Instruments

2.1 Long Term Debt Instruments issued by Governments

2.1.1  Coupon Bonds

  • In this, Government will issue Bond with Coupons attached to it. Person who has bought the Coupon Bond can get interest each year by tearing the coupon from bond and giving it to designated authority  . At the maturity period , he will get his initial amount back by giving back Coupon Bond.
Coupon Bonds

2.1.2 Bearer Bonds

  • They are regular bonds but they don’t have holders name on them .
  • Nobody can keep record of them because no name is written on them. Hence, it can be easily used in money laundering and to carry illegal activities.

Why Governments  issue bearer bonds?

  • When Government is in dire need of money like at time of war , they cant go in lengthy procedure of checking the credentials .

Note : Currency is Zero Interest Bearer Bond .

Bearer Bonds

2.1.3 Inflation Index Bonds

  • If interest offered by Bond is less than the inflation, person who has invested in these bonds will loose the purchasing power of his money. Hence, in these type of situations , people start to invest in Gold in order to preserve the purchasing power of their hard earned cash , thereby increasing the Current Account Deficit and weakening the rupee further.
Inflation Index Bonds
  • To deal with such situations, Government of India came up with Inflation Index Bonds in 1997, 2013 and 2018 to provide positive real interest rate to household, thereby reducing the Gold consumption  .
  • Inflation indexed bonds provide returns that are always in excess of inflation, ensuring that price rise does not erode the value of savings.
  • In Inflation Index Bonds, Interest Rate is relative to the inflation in the economy. Eg : CPI + 1.5% or WPI + 2.0% .

2.1.4 Sovereign Gold Bond

  • These are issued by RBI on behalf of government to deal with problem of gold imports in India .
  • These bonds are denominated in Gold Grams and apart from that interest of 2.5 to 2.75% is also given. At the end of tenure of bond, person gets amount equivalent to prevailing gold prices at that time along with interest .
Sovereign Gold Bond

2.1.5 Municipal Bond

  • Bonds issued by Municipal Corporations .
  • In India , Bangalore Municipal Corporation was the first to launch Municipal Bond in 1997 .
  • Municipalities are permitted to raise upto ₹10,000 crore via Municipal Bonds.

Need of Municipal Bonds

  • Smart Cities & Municipal Bonds : For building smart cities we need huge amount of capital . This capital can be raised via Municipal Bonds.
  • Committee on urban infrastructure headed by Isher Judge Ahluwalia (2011) had estimated that Indian cities would need to invest around 40 trillion at constant prices in the two decades till 2031 in urban infrastructure. 
  • 14th Finance Commission & Niti Aayog’s 3 Year Agenda also recognise the role to be played by Municipal Bonds in building Urban Infrastructure .
  • Financial Crunch of Urban Local Bodies (ULBs) : ULBs need to gather huge funds from all available sources to improve conditions of urban infrastructure . Municipal bonds are good option.


  • Municipal Bonds are not time tested and it will be difficult to attract investors  .
  • It can also be a source of inequalities because the better rated municipal corporations would corner most of the investment, crowding out the investment for the already infrastructurally backward cities. 
  • PFRDA classifies municipal bonds as Class C instruments instead of Class G (Government securities) making them to compete with other Class C instruments having higher yields thus making municipal bonds unattractive.
  • Most of the Municipalities under Smart City Projects are below BBB- ratings on S&P which means below investment grade.
  • It will be challenge to use the capital earned via Municipal Bonds. ULBs don’t have capacity to absorb huge funds.

Way forward : Denmark has agency to protect bond-holders in case one city in the pool defaults  . Indian government can look into feasibility of this to instill confidence in minds of investors .

2.2 Long Term Debt Instruments issued by Companies

They are of various types

Redeemable Bonds Company will pay regular interest and will return principal on maturity.  
Irredeemable Bonds  Company will pay only interest but no principal is returned.  
Partially Convertible Debenture Company will pay interest but at the time of maturity, some of the Bonds will be converted to Shares and on rest , principal will be repaid. Eg : 70% Debenture + 30% Share .  
Fully Convertible Company will pay interest but at the time of maturity, Bonds will be converted to Shares (and principal is not payed).  
Optionally Fully Convertible Debentures Company will pay interest but at the time of maturity company can give option  that investor can convert his bonds/ debentures to shares (just an option which investor can accept or reject). But the ‘rate’, will be decided by the company (i.e., how many shares against how many debentures).

2.3 Long Term Debt Instruments issued by World Bank

2.3.1 Masala and Maharaja Bonds

  • World Bank has 5 Bodies –  one of them is International Finance Corporation (IFC) & they help in raising  offshore capital via various types of Offshore Bonds called Panda Bonds (for China) , Kangaroo Bonds (for Australia) and Masala & Maharaja Bonds (for India) .

Masala Bond

  • These are offshore ₹ denominated bond  
    1. Known as Masala Bonds because India is famous for Spices ( Formosa Bonds for  Taiwan, Samba Bonds for Brazil, Samurai Bond for Japan)
    2. Called ‘Offshore’ because they are floated in London and other foreign Exchanges
    3. ₹ denominated’ because they are sold & bought in ₹ (& not $s )
  • Benefits of Masala Bond
    1. They help in fighting local currency volatility . Currency volatility in Masala Bonds is to be borne by investor because they buy these bonds in Rupee and later gets back their principal and interest in Rupee.
    2. Interest Rate is also low because they are issued by World Bank (IFC) and not company itself . Hence, they are very secure (Aaa rated) because in case company refuses to pay, World Bank will pay on it’s behalf.
  • The move to permit Masala bonds is an attempt to increase the international status of ₹ and is also a step toward full currency convertibility .
Masala Bond

Recent activities in Masala Bonds

  • NHAI raised capital via Masala Bonds to fund their highway projects
  • Kerala Government’s Kerala Infrastructure Investment Fund Board raised capital via Masala Bonds, becoming first state to do so.

Maharaja Bonds

  • Rupee Denominated Bond issued in India by World Bank’s IFC.
  • Same as Masala Bond but issued in India .
  • They also are ‘Aaa’ rated and hence interest rates are very low.
Maharaja Bonds

2.4  Miscellaneous Type of Long Debt Instruments

2.4.1 Social Impact Bond

  • These bonds are offered to High Net worth Individuals (HNI) who are interested in doing philanthropic works like Bill Gates, Premji, Ratan Tata etc . Although interest offered on these Bonds are lower than general bonds but their aim is to do social welfare.
  • Eg :
    1. NGO named Educate Girls issued Social Development Bonds to raise money to educate girls in India.
    2. Women’s Livelihood Bonds  issued by SIDBI to invest in projects targeted at improving livelihood of women by generating employment opportunities.
Social Impact Bond

2.4.2 Green Bonds

  • Green bond is a type of long term bond but  issuer of a green bond publicly states that capital is being raised to fund ‘green’ (environment friendly) projects, like renewable energy, clean transportation etc . There is no standard definition of green bonds as of now.
  • Examples of Green Bonds
    1. World’s first Green Bond was launched by World Bank (2007).
    2. India’s first Green Bond was launched by Yes Bank (2015).
    3. Indian Renewable Energy Development Agency (IREDA) launched India’s first Masala Green Bond at London Stock Exchange (2018).
    1. CLP India (Wind Energy Company) was the first Indian company to tap this route .
  • India has become the seventh largest green bond market in the world in 2017.

Side Topic : Blue Bonds

  • Same concept as Green Bonds.
  • In this, issuer publicly states that capital is being raised to fund climate resilient water conservation or marine protection projects.
  • Seychelles (small island nation in Indian Ocean) issued world first Blue Bond in 2018 for marine protection and sustainable fishery projects.

2.4.3 Catastrophe Bond

  • Catastrophe Bonds are  high-yield bonds issued by Insurance Companies . Their interest can be as high as 18% but in case natural disaster happens, then principal will not be returned (although if natural disaster doesn’t happen within the tenure of bond, principal will be returned) .
  • Frequently issued in developed western countries .
  • Suggestion : Indian Insurance Companies can also use this.


  • You  borrow money from someone &   in return you offer partnership  .
  • Equity holders are called  owners/ proprietors of the company.
  • Equity holders are given dividend in case company earns profit.
  • But they have last claim during liquidation of the company.

Types of Equity /Shares 

There are two types of shares

1 . Ordinary  shares

  • They are most common type of Shares.
  • Ordinary share-holders have voting power in the meetings of shareholders and they have last claim during liquidation.

2 . Preference shares

  • Generally issued to banks by companies although retail investors are also eligible.
  • Preference is given to them in following things
    1. In term of dividend payment ,they are given dividends even if equity shareholders are not.
    2. When company is to be closed, preference share holders are given money first from the proceeds of sales of assets of the company.
    3. They may have enhanced voting rights such as ability to veto mergers or acquisitions or right to first refusal when new shares are issued.

Order of Claim

Bond(Debenture) > Preferential share > Ordinary Share

Terminology in Shares

Value = 
Rs. 50 
Rs So 
Snu.•es ALLOP ERH 
= 20 
But this share is selling in 
share-market at Rs 70 
Investor paid Rs 20 more 
than face value
Face Value Value of Share written on Share itself .
It can be any integer – 1, 2, 3 ___25, 50, 100 (But can’t be decimal like 1.50) .
Condition : When IPO is issued, Company cant sell Share below Face Value.  
Par Value – Market determined Value of  (single) Share .
When IPO is launched, Par Value can’t be lower than Face Value. After that, Par value is decided by the market forces. It can be lower or greater than face value.  
Premium  If company is doing well, person can think that he can get big dividend when dividend will be announced. So he can buy those shares from Share Market at greater price than it’s Face Value.
Value above Face Value is called its Premium. Eg : if above share having face value of ₹50 is selling at ₹ 70 , then its Premium will be ₹ 20 .  

Digital Shares

Digital Shares

Problems with Paper Shares

  • Delivery Problem
  • Fear of Theft
  • Transfer delays leading to speculations

Demat Account

  • Dematerialised Account .
  • System was started  in mid 90s .
  • Earlier when you buy shares , you get certificate .
  • But now Shares  are electronically transferred to your account known as Demat account.


  • It is like a bank locker where securities are held in physical form.
  • In India there are two depositories
    1. National Securities Depository limited (NSDL)
    2. Central Depository Service Limited (CDSL)

Depository Participant(DP)

  • Depository Participants are Agents of  Depositories and act as intermediary between the depository and the investors.
  • Customer must open a “Demat” account in a depository-partner (DP) which can be a bank or an NBFC.
  • Eg ICICI, HDFC, SBI etc.

IPO (Initial Public Offer)

IPO (Initial Public Offer)
  • When company sell  share for the first time to the public , it is called IPO

Red Herring Prospectus

  • Before company  launches it’s IPO to get some capital via equity finance ,  company has to give Red Herring Prospectus  mentioning all the information like who are their promoters, their track record, their business plan, address etc. (all details except on which date IPO would be launched & what would be price of IPO) .
  • Only when SEBI approves this, then they have permission of going ahead  .


  • These are companies who do lengthy legal work & accounting paper work before launching IPO that require CA, Corporate Lawyers etc  . They charge commission for providing these services .
  • Eg : Mahindra, ICICI etc.

How price of IPO would be fixed

Two methods

Fixed Pricing Method

  • Company announces face value and premium in advance. Eg
    1. Face value = ₹ 10
    2. Premium = ₹15
    3. Final Price = ₹25
    4.  1 lakh such shares will be issued
  • Hence, Newspaper headline will  be ₹25 Lakh IPO will be launched in the market.

Book Building Method

  • Application for 1 Lakh shares invited (hypothetical number) .
  • And investors are asked to send application at which price they want to get these share. Eg
Quoted price of share Number of Applications received
₹ 500 X 10,000
₹200 X 50,000
₹ 125 X 40,000
₹100X 500
And so on  
  • In above example,  at ₹125  all 1 Lakh shares have been booked . Hence, face value of each share will be fixed at  ₹125 and all shares will be sold at Rs 125 per share.
  • Hence, all the shares are sold at face value in this case .

From Economic Survey (2020)

Number of IPOs issued in India have been steadily declining . This shows that

  • There is slow-down in the economy and entrepreneurs are delaying their decision to issue IPOs of their start-ups.
  • Investors too are un-enthusiastic about investing in share-markets due to lower dividend expectations.
Number of IPOs issued in India

Follow-up Public Offer (FPO)

  • If company has already issued shares previously, and now issuing more shares to obtain more capital, it is called Follow-up Public Offer .
  • It is obligatory for the company that it can offer FPO only to the existing shareholders of the company , known as Rights issue of share .
  • If company don’t want rights issue of share , company will have to hold general meeting of shareholders & pass resolution about it.

American Depository Receipts(ADR) & Bharat Depository Receipts

American Depository Receipts(ADR)

  • If Indian Company wants to issue their shares in America, they cant do it directly as they will have to register there and there are lot of other complications.
  • What Indian Company can do is ,sell those shares to American Intermediary (eg Bank of America) . Bank will issue equivalent amount of American Depository Receipts which can be bought by Americans from US Stock Exchanges.
  • When Indian Company will issue dividend, they will give that to American Intermediary and American Intermediary will distribute it to ADR Holders.
American Depository Receipts(ADR)

Global Depository Receipts

  • Same as ADR for European Union countries

Bharat  Depository Receipts 

  • Opposite to ADR .
  • It is used when foreign companies want to issue shares in India .
Bharat  Depository Receipts

Other Terms associated with Shares

1 . Share Buyback

  • Process when corporations repurchase the stock it has issued .
  • It reduces the number of shares outstanding ,giving each of remaining shareholder larger% ownership of company.
  • Buyback prices are more than market prices.
  • Companies can buyback with reserves but cant borrow to buyback.
  • It is allowed in India since 1998.
  • Reasons for buyback
    1. When Companies have large retained earnings, they don’t issue big dividend because in this process large amount of money will get wasted in tax. They generally use that money to buyback shares. 
    1. When companies management is optimistic about future & believe that current share price is undervalued  .
    2. Putting unused cash into use.
    3. Raising earnings per share .
    4. Reducing number of shareholders to reduce the cost of servicing them.

2 . Employee Stock Option Plan (ESOP)

  • Company give shares to employees at discounted rate so that employees become more committed to success of company (if company make more profit you make more profit).
  • Economic Survey (2020) has suggested government to give ESOP to employees of Public Sector Banks to improve their performance.

3 . Sweet Equity

  • If Company sell its shares to directors, employees etc. at discount for their value addition like IPR & know how.

4 . Penny Stocks and Blue Chip Stocks

Penny Stock Shares whose market price remain excessively low compared to its face value. Such pathetic companies give zero or little dividend.
Blue Chip Stock Shares of a nationally recognized, well-established and financially sound company with a history of generating good dividend whose market price is very high than it’s face value.

5. Share Pledging

When company raises loan from the Bank or NBFC by pledging it’s shares as collateral.

6. Bull and Bear Investors

There are two type of investors

Bull Investors Optimistic speculator who hopes share prices will rise, so purchases shares (to sell them later at much higher price).
Bear Investors A pessimistic speculator who fears prices will fall , so he sells his shares .

6. Rajiv Gandhi Equity Savings Scheme (RGESS)

  • RGESS  provides 50% deduction of the amount invested from taxable income for that year to new investors in securities market who invest up to Rs. 50,000 and whose annual income is below Rs. 10 lakh. The tax deduction allowed is over and above the Rs. 1 lakh limit under Section 80 C of the Income Tax Act.
  • This is to promote the habit of investment in securities in the Indians.

Equity funding for Start-ups

1 . Venture  Capitalist

  • Venture capitalist is a company that is willing to invest in the projects that are risky but have a promising future prospect. Venture Capital bridges the gap where traditional sources of funds actively cannot participate in funding new ventures.
  • They deal only with big things, big projects & big investments.
  • Venture capitalist companies arrange this money either by borrowing from companies like mutual funds, pension funds or they may issue their own bonds.
  • They demand part in company and seats in company’s Board of directors. Hence along with capital, Venture Capitalists  also bring in smart advice, hand on management support and other skills .
  • Venture capital industry in India is still at a nascent stage. With a view to promote innovation, enterprise and conversion of scientific technology and knowledge based ideas into commercial production, it is very important to promote venture capital activity in India.
  • For decades, venture capitalists have nurtured the growth of America’s high technology and entrepreneurial communities . Companies such as Compaq, Sun Microsystems, Intel, Microsoft, and Genentech are famous examples of companies that received venture capital early in their development. Now, venture capitalists in India have a chance to do the same to Indian firms.

2 . Angel Investors

  • These are rich gentlemen who  provides financial backing to entrepreneurs for ‘starting their business’. Angel investors are usually found among an entrepreneur’s family and friends but they may be from outside also.They can give debt or equity but mostly they play in equity .
  • They are focused on helping the business succeed, rather than reaping a huge profit from their investment.
  • What is need of Angel Investors?
    • You can take capital from Banks , IPO or venture capitalist if your business project is likely to make success based on previous experience.
    • But if your idea is untested & new , nobody would be interested  in financing you. Eg: Steve Jobs was funded by Angel Investor when he started Apple.
  • In India, examples of Angel Investors include Ratan Tata who has invested in Urban Ladder and TVM Pai who has invested in ZoomCar.
  • Angel investor can be recognised as Category I Alternate Investment Fund (AIF).

Side Topic : Angel Tax Issue

Angel Tax

  • Under Income Tax (IT) Act’s Section 56(2) , Government of India can impose Angel Tax .  
  • First time, it was introduced in 2012 to stop money laundering via this route (Person with lot of money can give his money to company to convert it into white).

How it is calculated ?

  • Let’s assume, I am an investor and I feel that valuation of company (Fair Market Valuation (FMV)) is ₹1 crore . Based on this valuation, if I invest ₹50 lakh in the startup, I will get 50% ownership.
  • But if Tax Authorities say that FMV of Company is not 1 Crore but ₹50 Lakh. Hence, 50% ownership will just cost ₹25 lakh. Tax Authorities will regard rest 25 lakhs as other incomes under IT Act and tax it at rate of 30.9%  .


  • Valuation Methodologies are very subjective .
  • Government is forcing Startups to pay Angel Tax even before they have generated any revenue .
  • Angel Investors are going away from investments and Startups are finding it difficult to raise capital as Banks are already in stress and aren’t ready to invest in such risky ventures .

Budget 2019 solved this issue : If Start-ups and their investors provide the required declarations and information, then IT dept. will settle the matter, and will do no further scrutiny.

3 . Crowd Funding 

  • Crowd Funding is the practice of funding a project or venture by raising money from large number of people , typically via internet. 
  • Various platforms like Grex, LetsVenture etc. are providing this service in India .
  • This funding can be of various types
    • Equity Based
    • Debt Based
    • Cause Based
    • Reward Based
  • Large number of Startups, Software developers, film-makers (eg Kannada movie Lucia) , music festivals (eg Control ALT Delete) etc. have raised funds via this platform .


There is other type of security as well , known as Derivatives . We will have just an overview of this as it is not that important from examination point of view .

Type of 
CIVI spediå.com

Question : What is derivative ?

  • Financial instrument that  derive their price from some  underlying asset are known as Derivatives.
  • The price of derivatives are directly dependent upon underlying asset in present & projected future trends which can be equity, foreign exchange, commodity or mortgaged Backed securities etc.
  • Eg : For example, wheat farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices by that date. Such a transaction is an example of a derivative. The price of this derivative is driven by the spot price of wheat which is the ‘underlying asset’.

There are four types of Derivative contracts

1 . Forward

  • A Forward is a contract between two parties to buy or sell an asset at a specified future time at a price agreed on in the contract.

2 . Future

  • Future is a legally binding contract that obligate the parties to transact an asset at predetermined future date and price. Here, the buyer must purchase or seller must sell the underlying asset at the set price , regardless of the current market price .
  • Future and forward are almost similar . But forward distinguishes itself from a future as it is traded between two parties directly without using an exchange.

3 . Option

  • If person buys an options , it grants him the right, but not the obligation to buy or sell an underlying asset at a set price

4 . Swap

  • Swap refers to  exchange of one financial instrument for another between the transacting parties concerned at a predetermined time.

Crony Capitalism

Crony Capitalism

This article deals with ‘Crony Capitalism.’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .

What is Crony Capitalism?

Crony Capitalism is an economic system in which businessmen thrives not by their hardwork or risk taking capacity but through a nexus between a business class and the political class.

Examples of Crony-Capitalism


  • After close election victories, contractors affiliated to the winning politician are more likely to be awarded road projects. Around 26% of the roads listed as completed in Pradhan Mantri Gram Sadak Yojana were missing from 2011 Census Data, suggesting they were never actually built


  • Public Sector Bank was more likely to approve loan application of a company if owner gave election donation to the ruling party.


  • Political connections play a role in the allocation of bank loans to Chinese firms.

Why Crony Capitalism is bad ?

  1. Pro-Crony Policies leads to wealth destruction :
    • On one hand , Liberalization of Indian economy enabled creative destruction of inefficient companies by empowering markets. Creative destruction in turn enables wealth creation by allowing entry of new firms leading to increased competition and lowered prices for consumers.
    • But on other hand, Pro-Crony policies of government leads to wealth destruction as  cronyism fosters inefficiencies by  inhibiting the process of creative destruction.
  2. Cronyism leads to rent seeking behavior
    • In crony-capitalism, customer is the ultimate loser as  bribes paid by the industrialists are extracted from the customers .
  3. Crony Capitalism leads to Discretionary Allocation of Natural Resources
    • This can be shown using example of coal. Prior to 1993, no specific criteria for allocation of captive mines existed. Allocation was done via Committee in which committee used to decide allocation to private firms. Firms that got the free resource diverted efforts towards the tunneling of the windfall gain instead of towards productive business activity.  Currently, the coal mines allocation is governed by Coal Mines (Special Provisions) Act, 2015 which ensures that any future allocation of coal blocks would solely be through competitive auctions
  4. Crony Capitalism leads to Willful Defaults
    • RBI defines a willful defaulter as a firm that has defaulted in meeting its repayment obligations even though it has the capacity to honour these obligations. Due to Crony Capitalism, Willful Defaulters are not given strict treatment . Such incidents have destroyed total of Rs 1.4 lakh crore from bank’s assets.

Type of Economic Systems

Type of Economic Systems

This article deals with ‘Type of Economic Systems.’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .


  • Economic System refers to the manner in which individuals and institutions are connected together to carry out economic activities in a particular area.
  • There are three major types of economic systems. They are:
    1. Capitalistic Economy (Capitalism)
    2. Socialistic Economy (Socialism)
    3. Mixed Economy (Mixedism)
Type of Economic Systems

1 . Capitalistic Economy

  • Capitalistic Economy is also termed as a free economy (Laissez faire, in Latin) or market economy where the role of the government is minimum and market determines the economic activities.
  • Adam Smith is the ‘Father of Capitalism’.

Main features of Capitalistic economy are

  1. The means of production  are privately owned.
  2. Golden rule for a producer under capitalism is ‘to maximize profit.’
  3. There is free competition as  government or any authority cannot prevent firms from buying or selling in the market.
  4. Freedom of Choice and Enterprise i.e. each individual is free to carry out any occupation or trade and produce any commodity. Similarly, consumers are free to buy any commodity as per their choice.
  5. Capitalist society is divided into two classes – ‘haves’ that is those who own property and ‘have-nots’ who do not own property and work for their living. The outcome of this situation is that the rich become richer and poor become poorer.

Merits of Capitalistic Economy

  1. Automatic Working: Without any government intervention, the economy works automatically.
  2. Efficient Use of Resources: All resources are put into optimum use.
  3. Incentives for Hard work: Hard work is encouraged and entrepreneurs get more profit for more efficiency.
  4. Production and productivity levels are very high .
  5. Consumers Sovereignty: All production activities are aimed at satisfying the consumers.
  6. Development of New Technology: As profit is the main motive, producers invest on new and efficient technology

Demerits of Capitalistic Economy

  1. Concentration of Wealth and Income in a few hands and thereby increases inequalities of income.
  2. Frequent recessions after certain period of time leading to hardship for the people.
  3. Wastage of Resources: Large amount of resources are wasted on competitive advertising and duplication of products .
  4. Class Struggle: Capitalism leads to class struggle as it divides the society into capitalists and workers .
  5. Even the harmful goods are produced if there is possibility to make profit.

2 . Socialistic Economy

  • Socialistic economy is also known as ‘Planned Economy’ or ‘Command Economy’.
  • Karl Marx is known as the ‘Father of Socialism’.

Main features of Capitalistic economy are

  1. The  Means of Production are owned by the government.
  2. Planning is an integral part of a socialistic economy and all decisions are undertaken by the central planning authority.
  3. Social welfare is the guiding principle behind all economic activities.
  4. There is absence of competition in the market. The state has full control over production and distribution of goods and services.
  5. Equality of Income as under socialism private property and the law of inheritance do not exist.
  6. Socialism provides equal opportunity for all through free health, education and professional training.
  7. There is a classless society and so no class conflicts.

Merits of Socialistic Economy

  1. Reduction in Inequalities: No one is allowed to own and use private property to exploit others.
  2. Allocation of Resources as central planning authority decides allocation of resources.
  3. Absence of Class Conflicts.
  4. Economic fluctuations can be avoided in Socialistic Economy.

Demerits of Socialist Economy

  1. Red Tapism and Bureaucratic lethargy impacts the output of economy.
  2. System does not provide any incentive for efficiency.
  3. Consumers do not enjoy freedom of choice over the consumption of goods and services.
  4. Concentration of Power in the hands of State.

3 . Mixed Economy

  • In a mixed economy system both private and public sectors co-exist and work together towards economic development.
  • It is a combination of both capitalism and socialism and tends to eliminate the evils of both capitalism and socialism.
  • Examples of Mixed Economy includes India, England, France and Brazil.
Mixed Economy

Features of Mixed Economy

  1. Means of production and properties are owned by both private and public.
  2. In mixed economies, both private and public sectors coexist. Private industries undertake activities primarily for profit. Public sector firms are owned by the government with a view to maximize social welfare
  3. Basic problems of what to produce, how to produce, for whom to produce and how to distribute are solved through the price mechanism as well as state intervention .
  4. Though private has freedom to own resources, produce goods and services and distribute the same, the overall control on the economic activities rests with the government.

Merits of Mixed Economy

  1. It promotes rapid economic growth as public requirements and private needs are taken care of.
  2. Economic Equality: The government uses progressive rates of taxation for levying income tax to bring about economic equality.
  3. Government safeguards the interest of the workers and weaker sections by legislating on minimum wages, and rationing, establishing fair price shops and formulating social welfare measures.

Demerits of Mixed Economy

  1. Lack of coordination between public sector and private sector as both work with divergent motives.
  2. Most of the public sector enterprises in Mixed Economy remain inefficient due to lethargic bureaucracy and red-tapism .
  3. The fear of nationalization discourages the private entrepreneurs in their business operations and innovative initiatives.
  4. Inequalities are present as  Ownership of resources, laws of inheritance and profit motive of people widens the gap between rich and poor.

Hence,  inequality of capitalism and inefficiency of socialism are found in mixed economies.



This article deals with ‘Inflation.’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .

What is inflation?

  • Inflation can be defined as the persistent rise in the general level of prices of goods and services in an economy over a period of time.
  • If the price of one good has gone up, it is not inflation; it is inflation only if the prices of most goods have gone up .

Why Inflation occurs ?

1. Demand pull  inflation

  • In his book “General Theory on employment, interest, money”, British Economist J.M. Keynes (1883) said, “when economy is functioning at full employment, aggregate supply will match aggregate demand.” At this equilibrium, economy will have ‘General Price’ level.
  • Demand pull inflation happens when aggregate demand exceeds aggregate supply.  
  • This can happen (i.e. demand can exceed supply) in following situations
    1. Increase in money supply due to RBI’s expansionary or easy money policy.
    2. Increase in propensity to consume .
    3. Increase in investment expenditure .
    4. Increase in fiscal deficit of the governments .
    5. Increase in net exports .
  • To tackle such inflation, government can
    1. Reduce money supply by increasing interest on loans.
    2. Induce people to save rather than consume by giving attractive investment options.
    3. Follow Fiscal Consolidation and keep fiscal deficit in check.
    4. Import goods in short supply  .

2 . Cost push inflation

  • It is also known as supply shock inflation .
  • When supply is reduced due to increase in price of raw material leading to higher cost of production.

3 . Profit Push inflation

  • When Cartels or Monopolists or Oligopolists deliberately cut their supply or hoard their produce or hike the price in greed of more profit.
  • Eg : OPEC increasing price of Petroleum or greedy Indian Merchant hoarding onion so that their price increases.

4 . Structural inflation

  • Caused by deficiencies in certain conditions in economy when it is unable to respond to peoples increased demand in certain specific things or due to lack of infra to make commodities available to consumers .

5 . Repressed Inflation

  • During wars or natural disaster, governments impose price controls and rationing measures to keep prices in check. But after the controls are withdrawn after the end of war or disaster, prices will rise instantaneously as traders will try to cover up their earlier losses as well.

Types of Inflation based on speed

1 . Creeping Inflation

  • Inflation upto 4% (for Indian economy).
  • It is regarded safe and essential for job creation and economic growth.

2 . Walking

  • Inflation of more than 4% but limited to single digit only.

3 . Galloping Inflation

  • Very high inflation in the range of double-digit or triple digits.
  • Examples :
    1. In 1970s and 1980s,  Latin American countries such as Argentina, Chile and Brazil faced Galloping Inflation in the range of 50 to 700 per cent.
    2. Russian economy after the disintegration of the ex-USSR in early 1990s faced such inflation.

4 . Hyperinflation Inflation

  • In Hyperinflation, annual inflation rates are in million or even trillion.  Prices of goods shoot up overnight.
  • Examples
    1. Germany during Great Depression when Deutsche Mark became worthless.
    2. In recent times, Zimbabwe and Venezuela  faced Hyperinflation .

Some definitions

Deflation Persistent fall in level of prices of goods and services.
Disinflation Reduction in rate of inflation
Stagflation Combination of inflation & unemployment due to recession.
Reflation Attempt to raise price to counteract deflationary pressures.
Skewflation Episodic price rise in one or small group of commodities while inflation in the remaining goods and services remaining the same. Eg : episodic rise in price of onions or tomatoes or pulses.

Impacts of Inflation

# Inflation hurts following groups

  • People on fixed income, pensioners and bond holders suffer because their income remains fix while the purchasing power of money is reduced due to inflation.
  • Consumers suffer because price rise means more money being paid by consumers for what they buy .
  • Lenders suffer because the money which they will get back will have less purchasing power. (Note – Inflation favors the Debtors over the Lenders)
  • Importers suffer because inflation leads to depreciation of currency increasing the cost of imports.
  • Tax-payers suffer as they have to pay more direct and indirect taxes. As indirect taxes are imposed ad valorem (on value), increased prices of goods make tax-payers to pay increased indirect taxes. Similarly, due to inflation, direct tax  also increases as tax-payer’s gross income moves to the upward slabs of  tax brackets .

# Inflation benefits following groups

  • Businessmen make huge profits because  the price of final product rise at a much faster speed than the price of raw materials.
  • Borrowers benefit as they have to return same money but it has less purchasing power.
  • Government is the biggest beneficiary as it is the biggest borrower. Due to inflation, they have to pay back lesser in real terms .
  • Exporters benefit because depreciation of currency leads to cheaper exports .

# Is inflation good or bad ?

Controlled inflation (between 2 to 6% for India) is desirable & good for economy . Producers & traders make reasonable profits encouraging them to invest. But inflation above safe levels i.e. 6% for India hurts the economy negatively.

Philip’s Curve

  • It is a graphic curve showing  a relationship between inflation and unemployment.
  • Economist William Philips said , there is a ‘trade off’ between inflation and unemployment
    • When inflation increases, correspondingly unemployment decreases.
    • When inflation decreases, unemployment increases.
Phillips Curve
  • This idea became popular in  early 1960s, when economists started to argue that unemployment could be checked forever at the cost of a slightly higher inflation. Central Banks around the world started to make monetary policies accordingly.
  • But in 1970s , this idea was challenged because countries which followed above policies suffered high inflation as well as unemployment in the long run.   American economists, Milton Friedman and Edmund Phelps argued that trade-off between inflation and unemployment was only short-term, because once people came to expect higher inflation they start to demand higher wages and thus unemployment will rise back to its ‘natural rate’ .

Index Theory

  • Inflation means general rise in the price of goods and services. But rise against what? There should be some Base Year for that against which rise in prices of goods and services are measured.
  • Along with that relative importance of all the goods and services is also not same . We cant equate Rice and Onion with Shoes. Shoes are bought once in a while but eatables are bought frequently and their price rise hurts more. Hence, weight has to be assigned to all goods and services according to their relative importance.
  • Hence, Laspeyres formula is used in calculation of WPI, CPI and IIP index which is a weighted arithmetic mean of a basket of commodities that tracks price / production level against the base year
  • Inflation rate is calculated using change in Laspeyres Index in particular month of year compared to that of same month of previous year.

Base Years

Base Years for different Indexes are different

  Base Year Who
CPI 2012 NSO (under MoSPI)
WPI 2011 Economic Advisor , DPIIT
IIP 2011  NSO
Side Note: GDP 2011 NSO

Index 1 : Consumer Price Index (CPI)

  • CPI measures the inflation using weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.
  • There are different types of CPIs released by different agencies as given below
  Released by Base Year
CPI 1) Rural 2) Urban 3) All India NSO 2012
Consumer Food Price Index (CFPI) NSO 2012
CPI (Industrial Worker) Labour Ministry 2001
CPI (Agricultural Labourer) Labour Ministry 1986
CPI (Rural Labourer) Labour Ministry 1986

CPI (All India)

  • CPI (All India) is released by NSO with base year of 2012.
  • It is the headline CPI inflation of India.
  • Monetary Policy Committee use CPI (All India) under it’s Inflation Targeting Mechanism.

CPI (Rural) and CPI (Urban)

  • Since basket of goods used by people living in rural and urban areas differ, hence NSO also releases CPI (Rural) and CPI (Urban) to show the inflation in these categories as well.
  • These are also released by NSO with 2012 as base year. But , weightage assigned to different goods vary in accordance with relative importance of goods used in these areas.

Basket of Goods and Weightage assigned

Component CPI (All India) weight CPI (Rural) weight CPI (Urban) weight
Food and beverages 45.86 34.18 36.29
Pan, tobacco and intoxicants 2.35 3.26 1.36
Clothing and Footwear 6.53 7.36 5.57
Housing 10.07  —- 21.67
Fuel and Light 6.84 7.94 5.50
Miscellaneous 28.32 27.26 29.53
Total 100 100 100

Consumer Food Price Index (CFPI)

  • If only Food Component is seen , we get Consumer Food Price Index (CFPI) .

Core Inflation

  • CPI minus Food and Fuel component is called Core Inflation.

Trends in CPI in recent times

per cent 
Feb- 12 
Apr- 12 
Jun- 12 
Aug- 12 
Oct- 12 
Dec- 12 
Feb- 13 
Apr- 13 
Jun- 13 
Aug- 13 
Oct- 13 
Dec- 13 
Apr- 14 
Jun- 14 
Aug- 14 
Oct- 14 
Dec- 14 
Feb- 15 
Apr- 15 
Jun- 15 
Aug- 1 5 
Oct- 15 
Dec- 15 
Feb- 16 
Apr- 1 6 
Jun- 16 
Au - 
Dec- 16 
Feb- 17 
Apr- 17 
Aug- 17 
Dec- 1 7 
Feb- 18 
Apr- 1 8 
Oct- 1 8 
Dec- 1 8 
Feb- 19 
Apr- 1 9 
Jun- 19 
Aug- 19 
Oct- 1 9 
Dec- 19

CPI Old Indexes

1 . CPI-IW

  • It is Consumer Price Index for Industrial workers.
  • It is compiled by Ministry of Labour.
  • Base year of CPI (IW) is 2001 .
  • Basket of goods include 370 goods.
  • Use : It is used as cost of living index in organised sector —> Dearness Allowance (DA) is calculated using this

2 . CPI-AL

  • It is Consumer Price Index for Agricultural labourers
  • It is compiled by Ministry of Labour.
  • Base year of CPI (AL) is 1986 .
  • Basket of goods include 60 goods.
  • Use : MNREGA wages are indexed to this

3 . CPI – RL

  • It is Consumer Price Index for Rural labourers
  • It is compiled by Ministry of Labour.
  • Base year of CPI (AL) is 1986 .

Side Topic : Price Stabilization Fund

  • To fight Food Inflation, in 2015 Agriculture Ministry was given ₹500 Crore to make Price Stabilization Fund
  • Under this, Union gives interest free advance to states so that they can buy onion, potato, pulses etc. from farmers and maintain their supply in urban areas to keep prices stabilized.
  • 2016 : This fund was transferred to Ministry of Consumer Affairs .

Thalinomics : Economics of a plate of food in India

  • Thalinomics refers to the economics of a plate of food in India.
  • According to Economic Survey (2020), the price of Thali has reduced across all regions for both vegetarian and non-vegetarian thalis from 2015 to 2018. Hence , Thali’s affordability has increased for poor families. Average yearly gain to the household of 5 individuals due to reduced prices would be around Rs. 11,000.
  •  Affordability of Thalis vis-à-vis a day’s pay of a worker has improved over time indicating improved welfare of the common person .
  • Economic Survey estimates that this could be due to various reform measures taken in 2015 and afterwards such as Pradhan Mantri Annadata Aay SanraksHan Abhiyan (PM-AASHA) , Pradhan Mantri Krishi Sinchai Yojana (PMKSY), Pradhan Mantri Fasal Bima Yojana (PMFBY), Soil Health Card, e-NAM, National Food Security Mission (NFSM) and National Food Security Act (NFSA).

#2 : Wholesale Price Index

  • Wholesale Price Index (WPI) is the price of a representative basket of wholesale goods.
  • It is released by Economic Advisor to Department for Promotion of Industry and Internal Trade (DPIIT) under Commerce Ministry.
  • In 2017 , Base year was changed to 2011 (earlier was 2004) .
  • Basket of goods and weight assigned to them while calculating WPI is as follows
Component Weightage
Manufactured Products 64.23
Primary Articles 22.62
Fuel and Power 13.15
  • 2017 Update : Earlier while counting price, indirect taxes were also counted in price. Other countries use Producers Price Index (PPI) and measure inflation with respect to Producers . But in India, by including Indirect Taxes , we get inflation wrt users. 2017 update fixed this anomaly and now while calculating WPI, price without indirect tax will be taken into consideration (although Cost of Transportation will still be shown by it)

Trends in WPI in recent times


#3 : Index of Industrial Production (IIP)

  • IIP is a monthly index prepared by NSO that  tracks manufacturing activity in different sectors of an economy .
  • It’s Base Year is 2011 .
  • Different components and weight assigned to them are as follows
Manufacturing 78%
Mining 14%
Electricity 8%
  • Other way in which IIP is categorised is  USE BASED CATEGORISATION. Weightage given to different categories in this is as follows
Primary goods 34.22%
Intermediate goods 17.22%
Capital goods 8.22%
Infrastructure goods 12.34%
Consumer durables 12.84%
Consumer nondurables 15.33%

Index of 8 Core Industries

  • Within  IIP , 8 industries are considered as core industries because they impact all other economic activities .
  • Eight Core Industries comprise 40.27 % of the weight of items included in the IIP  .
  • It comprises of eight industries as follows 
    • Coal (weight: 10.33%)
    • Crude Oil (weight: 8.98 %),
    • Cement (weight: 5.37%)
    • Fertilizer (weight: 2.63 %).
    • Electricity (weight: 19.85%),
    • Refinery Products (weight: 28.04%),
    • Natural Gas (weight: 6.88 %)
    • Steel (weight: 17.92%)

Other Indexes

1 . Producer Price Index

  • It measures prices of goods and services  as they are sold to wholesaler by producers .
  • It is measured from the prospective of producer while WPI is measured by prospective of wholesaler
  • It covers both goods and services. (WPI only covers goods)
  • It is better to use than CPI too because CPI includes subsidy provided by the government . Hence, it doesn’t give clear trajectory of prices of factors of production.
  • Abhijit Sen Committee has recommended to introduce PPI in India .

2 . Service Performance  Indices

  • Any of the above index do not implicitly measures inflation of service sector .
  • Chandrasekhar Committee suggested to start Service Performance Indices. As a result,  following indices have been started
Railways SPIs Measures Inflation in freight and passenger services
Banking SPIs Measures Inflation in services for which banks charge fees, commissions, brokerage, etc.
Postal SPIs Measures Inflation in services provided by  Department of Posts  (private postal services are not taken in account)
Telecom SPIs Inflation in cellular services on the basis of TRAI report.

3 . Residex

  • By National Housing Bank (NHB)
  • It measures inflation in Housing prices in 26 cities .

4 . Baltic Dry Index

  • Released by London Stock Exchange .
  • Measures cost to transport raw material by sea .
  • Conclusions that can be drawn from it are
    • Increase = World Economy will grow
    • Decrease = World Economy to slowdown

Income Inequalities

Income Inequalities

This article deals with ‘Income Inequalities.’ This is part of our series on ‘Economics’ which is important pillar of GS-2 syllabus . For more articles , you can click here .


  • Income inequality is the degree to which income is unevenly distributed throughout the population.
  • It is measured statistically using Gini Coefficient.
  • Apart from that, Oxfam also releases a report every year showing the income inequality in the world and India.

Gini Coefficient

  • Gini Coefficient is a statistical measure to gauge income inequality or wealth divide .
  • It’s value vary between 0 to 1 ; 0 indicating perfect inequality and 1 indicating perfect equality.
  • An increase in value of Gini Coefficient means that inequality in an economy is increasing and government policies are not inclusive and benefitting richer .

Calculation of Gini Coefficient

  • Gini Coefficient is a statistical measure to gauge income inequality or wealth divide .
  • It’s value vary between 0 to 1 ; 0 indicating perfect inequality and 1 indicating perfect equality.
  • An increase in value of Gini Coefficient means that inequality in an economy is increasing and government policies are not inclusive and benefitting richer .

Calculation of Gini Coefficient

  • Gini Coefficient = A / (A+B)
Gini Coefficient

In the graph shown above

  • Horizontal axis on this chart represents cumulative shares of the population.
  • Vertical axis is cumulative shares of income.
  • A+ B is constant and if
    • A is higher, it means inequality is higher .
    • A is smaller, it means inequality is lower.
    • If A = 0 , then no income inequality.
  • Hence, Gini Coefficient is measured from 0 to 1 and lower value means low inequality and higher means more inequality .

Kuznet Curve on Inequality

  • Famous US Economist Simon Kuznet showed that as an economy develops, market forces will first increase inequality and then decrease inequality among people.
  • This happens because the initial phase of economic growth boosts the income of workers and investors who participate in first wave of innovation . But this inequality is temporary as other workers and investors soon catch-up resulting in improvement of their incomes as well.
Kuznet Curve

India and Income Inequality  

  • Piketty the world famous economist have cautioned India for rising levels of Income inequalities and its consequences. In country like India where other forms of inequalities are present too most important being caste system, income inequalities exacerbates the situation .
  • India grew at average rate of 7.5% since 2011 but growth is not equally distributed (rich are growing more)  . Gini Coefficient shows that income inequality is continuously increasing in India . The following data corroborates this 
Gini Coefficient of India
  • According to Oxfam Report (2020) , India’s top 1% wealthy people hold 42.% of the National Wealth  while the bottom 60% own less than 5%.
Income Inequalities
  • According to Oxfam head , it is morally outrageous that a few wealthy individuals are collecting growing share of India’s wealth , while the poor are struggling to find their next meal . If this obscene inequality continues, it will lead to complete collapse of social and democratic structure of this country.

Causes of Income Inequality

Historical Causes Caste System : Due to exclusion of lower caste from ownership of land and education , people belonging to lower caste are poor .  
Social Causes Caste System is the main reason.
Due to patriarchal and patrilineal nature of Indian society, Women don’t own factors of production in India.
Frequent Global Economic Crisis Economic Crisis like that happened in 2008 accentuate income inequality by making richer rich and poorer poor . 

(How= Central Bank cant allow big houses to fell . Due to this, they get large cuts . Currency devaluate and Amount of loans that companies have to pay decrease in reality. On the other hand, households who have deposited their money loose value of their money)  
Faulty taxation system In India , there is more reliance on Indirect Tax which is regressive in nature . Apart from that, government has removed wealth tax in India.  
India relied on  trickle down approach India relied on ‘Trickle Down Approach’ which benefitted the industrial houses and rich businessmen. In order to reduce inequality, India should have followed  redistributive justice principles of John Rawls, Gandhian trusteeship principles or Amartya Sen’s capability approach.    
Technological Change Rapid technological changes is leading to automation of industries . As a result, few people with high skills are getting high packages while large number of workers are losing their jobs .  
Capture of power by elites Due to Crony Capitalism , political leaders and government is working as agents of elites . Policies of government are made in such a way that it benefits elite sections of the society.    

Consequences of Inequalities

Conflicts  and Insurgency – Arab Spring of 2011 in the Middle-East  was result of high inequalities in that region .
Earlier in India, Naxalbari Movement was result of inequality (in land holding)  
Crimes It has been observed that unequal societies have higher crime rates. Poverty force people to earn via illegal means .  
Political Impacts In case of higher income inequalities, political democracy and government starts to loose its legitimacy.  
Effects on Growth Income distribution matters for growth. If income is more equally distributed, it means more potential buyers of goods creating bigger markets.

Steps Taken by India

Tax Reforms  Piketty has suggested India to improve its Tax : GDP which is abysmally low .
Indian Government is taking steps to bring more people in tax net. Taxation system helps in ‘redistribution of money’ from richer to less well off.  
Skill Development Improving education quality, eliminating financial barriers to higher education, and providing support for apprenticeship programmes .  
Social Security The high cost of healthcare and medicines drives a hundred million people into poverty every year.  For the very poorest and most vulnerable there must be a universal and permanent safety net that is there for them in the worst times. Government has taken various measures in this regard like starting Ayushman Bharat Scheme.  
Various steps against Black money Steps like demonetization have been taken by the government to control black money .

National Incomes

National Incomes

This article deals with ‘National Incomes.’ This is part of our series on ‘Economics’ which is important pillar of GS-2 syllabus . For more articles , you can click here .


  • Income level is the most commonly used tool to determine the well-being and happiness of nations and their citizens.
  • GDP, NDP, GNP and NNP are the four ideas/ways to calculate the income of a nation.

Gross Domestic Product (GDP)

  • GDP is the market value of all the final goods and services produced within a country during one year period .
  • In this , boundary of country matters and not citizenship of person producing it . If good or service is produced within the boundary of nation, then it will be counted in the GDP.
  • Interpretation
    • If Karan Johar is making some Bollywood movie  => Addition in GDP (+) .
    • Chris Gayle (not Indian citizen ) is making some advertisement in India => Addition in GDP (+).
    • Jaguar (Indian Company but doing production in Britain ) manufacturing cars => Not counted in Indian GDP .

Nominal GDP and Real GDP

GDP at Current Price (Nominal GDP) vs GDP at Constant  Price  (Real GDP)

  • After looking at Nominal GDP/ GDP @ Current Price , we cant say whether economy has improved or not . Eg : in the example shown in infographic below, quantity wise production has decreased but  figures are showing that GDP has remained constant.
  • To rectify this problem, economists set a Base Year (2011 for India) & then use the  production data of present year but price of goods that of base year . Using this process GDP at Constant Price or Real GDP can be calculated

GDP Deflator

GDP deflator is an index of price changes of goods and services which is calculated by dividing the nominal GDP in a given year by the real GDP for the same year and multiplying it by 100.

GDP deflator

 GDP deflator can also be used to measure inflation in the economy

GDP at Factor Cost & GDP at Market Price

GDP at Factor Cost

  • There are four factors of production & each factor will be paid in money
    • Land : Rent
    • Labour : Wage
    • Capital : Interest
    • Entrepreneurship : Profit
  • GDP at factor cost is obtained by adding the value of these factors of productions.
National Incomes

GDP at Market Price

  • But GDP at factor cost  will attract some tax & subsidies which needs to be added and subtracted respectively to get GDP at market price. 
GDP @  Factor  Cost
  • New official GDP of India is GDP AT CONSTANT MARKET PRICE (earlier it was at factor cost) .

Methods to calculate GDP

There are three methods to calculate GDP

GDP calculation methods

In India, we use Income method to calculate GDP.

Method # 1 : Income Method

  • In India, we use Income method to calculate GDP.
  • In any economy, person will get wage (w) for his labour, interest (I) on his capital, profit (P) on his entrepreneurship and rent (R) on his land or building.  Under this method, GDP (at factor cost)  is calculated by adding up all the incomes generated in the course of producing final goods and services.
  • If we add taxes and subtract subsidies and then adjust that for inflation, we will get GDP at constant and market prices.
GDP using Income Method

Method #2 : Expenditure Method

  • An alternative way to calculate the GDP is by looking at the demand side of the products.
  • All the final goods & services produced in the economy will ultimately be purchased . Hence, if we add expenditure of all the persons in an economy, we can calculate GDP (at current price).
  • Under this method, the total expenditure incurred by the society in a particular year is added together .
GDP using Expenditure Method


  • Second hand goods: The expenditure made on second hand goods should not be included.
  • Purchase of shares and bonds : Expenditures on purchase of old shares and bonds in the secondary market should not be included.
  • Transfer payments : Expenditures towards payment incurred by the government like old age pension should not be included.
  • Expenditure on intermediate goods : Expenditure on seeds and fertilizers by farmers, cotton and yarn by textile industries are not to be included to avoid double counting.

Method #3 : Gross Value Addition or Production Method

  • The final goods and services are produced by going through value addition in various stages. By adding value added during each step of the finished product, GDP can be calculated. This method is known as GVA or Production Method .
GDP using GVA Method
  • What we get is GDP at factor cost which  can be easily converted to GDP at constant market price by addition of taxes , subtraction of subsidies and adjusting it with inflation.
National Incomes

Gross National Product (GNP)

  • GNP is the total monetary value of all the goods and services produced by NORMAL RESIDENTS of a country. 
  • Here, boundary of territory is not important but normal residency is  important. Hence,
    • Indian earning in India => His income will be counted in Indian GNP.
    • Indian earning in Saudi Arabia => His income will be added in Indian GNP.
    • Earnings of Korean-owned Hyundai car factory in India => It’s earning will not be counted in Indian GNP.
Gross National Product (GNP)

Net National Product (NNP)

  • NNP is obtained by deducting the value of depreciation from the GNP.
  • Whenever something is produced, capital assets get consumed due to wear and tear. This wear and tear is called Depreciation . Naturally, depreciation does not become part of anybody’s income.
Net National Product (NNP)

Net National Product at Factor Cost

  • Through the expression given above, we get the value of NNP evaluated at market prices. But market price includes indirect taxes and subsidies as well . 
  • If we add subsidies and subtract subsidies from NNP evaluated at market prices, we obtain  Net National Product at factor cost.
  • India’s National Income is NNP at Factor Cost .
Net National Product at Factor Cost

Per Capita Income

  • Per Capita Income is the average income of a person of a country in a particular year.
  • Per capita income is obtained by dividing national income (Net National Product at Factor Cost) by population.
Per Capita income
  • India’s Per Capita Income is ₹ 1,35,000 (2019-20).

Personal Income

  • Personal income is the total income received by the individuals of a country from all sources before payment of direct taxes in a year.
  • Personal income is derived from national income by deducting undistributed corporate profit, and employees’ contributions to social security schemes and adding transfer payment.

Disposable Income

Disposable Income is  the individuals income after the payment of income tax.

Limitations in measuring National Incomes 

  • Income earned through illegal activities like gambling, smuggling, illicit extraction of liquor, etc., is not included in National Incomes.
  • Many activities in an economy are not evaluated in monetary terms. For example, the domestic services women perform at home are not paid for. These Non-marketed activities are not accounted in National Incomes .
  • Barter exchanges which are still prevalent in rural and tribal areas are not accounted in National Incomes.
  • Farmers keep a large portion of food and other goods produced on the farm for self consumption. It is difficult to account these in National incomes.
  • Externalities refer to the benefits (or harms) a firm or an individual causes to another for which they are not paid (or penalised). Negative externality is also not accounted .
  • National Incomes doesn’t give any picture of distribution of income and income inequality within the economy.
  • The deduction of depreciation allowances, accidental damages, repair and replacement charges from the national income is not an easy task. It requires high degree of judgment.

Rise in national incomes and welfare

  • National Income is considered as an indicator of the economic wellbeing of a country. The economic progress of country is measured in terms of their GDP per capita and their annual growth rate.
  • But the rise in GDP or per capita income need not always promote economic welfare as
    1. The economic welfare depends upon the composition of goods and services provided. The greater the proportion of capital goods over consumer goods, the improvement in economic welfare will be lesser.
    2. Higher GDP with greater environmental hazards such as air, water and soil pollution will be little economic welfare.
    3. Production of war goods will show the increase in national output but not welfare.
    4. Increase in national output can also result from exploitation of labour . This exploitation doesn’t lead to welfare of people.

Indian GDP Trends and Analysis

  • Base year for India is 2011. (there are news of changing it to 2018, but as of now it is 2011)
  • In the recent years, GDP growth rate (at constant price) trends was as follows :-
Indian GDP Trends and Analysis
  • Corona Lockdown
    • In the April-June quarter, output shrank 23.9% from a year earlier
    • Reason : stringent COVID-19 lockdowns =>three sectors which contracted the most were construction (at -50.3%), trade, hotels, transport, communication and services related to broadcasting (at -47%) and manufacturing (at -39.3%). Every single industry and services sector shrank with the solitary exception of agriculture, which grew 3.4%
  • India’s  GDP at Current Market Price is $ 2.9 billion . Target of government is to increase it to $ 5 trillion till 2025.
National Incomes
  • India is the fifth largest economy of the world considering GDP at current prices in US dollars. The top 5 economies are as follows .
National Incomes