Indian Economy by Sreejith R.S.

Consider the following statements regarding Government of India's Capital Expenditure (CAPEX)

1. The Union government's capital expenditure on major sectors has shown an increasing trend over the past five years

2. The effective capital
expenditure has consistently increased over the past five years.

Industrial outlook survey -RBI

Rural Economic conditions and sentiments survey (RECSS)- NABARD

Orderbooks, Inventories, and Capacity Utilization Survey (OBICUS)
•Published by: Reserve Bank of India (RBI).
•Purpose: To collect data on orderbooks, inventory levels, and capacity utilization in the manufacturing sector.
•Frequency: Quarterly.

Key Metrics:
1. Orderbooks: Tracks new orders received by manufacturing firms.
2. Inventory Levels: Measures raw material, work-in-progress, and finished goods inventory.
3. Capacity Utilization: Indicates the extent to which manufacturing capacity is being utilized.

Importance of OBICUS
•Helps the RBI and government assess industrial demand and supply conditions.
•Provides insights into manufacturing sector performance, which is crucial for GDP growth estimates.

Budget 2025-26

• GDP growth forecast for FY26 between 6.3-6.8%

• All sectors are performing well

• Retail headline inflation softens from 5.4% to 4.9%

• Unemployment rate declines to 3.2%

• Services sector exports grew by 11.6% in the first nine months of FY25

• Food inflation driven by factors such as supply chain disruption, extreme weather condition

• Geopolitical risks remain elevated due to ongoing conflicts and tensions

• India's current account deficit stood at 1.2% of GDP in Q2FY25

• India's foreign exchange reserves stood at USD 640.3 billion as of the end of December 2024

• Development Financial Institutions have been key players in catalysing infrastructure development

• Capex has grown by 8.2% during July - November 2024 on year-on-year basis.

As Finance Minister Nirmala Sitharaman prepares for her eighth consecutive Union Budget, a team of dedicated experts is shaping India’s economic future. At the core of this mission are the officers of the Indian Administrative Service—visionaries who drive reforms across taxation, economic growth, fiscal consolidation, and financial services. Working tirelessly behind the scenes, they transform challenges into opportunities, ensuring governance fuels progress. Their leadership is not just about policy; it’s about nation-building. They are the architects of reform, the catalysts of change, and the stewards of India’s aspirations. They do not just serve the nation; they shape its destiny.

Economic Survey

[2015]
A decrease in tax to GDP ratio of a country indicates which of the following?
1. Slowing economic growth rate
2. Less equitable distribution of national income

[2015]
There has been a persistent deficit budget year after year. Which of the following actions can be taken by the government to reduce the deficit?
1. Reducing revenue expenditure
2. Introducing new welfare schemes
3. Rationalizing subsidies
4. Expanding industries

[2015]
With reference to the Union Government, consider the following statements:

1. The Department of Revenue is responsible for the preparation of Union Budget that is presented to the Parliament.

2. No amount can be withdrawn from the Consolidated Fund of India without the authorization from the Parliament of India.

3. All the disbursements made from Public Account also need the authorization from the Parliament of India.

With reference to Above the Line and Below the Line Fiscal Measures, consider the following statements:
1. Above the Line fiscal measures directly impact the fiscal deficit and are explicitly recorded in the government’s budget.
2. Below the Line fiscal measures do not appear in the fiscal deficit calculation but may create contingent liabilities for the government.
3. Off-budget borrowings are classified under Above the Line measures as they are included in the government’s direct expenditures.

Above the line and below the line fiscal measures refer to the classification of government actions in terms of their impact on the budget balance and public debt. These terms are often used in discussions of fiscal policy to differentiate between direct budgetary measures and other interventions.

Above the Line Fiscal Measures
•These are direct government expenditures or revenues that affect the fiscal deficit and are recorded in the government’s budget.
Examples include:
• Expenditures: Subsidies, salaries, infrastructure spending, social sector programs, etc.
• Revenues: Taxes, duties, fees, or other forms of government income.
• These measures are explicitly reflected in the budget balance, making them transparent and easy to measure.
• Example in India: PM Garib Kalyan Yojana’s direct cash transfers during COVID-19.

Below the Line Fiscal Measures
•These measures do not directly appear in the fiscal deficit calculation but have an impact on public debt or contingent liabilities.
Examples include:
• Off-budget borrowings: Loans taken by public sector enterprises guaranteed by the government.
• Equity injections: Capital support to state-owned enterprises.
• Loan guarantees: Promises to repay loans if the borrower defaults.
• These measures are less transparent and often shift fiscal obligations to the future.
• Example in India: Loans guaranteed by the government under credit guarantee schemes for MSMEs during COVID-19.

Key Difference:
• Above the Line: Direct impact on the fiscal deficit and openly recorded in the budget.
• Below the Line: Indirect or deferred fiscal impacts, often creating contingent liabilities or off-budget expenditures.

(C) Live Mint

Strategic PSU Tag:
Designates entities vital for national security, defense, critical infrastructure or economic self-reliance.

Implications for BHEL:
•Increased government focus and support.
•Reduced likelihood of privatization or disinvestment.
•Priority in national projects, especially in energy and infrastructure.

Benefits:
•Operational stability and protection from market volatility.
•Ensures continued government control over critical sectors.

Why BHEL?:
•Key role in India’s power sector and energy self-sufficiency.
•Significant for national energy infrastructure and security.

Banking Ratios

Elasticity in economics measures the responsiveness of one economic variable to changes in another.

It helps us understand how changes in price, income, or other factors affect demand and supply.

Price elasticity of demand measures the sensitivity of quantity demanded to changes in price.

Price inelastic demand means that changes in price have little impact on the quantity demanded. Consumers buy roughly the same amount regardless of price increases or decreases,making it less responsive to price changes and thus inelastic.This is common with necessities like food, medicine, or gas.

Initial Public Offering (IPO) - A Crisp Note

What is an IPO?
An Initial Public Offering (IPO) is the process through which a private company offers its shares to the public for the first time, thereby becoming a publicly traded company. It helps the company raise capital from investors.

Eligibility for Indian Companies to Opt for IPO:
Profitability: Companies must have reported profits in at least three of the last five years.
Net Tangible Assets: Minimum of ₹3 crore in each of the preceding three years.
Net Worth: Minimum of ₹1 crore in each of the preceding three years.
Other Requirements: Companies must adhere to SEBI guidelines, including minimum public shareholding and disclosure norms (Only Public Ltd company can come with an IPO)

Modes of IPO:
Fresh Issue: New shares are created and sold to the public. Proceeds go to the company for business expansion, debt repayment, etc.
Offer for Sale (OFS): Existing shareholders sell their shares to the public. Proceeds go to the selling shareholders, not the company.

IPO Pricing Mechanisms:
Fixed Price Method: The company sets a fixed price for the shares.Investors know the price before applying.
Book Building Process: A price band is set (minimum and maximum price).Investors bid within this range.
The final price is determined based on demand (usually the cut-off price).

Consider the following statements regarding Initial Public Offerings (IPOs) in India

1. In a "Fresh Issue," the company issues new shares to the public, raising fresh capital.

2. In an "Offer for Sale," existing shareholders sell a portion of their existing shares to the public.

3. Both Fresh Issue and Offer for Sale result in an increase in the number of outstanding shares of the company.

Consider the following statements:

Statement 1: Only Public Limited Companies can conduct Initial Public Offerings (IPOs).

Statement 2: The process of an IPO involves hiring an underwriter, preparing a prospectus, and obtaining regulatory approvals.

What does venture capital mean? [2014]

What is the importance of the term “Interest Coverage Ratio” of a firm in India?

1. It helps in understanding the present risk of a firm that a bank is going to give a loan to.

2. It helps in evaluating the emerging risk of a firm that a bank is going to give a loan to.

3. The higher a borrowing firm’s level of Interest Coverage Ratio, the worse is its ability to service its debt.

Interest Coverage Ratio (ICR) measures a company’s ability to meet its interest obligations from its operating income.

•Formula: ICR = Operating Income (EBIT) / Interest Expense.

•Purpose: Assesses financial stability and solvency, indicating how easily a company can pay interest on its debt.

•High ICR: Strong financial health, low risk of default.

•Low ICR: Potential financial stress, higher default risk.

•Ideal Range: Generally, an ICR above 2 is considered healthy, but it varies by industry.

•Usage: Critical for lenders, investors, and analysts to evaluate a company’s financial strength and creditworthiness.

Consider the following statements:

1. Capital Adequacy Ratio (CAR) is the amount that banks have to maintain in the form of their own funds to offset any loss that banks incur if the account-holders fail to repay dues.

2. CAR is decided by each individual bank.

With reference to Urban Cooperative Banks in India, consider the following statements:
1. They are supervised and regulated by local boards set up by the State Governments.
2. They can issue equity shares and preference shares.
3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1996

Which of the following is the most likely consequence of implementing the ‘Unified Payments Interface (UPI)’? [2017]

In India, the Central Bank’s function as the “lender of last resort” usually refers to which of the following?
1. Lending to trade and industry bodies when they fail to borrow from other sources
2. Providing liquidity to the banks having a temporary crisis
3. Lending to governments to finance budgetary deficits