An economy is a system by which a society produces, distributes and consumes goods and services to satisfy human wants. In simple words, it answers three basic questions: what to produce, how to produce, and for whom to produce. Every economy must also decide how to use its scarce resources, and this choice is studied under the subject of economics.

Economic systems are mainly of three types. In a capitalist or market economy, production is owned and controlled by private individuals and prices are decided by the forces of demand and supply with minimum government interference (for example the USA). In a socialist or command economy, the state owns the means of production, and a central authority decides what and how much to produce (for example the former USSR). India has chosen a mixed economy, in which both the public sector and the private sector work together. The public sector handles strategic and basic industries, while the private sector is free to work in most other areas. The Constitution of India, through the Directive Principles of State Policy, guides the state towards economic justice and welfare.

The Indian economy is often called a developing economy because its per capita income is lower than developed countries, a large share of workers depend on agriculture, there is widespread poverty and unemployment, and capital is scarce. At the same time, India is also described as an emerging or fast-growing economy. Today India is one of the largest economies of the world and is counted among the fastest-growing major economies. It is often grouped with other fast-growing nations under the term emerging market economies.

The whole economy is divided into three main sectors for study. The primary sector is based on natural resources and includes agriculture, forestry, fishing, mining and animal husbandry. The secondary sector is the manufacturing and industrial sector, which converts raw materials into finished goods. The tertiary sector, also called the services sector, includes trade, transport, banking, insurance, education, health and information technology. A structural change is taking place in India: the share of agriculture in GDP is falling, the share of services is rising, but employment still depends heavily on agriculture. This shift from primary to tertiary sector without a strong growth of the secondary sector is often called the skipping of the industrial stage.

The economy can also be studied on the basis of ownership (public sector and private sector), on the basis of activity (agriculture, industry, services) and on the basis of whether goods are produced for the domestic market or for export. For every competitive exam, remember that India follows a mixed economy, is a developing and emerging economy, and its largest share of GDP comes from the services sector while the largest share of employment comes from agriculture.

Key points to remember:

• An economy answers three questions: what, how and for whom to produce.
• India has a mixed economy — public and private sectors work together.
• Capitalist economy depends on market forces; socialist economy depends on state control.
• India is a developing as well as an emerging (fast-growing) economy.
• Three sectors: primary (agriculture), secondary (industry), tertiary (services).
• Services contribute the largest share of India's GDP (about 50% or more).
• Agriculture still employs the largest share of India's workforce.
• Directive Principles of State Policy guide the state towards economic welfare.
• The tertiary sector includes banking, transport, trade, IT and insurance.

National income is the total money value of all final goods and services produced by a country's residents in a given financial year, plus net income earned from abroad. It is the most important measure of the economic health of a country. Only final goods and services are counted so that the same product is not counted twice; intermediate goods are excluded to avoid double counting.

The most important concepts of national income are as follows. GDP or Gross Domestic Product is the total value of all final goods and services produced within the geographical boundary of a country in a year, irrespective of who produces them. GNP or Gross National Product is GDP plus net factor income from abroad (income earned by residents abroad minus income earned by foreigners in India). NNP or Net National Product is GNP minus depreciation. NNP at factor cost is called National Income. Per capita income is national income divided by the population, and it shows the average income of a person in the country.

The relation among these terms must be remembered as a chain: GDP + Net Factor Income from Abroad = GNP; GNP − Depreciation = NNP; NNP at factor cost = National Income; National Income ÷ Population = Per Capita Income. Another important distinction is between GDP at market price and GDP at factor cost. Factor cost is the cost of factors of production, while market price includes indirect taxes and excludes subsidies. GDP at factor cost = GDP at market price − Net Indirect Taxes.

National income is measured by three methods, and all three give the same result. The product or output method adds the value of all final goods and services produced; the income method adds all incomes earned, namely rent, wages, interest and profit; and the expenditure method adds all final spending, namely private consumption, investment, government spending and net exports. In India, national income is officially estimated by the Central Statistics Office (CSO), which works under the Ministry of Statistics and Programme Implementation. Since the year 2015, India has adopted the new base year 2011–12 for national income calculation and the new GDP series. The financial year in India runs from 1 April to 31 March.

For exams, the value-added method is also important. In this method, the value added at each stage of production is added, which prevents double counting. Remember that India's GDP is among the top five economies of the world, and India is often called the fastest-growing major economy. Remember the difference: GDP is a domestic concept (within the country) while GNP is a national concept (residents of the country).

Key points to remember:

• GDP is the value of final goods and services produced within India's borders.
• GNP = GDP + Net Factor Income from Abroad.
• NNP = GNP − Depreciation (consumption of fixed capital).
• National Income = NNP at factor cost.
• Per Capita Income = National Income ÷ Population.
• GDP at factor cost = GDP at market price − Net Indirect Taxes.
• Double counting is avoided by counting only final goods or by the value-added method.
• Three methods of measurement: product, income and expenditure methods.
• The CSO (Central Statistics Office) estimates national income in India.
• The present base year of India's national income series is 2011–12.

Money is anything which is generally accepted as a medium of exchange, a measure of value, a store of value and a standard of deferred payments. In the modern economy, money mainly exists as currency (notes and coins) issued by the government and the central bank, and as demand deposits kept in banks. In India, the Reserve Bank of India (RBI) was established on 1 April 1935 under the RBI Act of 1934, and it was nationalised in 1949. The RBI is the central bank of India and performs the role of banker to the government, banker to the banks, issuer of currency, controller of credit, and custodian of foreign exchange reserves.

The RBI issues currency notes of all denominations except the one-rupee note, which is issued by the Government of India and signed by the Finance Secretary. The RBI acts as the lender of last resort for commercial banks, which means that when banks face a shortage of funds they can borrow from the RBI in times of difficulty. The headquarters of the RBI is in Mumbai.

Commercial banks accept deposits and give loans. Deposits are mainly of two types: demand deposits (current and savings accounts) which can be withdrawn on demand, and time deposits (fixed and recurring deposits) which are kept for a fixed period and carry higher interest. Banks earn profit from the difference between the interest charged on loans and the interest paid on deposits, which is called the spread. Banks create credit, and the total amount of deposits that banks can create depends on the Cash Reserve Ratio (CRR). The RBI keeps a portion of every deposit with itself as CRR, and there is no interest paid on CRR. Besides CRR, banks must also maintain the Statutory Liquidity Ratio (SLR), which is kept in the form of cash, gold or approved government securities.

Monetary policy is the policy of the central bank through which it controls the supply of money, availability of credit and the cost of credit in the economy. The main quantitative tools of monetary policy are the repo rate (the rate at which the RBI lends short-term funds to commercial banks against government securities), the reverse repo rate (the rate at which the RBI borrows from banks), the CRR, the SLR, open market operations (buying and selling of government securities by the RBI) and the Bank Rate. The qualitative tools include moral suasion, margin requirements and credit rationing. When the RBI wants to control inflation, it increases the repo rate, which makes loans dearer and reduces the money supply in the economy. When it wants to boost growth, it reduces the repo rate so that loans become cheaper.

The Monetary Policy Committee (MPC) of the RBI decides the policy repo rate. The MPC is a six-member committee headed by the Governor of the RBI, and its main objective is to keep inflation at the target of 4 percent with a band of 2 percent on either side. In 2016 the RBI Act was amended to give a statutory basis to the MPC and to the inflation targeting framework. After the 2016 demonetisation, the RBI introduced a new bank note series of ₹500 and ₹2000; later the ₹2000 note was withdrawn from circulation in 2023. For exams, remember that a rise in the repo rate is used to fight inflation, a fall in the repo rate is used to promote growth, and the RBI is called the 'banker of the banks'.

Key points to remember:

• RBI was established on 1 April 1935 and nationalised in 1949.
• RBI issues all notes except the one-rupee note, which is issued by the Government of India.
• RBI is the lender of last resort, banker to the government and controller of credit.
• CRR is the part of deposits kept with the RBI on which no interest is paid.
• SLR is kept in cash, gold or approved government securities.
• Repo rate is the rate at which RBI lends to banks; reverse repo is the rate at which RBI borrows.
• Open market operations mean buying and selling of government securities by RBI.
• Higher repo rate controls inflation; lower repo rate promotes growth.
• MPC (6 members, headed by RBI Governor) fixes the repo rate; inflation target is 4% ± 2%.
• RBI headquarters is in Mumbai.

Inflation is a sustained and general rise in the price level of goods and services in an economy over a period of time. When prices rise, the purchasing power of money falls, which means that with the same amount of money people can buy fewer goods. A very low and steady rise in prices is considered normal and even helpful for growth, but very high inflation hurts the poor the most because the value of their savings and fixed incomes falls.

On the basis of the rate of price rise, inflation is divided into types. Creeping inflation is a slow rise of up to about 3 percent a year; walking inflation is a moderate rise of about 3 to 7 percent; running inflation is a fast rise of about 8 to 10 percent or more; and galloping or hyperinflation is an extremely fast and uncontrollable rise of prices. Hyperinflation destroys the value of money almost completely. Inflation can also be classified by its cause: demand-pull inflation happens when total demand in the economy exceeds the available supply of goods, and cost-push inflation happens when the cost of production (wages, raw materials, energy) rises and producers pass on the higher cost to consumers in the form of higher prices.

In India, inflation is measured mainly by two price indices. The Consumer Price Index (CPI) measures the change in the prices of goods and services bought by households, that is, retail prices. CPI is used by the RBI as the main measure for its inflation target, and the different CPIs are CPI-IW (Industrial Workers), CPI-AL (Agricultural Labourers) and CPI-Rural, Urban and Combined. The combined CPI is the headline inflation number in India. The Wholesale Price Index (WPI) measures the change in prices at the wholesale stage, that is, the prices at which goods are bought and sold in bulk between businesses. The GDP deflator is a third measure: it is the ratio of nominal GDP to real GDP multiplied by 100, and it covers all goods and services produced in the economy. WPI does not include services, while the GDP deflator includes them, and for this reason the GDP deflator is considered the broadest measure of inflation. The base year of the CPI (combined) is 2012 and the base year of the WPI is 2011–12.

Effects of inflation: debtors and producers gain during inflation while creditors, fixed-income earners, pensioners and savers lose. Inflation redistributes income from the poor to the rich and is therefore called a regressive tax. To control inflation the RBI follows a tight monetary policy: it raises the repo rate, increases CRR and SLR, and sells government securities through open market operations to absorb extra money. The government also follows a tight fiscal policy by reducing its own expenditure and increasing taxes. On the other hand, during deflation or recession, the RBI reduces rates to put more money into the economy.

The opposite of inflation is deflation, which is a general fall in the price level, and it is harmful because it reduces production and increases unemployment. Between inflation and deflation there is a condition called disinflation, which is only a fall in the rate of inflation, and stagflation, which is the combination of rising prices and falling output or rising unemployment. For every exam, remember: CPI = retail prices, WPI = wholesale prices, RBI targets CPI inflation at 4% with a band of 2%, and inflation is measured on the basis of the Consumer Price Index in India.

Key points to remember:

• Inflation means a general and sustained rise in the price level.
• Inflation reduces the purchasing power of money.
• Creeping (<3%), walking (3–7%), running (8–10%+) and hyperinflation are the types by rate.
• Demand-pull inflation: demand exceeds supply; cost-push inflation: production costs rise.
• CPI measures retail prices; WPI measures wholesale prices.
• RBI uses CPI (combined) as the main measure; target is 4% ± 2%.
• GDP deflator = (Nominal GDP ÷ Real GDP) × 100; it includes services.
• Debtors gain and creditors lose during inflation; it is called a regressive tax.
• Deflation is a fall in the price level; disinflation is a fall in the rate of inflation.
• Stagflation = rising prices with low growth or high unemployment.

The financial system of India is the set of institutions, markets and instruments through which savings are collected from the people and channelised into productive investment. It works as the bridge between savers (surplus units) and investors (deficit units). The financial system has four main components: financial institutions, financial markets, financial instruments and financial services.

Financial institutions are the intermediaries which collect savings and provide loans. They are of two broad types. Banking institutions accept deposits from the public; they include commercial banks (scheduled and non-scheduled), cooperative banks, regional rural banks and the RBI as the apex bank. Non-banking institutions do not accept demand deposits; they include the Life Insurance Corporation (LIC), the General Insurance Corporation (GIC), mutual funds, the Employees' Provident Fund Organisation (EPFO), the National Pension System (NPS) and Non-Banking Financial Companies (NBFCs). A scheduled bank is one which is included in the Second Schedule of the RBI Act, 1934, and such a bank is eligible for borrowing facilities from the RBI.

The financial market is the place where financial instruments are traded. It is divided into the money market and the capital market. The money market deals in short-term funds (up to one year) and includes instruments like the Treasury Bill, Commercial Paper, Certificate of Deposit and Call Money. The capital market deals in long-term funds and is divided into the primary market, where new shares and debentures are issued for the first time (Initial Public Offering or IPO), and the secondary market, where already-issued securities are bought and sold (the stock exchange). The major stock exchanges of India are the Bombay Stock Exchange (BSE), established in 1875 and the oldest in Asia, and the National Stock Exchange (NSE), established in 1992. The main stock market indices are the Sensex of the BSE (based on 30 companies) and the Nifty of the NSE (based on 50 companies).

The Securities and Exchange Board of India (SEBI) was established in 1988 and given statutory powers in 1992 through the SEBI Act. Its headquarters is in Mumbai and it protects the interests of investors in securities and regulates the securities market. It checks insider trading, frauds and unfair trade practices. The stock exchange works through the stock brokers, and trading in India is now fully electronic through systems like BSE's BOLT and NSE's NEAT.

Besides these, the financial system also includes development financial institutions such as the IFCI, IDBI, NABARD, SIDBI and EXIM Bank which provide long-term finance to industry, agriculture, small enterprises and foreign trade. In 2015 the Reserve Bank of India was given a statutory mandate to establish a Monetary Policy Committee, and a new unified regulator called the International Financial Services Centres Authority (IFSCA) was created in 2020 to regulate financial services at GIFT City in Gandhinagar. For exams, remember the flow: savings are collected by institutions, channelled through markets, and converted into investment through instruments. The money market is for short-term funds and the capital market for long-term funds.

Key points to remember:

• Financial system = institutions + markets + instruments + services.
• Banking institutions accept deposits; non-banking institutions do not.
• Scheduled banks are listed in the Second Schedule of the RBI Act, 1934.
• Money market: short-term funds; instruments like T-Bills, CP, CD.
• Capital market: long-term funds; primary market = new issues, secondary market = trading.
• BSE (1875) is Asia's oldest exchange; NSE was set up in 1992.
• Sensex is based on 30 BSE companies; Nifty is based on 50 NSE companies.
• SEBI (statutory in 1992) regulates the securities market and protects investors.
• Development banks: IFCI, IDBI, NABARD, SIDBI, EXIM Bank.
• LIC, EPFO, mutual funds and NBFCs are non-banking financial institutions.

A government budget is an annual statement of the estimated receipts and expenditure of the government for a financial year, which runs from 1 April to 31 March in India. The word budget comes from the French word 'bougette', meaning a small bag. Article 112 of the Indian Constitution deals with the annual financial statement or the Union Budget of the central government. The budget is presented in Parliament by the Finance Minister, and under the Constitution it cannot be passed without the approval of the Parliament. In India the Union Budget is presented on 1 February, and since 2017 the Railway Budget has been merged with the Union Budget.

The budget has two main parts: the revenue budget and the capital budget. Revenue receipts are those receipts which neither create any liability for the government nor reduce its assets; they include tax revenue and non-tax revenue (interest, dividends, fees and fines). Capital receipts are those which either create a liability (like borrowing) or reduce assets (like disinvestment and recovery of loans). Similarly, revenue expenditure is spending which neither creates assets nor reduces liabilities, such as payment of salaries, interest and subsidies. Capital expenditure creates assets of a durable nature or reduces liabilities, such as spending on roads, bridges, dams and machines.

Taxes are of two types. Direct taxes are those whose burden cannot be shifted to another person, such as income tax, corporate tax and wealth-related taxes. Indirect taxes are those whose burden can be shifted, such as GST, customs duty and excise duty. From the point of view of equity, direct taxes are more progressive because the rich pay more. The receipts and expenditure of the government are classified into a revenue account and a capital account in the budget, and these two together show the total financial position of the government.

Fiscal policy means the policy of the government regarding its public expenditure, taxation and public debt, through which it influences the level of economic activity. During inflation the government reduces its expenditure and increases taxes, which is called a surplus budget, and during recession the government increases expenditure and reduces taxes, which is called a deficit budget. The two main types of budgets are thus the balanced budget, where receipts equal expenditure, and the unbalanced budget, which may be either a surplus budget or a deficit budget. In practice India always presents a deficit budget.

For competitive exams, the important budget-related articles must be remembered. Article 112 deals with the Annual Financial Statement (Union Budget). Article 265 says that no tax can be levied without the authority of law. Article 266 deals with the Consolidated Fund of India, into which all revenues and loans received by the government are credited and from which no money can be withdrawn without Parliament's approval. Article 267 deals with the Contingency Fund of India, which is placed at the disposal of the President to meet unforeseen expenditure, and Article 268 to 281 deal with the distribution of revenue between the Union and the States. The Finance Commission, appointed under Article 280, recommends the distribution of taxes between the Centre and the States. Money bills are governed by Article 110.

Key points to remember:

• Union Budget = Annual Financial Statement under Article 112.
• Budget is presented by the Finance Minister on 1 February.
• Revenue receipts create no liability; capital receipts create liability or reduce assets.
• Revenue expenditure creates no asset; capital expenditure creates durable assets.
• Direct taxes cannot be shifted; indirect taxes can be shifted.
• Consolidated Fund of India — Article 266; Contingency Fund — Article 267.
• No tax without law — Article 265; Finance Commission — Article 280.
• Money bills — Article 110.
• Surplus budget controls inflation; deficit budget fights recession.
• Since 2017 the Railway Budget is merged with the Union Budget.

A tax is a compulsory payment made by the people to the government without any direct benefit in return. Taxes are the main source of revenue of the government, and with this money the government runs its administration, defence, and welfare schemes. The power to levy taxes is divided between the Union and the State governments by the Constitution of India.

Taxes are divided into two broad classes. Direct taxes are paid directly by the person on whom they are imposed and their burden cannot be shifted to anybody else. The main direct taxes are income tax (paid on personal income), corporate tax (paid on the profit of companies) and the taxes on capital gains. Direct taxes are progressive in nature because the rate of tax rises with income. Indirect taxes are collected by one person but their burden is shifted to another, generally to the final consumer. The main indirect taxes are GST, customs duty (tax on imports and exports) and the earlier excise duty. Indirect taxes fall equally on the rich and the poor and are therefore called regressive. In India the share of direct taxes has been rising steadily and today direct taxes contribute more than half of the total tax revenue of the government.

Income tax in India is governed by the Income Tax Act, 1961, and is collected by the Income Tax Department under the Central Board of Direct Taxes (CBDT). Under the new tax regime introduced in 2020, no income tax is payable up to an annual income of ₹3 lakh in the old slabs, and under the new regime (as per the latest Budget) the exemption limit is ₹3 lakh with a rebate, and tax rates rise in slabs up to 30 percent for income above ₹15 lakh. In the 2025–26 Budget the exemption limit under the new regime was raised to ₹4 lakh and the standard deduction was increased. GST was not charged on basic food items, and its motto is 'One Nation, One Tax'.

The Goods and Services Tax (GST) is the biggest tax reform of India, introduced with effect from 1 July 2017 by the 101st Constitutional Amendment Act, 2016. GST subsumed many indirect taxes like excise duty, service tax, VAT, octroi, entry tax and luxury tax into one single tax. GST is a destination-based tax, which means that the tax is collected in the state where the goods are consumed and not where they are produced. It is a dual GST model in India: the Central GST (CGST) is levied by the Centre, the State GST (SGST) by the states on intra-state supply, and the Integrated GST (IGST) is levied by the Centre on inter-state supply. GST is levied at multiple rates — 0, 5, 12, 18 and 28 percent — and most goods and services fall in the 18 percent slab. GST is administered by the GST Council, which is a constitutional body chaired by the Union Finance Minister and comprising the finance ministers of the states. The compensation cess was levied on luxury and sin goods to compensate states for revenue loss in the initial years.

For exams, remember the classification: the Union levies income tax (other than agricultural income), corporate tax, customs duty and CGST; the states levy state GST, stamp duty, registration fees, land revenue and taxes on agricultural income, entertainment tax and electricity duty. Agricultural income is exempt from income tax in India. Article 265 states that no tax shall be levied or collected except by authority of law, and Article 366(29A) gives the meaning of the word 'goods'. The GST is a landmark example of cooperative federalism.

Key points to remember:

• A tax is a compulsory payment without any direct benefit to the payer.
• Direct taxes: income tax, corporate tax; burden cannot be shifted.
• Indirect taxes: GST, customs duty; burden is shifted to the consumer.
• Income tax is governed by the Income Tax Act, 1961; CBDT is the apex direct tax body.
• GST was introduced on 1 July 2017 by the 101st Constitutional Amendment.
• GST is a destination-based, dual tax: CGST + SGST (intra-state) and IGST (inter-state).
• GST rates: 0, 5, 12, 18 and 28 percent.
• GST Council is chaired by the Union Finance Minister.
• Customs duty is a tax on imports and exports.
• Agricultural income is exempt from income tax.

Public finance is that branch of economics which studies the income and expenditure of the government. It deals with how the government raises money through taxes and borrowing, how it spends that money, and how it manages its debt. The main concepts of public finance are public revenue, public expenditure, public debt and fiscal deficit.

When the total expenditure of the government exceeds its total receipts, the difference is called a deficit. The most important deficits are the following. Revenue deficit is the excess of revenue expenditure over revenue receipts, and it indicates that the government is borrowing even to meet its day-to-day running expenses, which is a bad sign. Effective revenue deficit is revenue deficit minus grants for the creation of capital assets. Fiscal deficit is the excess of total expenditure over total receipts excluding borrowings, and it shows the total borrowing requirement of the government in a year. Fiscal deficit = Total expenditure − (Revenue receipts + Non-debt capital receipts). Primary deficit is fiscal deficit minus interest payments. Budgetary deficit is the difference between total expenditure and total receipts. For exams, remember that fiscal deficit is the most widely discussed deficit, and it must be financed through borrowing, which adds to the public debt.

India's deficits and debt are governed by the Fiscal Responsibility and Budget Management (FRBM) Act, 2004. The Act was passed with the objective of ensuring long-term fiscal discipline and reducing the fiscal deficit and the debt of the government. The FRBM Act originally targeted a fiscal deficit of 3 percent of GDP and revenue deficit of zero. The Act also required the government to present the Medium-Term Fiscal Policy Statement and the Macro-Economic Framework Statement in Parliament along with the Budget. In 2016 the FRBM Act was reviewed, and the government later set a target of reducing the fiscal deficit to below 3 percent of GDP, though during and after the COVID-19 pandemic the targets were relaxed. The 2025–26 Budget set a fiscal deficit target of 4.4 percent of GDP and the government has announced a path to bring it below 4.5 percent and gradually towards 4 percent.

Public debt is the total amount of money that the government owes to lenders. Internal debt is the debt owed to lenders within the country, and external debt is owed to foreign lenders. In India, internal debt forms the major part of public debt. The government borrows through market loans, treasury bills, bonds and small savings. Debt sustainability means the ability of the government to repay its debt from its future revenues without any difficulty. The government's total liabilities are monitored in terms of the debt-to-GDP ratio.

The FRBM Act also gave a legal mandate to the government to reduce its revenue deficit to zero and the fiscal deficit to 3 percent. When the government borrows more than a safe limit, economists warn about the crowding-out effect, by which heavy government borrowing leaves less money for the private sector to borrow. The main source of government borrowing is the market through the issue of government securities. For every exam, remember the chain: Budgetary deficit < Fiscal deficit is not correct — actually the fiscal deficit is larger and more meaningful; revenue deficit shows the misuse of capital receipts; and fiscal deficit = borrowings of the government.

Key points to remember:

• Public finance studies the income and expenditure of the government.
• Revenue deficit = revenue expenditure − revenue receipts.
• Fiscal deficit = total expenditure − total receipts (excluding borrowings).
• Primary deficit = fiscal deficit − interest payments.
• Fiscal deficit shows the total borrowing requirement of the government.
• The FRBM Act, 2004, targets fiscal discipline and debt reduction.
• The traditional FRBM targets: revenue deficit zero, fiscal deficit 3% of GDP.
• Fiscal deficit target for 2025–26 was 4.4% of GDP.
• Internal debt is the major part of India's public debt.
• Crowding-out effect means government borrowing leaves less for the private sector.

Economic planning means the making of a plan by the central authority for the development of the whole country, in which targets are fixed for different sectors and the resources are allocated accordingly. After independence, India adopted the path of planned economic development and established the Planning Commission in 1950 on the model of the USSR. The first Five Year Plan of India was launched on 1 April 1951, and it was based on the Harrod-Domar model of growth. The Draft Outline of the First Plan was prepared by K. N. Raj.

The main objectives of Indian planning have been economic growth, modernisation, self-reliance, social justice and the removal of poverty. The priority of the First Plan (1951–56) was agriculture and irrigation. The Second Plan (1956–61) was based on the Mahalanobis model and gave top priority to industry and heavy industries; it was this plan that laid the foundation of the public sector in India. The Third Plan (1961–66) tried to make the economy self-reliant and self-generating. The period 1966–69 is known as the period of plan holidays because three annual plans were made. The Fourth Plan (1969–74) gave the slogan 'Garibi Hatao' and stressed on growth with stability. The Fifth Plan (1974–79) gave the slogan 'Garibi Hatao' in real form and emphasised removal of poverty and attainment of self-reliance; the twenty-point programme was introduced by Indira Gandhi in 1975.

The Sixth Plan (1980–85) is remembered for the beginning of economic liberalisation and for the Integrated Rural Development Programme. The Seventh Plan (1985–90) emphasised on food, work and productivity, and it is remembered for the Rajiv Gandhi era. Two Annual Plans were made between 1990 and 1992. The Eighth Plan (1992–97) was the first plan of the liberalised economy after the 1991 reforms, and it was prepared under the leadership of Manmohan Singh. The Ninth Plan (1997–2002) gave priority to agriculture and rural development. The Tenth Plan (2002–07) had the target of 8 percent growth and included the National Rural Employment Guarantee Programme. The Eleventh Plan (2007–12) had the theme 'Inclusive Growth'. The Twelfth Plan (2012–17) was the last Five Year Plan of India with the theme of 'Faster, More Inclusive and Sustainable Growth'.

On 1 January 2015 the Planning Commission was abolished and replaced by the NITI Aayog (National Institution for Transforming India), which was established by a resolution of the Union Cabinet and not by an Act of Parliament. The NITI Aayog is headed by the Prime Minister as its chairperson, and the Chief Ministers of the states and the Lieutenant Governors of the Union Territories are members. Its main functions are to design strategic and long-term policies and programmes for the central and state governments, to foster cooperative federalism, to monitor and evaluate the implementation of programmes, and to provide technical support. Unlike the Planning Commission, which imposed plans on the states, the NITI Aayog works as a think tank and follows a bottom-up approach. NITI Aayog has released important documents like the 15 Year Vision, 7 Year Strategy and 3 Year Action Agenda, the India Innovation Index, the SDG India Index, and the Aspirational Districts Programme, whose aim is to develop the backward districts of the country by ranking them on different indicators. The NITI Aayog was also the main force behind the development of India's first National Digital Health Mission and the National Education Policy.

For every competitive exam, remember: the Planning Commission was established in 1950, the first plan was launched in 1951, the NITI Aayog replaced the Planning Commission on 1 January 2015, and the NITI Aayog is a non-constitutional body which acts as the think tank of the government with the Prime Minister as its chairperson.

Key points to remember:

• Planning Commission was set up in 1950; First Five Year Plan began on 1 April 1951.
• First Plan: agriculture priority (Harrod-Domar model).
• Second Plan: Mahalanobis model, heavy industry priority.
• 'Garibi Hatao' slogan was given during the Fourth and Fifth Plans.
• Period 1966–69 is called the period of plan holidays.
• The Eighth Plan (1992–97) was the first plan of the liberalised economy.
• Twelfth Plan (2012–17) was the last Five Year Plan.
• NITI Aayog replaced the Planning Commission on 1 January 2015.
• NITI Aayog is headed by the Prime Minister; it is a non-constitutional body.
• It promotes cooperative federalism through a bottom-up approach.

Agriculture is the backbone of the Indian economy. It provides food to the nation, raw materials to industry and employment to the largest number of people. Although the share of agriculture in GDP has fallen to below 20 percent, about 45 percent of the Indian workforce is still engaged in agriculture and allied activities. Indian agriculture has certain basic features: it is mainly a subsistence farming activity, it is dependent on the monsoon, it is dominated by small and marginal farmers, and the majority of farmers depend on traditional methods.

The Green Revolution was the most important turning point in Indian agriculture. It started in the mid-1960s under the leadership of Dr M. S. Swaminathan with the introduction of high-yielding varieties (HYV) of seeds of wheat and rice, especially the Mexican dwarf wheat. The Green Revolution made India self-sufficient in food grains, and its main benefits reached Punjab, Haryana and western Uttar Pradesh. The White Revolution was related to milk production, and it was led by Dr Verghese Kurien through the Operation Flood programme, which made India the largest producer of milk in the world. The National Dairy Development Board and organisations like Amul were part of this revolution. The Blue Revolution was related to fish production, and the Yellow Revolution to oilseeds. There was also the period of institutional reforms like land reforms, consolidation of holdings, and the abolition of intermediaries like zamindars which was done after independence.

The government has launched many schemes for the development of agriculture. The Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) gives income support of ₹6000 per year to farmer families. The Pradhan Mantri Fasal Bima Yojana (PMFBY) provides crop insurance against natural calamities and pest attacks. The Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) works for irrigation with the motto 'Har Khet Ko Pani'. Soil Health Cards are given to farmers to test the health of their soil. The e-NAM (National Agriculture Market) is an online trading platform for agricultural produce. Kisan Credit Card (KCC) scheme provides cheap credit to farmers. Agricultural marketing, minimum support price (MSP), and the provision of cheap credit through cooperatives, RRBs and commercial banks are the main instruments supporting farmers. MSP is the price announced by the government before sowing season at which the government buys the farmer's produce, and it protects the farmer from price fall. The Commission for Agricultural Costs and Prices (CACP) recommends the MSP.

Food security means the availability of food to all people at all times at affordable prices. In India, food security is ensured through the Public Distribution System (PDS) and the National Food Security Act, 2013. The National Food Security Act gives a legal right to subsidised food grains: about 5 kg of food grains per person per month at highly subsidised rates to priority households, and other entitlements to Antyodaya Anna Yojana (AAY) households. The Food Corporation of India (FCI) is the main agency for the procurement and distribution of food grains. The National Food Security Mission, the Integrated Child Development Services (ICDS) and the Mid-Day Meal scheme are also parts of India's food and nutrition security. For exams, remember that India is the largest producer of milk and the second largest producer of food grains and many other crops in the world.

Key points to remember:

• About 45% of India's workforce depends on agriculture.
• Green Revolution (1960s): high-yielding wheat/rice varieties, led by Dr M. S. Swaminathan.
• White Revolution: milk production through Operation Flood, led by Dr Verghese Kurien.
• Blue Revolution: fish production; Yellow Revolution: oilseeds.
• PM-KISAN gives ₹6000 per year to farmer families.
• PMFBY is a crop insurance scheme; PMKSY works for irrigation.
• MSP is announced before sowing on the advice of CACP.
• National Food Security Act, 2013 gives a legal right to subsidised food grains.
• FCI procures and distributes food grains through the PDS.
• India is the largest producer of milk in the world.

Industry is the secondary sector of the economy, which converts raw materials into finished goods. India's industrial development has passed through three clear phases. The first was the phase of the Industrial Policy Resolution of 1948 and 1956, in which the public sector was given the commanding role and industries were divided into schedules. The second phase began with the Industrial Policy of 1991, which abolished the system of industrial licensing for most industries, allowed foreign direct investment freely, and reduced the list of industries reserved for the public sector. The third and current phase is led by schemes like Make in India, which was launched in September 2014 to make India a global manufacturing hub, and the Production Linked Incentive (PLI) scheme for the promotion of specific sectors. The New Industrial Policy aims at promoting foreign investment, technology and employment generation.

Indian industries are divided into large, medium, small and micro industries on the basis of investment and turnover. The Micro, Small and Medium Enterprises (MSME) sector is called the backbone of the Indian economy because it provides the largest employment after agriculture and contributes about 30 percent to India's GDP and about 45 percent to total exports. Under the new definition of 2020, a micro enterprise has an investment up to ₹1 crore and turnover up to ₹5 crore; a small enterprise has investment up to ₹10 crore and turnover up to ₹50 crore; and a medium enterprise has investment up to ₹50 crore and turnover up to ₹250 crore. The MSME sector faces problems like lack of credit, outdated technology and marketing difficulties. The government has started schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the Prime Minister's Employment Generation Programme (PMEGP) and the National Small Industries Corporation (NSIC) to help this sector. The Micro Units Development and Refinance Agency (MUDRA) was established in 2015 to give loans up to ₹10 lakh to small entrepreneurs under the Pradhan Mantri MUDRA Yojana, which has three products — Shishu (up to ₹50,000), Kishor (up to ₹5 lakh) and Tarun (up to ₹10 lakh).

The main industries of India are cotton textiles, jute, sugar, iron and steel, cement, automobiles, chemicals, fertilisers and information technology. The first modern cotton mill of India was set up in 1854 in Bombay (now Mumbai), and the first iron and steel plant was started at Kulti. The first public sector steel plant of India was established at Bhilai with Soviet help in 1959. Iron and steel is called the basic industry because it provides raw materials to other industries. TISCO, now Tata Steel, was established by Jamsetji Tata in 1907 at Jamshedpur.

The services sector is the tertiary sector and it is the largest contributor to India's GDP with a share of more than 50 percent. The fastest growing branches of the services sector are information technology and IT-enabled services (BPO), banking, insurance, tourism, transport and telecommunications. India is one of the largest exporters of software services in the world, and cities like Bengaluru, Hyderabad and Pune are the main hubs. In 2023 India's total goods exports crossed $450 billion and the total exports including services crossed $770 billion, and India became one of the top ten exporters of the world. For every exam, remember: industry provides about 25 to 30 percent of GDP, the MSME sector is called the backbone of the economy, and the services sector is the largest contributor to GDP and to India's exports.

Key points to remember:

• Industrial Policy Resolution of 1956 gave the public sector a commanding role.
• Industrial Policy of 1991 abolished industrial licensing for most industries.
• Make in India was launched in September 2014.
• MSME sector provides the largest employment after agriculture.
• New MSME definition (2020): micro up to ₹1 crore investment, small up to ₹10 crore, medium up to ₹50 crore.
• MUDRA (2015) gives loans up to ₹10 lakh as Shishu, Kishor and Tarun.
• First cotton mill of India was set up in Bombay in 1854.
• Bhilai steel plant was set up with Soviet help in 1959.
• Tata Steel was established by Jamsetji Tata at Jamshedpur in 1907.
• The services sector contributes more than 50% of India's GDP.

Foreign trade means the exchange of goods and services between one country and other countries. It consists of exports, which are goods and services sold to other countries, and imports, which are goods and services bought from other countries. India follows the Foreign Trade Policy which lays down the rules for exports and imports. The main items of India's exports today are petroleum products, gems and jewellery, engineering goods, drugs and pharmaceuticals, ready-made garments, chemicals and software services. The main imports of India are crude petroleum, gold, electronic goods, machinery, chemicals, edible oils and coal. India generally faces a trade deficit because the value of its imports is greater than the value of its exports, mainly because of the import of crude oil and gold.

The Balance of Trade (BOT) is the difference between the value of visible exports and visible imports, that is, trade in goods only. The Balance of Payments (BoP) is a wider concept: it is a systematic record of all economic transactions between the residents of a country and the rest of the world during a year. The BoP has two main accounts — the current account and the capital account. The current account records trade in goods, trade in services, income (like interest and dividends) and unilateral transfers (like remittances from Indians working abroad). The current account is in surplus when its receipts exceed its payments; otherwise it shows a Current Account Deficit (CAD). The capital account records capital flows such as foreign direct investment (FDI), foreign portfolio investment (FPI), external commercial borrowings (ECB), NRI deposits and changes in foreign exchange reserves. When a country receives more capital than it pays out, the capital account is in surplus.

The BoP is always balanced in the accounting sense because any deficit in the current account is financed by a surplus in the capital account or by drawing down foreign exchange reserves. India's balance of payments usually shows a deficit in the current account and a surplus in the capital account. Foreign exchange reserves are the total foreign currency assets, gold, Special Drawing Rights (SDRs) and the Reserve Tranche Position of the country held with the IMF. India's foreign exchange reserves are among the largest in the world, and the Reserve Bank of India manages them.

Foreign Direct Investment (FDI) means investment made by a foreign company in the physical assets of a country with the intention of a long-term interest and management control. FDI can be of two types — greenfield investment, where a new unit is set up from scratch, and brownfield investment, where an existing unit is acquired or expanded. Foreign Portfolio Investment (FPI) means investment in the financial assets of a country like shares and bonds without management control; this money is called hot money because it can leave the country quickly. The full convertibility of the rupee on the current account was accepted by India in 1994, which means that the rupee can be freely converted for trade and travel purposes, but full capital account convertibility has not yet been accepted. Foreign trade is promoted in India by the Directorate General of Foreign Trade (DGFT) and the Export-Import Bank of India (EXIM Bank), which was established in 1982.

India's merchandise exports have grown rapidly and the country is now counted among the top exporters of the world. To encourage exports, the government gives incentives like duty drawback, the interest equalisation scheme and the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme. For every exam, remember the chain: trade deficit means imports exceed exports; CAD arises in the current account; FDI brings long-term control while FPI is short-term portfolio money; and the BoP is always balanced in the accounting sense.

Key points to remember:

• Exports + Imports together make foreign trade.
• India's main imports are crude oil, gold and electronic goods.
• Balance of Trade = visible exports − visible imports (goods only).
• BoP = current account + capital account.
• Current account records goods, services, income and transfers.
• Capital account records FDI, FPI, ECB and NRI deposits.
• India generally has a trade deficit and a Current Account Deficit (CAD).
• FDI = long-term investment with control; FPI = short-term portfolio investment.
• Rupee is fully convertible on the current account (since 1994), not on the capital account.
• EXIM Bank (1982) and DGFT promote India's foreign trade.

International economic institutions are organisations which manage and regulate economic relations between countries and provide financial and technical help for development. The most important of these are the International Monetary Fund (IMF), the World Bank and the World Trade Organisation (WTO). They were part of the Bretton Woods system which was created at the United Nations Monetary and Financial Conference held at Bretton Woods, New Hampshire, USA, in July 1944. India is a founder member of all three institutions.

The International Monetary Fund (IMF) was established on 27 December 1945 and began operations on 1 March 1947. Its headquarters is in Washington DC. The main objectives of the IMF are to promote international monetary cooperation, to ensure exchange rate stability, to provide short-term financial help to member countries facing balance of payments problems, and to avoid competitive currency devaluations. The IMF provides loans to member countries from its quota-based resources, and the quota of a country decides its voting power. The highest decision-making body of the IMF is the Board of Governors, and the day-to-day work is done by the Executive Board. The IMF has a special drawing right (SDR), which is an international reserve asset, and in 2016 the Chinese yuan (renminbi) was included in the SDR basket along with the dollar, euro, yen and pound sterling. The headquarters of the IMF and the World Bank are in Washington DC, and both are called the twin institutions of Bretton Woods.

The World Bank was established in December 1945 along with the IMF, and its official name is the International Bank for Reconstruction and Development (IBRD). While the IMF provides short-term balance of payments support, the World Bank provides long-term loans for development projects like roads, power, agriculture and education. The World Bank Group is a family of five institutions: the IBRD, the International Development Association (IDA) which gives interest-free loans and grants to the poorest countries, the International Finance Corporation (IFC) which helps the private sector, the Multilateral Investment Guarantee Agency (MIGA) which gives guarantees against political risk, and the International Centre for Settlement of Investment Disputes (ICSID). India is a founder member of the World Bank and has received large loans from it for development. The head of the World Bank is traditionally an American, and the head of the IMF is traditionally a European.

The World Trade Organisation (WTO) was established on 1 January 1995 as the successor of the General Agreement on Tariffs and Trade (GATT), which had been signed in 1947. The WTO is the only international organisation which deals with the global rules of trade between nations, and its headquarters is in Geneva, Switzerland. The WTO works on the principles of non-discrimination, most-favoured-nation treatment, national treatment and free trade. It settles trade disputes between member countries through its Dispute Settlement Body. India is a founding member of the WTO, and the agreements of the WTO are reached by consensus among all members. Besides these, the Asian Development Bank (ADB) was established in 1966 with its headquarters in Manila, the New Development Bank (BRICS Bank) was established in 2014 with its headquarters in Shanghai, and the Asian Infrastructure Investment Bank (AIIB) was established in 2016 with its headquarters in Beijing. The UNCTAD and the UNDP are the related United Nations bodies working on trade and development.

For competitive exams, remember: Bretton Woods institutions = IMF + World Bank; IMF gives short-term loans, World Bank gives long-term development loans; WTO replaced GATT on 1 January 1995; and the WTO headquarters is in Geneva while the IMF and World Bank are in Washington DC.

Key points to remember:

• IMF, World Bank and WTO were born from the Bretton Woods Conference of 1944.
• IMF was established in 1945; headquarters in Washington DC.
• IMF provides short-term help for balance of payments problems.
• The quota of a country decides its voting power in the IMF.
• Yuan was added to the SDR basket in 2016.
• World Bank = IBRD; it gives long-term development loans.
• World Bank Group: IBRD, IDA, IFC, MIGA and ICSID.
• WTO replaced GATT on 1 January 1995; headquarters in Geneva.
• Head of IMF is traditionally European; head of World Bank is traditionally American.
• ADB (1966, Manila), NDB (2014, Shanghai), AIIB (2016, Beijing).

Poverty means a situation in which a person is unable to get the minimum necessities of life, such as food, clothing, shelter and education. In India, poverty is measured with the help of a poverty line, which is fixed in terms of money income or consumption expenditure. The poverty line is revised from time to time. The Tendulkar Committee (2009) defined the poverty line and estimated that about 21.9 percent of India's population was below the poverty line in 2011–12. The Rangarajan Committee (2014) gave a new method and a higher poverty line. The Multidimensional Poverty Index (MPI), which was prepared with the help of NITI Aayog and the United Nations, is also used to measure poverty in India on the basis of health, education and standard of living. According to the latest national estimates released in 2023, only about 11 to 15 percent of India's population is now below the poverty line, and India has lifted a very large number of people out of poverty.

The main programmes for the removal of poverty are the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), 2005, which gives a legal guarantee of at least 100 days of wage employment in a financial year to every rural household whose adult members are willing to do unskilled manual work; the National Rural Livelihood Mission (NRLM or Ajeevika) which organises rural women into self-help groups; the Pradhan Mantri Awas Yojana for housing; and the Antyodaya Anna Yojana (AAY) which gives highly subsidised food grains to the poorest families.

Unemployment is a situation in which people who are willing to work at the prevailing wage rate do not get work. The different types of unemployment in India are rural unemployment (seasonal and disguised unemployment), urban unemployment (industrial and educated unemployment), cyclical unemployment, frictional unemployment and structural unemployment. Disguised unemployment is very common in Indian agriculture, where more people work on a farm than is actually needed, and removing some of them will not reduce output. Seasonal unemployment happens in agriculture because work is available only in some seasons of the year. Educated or open unemployment is found among the educated youth in cities. The unemployment rate in India is measured by the Periodic Labour Force Survey (PLFS) of the National Sample Survey Office (NSSO), and the unemployment rate has come down to about 6 to 7 percent in recent years.

The government has started many schemes to create employment and self-employment. The Pradhan Mantri Rozgar Protsahan Yojana gives incentives to employers; the Deen Dayal Upadhyaya Grameen Kaushalya Yojana trains rural youth; the Skill India Mission and the Pradhan Mantri Kaushal Vikas Yojana give skill training; the Start-up India scheme promotes new enterprises; and the MUDRA Yojana gives loans to small entrepreneurs. India's demographic dividend means that a large part of its population is young and of working age, which can become a great strength if the youth are properly educated and skilled. The social sector includes education and health. The Right to Education Act, 2009 makes education a fundamental right of children of 6 to 14 years. The Sarva Shiksha Abhiyan and the Samagra Shiksha Abhiyan work for school education, and the National Education Policy, 2020 has brought major changes. In health, the Ayushman Bharat Yojana (PM-JAY) provides health cover of ₹5 lakh per family per year, and the National Health Mission works for the health of rural people. For every exam, remember: MGNREGA gives 100 days of guaranteed work; disguised unemployment is highest in agriculture; and Ayushman Bharat gives health cover of ₹5 lakh per family.

Key points to remember:

• Poverty line is the minimum income/consumption needed for necessities.
• Tendulkar Committee (2009) and Rangarajan Committee (2014) gave poverty estimates.
• MGNREGA, 2005 guarantees 100 days of wage employment to rural households.
• Disguised unemployment is most common in agriculture.
• Seasonal unemployment is found in agriculture; educated unemployment in cities.
• PLFS of the NSSO measures the unemployment rate in India.
• Skill India and PMKVY give skill training to the youth.
• RTE Act, 2009 makes education a right of children of 6–14 years.
• Ayushman Bharat (PM-JAY) gives health cover of ₹5 lakh per family per year.
• India's demographic dividend is its large young working-age population.

Demography is the scientific study of the population, its size, distribution, density and the changes taking place in it through birth, death and migration. India is the most populous country of the world, having crossed China in 2023, with a population of more than 140 crore people. The Census of India is the official count of the population, which is conducted every ten years by the Office of the Registrar General and Census Commissioner of India under the Ministry of Home Affairs. The first census of India was conducted in 1872 and the first complete census was conducted in 1881. The latest census, which was the fifteenth, was conducted in 2011. According to the 2011 Census, the total population of India was 121.09 crore, the population growth rate in 2001–11 was 17.7 percent, the density of population was 382 persons per square kilometre, the sex ratio was 943 females per 1000 males, and the literacy rate was 74.04 percent (65.46 percent for females and 82.14 percent for males). The highest population density state is Bihar and the highest literacy state is Kerala. The next census was scheduled for 2021 but it could not be conducted due to the COVID-19 pandemic.

The theory of demographic transition describes three stages of population growth. In the first stage, both the birth rate and the death rate are high, and the population grows slowly. In the second stage, the death rate falls but the birth rate remains high, and the population grows very fast. In the third stage, the birth rate also falls, and the population becomes stable. India is passing through the second stage and slowly moving towards the third stage. The National Population Policy, 2000 was adopted with the aim of achieving a stable population by 2045. India has a National Commission on Population which is headed by the Prime Minister. The sex ratio in India is improving due to schemes like Beti Bachao Beti Padhao, which was launched in 2015.

The size and quality of the labour force are very important for economic growth. The labour force is the part of the population which is of working age and is either working (employed) or looking for work (unemployed). The main data on the labour force is collected through the Periodic Labour Force Survey (PLFS), the quinquennial (five-yearly) surveys of the NSSO and the annual reports of the Ministry of Labour. The Labour Force Participation Rate (LFPR) is the percentage of the working-age population which is in the labour force, and the Worker Population Ratio (WPR) is the percentage of the population which is actually working. India's LFPR is around 40 to 42 percent in recent surveys, and the female LFPR is low but improving. Most of India's workers are still in the informal or unorganised sector, and a large number are self-employed in agriculture. The government has brought many labour codes to simplify and consolidate the labour laws of the country, like the Code on Wages, 2019, the Industrial Relations Code, the Social Security Code and the Occupational Safety, Health and Working Conditions Code, which were passed in 2019–2020. For exams, remember the census facts: Census 2011 recorded 121 crore people, 382 persons per sq km, sex ratio 943 and literacy 74.04 percent.

Key points to remember:

• India became the most populous country in 2023, crossing China.
• Census is conducted every ten years by the Registrar General of India.
• First complete census: 1881; latest census: 2011 (the 15th).
• Census 2011: population 121.09 crore; growth rate 17.7%; density 382.
• Census 2011: sex ratio 943; literacy 74.04% (Kerala highest, Bihar lowest).
• Demographic transition has three stages; India is in the second stage.
• National Population Policy, 2000 aims at a stable population by 2045.
• LFPR is the share of the working-age population in the labour force.
• Most Indian workers are in the informal sector.
• Four new labour codes were passed in 2019–20 to consolidate labour laws.

By 1991 India faced a severe balance of payments crisis, foreign exchange reserves had fallen to a very low level, and the country had to mortgage its gold. In response, the government of P. V. Narasimha Rao and the Finance Minister Dr Manmohan Singh launched a programme of economic reforms in July 1991. These reforms are remembered by three words: Liberalisation, Privatisation and Globalisation, which together are called the LPG reforms. Liberalisation means removing the restrictions and controls of the government over the economy, such as industrial licensing. Privatisation means reducing the role of the public sector and giving a greater role to the private sector, including the sale of shares of public sector undertakings (disinvestment). Globalisation means opening up the economy to the rest of the world through foreign trade, foreign investment and technology. The 1991 reforms also included the devaluation of the rupee, the abolition of the industrial licensing system for most industries, the reduction of import duties, and the convertibility of the rupee on the current account in 1994.

The main recent economic initiatives and reforms of India include the Goods and Services Tax (GST), which came into effect on 1 July 2017 and unified the indirect tax system; the demonetisation of November 2016, in which the old notes of ₹500 and ₹1000 were withdrawn to fight black money, fake currency and corruption; and the Insolvency and Bankruptcy Code (IBC), 2016, which provides a single law for the resolution of insolvency and bankruptcy of companies. The government also announced the establishment of a National Infrastructure Pipeline to invest in infrastructure, and the monetisation of assets. The bank merger plan consolidated many public sector banks into fewer, larger banks.

The government has also taken many steps for the financial inclusion of the common people. The Pradhan Mantri Jan Dhan Yojana (PMJDY), launched in August 2014, opened bank accounts for crores of unbanked people. The Pradhan Mantri Mudra Yojana gives loans to small businesses, and the Stand-Up India scheme gives loans to scheduled castes, scheduled tribes and women entrepreneurs. The Atal Pension Yojana gives a pension to people of the unorganised sector, and the Pradhan Mantri Jeevan Jyoti Bima Yojana and the Pradhan Mantri Suraksha Bima Yojana provide life and accident insurance. On the digital side, the Unified Payments Interface (UPI) of the National Payments Corporation of India (NPCI) has made India a world leader in digital payments. The government has also launched the Production Linked Incentive (PLI) scheme for 14 key sectors to boost manufacturing and the National Monetisation Pipeline. In the 2025–26 Budget, major announcements were made for tax relief to the middle class under the new income tax regime, and for investment in infrastructure, agriculture, MSMEs, exports and green energy. The theme of the Budget was to promote employment, skilling and the development of small businesses. For every exam, remember: the economic reforms of 1991 are called the LPG (Liberalisation, Privatisation, Globalisation) reforms; they were launched under Finance Minister Dr Manmohan Singh in July 1991; and GST (2017), demonetisation (2016), IBC (2016), Jan Dhan (2014) and UPI are the landmark recent initiatives.

Key points to remember:

• Economic reforms of 1991 were launched in July 1991 by Finance Minister Dr Manmohan Singh.
• The reforms are called LPG: Liberalisation, Privatisation, Globalisation.
• The 1991 crisis was a balance of payments crisis with low foreign reserves.
• Rupee was made convertible on the current account in 1994.
• GST came into force on 1 July 2017.
• Demonetisation was done in November 2016 (₹500 and ₹1000 notes).
• IBC, 2016 is the single law for insolvency resolution.
• PMJDY (2014) opened accounts for the unbanked; MUDRA and Stand-Up India give loans.
• UPI of NPCI made India a world leader in digital payments.
• PLI scheme covers 14 key sectors to boost manufacturing.