PART – A: INTRODUCTORY MACROECONOMICS

UNIT – I: NATIONAL INCOME AND

RELATED AGGREGATES
CHAPTER-1
NATIONAL INCOME AND RELATED AGGREGATES

TOPIC-1 Macroeconomics with Basic Concepts and Circular Flow of Income

Concepts Covered:
 Meaning of Macroeconomics;  Basic concepts in macroeconomics;  Circular Flow of Income in a 2-sector economy.

 Circular flow of income: Circular flow of income

Revision Notes refers to the flow of activities of production, income
 Macroeconomics refers to that branch of economics generation and expenditure involving different sectors
that deals with economic problems or economic issues of the economy.
at the level of an economy as a whole, e.g. it deals  2-Sector Model of Circular Flow: It is assumed that:
with aggregates like national income, general price (i) Domestic economy comprises only 2 sectors, the
level, etc. [Board, 2018] producers and the households.
 Consumption Goods: Goods which are used by the (ii) The households spend their entire income, so that
consumers to satisfy human wants directly are called there is no savings.
consumption goods. (iii) Domestic economy is a closed economy (no exports
 Capital Goods: All goods which are used in the and imports).
production of other goods either as fixed assets or as (iv) There is no government in the economy.
inventory/stock are called Capital Goods. [Board, 2016]
 Final Goods: Those goods which are purchased either  Production in the producing sector generates income
for final consumption by consumers (consumer goods) for the households who are owners of the factors of
or for investment by producers (capital goods) are final production. Expenditure by the households generates
goods. demand for further production. These movements keep
 Intermediate Goods: Those goods and services which chasing each other continuously moving in a circle.
are purchased as raw material for further production or
nd, Capital, Entrepr
for resale in the same year. r, La ene
a bou Rent, Interest, Pr ur
 Stock: Stock is a quantity measurable at a particular L a ges, ofits
W
Pa
“point of time”, e.g. wealth, assets, money, inventory, Factor yments
etc. A stock variable is nothing but an accumulated sum
of flows. Business
Households
 Flow: Flow is a quantity that can be measured over a Firms
specific “period of time”, e.g. national income, change
in stock, etc.
 Gross Investment: Total addition made to physical
stock of capital during a period of time. It includes
depreciation. It is also known as Gross Capital
Formation.
 Net Investment: Net addition made to the real stock of  Significance of Circular Flow of Income: (i) It reflects
capital during a period of time. structure of an economy, (ii) It shows interdependence
 Depreciation: It means fall in value of fixed capital goods among different sectors, (iii) It shows injections and
due to normal wear and tear, expected obsolescence and leakages from flow of money, (iv) It helps in estimation
efflux of time. of national income and related aggregates.
2 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

TOPIC-2 National Income Accounting

Concepts Covered:
 Methods of calculating National Income and their precautions.

(v) Transfer earning like old age pensions, unemployment

Revision Notes allowances, scholarships, pocket expenses, etc. should
 National Income: National Income is the sum total of not be included.
factor incomes earned by normal residents of a country.  Expenditure Method: By this method, the total sum
 Measurement of National Income: (a) In the form of of expenditures on the purchase of final goods and
flow of goods and services, (b) In the form of income services produced during an accounting year within
flow, (c) In the form of expenditure flow. an economy is estimated to obtain the value of GDP.
 Value Added Method or Production Method: The It is the expenditure on the purchase of final goods
national income is estimated by the contribution of and services, during an accounting year. It is broadly
each producing enterprise to produce in the domestic classified into four categories:
territory of the country in an accounting year. For (i) Private final consumption expenditure,
measuring national income by this method, we have to (ii) Government final consumption expenditure,
estimate the following components: (iii) Investment expenditure,
 Net Domestic Product at Market Price (NDPMP): Gross (iv) Net exports, i.e., difference between exports and
Valued Added by [Primary Sector + Secondary Sector + imports during an accounting year.
Tertiary Sector] - Depreciation  Computation of National Income (by expenditure
 Net National Product at Factor Cost (NNPFC) or NI: method) NNPFC = GDPMP - Depreciation + NFIA
NDPMP - Net Indirect Tax + Net factor Income from - Net Indirect Tax. Where, GDPMP = Private Final
Abroad. Consumption Expenditure + Government Final
 Value Added Method (Product Method): Gross Value Consumption Expenditure + Gross Domestic Capital
Added at Market Price (GVAMP) = Sales + Change in Formation + Net Exports (Exports - Imports). Where,
Stock - Intermediate Consumption. Gross Domestic Capital Formation = Gross Domestic
GDPMP =GVAMP of all sectors Fixed Capital Formation + Change in Stock (Closing
Stock - Opening Stock) [Board, 2020]
OR
 Precautions while using Expenditure Method:
Value of output - Intermediate consumption (i) Only final expenditure is to be taken into account to
NVAFC = GVAMP - Depreciation - Net Indirect Taxes avoid error of double counting.
(NIT) (ii) Expenditure on second hand goods is not to be
 Precautions while using Value Added Method: included.
(i)  The value of intermediate goods should not be (iii) Expenditure on transfer payments by the government
included. is not to be included.
(ii) Purchase and sale of second hand goods should not be (iv) Imputed value of expenditure on goods produced for
included. self-consumption should be taken into account.
(iii) Imputed or estimated value of self-consumed goods (v) Expenditure on shares and bonds is not to be included
should be included but self-consumed services should in total expenditure.
not be included.  Gross Domestic Product (GDP): It is the total value of
(iv) Own account production should be included. all the final goods and services by all the enterprises
(v) Commission earned on account of sale and purchase (both resident and non-resident) within the domestic
of second hand goods is included. territory of a country in a particular year.
 Income Method: It measures national income in term  Gross Domestic Product at Market Price (GDPMP):
of payments made in the form of wages, rent, interest Private Final Consumption Expenditure (C) +
and profit to the primary factors of production, i.e., Government Final Consumption Expenditure (G) +
labour, land, capital and enterprise respectively for their Investment Expenditure (I) or Gross Capital Formation
productive services in an accounting year. + Net Exports (X - M).
 Net Domestic Income or Net Domestic Product at
Net Domestic Product at Market Price (NDPMP) =
Factor Cost: Compensation to Employees + Operating GDPMP - Depreciation
Surplus + Mixed Income from Self Employment.
Net Domestic Product at Factor Cost (NDPFC) =
National Income = Net Domestic Income + Net factor
GDPMP - Indirect Taxes + Subsidies - Depreciation
Income from Abroad.
 Precautions while using Income Method: National Income = GDPMP - Depreciation - Net
Indirect Taxes + Net Income from Abroad
(i) Income from illegal activities like smuggling, theft,
 Nominal Gross Domestic Product: When the goods
gambling, etc., should not be included.
and services are produced by all producing units in the
(ii) Imputed rent of owner occupied structure and value of domestic territory of a country during an accounting
production for self-consumption is included but value year and valued at current year’s prices or current
of self-consumed services like those of housewife is prices, it is called Nominal GDP or GDP at current prices.
not included.  Real Gross Domestic Product: When the goods and
(iii) Brokerage on the sale/purchase of shares and bonds is services are produced by all producing units in the
to be included domestic territory of a country during an accounting
(iv) Income in terms of windfall gains should not be year and valued at base year’s prices or constant price,
included. it is called real GDP or GDP at constant prices.
 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 3
 Gross National Product: It is defined as the total value
of all final goods and services produced in a country in
KEY-TERMS
a particular year, plus the income which is earned by its Net Factor Income from Abroad (NFIA): This is the
citizens who are located abroad and minus the income difference between the factor income earned from abroad
of non-residents located within the country. for rendering factor services by the normal residents of
GNPMP = GDPMP + Net Factor Income from Abroad the country to the rest of the world and the income paid
 Net National Product at Factor Cost (NNPFC): It is the for the factor services rendered by non-residents in the
sum total of factor incomes (rent + interest + profits + domestic territory of a country.
wages) earned by normal residents of a country during Factor Income: These are incomes received by the owners
the period of an accounting year. It is also known as the of factors of production for rendering their factor services
National Income. to the producers.
NNPFC = GNPFC - Depreciation Transfer Payments: These are all those unilateral
OR payments corresponding to which there is no value
NNPFC = NDPFC + NFIA addition in the economy, e.g., gifts, donations, etc.
 Net National Product at Market Price (NNPMP): It refers Double Counting: Counting the value of the same product
to market value of final goods and services produced more than once in calculation of National Income.
during the year inclusive of Net Factor Income from
Abroad but exclusive of depreciation.
NNPMP = GDPMP - Depreciation + NFIA Example-1
Find Net Value Added at Factor Cost:
MNEMONICS
S. No Items (` in crore)
Concept 1: Value Added Method
Mnemonics: PST and Denit discussed about GDP at MP. (i) Intermediate Cost 15,000
Interpretations:
GDP of MP: GDPMP (ii) Output Sold (units) 9,000
P: Gross Value added by Primary Sector (iii) Price per unit of output 4
S: Gross Value added by Secondary Sector
T: Gross Value added by Tertiary Sector (iv) Consumption of Fixed 2,000
De: Depreciation Capital
nit: Net Indirect Taxes (v) Excise Duty 4,000
Concept 2: Net Domestic Income or Net Domestic Product
at Factor Cost (vi) Change in stock (-)1,000
Mnemonics CM of Orrisa dictated to NIA deptt.
Interpretations: Solution:
C: Compensation of Employees NVAFC = (ii × iii) + (vi) - (i) - (v) - (iv)
M: Mixed Income of Self-employed =[Output × Price] + [Change in Stock] -
Orrisa: Operating Surplus [Intermediate Cost] - [Excise Duty] -
NIA deptt.: Net Income from Abroad [Consumption of Fixed Capital]
Concept 3: Gross Domestic Product at Market Price = [` 9,000 × 4] + [- ` 1,000] - [` 15,000] -
Mnemonics: Students of GIC College decorated X-mas
[` 4,000] - [2,000]
tree.
Interpretations: = ` 36,000 - ` 1,000 - ` 15,000 - ` 4,000 -
G: Government Expenditure ` 2,000
I: Investment Expenditure = ` 36,000 - ` 22,000
C: Consumption Expenditure (Private) NVAFC = ` 14,000 crore
X-mas: Export - Imports

TOPIC-3 GDP and Welfare

Concepts Covered:
 Why GDP is not an appropriate indicator of Welfare
index because it isn’t based on a fixed basket of goods.
Revision Notes The GDP price deflator measures the changes in prices
 GDP Deflator: The GDP (gross domestic product) for all the goods and services produced in an economy.
price deflator, also known as the GDP deflator or the Using The GDP price deflator helps economists
implicit price deflator, measures the changes in prices compare the levels of real economic activity from one
for all the goods and services produced in an economy. year to another.
It shows the change in GNP with the change the price
levels. The GDP price deflator is a more comprehensive Normal GDP
GDP Deflator= ×100
inflation measure than the Consumer Price Index (CPI) Real GDP
4 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

 GDP and Welfare: In general, Real GDP and Welfare  GDP is not an appropriate indicator for Welfare: GDP
are directly related with each other. Even though higher may be a good indicator of economic growth but not of
economic welfare or economic development because of:
GDP implies more production of goods and services, it
(a) Externalities: Externalities refer to benefits or harms
does not necessarily mean that the people were better off. of an activity caused by a firm or an individual, for
Thus, higher GDP not necessarily mean higher welfare. which they are not paid or penalized. For example,
 Welfare means material well-being of the people. environmental pollution caused by industrial plants
It depends on many economic factors like national is a negative externality and building a flyover is a
positive externality.
income, consumption level, quantity of goods, etc., and
(b) Composition of GDP: GDP does not exhibit the
non-economic factors like environmental pollution, law structure of the product. If the increase in GDP is
and order, etc. The welfare which depends on economic mainly due to increased production of war equipment
factors is called economic welfare and the welfare which and ammunitions, then such an increase cannot
depends on non- economic factor is called non-economic improve welfare in economy.
(c) Distribution of GDP: When GDP is unevenly
welfare. The sum total of economic and non-economic
distributed, increase in GDP does not increase welfare.
welfare is called social welfare. [Board, 2021] (d) Non-monetary exchanges: Many activities in an
economy are not evaluated in monetary terms, they
AMAZING FACT are not included in GDP, due to non-availability of
Negative Externalities can be profitable for a company
for the short run growth. data. However, such activities influence the economic
welfare of people of the economy.


UNIT – II: MONEY AND BANKING

CHAPTER-2
MONEY AND BANKING

TOPIC- 1 Money
Concepts Covered:
 Definition of Money  Functions of Money  Supply of Money
 Other Deposits (OD): These deposits include:
Revision Notes (i)  Demand deposits of public financial institutions with
 Definition of Money: Money may be defined as RBI
anything which is generally accepted as a medium of (ii)  Demand deposits of international financial
exchange and also acts as common measures of value, institutions with RBI
store of value and standard of deferred payment. (iii) Demand deposits of foreign Government and Central
 Money Supply: Total of money (currency notes, coins Banks with RBI
 Time Deposits (TD): Those deposits of public with
and demand deposits of banks) in circulation held by
bank which can be withdrawn only after completion of
the public at a given point of time.
that period for which it has been deposited with banks.
 Measures of Money Supply: In India, RBI uses four  Stock of Money: If the supply of money is studied at a
measures of money supply. These are M1, M2, M3 point of time; it is called Stock of Money.
and M4.  Flow of Money: When the supply of money is
 Narrow Approach of Money Supply: In a narrow considered over a period of time; it is called Flow of
sense, we include only liquid assets which are easily Money.
acceptable for payments. It includes M1 and M2.  High Powered Money or Reserve
 Broad Approach of Money: It refers to currency Money: It is the sum of (i) Currency held by the public
held by public, demand deposits and time deposits. (ii) Cash reserve of the banks.
It includes M3 and M4. H=C+R [Board, 2020]
Functions of Money
 Currency with Public (C): Currency of a country is
(a) Medium of Exchange: Medium of exchange is the
issued either by the Government or by the Central
primary function of money. People exchange goods
Bank. It is called Legal Tender Money. and services through the medium of money. Money
 Demand Deposits (DD): Public deposits with bank has the quality of general acceptability. Therefore all
which public may withdraw at any time or on demand, the exchange in the economy takes place in terms of
bank has to pay it. money. Seller accepts money in exchange of their goods.
 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 5
By having medium of exchange, people do not have to (iv) Banking habits
waste the time and efforts. (v) Velocity of Circulation
(b) Measure of Value: Money as a “Unit of Account” or (vi) Volume of trade
“common measure of value.” It serves as a unit of
(vii) Amount of demand deposits
measurement in terms of which the value of all the
 Who Supplies Money: Central Bank of the country.
goods and services are measured and expressed. When
However, coins are issued by the Government of India
value of commodity is expressed in money it is known
under the Ministry of Finance. In India, Reserve Bank of
as price. A consumer compares the value of alternative
India is the Central Bank.
purchases in terms of money. Producers compare the
value of money should be stable. KEY-TERM
(c) Store of Value: Money also acts as a store of value. Central Bank: The apex financial institution that regulates
People can keep their wealth in terms of money. Money and controls other financial institutes.
helps us to store the purchasing power which can be
used at any time in the future to purchase. However, it MNEMONICS
suffers from the drawback that money’s value changes Concept: Factors affecting Money Supply
over time. People wish to keep a part of their wealth in Mnemonics: Charles and Carla
the form of money because savings in terms of goods is Bob Gave some Very good Variety of Antiques
very difficult. C: Central Bank
(d) Standard of Deferred Payment: Deferred payment C: Commercial Banks
refers to the payment that needs to be made on a future G: Government
date. B: Banking Habits of the People
 Factors affecting Money supply:
V: Velocity of Circulation
(i) Central Bank
V: Volume of Trade
(ii) Commercial Banks A: Amount of Demand Deposits
(iii) Government

TOPIC- 2 Banking
Concepts Covered:
 Money Creation by the Commercial Bank System  Functions of Central Bank  Money Control Measures
These are:
Revision Notes (i) Cash Reserve Ratio (CRR): This refers to the
 Money creation by Commercial Banks: Money creation proportion of total deposit of the commercial banks
is a process in which a Commercial Bank creates total which they must keep as Cash Reserves with
deposits many times the initial deposits.  [Board, 2020] Central Bank.
The capacity of commercial banks to create money
(ii) Statutory Liquidity Ratio (SLR): This refers to liquid
depends on two factors:
assets of the commercial banks which they must
(i) Amount of initial fresh deposit
maintain (on daily basis) as a minimum percentage of
(ii) Legal Reserve Ratio (LRR)
their total deposits.
1
Money Multiplier = (iii) Repo Rate: It is the rate at which the Central Bank
LRR Money Creation gives short-period loan to the commercial banks
Total Deposits = Initial Deposit × Money multiplier. against security pledged for the loan.
 Central Bank: A Central Bank is an apex institution (iv) Reverse Repo Rate: It is the rate of interest at which
in the banking structure of the country. It supervises, the Central Bank of a country borrows money from
controls and regulates the activities of Commercial commercial banks.
Banks and acts as a Banker to them. RBI (Reserve Bank (v) Bank Rate: It is the rate at which the Central Bank
of India) is the Central Bank of India. gives long-term/long period loan to the commercial
 Functions of RBI/Central Bank:
banks without any security to cope with immediate
(i) Monopoly of Note Issue/Bank of Issue cash crunch.
(ii) Banker to the Government
(vi) Open Market Operations: Open market operations
(iii) Bankers’ Bank [Board, 2020]
refer to the sale and purchase of securities in the
(iv)Controller of Credit
open market by the Central Bank. By selling the
 Monetary Management: It means to regulate money
securities (like, National Saving Certificates— NSCs),
and credit in such a way that it may satisfactorily meet
the Central Bank soaks liquidity (cash) from the
the demand for money needed for trade, business and
economy. And, by buying the securities, the Central
economic activities.
Bank releases liquidity.
 Methods of Credit Control / Instruments of Monetary
Policy: Methods of credit control can be classified (vii) Margin Requirements: Margin Requirement refers to
into two categories. These may be Quantitative tools the difference between market value of the securities
(controlling the extent of money supply) or Qualitative offered for loans and the amount of loan offered by
(persuasion, policy measure, etc.). the commercial banks.
6 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

KEY-TERM Example-1
Banker's Bank: A bankers’ bank is a specific type of bank If the total deposits created by commercial banks is
that a group of larger, more established banks create. `10,000 crores and legal reserve requirements is 10%,
what will be the amount of initial deposits?
Solution:
MNEMONICS Legal Reserve Requirement (LRR) = 10% = 0.1
Concept : Functions of the Central Bank
1 1
Mnemonics: Maria Blossom Baked Cake =
Money Multiplier = = 10
LRR 0.1
M: Monopoly of Note Issue/Bank of Issue
Total Deposits = `10,000 crores
B: Banker to the Government
B: Bankers’ Bank Initial Deposits
C: Controller of Credit Total deposits 10 , 000
=
Initial Deposits =
Money multiplier 10
= `1,000 crore



UNIT – III: DETERMINATION OF INCOME

AND EMPLOYMENT
CHAPTER-3
AGGREGATE DEMAND AND SHORT-RUN
EQUILIBRIUM OUTPUT
TOPIC- 1 AGGREGATE DEMAND AND SAVING
Concepts Covered
 Aggregate demand and its components;
 Consumption and Savings Functions;
 APC, MPC, APS & MPS.

Government Expenditure: It includes the total

Revision Notes 
Expenditure of the government on the purchase of
 Aggregate Demand: Aggregate demand refers to the consumer goods and investment Expenditure. There
total demand for all goods and services in the economic is a significant difference between government and
system as a whole. This is expressed in terms of total private investment. Private investments are done on
Expenditure made in the economy. consideration of profit.
 Components of Aggregate Demand (AD): In an open
 Autonomous Investment: Autonomous Investment refers
economy, constituents of AD are: to the portion of total investment that is not influenced by
(i) Consumption Expenditure changes in the level of income or output in an economy.
(ii) Investment Expenditure It is independent of current economic conditions and is
(iii) Government Expenditure driven by factors such as technological advancements,
(iv)Net Exports business expectations, and government policies.
AD = C + I + G + (X-M)  Aggregate Supply: The concept of aggregate supply is
 Private Consumption Expenditure: The total demand related to the total supply of goods and services made
for all goods and services by the household in an available by all the producers in the economy. It can be
economy during an accounting year is termed as Private expressed in three forms:
Consumption Expenditure. It is determined by the level (i) Money value of goods and services produced during a
of personal disposable income of the economy. year in an economy, i.e., National Income.
 Private Investment Expenditure: The Expenditure of
(ii) In the form of total income, i.e., consumption + saving.
households and private investor to purchase goods or
services that adds to their stock of capital is termed as (iii) In the form of minimum income which the firm will
Private Investment Expenditure. It mainly depends on receive as sale proceeds from the sale of goods and
market rate of interest. services. [Board, 2020]
 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 7
 Effective Demand: It signifies the point where aggregate  Relationship between Propensity to Save and
demand equals to aggregate supply. Thus, that level Propensity to Consume:
where aggregate demand equals aggregate supply is MPC + MPS = 1
called Effective Demand. or MPC = 1-MPS
 Consumption Function: The relationship between
MPS = 1-MPC
consumption and income is Consumption Function.
C = f (Y) APC + APS = 1
 Algebraic Expression of Consumption Function: APC = 1-APS
The algebraic expression of consumption function is or APS = 1-APC
given by:  Investment Expenditure: Investment Expenditure

C = C + b(Y) includes Expenditure for producer’s durable equipment,

new construction and the change in inventories.
where, C = Consumption
 Induced Investment : Investment made with expectation
C =Minimum Level of Consumption at of profit is called induced investment. It depends upon
Zero Income (i) Marginal efficiency of capital, and (ii) Rate of Interest.
b = Marginal Propensity to Consume  Induced investment is the portion of total investment
Y = Income that responds to changes in the level of income or
 Propensity to Consume: It expresses the consumption output in the economy. As income and output increase,
levels at different levels of income. induced investment increases, and vice versa.
 Average Propensity to Consume (APC): It is the ratio  Equilibrium Volume of Investment : Investment
of Consumption Expenditure to any particular level of decisions depend upon the relative superiority of MEC
income. over the rate of interest.
(C) Consumption MEC = r [Passive Effect on Investment or Neutral]
APC = MEC > r [Favourable effect on Investment]
(Y) Income
MEC < r [Adverse effect on Investment]
 Marginal Propensity to Consume (MPC): It is the ratio
of a change in Consumption to a change in Income. MNEMONICS
ΔC Concept: Constituents of Aggregate Demand
Change in Consumption ___ Aggregate Demand = Consumption Expenditure +
MPC = =
Change in Income ΔY Investment Expenditure + Government Expenditure +

 Propensity to Save: It is the ratio of saving to income at
Net Exports
different levels of income. Mnemonics: Andhra Pradesh Cannot Import Good Nuts
 Saving Function: It denotes the relation between saving A: Aggregate Demand
and income. It shows the desire of savings at various C: Consumption Expenditure
levels of income. [Board, 2020] I: Investment Expenditure
S = f(Y) G: Government Expenditure
 Algebraic Expression of Saving Function: The algebraic N: Net Exports
expression of saving function is given by:
S = (-) S + b(Y) KEY TERMS
where, S = Saving Marginal Efficiency of Capital (MEC): Marginal efficiency
S = Level of saving when Income is Zero of capital is expected rate of return on an additional unit
b = Marginal Propensity to Save of capital goods over its cost.
Y = Income Prospective Yield
MEC =
 Average Propensity to Save (APS): It is the ratio of Cost(Supply Price of Capital )
saving to income.
Saving S Rate of Interest: Interest is the reward for parting with
APS = = liquidity for a specified period.
Income Y
 Marginal Propensity to Save (MPS): It is the ratio of a
Ex-Ante Saving: It is the planned or desired or intended
change in saving to a change in income. saving during a particular period.
ΔS
___ Ex-Ante Investment: It is the planned or desired or
Change in Saving
MPS = = intended investment during a particular period.
Change in Income ΔY

TOPIC- 2 SHORT RUN EQUILIBRIUM OUTPUT

Concepts Covered
 Employment equilibrium in the short run;  Meaning of full employment and involuntary unemployment  Effect of change in equilibrium.

Full Employment: It refers to a situation, where all those

Revision Notes 
workers who are able to work and willing to work get
 Short Run: According to J. M. Keynes, “A period of time employment at prevailing wage rate.
during which level of output is determined exclusively
 Involuntary Unemployment: It is a situation in which
by the level of employment in the economy, is termed as
short run.” an individual is not working, but willing to work, able
8 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

to work at the available market wage rate and actively AS. But AS depends on technological factors therefore if
searching for job. AD increases, it will raise the level of employment.
 In an Economy: S=I
Income Equilibrium Level  According to Keynes income-employment equilibrium
(Y) is determined at a point where S = I.
= Output Equilibrium Level (i) If S > I then equilibrium income will have a tendency
(O) to reduce.
= Employment Equilibrium Level (ii) If S < I then equilibrium income will have a tendency
(N) to increase.
 Short Run Equilibrium, i.e., Keynesian Approach MNEMONICS
AD = AS
Concept: Equilibrium Level
AMAZING FACT Income Equilibrium Level (Y) = Output Equilibrium Level
An economy never reaches the level of full employment. (O) = Employment Equilibrium Level (N)
Mnemonics: India Out performing Economy.
(i) Employment is determined at a point where AD = AS.
I: Income Equilibrium Level
(ii) If AD > AS, firm will employ more factors of
production and it will again attain AD = AS. O: Output Equilibrium Level
(iii) If AD < AS, firm will cut employment and it will bring E: Employment Equilibrium Level
again AD = AS. [2021]
 Change in Equilibrium : Equilibrium position described
above may be of full employment or may not be of full KEY TERMS
employment. It only determines the level of income. Output: The product produced in the economy.
Therefore, for full employment we have to twist AD or Employment: The work-force being employed.

EXAMPLE 1
An economy is in equilibrium. Calculate the `1000 − ` 220
Marginal Propensity to Save from the following: or b=
National Income = `1,000 `1000
Autonomous Consumption = `100
Investment= `120 ` 780
Solution: b=
`1000
Step I: Given, Y = `1,000
C = ` 100 or b = 0.78
I = ` 120
  1-MPC = MPS
Step II: We know, Y = C + b(Y) + I
or 1-0.78 = MPS
or `1,000 = `100 + b(`1,000) + `120
or MPS = 0.22
or `1,000 = `220 + `1,000b

TOPIC- 3 INVESTMENT MULTIPLIER AND ITS MECHANISMS

Concepts Covered
 Multiplier and its relation with Marginal propensity to Consume.

Revision Notes K = 1-MPC

 Multiplier: It establishes the relation between income 1
and investment. It measures the change in income due and K=
MPC
to change in investment.
ΔY if MPC = Zero
___
Change in Income   K = 1
K = ΔI =
Change in Investment
MPC = 1

AMAZING FACT   K = ∞

The concept of Multiplier was developed by Kahn and Value of K lies between 1 and infinity.
then refined by Keynes.  Forward and Backward action of multiplier: Multiplier
 Relationship between Multiplier and Marginal is two-edge instrument and hence, it works in both
Propensity to Consume (MPC): The size of multiplier directions.
is determined by the Marginal Propensity to Consume. (i) Forward Action: Additional investment creates
There is a direct relation between MPC and K. Higher
additional income many more times.
the MPC, higher is the value of K and vice-versa.
 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 9
(ii) Backward Action: Withdrawal of investment
decreases income many more times.
MNEMONICS
Full employment: It refers to a situation, where Concept: Investment Multiplier
all those workers who can work and are willing Change in Income (DY)
to work get employment at prevailing wage rate. K=
Change in Investment (DI)
Involuntary unemployment: When people who Mnemonics: Korea Charges Culprit
are able and willing to work at the prevailing K: Investment Multiplier
wage rate, do not get employment, it is a situation
C: Change in Income
of involuntary unemployment [Board 2019]
C: Change in Investment

EXAMPLE 1
What is investment multiplier? Explain its working Step III: Numerical example
using a suitable numerical example.
Solution: Suppose Δl = `100 crore
Step I: Meaning MPC = 0.8
Investment multiplier is a measure of the effect of Step IV: Calculation
change in the initial investment on change in final 1
income. K = 1 − MPC
Step II: Schedule
Round ΔY C ΔS 1
I 100 80 20
K = 1 − 0.8

II 80 64 So ∆Y = K.ΔI
III 64 51.2 12.8 = 5 × 100 = `500
– – – Step IV: ∆C = MPC × ∆Y = 0.8 × 500
– – – = 400
Total 500 400 100 ∆S = MPS × ∆Y = (1-0.8) × 500
(or any other relevant example) = 100



CHAPTER-4
PROBLEMS AND MEASURES OF
EXCESS AND DEFICIENT DEMAND
corresponding to full employment. AD > AS (at full
Revision Notes employment level).
 Deficient Demand: When AD falls short of AS at full  Reasons for Excess Demand:
employment, it is called deficient demand.
(i) Increase in public expenditure
 Deficient Demand = AD < AS (at full employment
level). (ii) Reduction in taxes
 Reasons for Deficient Demand: (iii) Deficit financing
(i) Decrease in investment expenditure (iv) Increase in investment demand
(ii) Decrease in propensity to consume (v) Increase in propensity to consume
(iii) Increase in Taxes (vi) Increase in export demand
(iv) Reduction in Public Expenditure  Effects of Excess Demand:
(v) Increase in Propensity to Save (i) Decrease in unemployment
(ii) Increase in production level
(vi) Decline in Export Demand
(iii) Increase in price level.
 Effects of Deficient Demand:
 Cyclical Fluctuations: In real life, Aggregate demand
(i) Fall in production level does not match Aggregate Supply. Consequently,
(ii) Fall in price level economy faces economic fluctuations like:
(iii) Increase in unemployment Depression → Recovery → Full employment →
 Excess Demand: Excess demand refers to a situation Prosperity → Recession → Again depression and
when Aggregate Demand exceeds Aggregate Supply process goes on.
 10 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

 There are four important ways to correct Excess and

KEY TERMS
Deficient Demand: Taxes: The type of surcharge that the government
(i) Fiscal Policy imposes on the income and goods.
Unemployment: The situation where the able persons
(ii) Monetary Policy
who are willing to work are not employed.
(iii) Foreign Trade Policy Depression: Employment, income, and output begin to
(iv) Other Measures decline sharply in the economic fluctuation.
 Fiscal Policy: Government measures related to public
expenditure, taxation and public debt are referred as EXAMPLE 1
fiscal measures and the policy related to these measures In the given figure, what does the gap ‘KT’
is called Fiscal Policy.  [Board, 2022] represent? State any two fiscal measures to
correct the situation.
 Instruments of Fiscal Policy: Public expenditure,
taxation, public debt and deficit financing.
 Monetary Policy: A policy, which controls the money
supply, credit availability and its cost is termed as
monetary policy. Central Bank of the country frames
this policy and ensures its execution. [Board, 2023]
 Measures of Monetary Policy:
(i) 
Quantitative: Bank Rate, Open Market Operations,
Minimum Reserve Ratio and Liquidity Ratio.
(ii) Qualitative: Margin requirement of loans, Rationing
of credit, Direct action and Moral pressure.

Solution: the hands of the people which in turn may

The Gap ‘KT’ represents ‘Deficient demand’ increase the Aggregate Demand in the econo-
(Deflationary Gap). my to bring it equal to the Aggregate Supply.
Deflationary gap is that situation when Aggregate (b) 
Increase in Government Expenditure: To
Demand is lesser than Aggregate supply corre- curb the deflationary gap the government
sponding to a full employment level. may increase its expenditure. This may in-
Two fiscal measures to control it are: crease the purchasing power in the hands of
(a) Decrease in Taxes: To curb the deflationary the people which in turn may increase the
gap the government may decrease the taxes. Aggregate Demand in the economy to bring
This may increase the purchasing power in it equal to the Aggregate Supply.



UNIT – IV: GOVERNMENT BUDGET

AND THE ECONOMY
CHAPTER-5
GOVERNMENT BUDGET AND THE ECONOMY
(iii) Redistribution of income and property
Revision Notes (iv) Economic stability
 Budget : Budget is a financial statement showing the (v) Generation of employment
expected receipts and expenditures of Government for (vi) Management of public enterprises
the coming fiscal or financial year. It is a constitutional  Components of Government Budget:
requirement in India (Article 112).  Revenue Budget: It shows revenue receipts and
 Objectives of Government Budget:
revenue expenditures of the government related to the
current financial year only.
(i) Encouragement to economic development
 Revenue Receipts: (a) Which do not cause any
(ii) Balanced regional development reduction in assets; and (b) Which do not create any
 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 11
corresponding liability to the government. Example:  Capital Expenditure: It is the expenditure by the
Tax receipts of the government. government which:
 Tax: It is a compulsory contribution by an individual,
(i) Causes increase in government assets; and
household or a firm to the government without
receiving anything in return directly. Government uses (ii) Causes reduction in government liability.
these receipts for social and development work.  Budget Deficit: It is the excess of total estimated
 Direct Tax: When Government imposes a tax on a expenditure over total estimated receipt.
person and it is paid by the same person it is called
direct tax. Its burden cannot be shifted to others. For (i) Revenue Deficit: Revenue Expenditure – Revenue
example: Income Tax, Property Tax. Receipts.
 Indirect Tax: It is a tax on goods and services. It is to (ii) Fiscal Deficit: [Revenue Expenditure + Capital
be initially paid by the producers / traders but its final Expenditure] – [Revenue Receipts + Capital Receipts
burden can be passed on to the final buyers by way of
(other than government borrowings)].
inclusion or increase in price of the taxed commodity.
GST or VAT is an example of it.  Primary Deficit: By deducting interest payment from
 Non-Tax Receipts: Non-Tax Receipts are those receipts fiscal deficit, we get a primary deficit.
which are received from sources other than taxes, e.g., Primary Deficit = Fiscal Deficit – Interest Payment
Fees, Fines, Escheats, Grants / Donations, etc.
 Types of Budgets
 Revenue Expenditure: It is the expenditure by the
government that is related to the current financial year. (i) Balanced Budget: Total Expenditure = Total Revenue
These expenses: (ii) Deficit Budget: Total Expenditure > Total Revenue
(i) Do not cause increase in government assets, and;
(ii) Do not cause any reduction in government liability. AMAZING FACT
  Capital Budget: It shows capital receipts and capital The government can have a fiscal deficit but a
expenditure of the government. revenue surplus.
 Capital Receipts: (a) Which create corresponding
liability for the government. Example: Loans by the (iii) Surplus Budget: Total Anticipated Expenditure <
Government; and (b) Which cause reduction in assets of
Total Anticipated Revenue
the government. Example: Disinvestment. [Board 2020]
 Measures to Correct Different Deficit:
MNEMONICS (i) Raising government revenue
(i) C
 oncept: Objective of Government Budget: (ii) Monetary Expansion or Deficit Financing
Mnemonics: Encourage by Role Empower More Goal
(iii) Borrowing from general public
E: Encouragement to economic development
B: Balance Regional development (iv) Disinvestment
R: Redistribution of income and property (v) Lowering government expenditure
E: Economic stability.
M: Management of public enterprises KEY TERMS
G: Generation of employment Economic Development: Economic Development is a
(ii) C
 oncept: Measures to correct Different deficits comprehensive concept including increasing real per
Mnemonics: Radio Master Booked Dancing Luis capita income of a country over a long period of time along
R: Raising government revenue with reduction in poverty, inequality and unemployment.
M: Monetary Expansion or Deficit Financing
B: Borrowing from general public Disinvestment: Disinvestment is the process of the selling
D: Disinvestment of the shares of the public sector units by the government
L: Lowering government expenditure to the private enterprises or individual.

EXAMPLE 1
(a) What is the revenue deficit?
Items Amount is ` Crore
Solution:
Capital Expenditure 1,000
Revenue Deficit = Revenue Expenditure –
Revenue Expenditure 1,200 Revenue Receipts
Tax Receipts 700 = 1,200 – (7,00 + 4,00) = `100 crore
Non Tax Receipts 400 (b) What is the fiscal deficit?

Interest Payment 100 Solution:

Long Term Borrowings 150 Fiscal Deficit =

[Revenue Expenditure + Capital Expenditure] –
Capital Receipts including 1,000 [Revenue Receipts + Capital Receipts]
Long Term Borrowings
(other than government borrowings)
12 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

EXAMPLE 1
= [1,200 + 1,000] – [1,100 + 1,000 – 150] (c) What is the Primary deficit?
Solution:
= 2,200 – 1,950
Primary Deficit = Fiscal Deficit – Interest Pay-
= `250 crore ment = 250 – 100
= `150 crore



UNIT – V: BALANCE OF PAYMENTS

CHAPTER-6
BALANCE OF PAYMENTS
of such transactions then there is a deficit in Balance of
Revision Notes Payment.
 Balance of Payments: The Balance of Payments (BOP)  Causes of Disequilibrium of Balance of Payments:
records the transactions of goods, services and assets (i) Natural Causes: (a) Natural calamities; (b) Any
between residents of a country with rest of the world disease spreads
for a specified time period (a year).
(ii) Economic Factors: (a) Development activities; (b)
 Components of BOP (Balance of Payments) Account: High rate of inflation; (c) Trade cycle; (d) Change in
The transactions entering into the balance of payments cost structure of trading partners; (e) Development of
account can be grouped under three broad accounts: import substitutes.
(i) Current Account (iii) Political Factors: (a) Political stability; (b) Political
(ii) Capital Account [Board, 2023] influence on foreign trade
(iii) Official International Reserve Account (iv) Social Factors: (a) Demonstration effect; (b) Change in
 Current Account: Transactions related to trade in goods tastes and preferences; (c) Cross border prejudices
and services and transfer of payments constitute the
current account which do not cause a change in assets EXAMPLE 1
or liabilities status of a country or its government.
 Items of Current Account: The balance of trade shows a deficit of ` 5,000 crores
and the value of imports are ` 9,000 crores. What is the
(i) Merchandise Account
value of exports?
(ii) Invisible items
Solution: Balance of Trade= - ` 5,000 crores
(iii) Unilateral transfers
Value of Imports = ` 9,000 crores
 Capital Account: Capital account represents
Balance of Trade (Deficit) =Value of Exports – Imports
international capital transactions which include sale
and purchase of assets such as bonds, equities, lands, Value of Exports = Balance of Trade(Deficit) + Imports
loans, bank accounts, etc., which cause a change in = - ` 5,000 crores + ` 9,000 crores = ` 4,000 crores
assets and liabilities status of country or its government.
 Balance of Payments is always balanced: The equality MNEMONICS
of both sides of balance of payments is only accounting Concept: Components of Balance of Payments
equality, not the real equality. Mnemonics: Chief Coordinating Officer
 Balancing Items of Balance of Payments: (i) The official C: Current Account
settlements account, and (ii) Errors and Omissions. C: Capital Account
 Surplus Balance of Payment: When the total inflow of O: Official International Reserve Account
foreign exchange on account of autonomous transaction Concept: Items of Current Account
are more than the total outflows on account of such Mnemonics: Modern Indian Unit
transactions then there is a surplus Balance of Payment M: Merchandise account
 Deficit of Balance of Payment Account: When total I: Invisible items
inflows of foreign exchange on account of autonomous U: Unilateral transfers
transactions are less than the total outflows on account
 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 13

KEY TERMS KEY TERMS

Accommodating items refers to transactions that take
Autonomous transactions: Autonomous items are those
items of balance of payments which are related to such place because of other activities in Balance of Payments.
transactions as are determined by the motive of profit Unilateral transfers: Transfer of goods or services from
maximisation and not to maintain equilibrium in Balance one country to another without receiving anything in
of Payments. return, e.g., foreign aid.
Accommodating Items: Refers to all the items related
to the monetary transfers (or official reserve
transactions), correcting balance of payments disequilibrium. 

CHAPTER-7
FOREIGN EXCHANGE RATE
to the rate at which one unit of the currency of a
Revision Notes country can be exchanged for the number of units of
 Foreign Exchange Rate: Foreign exchange rate refers the currency of another country.
SYSTEM OF EXCHANGE
EXCHANGE RATE
RATE

Fixed Exchange Rate Managed Floating Flexible Exchange Rate

Exchange Rate

 Types of Foreign Exchange Rates:  Ensures stability in exchange rate

(i) Fixed Exchange Rate: When the Central Governmnet  Helpful to check inflation
of a country fixes (or pegs) the value of exchange rate, Demerits of Fixed Exchange Rates:
it is called Fixed Exchange Rate System or Pegged  Neglects National interest
Exchange Rate System.  Control over various sectors
(ii) Flexible Exchange Rate System: The system of  High fluctuation in exchange rates
exchange rate in which value of a currency is allowed  Intervention of Central Bank
to adjust freely or to float as determined by the demand Merits of Flexible Exchange Rate System:
for and supply of foreign exchange is called Flexible  Simple system
Exchange Rate System.  Continuous adjustment
(iii) Managed Floating System: It is a system in which  Lesser requirement of reserve funds
the Central Bank allows the exchange rate to be  Efficient utilization of resources
determined by market forces but intervenes at times Demerits of Flexible Exchange Rate System:
to influence the rate. When Central Bank finds the  Bad effects of less elasticity
rate is too high, it starts selling foreign exchange from  Creates uncertainty
its reserve to bring it down. When it finds that the rate  Instability in international trade [Board, 2023]
is too low, it starts buying to raise the rate. Merits of Managed Floating Exchange Rate:
AMAZING FACT  Improved Balance of Payment
Bretten Woods Conference that happened in 1944,  Reduced risk of inflation and deflation
 Balances the Economy
pegged the value of gold in terms of US dollars and
 Long-term Growth Potential
made all foreign transactions to be done in terms of
Demerits of Managed Floating Exchange Rate:
dollar instead of gold.
 Large forex reserves need to be maintained
Merits of Fixed Exchange Rate:  Speculation
 Promotion of international trade  Conflict with macroeconomic objectives.
 Incentives of foreign capital  Determination of Flexible Exchange Rate/Demand

 Acceleration in capital formation and Supply theory of exchange rate/ determination
 Economic planning of Equilibrium Rate of Exchange: Exchange rate is
 Source of economic benefit determined by the interaction of demand and supply
 Helpful in maintaining favourable Balance of Payments in foreign exchange market.
14 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

The demand for Foreign Exchange is created due to

the following purposes :
(i) To purchase goods and services from the rest of
world.
(ii) To purchase financial assets (i.e., to invest in bonds and
equity shares) in a foreign country.
(iii) To invest directly in shops, factories, buildings in
foreign countries.
(iv) To send gifts and grants abroad.
(v) To speculate on the value of foreign currency.
(vi) To undertake foreign tours.
 The supply of foreign exchange has positive relation
with foreign exchange rate. If foreign exchange rate
Inverse Relationship:
rises, the supply of foreign exchange rate also rises and
High rate of exchange – Low demand for Forex
Low exchange Rate – Increased demand for Forex vice versa.
Direct Relationship: Sources of Supply of Foreign Exchange:
High Exchange Rate – Increased supply of Forex (i) Direct purchase by foreigners in domestic market.
Low Exchange Rate – Decreasing Supply of Forex (ii) Direct investment by foreigners in domestic market.
 Reasons for the Demand of Foreign Exchange: The (iii) Remittance by non-residents living abroad.
demand of foreign exchange has inverse relation with (iv) Flow of foreign exchange due to speculative
flexible exchange rate. If flexible exchange rates rise, purchases by N.R.I.
the demand of foreign exchange falls and vice versa. (v) Export of goods and services.


PART – B: INDIAN ECONOMIC DEVELOPMENT

UNIT – VI: DEVELOPMENT EXPERIENCE (1947-90)
AND
ECONOMIC REFORMS SINCE 1991
CHAPTER-8
DEVELOPMENT EXPERIENCE (1947-90) AND
ECONOMIC REFORMS SINCE 1991

TOPIC-1 Indian Economy on the Eve of Independence

Concepts Covered
 Indian Economy at the time of independence,  Occupational Structure,  Sectoral contribution.

Change in Tenurial system and Commercialisation of

Revision Notes agriculture:
 The objective of policies adopted by the colonial Change in System and Tenure: (i) Permanent settlement
government was to export raw material from India and or Zamindari system, (ii) Ryotwari system, and (iii)
import manufactured goods from England.[Board, 2020] Mahalwari system.
First scientific estimate was made by V.K.R.V. Rao in Commercialisation of Agriculture: Main causes were:
(i) Industrial revolution (ii) Commercial policy of
1931-32 during colonial rule.
British Government, (iii) Increase in foreign trade, (iv)
 Agriculture sector on the Eve of Independence: Indian
Payment of Land Revenue in cash, (v) Use of money,
economy under the British colonial rule remained (vi) Development of the means of transportation and
fundamentally agrarian. The main causes of stagnation communication, (vii) Expansion of the agricultural
of agricultural sector were as follows: market, (viii) High price of cash crops. [Board 2018]
 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 15
 Industrial Sector on the Eve of Independence: At the  Infrastructure on the eve of independence: Develop-
time of independence, the condition of industrial sector ment of infrastructure during colonial rule was not to
was as follows: provide better facilities to general public but serve the
(i) De-industrialisation or decline of Indian handicraft British interest only. We include the following under in-
industry, (ii) One sided modern industrial structure, frastructure:
(i) Railway, (ii) Roads, (iii) Water and Air transport, (iv)
(iii) Lack of capital goods industries, (iv) Limited
Communication system.
operation of public sector.
 Indian Economy on the Eve of Independence:
(i) Colonial economy, (ii) Semi-feudal economy, (iii)
AMAZING FACT Backward economy, and (iv) Stagnant economy.
14 major famines took place in India during the  Positive Contribution of British rule: (i) Self-sufficiency in
British Raj in which the Great Bengal Famine of food grain production, (ii) Better means of transportation,
1943 was totally man-made as Winston Churchill (iii) Check on famines, (iv) Shift to monetary economy,
the PM of UK took the grains from Bengal and left and (v) Effective administration set up.
the people of Bengal in hunger. It is said that Bengal  After independence, India envisaged an economic
has still not been able to be over the famine. system which combines the best features of socialism
India's GDP before the British Raj was 25 - 35% of and capitalism — this culminated in the mixed
the world's GDP and after they left it was 2% of the economic model.
world's GDP
KEY TERMS
 Main Characteristics of Industrial Development Zamindari System: The system in which the land was
during British Rule: given to a landlord or zamindar who was to collect the tax
(i) Development of consumer product industries, (ii) from the peasants and give it to the British Empire.
Rising share of Indian capital, (iii) Concentration of De-industrialisation: The policy in which the industries
enterprises in few hands, (iv) Dominance of foreign are destroyed or made inoperable with high taxes.
capital, (v) Investment of own capital of capitalists, (vi) Monopoly: The market condition where there is only one
Industrial policy, (vii) Regional imbalance in industrial seller.
development. Demography: The type of population living within the
 Foreign Trade on the Eve of Independence: Foreign territory of a country.
trade conditions on the eve of independence were as
follows: MNEMONICS
(i) Export of primary products and import of finished Concept: Change in System and Tenure
goods, (ii) Monopoly control of Britain on foreign trade, Mnemonics: Patna Raipur Mumbai are Capital Cities
and (iii) Drain of Indian wealth. P: Permanent settlement or Zamindari system
 Demographic conditions on the eve of Independence: R: Ryotwari system
First Census of population of British India was made M: Mahalwari system
in 1881. At the time of independence, the features of Concept: Foreign Trade on the eve of Independence
demographic conditions were as follows: [Board, 2023] Mnemonics: Eena Meena Dica
(i) High birth and death rate, (ii) High infant mortality E: Export of primary products and import of
rate, (iii) Low life expectancy ratio, (iv) Low literacy finished goods
M: Monopoly control of Britain on foreign trade
rate, (v) Low standard of living. D: Drain of Indian wealth
 Occupational structure on the eve of independence: Concept: Indian Economy on the Eve of independence
Occupational structure refers to distribution of working Mnemonics: Cody Saw Baby Seal
population across different industries and sectors. The
C: Colonial economy
state of occupational structure during the British rule D: Drain of Indian wealth
was as follows: B: Backward economy
(i) Pre-dominance of agricultural sector, and (ii) S: Stagnant economy
Growing regional variation. [Board, 2024]

TOPIC-2 Common Goals of Five-Year Plans

Concepts Covered:
 Meaning and Objectives of Planning,  India's success and failure during different plan periods,  NITI Aayog

Characteristics of Economic Planning: (i) Organisation

Revision Notes 
system, (ii) Maximum utilisation of resources,
 Meaning of Planning : Planning is a technique and a (iii) Applicable to the whole economy, (iv) Central
means to attain goals. Planning Authority, (v) Interference by the State,
(vi) Changes in the economy, (vii) Long term process,
AMAZING FACT (viii) Pre-determined objectives, (ix) Existence of
valuation mechanism, (x) Achievement of objectives.
Atmanirbhar Bharat, Make in India all have been a  Plan Period in India : India has completed 12 Five Year
part of India's Planning Policy. Plans. Time Period of 12th Plan was 2012-2017.
16 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

 Indian Planning Commission: The Planning Commission  Failures of Economic Planning: (i) Slow progress in
of India was established on 15th March, 1950, to evaluate per capita and national income, (ii) Unemployment,
the physical, capital and human resources and on this (iii) Increase in economic disparity, (iv) Economic
basis make programmes for the Plan Development and its instability, (v) Failure in agriculture sector, (vi)
evaluation. Failure in industrial sector, (vii) Failure in resource
The Planning Commission of India has now been mobilisation, (viii) Dependence on foreign aid, (ix)
dissolved in 2015 and replaced with National Institution Defective regulatory policy.
for Transforming India (NITI) Aayog.  Suggestions for the Success of Plans: (i) Widespread
 National Development Council (NDC): As an apex mass participation, (ii) Control of prices, (iii) Co-
body to planning, it was constituted on 6th August, ordination between public and private sector,
1952. No plan was implemented without its approval. (iv) Integration between long term and short term
 Goals of Planning in India: (i) Economic growth, (ii)
programmes, (v) Physical achievements should be
Modernisation, (iii) Self-reliance, and (iv) Economic equity. basis of success, (vi) Encouragement of saving and
investment, (vii) Control on population growth, (viii)
 Achievements of Indian Plans:
Job oriented economic planning, (ix) Coordination
(i) Growth-Oriented Development Strategy (1951-65):
between capital intensive and consumption oriented
In first plan, actual growth rate was higher than
industries, (x) Utilisation of human power, (xi) Clean
targeted. But in second and third plans, it was less
administration.
than targeted.
(ii) Equity Oriented Development Strategy (1966-90): MNEMONICS
There are two big achievements in the field of self- Concept: Objectives of Planning in India
reliance. (i) India attained almost self-sufficiency in Mnemonics: Extra Marks for Social Economy
the field of food grains, and (ii) due to development E: Economic growth
of heavy engineering, machinery equipment, iron M: Modernisation
and steel and other capital goods industries, India S: Self-reliance
become self-sufficient in machinery equipment and E: Economic equity
other capital goods.

TOPIC-3 Agriculture: Features, Problems and Policies

Concepts Covered:
 Conditionof Agriculture from 1950 to 1990,  Importance of Agriculture,  Land Reforms, Land Ceiling, Green Revolution and
other measures taken by the government.
 Land Reform Measures: (i) Abolition of intermediaries,
Revision Notes (ii) Tenancy Reforms, (iii) Re-organisation of agriculture.
 During the Colonial rule, there was neither growth  [Board, 2020]
nor equity in agriculture sector. The policy makers of
 Land Ceiling: It was the policy which recommended
independent India had to address these issues which
the fixation of maximum size of land which would be
they did through land reforms and promote the use
owned by an individual. The purpose of land ceiling
of High Yielding Varieties of Seeds which ushered
was to reduce the concentration of land ownership in a
revolution in Indian agriculture.
few hands.
 Importance of Agriculture in Indian Economy:
 Green Revolution: Green Revolution implies the
(i) Main source of employment, (ii) Contribution in
strategy related to improving production technique and
National Income, (iii) Base of industrialisation, (iv) Base
productivity in agriculture. [Board, 2024]
of economic development, (v) Importance in Foreign
 Features of Green Revolution: (i) High Yielding
Trade, (vi) Supply of food grains, (vii) Contribution in
Varieties of seeds, (ii) Extensive use of fertilisers, (iii)
revenue, (viii) Dependence on trade and transport, (ix)
Expansion of irrigation facilities, (iv) Plant protection,
Capital formation, (x) Rainbow of revolution.
(v) Establishment of different institutions, (vi) Agro-
 Characteristics of Indian Agriculture: (i) Main source of
service centres, (vii) Multiple cropping programme,
livelihood, (ii) Disguised and seasonal unemployment, (viii) Mechanisation, (ix) Scientific method of
(iii) Labour intensive agriculture, (iv) Excess agriculture, (x) Development of agricultural land, (xi)
dependence of agriculture on monsoon, (v) Small size Improvement of animal husbandry, (xii) Fixation of
of land holdings, (vi) Low level of productivity, (vii) Minimum Support Prices.
Old and defective agricultural production, (viii) Pre-  Achievements of Green Revolution: (i) Rise in
dominance of food crops. production and productivity, (ii) Increase in income,
 Land Reforms: Land reforms primarily refer to change (iii) Increase in employment, (iv) Rural prosperity,
in the ownership of holdings. It was done with the (v) Industry and agriculture relationship, (vi) Innovation.
purpose of increasing agricultural production, the direct  Economic Subsidies: To assure availability of fertilizers
intervention of government in agrarian structure. to the farmers at reasonable prices government is
 Need for Land Reforms: (i) Retrograde agrarian providing subsidies. A current debate is should subsidy
structure and agrarian relation and (ii) Small and continue or we may go without subsidy. Arguments are
fragmented agricultural holdings. put forward both in favour and against subsidy
 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 17

KEY TERMS MNEMONICS

Agriculture: The economic activity that is related to
C: Contribution in revenue
growing of food and other related activities.
HYV seeds: The variety of seeds that gives more D: Dependence on trade and transport
agricultural produce. C: Capital formation
Fertilizers: The chemical used to increase the fertility of R: Rainbow of revolution
the soil.
Concept: Characteristics of Indian Agriculture
Mnemonics: Man Demands Luxury, Extra Smooth and
MNEMONICS Light Operating Products
Concept: Importance of Agriculture in Indian Economy M: Main source of livelihood
Mnemonics: Mahindra Can Boost its Base in Sale of D: Disguised and seasonal unemployment
Cars by Directly Investing in Customer Relations L: Labour intensive agriculture
M: Main source of employment
E: Excess dependence of agriculture on monsoon
C: Contribution in National Income
S: Small size of land holdings
B: Base of industrialisation
L: Low level of productivity
B: Base of economic development
I: Importance in Foreign Trade O: Old and defective agricultural production
S: Supply of food grains P: Pre-dominance of food crops

TOPIC-4 Industries: Features, Problems and Policies

Concepts Covered:
 Industrial Policy of India between 1950 and 1990,  Problems of Industrial development and measures to overcome them,
 Role and problems with Small-scale and cottage industries.

(iii) To ensure availability of capital,

Revision Notes (iv) Financial stability,
 In the Pre-British period, India was an industrially (v) Rehabilitation of sick units,
Backward country. But the British rule systematically
(vi) Removal of control,
destroyed the Indian industries. As a result, at the time of
(vii) Human capital formation,
independence, India had a weak industrial base, poorly
developed infrastructure and a stagnant economy. (viii) Modernisation,
 Basic features of India’s industrial development
(ix) Improvement in industrial relation,
during Plan Period: (i) Increase in industrial growth (x) Professionalisation of management,
rate, (ii) Increase in contribution of industrial sector in (xi) Industrial research.
GDP, (iii) Rapid development of basic industries, (iv)  Industrial Policy: It refers to such formal declaration
Strong infrastructural base, (v) Import substitution, made by the Government which describes the general
(vi) Establishing enterprises with foreign assistance, policies which will be adopted by the Government
(vii) Increase in export of industrial products, (viii) towards the industries.
Establishment of financial institution, (ix) Development FUNDAMENTAL FACT
of information technology and electronics industries, Industrial Policy 1956, Dr. Shyama Prasad Mukherjee,
(x) Development of small and cottage industries, made India a mixed economy.
(xi) Disinvestment in public sector, (xii) Development
of food processing industry, and (xiii) Emergence of  Industrial Policy Resolution, 1956: (i) Classification
consultancy services. of industries into public and private sectors, (ii) Stress
 Problems of Industrial Development in India: (i) on the role of cottage and small-scale industries,
Problem of energy, (ii) High cost, (iii) Shortage of (iii) Reduction in regional disparities, (iv) Foreign
capital, (iv) Shortage of foreign exchange, (v) Lack capital, (v) Facilities for labourers.
of able entrepreneurs, (vi) Irregular rate of industrial  Industrial Licensing Policy: Industrial licensing is
growth, (vii) Unemployment problem ignored, (viii) an authority issued by the government organisation
Industrial unrest, (ix) Small and medium sector to permit the institutions for starting an industry or
neglected, (x) Problem of industrial sickness, (xi) Less to start a function. In India it was started in 1952. The
utilisation of installed capacity, (xii) Regional disparity, basis of this policy was Industries (Development and
(xiii) Increase in concentration of economic power, (xiv) Regulation) Act, 1951, and New Industrial Policy for
Failure of public sector enterprises. 1991.
 Measures to Encourage Industrial Development:  Public Sector Enterprises: A public sector enterprise is
(i) Creation of economic and social infrastructure, that enterprise which is owned and managed by the
(ii) Development of entrepreneurial skill, government.
18 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

 Characteristics of Public Enterprises: (i) Public  Problems of Small Sector: (i) Shortage of capital, (ii)
ownership, (ii) Socio-economic objective, (iii) Undeveloped production system, (iii) Problem of raw
Accountability towards public, (iv) Financing from material, (iv) Lack of organised market, (v) Competition
government funding. from large scale units, (vi) Lack of education, (vii) Lack
 Role of Public Sector in Industrialisation: of standardization, (viii) Export neglected, (ix) Dis-
(i) Contribution in National Income, (ii) Contribution interest of consumers, (x) Non-receipt of payments in
in employment generation, (iii) Contribution in export, time.
(iv) Development of small-scale sector, (v) Development MNEMONICS
of backward area, (vi) Expansion of technological base,
(vii) Help in achievement of self-sufficiency. Concept: Characteristics of Public Enterprises
 Problems of Public Sector: (i) Bureaucratic delays, Mnemonics: Pure Saffron Are Fresh
(ii) Lack of technical efficiency, (iii) Discriminating P: Public ownership
policy of organisation, (iv) Lack of incentives, (v) S: Socio-economic objective
Inadequate control of parliament, (vi) Lack of mutual A: Accountability towards public
co-operation, (vii) Over capitalisation, (viii) Operational F: Financing from government funding.
and managerial inadequacies, (ix) Under utilisation of Concept: Role of Public Sector in Industrialisation
production capacity, (x) Over-sized plants, (xi) Take-
Mnemonics: Chicken Curry Contributes to Daily Dose of
over of sick units, (xii) Long gestation period.
Eating Healthy
 Suggestions for Reforms of Public Sector: (i)
C: Contribution in National Income
Appropriate pricing policy, (ii) Test of efficiency,
(iii) Full utilisation of production capacity, (iv) C: Contribution in employment generation
Quantitative determination of objectives, (v) Use of C: Contribution in export
latest techniques, (vi) Precautions in appointment of D: Development of small-scale sector
employees. D: Development of backward area
 Disinvestment in Public Sector: It refers to the dilution E: Expansion of technological base
of stake (claims) of the government in the equity of H: Help in achievement of self-sufficiency.
public sector undertaking so as to transfer the ownership
rights to private hands. Concept: Role of Small Sector in Indian Economy
 Small Scale Sector in India: Mnemonics: Public Private Partnership Needs Policy
Cottage Industry: These industries are mostly Leisure in India
traditional, producing traditional products by P: Provide economic equality
employing traditional methods. P: Production of artistic goods
Small Sector Industries: These are defined in relation to
P: Protection from clan-struggle
capital investment in machines and buildings. Presently,
this limit is `5 crores. N: Need less technology
 Role of Small Sector in Indian Economy: (i) Provide P: Protection from bad effects of urbanisation and
economic equality, (ii) Production of artistic goods, (iii) industrialisation
Protection from clan-struggle, (iv) Need less technology, L: Less dependency on imports
(v) Protection from bad effects of urbanisation and I: Important place in country’s exports.
industrialisation, (vi) Less dependency on imports, (vii)
Important place in country’s exports.

TOPIC-5 Foreign Trade of India: Features and Policies

Concepts Covered:
 Role, Importance and Problems in India's Foreign Trade,  Import Substitution and Export Promotion
exports, (v) Changes in the composition of import, (vi)
Revision Notes Export-Import ratio, (vii) Changes in the direction of
 In the first seven plans, trade was characterised by what foreign trade, (viii) Adverse balance of trade.
is commonly called an inward looking trade strategy.  Problems of India’s Foreign Trade: (i) Adverse balance of
Technically, this policy is called Import Substitution trade, (ii) Rapid increase in imports, (iii) Comparatively
Policy. lower growth in exports, (iv) Increase in domestic
 Role and Importance of Foreign Trade: (i) Advantage demand, (v) Rising prices, (vi) Increasing foreign debt.
of advance technology, (ii) Increases consumption  Import substitution in India: It is a process to produce
capacities, (iii) Benefits to participating countries, the alternate or close substitute of imported goods in the
(iv) Increases production capacity, (v) Serves as a country itself. [Board, 2024]
transmission belt for capital, (vi) Creates fair competition.  Need for Import Substitution: (i) Scarcity of foreign
 Features of India’s Foreign Trade: (i) Increase in the exchange, (ii) Unfavourable balance of trade, (iii)
value and volume of trade, (ii) Increasing share in Devaluation of rupee, (iv) Scarcity of foreign aid,
the gross national product, (iii) Increasing share in (v) Shortage of essential commodities, (vi) Need for
the world trade, (iv) Changes in the composition of industrial development, (vii) Increase in self-sufficiency.
 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 19
 Export Promotion: It is a process in which incentives
are provided to old exporter and new entrepreneurs to MNEMONICS
increase the exportable surplus.

AMAZING FACT Concept: Need for Import Substitution

Mnemonics: Suraj Untied the Dog So they can See it Nib
In February 2022, India's exports stood at $57.03 on Items.
billion, which was an increase of 25.41%. S: Scarcity of foreign exchange
U: Un-favourable balance of trade
KEY TERMS D: Devaluation of rupee
Import: The goods and services that are bought from the
S: Scarcity of foreign aid
foreign country.
Export: The goods and services sold to a foreign country. S: Shortage of essential commodities
Balance of Trade: The account that shows the difference N: Need for industrial development
between imports and exports. I: Increase in self-sufficiency.
Domestic demand: Demand of goods and services in the Concept: Features of India’s Foreign Trade
domestic market.
Mnemonics: Indian IIT Is Career Centric Engineering
Foreign Debt: The loan taken from the foreign nationals.
Course in all Area
 Export Promotion Policies (Pre-Reform Period): (i) I: Increase in the value and volume of trade
Establishment of various organisations, (ii) Export- I: Increasing share in the gross national product
Import bank, (iii) Export processing zones, (iv) Special I: Increasing share in the world trade
economic zone, (v) Export promotion industrial park,
(vi) Export promotion capital goods, (vii) Adoption of C: Changes in the composition of exports
Liberalised Licensing System. C: Changes in the composition of import
MNEMONICS E: Export-Import ratio
Concept: Role and Importance of Foreign Trade C: Changes in the direction of foreign trade
Mnemonics: Aarav Is Beginning to Increase Social Co- A: Adverse balance of trade
operation
I: Increases production capacity
A: Advantage of advance technology
I: Increases consumption capacities S: Serves as a transmission belt for capital
B: Benefits to participating countries C: Creates fair competition

TOPIC-6 Economic Reforms in India

Concepts Covered:
 The New Economic Policy of Liberalisation, Privatisation and Globalisation,  Demonetisation,  GST
Measures adopted for Liberalisation:
Revision Notes 
(i) Soft Liberalisation Policy (1985-1991): The era of
 In New Economic Policy (NEP) refers to the efforts liberalisation started with the period of Rajiv Gandhi,
made through different policy decisions and changes the then Prime Minister, in 1985. In this period of
that were made to create competitive environment and modernisation, a large number of incentives and
increase in productivity and efficiency. exemptions were granted.
 Need for Economic Reforms: (ii) Extensive Liberalisation Policy [After 1991 period]:
Problems facing Economy: (i) Unsatisfactory (a) Liberalised licensing policy, (b) Expansion of
performance of public sector, (ii) High rate of inflation, industries, (c) Concession from Monopolies, (d)
(iii) Increasing debt burden, (iv) Problem of balance of Extending investment limits for small industries,
payment. (e) Free import of machinery and raw materials,
(f) Freedom to import technology, (g) Freedom to
Immediate crisis: (i) Gulf crisis, (ii) Inadequate Foreign
financial institution, (h) Reduction in tax rates.
Exchange Reserves.
 Meaning of Privatisation: Transfer of ownership from
 Main components of New Economic Policy: (i) New
government to private sector of organisations which are
industrial policy, (ii) New trade policy, (iii) New fiscal presently run and controlled by government.
policy, (iv) New monetary policy, (v) New investment  Measures of Privatisation:
policy, (vi) Globalisation of finance. (i) Ownership Measures: (a) Total Denationalisation,
 Main Phases of New Economic Policy: (i) Liberalisation, (b) Joint venture.
(ii) Privatisation, and (iii) Globalisation. (ii) Organisational Measures: (a) Holding company, (b)
 Meaning of Liberalisation: Liberalisation means Leasing, (c) Disinvestment.
removing all unnecessary controls and restrictions like  Factors encouraging Privatisation in India: (i) New
permits, licenses, protectionist duties, etc., imposed by economic reforms programmes, (ii) Increasing debt
the government. burden on government, (iii) Presence of foreign
20 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

companies, (iv) To make Indian companies more  Types of Demonetisation

competitive, (v) Broad base for increasing production. (i) Total Demonetisation
 Steps of Indian Economy towards Privatisation: (ii) Partial Demonetisation
(i) Contraction of public sector, (ii) Participation of  Purposes sought by Demonetisation
private sector, (iii) Abolition of industrial licensing, (iv) (i) Stripping corruption
Improvement by MOU, (v) Re-organisation of public
(ii) Combating inflation
sector, (vi) Disinvestment of equity of public sector,
(iii) Curbing counterfeit currency
(vii) Establishment of National Renewable Fund, (viii)
Removal of investment control on big houses, (ix) (iv) Combating tax evasion
Policy related to sick units, (x) Sale of shares of public (v) Increasing performance of economy
sector undertaking.  History of Demonetisation in India:
 Arguments in Favour of Privatisation: (i) Reduction (i) On 12/01 /1946 - all notes of denominations of ` 500
in Budgetary Deficit, (ii) Less political intervention, and ` 1,000 were demonetised with a time limit of
(iii) Improvement in economic efficiency and 10 days to exchange demonetised notes. Its purpose
technical efficiency, (iv) Increased accountability, was to catch tax evaders.
(v) Globalisation of economy, (vi) Sources of new (ii) On 16/01/1978 - all notes of denominations of ` 1,000,
job, (vii) Increase in industrial growth, (viii) Increase ` 5,000 and ` 10,000 were demonetised with a time
in foreign investment, (ix) In line with international limit of 3 days to exchange demonetised notes. Its
trade, (x) Encouragement to new inventions. purpose was to catch corrupt leaders and officials in
 Arguments Against Privatisation: (i) Concentration predecessor governments.
of economic power, (ii) Substitution of monopoly (iii) On 08/11/2016 - all notes of denominations of ` 500
power, (iii) Lop-sided development of industries, (iv) and ` 1,000 were demonetised with a time limit of 50
Industrial sickness, (v) Entry of multinationals, (vi) No days to exchange demonetised notes from banks and
safety for the weaker sections, (vii) Social institutions, some essential service stores.
(viii) Corruption. [Board, 2023]  Demonetisation of 2016
 Globalisation: Globalisation means integrating the (i) On 8 November, 2016, the Government of India
economy of the country with the world economy. announced the demonetisation of all `500 and `1,000
 Factors fostering Globalisation in India: (i) Technical bank notes of the Mahatma Gandhi Series.
changes, (ii) Competition, (iii) Liberalisation policies, (ii) `500 (new series) and `2,000 notes were introduced.
(iv) Emergence of United States as a super power, (v) (iii) 50 days’ time limit given for exchange of demonetised
Experiences of developing countries, (vi) Other factors. notes.
 Effects of Globalisation:
(iv) Limits were put on exchange per day and withdrawal
(i) Favourable Effects: (a) Increasing share of exports in per day (and week) during this time.
world trade, (b) Favourable effect on Export-Import (v) Mixed reaction by public but strongly criticised by
Ratio, (c) Application of high technology, (d) Stable opposition.
and strong exchange rate.
 Effects of 2016 Demonetisation
(ii) Adverse Effects: (a) Decrease in revenue of Indian
(i) Pushed India towards cashless economy
industries, (b) Increasing share in capital and
(ii) Raised tax payments
management by foreign entrepreneurs, (c) Increasing
regional disparities, (d) Export of profit. (iii) Brought an end to black money
 Suggestions Regarding Globalisation: (i) (iv) Curbed terrorist funding
Improvement in Competitiveness of Indian producers, (v) Curbed effect on growth and revenues of MSMEs
(ii) Alliance with MNCs, (iii) Self-sufficiency in  Goods and Service Tax (GST)
technology, (iv) Facing international protectionism,  Objectives of GST
and (v) Modernisation of agriculture and small sector. (i) To eliminate the cascading impact of taxes on
 Outsourcing: Outsourcing means obtaining goods and production and distribution cost of goods and services
services by contract from an outside source. (ii) Streamlining indirect tax regime
 World Trade Organisation: From January 1, 1995, WTO (iii) Growth of revenue in States and Union Territories
has been working. It has replaced the GATT. The objective (iv) Reduction in transaction costs and unnecessary
of WTO was free trade in order to help in the growth and wastages
development of all member countries. The WTO acts as a (v) Elimination of the multiplicity of taxation
permanent watch dog of international trade. (vi) One Point Single Tax
 Achievements of LPG Policies: (i) Rise in GDP growth, (vii) Reduction in average tax burdens
(ii) Rise in foreign exchange reserves, (iii) Control of (viii) Reduction in the corruption
inflation, (iv) Rise in flow of foreign capital, (v) Rise  Benefits of GST
in competitiveness of industrial sector, (vi) Rise in (i) GST provides comprehensive and wider coverage of
integration with the world economy. input credit set off. You can use service tax credit for
 Demonetisation: It is the process of stripping a currency the payment of tax on sale of goods, etc.
unit from its status as legal tender in the country. (ii) Many indirect taxes in state and central level have
Demonetisation results in change in national currency. been included by GST. You need to pay a single GST
The present currency in circulation is pulled off and instead of all.
new currency is circulated. (iii) Uniformity of tax rates across the states.
 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 21
(iv) E nsure better compliance due to aggregate tax rate
reduction.
KEY TERMS
Inflation: The rise in the prices of goods and services.
(v) By reducing the tax burden, the competitiveness of
Indian products in international market has increased Denationalisation: Converting government or public
and thereby development of the nation. sector enterprises to private enterprises.
(vi) Prices of goods are expected to reduce in the long run Debt Burden: The burden of repayment of loans taken
as the benefits of less tax burden would be passed on by the government.
to the consumer.
MNEMONICS
Concept: Need for Economic Reform Concept: Arguments against Privatisation
Mnemonics: Under High Intensive Pressure, the Mnemonics: Corrupt Society Lacks In Every Noteworthy
Government Is. Social Code
U: Unsatisfactory performance of public sector C: Concentration of economic power
H: High rate of inflation
S: Substitution of monopoly power
I: Increasing debt burden
L: Lop-sided development of industries
P: Problem of balance of payment.
G: Gulf Crisis I: Industrial sickness
I: Inadequate Foreign Exchange Reserve E: Entry of multinationals
Concept: Arguments in favour of Privatisation N: No safety for the weaker sections
Mnemonics: Radha Loves Indian Ice-cream Greatly and S: Social institutions
She Is In Indian East Coast C: Corruption
R: Reduction in Budgetary Deficit Concept: Achievements of LPG reforms
L: Less political intervention Mnemonics: Rohit Raj Comes Rarely Running to the
I: Improvement in economic efficiency and technical Room
efficiency R: Rise in GDP growth
I: Increased accountability
G: Globalisation of economy R: Rise in foreign exchange reserves
S: Sources of new job C: Control of inflation
I: Increase in industrial growth R: Rise in flow of foreign capital
I: Increase in foreign investment R: Rise in competitiveness of industrial sector
I: In line with international trade R: Rise in integration with the world economy.
E: Encouragement to new inventions.



UNIT – VII: CURRENT CHALLENGES FACING INDIAN

ECONOMY
CHAPTER-9
CURRENT CHALLENGES FACING INDIAN ECONOMY

TOPIC-1 Rural Development

Concepts Covered:
 Meaning of Rural development,  Key Issues in Rural Development
 Rural Credit: Sources and problems and Role of Cooperative,  Diversification,
 Organic Farming

Rural Credit: That need of agriculture credit which

Revision Notes 
are required for the completion of agriculture work is
 Rural Development: Process of improving living known as agricultural or rural credit/finance.  [Delhi
standard in terms of quality of life and economic well- Set–1, 3, 2023]
being of low income group people living in rural areas  Classification of Agricultural /Rural Credit:
and making these development efforts permanent.
Short-Term Credit: It is required for a period of 6 to 12
 Key Issues in Rural Development: (i) Development of
human resources, (ii) Land reforms, (iii) Development months for buying seeds, tools, manure, fertilizers, etc.
of basic infrastructure, (iv) Poverty alleviation, Medium-Term Credit: It is required for about one to five
(v) Development of productive resources. years for digging wells, buying machinery, etc.
22 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

Long-Term Credit: It is required for the period of 5 to grow multiple crops and extension of activities
to 20 years for the purchase of tractors, land, costly subsidiary to agriculture. It has two aspects:
equipment, tube wells, etc. [SQP 2022] (i) Change in cropping pattern
(ii) Reallocation of some of farm’s productive resources
AMAZING FACT
The wheat export of India jumped to $2.2 Billion in MNEMONICS
2021-22 as against $567 million. Concept: Key Issues in Rural development
Mnemonics: Delhi Land Development Policy Department
 Sources of Agricultural /Rural Credit: (i) Non-
D: Development of human resources
Institutional Credit and (ii) Institutional Credit. L: Land reforms
(i) 
Non-Institutional Sources: (a) Money lender, D: Development of basic infrastructure
(b) Sahukars, (c) Commission agents, (d) Zamindars, P: Poverty alleviation
(e) Relatives and friends, etc. D: Development of productive resources
(ii) Institutional Sources: (a) Government, (b) Co- Concept: Problems of Rural Credit
Mnemonics: Lucy Lent Laser Point Handset to New Delhi
operative credit societies, (c) Commercial banks,
municipality
(d) Regional Rural Banks, (e) NABARD, (f) Micro
L: Compensation of Employees
Finance Programmes and (g) Kisan Credit Card.
L: Mixed Income of Self-employed
 Problems of Agricultural Credit: (i) Lack of financial L: Operating Surplus
institutions, (ii) Lack of co-ordination, (iii) Loss of time P: Problem of agriculture warehousing
and money, (iv) Problem of agriculture warehousing, H: High rate of interest
(v) High rate of interest, (vi) Non- availability of credit N: Non-availability of credit at proper time
at proper time, (vii) Differences in the working system. D: Differences in working system
 Role Of Cooperative: (i) Provide financial help (ii)
Provide loans (iii) Provide saving facilities (iv)Invest in  Need of Diversification: (i) To reduce the risk of
agricultural activities agriculture, (ii) To meet challenges of poverty and other
 Agricultural /Rural Marketing: “Agriculture Marketing odd situations, (iii) To reduce the burden of population
includes all those activities which are related with the on agriculture.
agricultural produce to deliver from farmers to ultimate  Diversification of Agriculture Activities in India:
consumers.” (i) Animal husbandry, (ii) Fisheries, (iii) Poultry,
 Defects of Agricultural Marketing in India: (iv) Horticulture, (v) Use of I.T.
(i) Forced sale, (ii) Lack of transportation, (iii) Lack  Organic Farming: Organic farming is a system of
of institutional finance, (iv) Lack of organisation, farming that enhances and maintains ecological balance.
(v) Inadequate and unscientific storage system,  Advantages of Organic Farming: (i) Inexpensive
(vi) Lack of grading, (vii) Lack of market information, Process, (ii) Generates Income, (iii) Healthier and
(viii) Predominance of intermediaries, (ix) Fraudulent Tastier food, (iv) Solves problem of unemployment, (v)
practices, (x) Lack of financial facilities. Environment friendly.
 Government Measures to Improve the System
of Agricultural Marketing: (i) Establishment
KEY TERMS
Co-operative Marketing: A measure to ensure a fair price
of regulated markets, (ii) Facilities for storage,
to farmers. Member farmers sell their surplus to the co-
(iii) Construction of village storage, (iv) Facilities
operative society which substitutes collective bargaining
of grading and standardisation, (v) Improvement in place of individual bargaining. It links rural credit
in weight and measurement measures, (vi) Better farming marketing processes to the best advantage of the
transport arrangements, (vii) Price stabilisation, farmers.
(viii) Establishment of special boards, (ix) Organisation Self Help Groups (SHGs): A group formed by some people
of co-operative marketing societies, (x) State trading to promote thrift in small proportions by a minimum
contribution from each member. From the pooled money,
in food-grains, (xi) Scientific storage in rural areas,
credit is given to the needy members to be repayable in
(xii) Establishment of TRIFED. small instalments at reasonable interest rates.
 Role of Cooperative: (i) Improves bargaining power Warehouse: A storage facility for storing tangible goods.
of the farmers (ii) Helps to increase income level (iii) Animal Husbandry: The process of nurturing and rearing
Give platform for purchasing inputs (iv) Provide credit animals to earn from selling their produce.
facilities Horticulture: The growing of fruits, flowers, plantation
 Diversification of Agricultural Activities: crops, spices, vegetables, tuber crops, flowers, medicinal
and aromatic plants.
Diversification of agricultural activities mean basically
 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 23

TOPIC-2 Human Capital Formation

Concepts Covered:
 Meaning of Human Capital Formation,  Role of Human Capital Formation in Economic Development,  Sources of Human Capital
Formation,  Problems with Human Capital Formation in India,  How People become Resource,  Education.

(iii) 
University and Higher Education: (a) IGNOU,
Revision Notes (b) Academic Staff College.
 Human Capital Formation: It refers to the process of (iv)Technical, Medical and Agriculture Education.
acquiring and increasing the number of persons who (v) Rural Education
have the skill, education and experience which are critical (vi)Adult and Continuing Education [Board 2023]
for the economic and political development of a country.  Defects of Education System: (i) Wide Spread Illiteracy,
 Difference between Human Capital and Physical (ii) Low rural access level, (iii) Low enrolment ratio,
Capital Formation: In physical capital, the entrepreneur (iv) Dropouts, (v) Privatisation, (vi) Unbalanced
possesses knowledge to calculate the expected rate of Development, (vii) Disparities in Educational
return on a range of investment and then rationally Development, (viii) Defective Examination System.
decides which investment should be made. In human  Measures to Reform Educational System:
capital, an individual is influenced by the peers, educators (i) Extension of Primary Education, (ii) Control
and society regarding human capital investment. over higher education, (iii) Encouragement to
 Role of Human Capital Formation in Economic female education, (iv) Encouragements to education
Development: (i) Optimum utilisation of resources, system, (v) Employment oriented education, (vi)
(ii) Helpful in production of National Wealth, (iii) Co- Increase in government expenditure on education,
ordination, (iv) Speed up the rate of economic growth, (vii) Control over political interference.
and (v) Changes in the outlook of the labour force.  Human Capital and Economic Growth: Economic
 Sources of Human Capital: (i) Investment on health growth means the increase in real national income of
and nutrition, (ii) Investment on education and a country. Higher rate of economic growth is possible
training, (iii) Housing development, (iv) Migration, and only through human capital. In fact, there are two main
(v) Expenditure on information. sources of human capital: (i) Education, and (ii) Health.
 Human Development Index (HDI): Human These two sources play an important role in the
Development index is broadly an arrangement of social economic growth.
aggregates, average of longevity, knowledge and access  Human Capital and Human Development: The
to resources. two terms human capital and human development
 Problems of Human Capital Formation: (i) Problem seems similar but there is a big difference between
of estimation of total stock of human capital, the two. Human capital increases knowledge, skills
(ii) Problem of estimation of growth rate of human and capacities of the people of the country. Human
capital formation, (iii) Neglect of on-the-job training development, on the other side, considers education
and health as integral to human well-being. In the
programme, (iv) Lack of initiative, (v) Regional
human development, human beings are considered as
disparities, (vi) Lack of foreign exchange funds, and
ends themselves.
(vii) Brain drain.
 How People become Resource: People become a MNEMONICS
resource through their abilities knowledge, and skills.
They add value in the resources and also known the
Concept: Importance of Human Capital Formation in
how to use the sources of nature in a best way by their
Economic Development
abilities, skills and knowledge, That,s why they are
called the special resource. Mnemonics: Over Helpful Company Strikes Co-
 Education: An essential element of human resource dependence.
development. O: Optimum utilisation of resources
H: Helpful in production of national wealth
AMAZING FACT C: Co-ordination
The NEP 2020 was formed with the help of 2 lakh S: Speed up the rate of economic growth
suggestions from 2.5 lakh gram panchayats, 6600 C: Change in the outlook of the labour force
Blocks, 6000 Blocks, 6000 ULBs, 676 Districts.
MNEMONICS
 What is Education: It refers to the process of teaching,
training and learning especially in schools or colleges, to Concept: Sources of Human Capital
improve knowledge and develop skill.
 Development of Education in India Mnemonics: Israel and India Have Made Energy drones
(i) Elementary Education: Efforts made by Government: I: Investment on health and nutrition
(a) Sarva Shiksha Abhiyan (SSA), Mid-day Meals I: Investment on education and training
Plan, (c) Kasturba Gandhi Balika Vidyalaya Scheme.
H: Housing development
(ii) Secondary Education: (a) Navodaya Vidyalaya,
(b) Kendriya Vidyalaya, (c) National Council of M: Migration
Educational Research and Training, (d) Vocationali- E: Expenditure on information
sation of Secondary Education.
24 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

MNEMONICS KEY TERMS

Health: The condition of physical, mental and social well
Concept: Problems of Human Capital Formation being of a person.
Mnemonics: People Prefer Nothing Like Rare Lost Big
treasure Nutrition: The combination of all the nutrients for a
P: Problem of estimation of total stock of human proper diet.
capital Migration: The movement of workforce from one place
P: Problem of estimation of growth rate of human
to another.
capital formation
N: Neglect of on-the-job training programme Brain Drain: A large scale emigration of a large group of
L: Lack of initiative individuals with technical skill of knowledge.
R: Regional disparities
L: Lack of foreign exchange funds
B: Brain drain

TOPIC-3 Employment
Concepts Covered:
 Employment,  The sector-wise employment,  Unemployment in India: Causes and measures to overcome,  Types of Workers.

Size of work force in India:

Revision Notes 
Worker-Population Ratio in India, 2011-2012
 Employment: Employment is an indicator of that
situation in which worker is engaged in some productive Worker-Population Ratio (2011-2012)
Sex
activity for earning his living. Total Rural Urban
Men 52.1 51.7 53.0
AMAZING FACT Women 16.5 17.5 14.2
MGNREGA was launched in 2006 and the first state to
implement it was Uttar Pradesh Total 34.7 35.0 33.9
Distribution of Workforce by Industry, 2011-2012
 Labour Supply: It refers to the amount of labour that
Place of
are willing to offer work corresponding to a particular Industrial Sex
Residence Total
wage rate. Category
Total Work Force Rural Urban Men Women
Participation Rate = × 100
Total Size of Population Primary Sector 59.8 6.6 40.7 57.1 44.6

Secondary
20.4 34.3 26.5 17.7 24.4
AMAZING FACT Sector
India’s Big Economy is becoming one of the largest Tertiary/
employment generation sector 19.8 59.1 32.8 25.2 31.0
Service Sector
 Types of Labour: Total 100.0 100.0 100.0 100.0 100.0
(i) Self-Employed Labour: An arrangement in which
a worker uses his own resources to make a living is
known as self-employed. He owns and operates an
enterprise to earn his livelihood.
(ii) Hired-Workers: Those people who are hired by others
on paid wages or salaries as a reward for their services
are called hired workers. Hired workers can be of two
types:
(iii) Casual Workers: Those people who are not hired by
their employers on a regular or permanent basis and
do not get social security benefits are called casual
workers.
(iv) Regular Workers: This type of workers are hired on
permanent basis by the employer. [Board 2023]

 Participation Rate: Aggregate participation rate in India is approx. 39%. In Urban areas, this rate is 36 percent while in
rural areas, it is approximately 40 percent.
Item 1972-73 1983 1993-94 2011-2012 2017-2018
Sector
Primary 74.3 68.6 64 48.9 44.6
 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 25

Secondary 10.9 11.5 16 24.3 24.4

Services 14.8 16.9 20 26.8 31.0
Total 100.0 100.0 100.0 100.0 100
Status
Self-employed 61.4 57.3 54.6 52.0 52.2
Regular Salaried Employees 15.4 13.8 13.6 18.0 22.8
Casual Wage Labourers 23.2 28.9 31.8 30.0 25.0
Total 100.0 100.0 100.0 100.0 100
 Jobless Growth: If economic growth is driven by  Government Measures / Policies to solve
better technology but it fails to improve the rate of unemployment—
(i) General: (a) Population control, (b) Reforms
participation in economy, such a growth is called
in education policy, (c) Diversification of farm
‘Jobless Growth’. activities, (d) Development of village and small
 What is Unemployment: Unemployment means a industries.
situation in which a person willing to work and able to (ii) Special Measures: Employment generation
work does not get employment at the prevailing wage programmes, e.g., Mahatma Gandhi National Rural
rate. Employment Guarantee Act, 2005.
 Nature of unemployment in India: In rural areas, open KEY TERMS
and disguised unemployment and in urban areas’ Wage rate: The rate at which the workers are paid.
industrial, educated and technological unemployment Primary Sector: The agricultural and allied activities.
are common. Secondary Sector: Also called the manufacturing sector.
 Adverse Effects / Problems of Unemployment:
(i) Economic Mal-effects: (a) Waste of human power,
MNEMONICS
Concept: Adverse Economic Effects of Unemployment:
(b) Decrease in Economic Disparity, and (c) Industrial
Mnemonics: Water Disparity Is Increasing Annually
Conflict, (d) Increase in poverty, and (e) Adverse effect
W: Waste of human power
on capital formation. D: Decrease in economic disparity
(ii) Social and Political effects: (a) Creation of Social I: Industrial conflict
Problems, (b) Exploitation of labour, and (c) High I: Increase in poverty
inequality, and (d) Political instability. A: Adverse effect on capital formation
 Causes /Problems of Unemployment in India: Concept: Social and Political effects of unemployment:
(i) General Causes: (a) Rapid increase in population, Mnemonics: Cat Eats High Protein
(b) Slow pace of development, and (c) Inadequate C: Creation of social problems
economic planning. E: Exploitation of labour
(ii) Specific Causes: (a) Seasonal Nature of Agriculture, H: High inequality
(b) Increase in Pressure of population, (c) Shortage P: Political instability
of Capital, (d) Social Status, and (e) Shortage of
Secondary Education. EXAMPLE 1
 Measures to Eradicate Unemployment in India: Henry is able to get work only for three hours in a day.
General Measures: Rest of the day, he is looking for work. Is he unemployed?
(i) Control of population, (ii) Increase in investment rate, Why? What kind of job could persons like Henry do?
(iii) Manpower planning, (iv) Employment oriented Solution:
planning, (v) Social reforms, (vi) Development of Step I: Yes, Henry is an unemployed worker. He works
for three hours a day but a major portion of the day he is
entrepreneurs qualities.
looking for work and is unemployed. This implies that he
Specific Measures: is an underemployed worker.
(i) Rural Unemployment: (a) Encouragement to rural Step II: The situation of underemployment refers to a
industrialisation, (b) Institution changes in agriculture, situation in which a person gets work for lesser time than
(c) Employment oriented planning in villages, (d) the time he actually can and wants to work.
Encouragement to multiple cropping in agriculture. Step III: According to the National Sample Survey
(ii) Urban Unemployment: (a) Fuller utilisation of statistics, a person who is employed for less than 28
hours in a week is called underemployed. Henry could
production capacity, (b) Encouragement to small
do jobs like delivering couriers, bank tellers, etc.
industries, (c) Practical form of Education.
26 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

TOPIC-4 Sustainable Economic Development

Concepts Covered:
Environment;  Sustainable Development;  Causes of Environment Degradation. Effect of Global Warming on
Economic Development

Revision Notes generation to meet their own needs is called sustainable

development.
 Environment: It means, at a particular place,
 Objective of Sustainable Development:
surrounding or conditions in which our organism lives
(i) To increase economic growth, (ii) To meet basic
and operate.
needs, (iii) To improve quality of life, (iv) To maximise
 Physical Environment: This is also known as non- the net benefits of future generations.
biological environment. It includes land, water, climate,  Strategies to achieve Sustainable Development:
mountains minerals and all other sources which nature (i) Use of Non-conventional sources of energy, (ii) LPG
provides to us as a free gift. and Gobar gas in rural areas, (iii) CNG in urban areas,
 Biological Environment: It is also called living (iv) Wind power, Solar power through photovoltaic
environment. It includes human, animals, birds, plants cells, (v) Mini hydel plants, (vi) Bio-composting, (vii)
and all micro organisms. Bio-pest control.
 Function and Role of Environment: KEY TERMS
• It supplies resources. Poverty: The situation of not being able to have a
• It sustains life. livelihood to sustain the basic needs.
• It assimilates waste and Urbanisation: The process in which cities are expanded.
Global Warming: The increase in the surface temperature
• It enhances quality of life. due to the action of greenhouse gases.
Ozone Layer: The layer in the atmosphere that protects
AMAZING FACT the earth from UV radiation.
The Sustainable Development Goals was set up by Air Pollution: The contamination of air from the waste
the UNGA in 2015 and the targets in it are set to be generated from industries and vehicles.
achieved by 2030. Water Pollution: The contamination of water from the
waste generated.
 Causes of Environment Degradation:
Deforestation: The excessive cutting down of trees.
Population growth, Poverty, Agricultural development,
Industrialisation, Transport development, Urbanisation,
MNEMONICS
Foreign indebtedness, Market failure. [Board, 2023]
(i) Concept: Causes of Environmental Degradation:
AMAZING FACT Peter Pan Ate Indian Tart Under Frozen Mango
The points of Sustainable Development Goals Mnemonics:
increased from 60 in 2019 to 66 in 2020-21 P: Population growth
Kerala has the highest score followed by Himachal
P: Poverty
pradesh, Tamil Nadu, Andhra Pradesh and Goa.
A: Agricultural development
 Effects of Economic Development on Environment or I: Industrialisation
T: Transport development
Resources: (i) Global warming, (ii) Depletion of Ozone
U: Urbanisation
layer, (iii) Environmental crisis, (iv) Rise in opportunity
F: Foreign indebtedness
cost of negative environmental impacts, (v) Supply-
M: Market failure
Demand reversal of environment resources, (vi) Air
(ii) Concept: Effects of Economic Development on
Pollution, (vii) Water Pollution, (viii) Solid and hazardous Environment
waste, (ix) Deforestation, and (x) Land degradation. Mnemonics:
 Effect of Global Warming on Economic Development: Global Deforestation Extracts Radiation from Sun
(i) Loss of agriculture productivity (ii) Reduce labour G: Global warming
supply and productivity leads to less production (iii) D: Depletion of ozone layer
Inflation due to less production because of less labour E: Environmental crisis
supply (iv) Deplete natural resources R: Rise in opportunity cost of negative environmental
 Sustainable Development: impacts
S: Supply-Demand reversal of environment resources
Development that means the need of the present
generation without compromising the ability of future

 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII 27

UNIT – 8: DEVELOPMENT EXPERIENCE OF INDIA

CHAPTER-10
COMPARATIVE DEVELOPMENT
EXPERIENCES OF INDIA WITH ITS NEIGHBOURS
While India and Pakistan became independent nations
Revision Notes in 1947 and the communist China came into existence
 Introduction: India is geographically, the largest country in 1949, after a revolution, all these countries started
in South Asia and seventh largest country in the world. their planning along similar lines. India announced its
It is the most populous country surpassing China in the First Five Year Plan for 1951–56, Pakistan announced
world. An average growth rate of population was 2.2% its Medium Term Development Plan in 1956. China
per annum during the past decade but now it is 1.08 %. announced its First Five Year Plan in 1953. Since 2013,
Its total area is 32.9 lakh sq. kms and the total present Pakistan was working on the basis of 11th Five Year
population is 142 crores. Development Plan, whereas, China is working on
On the other hand, Pakistan extends from the Arabian 13th Five Year Plan (2016–21). Until March 2017, India
Sea 1600 kms northward. It is a neighbouring state of has been following Five Year plan based development
India. Total area of Pakistan is 8.03 lakh sq. kms. Its model. [Board, 2017]
population is 1/7th of India. Average growth rate of Issues For Comparison:
population is 2.4 % per annum.  Demographic Indicators /Population: India is a
populous country just like China. These two countries
AMAZING FACT together comprise one-third of the population of the
India’s sex ratio for the first time reached world. As far as Pakistan is concerned, its population
1020 on 24th November 2021 is much less around 10% when it is compared with
China or India. The density of population in China is
China is located in Eastern Asia and it is the third the lowest as compared to Pakistan and India. China
largest country in the world in terms of total area. It has has a low fertility rate but Pakistan has a high rate.
second highest population in the world with an annual Both these countries have high urbanisation rate. In
population growth rate of nearly 0.66% per annum. India, this trend is slower (34%) as compared with
 Developmental Path: India, Pakistan and China have Pakistan (36.7%) and China (60%).
many common points in their plans for development.
Some Demographic Indicators, 2022 - 23

Estimated Annual Growth of Density Sex Ratio Urbanisation Fertility Rate

Country
Population (2023) Population in (2023) (per sq. km) (2022) (2023) (2023)
India 1,428,627,663 0.81 481 106.7 36 % 2.0
China 1,425,671,352 -0.02 152 104.3 65 % 1.2
Pakistan 240,485,658 1.98 312 101.9 35 % 3.3
Source: Worldometer (www.Worldometers.info) and United Nations
Some Selected Indicators of Human Development, 2020
Items India China Pakistan
Human Development Index (Value) 0.633 0.768 0.544
Rank (Based on HDI) 132 79 161
Life expectancy at birth (Years) 67.24 78.21 66.1
Mean years of schooling (% aged is and above) 7 8 5
GDP per capita (PPP US$) (2023) 9,183 23,309 6,773
People Below Poverty Line (at $3.10 a day PPP) (%) 2017) 37 32 44
Infant Mortality Rate (Per 1000 live births) 25.5 5.1 52.8
Maternal Mortality Rate (per 1 lakh births) as per 2020 103 23 154
Population using managed sanitation (%) 52.14 67.22 59.9
Population with sustainable access to improved water source (%) 94 96 91
Percentage of under-nourished children 15 9 20

Source: Human Development Report 2021 - 22 and World Development Indicators.

28 Oswaal CBSE Revision Notes Chapterwise & Topicwise, ECONOMICS, Class-XII

 Gross Domestic Product /Economic Growth: Economic as human development indicators are concerned,
development of a country can be judged through GDP China is ahead of India and Pakistan. Many indicators
growth rate. GDP growth rate explains the growing like the GDP per capita income or proportion of
rate of valuable output of the country. GDP (PPP) in US population below poverty line or health indicators such
Dollars was 7762.9 in India against 5567.1 in Pakistan. as mortality rates, access to sanitation, literacy rate,
It means per capita income and GDP both were higher life expectancy or malnourishment, China is above
in India in comparison to Pakistan. Pakistan’s GDP is the other two countries. Pakistan is ahead of India in
roughly 12% of India’s GDP and India’s GDP is approx. reducing proportion of people below the poverty line.
40% of China’s GDP. China has impressive growth rates Its performance in access to water is better than that
in recent decade. China’s growth rates have crossed 8 % of India. So far as the proportion of people below the
per annum in recent years. poverty line is concerned, situation in China is half as
 Indicators of Human Development: The Human bad as in India and Pakistan.
Development Index is an important indicator. As far
 Annual Growth of GDP (%) 1980–2023

Countries 1980–90 2022 - 23

India 5.7 7.2
China 10.3 3
Pakistan 6.3 4.7
Source: World Bank
 Sectoral Development or Share of Employment and GDP (%) in 2018–2019
Contribution to GDP Distribution of Workforce
Sector
India China Pakistan India China Pakistan
Agriculture 16 7 24 43 26 41
Industry 30 41 19 25 28 24
Services 54 52 57 32 46 35
Total 100 100 100 100 100 100
Source: Human Development Indicators 2018; Key Indicators of Asia and Pacific 2019
 Development Strategies: Structural reforms in China KEY TERMS
were introduced in 1978 due to slow pace of growth Economic Growth: An increase in the output and real
and lack of modernisation. It was found that the income.
establishment of infrastructure in the areas of education Human Development Index: A measure of quality of life
and health, land reforms, long existence of decentralised constructed.
planning and existence of small enterprises had
Malnourishment: The shortage in the daily nutrients
helped positively in improving the social and income
need.
indicators in the post reform period. Scholars argue
Poverty Line: The minimum amount of money required to
that in Pakistan the reform process led to worsening of
sustain the basic needs of life.
all the economic indicators. However, during last few
years, Pakistan has recovered its economic growth and
has been sustaining.
