UPDATES ON ADITYA SIR

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ECONOMY
CONTEMPORARY AFFAIRS ON ECONOMY
FOR CSP 2025
BASIC ECONOMY
GDP Base Year Revision

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GDP Base Government formed The 26-member advisory committee, Previous base year
Year an advisory committee chaired by Biswanath Goldar, is tasked shift was in 2015,
Revision to update the GDP with identifying new data sources and moving from 2004-
base year from 2011- refining methodology for compiling 05 to 2011-12.
12 to 2022-23. National Accounts Statistics to better
align GDP calculations with current
economic conditions, inflation indices,
and technological advancements.
Need for Ensuring more Updating the base year is crucial for Base year updates
Update accurate economic removing inflation effects, enhancing data help to reflect more
data. quality, enabling global comparison, and accurate economic
adapting to post-pandemic economic growth by adjusting
dynamics. It also helps incorporate new for inflation.
sectors and technologies that have
emerged as significant economic
contributors in recent years.
Basics of Understanding how GDP can be calculated using three Each approach
GDP GDP is calculated. methods: the production approach (sums should theoretically
Calculation the outputs of every class of enterprise to result in the same
arrive at the total), the income approach GDP figure.
(sums the incomes generated by
production), and the expenditure approach
(sums the total amount spent on all final
goods and services).

Purchasing Power Parities (PPP)

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Purchasing 2021 data from the PPP data shows the relative economic India accounted for
Power International sizes of countries adjusted for differences 7.2% of global GDP
Parities Comparison Program in price levels, making it a crucial tool for on a PPP basis in
(PPP) highlighted changes comparing living standards across nations. 2021.
in global economic India’s economy was ranked as the third
standings. largest on a PPP basis in 2021, behind
China and the USA. The data allows for
more accurate comparisons of real output.
Global Assessing global China was listed as the world's largest PPP data provides a
Economic economic shifts and economy based on PPP in 2021, stable comparison
Impact standings. overtaking the US, which illustrates shifts over time, less
in global economic power. The PPP affected by exchange
analysis offers insights that are not rate fluctuations than
apparent when using nominal GDP nominal GDP.
figures alone, as it accounts for living cost
variations across countries.

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 Topic Why in the News? Details of Topic Facts for Prelims
Debt-for- The IMF has Debt-for-Development Swaps Example: 1990 Debt-for-Nature
Development released a are financial mechanisms Swap between Madagascar and
Swaps (Debt framework titled where part of a developing WWF, where Madagascar
Swaps) "Debt for country's debt is forgiven in committed funds to
Development exchange for the country's environmental conservation
Swaps: An commitment to invest in projects.
Approach development projects. These
Framework." swaps help reduce debt
burdens and promote
sustainable development.
Middle- Highlighted in the The middle-income trap Classification by World Bank:
Income Trap World Bank's occurs when a country's - Low-Income Countries: GNI
World economy advances to a per capita of $1,045 or less. -
Development middle-income status but fails Lower MICs: GNI per capita
Report 2024: The to progress to a high-income between $1,136 and $4,465. -
Middle Income. status, often due to stagnation. Upper MICs: GNI per capita
between $4,466 and $13,845. -
High-Income Countries: GNI
per capita of $12,696 or more.

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MONETARY POLICY
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Monetary RBI released a Definition and Objective: - Monetary Policy: Inflation
Policy of RBI study on Set of actions by RBI to manage the money Targeting:
Monetary supply and achieve sustainable economic Currently set at 4%
Policy growth while maintaining price stability. - with a tolerance of
Transmission. Monetary Policy Transmission: Process +/- 2%, reviewed
through which changes in monetary policy rates every five years.
affect the economy’s broad variables like
inflation rates, economic growth, and
employment levels.
Monetary Integral to Composition and Role: - Formation: Decision
Policy RBI's approach Comprises six members; three from RBI Framework:
Committee in managing (including the Governor as the chair) and three Decisions are by
(MPC) economic external members nominated by the majority vote, with
policies. Government. - Function: Determines the repo the Governor having
rate to control inflation within a specified target the casting vote in
range. The MPC conducts bi-monthly meetings case of a tie.
to review and set policy rates based on current
and projected economic conditions. - Statutory
Basis: Established under the RBI Act, amended
in 2016.
Types of Relevant in Expansionary Policy: - Goal: Stimulate Tools Used: Repo
Monetary discussions of economic growth by increasing the money Rate, Reverse Repo
Policy economic supply. - Mechanisms: Decreasing interest Rate, CRR, SLR,
conditions and rates, purchasing government securities, and Open Market
RBI's monetary lowering reserve ratios like CRR and SLR. - Operations (OMOs),
interventions. Expected Outcomes: Boosts demand by among others.
making borrowing cheaper, encouraging
spending and investments. Contractionary
Policy: - Goal: Control inflation by reducing
the money supply. - Mechanisms: Increasing
interest rates, selling government securities, and
raising reserve ratios. - Expected Outcomes:
Cools down economic overheating by curbing
spending and investment.
Policy Tools Key for the Instruments Explained: - Repo Rate: The rate Recent
and implementation at which the central bank lends short-term Adjustments:
Mechanisms of MPC's money to banks. - Reverse Repo Rate: Rate at Recent changes in
decisions. which the central bank absorbs liquidity from repo and reverse
banks. - Cash Reserve Ratio (CRR): repo rates as per the
Percentage of bank deposits that banks are latest MPC meeting
required to keep with RBI. - Statutory outcomes.
Liquidity Ratio (SLR): Percentage of net
demand and time liabilities that banks must
maintain in safe and liquid assets. -
Operational Tools: Include Liquidity
Adjustment Facility (LAF), Marginal Standing
Facility (MSF), and Term Repo under LAF.

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Variable Rate Repo (VRR)

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Variable RBI injected Definition and Purpose: - VRR: A tool used Operational Detail:
Rate Repo ₹25,000 crore by RBI to manage liquidity in the banking Generally lower than
(VRR) via VRR to system by allowing banks to borrow money at a the Repo Rate but
address liquidity market-determined rate for durations usually up never below the
deficit in the to 14 days. - Usage: Employed when banks are Reverse Repo Rate.
banking system. hesitant to borrow at the higher Repo Rate and
market rates are more favorable. - Mechanism:
Helps maintain short-term liquidity equilibrium
by adjusting cash flows within the banking
system.

Incremental Cash Reserve Ratio (ICRR)

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Incremental RBI used ICRR Definition and Impact: - CRR (Cash Recent Use: Phased
Cash Reserve to absorb surplus Reserve Ratio): The percentage of a bank's out as liquidity
Ratio (ICRR) liquidity as the NDTL that must be kept as liquid cash with normalized. Often
economic the RBI. It's a standard regulatory used alongside other
conditions requirement. - ICRR: An additional tools like Repo rate
stabilized. reserve requirement set by the RBI during adjustments and
periods of excessive liquidity, which does OMOs.
not earn any interest for the banks. -
Effects: Aims to manage liquidity, control
inflation, and ensure banking system
resilience.

Revised Priority Sector Lending (PSL) Norms

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Revised The RBI has Incentive Framework: Starting FY25, Priority Sector
Priority revised Priority loans in districts with low credit flow Definition: Sectors
Sector Sector Lending (less than Rs 9,000 per person) will be deemed vital by the
Lending guidelines to given more weight (125%). Government and RBI for
Norms promote loans in Disincentive Framework: In districts the country's
economically with high credit availability (more than development.
disadvantaged Rs 42,000 per person), loans will receive PSL Certificates
districts. a weight of 90%. (PSLCs): Tradable
Other Districts: Continue at a standard certificates to meet PSL
weight of 100%. targets.
MSME Loans: All loans to MSMEs
qualify under PSL.
Priority Recently, RBI Objective: Ensure access to credit for Committees: Gadgil
Sector revised PSL vulnerable sections and underdeveloped Committee (1969),
Lending guidelines to aid areas. Ghosh Committee
(PSL) small loan Historical Background: PSL was (1982).
availability in formalized in 1972. Inspired by the PSLCs: Help banks
economically recommendations of the Gadgil achieve PSL targets by
Committee (1969) and refined by the trading excess capacity.
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 disadvantaged Ghosh Committee (1982).
districts. PSL Certificates (PSLCs): Enable banks
to buy or sell the ability to meet their PSL
targets, incentivizing surplus banks and
aiding those with shortfalls.

Targets and Sub-targets for PSL for Different Types of Banks

Type of Bank PSL Targets

Domestic Commercial - Total Priority Sector: 40% of Adjusted Net Bank Credit (ANBC) or Credit
Banks & Foreign Equivalent of Off-Balance Sheet Exposures (CEOBE), whichever is higher.
Banks with 20 - Agriculture: 18% of ANBC or CEOBE, out of which 10% is for small and
Branches and Above marginal farmers.
- Micro Enterprises: 7.5% of ANBC or CEOBE.
- Advances to Weaker Sections: 12% of ANBC or CEOBE.
Foreign Banks with - Total Priority Sector: Targets generally align with those for larger domestic
Less Than 20 banks but are adjusted based on the bank’s scale and operations within India.
Branches - Not applicable: Specific targets for agriculture and weaker sections may not
apply.
Regional Rural Banks - Total Priority Sector: 75% of ANBC or CEOBE, whichever is higher, with
(RRBs) specific emphasis on agricultural and rural lending conducive to the region they
operate in.
Small Finance Banks - Total Priority Sector: Same as domestic commercial banks.
- Agriculture and Weaker Sections: Targets similar to those of other domestic
banks, with a focus on promoting inclusivity in financial services.

Additional Notes:

• Adjusted Net Bank Credit (ANBC) includes all loans and advances of a bank, whereas Credit
Equivalent of Off-Balance Sheet Exposures (CEOBE) includes guarantees, letters of credit, and
other off-balance sheet exposures.
• Weaker Sections include marginalized groups and sectors that require additional support to ensure
equitable growth.
• The targets ensure that essential sectors such as agriculture, micro enterprises, and weaker sections
receive adequate banking services, which promote broader economic development and financial
inclusion.

Mumbai Interbank Outright Rate (MIBOR)

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Mumbai The RBI Current Use and Changes: - MIBOR: Benchmark Rate:
Interbank recommended Serves as the primary benchmark rate for MIBOR is crucial
Outright Rate changes in the overnight funds in the Indian interbank for pricing floating
(MIBOR) methodology for market. - Methodological Changes: Aim rate bonds, loans,
computing to improve the accuracy and relevance of and interest rate
MIBOR and is the rate in reflecting current market swaps in India.
transitioning to a conditions. - Transition from LIBOR:
new secured RBI's move aligns with global shifts to
money market more stable and reliable benchmark rates
benchmark for for financial instruments.
derivatives.
Transition As global reliance Alternative Reference Rates (ARRs): - Global Shift: Major
from LIBOR on LIBOR Introduction: RBI has guided banks to financial markets are
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 decreases, India is adopt ARRs that better suit the domestic moving away from
transitioning to market conditions. - Examples: Secured LIBOR due to its
new benchmarks. Overnight Financing Rate (SOFR) in the vulnerabilities
USA, Mumbai Modified Interbank exposed during
Forward Overnight Rate (MIFOR) in financial crises.
India. - Rationale: Provides more stability
and reduces risks associated with reliance
on external benchmarks like LIBOR.
Financial FBIL plays a key Foundation and Role: - Established: Regulatory Body:
Benchmarks role in the 2014 as a collaborative effort by FBIL is regulated by
India Pvt Ltd administration of FIMMDA, FEDA, and IBA. - Purpose: the RBI to ensure
(FBIL) financial Develop and regulate benchmarks for compliance and
benchmarks in money markets, government securities, and accuracy in
India. forex in India. - Regulation by RBI: benchmark
Ensures that the benchmarks set are reporting.
transparent, fair, and reflective of the
market conditions.

RBI Surplus Transfer

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News? Prelims
RBI RBI approved Surplus Definition and Calculation: - Surplus Historical
Surplus a record Formula: Surplus = Total net interest income - Total Context: This
Transfer surplus expenditure. - Income Sources: Primarily from transfer is more
transfer of Rs interest on foreign currency assets, government than double the
2.11 lakh securities, lending to banks, and management of previous year's
crore to the government's cash balances. - Expenditure ₹86,416 crore.
government Considerations: Includes operational costs, interest
for FY24. paid on deposits, and other operational expenses.
Legislative Surplus RBI Act, 1934: - Section 47: Mandates the annual CGRA: The
and Policy transfers are a transfer of RBI’s profits to the Government of India. Currency and
Framework significant Committee Influences: - Malegam Committee Gold Revaluation
aspect of (2013): Recommended changes to improve Account includes
RBI's transparency in surplus transfers. - Bimal Jalan unrealized gains
financial Committee: Suggested keeping realized equity or losses and
management. between 5.5% to 6.5% of the balance sheet, with plays a key role
excess being transferred to the government. in surplus
calculations.
RBI’s Understanding Assets and Liabilities: - Assets: Include foreign Financial
Financial RBI's currency assets, gold reserves, government securities, Stability: RBI
Health financial and loans to banks. - Liabilities: Mainly consist of maintains a
operations currency in circulation, deposits, and RBI’s capital robust balance
provides and reserves. Income and Expenditure: - Total sheet to manage
insight into its Income: Includes interest earnings, gains from monetary stability
capacity for foreign exchange transactions, and investment and support
surplus activities. - Total Expenditure: Operations, interest government
transfers. on reverse repos, and administrative expenses. finances.

Ways and Means Advances (WMA) Scheme

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 material information.
- Compounding of Offences:
Introduces compounding for
certain offences, providing a
mechanism for settling disputes
outside of court.
Other Provisions Introduces - Settlement and Commitment - Leniency Provision:
of the CAA mechanisms like Mechanism: CCI can now use Extended to include
settlement and these mechanisms to resolve additional reductions in
commitment to issues more efficiently. penalties for cooperation
streamline - Appointment of Director during investigations.
enforcement. General: Shifts appointment
powers to CCI with central
government approval.
Competition Act Provides the legal - Replaces MRTP Act: - Competition
2002 framework for Introduces comprehensive Commission of India:
Background regulating measures against anti-competitive Established as the
competition in India. agreements, abuse of dominance. regulatory authority
- Prohibitions: Details under this Act.
prohibitions against certain
business practices deemed
harmful to competitive markets.
Competition Oversees and - Mandate and Functions: - International
Commission of enforces competition Responsible for promoting Engagement: CCI
India (CCI) policies in India. competition, eliminating practices actively participates in
having adverse effect on the International
competition. Competition Network
- Composition and Terms: (ICN).
Comprises a Chairperson and
members appointed by the
government, serving a maximum
of five years, eligible for
reappointment.

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Textiles India’s textiles sector - Contribution: Contributes approx. - VisioNxt Initiative:
Sector is projected to grow to 2.3% to country's GDP. Launched by the Union
USD 350 Billion by - Trade: 6th largest exporter of textiles Textile Minister for
2030. & apparel with a 3.91% share in global fashion forecasting.
trade. - Technical Textiles:
- Export: USA & EU (47%) are major Positioned for global
export destinations. leadership with
- Employment: 2nd largest employer mandatory usage in
in the country. various sectors.
- Measures Taken: Amended
Technology Upgradation Funds
Scheme, SAMARTH for skill training,
PM MITRA Park, National Technical
Textiles Mission, PLI Scheme for
Textiles.
Technical National Technical - Definition: Materials known for - Innovation: Emphasis
Textiles Textiles Mission has technical performance and functional on developing advanced
approved seven startup properties.
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 proposals under the - Applications: Used in agriculture, materials for diverse
GREAT scheme. infrastructure, sportswear, healthcare, applications.
and more.
- Market Position: India is the fifth
largest market globally.
- Government Initiatives: Includes
mandates for usage, PLI scheme,
MITRA and SITP schemes, and quality
control regulations.

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Nidhi Companies Ministry of Corporate - Definition: A Nidhi - Governance:
Affairs cracks down on company is a type of non- Regulated under the
errant Nidhi companies. banking financial company Companies Act, 2013
(NBFC) in India, and monitored by the
recognized under the Ministry of Corporate
Companies Act, 2013. Affairs.
- Purpose: Encourages
savings and thrift among its
members.
- Operations: Deals with
deposits and loans with
members only.
- Compliance: Must adhere
to Nidhi Rules, 2014.
- Criteria: Minimum 200
members, Net Owned
Funds of ten lakh rupees or
more.
ISI Mark ISI mark made - Authority: Managed by - ISI Mark Scheme:
mandatory for stainless the Bureau of Indian Part of BIS's broader
steel and aluminium Standards (BIS). framework to ensure
kitchen utensils. - Purpose: Assures product quality and safety in
quality and safety. consumer products.
- Application: Mandatory
for specific products like
electrical appliances,
kitchen utensiles, etc.,
under Quality Control
Orders.
- About BIS: National
Standards Body of India
established under the BIS
Act, 2016.
- Other Marks: Includes
Hallmark (for precious
metals) and Eco Mark (for
eco-friendly products).
Green Shoots RBI notes signs of - Definition: Indicators - FMCG Impact:
recovery in India's rural suggesting economic Significant role in
economy. recovery or growth. India's rural economic
- Context: Seen in the Fast- dynamics, often acting
Moving Consumer Goods as a barometer for
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 (FMCG) Sector. broader economic
- Implication: Indicates health.
potential economic revival
post-downturn.
- FMCG Sector: Includes
high turnover consumer
goods like toiletries,
detergents, etc.
Enhanced Integrated Finland supports LDCs - Objective: To assist Least - Role of EIF: Serves
Framework through EIF-funded Developed Countries as a multilateral
projects. (LDCs) in using trade for partnership focused on
growth and poverty integrating LDCs into
reduction. the global trade
- Participation: Involves framework to foster
51 countries and multiple economic development
international organizations and reduce poverty.
like the World Bank, WTO.
- Management:
Administered by the United
Nations Office for Project
Services (UNOPS).
Telecommunications Notified by the - Purpose: To fund - DBN vs. USOF:
Rules, 2024 Department of telecommunications Transition from USOF
Telecommunications to schemes in underserved to DBN marks a shift
operationalize the Digital areas. in funding strategy and
Bharat Nidhi (DBN). - Background: Replaces management, aiming
the Universal Service for enhanced
Obligation Fund created effectiveness in
under the Indian Telegraph expanding telecom
Act, 1885. services in rural and
- Funding: Supported by a remote areas.
levy of 5% of the Adjusted
Gross Revenue from
telecom licensees.
- Implementation:
Managed by the
Department of
Telecommunications.
NCoE for AVGC-XR Follows budget - Formation: Set up as a - Creative Economy
announcements Section 8 Company under in India: Represents a
proposing the creation of the Companies Act, 2013. $30 billion industry
an AVGC task force. - Name: Provisionally employing nearly 8%
called the Indian Institute of the working
for Immersive Creators population,
(IIIC). showcasing the
- Function: Acts as an significant cultural and
incubation center for economic impact of
startups in Animation, creative sectors.
Visual Effects, Gaming,
Comics, and Extended
Reality.
- Objective: To stimulate
the creative economy in
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 India.
- Scope: Supports creative
industries like film, media,
and digital arts.

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News?
Preston Curve - The Preston Curve describes the - First Proposed: 1975 by
relationship between life Samuel H. Preston
expectancy and per capita income - Observation: Higher life
in countries. Proposed by Samuel expectancy in wealthier
H. Preston in 1975, it highlights nations
that people in richer countries tend - Implications: Reflects the
to live longer due to better access impact of economic
to healthcare, education, cleaner prosperity on public health
environments, and nutrition.
Zombie Increased during Zombie startups, also called - Characteristics: Limited
Startups funding "walking dead" companies, operate growth, struggle with
shortages known on just enough revenue to survive expenses and debts
as "funding without significant growth or - Related Terms: Burn Rate,
winters." profits. They often struggle to Runway, Pivot, Cash Flow,
cover operational expenses or repay Venture Capital (VC),
debts, which stagnates their Market Saturation, Angel
development and poses risks to Investor,
investors. Incubator/Accelerator
Inverse ETF SEBI's proposal Inverse ETFs, also known as Short - Also Known As: Short
includes or Bear ETFs, are designed to ETFs or Bear ETFs
strategies like profit from declines in market - Purpose: Profit from
long-short equity indexes or other benchmarks. They market declines
funds and employ derivatives to achieve - Structure: Utilizes
inverse ETFs. inverse performance to the derivatives for inverse
underlying index and are intended performance relative to an
for short-term trading due to their underlying benchmark
structure to capitalize on market
dips.
Mutual Implemented for This MRA between India’s - Agencies Involved:
Recognition organic products. APEDA and Taiwan’s AFA allows APEDA (India) and AFA
Agreement for the recognition of organic (Taiwan)
(MRA) products certified under India's - Significance: Facilitates
Between India National Programme for Organic trade of organic products
and Taiwan Production (NPOP). Products between India and Taiwan
certified as organic under this
agreement can be sold in Taiwan as
organic and display the 'India
Organic' logo.
Lithium Discovery of The Atomic Minerals Directorate - Location: Mandya,
Reserves in lithium resources for Exploration and Research Karnataka
India in Karnataka. identified 1,600 tonnes of lithium - Global Context: Australia
in Mandya, Karnataka, highlighting is a leading producer; China
the strategic importance of this dominates the supply chain.
resource. Lithium, essential for - Applications: Batteries for
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 rechargeable batteries and various EVs and mobile phones,
other applications, is classified as a alloys, air conditioning
critical mineral, underscoring its systems.
role in modern technologies and
energy solutions.
Compulsory CCI approves CCDs are hybrid securities that - Types: Non-Convertible
Convertible subscription of must be converted into stock by a Debentures (NCDs), which
Debentures CCDs by IFC for specified date. They blend elements do not convert into equity
(CCD) Napino. of bonds and stocks, providing and Convertible Debentures,
companies, especially startups, a which can be converted after
way to raise capital without a set period.
immediate equity dilution. - Used by: Primarily startups
Debentures are generally unsecured and growth-stage companies.
and backed only by the issuer's
creditworthiness.

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News?
White Category Regulatory easing Industries in the white Examples of White Category
Sectors for industries category, which are considered Sectors: Wind and solar power
classified under non-polluting, no longer need projects, assembly of air
the white prior approval from state coolers, bicycle assembly.
category. pollution control boards for
establishment and operation.
Instead, they only need to
notify through self-
declarations.
Voluntary Launched by the The program promotes vehicle Incentives: - Commercial
Vehicle MoRTH to phase scrapping through Registered vehicles: Up to 3% discount on
Modernization out old, unfit Vehicle Scrapping Facilities the ex-showroom price. -
Program vehicles to (RVSFs) and Automated Passenger vehicles: 1.5%
address pollution Testing Stations (ATSs) with discount on the ex-showroom
and road safety incentives such as discounts on price. Benefits: Certificate of
concerns. new vehicle purchases and tax Deposit for scrapping, which
benefits for scrapping old offers tax exemptions and fee
vehicles. waivers on new vehicle
registrations.

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