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Establishment of Various Financial Institutions

1. Reserve Bank of India 1934


2. Industrial Finance Corporation of India 1948. Sick financial institution.
3. ICICI 1955
4. SBI 1955. Nationalized
5. Life Insurance Corporation (LIC) 1956
6. Industrial Development Bank of India (IDBI) 1964
7. Unit Trust of India (UTI) 1964
8. HUDCO 1970
9. General Insurance Corporation (GIC) 1972
10. NABARD 1982
11. SEBI (Replaced Controller of Capital Issue) 1988 Functional in 1992
12. Small Industries Development Bank of India (SIDBI) 1990. Subsidiary of IDBI
13. IRDA 1999

Various Acts & their Enactment Years


1. Banking Regulation Act 1949
2. Industries (Development & Regulation) Act 1951
3. MRTP Act 1969
4. FERA 1973
5. Negotiable Instrument Act 1981
6. FEMA 2000
7. Competition Act 2002

FDI Upper Limit in Various Sectors


1. Print Media 26 % (Recent)
2. Defense Sector 26 % (Recent)
3. Private Sector Banking, Radio (FM) 74%
4. Insurance 26%
5. Telecommunications 74%
6. Trading 51%
7. Power, Drugs & Pharmaceuticals, Road and highways, Ports 100%
and harbours, Hotel & Tourism, Advertising, Films, Mass
Rapid Transport Systems, Pollution Control & Management,
Special Economic Zones, Petroleum Refining(Private Sector)
Construction Development, Non Banking Financial Companies.
8. Airports 74%
9. Domestic Airlines 49%
10. Agriculture (including plantation except tea), Atomic Energy, Not Allowed
Railways (except Mass Rapid transport system)
11. Tea Plantation 100%

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Organizations & Their Survey/Reports
1. World Economic & Social Survey U. N
2. World Investment Report UNCTAD
3. Global Competitiveness Report World Economic Forum
4. World Economic Outlook IMF
5. Business Competitive Index World Economic Forum
6. Green Index World Bank
7. Business Confidence Index NCAER
8. Poverty Ratio Planning Commission
9. Economic Survey Ministry of Finance
10. Wholesale Price Index Ministry of Industry
11. National Account Statistics CSO
12. World Development Indicator World Bank
13. Overcoming Human Poverty UNDP
14. Global Development Report World Bank

Millenium Development Goals


1. Eradicate extreme poverty and hunger
2. Achieve universal primary education
3. Promote gender equality and empower women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, malaria, and other diseases
7. Ensure environmental sustainability
8. Develop a global partnership for development

Components of Money Supply


M1 Consists of currency with the public (ie notes & coins in circulation minus cash with the banks)
plus demand deposits with the bank (deposits which can be withdrawn without notice) plus
other deposits with RBI (usually negligible). Also called narrow money
M2 M1 + saving deposits + Certificate of Deposits (CDs) + term deposits maturing within a year.
M3 M2 + term deposits with maturity more than a year + term borrowing of banking system. Also
known as broad money.
L1 M3 + all Deposits with the Post Office Savings Banks (excluding National Savings Certificates)
L2 L1 + Term Deposits with Term Lending Institutions and Refinancing Institutions (FIs) + Term
Borrowing by FIs+ Certificates of Deposit issued by FIs; and
L3 L2 + Public Deposits of Non-Banking Financial Companies

Four Modes of Services under GATT


Mode 1 Cross border trade, which is defined as delivery of a service from the territory of one
country into the territory of other country;
Mode 2 Consumption abroad - this mode covers supply of a service of one country to the service
consumer of any other country;
Mode 3 Commercial presence - which covers services provided by a service supplier of one
country in the territory of any other country, and
Mode 4 Presence of natural persons - which covers services provided by a service supplier of one
country through the presence of natural persons in the territory of any other country

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Direct & Indirect Taxes
Direct Tax Indirect Tax
Corporation Tax Excise Duties
Income Tax Service Tax
Interest Tax Central Value Added Tax (Vat)
Expenditure Tax Sales Tax
Wealth Tax Property Tax
Gift Tax Octroi
Estate Duty Customs Duties
Land Revenue Stamp Duties

Commissions/Committees & Their Purpose


Arjun Sen Gupta Public Sector Enterprise Autonomy
Committee
Rangarajan Committee Disinvestment of PSUs & Balance of Payments.
Malhotra Committee Insurance Sector & its regulation. Follow up led to setting up of IRDA.
Madhukar Committee Gold exchange traded fund implementation.
L.C. Gupta Committee Derivatives in India Model
Naresh Chandra Committee Corporate Audit & Governance
JJ Irani Committee Company Law
B. Bhattacharya Committee Committee on pension reforms
Rakesh Mohan Committee Small saving & Administered interest rates
Vijay Kelkar Committee FRBM (fiscal responsibility & budget management) Act implementation
S.P. Gupta Committee Generation of Employment opportunities in the 10th plan.
Raghvan Committee Replacement of MRTP act by competition act.
Eradi Panel Industrial Insolvency.
M.S. Verma Restructuring weak banks
Lakdawala Committee Estimating Poverty line in India
Montek Singh Ahuluwalia Power Sector reforms
Rakesh Mohan Committee Development of Infrastructure in India
Abid Hussain Committee Small Scale Sector
Jha Committee MODVAT
Vasudev Committee NBFC
Omkar Goswami Committe Industrial Sickness
G.V. Ramakrishna Disinvestment Commission
Arvind Virmani Import Tariff Reform
Vaghul Committee Money Markets India reforms

FERA FEMA
Violation of FERA was a criminal offence. Violation of FEMA is a civil wrong.
Offences under FERA were not compoundable. Offences under FEMA are compoundable.
Penalty was 5 times the amount involved. Penalty is 3 times the sum involved.
Citizenship was a criteria to determine residential Stay in India for more than 182 days is the
status of a person under FERA. criteria to decide residential status.
There was only one Appellate Authority namely There are two appellate authorities namely
Foreign Exchange Regulation Appellate Board. 1. Special Director (Appeals) and
2. Appellate Tribunal for Foreign Exchange.

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Fiscal Responsibility & Budget Management (FRBM) Act 2003
• The revenue deficit as a ratio of GDP should be brought down by 0.5 per cent every year and eliminated
by 2007-08;
• The fiscal deficit as a ratio of GDP should be reduced by 0.3 per cent every year and brought down to 3
per cent by 2007-08;
• The total liabilities of the Union Government should not rise by more than 9 per cent a year;
• The Union Government shall not give guarantee to loans raised by PSUs and State governments for
more than 0.5 per cent of GDP in the aggregate;

Population Policy 2000


The immediate objective of the NPP 2000 is to address the unmet needs for contraception, health care
infrastructure, and health personnel, and to provide integrated service delivery forbasic reproductive and
child health care. To bring the TFR to replacement levels by 2010. Stable population by 2045 at a level
consistent with sustainable economic growth.

National Socio-Demographic Goals for 2010


1. Address the unmet needs for basic reproductive and child health services, supplies and
infrastructure.
2. Make school education up to age 14 free and compulsory, and reduce drop outs at primary and
secondary school levels to below 20 percent for both boys and girls.
3. Reduce infant mortality rate to below 30 per 1000 live births.
4. Reduce maternal mortality ratio to below 100 per 100,000 live births.
5. Achieve universal immunization of children against all vaccine preventable diseases.
6. Promote delayed marriage for girls, not earlier than age 18 and preferably after 20 years of age.
7. Achieve 80 percent institutional deliveries and 100 percent deliveries by trained persons.
8. Achieve universal access to information/counseling, and services for fertility regulation and
contraception with a wide basket of choices.
9. Achieve 100 per cent registration of births, deaths, marriage and pregnancy.
10. Contain the spread of Acquired Immunodeficiency Syndrome (AIDS), and promote greater
integration between the management of reproductive tract infections (RTI) and sexually
transmitted infections (STI) and the National AIDS Control Organisation.
11. Prevent and control communicable diseases.
12. Integrate Indian Systems of Medicine (ISM) in the provision of reproductive and child health
services, and in reaching out to households.
13. Promote vigorously the small family norm to achieve replacement levels of TFR.
14. Bring about convergence in implementation of related social sector programs so that family
welfare becomes a people centred programme.

Selected Terms
Revenue Deficit Difference between revenue expenditure & revenue receipts
Budget Deficit Difference between total expenditure & revenue receipts
Fiscal Deficit Budget deficit plus non debt creating capital receipts
Primary Deficit Fiscal deficit – Interest Payments.
FIPB Foreign Investment Promotion Council
MIGA Multilateral Investment Guarantee Agency

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Miscellaneous Facts:
1. India’s GDP per Capita 622 (US $ PPP). It is 684 US $ for Pakistan.
2. The top 3 countries with external debt are Brazil (235 billion $), China (193 billion $) & Russia (175
billion $). India is 9th with 112 billion $.
3. Functional employment occurs when people change from one job to another & there is an interval. This
can happen even in a situation of full employment. Structural employment happens when jobs exist for
qualified persons but the unemployed do not have the matching qualifications. It also occurs when
labour is available, but factors of production are missing. Cyclical unemployment arises out of cycles of
recession. Disguised unemployment is when people are employed but their marginal productivity is
zero.
4. The CSO is responsible for estimating the national income. It is assisted by the National Sample Survey
Organization (NSSO) which conducts large scale surveys.
5. The tenth plan has taken the figure of 26% population below poverty line for planning purposes. Out of
the total 75% are in rural areas & 25% in urban areas. Orissa (47.5%) has the highest proportion
followed by Bihar (42.6%), M.P & Assam.
6. WPI is a weighted average of indices covering 477 commodities & is a measure of inflation on an
economy wide scale. Services do not figure in this. Base year is 1993-94. CPI is computed separately for
three groups viz industrial workers (260 commodities), Urban non-manual employees (180
commodities) & agricultural labourers (60 commodities).
7. The GDP deflator is arrived at by dividing the GDP at current prices by GDP at constant prices in terms
of base year prices (1993-94). This indicates how much growth in GDP is due to price rise & how much
due to increase in output.
8. In WTO terminology, subsidies in general are identified by “boxes” which are given the colours of
traffic lights: green (permitted), amber (slow down — i.e. be reduced), red (forbidden). For agriculture,
all domestic support measures considered to distort production and trade (with some exceptions) fall into
the amber box. In order to qualify for the “green box”, a subsidy must not distort trade, or at most cause
minimal distortion. It includes amount spent on research, disease control, infrastructure & food security.
Blue box subsidies are held to be trade distorting & include direct payment to farmers to limit
production & certain government assistance to encourage agriculture & rural development in developing
countries.
9. Tobin tax is the suggested tax (within 0.1% to 0.25%) on all trade of currency across borders intended to
put a penalty on short-term speculation in currencies leading to crisis (Eg. Asian Crisis).

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10. In 1972, 107 companies operating in the general insurance business were nationalized into four groups –
NIC, United India Insurance Company, Oriental Insurance Company & New India Insurance Company
with GIC as the holding company. These companies can compete against each other in all areas except
aviation & crop insurance which are the monopoly of GIC.
11. IRDA act 1999 has ended the monopoly of LIC/GIC in the insurance sector.
12. The only two national stock exchanges of India are NSE & OTECI (Over the counter exchange of
India). BSE is a regional stock exchange.
13. At present the value of SDR is fixed in relation to a basket of five currencies – US dollar, German
mark, British pound, French frank & Japanese yen.
14. Current Account Convertability – the holders of domestic currency have the right to convert the
currency into foreign exchange for any current account purpose such as travel, tourism, trade.
Transactions like those in assets are not permissible unless there capital account convertability.
15. Ceteris Paribus – ‘Other things remaining equal’. ‘Ad Valorem’ means as per value. Laffer Curve –
hypothesis that when the tax rate is raised the revenue realized tends to fall. Monopsony – single buyer
as opposite of monopoly where there is a single seller. Lorenz curve shows graphical representation of
income distribution. The Phillips curve illustrates the relationship between inflation and unemployment.
16. Bretton Woods Agreement led to the establishment of World Bank & IMF. More developed a country
greater would be its dependence on direct tax.
17. MODVAT (modified value added tax) was introduced in India in 1986 (MODVAT was re-named as
CENVAT w.e.f. 1-4-2000). Increase in RBI credit to the government during a year represents Monetised
deficit.
18. A high fiscal deficit leads to adverse effects on BoP, rise in interest rates & a high cost economy.
19. The reverse repo rate is the rate at which banks park their short-term excess liquidity with the RBI,
while the repo rate is the rate at which the RBI pumps in short-term liquidity into the system
20. PNB is the oldest existing commercial bank in India. India’s short term debt is less than 10 % of India’s
total debt.
21. The title of World Development Report 2005 is “A Better Investment Climate For Everyone”.
22. The 12th financial commission recommendation would be applicable for the period 2005-2010.
Minimum Alternate Tax is a tax on zero tax companies.
23. Press Note 18 requires that a foreign company in a joint venture with an Indian company cannot get into
other wholly owned ventures without the domestic partner’s permission.

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24. Domestic Commercial Banks contribute to the Rural Infrastructure Development fund to the extent of
their shortfall in their lending to the priority sector lendings.
25. Capital adequacy ratio affects assets of banks, its share capital & its investment. International Finance
Corporation essentially provides loans to boost private sector investment of member countries.
26. Zero-based Budgeting requires that a program be justified from the ground up each fiscal year. ZBB is
especially encouraged for Government budgets because expenditures can easily run out of control if it is
automatically assumed what was spent last year must be spent this year
27. The main source of revenue for the Union government in ascending order of importance are income tax,
custom duties, corporate tax & excise duties.
28. Prevention of Money Laundering act is applicable to drug trafficking, mafia, gun running etc.
Maintaining its increasing trend since 1990-91, except in 1998-99, the share of direct taxes in central tax
revenues increased from 19.1 per cent in 1990-91 to 43.3 per cent in 2004-05 (RE) and further to 47.9
per cent 2005-06 (BE).
29. Trade Related Investment measures (TRIMS) under WTO apply that no restrictions will be imposed on
foreign investment in any sector; all restrictions on foreign companies will be scrapped; Imports of raw
materials by foreign companies are to be allowed freely.
30. Participatory Notes (P-Notes) refers to investment in Indian securities by unregulated FIIs & Hedge
funds. NCLT will replace the role of Company law board, BIFR & High courts. Fiduciary issue is the
paper currency not backed by gold or silver.

Essential Extra Reference:


• Various Schemes launched by the government
• Capex in various sectors- telecom etc.
• Export Import Value with trade in Merchandise

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