JAIIB Paper 1 (IE and IFS) Module A Unit 1:An Overview of Indian Economy (New Syllabus)
IIBF has released the New Syllabus Exam Pattern for JAIIB Exam 2023. Following the format of the current exam, JAIIB 2023 will have now four papers. The JAIIB Paper 1 (Indian Economy & Indian Financial System) includes an important topic called “An Overview of Indian Economy ”. Every candidate who are appearing for the JAIIB Certification Examination 2023 must understand each unit included in the syllabus. In this article, we are going to cover all the necessary details of JAIIB Paper 1 (IE and IFS) Module A Unit 1: An Overview of Indian Economy.
Aspirants must go through this article to better understand the topic, Banker Customer Relationship and practice using our Online Mock Test Series to strengthen their knowledge of Banker Customer Relationship. Unit 1: An Overview of Indian Economy
Evolution Of Indian Economy
According to the Angus Maddison database, India and China contributed:
- 1000 AD : 5% of global GDP (GDP computed in 1990 dollars and in purchasing power parity terms).
- 1600 AD: 52%
29% – China
23% – India
- A century later, China’s GDP share had declined, while India’s had risen to 24.4% of world output.
- British colonialism altered the dynamics, and by 1820, India’s share had plummeted to 16.1%.
- 2021 : According to the International Monetary Fund (IMF), India’s contribution of global GDP reached 7.3% .
- However, in terms of GDP purchasing power parity (PPP), India is ranked 3rd in the world only after USA and China.
- Today, India is one of the world’s fastest growing major economies.
- India’s economic performance during the British Raj was dismal.
- The British East India Company ignored industrialisation in the nation, and infrastructure was created not to industrialise India but to exploit its raw materials.
- When India gained independence, the administration of the time had a significant challenge in systematic organisation of the economy.
Basic Characteristics of Indian Economy
World Bank classifies economies considering per capita income.
- Indian economy in terms of
- Purchasing Power Parity (PPP) is the 3rd largest economy in the world but
- in terms of PCI, India ranked very low.
- The low per capita income is mainly attributed to high levels of poverty, unemployment, illiteracy, etc.
- India was a backward nation at the time of its independence. The government addressed the developmental issues through five-year plans by setting targets and ensuring the allocation of funds for the development of various sectors.
- A number of factors influence the nature and characteristics of the Indian economy.
- Some of these factors include:
(i)low per capita real income,
(ii)rapid population growth,
(iii)a high rate of unemployment, underemployment, and disguised unemployment,
(iv)excessive reliance on the primary sector,
(v)a vicious circle of poverty, and
- Following extract of India’s macro-economic aggregates from RBI publication dated 15th September, 2021, will give an overall view of the economic status of India
- India was an agricultural economy, with a very low per capita income.
- After independence, agriculture’s share of GDP fell during the development process, while industry and services increased.
- 1950 : Agriculture was a dominant sector : 53.1% of GDP.
- Industry : 16.6%,
- services : 30.3%.
- 1950 : Agriculture was a dominant sector : 53.1% of GDP.
- Following independence and the start of the planning process, agriculture’s share decreased while industry and services increased.
- 1980–81, the services sector (38%) surpassed
- agriculture (36.1%) to become the largest contributor to India’s GDP.
- The industry : 25.9%
Indian Economy In British Period
- During British colonialism, India’s commerce, trade, and investment were hampered by the unilateral transfer of capital and raw materials to Britain.
- Under British rule, India remained a low-quality labour market.
- According to statistics, less than 1/6 of Indians were only literate.
- 1867-68 : Dadabhai Naoroji published the first estimates of national income in India in his book “Poverty and Un-British Rule in India”
- According to him:
- British India’s national income was Rs. 340 crore,
- Per capita income was 20 per annum at current prices
- 1948-49: Rs. 142 p.a
- Other economists of the period (William Digby, Findlay Shirras, V.K.R.V. Rao and R.C. Desai) produced estimates of India’s national income, and the findings were almost identical.
- Atkinson: India’s per capita income to be Rs. 172
- Horne: it to be Rs. 158 in 1948–1949 prices for the years 1875 and 1891, respectively.
- Curzon projected per capita income in 1902 to be Rs. 148 in 1948–1949 prices.
- However, by 1947, the per capita income had risen to Rs. 250 per year.
- According to the work of Cambridge economist Angus Maddison
- India’s share of global income
- 1600 A.D= 23%
- by the time the British left in 1947, it had shrunk to only 3%
- Similarly, India accounted for 33% of global trade in 1600 but fell to less than 3 per cent in 1947.
According to former Prime Minister Manmohan Singh, at the turn of the twentieth century, India was the brightest jewel in the British Crown and the poorest country in the world, in terms of per capita income.
BRITISH ERA: Discussed in 3 different phases
- 3rd Phase : began in 1857 (Sepoy Mutiny)
- Period marked by colonial exploitation through de-industralisation, agricultural commercialisation, wealth drain & westernisation of Indian education systems
- British withdrew: India as a destitute economy
- Global GDP : 1600 AD (23%) to 1947 (3%)
- Global export: from 33% to 3%
- Introduced: Zamindari, Mahalwari & Ryotwari system – to take excessive land tax from farmers.
- Commercialisation created a new class of intermediaries, increased the frequency of famines, & reduced farmers to landless labour.
- Deindustralisation: in mid 19th century
- The fall of the Mughal Empire,
- The decline of Indian agriculture,
- An increase in nominal wages,
- A reduction in Indian textile competitiveness, and
- An increase in transportation facilities
- Trade policy that was unfavourable to India also contributed to trade decline and aggravated deindustrialisation.
- Railways assisted the British in moving commodities from the hinterlands to ports and vice versa.
- It also enabled British investors to make attractive profits on their cash spent in railway infrastructure building and development.
- The fundamental goal of introducing Western education to India was to generate a group of Indians who neither good in English nor Indian culture.
- The wealth drain : unilateral movement of riches from India to Britain, without a sufficient economic, commercial, and material return.
- It occurred through remittances, home charges, and the transfer of revenue from private business or investment, among other things.
- Many British philosophers and Indian nationalists, including Dadabhai Naoroji, R.C. Dutta, and C.N. Vakil, have done research and written about the wealth drain from India to Britain.
- In 1783, Edmund Burke explained the mechanism of economic drain and rising poverty in Indian situations.
- In 1776, Philip Francis studied the drain economy and classified it into four broad streams
- As per the findings of Angus Maddison,
- India’s share of world economy went down from 23% in 1600 to 3% in 1947.
- Clive took quarter of a million pounds for himself as well as a Jagir worth £27,000 a year.
- British salaries were high: The Viceroy received £25,000 a year, and governors £10,000.
- The starting salary in the engineering service was £420 a year or about sixty times the average income of the Indian labour force.
- Under the rule of the East India Company, official transfers to the UK rose gradually, until they reached about £3.5 million in 1856, the year before the mutiny.
- Private remittance: From 1858 to 1947, the colonial government’s official transfers of monies to the United Kingdom were referred to as “Home Charges”.
- Dividends to East India Company shareholders; interest on loans raised by the Government of India in England;
- Expenditure on British army stationed in India and bringing them to India; pensions, annuities, etc., of retired British officers; payment of guaranteed interest to railway companies; and salaries of the secretary of state for India and his staff were all included in home charges.
- According to Dadabhai Naoroji’s calculations, India paid Britain £10 crores in house costs between 1829 and 1865.
- By the 1930s, these residential levies were in the £40–50 million level each year.
- India’s per capita income from 1600–1947 increased by 12% whereas the increase for Britain for the same period was 55%.
- India’s total GDP during 1600–1947 increased by 2.44 times, but for Britain the rise was 52 times.
Economy Till 2008 & After 2008
- 1st three decades: India’s growth rate was slow
- In 1978, Professor Raj Krishna coined the phrase “Hindu rate of growth” to describe the slow growth of the Indian economy.
- The term refers to
- India’s planned economy’s low annual growth rate – around 3.5% from the 1950s to the 1980
- Per capita income growth : averaged 1.3%.
- Period of Economic buoyancy and recovery.
- During the 6th five-year plan (1980–1985) India could break the curse of the ‘Hindu Rate of Growth’.
- Higher government spending, fiscal stimulus to the economy, higher economic growth.
- The liberalised import policies- increased imports of capital goods and raw materials for manufacturing, boosting the production of luxury goods in the country.
2008 to 2021
- The 2008 growth euphoria: widespread belief that the Indian economy was decoupled from that of the developed world in the days following the Lehman collapse (September 15, 2008).
- In September 2008: India took unprecedented action.
- In order to mitigate the effects of the crisis, the government provided fiscal stimulus to the economy.
- 3 stimulus packages totalling Rs. 1.86 lakh crore (3.5% of GDP).
- The RBI eased monetary conditions and injected Rs 5.6 lakh crore (roughly 9% of GDP), in domestic and external liquidity.
- Economy recovered but at the expense of a larger fiscal deficit, which continued to grow beyond the limit set by the Fiscal Responsibility and Budget Management Act.
- The fiscal stimulus was never phased out, the current account deficit (CAD) increased.
- The previous decade’s high economic growth drove credit growth in the system as the economy’s productive capacity expanded dramatically.
- Revolutionary policies such as the
- Goods and Services Tax (GST),
- the Insolvency and Bankruptcy Code (IBC),
- corporate tax cuts, and demonetisation were implemented.
- Prior to the COVID-19 pandemic, the economy’s average annual growth rate between 2008-09 and 2019-20 = 6.5% (base year 2011-12 prices)
- In 2019-20, the economy expanded by only 4.0 per cent.
Structural Changes In Indian Economy
Indian Economy Post COVID-19
- In the last four decades, India has faced three major shocks:
- Mar 11, 2020: COVID-19 was declared as pandemic
- End of Dec 2019: First reported officially in Wuhan, China
- Jan 30 2020: 1st COVID-19 case was recorded in
- India has had three waves of infections as on June 2022, pushing its total case load to the world’s second highest.
- A stringent lockdown during the initial wave
- On January 16, 2021, India launched its vaccination programme.
- A number of factors responsible for the most severe economic impact on India, with the severity of the lockdown being the most frequently stated explanation.
- GDP contraction was more severe in countries with a higher stringency index — India, Argentina, Italy, and the United Kingdom.
Sectoral Impact of COVID-19
- Due to stringent restrictive measures, contact-intensive services were almost halted during the pandemic.
- The services sector, which encompasses the bulk of contact-intensive and non-essential activities in India suffered the brunt of the pandemic’s impact.
- The pandemic has reduced the profitability of contact-intensive businesses such as retail trading, hotels and restaurants, air transportation services, transportation logistics services, and education.
- The real estate and automobile sector: was severely impacted by the pandemic, but there were signs of slowdown in these sectors prior to the pandemic.
The Indian labour market:
- severe decline during the first wave of the epidemic
- unemployment hitting an all-time high
- labour force participation plummeting.
- Reverse migration from urban to rural areas raised demand for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) employment in rural areas
- The second and third waves had a little impact, and work conditions had stabilised.
- Because of the lockdown, investment demand ceased during Q1:2020-21 and experienced the most severe contraction.
- The recovery in gross fixed capital formation (GFCF) has been expedited, mainly mostly to active government investment – the only sector that positively contributed to investment demand in 2020-21.
- Agriculture remained robust in terms of production during the pandemic since agriculture and allied activities were spared from the lockdown restrictions.
- Manufacturing, mining and quarrying, and electricity, gas, and water supply all saw significant drops
- Manufacturing, which had led the recovery following the first wave, remained strong during the second wave
Economic Recovery Dynamism Post COVID
- During the first wave of infections, India had one of the world’s worst recessions, with
- In the Q1 of 2020-21: GDP contracting by as much as 23.8%
- Q3: 0.7% & Q4: 2.5%: A gradual recovery – resulting in a substantially less severe contraction of 6.6% for the entire fiscal year, placing India in a relatively better position among the G-20 countries in terms of annual GDP growth for 2020.
- Regardless of the second wave: economic activity rebounded fast in June 2021 and remained persistent, indicating a steady recovery through October 2021.
- 3rd wave: Shortage of Coal and semiconductor chip led in a reduction in momentum beginning in November 2021.
- Rural demand, in particular, dropped after the second wave, but urban demand rebounded.
- Contagion from the Russia- Ukraine conflict impeded activities beginning in March 2022, eroding and delaying recovery.
- The COVID-19 pandemic disrupted global supply chains, shipping, and logistics, as well as affecting the Indian economy through mass lockdown, loss of life, and destruction in permanent demand.
- According to the provisional estimates of annual national income, 2021-22, GDP growth in 2021-22 at Constant (2011-12) Prices in the year 2021-22, is estimated to attain a level of Rs. 147.36 lakh crore. Supported by low base, economy recovered handsomely in 2021-22.
Economy expanded in 2021- 22
- Q1- 20.1%,
- Q2- 8.4%,
- Q3 – 5.4% and
- Q4- 4.1%.
The growth in GDP during 2021-22
- Estimated at 8.7% as compared to a contraction of 6.6 % in 2020-21.
Nominal GDP or GDP at Current Prices in the year 2021-22,
- Estimated to attain a level of Rs. 236.65 lakh crore, as against Rs. 198.01 lakh crore in 2020-21, ( growth rate of 19.5%)
The pre COVID trend growth rate is 6.6% (CAGR from 2012-13 to 2019-20).
- Using the growth rate of -6.6% for 2020-21, 8.9 per cent for 2021-22, and 7.2 per cent for 2022-23 and 7.5 per cent beyond that, RBI has predicted that India to offset COVID-19 losses in 2034-35.
- Hence, India is expected to overcome COVID-19 pandemic losses in 12 years’ period.
- Structural change refers to the fundamental changes that have occurred in the critical components of the Indian economy over time.
- The primary sector’s contribution to GDP decreases over time, while the secondary and tertiary sectors increase.
- In the long run, the tertiary sector surpasses the secondary sector, as the major contributor to the economy.
- In India, the services sector has largely replaced the industrial sector, and it now dominates the economy.
- The role of the primary sector declines as income rises, and India is no exception.
Agriculture’s share of GDP has steadily declined
- from 26.9% in 1990 to 21.6% in 2000, and the decline has continued to 17.8% in 2010 and 17.7% in 2019 owing to service-led growth in India.
- The onset of the pandemic has increased the primary sector’s contribution to the economy as agriculture was the only sector allowed to function smoothly during the economic lockdown.
In 2020-21, the services sector contributed 60.9%
- followed by the secondary sector (19.8%) and the primary sector (20.1%).
- An empirical examination of the nature and causes of structural change in the Indian economy reveals that the services sector drives the industry and the overall economy, and the sector’s growth and dominance is influenced by external factors such as foreign direct investment.
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