Indian Economy: key facts and practice questions

Revise Indian Economy for SSC, Railway, police and state PSC exams: the facts and distinctions that keep coming up, a one-glance revision list, and 10 practice questions with answers and explanations.

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Key concepts and facts

• Basic concepts: GDP is the market value of all final goods and services produced within the domestic territory of a country in a year. GNP adds net factor income from abroad to GDP. NNP is GNP minus depreciation, and NNP at factor cost is National Income. Factor cost equals market price minus indirect taxes plus subsidies. Nominal GDP is at current prices; real GDP is at constant base-year prices, so real growth excludes price changes. GDP deflator is nominal GDP divided by real GDP multiplied by 100. Per capita income is national income divided by population. National income estimates come from the National Statistical Office (NSO), formed by merging the CSO and the NSSO (decided in 2005; restructured in May 2019). India is a mixed economy; services (tertiary sector) contribute the largest share of GDP, while agriculture (primary sector) still employs the most workers.
• Planning: The Planning Commission was created on 15 March 1950 by a Cabinet resolution, headed by the Prime Minister. The First Plan (1951-56) followed the Harrod-Domar model and stressed agriculture; the Second Plan (1956-61) followed the Mahalanobis model and stressed heavy industry. The three annual plans of 1966-69 are the plan holiday. The Twelfth Plan (2012-17) was the last; NITI Aayog replaced the Planning Commission on 1 January 2015.
• Money and banking: Money is a medium of exchange, a unit of account and a store of value. The RBI started on 1 April 1935 under the RBI Act 1934 and was nationalised on 1 January 1949. Its tools: repo rate (RBI lends short term to banks against securities), reverse repo (RBI borrows from banks), CRR (share of deposits kept as cash with RBI), SLR (share kept by the bank itself in cash, gold and approved securities), bank rate (the rate at which the RBI rediscounts bills; now aligned with the MSF rate and charged as the penalty rate on CRR/SLR shortfalls) and open market operations (buying and selling government securities). Raising rates or reserves fights inflation. The six-member Monetary Policy Committee (three RBI, three government nominees, Governor as chair) sets the repo rate. Fourteen banks were nationalised in 1969 and six in 1980. NABARD (1982) is the apex body for rural credit, SIDBI (1990) for MSMEs; EXIM Bank (1982) finances trade; RRBs began in 1975. A loan becomes an NPA when overdue for more than 90 days. Basel norms set bank capital adequacy standards; payment banks cannot lend.
• Inflation and public finance: Demand-pull inflation comes from excess demand, cost-push from rising input costs, and stagflation is high inflation with stagnant output. WPI is published by the Office of the Economic Adviser (DPIIT); CPI Rural, Urban and Combined by the NSO. Core inflation excludes food and fuel. The Union Budget is the Annual Financial Statement under Article 112. Revenue receipts are taxes and non-tax income; capital receipts include borrowings, disinvestment and loan recoveries. Fiscal deficit is total expenditure minus receipts excluding borrowings; revenue deficit is revenue expenditure minus revenue receipts; primary deficit is fiscal deficit minus interest payments. The FRBM Act came in 2003. The Finance Commission is set up under Article 280 every five years. GST began on 1 July 2017 through the 101st Constitutional Amendment; the GST Council (Article 279A) is chaired by the Union Finance Minister. Income tax and corporation tax are direct taxes; GST, customs and excise are indirect.
• Poverty, unemployment and development: Disguised unemployment means more workers than needed, common in agriculture; frictional unemployment is temporary joblessness between jobs; structural unemployment comes from a skills mismatch. The Tendulkar (2009) and Rangarajan (2014) committees estimated poverty lines. HDI, published by UNDP since 1990, combines life expectancy, education and GNI per capita. The Gini coefficient, derived from the Lorenz curve, measures inequality from 0 (equality) to 1. Demographic dividend is the growth potential of a large working-age population.
• Agriculture, industry and external sector: MSP is recommended by the CACP. The Green Revolution of the mid-1960s, linked with M.S. Swaminathan, spread HYV wheat in Punjab, Haryana and western UP. Land reforms covered zamindari abolition, tenancy reform and land ceilings; the Kisan Credit Card began in 1998. The 1991 LPG reforms were introduced by Finance Minister Manmohan Singh under PM Narasimha Rao after the 1991 crisis; the rupee was devalued in 1966 and 1991. The Industrial Policy Resolution 1956 is the economic constitution of India. CPSEs are graded Maharatna, Navratna and Miniratna. In the balance of payments, the current account covers goods, services, income and transfers; the capital account covers FDI, FII and loans. India adopted current account convertibility in 1994. SEBI (1988, statutory 1992) regulates markets; BSE dates from 1875, NSE from 1992; Sensex tracks 30 BSE companies and Nifty 50 NSE companies. IMF and the World Bank were born at Bretton Woods in 1944; WTO replaced GATT in 1995; NDB is in Shanghai, AIIB in Beijing, ADB in Manila.
• Schemes by year: MGNREGA 2005 (100 days of wage employment; repealed from 1 July 2026 and replaced by the VB-G RAM G Act 2025, which guarantees 125 days), PMJDY 2014, Make in India 2014, Digital India 2015, PMJJBY and PMSBY 2015, Atal Pension Yojana 2015, MUDRA 2015, Startup India 2016, Ujjwala 2016, Ayushman Bharat PM-JAY 2018 (Rs 5 lakh health cover) and PM-KISAN 2019 (Rs 6,000 a year).
• Traps: GNP includes income from abroad, GDP does not; CRR is kept with RBI, SLR with the bank; fiscal deficit is not revenue deficit; WPI is from DPIIT, CPI from NSO; National Income is NNP at factor cost; Finance Commission is Article 280, Budget is Article 112.

One-glance revision list

• Chain to remember: GDP + net factor income from abroad = GNP; GNP - depreciation = NNP; NNP at factor cost = National Income.
• Market price to factor cost: subtract indirect taxes, add subsidies. Think 'taxes inflate the price, subsidies deflate it'.
• Plan models: First Plan = Harrod-Domar (agriculture), Second Plan = Mahalanobis (heavy industry). Plan holiday = 1966-69.
• CRR is cash kept WITH RBI; SLR is liquid assets kept BY the bank itself (cash, gold, government securities).
• Repo: RBI lends to banks. Reverse repo: RBI borrows from banks. Raising them tightens money and fights inflation.
• Bank nationalisation: 14 banks in 1969, 6 banks in 1980. NABARD 1982, RRBs 1975, SIDBI 1990.
• Deficit formulas: Fiscal deficit = total expenditure - receipts excluding borrowings; Primary deficit = fiscal deficit - interest payments.
• Index publishers: WPI by Office of Economic Adviser (DPIIT); CPI Rural/Urban/Combined by NSO; CPI-IW by Labour Bureau.
• Articles: 112 Annual Financial Statement (Budget), 280 Finance Commission, 279A GST Council. GST from 1 July 2017 via the 101st Amendment.
• Scheme years: PMJDY 2014, MUDRA 2015, Ujjwala 2016, Ayushman Bharat 2018, PM-KISAN 2019, MGNREGA 2005 (replaced by the VB-G RAM G Act from 1 July 2026).
• Gini coefficient: 0 means perfect equality, 1 means perfect inequality; it is derived from the Lorenz curve.
• Curves: Phillips (inflation vs unemployment), Laffer (tax rate vs tax revenue), Engel's law (food share falls as income rises).

Practice questions

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Indian Economy is tested in SSC, Railway, police and state PSC exams. Check the current official notification and syllabus of the exam you are preparing for to see how it is covered.

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