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Summary

Economics Class 01

## GDP ESTIMATION IN INDIA (05:03 PM)

- GDP Calculation changes introduced in 2014-15.
- In 2015, the Central Statistics Office (CSO) introduced a new series of national account statistics.
- The Base Year of the GDP Series was revised from 2004-05 to 2011-12.
- Base year is revised periodically to take into account the structural changes which have been taking place in the economy and to depict a true picture of the economy.
- The new series incorporates the latest recommendations of the System of National Accounts, 2008, the international guidelines on the compilation of national accounts.

## WHY GDP IS NOT A VERY GOOD MARKER TO MEASURE DEVELOPMENT

- It doesn't take into account externalities such as crime, pollution, inequality, and depletion of natural resources.
- It doesn’t measure aspects like Environmental protection, family bonding etc.
- GDP also includes socially negative activities if it generates economic output. For Example, the money spent on the repair work after the train crash is counted in GDP.
- Non-Inclusion of Social Aspects of people’s life such as state of health, quality of education, etc.

## NATIONAL MULTIDIMENSIONAL POVERTY INDEX (MPI) (05:20 PM)

- Poverty line Only talking about consumption or income level.
- Poverty is a multidimensional concept not just deprivation on income and consumption.
- Other parameters include standard of living etc. This is what the MPI is doing.

## NATIONAL MPI

- First ever National MPI was released in 2021 (based on data taken from NFHS-4 ).
- Under the government’s Global Indices for Reforms and Growth (GIRG) initiative, NITI Aayog is the nodal agency for MPI.
- GIRG monitors India’s performance on various important social and economic parameters.
- Methodology used in Computing India’s National MPI (Alkire-Foster Methodology): It identifies people as poor or not poor based on a dual-cut-off counting   
  method.
- According to the AF methodology, an individual is considered MPI poor if their deprivation score equals or exceeds India’s national MPI poverty cut-off of 33.33%.

## DIRECT BENEFIT TRANSFER (05:40 PM)

- Spending on subsidies is high, still leakages are high -This is the ground for introducing DBT.
- Transfers should be linked to inflation and the product market- These two challenges have to be addressed to make DBT successful.
- **KEY ENABLERS FOR DBT**
- JAM (Jan Dhan, Aadhaar, and Mobiles) trinity: Enabled transfer benefits in a leakage-proof, well-targeted, cashless, and timely manner.
- Business Correspondents (BC) Infrastructure: Ensure that payments are disbursed to the beneficiaries on time, at their doorstep, and of full value.
- Moving away from the Branch-led to Employee-led.
- Payments Bank: Increased the penetration level of financial services in remote areas of the country.
- Mobile money: Develop a comprehensive eco-system for cashless transactions over a mobile platform using Aadhaar as an identifier.

## SELF-HELP GROUPS (05:50 PM)

- Formal grouping registered as a trust or cooperative society where the members will be encouraged to save and how manage finances.
- SHG is a village-based financial intermediary committee usually composed of 10-20 local women.
- It is voluntary in nature.
- India has around 1.2 crore SHGs, 88% of them all women-based.
- SHG success stories include Kudumbashree in Kerala, Jeevika in Bihar, Mahila Arthik Vikas
- Mahamandal in Maharashtra, and Looms of Ladakh.
- Group responsibility: In an SHG, all members of a group take responsibility for a loan that an individual member takes.

## SIGNIFICANCE

- Financial inclusion.
- Women empowerment.
- Poverty alleviation.

## CHALLENGES

- One of the major challenges is the scalability.
- Democratic management.

## MICROFINANCE IN INDIA (06:00 PM)

- It is a collateral-free loan and for low-income households only.
- Eligibility: 3 lakh/annum to avail microfinance.
- Loan either from the bank or NBFC MFI.

## STATE FINANCES (06:07 PM)

- Recently, the Reserve Bank of India published an annual report titled “State Finances: A Study of Budget of 2023-24”. The theme of the Report is ‘Revenue Dynamics and Fiscal Capacity of Indian States’.
- **TRENDS IN DEFICIT**
- 1)Gross FD steadily increased in the past five years.
- **AGGREGATE RECEIPTS**
- 1)States own taxes like SGST, Excise duty on alcohol, Stamp duty etc.
- No consistency is observed in states' taxes.
- Out of the sources for own taxes sales tax is highest.
- 2)Non tax revenue.
- Sources include interest payment and fees for Economic services like licenses for mining and royalty.

## STATE'S EFFORT TO IMPROVE REVENUE

- States are sovereign because they get power from the constitution, so the product they have power to tax they can also levy cess.
- Cess is always done for a particular purpose.
- A high debt-to-GDP ratio will lead to a crowding-out effect.
- **VERTICAL TAX DEVOLUTION**
- The Centre is not collecting most of the money as tax, But as cess.
- **HORIZONTAL DEVOLUTION WEIGHTS**
- Need
- Fiscal disability
- Equity
- Efficiency.
- 15th FC did not take into account infrastructure.

## PUBLIC DEBT (07:03 PM)

## DEBT PROFILE OF THE GOVERNMENT

- Component Internal and External.
- **Under Internal -**
- Marketable and Non-marketable securities.
- Under marketable -Dated securities, Treasury bill, Cash management bills.
- Under Non Marketable -NSSF securities.
- **External debt** again we have two sources: External assistance windows- Like IBRD, and IDA and Bilateral sources like Russia, Germany and Japan.
- Other sources include
- 1)IMF-SDR.
- 2)Defence debt
- 3)FII in Gsecs.

## TRENDS

- Non-marketable debt has risen.
- Public Debt denotes liabilities payable by the Central Government, which are contracted against the Consolidated Fund of India, as provided under Article 292 of the Constitution of India.
- Current Status of Public Debt in India:
- Central Government’s Public Debt stood at 57.1 % of GDP as of the end of March 2023.
- General Government Debt was 81% of GDP in 2022-23.
- General Government Debt represents the indebtedness of the Government sector (Central, State Governments and UTs with legislature).
- Internal Debt constituted 94.6 % of Public Debt at end-March 2022.
- Currency composition: Max debt taken in US $ and second is Indian Rupees.

## The topic for the next class

: PLFS