Basics of Indian Economy
Basics of Indian Economy
Economy questions in Part-II stay conceptual rather than numerical. Expect 1 to 2 questions on sectors, national income terms, banking vocabulary or inflation. Do not memorise current interest rates — they change and the paper does not ask them. Learn what each term means instead.
The Three Sectors
| Sector | Also called | Examples |
|---|---|---|
| Primary | Agriculture and allied | Farming, fishing, mining |
| Secondary | Industrial | Manufacturing, construction |
| Tertiary | Service | Banking, transport, teaching |
Bihar's economy is dominated by the primary sector, with a large share of the workforce dependent on agriculture. Questions about the state often test this qualitative point rather than exact percentages.
National Income Terms
GDP = value of all final goods and services produced inside the country in a year
| Term | Meaning |
|---|---|
| GDP | Produced within the country's borders |
| GNP | GDP plus net factor income from abroad |
| NNP | GNP minus depreciation |
| Per capita income | National income divided by population |
| Nominal vs Real | Real is adjusted for inflation |
The word net always signals that depreciation has been subtracted, and the word national signals that income earned abroad has been counted.
Money, Banking and Inflation
The Reserve Bank of India was established in 1935 and was nationalised in 1949. It is the country's central bank, issues currency and regulates the banking system.
- Repo rate — the rate at which the RBI lends to commercial banks.
- Reverse repo rate — the rate at which the RBI borrows from banks.
- CRR — the share of deposits a bank must keep with the RBI.
- SLR — the share of deposits a bank must keep in liquid assets with itself.
✗ Repo rate is the rate at which RBI borrows from banks | ✓ Repo is RBI lending to banks; reverse repo is RBI borrowing
Inflation is a sustained rise in the general price level. Demand-pull inflation comes from too much demand; cost-push inflation comes from rising input costs. It is measured through the Consumer Price Index and the Wholesale Price Index.
The Planning Commission was replaced by NITI Aayog in 2015. NITI Aayog is a policy think tank and, unlike the Planning Commission, does not allocate funds to states.
रेपो में RBI बैंकों को उधार देता है, रिवर्स रेपो में RBI बैंकों से लेता है।
TRE pointer: The safest preparation here is definitional. Questions ask what repo rate means, which body replaced the Planning Commission, or which sector a given activity belongs to — never the current rate. Teaching itself is a tertiary-sector activity, and that has been used as a question stem. Given −1/3 negative marking on five options, a definitional question you are unsure of is a better candidate for option E than a wild guess.
60-Second Recap
- Primary, secondary and tertiary sectors; teaching belongs to the tertiary sector.
- GDP is within borders; GNP adds net income from abroad; NNP is GNP minus depreciation.
- RBI established 1935, nationalised 1949.
- Repo = RBI lends to banks; reverse repo = RBI borrows from banks.
- CRR is kept with the RBI; SLR is kept by the bank itself in liquid assets.
- NITI Aayog replaced the Planning Commission in 2015 and does not allocate funds.
Frequently Asked Questions
What is the difference between GDP and GNP?
GDP counts everything produced inside the country's borders, regardless of who owns the factors of production. GNP takes GDP and adds the net factor income earned by the country's residents abroad. If more income flows out than in, GNP will be smaller than GDP for that year.
Which body replaced the Planning Commission?
NITI Aayog, set up in 2015. It works as a policy think tank offering advice and a platform for cooperative federalism. The important contrast for exams is that the Planning Commission allocated funds to states while NITI Aayog does not, which changes its role fundamentally.
Do I need to memorise the current repo rate for BPSC TRE?
No. Part-II General Studies asks for the meaning of the term, not its current value, and rates change too often to be a fair question. Spend your time on definitions, the difference between repo and reverse repo, and the distinction between CRR and SLR instead.
What kind of economy questions come in a teacher exam?
Conceptual and vocabulary-based ones: sectors of the economy, national income terms, banking definitions, types of inflation, and the change from Planning Commission to NITI Aayog. Bihar-specific economy questions usually stay qualitative, such as the dominance of agriculture in the state.