Lecture-2: Basic Concepts of Economics Part-I (Macroeconomics) by S.Maitra, Associate Professor, Civil Services Study Centre, Administrative Training Institute, Kolkata (Feb 2014)

Gross domestic product (GDP): The sum of values of all final goods and services produced within the geographical limit of a country.

Gross National Product (GNP): The sum of values of all final goods and services produced by the citizens of a country within the country and the rest of the world. Gross National Product (GNP) =  Gross Domestic Product (GDP) + Net Factor Income from Abroad (NFIA)    

Gross domestic product at market price (GDP_MP): While deriving GDP of a country we estimate value added at the market prices. The estimate of GDP obtained this way is known as GDP at market price.

Gross National Product at Factor Cost (GNP_FC): Market prices normally include indirect taxes net of subsidies. Gross national product at factor cost {GNP_FC) is simply, Gross national product at market price (GNP_MP) minus net  indirect taxes (Net IT), i.e.       GNP_FC  = GNP_MP – Net IT

Net National Product (NNP):  Net National Product (NNP) is simply obtained as gross national product (GNP) minus depreciation (D) i.e. Net National Product (NNP) = Gross National Product (NDP) -- Total Depreciation (D). Fixed capitals have their own life-time and depreciates in value every period of time after their participation in the productive process. Depreciation of fixed capital takes place because of their normal ‘wear and tear’.

National income (NI): Net national product at factor cost is equivalent to the notion of national income {NI), which the accrual of income to all normal residents in a country due to their participation in production anywhere in the world. Therefore,                   National Income(NI) = NNP_FC

GDP Deflator: The GDP deflator, also called the implicit price deflator for GDP, is defined as the ratio of nominal GDP to real GDP:

                            GDP Deflator = (Nominal GDP/ Real GDP)

Nominal GDP measures the value of the output of the economy at current prices. Real GDP measures output valued at constant prices. The GDP deflator measures the price of output relative to its price in the base year.

Aggregate demand shock: Shocks such as change in government expenditure or change in money supply that cause a change in aggregate demand in an economy.

Aggregate supply shock: Shocks such as increase in petroleum price, a drought etc. that lead to a change in aggregate supply in an economy.

Depreciation: The reduction in value of asset through wear and tear. Also, fall in the value of a currency in terms of another currency.

Rational expectations: Expectations about the future making best use of available information.

Efficiency wage: Modern-sector urban employers sometimes pay a higher wage than the equilibrium wage rate in order to attract a higher-quality work-force or to obtain higher productivity on the job.

Keynesian model: Model developed by Lord John Maynard Keynes in the early 1930s to explain the cause of economic depression and hence the unemployment of that period. The model states that unemployment is caused by insufficient aggregate demand and can be eliminated by increasing government expenditure. Increase in aggregate demand would lead to increase in production and hence create further employment.

Laissez-faire: Free-enterprise market economy without any government intervention.

Macroeconomic instability: When an economy is passing through a phase with high inflation accompanied by rising budget and trade deficits and a rapidly expanding money supply.

Macroeconomlc stablllzatlon: Policies designed to eliminate macroeconomic instability.

Procyclical fiscal policy: Changes in government spending and taxes that increase the cyclical fluctuations in the economy instead of reducing them.

Natural rate of unemployment The average rate of unemployment around which the economy fluctuates. The natural rate is the rate of unemployment toward which the economy gravitates in the long run, given all the labor-market imperfections that impede workers from instantly finding jobs.

Recession: A recession is a decline in a country's gross domestic product growth for two or more consecutive quarters of a year.

Accounting classification of government expenditure:

(i)           Revenue and Capital (ii) Developmental and Non-Developmental and (iii) Plan and Non-Plan.

Revenue and capital expenditure:

—  Expenditures that result in the creation of new assets and those which do not.

—  Revenue expenditure is for the normal running of government departments and various services, interest charges etc.

—  The main purpose of the capital account is to show the gross and net capital formation in the public sector during the accounting period. Capital expenditure results in creation of assets in the economy.

Revenue and capital budget:

—  Government budget comprises Revenue Budget and Capital Budget.

—  Revenue budget consists of revenue receipts of government (tax revenues and other revenues) and the expenditure met from these revenues.

—  Tax revenues comprise proceeds of taxes and other duties levied by the Union.

—  Revenue expenditure is for the normal running of government departments and various services. Broadly speaking, expenditure which does not result in creation of assets is treated as 'Revenue expenditure'. All financial administration grants given to state governments and other parties are also treated as revenue expenditure.

—  Capital budget consists of capital receipts and payments.

—  The main items of capital receipts are: a) loans raised by government from public which are called market loans, b) borrowings from Reserve Bank of India and other parties through sale of Treasury Bills, c) loans received from foreign governments and d) loans granted by Central government to state and union territory governments and other parties.

Capital expenditure:

—  A capital expenditure may be defined as any expenditure the benefits of which extend over a period of time exceeding one year.

—  Capital expenditure is the expenditure which is intended for creating concrete assets of a material character in the economy.

—  Examples of capital expenditure are the acquisition of assets like land, buildings machinery, equipment and also investment in shares and loans and advances granted by Central government to state and union territory governments, government companies etc.

Developmental and non-developmental expenditure:

—  Developmental expenditure comprises expenditure incurred on education. medical care, public health and family planning, labour and employment, agriculture, cooperation, irrigation, transport and communication and other miscellaneous services. Expenditure incurred on these items both on Revenue and Capital accounts is also treated as development expenditure.

—  Non-Developmental expenditure, on the other hand, comprises expenditure incurred on items like defence, collection of taxes and duties, administrative services, interest on debt and other services, stationery and printing and other expenditure on general services.

—  Developmental expenditure leads to economic growth and development whereas Non-Developmental expenditure does not, at least directly.

Plan and Non-Plan Expenditure:

—  Plan expenditure refers to the expenditure incurred by the Central Government on programmes / projects, which are recommended by the Planning Commission.

—  Non-Plan expenditure, on the contrary, is a generic term used to cover all expenditure of government, not included in the plan.

—  The distinction between 'plan expenditure' and non-plan expenditure' is purely an administrative classification.

—  Non-Plan expenditure consists of many items of expenditure, which are obligatory in nature.

—  Items of expenditure, such as interest payments, pensionary charges, statutory transfer to states come under the obligatory nature.

—  Defence, internal security are essential obligations of a state.

—  Besides, there are special responsibilities of the Central Government like external affairs, currency and mint, cooperation with other countries and the expenditure incurred in this connection are treated as "non-plan" expenditure.

—  Of all the major items of Non-plan expenditure of the Central Government, interest payments, defence, subsidies take the lion's share of expenditure.

Revenue Deficit, Fiscal Deficit and Primary Deficit of Central Government:

—  Revenue Deficit = Revenue expenditure – Revenue receipts

—  Fiscal Deficit = Total expenditure—Revenue receipt— Recovery of  loans                            — Other receipt                            

—  Primary  Deficit = Fiscal Deficit – Interest payment

Lecture-1: How to prepare for CSE Prelims--Introductory Lecture by Subir Maitra, Associate Professor at Civil Services Study Centre, Administrative Training Institute, Kolkata (February, 2014)

The civil services examination is basically a test to choose suitable administrators. It tests the candidate right from the stage when one starts the preparation. One common misconception about the prelims is that it is a test of facts and figures. This is not so. A candidate should have the right frame of mind and the will power to succeed in the exam. A proper action plan is needed for the preparation itself since he /she will be tested for some essential qualities like power of retention, clarity of concepts, ability to identify the correct alternatives with efficiency and accuracy. All this requires a quick decision making power. Since the preliminary exam in particular is a test of endurance the candidate needs to prepare himself on the physical as well as mental level. The main constraint is the time one gets to answer questions. On an average one gets around 70 seconds for each question for GS Paper-1 and around 90 seconds for GS Paper-2. One sure way of dealing with this stress is to count numbers or to take a few deep breaths. Meditation and Yoga also help in dealing with stress to a great extent.

Now we come to the actual preparation for the prelims exam. Since it is a multiple choice question paper, it needs a different preparation and a proper strategy. The first thing a candidate needs to bear in mind is that the examination is designed to evaluate certain qualities like a sharp memory and basic retention power. There are ways to increase one's memory like preparing charts. One gets confused when faced with mind boggling facts and figures. Important facts and figures can be simplified and represented on charts and they can be arranged in the form of tables or graphs. Another thing to remember is to make short and brief notes on each topic so that the entire syllabus can be revised a day before the exam. It is better to use diagrams and link words which make it easier to understand difficult concepts. One more technique to help in retaining information is the use of abbreviations. Since the syllabus involves exhaustive information abbreviations help you to remember it better. It is a good method to remember dates, facts and figures in a picture format and to break up complex names and places into smaller and simpler words. The last and the most important technique is doing regular revision. This helps in retaining the maximum information. A separate time slot should be given to doing not only regular but multiple revisions like daily, weekly, monthly etc.

Many candidates make a mistake of overloading themselves with lots of information and end up remembering nothing. One should be able to differentiate between relevant and irrelevant information. Since the preliminary exam is an elimination round the candidate should also learn to focus only on the information needed and filter out the rest. It helps to discuss with friends and teachers but the most reliable way is to past years question papers for the optional subject whereas for the general studies paper, one should keep abreast with current events and information related to them.

An important thing to remember is that for this exam it is just enough to remember information but to understand the concepts well instead of memorizing facts and figures. The questions asked in the General Studies paper are of 10+2 level. Therefore emphasis has to be on conceptual clarity. Any concept has to be understood with its origin, merits and de-merits, then it needs to be analysed with other relevant topics and lastly it has to be correlated with the events that have taken place during the year.

The preliminary exam requires candidates who have the acumen and the ability to choose the right option of many given options. This needs a proper method of elimination. It is a good idea to go through previous years and model question papers and solve as many as possible. Taking a mock test of a certain number of G.S. questions  would be a good practice and help to pick out the most appropriate option.

Each prelims paper is for two hours but a lot of time is wasted in signing attendance sheets etc, therefore there is a lot of need for effective Time Management not only for the exam but in the preparation as well. It is not enough to know the right answer but it has to be marked correctly on the answer sheet. Speed and Accuracy are important, so solving model question papers on a regular basis would be a great help.

A good presence of mind is needed to eliminate the least appropriate options and arrive at the right one. Tick out the least correct answer first and go on to the next option. Even when faced with a question for which you do not have a ready answer, with basic common sense and a good presence of mind, it is possible to make your guess a smart and a correct one.

Throughout the preparation for the prelims exam, it is important to remember that any topic or concept should not be studied in isolation. It is better to understand and establish a correlation between related concepts from other subjects and current events and happenings.

Even with all this preparation, it is necessary to have a positive attitude and a great amount of will power to succeed to achieve your goal, that of getting through the civil services examination with flying colors!

Success Secrets:

Hard work:

Remember that there is no substitute to hard work. All successful candidates say the hard work is one of the first pre-requisites for the success. There is no short cut to success and hard work never goes unrewarded.

Planning and systematic study:

Proper planning right from the stage of selection of optional subjects and selection of text books is absolutely necessary. Though there is no one way of studying, there are ways to study more effectively and with less stress and more enjoyment. It is important to know how to make use of the sources available to you in the best possible way. It is wise to take a three pronged approach to preparation, reading to learn, making effective notes and able to write answers to various kinds of questions.

Time management:

Effective time management is another requirement. If we spend our time in a frenzy of activity, we can achieve very little because we are not concentrating on the right things. We keep hearing the word "Busy" a lot. There are two kinds of ‘busy’(ness): chaotic, disorganized busy and calm, effective busy. It goes without saying that being the latter helps to pack in more productivity in your work. Improving our "effectiveness quotient" calls for mastery of basic time management skills.

Self-confidence:

            Your self-confidence can make the difference. Your self-confidence should be at an all time high - always. You should be in the company of people, who can increase your motivational levels high and can inspire you. Form a group of close friends, who are as determined as you are to make it to the Civil Services Examination.

Dedication:

Be totally dedicated and focused in your studies. You have to sacrifice something like movies, parties, and entertainments etc at this stage of your life to achieve bigger things.

Patience:

            As the CSE preparation spans a minimum of one year, right from the Preliminary stage to the interview state, it requires a lot of patience to maintain your tempo. One should not lose patience and the tempo throughout the preparation period till success.

Tips for answering questions at the Prelims:

        ( I am indebted to Mr. Parvez Dewan, IAS for giving me some of these tips.)

Don’t waste time:

Start answering the questions from the minute you get them. The time allotted is very limited, so waste no time on reading the entire question paper first. First answer all the question you are sure you know the answers to. Skip all the difficult questions in the first round: in this round if you find yourself stuck in a question for more than 10 seconds, just skip it.

However, keep making a small mark on the question paper to indicate that you have skipped that question in the first round. This will enable you to save time in the next rounds. If you answer a question in the second round, cancel this mark, so that in third round you know which questions still remain unanswered. Three rounds should be sufficient, but you could break the process into a fourth round too.

Allocate time for each answer:

In GS Prelims Paper-1, since you are to answer 100 questions (80 questions for Paper-2) in two hours, you have an average of 72 seconds (90 seconds for Paper-2) for each question. So on pro rata basis you should answer 25 questions every 30 minutes (20 questions every half an hour for Paper-2). But be harsh with yourself in the first hour. Allocate 40-45 seconds for each question (55-60 seconds in case of Paper-2).

 Thus if in the first 30 minutes you haven’t answered 30-35 questions (25-27 questions in case of optional subject), you should tell yourself that you are not doing well. This is because in the first hour you will be answering the easiest questions and in the last half-hour you will need plenty of spare time for “logic and guesswork”. Even bright candidates sometimes find themselves slower than the pro-rata speed in the first half-hour. So unless you consciously try to be faster than that speed, you will run into trouble later.

Negative marking:

There will be penalty for wrong answers marked by a candidate in the objective type question papers. There will be four alternatives for the answer to every question. For each question for which a wrong answer has been given by the candidate, one-third (0.33) of the marks assigned to that question will be deducted as penalty. If a candidate gives more than one answer, it will be treated as a wrong even if one of the given answers happens to be correct and there will be same penalty. But if a question is left blank, i.e. no answer is given by the candidate, there will be no penalty for that question. Hence you need be very cautious in the second and third rounds when you are attempting those questions you are fairly, but not absolutely, certain about or those questions that you know absolutely nothing about.

Analysis of GS Prelims questions related to Indian Economy (2005-2013):

The questions were asked on the following topics:

CSE GS Prelims 2013

1.Balance of payments;

2.RBI’s regulation;

3.Bank  Rate;

4.Deficit financing;

5.Disguised unemployment;

6.Capital account;

7.Inflation;

8.Liquid asset of bank;

9.Open market operations;

10. Priority sector lending by banks;

11.Demographic dividend;

12.Inflation;

13.Economic growth;

14.National income;

15.Credit to rural poor;

16.Foreign exchange reserve;

17.Inflation;

18.Demand and supply of money;

CSE GS Prelims 2012

1. National Biodiversity Authority (NBA) and Indian agriculture;

2. National Rural Health Mission;

3. National Rural Livelihood Mission;

4. Multi-dimensional Poverty Index of UNDP;

5. Thirteenth Finance Commission;

6. Industrial Policy;

7. Ryotwari Settlement;

8. Demographic transition;

9. Index of Industrial Production;

10. Janani Suraksha Yojana;

11. Employees’ State Insurance Scheme;

12. District Rural Development Agencies;

13. Reserve Bank of India;

14. Capital gains;

15. Measures to increase in the money supply in the economy;

16. Foreign Direct Investment;

17. Price of a currency in international market;

18. Lead Bank Scheme;

CSE GS Prelims 2011

1. Union Budget 2011-12;

2. Food Inflation;

3. Fiscal Stimulus;

4. Visit by foreign nationals to India;

5. Current Account Deficit;

6. Base Effect of Inflation;

7. Demographic dividend;

8. Value Added Tax;

9. Closed economy;

10. Difference between FDI and FII;

11. Aam Admi Bima Yojana;

12. Mega Food Parks;

13. Micro Finance;

14. MGNREGA;

15. Union Budget;

16. Finance Commission;

17. Australia Group and Wassenaar Arrangement;

18. Difference between Vote on Account and Interim Budget;

19. IMF;

20. Teaser Loan by commercial Bank;

21. Growth of Indian economy;

22. Agricultural credit;

23. Inclusive Growth;

24. Disinvestment of the public sector;

25. Economic growth and Inflation;

26. Bank Rate;

CSE GS Prelims 2009

1.Infant Mortality Rate;

2.Private companies—Business house associated;

3.Financial organization—Service provided;

4. International auctioneers;

5. Funds from UNFCC;

6. Carbon credit;

7. World Economic Forum;

8. The Climate Change Accountability Bill—country

9. Important events of Indian economy;

10.Population density in south Asian countries;

11.Different taxes in India;

12.Stock Exchanges in India;

13.Energy Statistics;

14.Stock indices in different countries;

15.CACP—National Food Security Mission;

16.Deepak Parekh Committee;

17.Five Year Plans-Objectives;

CSE GS Prelims 2008

1.Green Revolution –Father of;

2.Stock Index—S & P 500;

3.Census 2001—State with minimum population;

4.Prisoner’s Dilemma;

5.Census 2001—State with highest % of rural population;

6.World Summit on Sustainable Development;

7.Clean Development Mechanism-carbon credits;

8.Census 2001-Million plus cities;

9.Name of PSUs;

10.UN Monetary and Financial Conference;

11.BRIT (GOI);

12.Important International Organisations—India as a member;

13.Census 2001-Persons above 65 years of age;

14.GDP per capita, Wheat and Rice production;

15.Rural Electrification Policy;

16.National Population Policy,2000;

17.Biodiesel Mission;

18.Indira Gandhi Old Age Pension Scheme;

19.Scheme to provide training and skills to women in trades.

CSE GS Prelims 2007

1.National Child Labour Project and Gurupadaswamy Committee;

2.Aluminum company—Location;

3.National Highways and States;

4.International companies-Products;

5.Changing sectoral contribution to Indian GDP;

6.Steel Industry in India;

7.National Housing Bank;

8.Food grains production in India;

CSE GS Prelims 2006

1.Famous companies-area of work;

2.Census 2001-Area,Literacy rate, Population;

3.BOP concept;

4.Bharat Nirman Plan and National Rural Employment Guarantee Act,2005;

5.Fiscal Responsibility and Budget Management Act;

6.Indonext;

7.Non nationalized Bank;

8.Value of India’s export and India’s share in merchandise exports;

9.SAFTA;

10.Carbon tax-world’s first;

11.ASEAN members;

12.National Rural Employment Guarantee Act,2005;

13.World Economic Forum meeting at Davos;

14.Life Insurance Corporation, National Insurance Company and United India Insurance Company;

15.Service Tax;

16.Nirmal Gram Puraskar;

CSE GS Prelims 2005

1.Census 2001-States with 2^nd largest population;

2.Chamber of commerce-FICCI-President;

3.India’s Forex reserve and whole sale price index;

4.First airport owned by Public Limited Company;

5.ASEAN members;

6.PRGF of IMF and Singapore Regional Training Institute(STI)

7.Sensex and New York Stock Exchange;

8.Important companies-Business House;

9.Census 2001-Area and population of different state;

10.Census 2001-% of scheduled caste; decadal growth of population; State with least population; State with highest sex ratio;

11.Global Trust Bank and PNB amalgamation;

12.National Family Planning Programme and National Population Policy;

13.No. of Post Offices; Year of formation of BSNL and TRAI;

 Major topics of GS Prelims questions related to Indian Economy (2005-2013):

1. Census 2001 and Census 2011;
2. Basic statistics relating to Indian Economy;
3. Five Year Plans;
4. Government Policies;
5. Government Schemes, Projects and Missions;
6. Committees and their recommendations;
7. Public Sector Enterprises;
8. Stock Exchanges and Stock Indices—National and International;
9. Bank and insurance sector-Role and functions of Reserve Bank of India;
10. Famous private companies—business houses associated with them and their products/services;
11. International trading blocks—India as a member;
12. Environment Economics-- National and International;
13. Taxes and subsidies;
14. Miscellaneous;

Reading List:

1.        NCERT textbooks (XI-XII) on Economics:   Read the following sections:

            From  XI:   Course II, Units I—IV;

            From XII:   Course II, Units IV—V;

2.       Census 2001 and 2011Reports;

3.      Economic Surveys, GOI,(2012-13 and 2013-14);

4.      India 2013 and 2014;

5.      One good guide book on CSE Prelims (Access/TMH/Unique/Spectrum); 

6.      One/two good monthly magazine on competitive examination;

7.      One/two national English dailies;

8.     One economic/business daily, if possible.

Economics, Development Economics and Indian Economics for Civil Services Main Exam, 2013

Economics, Development Economics and Indian Economics for Civil Services Main Exam, 2013

·         Paper-V

General Studies -II (Governance, Constitution, Polity, Social Justice and International relations) of 250 marks which may include following topics:

·         Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

·         Development processes and the development industry- the role of NGOs, SHGs, various groups and associations, donors, charities, institutional and other stakeholders

·         Welfare schemes for vulnerable sections of the population by the Centre and States and the performance of these schemes; mechanisms, laws, institutions and Bodies constituted for the protection and betterment of these vulnerable sections.

·         Issues relating to development and management of Social Sector/Services relating to Health, Education, Human Resources.

·         Issues relating to poverty and hunger.

·         Paper-VI

General Studies -III (Technology, Economic Development, Bio-diversity, Environment, Security and Disaster Management) of 250 marks which may include following topics:

·         Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

·         Inclusive growth and issues arising from it.

·         Government Budgeting.

·         Issues related to direct and indirect farm subsidies and minimum support prices; Public Distribution System- objectives, functioning, limitations, revamping; issues of buffer stocks and food security; Technology missions; economics of animal-rearing.

·         Food processing and related industries in India- scope and significance, location, upstream and downstream requirements, supply chain management.

·         Land reforms in India.

·         Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

·         Infrastructure: Energy, Ports, Roads, Airports, Railways etc.

·         Investment models.