1. National Income Aggregates & Growth Concepts
National Income measures the monetary value of all final goods and services produced within a nation over a given financial year:
Gross Domestic Product (GDP) vs Gross Value Added (GVA)
GDP: Total market value of all finished goods and services produced within the domestic territory of a country. GVA: Value of output minus value of intermediate consumption. Relationship formula: GDP at Market Prices = GVA at Basic Prices + Product Taxes − Product Subsidies.
Real GDP vs Nominal GDP (GDP Deflator)
Nominal GDP: Output valued at current market prices (includes inflation effects). Real GDP: Output valued at constant base year prices (2011-12 base year). GDP Deflator = (Nominal GDP ÷ Real GDP) × 100, representing the broadest measure of domestic inflation.
2. Fiscal Policy, Union Budget & Deficits
Structure of the Union Budget (Article 112: Annual Financial Statement)
Split into Revenue Budget (Revenue Receipts: tax and non-tax revenues; Revenue Expenditure: interest payments, subsidies, defence operational salaries) and Capital Budget (Capital Receipts: market borrowings, disinvestments; Capital Expenditure: physical infrastructure creation, highways, railways, defense equipment procurement).
Understanding Fiscal Deficits
Fiscal Deficit: Total expenditure minus (Total receipts excluding borrowings). Represents the government's total borrowing requirement for the year. Revenue Deficit: Revenue expenditure minus revenue receipts. Primary Deficit: Fiscal Deficit minus interest payments, measuring the operational gap excluding past debt liabilities.
3. Monetary Policy & Inflation Targeting
Under the amended RBI Act 1934, the Monetary Policy Committee (MPC) targets Consumer Price Index (CPI) inflation at 4% with a tolerance band of ±2%:
Liquidity & Policy Rates
Repo Rate: Interest rate at which RBI lends short-term liquidity to commercial banks against government securities. Reverse Repo & Standing Deposit Facility (SDF): Mechanism through which RBI absorbs excess system liquidity without requiring collateral. Cash Reserve Ratio (CRR): Percentage of net demand and time liabilities (NDTL) banks must hold with RBI in cash.
Inflation Indices: CPI vs WPI
Consumer Price Index (CPI - Combined): Released by NSO, base year 2012; measures price changes at the retail consumer basket level; highest weight given to Food and Beverages (45.86%); official metric for RBI interest rate policy. Wholesale Price Index (WPI): Released by DPIIT, base year 2011-12; measures bulk wholesale prices; does not include services.
4. Read Full Indian Economy Notes & Practice MCQs
Access chapter-wise notes on NITI Aayog, Five-Year Plans, Banking reforms, Balance of Payments, and Foreign Trade Policy on SF Prep.