ECONOMICS MASTER NOTES

Complete & Detailed Revision Guide (2025-26)

Created by Team Vardaan with ❤️

1. What Development Promises?

Development goals vary for different people. What may be development for one may not be development for the other. It may even be destructive.

• Example: Industrialists want dams for electricity (development). But tribals lose their land and homes (destruction).
• Common Goals: Besides income, people seek equal treatment, freedom, security, and respect. "Quality of life depends on non-material things."

2. National Development & Comparison

Per Capita Income (Average Income): Total Income of Country ÷ Total Population.
Used by World Bank to classify countries.

• Rich Countries: PCI > US$ 49,300 per annum (2019 data).
• Low Income Countries: PCI < US$ 2,500.
• Limitation: Averages hide disparities. (A country with equitable distribution is better than one with super-rich and super-poor).

3. Human Development Report (UNDP)

Published by UNDP. Compares countries based on:

1. Educational Levels: Literacy rate, Gross Enrolment Ratio.
2. Health Status: Life Expectancy at birth.
3. Per Capita Income: Calculated in Dollars (Purchasing Power Parity).

4. Sustainability of Development

Development should meet the needs of the present without compromising the ability of future generations to meet their needs.

• Groundwater Overuse: 1/3rd of the country is overusing reserves.
• Crude Oil: Non-renewable. Reserves may last only 50 years.

BMI (Body Mass Index): Weight (kg) ÷ Height² (m). (Normal: 18.5 to 25).

1. Classification of Sectors

Sector	Description	Examples
Primary	Producing a good by exploiting natural resources. Agriculture & related sector.	Farming, Dairy, Fishing, Mining.
Secondary	Natural products changed into other forms through manufacturing. Industrial sector.	Sugar from sugarcane, Cloth from cotton, Bricks from earth.
Tertiary	Activities that help in the development of Primary & Secondary. Service sector.	Transport, Storage, Banking, Teaching, IT.

2. Comparing the Three Sectors (GDP)

GDP (Gross Domestic Product): The value of all FINAL goods and services produced within a country during a particular year. (Intermediate goods like flour in biscuits are NOT counted separately to avoid double counting).

Why is the Tertiary Sector Rising?

1. Govt taking responsibility for basic services (Hospitals, Police, Courts).
2. Development of agriculture/industry leads to demand for transport/trade.
3. Rise in income levels leads to demand for tourism, shopping, private schools.
4. Growth of new services like Information Technology (IT).

3. Organised vs Unorganised Sector

• Organised: Registered by govt, follows rules (Factories Act), Job security, Paid holidays, Provident Fund, Fixed working hours. (e.g., Bank clerk, Govt teacher).
• Unorganised: Small/scattered units, outside govt control. Rules exist but not followed. Low pay, no job security, no paid leave. (e.g., Street vendor, Landless labourer).

4. Public vs Private Sector (Ownership)

• Public Sector: Govt owns assets/provides services. Motive: Public Welfare. (Railways, Post Office).
• Private Sector: Ownership by private individuals. Motive: Profit. (TISCO, Reliance).

1. Money as a Medium of Exchange

Double Coincidence of Wants: In a barter system, both parties have to agree to sell and buy each other's commodities. Money eliminates this need.

• Modern Money: Currency (Paper notes & Coins) + Demand Deposits.
• Why accepted? Authorised by the government. RBI issues currency on behalf of Central Govt. No one can refuse payment in Rupees legally.

2. Demand Deposits & Cheques

Deposits in bank accounts that can be withdrawn on demand. They act as money.

Cheque: Paper instructing the bank to pay a specific amount from a person's account to the person in whose name the cheque is issued. (Settles payment without cash).

3. Loan Activities of Banks

Banks keep a small portion (15%) of deposits as cash. The rest is used to extend loans.

Income of Bank: Difference between interest charged on loans (higher) and interest paid on deposits (lower).

4. Terms of Credit

Every loan agreement specifies: 1. Interest Rate, 2. Collateral, 3. Documentation, 4. Mode of Repayment.

Collateral: Asset that the borrower owns (Land, Vehicle, Livestock) and uses as a guarantee to the lender until the loan is repaid.

5. Formal vs Informal Credit (Exam Favorite)

Formal Sector	Informal Sector
Banks, Cooperatives.	Moneylenders, Traders, Employers, Relatives.
Supervised by RBI.	No supervision organization.
Reasonable interest rates.	Very high interest rates.
Formalities/Collateral required.	Often no collateral (know borrower personally).

6. Self-Help Groups (SHGs)

• Pool savings of 15-20 members (neighbours).
• Loans given to members at low interest.
• Group is responsible for repayment (creates peer pressure).
• Benefits: Overcomes lack of collateral problem for poor. Platform for women to discuss social issues (health, domestic violence).

1. MNCs (Multinational Corporations)

A company that owns or controls production in more than one nation. They set up offices/factories where they get cheap labour and resources (to maximize profit).

• How MNCs spread: 1. Joint venture with local companies (Ford + Mahindra). 2. Buy up local companies (Cargill + Parakh Foods). 3. Place orders with small producers (Garments, Footwear).

2. Factors Enabling Globalisation

1. Technology:
   • Transportation: Containers for ships/planes reduced handling costs and increased speed.
   • IT/Telecom: Instant communication, e-banking, remote designing (London magazine printed in Delhi).
2. Liberalisation (1991 Policy): Removing barriers or restrictions set by the government.
   • Trade Barrier: Tax on imports (to protect domestic producers).
   • Govt allowed foreign companies to set up factories and Indians to import/export freely.

3. World Trade Organisation (WTO)

Aim: To liberalise international trade. Started by developed countries.

Critique: WTO forces developing countries to remove trade barriers, while developed countries (like USA) unfairly retain barriers or subsidise their farmers.

4. Impact of Globalisation in India

• Positive:
  • Consumers: Greater choice, lower prices, higher standard of living.
  • Large Companies: Emerging as MNCs (Tata Motors, Infosys, Ranbaxy). New technology.
  • IT Services: Created new jobs (Call centres, Data entry).
• Negative:
  • Small Producers: Hit hard by competition (Batteries, Toys, Tyres). Many units closed.
  • Workers: "Flexible" employment. No job security. Low wages. Long hours.