1. Introduction to Economics

Economics is the study of how resources are allocated to fulfil human needs. It includes production, distribution, and consumption of goods and services. In UPSC, economics covers GDP, sectors of economy, poverty, employment, and government policies.

2. Sectors of the Economy

The economy is divided into three broad sectors based on activities:

Sector Nature of Activities Examples
Primary Sector Utilization of natural resources Agriculture, fishing, forestry, mining
Secondary Sector Manufacturing & industrial production Textile industry, steel production, automobile factories
Tertiary Sector Services & trade (non-tangible) Banking, education, tourism, transport
Other Classifications of Sectors
  • Organized vs. Unorganized – Formal (registered, follows labor laws) vs. informal (no job security, mostly self-employed).
  • Public vs. Private – Government-run vs. privately owned enterprises.

3. Gross Domestic Product (GDP) – Measuring Economic Growth

What is GDP?

  • Gross Domestic Product (GDP) is the total value of goods & services produced within a country in a specific time (usually a year).
  • It is a measure of economic growth and used for policymaking.

Types of GDP Calculation

Type of GDP Definition
Nominal GDP GDP calculated at current market prices (without inflation adjustment).
Real GDP GDP adjusted for inflation (gives a true picture of growth).
Per Capita GDP GDP divided by population (measures individual prosperity).
GDP at Factor Cost Value of goods/services without indirect taxes & subsidies.
GDP at Market Price Includes indirect taxes & excludes subsidies

GDP Calculation Method

  • Production Method – Sum of value-added in all economic activities.
  • Income Method – Sum of wages, profits, rent, and interest earned.
  • Expenditure Method – Sum of consumer spending, investment, government expenditure, and net exports.

4. National Income Concepts (Other Economic Indicators)

Term Meaning
GNP (Gross National Product) GDP + Income earned by Indian residents abroad – Income earned by foreigners in India.
NNP (Net National Product) GNP – Depreciation (wear & tear of capital goods).
NDP (Net Domestic Product) GDP – Depreciation.
Disposable Income Personal income after deducting taxes.
  • India’s GDP Growth (Recent Trends): The government targets 5 Trillion Dollar Economy with a focus on manufacturing & services.

5. Poverty in India

Definition of Poverty

Poverty is the lack of financial resources to meet basic needs like food, shelter, and education.

Types of Poverty

  • Absolute Poverty – Based on a fixed income level (Poverty Line set by the government).
  • Relative Poverty – Compared to average income of society (focuses on inequality).

Measurement of Poverty in India

Committee Poverty Line (Per Capita Income per Month)
Tendulkar Committee (2009) ₹33/day (urban), ₹27/day (rural)
Rangarajan Committee (2014) ₹47/day (urban), ₹32/day (rural)

Causes of Poverty in India

  • Unemployment – Job scarcity in rural & urban areas.
  • High Population Growth – More demand for jobs & resources.
  • Low Education & Skills – Limits earning capacity.
  • Social Inequality – Dalits, tribals, and women often have fewer opportunities.

Government Initiatives to Reduce Poverty

Scheme Purpose
MGNREGA (2005) 100 days of guaranteed rural employment.
National Food Security Act (2013) Subsidized food grains to poor households.
PM Awas Yojana Affordable housing for poor families.

6. Employment & Unemployment in India

Types of Unemployment in India

Type Definition
Disguised Unemployment More people working than needed, common in agriculture.
Structural Unemployment Mismatch of skills with available jobs (low industrialization).
Cyclical Unemployment Caused by economic slowdown or recession.
Seasonal Unemployment Found in agriculture, jobs only in specific seasons.
Frictional Unemployment Temporary job loss when shifting between jobs.

Employment Schemes in India

Scheme Objective
Skill India Mission Training youth for better job opportunities.
Startup India Encourages new business ventures.
Stand-Up India Loans for SC/ST and women entrepreneurs.
Make in India Boosts domestic manufacturing & job creation.
Frictional Unemployment Temporary job loss when shifting between jobs.

7. Inflation & Price Stability

What is Inflation?

Inflation is the rise in general price levels of goods & services over time, reducing the purchasing power of money.

Types of Inflation

Type Cause
Demand-Pull Inflation High demand for goods but limited supply.
Cost-Push Inflation Rise in production costs (e.g., fuel prices).
Hyperinflation Extreme inflation (prices rise rapidly).

Control Measures for Inflation

  • Monetary Policy – RBI controls money supply through Repo Rate, Cash Reserve Ratio (CRR).
  • Fiscal Policy – Government manages taxation & spending to control inflation.

8. Banking & Financial Inclusion

Types of Banks in India

Bank Type Function
Commercial Banks Provide loans, savings accounts (e.g., SBI, ICICI).
Central Bank (RBI) Controls monetary policy, regulates banks.
Cooperative Banks Serve rural credit needs.
Regional Rural Banks (RRBs) Support agriculture & small businesses.

Key Government Banking Initiatives

  • Jan Dhan Yojana – Banking access for all citizens.
  • Mudra Yojana – Loans for small businesses.
  • Digital India – Promotes cashless transactions.

9. Government Budget & Fiscal Policy

What is a Budget?

A financial plan where the government outlines income (revenue) and expenditure for the year.

Types of Government Expenditure

  • Revenue Expenditure – Salaries, interest payments, pensions.
  • 2. Capital Expenditure – Infrastructure, defence purchases, investment in new projects.

Types of Government Deficits

Type Meaning
Fiscal Deficit Govt. spending > Govt. income (borrowed money).
Revenue Deficit Govt. revenue < Govt. expenditure.
Primary Deficit Fiscal deficit – Interest payments.

Tax System in India

  • Direct Taxes – Income Tax, Corporate Tax.
  • Indirect Taxes – GST (Goods & Services Tax), Excise Duty.

10. UPSC Exam-Oriented MCQs & Mains Questions

UPSC Prelims (MCQs) Example

  1. Which sector contributes the highest share to India’s GDP?
    1. Agriculture
    2. Industry
    3. Services
    4. Mining
    Answer: (c) Services.

UPSC Mains (Descriptive) Example

  1. Discuss the impact of poverty alleviation programs in India. How effective are they?

Understanding Basic Economic Concepts is crucial for UPSC aspirants. These topics frequently appear in both Prelims and Mains. Revise key definitions, understand government schemes, and practice questions to improve your preparation! 🚀📚