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Essay on Indian Economy for Students in English | 500 Words Essay

December 20, 2020 by Sandeep

Essay on Indian Economy: India is mainly an agrarian economy with agricultural supplies contributing up to 50% of the GDP index. The government has created fair policies with wage revisions and labourers rights to boost economic growth. The service sectors, manufacturing units, iron and steel companies, chemical and textile sectors, automobile industries contribute to the economy of the country. Privatisation of many sectors along with demonetization has affected both big and small businesses in the country.

Essay on Indian Economy 500 Words in English

Below we have provided Indian Economy Essay in English, written in easy and simple words for class 6, 7, 8, 9 and 10 school students.

“There can be economy only where there is efficiency.” – Benjamin Disraeli

Indian economy is the fifth largest economy in the world currently. It is a developing market economy. The economic growth of India has even surpassed that of China in recent years. India has been able to successfully jump up ranks in various indexes, including the Ease of doing business index. Agriculture still remains the largest employer in the country, with the construction and real estate sector right behind it. India is the world’s second-largest coal and cement producer. The government has had a major role in accelerating the economic growth of the country.

The way industries operate in our country has been enhanced by the Industrial Policy. Many industries have been freed from the system of licensing and have no restriction on importing new and latest technology from other countries. The government has also taken up disinvestment in the industries where it is unprofitable. The focus on privatisation is being increased to intensify healthy competition. The government is also making efforts to revive and promote small scale industries and businesses.

The New Trade Policy has made it extremely easy for traders to carry out imports and exports. The trade of all items barring a restricted few has been allowed. Also, the tax on many items has been abolished, while for others, the amount has been visibly minimised. A lot of incentives are also being provided to exporters to encourage foreign trade and gain foreign currency.

History of the Indian Economy

For continuous 1700 years starting from the 1st century A.D., the Indian economy constituted about 35 to 40 percent of the world’s GDP and was the topmost flourishing economy. The Indus Valley civilisation proved to provide a form of permanent settlement to the people of the country alongside efficient water supply, urban planning and sanitation.

The silk route provides proof of early Indian trade. Under the Mughal empire, the Indian economy thrived and prospered. It was during this time that a focus on industrial production was also seen. Under the British rule, the Indian economy suffered some significant setbacks and was downtrodden. There were major changes seen in the agricultural sector. The commercialisation of agriculture increased. Farmers were forced to grow cash crops that were used in trade, rather than producing food crops.

This resulted in numerous famines. The once rich handicrafts and handloom sector also dipped and sunk during the British Raj. However, the colonial rule is responsible for giving the country railways, a legal system and a single currency exchange rate. The British era in India was rather exploitative, but our economy has come a long way since then with the help of policies pertaining to privatisation, liberalisation and globalisation .

Sectors of the Indian Economy

As the Indian economy has vastly diversified and grown in the previous years, the GDP contributed by the agricultural sector has reduced. However, it still continues to employ more than 50 percent of the country’s population . India is the largest producer of milk, pulses and jute and is the second-largest producer of wheat, rice and cotton. The agricultural sector accounts for about 20% of India’s GDP.

The main industries included in the Indian industrial sector include textile, construction, power, food processing, etc. The industrial sector employs around 22 percent of the country’s workforce and accounts for 26 percent of India’s GDP. Foreign Direct Investment is one measure by the government, which has increased foreign investments in the country, leading to further growth in this sector.

The services sector contributes the maximum to the GDP of the country. It includes financial services, aviation, insurance, hospitality, entertainment, etc. This sector employs around 23 percent of the Indian population. The main reason why the service sector has been able to do exceedingly well is because of outsourcing. The working population here is skilled, highly educated and cheaper than the labour in other countries.

Problems facing the Indian Economy

Unemployment is a problematic issue for the working-age population of India. The rate of unemployment has increased, and so has the population between the age bracket of 15-59 years. This unemployment is prevalent in the rural as well as the urban areas and is more widespread among the unskilled workers. A significant chunk, including women, especially those that live in rural areas are illiterate and have low educational standards. This leaves so much potential untapped and opportunities unexplored.

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Home » Economy » Structure of Indian economy: a brief overview » Indian economy in the present times » Features of Indian Economy

(i) Low per capita income

(ii) Heavy population pressure

(iii) Dependence of population on agriculture

(iv) Poverty and Inequality income distribution

(v) Higher level of capital formation which is a positive feature

(vi) Planned economy

India is known in the world as a country with low per capita income. Per capita income is defined as the ratio of national income over population. It gives the idea about the average earning of an Indian citizen in a year, even though this may not reflect the actual earning of each individual. India’s per capita income for the year 2012-2013 is estimated at 39,168.
This comes to about 3,264 per month. If we compare India’s per capita income with other countries of the world then it can be seen that India is well behind many of them. For example, the per capita income of USA is 15 times more that of India while China’s per capita income is more than three times of India.
India is world’s second largest populated country after China. As per 2011 census India’s population stands at more than 121 crores. It increased at a rate of 1.03 percent during 1990-2001. The main cause of fast rise in India’s population is the sharp decline in death rate while the birth rate has not decreased as fast. Death rate is defined as the number of people died per thousand of population while birth rate is defined as the number of people taking birth per thousand of population.
In 2010, the birth rate was 22.1 persons per one thousand population while the death rate was only 7.2 persons per one thousand population. In fact it is a sign of development. Low death rate reflects better public health system. But high birth rate is a problem because it directly pushes the growth of population.
After 1921, India’s population increased very fast because birth rate declined very slowly while death rate declined very fast. From 49 in 1921 the birth rate declined to 22.1 in 2010 while during the same time period, death rate declined from 49 to 7.2. Hence the population growth was very rapid in India.
Heavy population pressure has become a major source of worry for India. It has put burden on the public exchequer to mobilize enough resources to provide public education, health care, infrastructure etc.

(iii) Dependence on Agriculture

Majority of India’s working population depend on agricultural activities to pursue their livelihood. In 2011 about 58 percent of India’s working population was engaged in agriculture. In spite of this, the contribution of agriculture to India’s gross domestic product is a little over 17 percent.
A major concern of agriculture in India is that productivity in this sector is very less.
There is heavy population pressure on land to sustain huge number. Due to population pressure on land the per capita availability of land area is very low and not viable for extracting higher output. Two, since per capita land availability is less, a majority of people are forced to become agricultural labour working at low wages.
Three, Indian agriculture suffers from lack of better technology and irrigation facilities.
Four, mostly people, who are not educated or not trained properly, are engaged in agriculture. So it adds to low productivity in agriculture.

(iv) Poverty and inequality

As per reports of government of India, in 2011-12 about 269.3 million people in India were poor. This was about 22 percent of India’s population. A person is termed poor if he/she is not able to consume the required amount of food to get a minimum calorie value of 2400 in rural area and 2100 in urban area. For this the person must earn the required amount of money as well to buy the food items.
The government has also estimated that the required amount of money is 816 in rural area and ` 1000 in urban area per head per month. This comes to about ` 28 in rural area and ` 33 in urban area per head per day. This is called poverty line. This implies that 269.9 million people of India were not able to earn such little amount in 2011-12. In 2018, almost 8% of the world’s workers and their families lived on less than US$1.90 per person per day (international poverty line).
Poverty goes with inequality in income and wealth distribution. Very few in India posses materials and wealth while majority have control over no or very little wealth in terms of land holding, house, fixed deposits, shares of companies, savings etc.
Only top 5 percent of households control about 38 percent of total wealth in India while the bottom 60 percent of household has control over only 13 percent of the wealth. This indicates concentration of economic power in a very few hand.
Another issue linked to poverty is the problem of unemployment. One of the most important reasons of poverty in India is that there is lack of job opportunities for all the persons who are in the labour force of the country.
Labour force comprises of the adult persons who are willing to work. If adequate number of jobs are not created every year, the problem of unemployment will grow.
In India every year large number of people are added to the labour force due to increase in population, increase in number of educated people, lack of expansion of industrial and service sector at the required speed etc.

(v) Higher rate of capital formation or investment

At the time of independence, one of the major problem of Indian economy was deficiency in capital stock in the form of land and building, machinery and equipment, saving etc.
In order to continue the cycle of economic activities such as production and consumption, a certain ratio of production must go towards saving and investment.
However, the required ratio was never generated in the first four to five decades after independence. The simple reason being higher consumption of necessary items by the population of whom most happened to be poor and lower middle income class.
Collective household saving was very less due to this. Consumption of durable items was also very less. But in recent years things have charged. Economists have calculated that in order to support the growing population,
India requires 14 percent of its GDP to be invested. It is encouraging to note that the saving rate of India for the year 2011 stands at 31.7 percent. The ratio of gross capital formation was 36.6 percent. This is possible because people are now able to save in banks, consume durable goods and there has been large scale investment taking place on public utilities and infrastructure.
India is a planned economy . Its development process has been continuing through five year plan since the first plan period during 1951-56. The advantage of planning is very well known. Through planning the country sets its priorities first and provides the financial estimates to achieve the same.
Accordingly efforts are made to mobilise resources from various sources at least cost. India has already completed eleven five year plan periods and the twelfth plan is in progress. After every plan a review is made analysing the achievements and short falls.
Accordingly, things are rectified in the next plan. Today India is a growing economy and recognised every where as a future economic power. The per capita income of India is growing at a higher rate than before. India is seen as a big market for various products. All these are possible due to planning in India.

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Indiaâ€™s economic growth, the way forward

India now stands at 6th position in terms of GDP (Gross Domestic Product). It is poised to become 8 trillion-dollar economy, third largest by 2030 . India is already third largest, only behind USA and China in terms of PPP (purchasing power parity). National Statistical Office, estimated GDP growth rate of 9.2% in real terms in 2021-22. According to estimates of IMF , India will be fastest growing economy at least for coming couple of years with a growth rate of 8-8.5 %. Various indicators, including data from Economic Survey 2021-22, shows that the economy has surpassed pre-pandemic level of 2019-20 and is showing strong signs of tremendous recovery.

In globalized world, India cannot grow in isolation while rest of the nations is undergoing one or other kind of issues. COVID-19 has impacted supply chains, global trade etc like never before. This grim situationhas negative impact on India’s exports which are essential component of nation’s growth story . Intense competition from other emerging economies and few least developed countries also needs to be addressed to increase our exports. Moreover, formation of various Regional Trade Blocks such as RCEP (Regional Comprehensive Economic Partnership), CPTPP (Comprehensive and Progressive agreement for Trans-Pacific Partnership) are also throwing challenges to increase India’s exports. On the other hand, supply chain disruptions are adding to the burden. For example, deficiency of semi- conductor devices has negatively impacted Automobile sector .

Infrastructure development has to precede growth. For example, roads need to be built to increase connectivity for seem less travel of goods and people. This will enhance the efficiency of logistics sector. Facilities for electricity, water, internet connection etc has to be kept ready for industrial growth. On the other hand, in India, these needs are taken care after months of requesting officials for the lack of funding or bureaucratic apathy. Government has put in a lot of efforts to address many of these issues as mentioned below.

Insolvency and Bankruptcy Code (IBC), Simplification of Labor Codes are done to improve “Ease of doing business”, which further improve investments in to the country accounting for financial needs. National Monetization Pipeline, Infrastructure Development funds are announced for the development of infrastructure .Corporate Tax Incentives, Performance Linked Incentive scheme is to increase the efficacy of manufacturing there by increasing exports. In budget 2022-23, government has considerably increased capital expenditure as it has higher multiplier effect on economic growth. To increase liquidity, RBI has been keeping interest rates considerably low. RBI has reduced repo rate by more than 200 basis points and kept so for more than a year despite inflationary fears, to keep robust economic growth growing. However, much more need to be done.

Way Forward:

The intention of executive to become third largest economy by 2030 will become reality only if the above suggestions and measures were implemented with heart and soul. India has also committed to achieve “net zero emissions target by 2070”. Instead of viewing it as obstacle, Indian economy should be more on sustainable growth – through investments in solar, wind, nuclear energy etc . Along with IBC, faster judicial proceedings will further increase investments into India, aiding growth.

The biggest criticism the Indian economy faced after the LPG (Liberalization, Privatization, Globalization) reforms of 1991 is jobless growth . This has increased the inequality drastically with the top 1% of the population holding more than 50% of the wealth, according to “Oxfam International”. Hence there is an urgent need to shift towards labor-intensive sectors such as textile, leather, food processing as suggested by previous Economic Surveys. Traditional industries such as toy making can be encouraged. There must be more focus on human resource development through skill development etc. Schemes such as “Pradhan Mantri Kaushal Vikas Yojana” are a great impetus to such efforts.

Government must increase funding to Research and Development – as history shows only such countries have become superpowers – for example-USA and China. This will bridge the gap between employer requirements and employee capabilities. This step on the one hand will address the issue of unemployment, on the other hand, will stop the brain drain . MSMEs (Micro Small and Medium Enterprises) contribute more than 48% to Indian exports and 29% to Indian GDP . MSMEs were the most affected due to the COVID-19 pandemic. Hence there must be extra careful to make government incentives accessible to all MSMEs. Credit Guarantee Fund for MSMEs is a step in the right direction.

Similarly, start-ups are going to be the future of any economy. India witnessed the emergence of Unicorn start-ups during the pandemic, which are hubs of knowledge. India is also the third-largest start-up ecosystem in the world. There might be an emergence of future Facebook/Apple/Google from these startups. Hence special assistance must be given to them in terms of extended tax holidays, easing compliance requirements, etc. India can take advantage of its demographic dividend through start-ups. Once all these steps are followed in letter and spirit India can be as rich as USA and China by the time, we celebrate 100 years of independence in 2047.

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Effects of Globalization on Indian Society

Last updated on April 9, 2022 by ClearIAS Team

Globalization has virtually diminished the distances and connected the whole world. Read here to know the effect of globalization on Indian society.

Globalization is a term used to describe how trade and technology have made the world a more connected and interdependent place. Globalization also captures in its scope the economic and social changes that have come about as a result.

In today’s world, consumers have a wide choice of goods and services before them. The latest models of digital cameras, mobile phones, and televisions made by the leading manufacturers of the world are within the reach. Every season, new models of automobiles can be seen on Indian roads. Gone are the days when Ambassador and Fiat were the only cars on Indian roads.

Today, Indians are buying cars produced by nearly all the top companies in the world. A similar explosion of brands can be seen for many other goods: from shirts to televisions to processed fruit juices. Such a wide-ranging choice of goods in our markets is a relatively recent phenomenon.

One wouldn’t have found such a wide variety of goods in Indian markets two decades back. In a matter of years, our markets have been transformed! How do we understand these rapid transformations? What are the factors that brought about these changes? And, how did these changes affect the lives of the people? The answer to all these questions starts with ‘globalization’.

Table of Contents

Effect of globalization on Indian society

Globalization has several aspects and can be political, cultural, social, and economic, out of which financial integration is the most common aspect. India is one of the fastest-growing economies in the world and is predicted to reach the top three in the next decade.

India’s massive economic growth is largely due to globalization which was a transformational change that didn’t occur until the 1990s. Since then, the country’s gross domestic product (GDP) has grown at an exponential rate.

The many effects of globalization on Indian society and multiple aspects of it have been discussed here.

Impact of globalization on the Indian economy

Overall, globalization has improved various aspects of India, like:

International trade relations
Technology and communication
Corporate world
Social and cultural expansion

The reduction of export subsidies and import barriers enabled free trade that made the Indian market attractive to the international community. The untapped potential of the nascent Indian market was opened to the global market and the significant changes were made to its industrial, financial, and agricultural sectors:

Industrial sector: It saw a massive influx of both foreign capital investments ’ India became a favorite offshore market for pharmaceutical manufacturing, chemical, and petroleum industries. This brought advanced technologies and processes that helped in the modernization of the Indian industrial sector.

Financial sector: Prior to globalization and privatization, India’s financial sector had been mismanaged by a combination of corrupt and inept government officials. The privatization of the financial space created a much more dynamic financial services sector.

Agricultural sector: India still has a largely agrarian society , with a significant majority of the country’s population depending on this sector either directly or indirectly for their livelihood. The new technological capabilities of farmers have increased helping drive global exports of Indian products such as tea, coffee, and sugar.

The betterment of these sectors has brought about an increase in national income, employment, exports, and GDP growth.

Advantages of globalization for India

The increasing globalization of India has access to markets of the country to foreign companies seeking to invest and operate within the massive Indian market.
Increase in employment opportunities.
Initially, globalization gave foreigners access to an inexpensive, robust labor force. But as the country has progressed, the labor force has grown more skilled and educated over time. Now India has the largest diaspora living abroad.
For foreign investors considering the economy as a whole, India offers a well-diversified export basket. This has been highlighted in the Economic Survey of India as well.

The cultural impact of globalization on Indian society

The process of globalization increased access to television and other entertainment sources over the years. Even in the rural areas satellite television has an established market. In the cities, Internet facility is everywhere and it is being extended to rural areas also through schemes like Smart Cities Mission .

There is an increase in the global food chain and restaurants in the urban areas of India. Multiple movie halls, big shopping malls, and high-rise residential are seen in every city.

The entertainment sector in India has now obtained a global market. After economic liberalization, Bollywood expanded its area and showed a major presence on the global scale. Bollywood movies are quite famous in Middle Eastern and many African countries as well.

Western styles began to be incorporated into Bollywood films to expand the outreach.

As these new cultural ideologies began to permeate the Indian population, the Indian urban population was pushed to re-evaluate their traditional Indian cultural ideology.

Bollywood movies are also distributed and accepted at the international level. Big international companies like Walt Disney, 20th Century Fox, and Columbia Pictures are investing in this sector.

Similarly, famous International brands such as Armani, Gucci, Nike, and Omega are also making investments in the Indian market with the changing of fashion statement of Indians.

Women are getting the equal opportunities they very well deserve now in more numbers due to the globalization of the market. Their empowerment has given considerable opportunities and possibilities for improving employment conditions through global solidarity and coordination. It is found that the growth of computers and other technologies enabled women with better waged, flex timings, and capacity to negotiate their role and status in-home and at the corporate level.

Effects of Globalization on Indian Education:

There is a profound effect observed in the educational sector due to globalization such as the literacy rate becoming high.

Foreign Universities are collaborating with different Indian Universities now, expanding the reach for Indian students.

The Indian educational system embraced globalization through Information technology and it offers opportunities to evolve new paradigms shifts in developmental education.

The shift from largely uneducated to an industrial society to an information society has gradually taken shape.

Globalization promotes new tools and techniques such as E-learning, Flexible learning, Distance Education Programs, and Overseas training.

Many government schemes like the ‘ New Education Policy ’ are pushing for a more global education system to make Indian students from every walk of life at par with the global community.

Challenges of globalization in Indian society

Economically, for a large market like India is harder to maintain a free, convertible, and open access enabled transnational market.
Globalization also means growing interdependence in other nations- this can issues like misdistribution of resources. The parity between underdeveloped, developing, and developed remains status quo in many cases.
The universalization of information technology has boons but also banes, in terms of cybercrimes and other darknet activities . The increase in the number of cyberattacks in India is proof of this.
Globalization does have a great effect on the ecologies and environments of nations that need safeguards that lessen the negative effects rather than exploiting them without regard to such concerns.
The negative effects of globalization on the Indian Industry are that with the coming of technology the number of labor required is decreased and this resulted in increasing unemployment, especially in the arena of the pharmaceutical, chemical, manufacturing, and cement industries.
There are a few challenges for companies due to globalization such as Migration, relocation, labor shortages, competition, and changes in skills and technology.

The effects of globalization on Indian society are manifold and have been discussed in detail. The process of globalization has changed the industrial pattern and social life of people. This has had an immense impact on Indian trade, finance, and cultural system.

The globalization of the economic, social, and cultural structures happened in simultaneously. Previously, the pace of the process was slow but now the change is happening in every arena at lightning-fast speed with the use of information technology.

Globalization has resulted in an increase in the production of a range of goods and services. MNCs have established manufacturing plants all over the world. It has positive effects on India and the administration is trying its best to overcome many obstacles and adopt global policies to expand business an international scale.

India is surely gaining international recognition which leads to the strengthening of economic and political areas.

Truly, globalization has made the world a small place, a whole lot of different people interconnected in diverse ways.

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Essay on Indian Economy for Students and Children

500+ words essay on indian economy.

India is mainly an agricultural economy . Agricultural activities contribute about 50% of the economy. Agriculture involves growing and selling of crops, poultry, fishing, cattle rearing, and animal husbandry. People in India earn their livelihood by involving themselves in many of these activities. These activities are vital to our economy. The Indian economy has seen major growth in the last few decades. The credit for this boom largely goes to the service sector. Agriculture and associated activities have also been improvised to match the global standards and the export of various food products has seen an upward trend thereby adding to the economic growth. The industrial sector does not lag behind a bit. A number of new large scale, as well as small scale industries, have been set up in recent times and these have also proved to have a positive impact on the Indian economy.

Government’s Role in Economic Growth

Majority of the working Indian population was and is still engaged in the agriculture sector. Growing crops, fishing, poultry and animal husbandry were among the tasks undertaken by them. They manufactured handicraft items that were losing their charm with the introduction of the industrial goods. The demand for these goods began to decline. The agricultural activities also did not pay enough.

The government identified these problems as hindering the economic growth of the country and established policies to curb them. Promotion of cottage industry, providing fair wages to the laborers and providing enough means of livelihood to the people were some of the policies laid by the government for the country’s economic growth.

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The Rise of the Industrial Sector

The government of India also promoted the growth of small scale and large scale industry as it understood that agriculture alone would not be able to help in the country’s economic growth. Many industries have been set up since independence. A large number of people shifted from the agricultural sector to the industrial sector in an attempt to earn better.

Today, we have numerous industries manufacturing a large amount of raw material as well as finished goods. The pharmaceutical industry, iron and steel industry , chemical industry, textile industry, automotive industry, timber industry, jute, and paper industry are among some of the industries which have contributed a great deal in our economic growth.

The Growth in Service Sector

The service sector has also helped in the growth of our country. This sector has seen growth in the last few decades. The privatization of the banking and telecom sectors has a positive impact on the service sector. The tourism and hotel industries are also seeing a gradual growth. As per a recent survey, the service sector is contributing to more than 50% of the country’s economy.

Indian Economy after Demonetization

The worst affected were the people in the rural areas who did not have access to internet and plastic money. This affects many big and small businesses in the country very badly. Several of them were shut down as a result of this. While the short term effects of demonetization were devastating, this decision did have a brighter side when looked at from long term perspective.

The positive impact of demonetization on the Indian economy is a breakdown of black money, the decline in fake currency notes, increase in bank deposits, demonetization stopped the flow of black money in the real estate sector to ensure a fair play, increase in digital transactions, cutting monetary support for terrorist activities.

Many of our industries are cash-driven and sudden demonetization left all these industries starving. Also, many of our small scale, as well as large scale manufacturing industries, suffered huge losses thereby impacting the economy of the country negatively. Many factories and shops had to be shut down. This did not only impact the businesses but also the workers employed there. Several people, especially the laborers, lost their jobs.

The Indian economy undergoes several positive changes since independence. It is growing at a good pace. However, the rural regions of our country are still under-developed. The government must make efforts to improve the economic condition of these areas.

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Essay on Indian Economy

India’s economy is described as huge, complex and growing. It is one of the most exciting and emerging markets in the world. Since 1951, India has grown as a planned economy. The first few plans focused on growth with the strengthening of the manufacturing sector, emphasising heavy industries to form the backbone of the economy. Other principal areas of planning were agriculture and social development. During the post-independence period and the period of the “Five-year plans”, efforts were focused on identifying the needs of the economy. Further, the economic reforms in the early 90s opened a new chapter in India’s economic history. It gave India an opportunity to shake off the shackles of its past and emerge on the world stage as a progressive nation. This essay on the Indian Economy will help students know about the Indian economy in detail.

Students can go through the list of CBSE Essays on different topics. It will help them to improve their writing skills and also increase their scores on the English exam. Moreover, they can participate in different essay writing competitions which are conducted at the school level.

500+ Words Essay on the Indian Economy

India is on the high road to economic growth. Since 2020, the world economy has declined due to the COVID-19 pandemic. Repeated waves of infection, supply-chain disruptions and inflation have created challenging times. Faced with these challenges, the Government of India has taken immediate action so that it has the least impact on the Indian economy.

The Indian economy has been staging a sustained recovery since the second half of 2020-21. However, the second wave of the pandemic in April-June 2021 was more severe from a health perspective. The national lockdown has affected small businesses, common people and everyone in India. Due to this, the Indian economy has gone down. But now, it is slowly rising up and taking its form.

Role of Agriculture in the Indian Economy

Agriculture is one of the most important sectors of the Indian economy. It supplies food and raw materials in the country. At the time of independence, more than 70% of India’s population depended on agriculture to earn a livelihood. Accordingly, the share of agriculture in the national product/income was as high as 56.6% in 1950-51. However, with the development of industries and the service sector, the percentage of the population depending on agriculture, as well as the share of agriculture in the national product, has come down. Agriculture is the source of food supply. Agriculture is also a major source of foreign exchange earnings through export. The share of agriculture in India’s export in the year 2011-12 was 12.3%. The major items of export include tea, sugar, tobacco, spices, cotton, rice, fruits and vegetables, etc.

Role of Industry in India’s Economy

Industry is the secondary sector of the economy and is another important area of economic activity. After independence, the Government of India emphasised the role of industrialisation in the country’s economic development in the long run. Initially, the public sector contributed the maximum to economic growth. In the early 1990s, it was found that the public sector undertakings were not performing up to expectations. So, in 1991, the Indian Government decided to encourage the role of the private sector in industrial development. This step was taken to strengthen the process of industrialisation in India.

The progress of the Indian economy after independence was impressive indeed. India became self-sufficient in food production due to the green revolution, and industries became far more diversified. However, we still have to go a long way to become a 5 trillion economy by 2025. But, with government effort and the right policymakers, it can be achieved.

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NPA in India and its impact on Indian Economy | UPSC – IAS

Reasons for the Rise in NPA levels | UPSC – IAS

2004-05 to 2008-09 – In that period, commercial credit (or what is called ‘non-food credit’) doubled. It was a period in which the world economy as well as the Indian economy were booming. Indian firms borrowed furiously in order to avail of the growth opportunities they saw coming.

Most of the investment went into infrastructure and related areas — telecom, power, roads, aviation, steel.
Businessmen were overcome with exuberance and they believed, as many others did, that India had entered an era of 9% growth.
From 2000-2008, the Indian economy was in a boom phase and banks, especially public sector banks, started lending extensively to companies.
However, with the financial crisis in 2008-09, corporate profits decreased and the Government banned mining projects. The situation became serious with the substantial delay in environmental permits, affecting the infrastructure sector – power, iron, and steel – and resulting in volatility in prices of raw materials and a shortage of supply.
Another reason is the relaxed lending norms adopted by banks, especially to the big corporate houses, foregoing analysis of their financials and their credit ratings.

Recent Developments and Ways to Tackle NPA | UPSC – IAS

The Debt Recovery Tribunals (DRTs) – To decrease the time required for settling cases. They are governed by the provisions of the Recovery of Debt Due to Banks and Financial Institutions Act, 1993. However, their number is not sufficient therefore they also suffer from time lag and cases are pending for more than 2-3 years in many areas. The original aim of the Debts Recovery Tribunal was to receive claim applications from Banks and Financial Institutions against their defaulting borrowers
Using unclaimed deposits – Similar to provisions for unclaimed dividends, the government may also create a provision and transfer unclaimed deposits to its account. These funds in return can be transferred to banks as capital.
Monetization of assets held by Banks – In this case, banks with retail franchisees should create value by auctioning a bank assurance association rather than running it themselves as an insurance company. The current set-up blocks capital inflows and doesn’t generate much wealth for the owners.
Make Cash Reserve Ratio (CRR) attractive – At present, the RBI asks Indian banks to maintain a certain limit on CRR on which the RBI doesn’t pay interest and hence, banks lose out a lot on interest earnings. If the CRR is made more financially rewarding for banks, it can reduce capital requirements.
Refinancing from the Central Bank – The US Federal Reserve spent $700 billion to purchase stressed assets in 2008-09 under the “Troubled Asset Relief Program.” Indian banks can adopt a similar arrangement by involving the RBI directly or through the creation of a Special Purpose Vehicle (SPV).
Structural change to involve private capital – The compensation structure and accountability of banks create a problem for the market. Banks should be governed by a board while aiming to reduce the government’s stake and making the financial institutions attractive to private investors.
Credit Information Bureau – A good information system is required to prevent loan falling into bad hands and therefore prevention of NPAs. It helps banks by maintaining and sharing data of individual defaulters and willful defaulters.
Lok Adalats – They are helpful in tackling and recovery of small loans however they are limited up to 5 lakh rupees loans only by the RBI guidelines issued in 2001. They are positive in the sense that they avoid more cases into the legal system.
Compromise Settlement – It provides a simple mechanism for recovery of NPA for the advances below Rs. 10 Crores. It covers lawsuits with courts and DRTs (Debt Recovery Tribunals) however willful default and fraud cases are excluded.
Securitization – It refers to the process of converting loans and other financial assets into marketable securities worth selling to the investors.
Asset Reconstruction – It refers to conversion of non-performing assets into performing assets.
Enforcement of Security without the intervention of the Court.

Further, this act has been amended last year to make its enforcement faster.

ARC (Asset Reconstruction Companies) – The RBI gave license to 14 new ARCs recently after the amendment of the SARFAESI Act of 2002. These companies are created to unlock value from stressed loans. Before this law came, lenders could enforce their security interests only through courts, which was a time-consuming process.
Corporate Debt Restructuring – It is for reducing the burden of the debts on the company by decreasing the rates paid and increasing the time the company has to pay the obligation back.
5:25 rule – Also known as, Flexible Structuring of Long Term Project Loans to Infrastructure and Core Industries. It was proposed to maintain the cash flow of such companies since the project timeline is long and they do not get the money back into their books for a long time, therefore, the requirement of loans at every 5-7 years and thus refinancing for long term projects.
Joint Lenders Forum – It was created by the inclusion of all PSBs whose loans have become stressed. It is present so as to avoid loan to the same individual or company from different banks. It is formulated to prevent the instances where one person takes a loan from one bank to give a loan of the other bank.
Mission Indradhanush – The Indradhanush framework for transforming the PSBs represents the most comprehensive reform effort undertaken since banking nationalization in the year 1970 to revamp the Public Sector Banks (PSBs) and improve their overall performance by ABCDEFG.
Insolvency and Bankruptcy Code (IBC) – With the RBI’s push for the IBC, the resolution process is expected to quicken while continuing to exercise control over the quality of the assets. There will be changes in the provision requirement, with the requirement for the higher proportion for provisions going to make the books better.
Credit Risk Management – This involves credit appraisal and monitoring accountability and credit by performing various analysis on profit and loss accounts. While conducting these analyses, banks should also do a sensitivity analysis and should build safeguards against external factors.
Tightening Credit Monitoring – A proper and effective Management Information System (MIS) needs to be implemented to monitor warnings. The MIS should ideally detect issues and set off timely alerts to management so that necessary actions can be taken.
Amendments to Banking Law to give RBI more power – The present scenario allows the RBI just to conduct an inspection of a lender but doesn’t give them the power to set up an oversight committee. With the amendment to the law, the RBI will be able to monitor large big accounts and create oversight committees.
More “Hair-cut” for Banks – For quite some time, PSU lenders have started putting aside a large portion of their profits for provisions and losses because of NPA. The situation is so serious that the RBI may ask them to create a bigger reserve and thus, report lower profits.
Stricter NPA recovery – It is also discussed that the Government needs to amend the laws and give more power to banks to recover NPA rather than play the game of “wait-and-watch.”
Corporate Governance Issues – Banks, especially the public sector ones, need to come up with proper guidance and framework for appointments to senior level positions.
Accountability – Lower level executives are often made accountable today; however, major decisions are made by senior level executives. Hence, it becomes very important to make senior executives accountable if Indian banks are to tackle the problem of NPAs.

With the potential solutions above, the problem of NPA in Indian banks can be effectively monitored and controlled, thus allowing the banks to achieve a clean balance sheet

Impact of NPA on Indian Economy | UPSC – IAS

Stress in banking sector causes less money available to fund other projects, therefore, negative impact on the larger national economy.
Higher interest rates by the banks to maintain the profit margin.
Redirecting funds from the good projects to the bad ones.
As investments got stuck, it may result in it may result in unemployment.
In the case of public sector banks, the bad health of banks means a bad return for a shareholder which means that the government of India gets less money as a dividend. Therefore it may impact easy deployment of money for social and infrastructure development and results in social and political cost .
Balance sheet syndrome of Indian characteristics that is both the banks and the corporate sector have stressed balance sheet and causes halting of the investment-led development process.
NPAs related cases add more pressure to already pending cases with the judiciary.
Increase in Current Account Deficit: It is the main cause of the increase in current account deficit and interest rates, CRR, SLR are directly affected by the system.
Confidence in shareholders: Higher NPA loses the confidence of shareholders.
Effect on Borrowers: High NPA not only affect the serious borrowers but also affect borrowers with good credit scores.

Payment Banks in India: An Overview – UPSC Economy Notes

Introduction: Payment banks are a distinctive category of banks introduced in India to promote financial inclusion, especially for small businesses and low-income households. Here are key features and regulations associated with Payments Banks:

Nachiket Mor Committee: The concept of Payments Banks was recommended by the Committee on Comprehensive Financial Services for Small Businesses and Low-Income Households, headed by Nachiket Mor in 2013.
Differentiated Bank: Payments Banks are established as a differentiated bank, focusing on specific financial services.
Limited Deposits: Payments Banks can accept a limited amount as a deposit, with the current limit set at ₹1 lakh per customer.
Eligible Deposits: Deposits mobilized by Payments Banks are covered under the deposit insurance scheme of the Deposit Insurance and Credit Guarantee Corporation of India (DICGC).
Interest on Deposits: Money deposited in Payments Banks earns interest.
Permitted Deposit Types: Payments Banks can accept demand deposits, including current deposits and savings bank deposits.
Restrictions: Payments Banks cannot accept fixed deposits (FDs), term deposits, recurring deposits (RDs), and no NRI deposits are allowed.
Lending Restrictions: Payments Banks are not allowed to undertake lending activities.
Issuance of Cards: Payments Banks can issue ATM/Debit Cards but are not permitted to issue credit cards.
Investments: Minimum 75% of deposits must be invested in government securities/treasury bills, and a maximum of 25% can be held in current and time/fixed deposits with other scheduled commercial banks.
Operational Risks: Payments Banks, exposed to operational risks rather than credit or market risks, must conform to Capital Adequacy Ratio (CAR) norms, different from traditional banks.
Remittance Transactions: Payments Banks are permitted to handle cross-border remittance transactions.
Financial Products: They can provide mutual funds and other financial products.
Electronic Banking: Services include net banking and mobile banking.
Network Requirement: Payments Banks should be fully networked from the beginning.
Branch Distribution: A minimum of 25% of branches must be in unbanked rural areas.
Legal Structure: Payments Banks are licensed under the Banking Regulation Act, 1949, and registered as public limited companies under the Companies Act, 2013.
Minimum Capital: The minimum capital requirement for Payments Banks is ₹100 crores.

Conclusion: Payments Banks play a crucial role in expanding financial services to underserved segments, aligning with the broader goal of financial inclusion in India. While their operational scope is limited compared to traditional banks, they contribute significantly to meeting the financial needs of small businesses and low-income households.

Table of Contents

Objectives of Payments Banks:

Payments Banks in India are established with specific objectives geared towards enhancing financial inclusion and facilitating timely remittances. The key objectives include:

Addressing the Unbanked: The primary goal is to promote financial inclusion by providing banking services to segments that are traditionally underserved, including migrant labor, low-income households, small businesses, and other unorganized sector entities.
Small Savings Accounts: Payments Banks aim to offer small savings accounts, making it easier for individuals from diverse economic backgrounds to access basic banking services.
Catering to Migrant Labor: One of the key objectives is to facilitate remittance services, especially for migrant labor. Payments Banks aim to provide a convenient and cost-effective platform for the transfer of funds, contributing to the economic well-being of both the recipients and the regions receiving remittances.
Reducing Transaction Costs: Payments Banks work towards reducing transaction costs associated with remittances, ensuring that a higher portion of the funds transferred reaches the intended recipients.
Technology-Driven Environment: Payments Banks focus on creating a secured, technology-driven environment to enable high-volume, low-value transactions. This approach is particularly beneficial for individuals and businesses engaged in smaller transactions, offering a more accessible and efficient platform.
Regional Development: Payments Banks contribute to macroeconomic benefits by fostering regional development through the efficient utilization of remittance funds. The inflow of funds into specific regions can stimulate economic growth and development.
Microeconomic Impact: At the microeconomic level, the timely receipt of remittances provides recipients with the means to boost consumption, invest in opportunities, and improve their overall economic well-being.
Reduced Transaction Costs: By focusing on technology-driven solutions and streamlined operations, Payments Banks aim to minimize transaction costs associated with both banking services and remittances. This cost-effectiveness enhances the attractiveness of these banks for individuals with limited financial resources.

In summary, the objectives of Payments Banks revolve around fostering financial inclusion, providing accessible banking services, facilitating efficient remittances, and contributing to both macro and microeconomic development. The emphasis on technology-driven solutions plays a pivotal role in achieving these objectives.

1. What is a Payments Bank?

A Payments Bank is a type of differentiated bank introduced by the Reserve Bank of India (RBI) to provide basic banking services, especially to unbanked and underbanked segments of the population. These banks can accept deposits and make payments but cannot issue loans or credit cards.

2. What services do Payments Banks offer?

Payments Banks offer a range of basic banking services including deposits, remittances, and payments. They facilitate transactions such as utility bill payments, mobile recharges, and fund transfers, often through digital channels like mobile banking and online platforms.

3. How are Payments Banks different from traditional banks?

Unlike traditional banks, Payments Banks are not authorized to lend money or issue credit cards. They primarily focus on providing payment and remittance services. Additionally, Payments Banks have a cap on the maximum deposit amount per customer, which is set by the RBI to prevent them from engaging in traditional banking activities.

4. Who can open an account with a Payments Bank?

Individuals, including migrant workers, small businesses, and low-income households, can open accounts with Payments Banks. These banks aim to cater to the needs of financially underserved populations by offering accessible and affordable banking services.

5. What are the benefits of Payments Banks for customers?

Payments Banks promote financial inclusion by providing easy access to basic banking services, especially in rural and remote areas where traditional banking infrastructure may be lacking. They offer convenient and cost-effective solutions for conducting transactions, thereby empowering individuals and businesses to manage their finances efficiently.

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Fiscal Responsibility and Budget Management (FRBM) Act – UPSC Economy Notes
Commercial Banks in India – UPSC Economy Notes
Repo Rate and Deposit Rate Linkage (2019) – UPSC Economy Notes
Banks Board Bureau (BBB) and Differentiated Banking – UPSC Economy Notes

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Current Affairs 22 March 2024 for UPSC And State PSC Exam

Here is the 22 March Current Affairs for UPSC 2024 covering the headlines on the Earth Hour, World Happiness Report 2024, National Internet Exchange of India (NIXI).

Table of Contents

News- In preparation for ‘Earth Hour’ on the night of March 23, power distribution companies in the national capital are mobilizing to ensure its success. They are urging their customers to participate by turning off non-essential lights and electronic devices for one hour, demonstrating a commitment to environmental conservation.

Earth Hour Overview-

Global initiative by WWF for environmental action.
Originated in Sydney, in 2007, now a worldwide event.
Annual event in March, advocating for energy conservation.
Encourages turning off non-essential lights, 8:30-9:30 p.m.
Participation from individuals, businesses, and landmarks.

World Wildlife Fund (WWF) Key Points

International NGO established in 1961, in Switzerland.
Aims to prevent environmental degradation.
Collaborates with various stakeholders for nature conservation.

World Happiness Report 2024

News- For the seventh year in a row, Finland has been named the world’s happiest country, as reported in the UN-sponsored World Happiness Report.

World Happiness Report 2024 Overview

Collaboration: Gallup, Oxford Wellbeing Research Centre, SDSN, Editorial Board.
Basis: Individual happiness assessments, economic/social data.
Criteria: Social support, income, health, freedom, generosity, corruption absence.
Method: 3-year data average for happiness score.

2024 Highlights

Nordic dominance; Finland leads seventh year.
Top 10: Denmark, Iceland, Sweden, Israel, Netherlands, Norway, Luxembourg, Switzerland, Australia.
Afghanistan ranks last among 143 countries.
US, Germany exit top 20; Netherlands, Australia in top 10.

India’s Ranking

Stands 126th; consistent with the previous year.
Higher age correlates with greater life satisfaction among Indian men; the opposite trend for women.
Key life satisfaction predictors: Living conditions, discrimination perception, self-rated health.

National Internet Exchange of India (NIXI)

News- The National Internet Exchange of India (NIXI) plans to launch the BhashaNet portal during the next Universal Acceptance (UA) Day event.

NIXI Overview-

Founded in 2003, not-for-profit, under the Companies Act 2013.
Aims: Route domestic internet traffic within India to reduce latency and bandwidth costs.
Increases internet penetration and infrastructure in India.
Manages India’s.IN domain and operates as the National Internet Registry (NIR) through IRINN.

Universal Acceptance (UA) Day-

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Paul Krugman

Are immigrants the secret to america’s economic success.

By Paul Krugman

Opinion Columnist

When we accuse a politician of dehumanizing some ethnic group, we’re usually being metaphorical. The other day, however, Donald Trump said it straight out : Some migrants are “not people, in my opinion.”

Well, in my opinion, they are people. I’d still say that even if the migrant crime wave Trump and his allies harp on were real, and not a figment of their imagination (violent crime has in fact been plummeting in many cities). And I’d say it even if there weren’t growing evidence that immigration is helping the U.S. economy — indeed, that it may be a major reason for our surprising economic success.

But as it happens, there is a lot of evidence to that effect.

Some background here: When Covid struck, there were widespread concerns that it might lead to long-term economic “ scarring .” Millions of workers were laid off; how many of them would either depart the labor force permanently or lose valuable skills? Investment and new business formation fell. It seemed plausible that even after the worst of the pandemic was behind us, America would have a smaller, less productive work force than previously expected.

None of that happened. If we compare the current state of the U.S. economy with Congressional Budget Office projections made just before the pandemic, we find that real G.D.P. has risen by about a percentage point more than expected, while employment exceeds its projected level by 2.9 million workers.

How did we do that? American workers and businesses turned out to be more resilient and adaptable than they were given credit for. Also, our policymakers didn’t make the mistakes that followed the 2008 financial crisis, when an underpowered fiscal stimulus was followed by a premature turn to austerity that delayed a full recovery for many years. Instead, the Biden administration went big on spending, probably contributing to a temporary burst of inflation but also helping to ensure rapid recovery — and at this point the inflation has largely faded away while the recovery remains.

Beyond that, the very surge in immigration that has nativists so upset has played a big role in increasing the economy’s potential.

The budget office recently upgraded its medium-term economic projections, largely because it believes that increased immigration will add to the work force. It estimates that the immigration surge will add about 2 percent to real G.D.P. by 2034.

But are immigrants taking jobs away from native-born Americans? No. A recent analysis by Goldman Sachs contains this really interesting chart:

In case you’re wondering, “SA by GS” refers to the fact that official data aren’t adjusted for seasonal fluctuations, so Goldman Sachs has done its own seasonal adjustment.

This chart shows no rise in native-born unemployment during the immigration surge. It does show a rise in foreign-born unemployment, which I’ll come back to. But for now let’s just note that there is no good evidence that immigrants are taking away jobs from workers born in America.

Still, doesn’t immigration put downward pressure on wages? That sounds as if it could be true — in particular, you might think that immigrants with relatively little formal education compete with less educated native-born workers. I used to believe this myself.

But many (although not all) academic studies find that immigration has little effect on the wages of native-born workers, even when those workers have similar education levels. Instead of being substitutes for native-born workers, immigrants often seem to complement them, bringing different skills and concentrating in different occupations.

In some ways the current immigration surge, probably consisting mainly of less educated workers (especially among the undocumented), is a test case. Have wages for lower-wage workers declined? On the contrary, what we’ve seen recently is a surprising move toward wage equality, with big gains at the bottom :

Overall, then, immigration appears to have been a big plus for U.S. economic growth, among other things expanding our productive capacity in a way that reduced the inflationary impact of Biden’s spending programs.

It’s also important to realize that immigration, if it continues (and if a future Trump administration doesn’t round up millions of people for deportation), will help pay for Social Security and Medicare. C.B.O. expects 91 percent of adult immigrants between 2022 and 2034 to be under 55, compared with 62 percent for the overall population. That means a substantial number of additional workers paying into the system without collecting retirement benefits for many years.

Finally, let me return to that Goldman Sachs chart on unemployment rates, which shows no rise in unemployment among the native-born but a significant rise among the foreign-born. Believe it or not, that’s probably good news.

Goldman argues that the rise in foreign-born unemployment reflects a longstanding tendency for recent immigrants to have relatively high unemployment, presumably because it takes some time for many of them to get settled into sustained employment; unemployment is much lower among immigrants who have been here three years or more.

Why is this probably good news? The overall U.S. unemployment rate has crept up recently — not enough to trigger the Sahm rule , which links rising unemployment to recessions, but enough to make me and others a bit nervous .

Goldman argues, however, that this time is different. All of the rise in unemployment is among foreign-born workers — and this, they suggest, means that we aren’t seeing the kind of weakening in demand for labor that presages recessions. What we’re seeing instead, they argue, is an increase in labor supply, with many of the new workers taking some time to find their feet. If so, the Sahm rule, which has been spectacularly successful in the past, may currently be misleading.

I hope they’re right.

The bottom line is that while America’s immigration system is dysfunctional and really needs more resources — resources it would be getting if Republicans, pushed by Trump, hadn’t turned their backs on a bill they helped devise — the recent surge in immigration has actually been good for the economy so far, and gives us reason to be more optimistic about the future.

A summary of that Goldman Sachs study.

Another time dark-skinned immigrants (that is, Italians) were accused of fostering violent crime .

There are more bad economists — in the sense of being bad people — than I would ever have suspected.

New business creation is surging .

Facing the Music

“Dune: Part Two” is terrific, but I wanted more Sardaukar chanting .

Paul Krugman has been an Opinion columnist since 2000 and is also a distinguished professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @ PaulKrugman

Revised UPSC Civil Service Prelims 2024 Dates: Exam Schedule Altered Due to General Election

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UPSC CSE Prelims New Date 2024: The Union Public Service Commission (UPSC) has postponed its prelims exam from May 26 to June 16 due to general elections. The UPSC will conduct the IAS written examination in two sessions, i.e., general studies and the Civil Services Aptitude Test (CSAT). The morning session's General Studies paper will be held from 9:30 AM to 11:30 AM, and the afternoon session's CSAT will be scheduled to take place from 2:30 PM to 4:30 PM.

UPSC CSE Prelims Exam Pattern

The first stage of the recruitment process is the prelims exam where the marks scored in the GS paper will be used to select the candidates for the mains examination and the CSAT exam will be qualifying in nature, where the candidates need to score 33% marks. Check the table below for UPSC prelims exam pattern

UPSC CSE Mains Exam Pattern

The second stage of the recruitment process is the mains examination. The exam will be conducted over 5 days and consist of 9 papers, of which 2 will be qualifying in nature and the marks scored in the remaining seven papers will be used to prepare the final merit list. The time allowed to attempt each paper is 3 hours. Check the table below for UPSC Mains exam pattern

UPSC Prelims Syllabus 2024

The UPSC syllabus 2024 covers a wide range of topics and subtopics, with the aim of evaluating the candidate's knowledge, analytical abilities, and comprehension of numerous topics pertaining to foreign politics, governance, society, and the economy.

UPSC IAS Preparation Strategy

Each year, approximately 1000 candidates are selected from among the lakhs of applicants who take the Civil Services Examination (CSE). It is advised to candidates to begin their exam preparation as soon as possible. Check out some of the preparation strategies for beginners as shared by the experts.

Creating a Study Plan

It is recommended that, before starting the preparation, candidates create their study plan. THe candidates should make their daily, weekly and monthly plan to cover all the topics of each subject

Setting Achievable Goals

Make achievable targets for each day, week, and month, and break up your subject syllabus into easy to manage portions. Using this method will enable you to monitor your development effectively and maintain motivation.

Choose Right Study Material

It is important to choose the right study material for the preparation. Choose the reference books and textbooks that toppers and former UPSC selected candidates recommend. Make sure you have a well-balanced selection of books covering both static and current affairs.

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India is a lower-middle-income developing economy, expected to enter the middle-income category due to rapid GDP growth. Low per capita income, recorded at $70 in 2021, with a majority engaged in the primary sector. The majority of the population, 48.9%, is engaged in agriculture, contributing 18.8% to national income.
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Facing the Music

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