ECONOMY 8 and 9

ECONOMY 8 and 9








Financial Inclusion
The process which ensures access to financial services to all sections of the society especially
vulnerable/weaker sections.



Government measures in the pre-reform era
1.   Nationalisation of Banks (in 1969, 14 commercial banks were nationalised)
2.   Priority Sector Lending Policy
3.   Lead Bank scheme
4.   Service Area scheme
5.   Establishment of Regional Rural Banks
6.   NABARD was established in 1982
7.   Cooperative Banks
8.   SIDBI was established in 1989
9.   SHG – bank linkage group

Financial Services include

   Bank Accounts
   Funds Transfer
Facility
   Insurance Facility
   Credit Facility
   Pension


Latest Measures by the Government to achieve financial inclusion
1.      No frills account
2.      Business Correspondent Scheme (Bank Saathi Yojana) renamed as Swabhimaan scheme
3.      Post Offices Bank scheme

4.      Micro Finance Institutions
5.      Pension Schemes
6.      Micro Insurance Schemes
7.      Developmental Schemes like MNREGA



Why Should MFI charge high interest?
•    Risk in lending to weaker sections is high
•    Cost of raising funds for MFI is high
•    Cost of operations is also high

Malegam Committee Recommendations
 MFI should give loans to weaker sections only(less than Rs
50,000pa)
    Max loan is Rs 25,000.00
    Ceiling on interest at 24%





New Pension Scheme (NPS)
•    Initiated on January 1st, 2004 for Central Govt Employees
•    NPS is based on defined contribution rather than defined benefit.
•    Contribution: Tier 1 and Tier 2
Tier 1: Employee contributes 10% of basic and DA Govt also contributes 10% of basic and DA
Tier 2: This is optional and the employee can contribute any amount
Govt will not make any contribution
The money so collected will be invested in securities market

ECONOMY 8 and 9



Micro Insurance Schemes
•     Aam Admi Bima Yojana
   Initiated in 2007
   It is a life insurance scheme

•     Rashtriya Swasthya Bima Yojana
   Launched in 2007
   It is a general insurance scheme (health insurance)

Inclusive growth Vs Financial Inclusion
• Inclusive  growth  is  a  much  broader  term.  It  means  that  the  benefits  of  growth  should percolate down to all.
• Financial Inclusion means bringing all under the Financial services cloud which is required for inclusive growth. That is, in other words nobody is left behind in accessing Financial services.
•    Hence Inclusive growth includes within itself financial inclusion.



Inflation
•    Inflation means increase in average prices of goods and services in a long period of time.
•    It is macro concept, where in the effect of inflation is seen over a large basket of goods.
• Ultimate effect of inflation is that the value of money is reduced i.e., the purchasing power of money is reduced.

Type of Inflation
1.   Demand-Pull Inflation
Caused due to increase in aggregate demand in the economy.
Causes: Increase in money supply, Increase in money supply, Increase in Forex reserves, Deficit financing by government, Increase of Exports, Depreciation of Currency.
2.   Cost-Push Inflation
Caused due to reduction in aggregate supply in the economy.

Causes: Increase in price of inputs, Hoarding and Speculation of commodities, Defective Supply chain, Increase  in indirect taxes, Depreciation of Currency.



Causes of Inflation in recent years
Causes for Cost-Push Inflation
•    Crude oil price fluctuation
•    Defective food supply chain
•    Low growth of Agricultural sector
•    Food Inflation (growth agriculture sector has been averaging at 3.5%)
•    Interest rates was increased by RBI



Causes for Demand-Pull Inflation
•    Increase in foreign-exchange reserves
•    Increase in government expenditure
   Due to fiscal stimulus
   Increased borrowing
•    Depreciation of rupee

Note:  Cost  pull  inflation  is
considered bad among the two types of inflation. Because  the  National Income   is   reduced   along with the reduction in supply in  Cost-push  type  of inflation.

ECONOMY 8 and 9



Remedies
1.   Monetary Policy (Contractionary policy)
2.   Fiscal Policy measure
   Also called Budgetary policy
   It deals with the Revenue and Expenditure policy of government.
   Tools of fiscal policy
-Direct and Indirect taxes (Direct taxes should be increased and indirect taxes should be reduced).
-Public Expenditure should be decreased (should borrow less from RBI and more from other financial institutions)

3.   Supply Management measures
   Import commodities which are in short supply
   Decrease exports
   Govt may put a check on hoarding and speculation
   Distribution through PDS

BANKING L7

BANKING

Evolution of Banking in India
   Bank of Hindustan established in 1779 was the first bank to be established in India.
   First bank to be established by Indians was Awadh Commercial Bank in 1881.
   Punjab National Bank was the second bank to be established by Indians. It was established in 1894.
   First Bank established by East India Company was Presidency Bank of Bengal in 1806. Further it established two more banks, Presidency Bank of Bombay in 1840 and Presidency Bank of Madras in
1843.

   In 1921 these Presidency banks were merged in Imperial Bank of India which was restructured as State Bank of India in 1955.
 In  1959  Central  Government  took  over  banks  from states/princely states government and associated them with State Bank of India.
   Recently two associate banks - State Bank of Indore and State
Bank of Saurashtra have been merged into S.B.I.

Nationalisation of Banks
   In 1969, 14 banks whose deposits were more than `50 crore were nationalised.

Associate Banks:-

1.   State Bank of Bikaner & Jaipur
2.   State Bank of Indore
3.   State Bank of Hyderabad
4.   State Bank of Mysore
5.   State Bank of Travancore
6.   State Bank of Saurashtra
7.   State Bank of Patiala

   Central Bank of India, Bank of Maharashtra, Dena Bank, Punjab National Bank, Syndicate Bank, Canara Bank, Indian Bank, Indian Overseas Bank, Bank of Baroda, Union Bank, Allahabad Bank, United Bank of India, UCO Bank, Bank of India are the 14 banks which were nationalised.
   In 1980, Government nationalised 6 more banks. These banks are – Punjab & Sindh Bank, Andhra
Bank, Oriental Bank of Commerce, Corporation Bank, Vijaya Bank and New Bank of India.
   Public Sector Banks (owned by Central government) – The State Bank Group, 19 Nationalised Banks
and IDBI Bank. Total number of public sector banks is 19.

Objective of Nationalisation
   To Induce Confidence of Public in Banking Sector
   To provide social orientation like loan to weaker sections of society, opening accounts in rural areas
   To reduce inequalities in society


Assessment of Nationalisation
   Achievements
o Most of the social objectives were achieved.
o Bank deposits increased significantly.
o Branches of banks in rural areas increased substantially.
o Loans to priority sector increased
   Failure
o Efficiency and profitability of Banks declined drastically
   Banking Sector Reforms (Narasimham Committee)
o Reduce CRR and SLR
o Reduction in priority sector lending quota
o New Banks to be set up
o Basel Norms to be adopted
o More autonomy to Public Sector Banks
o Banking Ombudsman should be established
o Debt recovery tribunals should be established
o Interest rates should be de-regulated

Causes of Losses:-
   Lending to priority sector
   Non-Performing assets
   Concessional rate of Interest
   Cost of servicing of loans
   High CRR and SLR
   Over Staffing
   Trade Union




Non-Performing assets are those an asset on which loan or interest remains pending for over 90 days





   Narasimham Committee – II
o 4 tier bank structure
    International Level
    National Level
    Regional Level
    Rural Level

BASEL Norms

The Narasimham-II Committee was tasked with the progress review of the implementation of the banking reforms since 1992 with the aim of further strengthening the financial institutions of India.

It focussed on issues like size of banks and capital adequacy ratio among  other  things.  M.  Narasimham,  Chairman,  submitted  the report of the Committee on Banking Sector Reforms (Committee-II) to the Finance Minister Yashwant Sinha in April 1998.



   Basel  Norms  were  established  by   Bank  for  International
Settlements in 1930.
   It is the Bank of Central Banks as only Central Banks can be its members.
   In  1988  Basel  Norms  established  a  committee  on  Banking
Supervision.
o Objective of this committee is to recommend various norms which should be adopted by the Central Banks to regulate banking sector.
o These norms are called Basel Norms
o These norms were revised in 2004 and into Basel II
o These norms were further revised in 2010 into Basel III
   Focus of Basel Norms is to ensure Capital Adequacy
   Capital Adequacy Ratio (CAR) =                                      x 100






Basel III was released in December,
2010 under the title
Basel III: International framework for liquidity risk measurement, standards and monitoring

The revised version was released in 2011 under the title
Basel III: A global regulatory framework for more resilient banks and banking systems - revised version June 2011




CAPITAL

   Tier I Capital (Core Capital)
o It includes pure equity capital
o Equity  means  share  thus  it  includes  Share
Capital (Paid up Capital)
o It also includes Undistributed Profits (Reserves)
o It includes Preference shares




   Tier II Capital (Supplementary Capital)
o  Mixture of equity & Debt Capita
o  E.g. -  subordinated debt


The Major Changes Proposed in Basel III over earlier Accords i.e. Basel I and Basel II

1.   Better Capital Quality:   One of the key elements of Basel 3 is the introduction of much stricter definition of capital.  Better quality capital means the higher loss-absorbing capacity. This in turn will mean that banks will be stronger, allowing them to better withstand periods of stress.

2.   Capital Conservation Buffer:    Another key feature of Basel iii is that now banks will be required to hold a capital conservation buffer of 2.5%.  The aim of asking to build conservation buffer is to ensure that banks maintain a cushion of capital that can be used to absorb losses during periods of financial and economic stress.

3.   Countercyclical Buffer:   This is also one of the key elements of Basel III.   The countercyclical buffer has been introduced with the objective to increase capital requirements in good times and decrease the same in bad times.  The buffer will slow banking activity when it overheats and will encourage lending when times are tough i.e. in bad times.  The buffer will range from 0% to 2.5%, consisting of common equity or other fully loss-absorbing capital.




4.   Minimum  Common  Equity  and  Tier  1  Capital  Requirements:    The  minimum  requirement  for common equity, the highest form of loss-absorbing capital, has been raised under Basel III from 2% to 4.5% of total risk-weighted assets.  The overall Tier 1 capital requirement, consisting of not only common equity but also other qualifying financial instruments, will also increase from the current minimum of 4% to 6%.   Although the minimum total capital requirement will remain at the current
8% level, yet the required total capital will increase to 10.5% when combined with the conservation
buffer.

5.   Leverage Ratio:     A review of the financial crisis of 2008 has indicted that the value of many assets fell quicker than assumed from historical experience.   Thus, now Basel III rules include a leverage ratio to serve as a safety net.  A leverage ratio is the relative amount of capital to total assets (not risk-weighted).   This aims to put a cap on swelling of leverage in the banking sector on a global basis.   3% leverage ratio of Tier 1 will be tested before a mandatory leverage ratio is introduced in January 2018.

6.   Liquidity Ratios:  Under Basel III, a framework for liquidity risk management will be created. A new
Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) are to be introduced in 2015 and
2018, respectively.

7.   Systemically   Important   Financial   Institutions   (SIFI):      In   addition   to   meeting   the   Basel   III requirements, global systemically important financial institutions (SIFIs) must have higher loss absorbency  capacity  to  reflect  the  greater  risks  that  they  pose  to  the  financial  system.  The Committee has developed a methodology that includes both quantitative indicators and qualitative elements to identify global systemically important banks (SIBs). The additional loss absorbency requirements are to be met with a progressive Common Equity Tier 1 (CET1) capital requirement ranging from 1% to 2.5%, depending on a bank’s systemic importance.




Basel III norms have not been adopted till now. These norms will be adopted in USA and Europe and in other nations gradually from 2013 – 2018.

Why Basel – III norms have not been adopted as Profitability of the banks will be reduced if these norms are adopted.

In India, RBI announced that Banks will adopt Basel III norms from April 1, 2013 and will be fully adopted by
2018.

FR 2

Article 18 - Abolition of titles
18 (1) No title, not being a military or academic distinction, shall be conferred by the State.

18 (2) No citizen of India shall accept any title from any foreign State

18 (3) No person who is not a citizen of India shall, while he holds any office of profit or trust under the State, accept without the consent of the President any title from any foreign State.

18 (4) No person holding any office of profit or trust under the State shall, without the consent of the President, accept any present, emolument, or office of any kind from or under any foreign State.

All titles national or foreign which create artificial distinctions in social status amongst the people have been abolished.

This provision has been included in the Constitution to do away with the titles like ‘Rai Sahib’, ‘Rai Bahadur’ have been conferred by the British on a few Indians as a reward for their effective co-operation to the colonial regime.

The practice of conferring titles like this is against the doctrine of equality before law.

To recognise the meritorious service rendered by individual citizens to the country or mankind, the President of India can confer civil and military awards on those individuals for their services and achievements such as; Bharat Ratna, Padma Vibhushan, Padma Sri, Param Veer Chakra, Veer Chakra etc., but these cannot be used on ‘titles’.


Right to Freedom (Article 19 – 22)
Article 19 -
The Constitution guarantees the following six Fundamental Freedoms at present:
Freedom of speech and expression

Freedom to assemble peacefully without arms

Freedom to form associations or unions

Freedom to move freely throughout the territory of India

Freedom to reside and settle in any part of the territory of India

Freedom to practise any profession or to carry on any occupation, trade or business

Concept of Inferred Rights: Article 19 (1) (a) gives the right to Freedom of speech and expression. This also means that a person can stay silent if he wishes to. This can be inferred from Article 19 (1) (a).

Hence, there are rights in the constitution which can be inferred from the given rights. This is Concept of Inferred Rights.

Explaining the scope of freedom of speech and expression Supreme Court has said that the words "freedom of speech and expression" must be broadly constructed to include the freedom to circulate one's views by words of mouth or in writing or through audio visual instrumentalities.

It therefore includes the right to propagate one's views through the print media or through any other communication channel e.g. the radio and the television.

Every citizen of this country therefore has the right to air his or their views through the printing and or the electronic media subject of course to permissible restrictions imposed under Article 19(2) of the Constitution.

Freedom of Press: The fundamental right of the freedom of press implicit in the right the freedom of speech and expression is essential for the political liberty and proper functioning of democracy.

The Indian Press Commission says that "Democracy can thrive not only under the vigilant eye of legislature, but also under the care and guidance of public opinion and the press is par excellence, the vehicle through which opinion can become articulate.

" Unlike the American Constitution, Art. 19(1) (a) of the Indian Constitution does not expressly mention the liberty of the press but it has been held that liberty of the press is included in the freedom of speech and expression.


 The editor of a press for the manager is merely exercising the right of the expression, and therefore, no special mention is necessary of the freedom of the press.


Freedom of press is the heart of social and political intercourse. It is the primary duty of the courts to uphold the freedom of press and invalidate all laws or administrative actions, which interfere with it contrary to the constitutional mandate.

Grounds of Restrictions: Clause (2) of Article 19 contains the grounds on which restrictions on the freedom of speech and expression can be imposed

Security of State: Under Article 19(2) reasonable restrictions can be imposed on freedom of speech and expression in the interest of security of State.

The term "security of state" refers only to serious and aggravated forms of public order e.g. rebellion, waging war against the State, insurrection and not ordinary breaches of public order and public safety, e.g. unlawful assembly, riot, affray.



Thus speeches or expression on the part of an individual, which incite to or encourage the commission of violent crimes, such as, murder are matters, which would undermine the security of State.

Friendly relations with foreign states: This ground was added by the constitution (First Amendment) Act, 1951. The object behind the provision is to prohibit unrestrained malicious propaganda against a foreign friendly state, which may jeopardise the maintenance of good relations between India, and that state.


No similar provision is present in any other Constitution of the world. In India, the Foreign Relations Act, (XII of 1932) provides punishment for libel by Indian citizens against foreign dignitaries. Interest of friendly relations with foreign States, would not justify the suppression of fair criticism of foreign policy of the Government.

Public Order: This ground was added by the Constitution (First Amendment) Act. 'Public order' is an expression of wide connotation and signifies "that state of tranquillity which prevails among the members of political society as a result of internal regulations enforced by the Government which they have established."

Freedom of assembly is not absolute but restricted. The assembly must be must be non-violent and must not cause any breach of public peace. If the assembly is riotous then it is not protected under Article 19 (1) (b) and reasonable restrictions may be imposed.

Freedom to form Associations includes association of political, social or cultural. Further, it also gives the right to join or not join associations or right to continue or not to continue with any association. It also gives the right to form trade unions.


Article 33 of the constitution empowers the to pass a law restricting the right to form political association to members of armed forces, persons employed in any bureau or other organizations established by the state for the purpose of intelligence or counter intelligence, persons employed in or in connection with the telecommunications system.

Freedom of movement guarantees to the citizens the right to move freely throughout the territory of India. But this can restricted on the grounds of Security, Public order or for protecting the interests of the scheduled tribes.

Freedom of Residence provides the right to reside or settle down throughout the territory of India. This right is subject to certain reasonable restriction in areas like scheduled areas or border areas.

Freedom of Trade and Occupation guarantees all citizens right to choose any profession, occupation, trade or business.

 This right can be restricted by the state under Clause 6 which includes
Imposing reasonable restrictions in the interest of general public
Prescribing professional or technical qualifications necessary for carrying on any profession, trade or business to the exclusion of private citizens, wholly or partially.

These freedoms can be suspended during the State of National Emergency. As soon as the State of National Emergency is declared under Article 352, the above- mentioned freedoms except the right to life and liberty, automatically remain suspended as long as the State of National Emergency continues. All these freedoms get restored as soon as the proclamation of National Emergency is lifted
.


Freedom of speech and expression is an important freedom. This freedom ensures free and frank speech, discussion and exchange of opinions.

 It includes the freedom of the press. However these freedoms like freedom of speech and expression are not absolute.

The state is empowered to impose reasonable restrictions on the exercise of this right in the interest of security of the state, public order, morality etc.
Freedom of assembly is not absolute but restricted. The assembly must be must be non-violent and must not cause any breach of public peace.

If the assembly is riotous then it is not protected under Article 19 (1) (b) and reasonable restrictions may be imposed.

Freedom to form Associations includes association of political, social or cultural. Further, it also gives the right to join or not join associations or right to continue or not to continue with any association.

It also gives the right to form trade unions.

Article 33 of the constitution empowers the to pass a law restricting the right to form political association to members of armed forces, persons employed in any bureau or other organizations established by the state for the purpose of intelligence or counter intelligence, persons employed in or in connection with the telecommunications system.

Freedom of movement guarantees to the citizens the right to move freely throughout the territory of India. But this can restricted on the grounds of Security, Public order or for protecting the interests of the scheduled tribes.

Freedom of Residence provides the right to reside or settle down throughout the territory of India. This right is subject to certain reasonable restriction in areas like scheduled areas or border areas.

Freedom of Trade and Occupation guarantees all citizens right to choose any profession, occupation, trade or business. This right can be restricted by the state under Clause 6 which includes
Imposing reasonable restrictions in the interest of general public
Prescribing professional or technical qualifications necessary for carrying on any profession, trade or business to the exclusion of private citizens, wholly or partially.

This Constitutional provision assures protection against arbitrary arrest and excessive punishment to any person who is alleged to have committed an offence. No person shall be punished except for the violation of law which is in force when the crime was committed. An accused cannot be compelled to be a witness against himself/herself. No person shall be punished for the same offence more than once. Also, no criminal law can be invoked retrospectively.


Article 22 - Prevention against Arbitrary Arrest and Detention
Our Constitution guarantees certain rights to the arrested person. As per the provision, no person can be arrested and/or be detained in custody without being informed of the grounds for detention. He /she has the right to consult and be defended by a lawyer of his/her choice. The accused has to be produced before the nearest magistrate within a period of twenty-four hours of arrest. These safeguards however are not available to foreigners as well as to those citizens detained under Preventive Detention Act.


What is Preventive Detention?

When the State feels that a person is likely to commit crime or is a threat to the security of the State, he/she may be detained without trial for a limited period. However, no person can be kept under detention for more than three months until permitted by an Advisory Board consisting of persons who are qualified to be appointed as judges of the High Courts. Such a board is presided over by a sitting judge of a High Court

FR P1

POLITY LECTURE NOTES

PART III of the Indian Constitution – FUNDAMENTAL RIGHTS

What are Fundamental Rights?
 Fundamental Rights are those Rights which are mentioned under Part III of the Indian Constitution.


 There are certain Rights which are mentioned in the Constitution, but not under Fundamental Rights. Such Rights are called Constitutional Rights. (E.g. Right to Vote)


 There are certain Rights which are available to citizens through laws passed by Legislatures (Centre or State). Such Rights are called Statutory Rights. (E.g. Right to Information)


Nature of Fundamental Rights
1. Most of the Rights are Negative Obligations on the State (E.g. Article 14), with certain exceptions
(E.g.
Article 21A). Negative Obligations means that the State cannot do something that hurts or curtails people’s rights.


2. Majority of Rights mentioned in Part III are enjoyed by citizens against the State.

3. These Rights are Justiciable.

4. Fundamental Rights are not absolute i.e. certain reasonable restrictions can be imposed upon them.

5. Fundamental Rights can be suspended during emergency.

6. Fundamental Rights of people occupying sensitive positions (Armed Forces, Intelligence Agencies etc.) can be restricted or even denied by Parliament by law.

7. Most of the Right are self executory i.e. the parliament need not make laws to implement these Rights. There are certain exceptions e.g. For Right to Education under Article 21A, a law was required by the parliament.

8. Some of these Rights are available to aliens (Foreigners).

Amendment of Fundamental Rights

Article 13 (2) states that the state shall not make any laws which take away Fundamental Rights of a citizen.


 A question arises as to whether the term ‘law’ in Article 13 (2) includes just ordinary laws or Constitutional Amendment Acts also.


 If Constitutional Amendment Act is not covered under law then the Parliament can amend the Fundamental rights by Amending the Constitution itself.


The Supreme Court Shankari Prasad vs. Union of India (1951) case held that Constitutional Amendment Act is not a law and thus Parliament can amend any Fundamental Right by using Constitutional Legislative Power.


It gave a similar verdict in Sajjan Singh vs. State of Rajasthan Case (1965) case.
However in Golaknath vs. State of Punjab (1967) case the Supreme Court held that Fundamental Rights had been given transcendental position by the Constitution and even Parliament cannot amend Fundamental Rights.


The 24th Constitutional Amendment Act amended Article 13 and 368 which made it clear that Parliament has the power to amend Fundamental Rights through Constitutional Amendment.


 This was challenged in the Supreme Court in Keshavananda Bharati vs. State of Kerala (1979) case.



The Supreme Court upheld the validity of 24th Amendment Act. However, the Supreme Court held that the Parliament’s amendment power is limited and is subject to “Basic Structure” of the Constitution.


The Supreme Court has not explicitly defined the term “Basic Structure”. However, in various judgments, the Supreme Court has held that the following concepts form a part of Basic Structure

• Supremacy of the Constitution
• Secular character of the Constitution
• Federalism
• Separation of Powers
• Power of Judicial Review
• The mandate to build a welfare state

Article 13 - Laws inconsistent with or in derogation of the fundamental rights

13 (1) All laws in force in the territory of India immediately before the commencement of this Constitution, in so far as they are inconsistent with the provisions of this Part, shall, to the extent of such inconsistency, be void.
NOTE: Parliament cannot make laws which violate any part of the Constitution.

 With respect to Part III, Judiciary will review those laws which are made by
the Parliament and violate the provisions of Part III. Judicial Review of Part III of the Constitution is not explicitly mentioned.
It is implicitly conveyed through Article 13 (1).

13 (2) The State shall not make any law which takes away or abridges the rights conferred by this Part and any law made in contravention of this clause shall, to the extent of the contravention, be void.


Classification of Fundamental Rights

1. Right to Equality (Article 14 to 18)
2. Right to Freedom (Article 19 to 22)
3. Right against Exploitation (Article 23 to 24)
4. Right to Freedom of Religion (Article 25 to 28)
5. Cultural and Educational Right (Article 29 to 30)
6. Right to Constitutional Remedies


Article 14 – Equality before Law
It states that - The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.


NOTE: Equality before the law means that every person (including aliens) shall be treated equally by the law. There are certain exceptions (E.g. Article 361, Diplomatic Immunity).

Equal Protection of law means law must operate equally among equals. Rolling out special schemes only for BPL category does not amount to violation of Article 14 as it attempts to bring BPL category towards non BPL category (reduce inequality).


To operationalize Equal protection of Laws, categories formed should be homogenous and the categories so formed should have a reasonable correlation with the objective that has to be achieved.


Article 15 - Prohibition of discrimination on grounds of religion, race, caste, sex or place of birth

15. (1) The State shall not discriminate against any citizen on grounds only of religion, race, caste, sex, place of birth or any of them.

NOTE: This right is available only to citizens and not aliens.

 The state cannot discriminate only on the above mentioned grounds but can discriminate on grounds other than these. (E.g. Marks in Entrance Exams)

15. (2) No citizen shall, on grounds only of religion, race, caste, sex, place of birth or any of them, be subject to any disability, liability, restriction or condition with regard to— (a) access to shops, public restaurants, hotels and places of public entertainment; or (b) the use of wells, tanks, bathing ghats, roads and places of public resort maintained wholly or partly out of State funds or dedicated to the use of the general public.


NOTE: The rights under 15 (2) are not only available against a state but also against other citizens as shops, restaurants etc. can be owned by state or can be a private property.

15. (3) Nothing in this article shall prevent the State from making any special provision for women and children.

15. (4) Nothing in this article or in clause (2) of article 29 shall prevent the State from making any special provision for the advancement of any socially and educationally backward classes of citizens or for the Scheduled Castes and the Scheduled Tribes.
NOTE: Article 15 (1) states that no citizen shall be discriminated on the grounds of caste, sex, religion. But there are special considerations for SC/ST, OBC, Women and Children. Exceptions for these categories are mentioned in Clause 2 and 3 of Article 15.

15.(5) Nothing in this article or in sub-clause (g) of clause (1) of article 19 shall prevent the State from making any special provision, by law, for the advancement of any socially and educationally backward classes of citizens or for the Scheduled Castes or the Scheduled Tribes in so far as such special provisions relate to their admission to educational institutions including private educational institutions, whether aided or unaided by the State, other than the minority educational institutions referred to in clause (1) of article 30.



NOTE: In order to serve the educationally and socially backward classes, the state asked the private education institutions also to reserve seats for the backward classes. Private institutions objected to it, stating it would amount to violation of right under Article 19 (1) g. The Parliament, by amending the constitution in 2005, added Clause 15 (5).

According to this, it is mandatory to reserve seats for backward classes also even in private institutions whether aided or unaided, by law. The only exception is educational institutions run by minority communities. A law was enacted in this effect called Central Educational Institutions Reservation in Admission Act 2006. This Act was challenged in the Supreme Court, but the Supreme Court upheld the validity of this law.



Vishaka Case
A was a PIL filed in Supreme Court by Vishaka and four other women's organizations in Rajasthan against the State of Rajasthan and the Union of India. This case in reference to the Bhanwari Devi’s alleged Gang Rape in 1992 in Rajasthan. Bhanwari Devi's legal battle culminated when the Supreme Court of India in a PIL, defined sexual harassment at workplace, preventive measures and redress mechanism.

Vishaka Guidelines against Sexual Harassment at Workplace Guidelines and norms were laid down by the Hon’ble Supreme Court in Vishaka and Others vs. State of Rajasthan and Others.



Article 16 - Our Constitution guarantees equality of opportunity in matters relating to employment or appointment to public services to all citizens. There shall be no discrimination on the basis of religion, race, caste, sex, place of birth or residence in matters relating to employment in public services. Merit will be the basis of employment. However, certain limitations have been provided to the enjoyment of these rights.



 Article 17 - Abolition of Untouchability
It states that - “Untouchability” is abolished and its practice in any form is forbidden. The enforcement of any disability arising out of “Untouchability” shall be an offence punishable in accordance with law.

The Constitution abolishes untouchability and its practice in any form is forbidden. The following actions are considered as offences when committed on the grounds of untouchability
Refusing admission to any person to the public institutions;
Preventing any person from worshipping in place of public worship;
Insulting a member of Scheduled Caste on the grounds of untouchability;
Preaching untouchability directly or indirectly.

Punishments for violations include minimum jail sentence of 6 months and/or fine, or the person can be permanently debarred from contesting any elections in the country. According to the article, punishment has to be in accordance with law. Parliament, for this purpose, enacted ‘The Untouchability offenses Act, 1955’.

 This was renamed as ‘The Civil Rights Protection Act’ in 1976. If a case of untouchability is brought before the court, the court will act on the assumption of guilt (unlike other cases where assumption is innocent until proven guilty).

MONETARY SYSTEM P2

HIGH POWER MONEY/RESERVE MONEY/PRIMARY MONEY

Current accounts cannot be opened in
Post Offices

Types of accounts that can be opened are:-
o  Savings account
o  Fixed Deposit
o  Recurring deposit




TD + DD = Total Bank Deposits




Government had appointed a committee for revising the measures of Money Supply

Committee was known as working group for the revision of Monetary Aggregates. The Chairman of the committee was Mr Y.V. Reddy



   It is denoted by H or M0
   In simple terms it is currency held by public and banks
   It is called reserve money as banks have to keep reserves with RBI and this is the reserve money
   It is known as primary money as currency is called primary money and deposit is called secondary money. H includes currency only.



H or M0 is the total amount of money held by public and banks. Only the money held by government is excluded here.



H = C + R + OD R = Cash reserves of Banks
Monetary System in India

   In India currency is printed as per the provisions of Minimum Reserve
System.
   RBI has to maintain reserves of 200 crore in the form of
o Gold                                  -             has to be at least 115 crore
o Foreign Securities.          -             No minimum requirement
   RBI can print unlimited currency against the backing of Gold, Foreign
Securities and Government Securities
   Till date RBI has printed 14.2 lakh crore
   Government borrows from RBI due to Deficit Financing.





Relation between Money Supply
& High Powered Money

Money Supply = M x H

M = Money Multiplier
Its value depends on credit creation of banks means the more credit the bank can create more will be the money multiplier.

Credit Creation Capacity depends on:- o Banking habits of the Public o Monetary Policy





   If government prints more money, amount of physical goods will not increase but increase in money will lead to increase in prices of the goods which will result in Inflation.

Reserve Bank of India

   RBI is the Central Bank of the Country
   RBI was Established in 1 April 1935 under (RBI ACT 1934)
   Government Established RBI Recommendation of Hilton Young
Committee
   RBI was Nationalised on 1 January 1949
   Governor is the Head of RBI
   Financial of RBI is 1st July to 30th  June

Foreign Securities are any kind of financial assets. In India we maintain four currencies as Foreign Securities. These are:-
o USA Dollar
o UK Pound
o Japanese Yen
o Euro





Why is the financial year of RBI from


Functions of RBI

1st

July to 30th

June?




• It is the only currency authority in India.

o The financial year of all the


• It is the Government’s Bank
• All financial transactions of the government are undertaken

banks is from 1st
Mar.

Apr to 30th


through the RBI
• It is Bankers Bank – Commercial banks have to keep reserves in RBI
and RBI lends money to banks
• RBI is known as lender of the Last Resort
• It provides clearing house facility to banks – settlements of claims of one bank on other banks is done by RBI by the means of following facilities:-
o NEFT (National Electronic Funds Transfer)
o RTGS (Real Time Gross Settlement System)
• Supervisor of Banks and Non-banking finance institutions
• Custodian of Foreign Exchange reserves



Monetary Policy

o If RBIs financial year is also the
same, it will not able to monitor
and check the accounts of the banks.





Lower Denominations values of `1 and less are printed by the Finance Ministry, Government of India


   It is the Component of Economic Policy through Which Central Bank regulates Money Supply in an
Economy
   It is the method through which the Central Bank regulates money supply in the market

Instruments of Monetary Policy


•    Also known as Credit Control measures or Monetary Policy
Measure
•    Broadly classified into two types:-
o Quantitative or General Measures
o Qualitative or Selective Measures

Quantitative Measures

1.   Cash Reserve Ratio (CRR)
o Percentage of bank deposits which the bank has to keep with RBI



Difference between Quantitative and Qualitative measures

1.   Quantitative measures regulate the quantity of money supply
2.   Qualitative measures are sector specific

MONETARY SYSTEM P3

3
2.   Statutory Liquidity Ratio (SLR)
o Percentage of bank deposits which the bank has to keep with itself
o Cash
o Government Securities
o Gold
3.   Bank Rate
o Rate of interest at which RBI provides rediscounting facilities to Banks against their first class security
o Commercial Paper is a First Class Security
4.   Open Market Operations (OMO)




Objectives of SLR

1.   To ensure that bank should maintain sufficient cash with themselves
2.   To Induce Banks to buy
Government Securities

o It is done by buying and selling Government Securities
o This is done by an auction process
o Another component of OMO is Liquidity Adjustment Facility.
o This is used to regulate the money supply in the country
o LAF is done by – Repo and Reverse Repo Rate
 Repo Rate – RBI lends money to Banks by buying government securities
    RBI only fixes Repo rate, Reverse Repo is automatically adjusted to
1% point below the Repo rate.
E.g. – If Repo Rate is changed to 8% Reverse Repo Rate will be automatically adjusted to 7%
 Reverse Repo Rate – At this rate banks buy government securities from RBI

When Repo and reverse Repo increases, Money Supply in the market decreases and when Repo and reverses Repo decreases Money Supply in the market increases.



Per cent v/s Per cent Point

-     1 per cent point = 100 basis point
-     i.e. 10% + 1% point = 10+1 = 11%
-     whereas 10% + 1% = 10+0.1 = 10.1%

CURRENT KEY RATES

CRR                     - 4.25%   REPO RATE         - 8.00% SLR                      - 23.0%   ReREPO Rate     - 7.00% BANK RATE       - 9.00%   MSF RATE           - 9.00%



5.   Marginal Standing Facility (MSF)
o Banks can borrow loan up to 1% on their deposits.
o Interests will be 1% point above Repo Rate and it will be based on day to day basis.
o This facility is created to facilitate borrowing from RBI by banks who do not haven
extra government securities and pledging the existing securities will affect their SLR
requirements of 23%.
o Objective was to overcome liquidity crunch with banks i.e. shortage of funds.

Qualitative Measures


1.   Credit Rationing
o Quota of credit, i.e. priority sector to get 40% of total credit.
o Priority sector includes:-
Agricultural Sector          (18% of total credit)
Weaker Sections
Small Scale Industry
o For Foreign banks priority sector cap is 32% of total credit


M.V  Nair  committee  in
2012 recommended that quota for foreign banks should  be  increased  to
40%




Priority  sector  includes  Exports,  Small  Scale  Industries,  Housing  Sector, Education Loan

2.   Margin Requirements
o Difference  between  the market  value  of  a  collateral  security  and the maximum amount of loan sanctioned against that security by a bank in a particular sector

3.   Differential Rate of Interest
o Different rate of interest for different sectors to increase the flow of credit to those sectors like agriculture sector, small scale industries

4.   Other Measures
o Moral Suasion
o Direct Action like Penalty or Sanctions

MONETARY SYSTEM P1

1
MONETARY SYSTEM

Money
   Anything which has general acceptance as means of payment.
   Functions of Money:-
o Medium of Exchange
o Common measure of value
o Standard for deferred payments
o Store of wealth
    Barter   System   –   A   commodity   is   exchanged   for   other
commodities.
o Problems of barter System are:-
    Double coincidence of what is required
Valuation of commodities exchanged is a problem
There won’t be a standard to serve as future monetary obligations

   Gresham’s Law – Bad money drives out good money
   Legal  Tender  Money  –  This  money  cannot  be  denied  in  the settlement of monetary obligation


Types of Money

1. Full-bodied money
• It is the type of money whose value as money is equivalent to its value as commodity
•    E.g. – Gold coin

2.  Token  Money/Credit  Money/Paper
Money
• Value as money is much more than the value as commodity
•    E.g. – Paper Currency

3. Representative full-bodied money
• It is a kind of token money but is issued against the backing of equivalent  value  of  bullion (gold  and  silver  in  bulk)  with the issuing authority

o Limited Legal Tender Money : It is compulsory to accept upto a certain limit
    E.g. A sum of `10  can be paid in denominations of 50 paisa coins and the
recipient has to legally accept it.
o Unlimited Legal Tender Money : This money can be used to make any amount of payment
   Non Legal Tender Money – There is no legal compulsion to accept this money. It is also called optional money or Fiduciary Money (on the basis of trust).
o E.g. – Nepalese currency at India – Nepal border may be used as but recipient is not legally bound to accept it.
   Fiat Money – Serves as money on the order of the government. It is issued by government and theoretically may not be compulsory to accept.
   Near Money – Highly liquid financial assets like shares and bonds

MONEY SUPPLY

   Money Supply is the total stock of all types money (currency + deposit money) held with public
   Types of bank deposits

o Savings Account o Current Account o Fixed deposit
o Recurring deposit account

M1 = C + DD + OD (Narrow Money)

C            - Currency held by the public
DD        - Demand Deposits with Banks
OD        - Other deposits (Demand Deposits held by RBI)

Public refers to everybody except
Banks and Government



Demand Deposits (DD) – Can be withdrawn on demand from banks.
Time  Deposits  (TD)  –  Can  be  withdrawn only after a specific time.
DD+TD = Total Deposits


Other deposits include demand deposits with RBI. DD with RBI can be held only by Quasi- Governmental agencies, international agencies or former Governors of RBI





   M1 is known as narrow money as it includes only 100% liquid deposits which is a very narrow definition of money supply.

M2 = M1 + Savings account deposits with Post Offices

   M2 includes M1 and only saving account deposits with Post offices.
   Though the size of post office saving accounts is negligible M2 term is used as all the deposits in M2 are not liquid.

M3 = M1 + TD (Broad Money)

TD         - Time Deposits with Banks
Includes fixed deposits, Recurring deposits and
time liability of Savings accounts


   M3 is called Broad money as along with liquid deposits it also includes time deposits thus making it a broad classification of Money


M4 = M3 + Total Deposits with Post Office


   As the total deposits with post office is negligible there is not much difference between M3 and M4
   The most common measure used for money supply is M3
   Currently M3 is `76 lakh crore.

PART 2 of the Indian Constitution – CITIZENSHIP

PART 2 of the Indian Constitution – CITIZENSHIP

A citizen is a person who enjoys full membership of the community in which he lives.
Citizens are different from aliens who do not enjoy following fundamental rights – Article 15, Article 16, Article 19, Article 29 and Article 30.
Citizens alone have the right to hold certain offices such as those of President, Vice – President, Governor of a State, Judge of SC and HC’s etc.


Aliens – are non-citizens of the country. They come for a brief visit, work or any other purpose. Aliens are of two types:-
1. Friendly Aliens
2. Enemy Aliens

At the commencement of the Constitution, Citizenship of India was conferred upon the below mentioned people:-
1. Persons who are born in India and domiciled in India.
2. Persons who are not born in India but domiciled in India and have been staying in India for a period of at least 5 years.
3. Persons who are domiciled in India but not born in India but either of their parents were born in India.
4. Persons who are resident in India but they migrated to Pakistan after 1st March 1947 but later
returned on resettlement permit.
5. Persons who were residents of Pakistan but migrated to India before 19 July 1948 or after that date and have been residing in India for at least 6 months
6. Persons who reside outside India but either of parents or grandparents were born in India.

Citizenship Act, 1955 (amended in 1986, 1992, 2003 and 2005)

The Act provides for acquisition of Indian Citizenship after the commencement of Constitution in five ways
1. By Birth - Any person born in India, on or after 26 January 1950 but before the commencement of the 1986 Act on 1 July 1987 is a citizen of India by birth.


2. By Descent - Persons born outside India on or after 26 January 1950 will be considered as citizen of India if at the time of their birth either of the parents are citizens of India and the parents get the birth registered with the Indian Consulate within 1 year of birth.

3. Citizenship by Registration – Any Person who is not a citizen of India can apply for apply for registration as a citizen if he satisfies certain criteria mentioned in the Constitution. Applicable basically for PIOs and OCI.


4. Citizenship by Naturalization - Citizenship of India by naturalization can be acquired by a foreigner who has resided in India continuously for a period of 1 year and prior to this 1 year in the past 14 years the person should have stayed in India for atleast 11 years.

Also person should not be a citizen of a country which does not allow Indians to become its citizens by Naturalisation and person should renounce citizenship of parent country.


5. Citizenship by Incorporation of territory – If any new territory becomes a part of India, the Government of India shall notify the persons of that territory to be citizens of India.

Loss of Citizenship

1. Renunciation of Indian citizenship - a voluntary act by which a person holding an Indian citizenship gives it up.
2. Termination – If a Indian citizen voluntarily accepts the citizenship of another country his Indian citizenship stands terminated.


3. Deprivation - If a Indian citizen has obtained his citizenship by fraud, or if he has been disloyal to India, or has been residing outside India for seven years continuously,

or if he has unlawfully traded or communicated with the enemy during war, or if has been imprisoned within 5 years in any country for a period 2 years after becoming a citizen of India either by naturalization or registration.


Concept of Dual Citizenship - Overseas Citizen of India (OCI)

Parliament of India passed the Citizenship (Amendment) Act 2005, which says that all the people of Indian origin in various countries, except in Pakistan and Bangladesh, whose parents/grandparents migrated from India after 26 Jan 1950 or were eligible to become Indian citizens on 26 Jan 1950 or belonged to a territory that became a part of India after 15 Aug 1947, will become eligible to be registered as Overseas Citizen of India.

Special Arrangements made for OCI card holders:-
1. They are entitled to procuring a multiple entry Lifelong Visa

2. OCI holders are treated on par with NRIs for economic, financial and educational matters

3. They are also exempt from registration with the Foreigners Regional Registration Officer (FRRO) on their arrival in the country and can stay or live for as long as they wish.

4. OCI cardholders can travel at very short notice and take up assignments in India.

An Overseas Citizen of India will not enjoy the following rights even if resident in India:-

1. The right to vote,
2. The right to hold the offices of President, Vice-President, Judge of Supreme Court and High
Court, Member of Lok Sabha, Rajya Sabha, Legislative Assembly or Council,
3. Appointment to Public Services (Government Service)

Chapter 01: Nation Building Process and its Challenges P2

Consequence of Partition:
The year 1947, saw the one of the most abrupt and haphazard, tragic transfer of people that human history had ever witnessed.


There were brutal killings, atrocities, rapes, on both sides of the border. The cities like Lahore, Amritsar, Kolkata (then Calcutta) got divided into "Communal Zones".


In many cases women were killed by their own family members to preserve the 'family honor'. Everything was divided then from tables, chairs to government officials. It is estimated that the Partition forced about 80 lakhs people to migrate across the new border.

Between five to 10 lakh people were killed in Partition related violence.



The government of India was successful in providing relief and in resettlement and rehabilitation of nearly six million refugees from Pakistan.

A department of rehabilitation was created. Various refugee camps were set up some notable being camp at Kurukshetra and Kolwada camp at Bombay.

 Many of the Hindus and Sikhs fleeing West Punjab were directed by the government of India to refugee camp in Kurukshetra.

 A vast city of tents had grown up on the plain, to house waves of migrants, sometimes up to 20,000 a day. Kurukshetra was the largest of the nearly 200 camps set up to house refugees from West Punjab.


While there were five refugee camps in Mumbai for refugees from Sindh region.


Some refugees had arrived before the date of transfer of power; among them prescient businessmen who had sold their properties in advance and migrated with the proceeds.

However, the vast majority came after15 August 1947, and with little more than the clothes on their skin.


These were the farmers who had ‘stayed behind till the last moment, firmly resolved to remain in Pakistan if they could be assured of an honourable living’.


But when, in September and October, the violence escalated in the Punjab, they had to abandon that idea. The Hindus and Sikhs who were lucky enough to escape the mobs fled to India by road, rail, sea and on foot.



Camps such as Kurukshetra were but a holding operation. The refugees had to be found permanent homes and productive work. Thus refugees required land for permanent settlement.


As it happened, a massive migration had also taken place the other way, into Pakistan from India. Thus, the first place to resettle the refugees was on land vacated by Muslims in the eastern part of the Punjab. If the transfer of populations had been ‘the greatest mass migration’ in history now commenced ‘the biggest land resettlement operation in the world’.


 As against 2.7 million hectares abandoned by Hindus and Sikhs in West Punjab, there were only 1.9 million hectares left behind by Muslims in East Punjab. The shortfall was made more acute by the fact that the areas in the west of the province had richer soils, and were more abundantly irrigated.


To begin with, each family of refugee farmers was given an allotment of four hectares, regardless of its holding in Pakistan. Loans were advanced to buy seed and equipment. While cultivation commenced on these temporary plots, applications were invited for permanent allotments.


Each family was asked to submit evidence of how much land it had left behind. Applications were received from 10 March 1948; within a month, more than half a million claims had been filed. These claims were then verified in open assemblies consisting of other migrants from the same village.



 As each claim was read out by a government official, the assembly approved, amended, or rejected it.
Expectedly, many refugees were at first prone to exaggeration.


 However, every false claim was punished, sometimes by a reduction in the land allotted, in extreme cases by a brief spell of imprisonment. This acted as a deterrent; still, an officer closely associated with the process estimated that there was an overall inflation of about 25 per cent.



To collect, collate, verify and act upon the claims a Rehabilitation Secretariat was set up in Jullundur. At its peak there were about 7,000 officials working there; they came to constitute a kind of refugee city of their own. The bulk of these officials were accommodated in tents, the camp serviced by makeshift lights and latrines and with temporary shrines, temples for Hindus and gurdwaras for Sikhs.



Leading the operations was the director general of rehabilitation, Sardar Tarlok Singh of the Indian Civil Service.


A graduate of the London School of Economics, Tarlok Singh used his academic training to good effect, making two innovations that proved critical in the successful settlement of the refugees.


Thus the task of rehabilitation took time to accomplish and by 1951, the problem of the rehabilitation of the refuges from West Pakistan had been fully tackled.

The rehabilitation on East took years and it was more difficult because of constant exodus of Hindus from East
Bengal continued for years.

After handling this worst nightmare of Partition, Indian leadership had strived to consolidate India from within and look after its internal affairs.
Plan of consolidation:

The broad strategy for national consolidation after 1947 involved :
1. Territorial integration,

2. Mobilization of political and institutional resources

3. Economic development, and

4. Adoption of polices which would promote social justice, remove glaring inequalities and provide equal opportunities.

Chapter 01: Nation Building Process and its Challenges P1

Chapter 01: Nation Building Process and its Challenges

A. Partition and its aftermath
The initial few years of independent India were full of daunting challenges and concerns regarding national unity and territorial integrity of India.


Freedom came with Partition, which resulted in large scale communal violence and displacement and unprecedented violence challenged the very idea of a secular India.


Independent India faced three kinds of challenges:
i. The first and immediate challenge was to shape a nation that was united, yet accommodative of the diversity in our society.

Due to the large landscape, different cultures with different regions and religions, variety of spoken languages, many people widely believed that a country with such amount of diversity could not remain together for long.


ii. The second challenge was to establish democracy. India adopted representative democracy based on the parliamentary form of government.


These features strived to ensure that the political competition would take place in a democratic framework. The challenge was to develop democratic practices in accordance with the constitution.


iii. The third challenge was to ensure inclusive development and well-being of the entire society. Due to the widespread poverty, the real challenge now was to evolve effective polices for economic development and eradication of poverty.


Partition: Displacement and Rehabilitation-


On 14–15 August 1947, two nation states came into existence, because of 'partition' of the division of British India into India and Pakistan. According to the "two nation theory" advanced by the Muslim League, India consisted of two 'People' Hindus and Muslims.


Due to the forceful circumstances and several political developments in 1940's the political competition between the congress and the Muslim League and the British role led to the decision for the creation of Pakistan.


A very important task at hand was demarcation of boundaries. After 3rd June plan of Mountbatten a British jurist Radcliff was invited to fix the problem and to form two boundary commissions one for Bengal and one for Punjab.


Four other members were also there in commission but there was a deadlock between Congress and Muslim league. On 17th August, 1947 he announced his award.


Limitation of this award:

a) Justice Radcliff had no prior knowledge about India.

b) He had no specialized knowledge needed for the task also.

c) He had no advisors and experts.

d) 6 week deadline that Radcliff had was also a limitation of this award.
It was decided to follow the principle of religious majorities which means that areas where the Muslims were in majority would make up the territory of Pakistan. The remaining was to stay with India.


The principle of religious majorities had entailed with it so many difficult positions:
i. There were two areas of concentration with Muslim majority, In the West and East part of India. Hence, it was decided that the new country. Pakistan will comprise two territories, West and East Pakistan.


ii. All the Muslims were not in favour joining Pakistan. Frontier Gandhi, Khan Abdul Gaffar Khan, the undisputed leader of the North West Frontier Province, staunchly opposed the two nation theory. But as Khudai khidmatgar of Abdul Ghaffar Khan boycotted the Plebiscite due to provision of limited franchise rights in that, the lone contender in the fray, the Muslim League, won the vote by default and in the end NWFP was made to merge with Pakistan.



iii. Two Muslims majority concentrated provinces of British India, Punjab and Bengal had very large areas with non Muslims population in the majority.

 Eventually it was decided that these two provinces would be bifurcated according to the religious majority at the district or even lower level.


 The partition of these two provinces caused the prolonged trauma of Partition.

iv. The last difficult position was of "minorities" on both the sides of the border. Minorities then on either side lived in fear and fled from their homes to save their lives from brutal violence unleashed during partition.

PART 1 of the Indian Constitution – THE UNION AND ITS TERRITORY

PART 1 of the Indian Constitution – THE UNION AND ITS TERRITORY


Why the term Union instead of Federation?
Our country is not a result of any type of contract between formerly independent states
Once a territory becomes part of Indian Territory they do not have the power of succession i.e. such states cannot opt out of the union.

What is the difference between Territory of India and Union of India?
Territory of India refers to a wider set including present states, union territories and regions which may be acquired at a later point.
Current States and Union Territories of India.



Article 2
2 - Parliament may by law admit into the Union, or establish, new States on such terms and conditions as it thinks fit.
2A - [Sikkim to be associated with the Union.] Rep. by the Constitution (Thirty-sixth Amendment) Act, 975, s. 5 (w.e.f.26-4-1975).



Till 1956 States were categorized as:-
Part A – 9 States (Former provinces of the British Governors)
Part B – 9 states (Former Princely States)
Part C – 10 states (Former Princely states) and 4 Chief Commissioner Provinces
Part D – Andaman & Nicobar Islands
Total number of states – 29

Chief Commissioner Provinces were small provinces governed directly by British Government but due to its small size a Governor was not required thus officer of the rank of Chief Commissioner was made incharge of the province.
- Delhi, Coorg


What is a schedule?
A schedule is an appendix or a supplement that is attached at the end of a constitution. It is in the form of an explanation to one or more articles of the constitution

Reorganisation of States during British rule was done keep three points in mind. These were:-
• Administrative convenience
• Economic Convenience
• Military Convenience



After independence large number of princely states had joined the Union of India so British reorganisation reasons would not have worked.

Use of Language as demarcation was thought of as one of the reasons initially


In 1948, SN Dhar commission was set up to look into the reorganisation which did not accept this reason as it will invoke sub national sentiments
E.g. – Right wing parties of Maharashtra opposing people from UP and Bihar in Mumbai

JVP committee consisting of Jawaharlal Nehru, Sardar Vallabhai Patel, Pattabhi Sitaaramayya submitted its report in April 1949 endorsing the views of SN Dhar committee

In 1956 State Reorganisation committee consisting of Fazal Ali, AM Panikar, Pandit Hridayanath Kunzru
It rejected ‘One Language One state’ claim and said that Unity, Integrity and Security of the state should not be compromised.
They carved out 14 states and 6 Union Territories


For creation or reorganisation of states, only a simple majority of the Parliament is required


14 States – Andhra Pradesh, Assam, Bihar, Bombay, Jammu & Kashmir, Kerala , Madhya Pradesh, Madras, Mysore, Orissa, Rajasthan, Punjab, West Bengal
6 Union Territories - Andaman & Nicobar, Himachal Pradesh, Delhi, Tripura, Manipur, Lakshadweep


Article 4
Clause (1) - Any law referred to in article 2 or article 3 shall contain such provisions for the amendment of the First Schedule and the Fourth Schedule as may be necessary to give effect to the provisions of the law and may also contain such supplemental, incidental and consequential provisions (including provisions as to representation in Parliament and in the Legislature or Legislatures of the State or States affected by such law) as Parliament may deem necessary.

Clause (2) - No such law as aforesaid shall be deemed to be an amendment of this Constitution for the purposes of article 368.

Economy Lecture 2 – Class Notes

Economy Lecture 2 – Class Notes

Markets are classified into –

1) Perfect Competition 2) Monopoly 3) Monopolistic Competition 4) Oligopoly

Perfect competition describes markets such that  no participants are large enough to have the market power  to set the price of a homogeneous product. There are few if any perfectly competitive markets.

Still, buyers and sellers in some auction-type markets, say for commodities (like wheat) or some  financial  assets,  may  be  closer  to  this  market.  Demand  and  supply  curves  become  fully operational only in the case of perfect competition.

Specific characteristics of a perfect market are


     Infinite (very large number of) buyers and sellers
     Zero entry and exit barriers
     Perfect factor mobility
     Perfect information
     Zero transaction costs
     Property rights

A monopoly is a market structure in which a single supplier produces and sells a given product. If there is a single seller in a certain industry and there are no close substitutes for the product, then the market structure is that of a "pure monopoly".

 Railway is a pure monopoly, but since it is for public good, it is desirable.

Sometimes, there are many sellers in an industry and/or there exist many close substitutes for the goods  being produced,  but  nevertheless  companies  retain  some  market  power.

 This  is  termed monopolistic competition. Most of the items we find in the grocery shops are part of monopolistic competition.

An oligopoly is a market form in which a market or industry is dominated by a small number of sellers. Because there are few sellers, each oligopolist is likely to be aware of the actions of the others.

The decisions of one firm influence, and are influenced by, the decisions of other firms. For example, telecom and civil aviation – if one firm reduces the price, others will also have to be.

Cartels convert oligopolistic markets into monopoly. Most famous cartel is OPEC, for petroleum pricing.

Resource Allocation – “What to produce…and in what quantity?”

Two ways of allocation

     Government (Planning Commission) through taxation, subsidies, licensing, quota etc

o Advantage – Can take care of even those who are willing, but ‘unable’ to
buy; can take care of the macroeconomic problems (unemployment)

o Disadvantage – Less efficient
     Market Mechanism based on demand and supply considerations

o Advantage – Based on collective wishes of people; more competition leading to higher efficiency of firms; more initiatives (by private players)

o Disadvantage – Cannot ensure social justice; cannot fill the gap between
‘need and supply’; insensitive to the macroeconomic problems (inflation,
environment degradation)

Government  Intervention:   In  general,  govt  intervention  in  the  market  mechanism  creates distortions like suppliers reducing production, shortages, unequal distribution and black marketing.

     But the govt can provide subsidies to (poor) consumers and incentives to (unwilling)
producers
     Administrative measures can take care of black marketing (Acts like Prevention of Black
Marketing and Maintenance of Essential Supplies)

Post  reforms  (1991),  govt  has  started  inviting  private  players  to  participate  in  otherwise  non-
profitable sectors (like infrastructure) by providing them Viability Gap Funding (VGF)

VGF - Ministry of Finance Department, Department of Economic affairs has introduced a scheme for support to public private partnership (PPP) in infrastructure.


G.O.I. has made provision to financially support the viability gap to the tune of 20% of the cost of the project in the form of capital grant from its viability gap fund.

The scheme is confined to Public Private Partnership projects taken by the Government or its agencies, where the private sector is selected through open competitive public bidding.

Under the scheme of Government of India, a provision has been made that Government of India’s support will be limited to tune of 20% of the cost of the Project. It is also mentioned that State Government or its agencies that owns the project may also provide additional grants out of its budget not exceeding further 20% of the total cost of the Project.

LPG – Liberalization (reducing govt control and allowing economic units to take their own  decisions,  Privatization  (increasing  the  role  of  private  sector),  Globalization(integrating Indian economy with the world economy)
Competition Commission of India created in 2002 is not anti-competition – it ensures that the companies play by the rules and no company takes undue advantages




National Income Accounting

Gross Domestic Product (GDP) – Monetary value of all final goods and services produced in the domestic territory of a country during an accounting year.

Capital goods (e.g. machinery) are included in GDP, but intermediate goods (e.g. raw materials) are not
     Same good can be final (you consuming milk ) or intermediate (milk in the restaurant)
depending on the usage
     Intermediate goods and services are not included to avoid double counting
   
 In India, Services Sector contributes 60% to the GDP
     Domestic  Territory  =  Country’s boundary  +  Embassies/Consulates +  Military Establishments   of   the   country   abroad   +   Ships/Aircrafts/Fishing   Vessels/Oil   Rigs belonging to the residents of the country

Accounting Year = Fiscal Year; for India it is 1st of April to 31st of March (next year)

     Will include the income generated by MNCs in India

Gross National Product – GNP is the total value of final goods and services by normal residents of India within an accounting year. GDP includes the contribution made by non-resident producers - who work in the domestic territory of other countries - by way of wages, rent, interest and profits. For example, the income of all people working in Indian banks abroad is the factor income earned abroad. Net factor income from abroad is the difference between the income received from abroad for rendering factor services and the income paid for the factor services rendered by non-residents in the domestic territory of a country. GNP is, thus, the sum of GDP and net factor incomes from abroad.

In brief, GNP = GDP + NFIA (net factor income from abroad).

Normal Resident – GoI defines it as someone who has long term economic interest in India. Inputs – 1) Factor: Land, Labour, Capital & Entrepreneurship 2) Non-factor: All others (raw materials)
NFIA may be positive or negative. In case of India, it is negative; so our GDP > GNP

Net value = Gross – Depreciation

Net Domestic Product (NDP) = GDP – Depreciation
Net National Product (NNP) = GNP – Depreciation
NNP = NDP + NFIA (similar to the relation between GNP & GDP)
Theoretically ‘net’ is a better measure of the health of an economy than ‘gross’ but it is
difficult to estimate net values – so GDP & GNP are commonly used measures


Factor Cost (FC) vs Market Price (MP)

FC includes rent, wages, interest and profit
MP = FC + Net Indirect Taxes
o Net Indirect Taxes = Indirect Taxes – Subsidies
o Therefore, GDP at MP = GDP at FC + Net Indirect Taxes
Direct Taxes imposed on income and wealth of people and corporates (Income tax, wealth tax etc); indirect taxes on goods and services (sales tax, excise duty)
FC is used for estimating growth (e.g. our annual GDP numbers)
o GDP at MP can increase merely by increasing the taxes, even without increase in production

Current Prices vs Constant Prices

     Current – Values estimated at prevailing (current) prices
•    GDP at current prices is called Nominal GDP
•    Govt always gets its data in terms of Nominal GDP and then converts it to Real GDP     Constant – Values estimated at the prices of a base year
•    For India, the base year is 2004-05
•    Growth is always estimated at constant price

o So, when we say that the GDP growth rate of India in 2011-12 was 6.5 %, it is
estimated at factor cost and constant prices.
o GDP at current price can increase because of inflation – not a true indicator of increase in production. So it is not used.
o GDP at Constant Prices is called Real GDP – it cannot increase without a real increase in production.
     Converting Nominal to Real GDP – Two ways
•    Estimate inflation, deduct its impact on the nominal GDP – deflating the nominal
GDP
o Real GDP = (Nominal GDP/GDP Deflator) x 100
o GDP Deflator is an index number used to represent inflation
•    Estimate the actual numbers of production – very tough to do. Criteria for selection of base year
•    Normal year – neither too high nor too low
•    Latest possible year
•    Relevant data for that year should be readily available
Two data collection agencies in India
•    Central Statistical Organisation (CSO) – Estimates National Income
• National  Sample  Survey  Organisation  (NSSO)  –  Collects  data  on  employment, poverty, consumption, expenditure, etc
o Sample Surveys conducted annually, but Large Sample Surveys conducted every 5 years
o Latest was the 66th  Round of NSSO (2009-10) – but not selected as a base
year, because it wasn’t a normal year (economy affected by financial crisis)
   So, the last Large Sample Survey (61st Round, 2004-05) was used for selecting the base year

Economics Lecture 1– Class Notes 1

Economics Lecture 1– Class Notes

Determinants of Supply

1.   Cost of production – if it increases, supply decreases

Shifts in the Supply Curve

If cost of production increases, quantity supplied will reduce

  Supply curve will shift leftwards

If cost of production decreases, quantity supplied will increase

  Supply curve will shift rightwards

2.   Taxes

If taxes increase, supply will reduce, and the supply curve will shift leftwards

  Impact of increase in cost of production and increase in taxes will be the same

After the global financial crisis of 2008, government reduced taxes to boost supply

  This shifted the supply curve rightwards

3.   Goals of Firms

Profit is not always the only goal of the firm

  Goal may be sales maximization or social welfare

o In this case, the supply increases, and the supply curve shifts rightwards

  Supply may also increase due to good rainfall leading to increase in agri suppl

                                                                                                  4.   Elasticity of Supply

“Responsiveness of the quantity supplied to the change in price”

If the change is steep => high elasticity

Elasticity (Es) = (% change in quantity supplied) / (% change in price)

   If Es>1 =>  supply is elastic

   If Es<1 =>  supply is inelastic

Determinants of elasticity of supply

•        Overall determinant is choice – more the choice with the firm, higher the elasticity e.g. Perishable quantities – firm has no option/choice to store; has to sell at any price

Similarly for agricultural commodities – inelastic supply

MARKET EQUILIBRIUM

•    Quantity demanded = quantity supply

Equilibrium point = point of intersection of demand and supply curves

•        Ideal situation – both buyers and sellers derive maximum utility and satisfaction from this point

•    Markets comprise of two groups – buyers and sellers

o Buyers want lower prices to maximize their satisfaction

o Sellers want higher profits

•    Reducing the price below the equilibrium will lead to shortage

  Price will automatically go up, in the interest of both the groups

•    Increasing the price about the equilibrium will lead to over-supply

  Suppliers will reduce the price in order to sell all the stock

   Consumer’s  equilibrium  is  the  situation  where  a  consumer  spends  his  income  on  various commodities in such a manner that he gets maximum satisfaction

   Producer’s  equilibrium  is  the  situation  where  a  firm  produces  that  level  of  output  which provides it maximum profits

Who fixes the price in the market – buyers, sellers, government or nobody?

  It happens automatically through ‘market mechanism’!

  Also called Price Mechanism or the ‘invisible hand’ (Adam Smith)

  Adam Smith is called the father of Economics (Book – An inquiry into the nature and the causes of the wealth of nations, 1776)

  Wealth of nations is the first book on Economics, separating it from Philosophy

  Though Kautilya’s Arthshashtra dealt with Economics, it was primarily about statecraf

                                                                                             

Impact of change in Demand & Supply

   When supply increases, price decreases (e.g. More supply of agricultural produce in the

mandis)

   When demand increases, price increases (e.g. Price of fruits during Navratra) Why are the prices of agricultural commodities volatile?

  Because of inelasticity of demand & supply

o You don’t start eating more just because price is less

o Producers anyway have to sell of their agri products at any price (perishable goods) Paradox of poverty of farmers

•    If crops fail, farmers have nothing to sell and the farmers lose incom

•    But even when there are bumper crops, their income reduces!

o Farmers lose in both the cases

Why do producers prefer to burn or sink the bumper crops, rather than sell?

  Because if they export all, the supply will increase, price will come down, bringing down overall income

Justification of Minimum Support Price by the government

•    If the govt. doesn’t intervene, both farmers and consumers will lose

•    With govt willing to buy ALL quantity at an attractive price (MSP), the farmers won’t be

incurring losses

o It will reduce the fluctuation in prices, even in the case of overproduction

However, MSP is announced only for important crops (24 in number)

  If govt will announce MSP for all (even potato, tomato etc), it will have to buy unlimited quantity of all these

  Not enough storage for all the crops

  Only those crops which are crucial to food security are supported by MSP Difference between MSP & Procurement Price

  MSP = Guarantee to buy unlimited quantity at this price for selected crops

Procurement Price = Guarantee to buy only limited quantity for distribution in PDS & buffer storage

  MSP = Usually below the market price (though not much below) Procurement Price = At or above the market pric

  MSP Objective = Protect the interest of farmers in case of overproduction

Procurement Price Objective = Protect the interest of both, the consumers (through PDS)& farmers

MSP announced before sowing

Procurement Price announced after harvest

 Central  Govt  announces  both  these  prices  on  the  recommendation  by  Commission  of

Agricultural Costs & Prices (CACP); state govts also consulted

Pricing of Shares

Share market is a form of Capital Markets, which comprises of Primary & Secondary Markets

  Security is the general term for all kinds of financial assets; share is also a security

  Primary Market – First time selling of shares - Initial Public Offer (IPO)

o Sold by firms to investors

  Secondary Market – Existing shares are sold again

o Sold by one investor to another

  Shareholders are owners to the extent of the total value of their shares

o They get proportion of the profits (called dividends) in return

o        They can’t sell it back to the company (usually)  – can only transfer it to other investors

  Primary Market – price determined by the company

  Secondary Market – price determined by Demand & Supply equation

o        The place where the transactions between buyers & sellers happen is called stock exchange

o Money given to the company in order to invest in long term growth

oEnables people to convert the shares into cash (provides liquidity to the existing securities)

  SEBI regulates both, primary and secondary markets

  In a stock market, shares are auctioned

o Buyers created demand, sellers create supply

Demand curves are constructed on the basis of bids placed by interested buyers

Supply curves are constructed on the basis of the willingness of the sellers to sell at a particular price

Impact of positive news on share price

  Buyers will become optimistic about the company’s prospects

  Demand will increase, shifting the demand curve rightwards

  This increases the price

  But fewer sellers will be there because they will hold on to the shares (good future prospects)

  Supply curve will shift leftwards

  Therefore price will go up

Indices of Stock Exchanges

  Shows   performance   of   the   companies   listed   on   that   stock   exchange   through   a representative group of companies (BSE – Sensex, comprising of 30 stocks; NSE – Nifty, comprising of 50 stocks)

  Market Capitalization = Number of shares x Share Price

                                                                                        

  Demand & Supply depends on the perception of the investors regarding future performance of the compan

o Perception  of  the  future  depends  on  –  

1)  Past  &  current  performance  of  the company, 

2) Govt Policy (liberal policy will help the company’s performance), 

3) Foreign Investment (if its high, the share price will go up), 

4) Global factors (e.g. 2008 Financial Crisis caused a global crash of stock markets), 

5) Macro EconomicFactors (GDP, Inflation) and 6) Political Factors

If the Sensex goes up, can we say with certainty that the economic performance of the country will be good in the future?

  We cannot be SURE, but chances are high that the overall performance will be good

  Stock markets are based on perception and sentiments – they are right most of the time, but not all the time!