Indian Economy, one of the major subjects of UPSC prelims and UPSC mains GS paper 3. his article consits of basics of UPSC exam which will help the IAS Aspirant understand the rest of the Economics subject very well. It is advisable for the candidate to make notes on the topic of basics of economics so that it makes it easier for them to clear the concepts. you can also read economics ncerts from our download section.


  • Measurement of Economy
  • Basic terminologies
  • Planning in India



  • Gross Domestic Product (GDP): Aggregate of goods and services produced by a country within its boundary in a financial year.
  • Net Domestic Product (NDP): GDP – Depreciation
  • Gross National Product (GNP): GDP + Incomes from abroad – Foreign repatriable earning
  • Net National Product (NNP): GNP – Depreciation



Contract farming: Agricultural production carried out according to an agreement between a buyer and farmers. Benefits such as the assured market and access to support services for the farmers. It is also a system of interest to buyers who are looking for assured supplies of produce for sale or for processing.

Microfinancing: Providing banking facility to people belonging to lower and middle economic strata in rural and semi-urban areas who are otherwise outside the coverage of formal banking system

Foreign Direct Investment (FDI): Investment made by a foreign individual or company in the productive capacity of another country. It grants the investor control over the acquired asset.

Foreign Institutional Investment (FII): The term is used most commonly in India to refer to outside companies investing in the financial markets of India. These include investments in hedge funds, insurance companies, pension funds and mutual funds.

Benchmarking: Benchmarking is the process of comparing one's business processes and performance metrics to industry bests or best practices from other industries. Dimensions typically measured are quality, time and cost.

Growth vs Development: Economic growth is a narrower concept than economic development. The definition of economic development given by Michael Todaro is an increase in living standards, improvement in self-esteem needs and freedom from oppression as well as a greater choice.

Human Development Index (HDI) was devised and launched by Pakistani economist Mahbub ul Haq, followed by Indian economist Amartya Sen in 1990.

Starting with the 2011 Human Development Report the HDI combines three dimensions:

  1. A long and healthy life: Life expectancy at birth
  2. Education index: Mean years of schooling and Expected years of schooling
  3. A decent standard of living: GNI per capita (PPP US$) India has an HDI Rank of 134

Deficit Financing

  • Promoted by JM Keynes
  • Practice in which government spends more money than it receives as revenue
  • Helps in stimulating growth
  • Extra money to fund more expenditure comes from printing extra money or external borrowing. Extra money in pockets will create demand. It will facilitate production. Jobs will be created. Economy will be back on
  • More money in market, however, also leads to

Inflation: In a broad sense, inflation is that state in which the prices of goods and services rise on one hand and value of money falls on the other.

Inflation is of two types—

  1. Cost Push Inflation: Due to an increase in production cost that gets translated into higher price for that
  2. Demand Pull Inflation: When the item being purchased is in short supply

Monetary policy: Monetary and credit policy is the policy statement, through which the RBI targets a key set of indicators to ensure price stability in the economy. It is declared twice a year and helps in taming inflation.

Fiscal policy: It is the use of government revenue collection (taxation) and expenditure (spending) to influence the economy. Union budget that is prepared every year is used to shape the fiscal policy of the country.

Budgeting is done at two levels:

  1. Revenue budget - done for short time, recurring in nature – eg: maintenance of roads
  2. Capital budget - done for longer time, non-recurring in nature – eg: construction of roads


  • Budget deficit = Total expenditure – Total receipts
  • Fiscal deficit = Total expenditure – Total receipts excluding borrowings Fiscal deficit gives the signal to government about total borrowing needs
  • Primary deficit = Fiscal deficit – Interest payment on the borrowing


Planning Commission estd. in 1950 formulates five-year plans for social and economic development of India.- For more click here

This article of basics of Indian Economy is just the overview of the Economics Subject in UPSC syllabus. There is much more to this subject, as this is just the start. To read more articles on UPSC economics click here