Salient Features and Challenges before Indian Economy

The Office of National Statistics (ONS) has given an official estimation of unemployment using the International Labor Organization definition.
According to this definition, any person aged 16 and above will be called as unemployed if they are out of work, need a job, have vigorously wanted work in the last four weeks and are available to start work in the next two weeks, have found a job and are waiting to join the job in the next two weeks.

Statement 1 is incorrect: The Indian definition of child labour considers every human being below 14 years of age a child.

Statement 1 is wrong: Financial inclusion or inclusive financing is the delivery of financial services, at affordable costs, to sections of disadvantaged and low income segments of society. In India, financial inclusion first featured in 2005, when it was introduced by K C Chakrabarthy, the chairman of Indian Bank.
Statement 2 is wrong: Khan Commission was set up by the RBI, not by the Ministry of Finance.

Social Overhead Capital comprises of such industries which help in the growth of other industries. Social overhead capital or infrastructure as it is now called, includes such industries like railways and other means of transport, electricity and other sources of energy, communication, banking, etc.
Unfortunately not much attention was paid to this during the British rule and consequently the development of industries in India remained slow and tardy.

In India, marginal holdings of less than 1 hectare (ha) accounts for 60% of all holdings but only 20% of total cultivated area. On the other hand, holdings above 2 hectares accounts for only around 20% of all holdings but 60% of cultivated area, with holdings above 10 hectares accounting for just 1% of holdings, but 12% of area.

<span style="font-family:" 'lucida="" grande',="" helvetica,="" verdana,="" sans-serif;="" font-size:="" 12px;="" line-height:="" 16px;="">While a country like China will be more than happy with a depreciating currency, the same doesn't apply for India. China exports more than it imports, thus a depreciating currency makes its exports cheaper in the International market, in turn making China more competitive. India on the other hand does not enjoy this luxury, mainly because of increasing demand of oil, which constitutes a major portion of its import basket. The fall of oil price to $90/barrel has helped India to fight the depreciating rupee up to some extent but at the same time Euro zone, one of the major trading partners of India is under severe economic crisis. This has significantly impacted Indian exports because of reduced demand. Thus India continues to see current account deficit of around 4.3%, depleting the Forex Reserve and thus depreciating INR.
Capital Account flows: Deficit countries need capital flows and surplus countries generate capital outflows. India needs dollars to finance its current account deficit. Institutional investors investing in India are directly impacted by the global market uncertainty.
Persistent inflation: India has experienced high inflation, above 8%, for almost two years. If inflation becomes a prolonged one, it leads to overall worsening of economic prospects and capital outflows and eventual depreciation of the currency.
Interest Rate Difference: Higher real interest rates generally attract foreign investment but due to slowdown in growth there is increasing pressure on RBI to decrease the policy rates. Under such conditions foreign investors tend to stay away from investing. This further affects the capital account flows of India and puts a depreciating pressure on the currency.

India's Gini coefficient is lower than that of many developing countries, including China. But this is not due to steps taken by authorities or due to political will. Instead, the National Sample Survey's data under-represent the rich. Moreover, while for other developing countries the Gini coefficient often refers to income distribution, India's refers to distribution of consumption expenditure (as NSS does not collect income data), which is usually less than that of income (partly because the rich tend to save more than the poor).

A Budget Deficit is the excess of spending over income for a government, corporation, or individual over a particular period of time. The opposite of a deficit is a surplus.
Fiscal deficit is noticed when government's total expenditures exceed the revenue that it generates (excluding money from borrowings).
Deficit differs from debt, which is an accumulation of yearly deficits.
Fiscal deficit is regarded as a positive economic event by some economists like Keynes.

In the past, there have been fundamental and irreversible changes in the economy, government policies, outlook of business and industry, and in the mindset of the Indians in general. Let’s have a look over India’s progress chart.

1. From a shortage economy of food and foreign exchange, India has now become a surplus one.
2. From an agro-based economy, it has emerged as a service oriented one.
3. From the low-growth of the past, the economy has become a high-growth one in the long-term. In fact, in post 2008 period, the resistance of Indian economy manifested by its impressive growth has been highly appreciated throughout the globe.
4. After having been an aid recipient, India has now joined the aid givers club. India has become a net creditor to IMF, since July 2003.

The current account is that part of Balance of Payment (BOP) account which details the balance of goods and services traded with the rest of the world. The excess of imports of goods and services over their export is referred to as Current Account Deficit (CAD).
Robust demand for gold and continuing high crude oil prices (which India imports a lot), along with decelerating growth in emerging and developing economies, are responsible for adversely affecting India's trade balance.
High rate of inflation persisting in the economy attracts cheap imports and makes export costly in the international market. High fiscal deficit run by the government is one factor behind the high inflation.

Statement 1 is wrong. GAAR is a step to contain the problem of tax avoidance, not to contain tax evasion. Tax avoidance is generally the legal exploitation of the tax regime to one's own advantage, to attempt to reduce the amount of tax that is payable by means that are within the law whilst making a full disclosure of the material information to the tax authorities.
Statement 2 is perfectly correct: GAAR is a concept which generally empowers the Revenue Authorities in a country to deny the tax benefits of transactions or arrangements which do not have any commercial substance or consideration other than achieving the tax benefit.

Statement 1 is correct: FDI or Foreign Direct Investment is an investment that a parent company makes in a foreign country. On the contrary, FII or Foreign Institutional Investor is an investment made by an investor in the market of a foreign nation.
Statement 2 is incorrect: In FII, the companies only need to get registered in the stock exchange to make investments. Foreign Institutional Investment is also known as hot money as the investors have the liberty to sell it and take it back. But in Foreign Direct Investment, this is not possible. In simple words, FII can enter the stock market easily and also withdraw from it easily.
Statement 3 is correct: Foreign Direct Investment only targets a specific enterprise. It aims to increase the enterprises capacity or productivity or change its management control. In an FDI, the capital inflow is translated into additional production. The FII investment flows only into the secondary market. It helps in increasing capital availability in general rather than enhancing the capital of a specific enterprise.

Indian currency (INR) has depreciated close to 22% in the last 1 year. The persistent decline in rupee is a cause of concern.
Factors that pushed INR into the well are:
<b style="font-family:" arial;="" font-size:="" small;="">1. Continued Global uncertainty: <span style="font-family:" arial;="" font-size:="" small;="">Owing to uncertainty prevailing in Europe and slump in international market, investors prefer to stay away from risky investments (flight to security).
<b style="font-family:" arial;="" font-size:="" small;="">2. Current Account Deficit: <span style="font-family:" arial;="" font-size:="" small;="">While a country like China will be more than happy with a depreciating currency, the same doesn't apply for India. China exports more than it imports, thus a depreciating currency makes its exports cheaper in the International market, in turn making China more competitive.
<span style="font-family:" arial;="" font-size:="" small;="">3. <b style="font-family:" arial;="" font-size:="" small;="">Capital Account flows: <span style="font-family:" arial;="" font-size:="" small;="">Deficit countries need capital flows and surplus countries generate capital outflows. India needs dollars to finance its current account deficit.
<span style="font-family:" arial;="" font-size:="" small;="">4. <b style="font-family:" arial;="" font-size:="" small;="">Persistent inflation: <span style="font-family:" arial;="" font-size:="" small;="">India has experienced high inflation, above 8%, for almost two years. If inflation becomes a prolonged one, it leads to overall worsening of economic prospects and capital outflows and eventual depreciation of the currency.
<span style="font-family:" arial;="" font-size:="" small;="">5. <b style="font-family:" arial;="" font-size:="" small;="">Interest Rate Difference:<span style="font-family:" arial;="" font-size:="" small;=""> Higher real interest rates generally attract foreign investment but due to slowdown in growth there is increasing pressure on RBI to decrease the policy rates. Under such conditions foreign investors tend to stay away from investing.
<span style="font-family:" arial;="" font-size:="" small;="">6. <b style="font-family:" arial;="" font-size:="" small;="">Lack of reforms: <span style="font-family:" arial;="" font-size:="" small;="">Key policy reforms like Direct Tax Code (DTC) and Goods and Service Tax (GST) have been in the pipe line for years. A retrospective tax law (GAAR) has already earned a lot of flak from the business community.

In economics, the current account is one of the three primary components of the balance of payments, the other two being - capital account and financial account. In the current account, goods, services, income and current transfers are recorded.
A current account surplus increases a country's net foreign assets by the corresponding amount, and a current account deficit does the reverse. Both government and private payments are included in the calculation. It is called the current account because goods and services are generally consumed in the current period.

Gini Index measures the extent to which the distribution of income (or, in some cases, consumption expenditure) among individuals or households within an economy deviates from a perfectly equal distribution.
The Gini Index measures the area between the Lorenz curve and a hypothetical line of absolute equality, expressed as a percentage of the maximum area under the line. Thus, a Gini Index of 0 represents perfect equality, while an index of 100 implies perfect inequality.