Toh Bhaiya, I claim no competence in this subject first of all. Why am I writing this blog? I had to revise Indian Economy for my prelims exam that is going to happen sometime soon, so I thought I should revise things. And then a creative idea came, why not write a blog summarizing all my understanding in a couple of blogs on Indian economy.
I know, too much for too little. But let us see, how far things can go. It might happen that I stack in between divert again to spirituality, or something. But it might also happen that I am successfully able to summarize in 9 blogs in 9 days, whatever I have read in Indian Economy till now.
Whosoever is reading this, what should you take away from it?
For people who know nothing of Indian Economy or nothing of Economics, expect understanding, a basic understanding.
For people who are civils aspirants, Revision.
For people who know more economy than me, I mean, please let me know if I make a mistake. Again, to repeat myself, I claim no expertise. I have a little understanding of only one subject, Physics. Rest, I just humbly try to manage.
So, coming to the task at hand, following topics are what builds basics of Indian Economy.
Module 1: Basics of Indian Economy
1. What is economics? Difference between Economy and Economics. Types of Economics.
So, Economics is the study of how individuals decide production, usage and distribution of the scarce resources that are available on earth for their collective well-being.
Economy, on the other hand, is a descriptive study of a country's economics and economic policies that tries to put itself in action and wishes to grow. For example: Indian Economy decides its Monetary Policy through the Central bank known as RBI and fiscal policy is decided by the Indian Government.
What, how much and to whom are three fundamental problems of any Economy. Not economics. What to produce in an economy, how much to produce and to whom it should be distributed.
2. What are Different types of Economies possible? Economies as in Economic systems?
Economic systems vary depending on how they answer the three fundamental questions of economy. What, to whom and how.
So, till now there are three possible ones, and then a spectrum in between.
A) Capitalist or Market economy: An economic system where markets are not regulated and are left in hands of demand and supply to function and then in ideal situations, this leads to a perfect competition where demand meets supply and prices are decided which benefits both producer and consumer. It is all a bunch of bull-crap but yeah for revision purposes we have to remember this only. Adam Smith is the godfather of this. In his book, "The wealth of nations", he gave all that mysticism about Invisible hand and all that. An invisible hand decides the economy in markets. The extreme case of this leads to "Laissez Fairz" or free markets, where absolutely no control exists.
B) Planned or socialist economy: An economic system where Government or a central authority plans the policies of what to produce, how much to produce and so on. Where markets exist but are controlled and regulated. Where not blind demand meets blind supply, but controlled demand meets supply, sometimes it does not but yeah ideally it does. Karl Marx, in his work, Das Capital, initiated the scientific socialistic system, which culminated in Soviet Union's economy from 1917. Its extreme situation leads to fully centralized economy where everything is planned by the central politburo.
C) Mixed Economy: A mix of both the above ones. John Maynard Keynes, essentially a free market economist, but an honest one, in his book, "the General Theory of Employment, Interest and Money", stated that Governments need to time to time intervene in markets, to avoid lack of demands and lack of supply situations. This happened after 1929 American economic depression.
And there is a difference between being pro-business and pro-crony.
In a spectrum of these three, in the middle lies mixed economy where India is. In the left most lies socialist economies where North Korea, China and Present Venezuela lies. In the right most lies free market economy (Essentially it lies only, if you get the pun đŸ’©) WHERE lies the great markets of America and Japan.
3. What are the different types of Economic goods possible?
If you ask me, an economic good is something that has a market utility. Four kinds of eocnomic goods can be there:
1. Private goods: Rivalrous and excludable. It means if one gets it, other can't, and the one who owns it, excludes the other from it. For example: The revenues my blogs generate.
2. Public Goods: Non-rivalrous and non-excludable. You get it, right? Example: Nationa defense, Public school education.
3. Common goods: Rivalrous but non-excludable: Like national resources like Petroleum. "Ek ko milega toh dusre ko nahi mil payega same wala".
4. Club Goods: A kind of community goods. Excludable but non-rivalrous. Like a gym. Some people use it, But only membership is allowed to use it.
4. What are factors of production? What is circular model of economics?
Factors of production are the elements of any production process that are required. There are four (there should be three but there are four)
1. Land: Rent
2. Labour: Wages
3. Capital: Interest
4. Entrepreneur: Profit.
In front of them is written what are the dividends of every production process. Like Labour needs to be given wages and so on.
5. Sectors of Indian economy
There are five:
1. Primary: Production, direct from natural resources. Like Agriculture.
2. Secondary: Industries. Essentially the product of primary sector is processed here. Like: Steel industry.
3. Tertiary: Services basically. Nothing to do with goods. Like: Teaching.
4. Quaternary Services: IT sector and Research
5. Quinary Services: Management and decision-making roles, like Bureaucracy and government roles, CEOs etc.
6. Some basic concepts: Opportunity cost, Production Possibility Frontier, Kuznets curve, etc.
Production possibility frontier: The curve that shows that periphery of optimum production of two goods in relation to each other.
Like, if in an economy, 5 cars can be produced along with 10 laptops and no others, and 8 cars with no laptops, 16 laptops and no cars, these will lie on the production possibility frontier.
If the production is inefficient, the point will lie inside of the PPF.
If the production is efficient, the point will lie at the PPF.
If the production is beyond PPF, it is not possible.
This concludes Module 1. Second blog, I will do more modules.
Adios!
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