CA Foundation · Business Economics

Indian Economy: formula sheet

Full chapter guide

Key formulas

Planning Commission set up: March 1950; replaced by NITI Aayog on 1 January 2015; The first Five Year Plan began in 1951 and the last (Twelfth) ran 2012-17.
First Plan model: First Plan (1951-56): Harrod-Domar model, agriculture priority; Includes irrigation and power projects.
Second Plan model: Second Plan (1956-61): Mahalanobis model, heavy and basic industry priority; Basis of public sector-led industrialisation.
Planning Commission vs NITI Aayog: Planning Commission: top-down, allocated funds. NITI Aayog: think tank, cooperative federalism, bottom-up.; Both are headed by the Prime Minister as Chairperson.
Post-1991 role of planning: Pre-1991: imperative for the public sector, with heavy controls (licensing) on the private sector. Post-1991: planning becomes largely indicative.; After 1991 the private sector is guided by incentives, not commanded.
Sectoral share in GDP: Share of a sector (%) = (Sector's value added ÷ Total GDP) × 100; Use the same year and same price basis for the sector and the total.
Sectoral share in employment: Employment share (%) = (Workers in sector ÷ Total workers) × 100; Compare with GDP share to judge productivity.
Relative productivity of a sector: Productivity index = GDP share ÷ Employment share; Above 1 means higher than average output per worker. Below 1 means lower. Agriculture is below 1 in India.
Sector classification: Primary = agriculture and allied, mining; Secondary = manufacturing, construction, utilities; Tertiary = services; Mining is usually grouped with primary. Utilities are grouped with secondary.
Typical development pattern: Agriculture share ↓, industry share ↑, services share ↑↑; This is a general trend, not a law for every country.
IPR 1956 classification: Schedule A = new units reserved for the State (existing private units could continue); Schedule B = state-led, private supplements; Schedule C = private sector; A common trap is mixing up A and B. A is reserved for the state.
Green Revolution package: HYV seeds + fertilisers + irrigation + better farm practices; Began in the mid-1960s; strongest in wheat first.
1991 industrial shift: Licensing abolished (except a short list) + reduced public sector reservation + foreign investment welcomed; The direction was from control to liberalisation.
Policy timeline: IPR 1948 → IPR 1956 → Green Revolution (mid-1960s) → 1991 reforms → Make in India (2014); Use this order to eliminate wrong options.
Poverty ratio (headcount ratio): Poverty ratio = (Number of people below poverty line ÷ Total population) × 100; Gives the percentage of the population that is poor; it does not show how poor they are.
Unemployment rate: Unemployment rate = (Number of unemployed ÷ Labour force) × 100; Labour force = employed + unemployed. Do not divide by total population.
Labour force: Labour force = Employed + Unemployed (seeking work); People not looking for work are outside the labour force.
Gini coefficient range: 0 ≤ Gini ≤ 1; 0 is perfect equality; higher values mean more inequality.
MPI dimensions: Health + Education + Standard of living (equal weights); A person is MPI-poor when the weighted deprivation score is one-third or more.

Quick revision

Colonial rule left India with low growth, a weak industrial base and an agriculture-dependent economy.
Planning aimed at growth, self-reliance and reducing poverty through state-led development.
Know the broad theme of each Five Year Plan period rather than isolated details.
The 1991 reforms are summed up as LPG: liberalisation, privatisation and globalisation.
Liberalisation means reducing controls and restrictions on business and trade.
Privatisation means shifting ownership or management from the government to the private sector.
Globalisation means greater integration with the world economy through trade and investment.
Over time, the services sector's share in output has grown most, while agriculture's share has fallen.
Poverty, unemployment and inequality are related but different measures; do not mix their definitions.
The balance of payments records a country's transactions with the rest of the world.
Fiscal reforms aim to manage government revenue, spending and deficits.

Common mistakes

Saying the Second Plan focused on agriculture. Fix: Remember: First = farm and irrigation; Second = factories and steel (Mahalanobis).
Thinking NITI Aayog allocates funds to states like the Planning Commission did. Fix: Treat NITI Aayog as a policy think tank that advises. It works on cooperative federalism.
Assuming the sector with the largest GDP share also has the largest employment share. Fix: Treat GDP share and employment share as two separate facts. Agriculture is large in jobs and small in GDP.
Putting mining or construction in the wrong sector. Fix: Mining extracts natural resources, so it is primary. Construction and utilities are secondary.
Swapping Schedule A and Schedule B of IPR 1956. Fix: A = new units reserved for the State (existing private units may continue). B = progressively state-owned, with the State generally setting up new units and the private sector supplementing its efforts.
Saying the Green Revolution raised all crops equally across all regions. Fix: Remember it favoured wheat and rice, and regions with irrigation such as Punjab and Haryana.
Treating relative poverty as the same as the poverty line measure. Fix: The poverty line is a fixed absolute standard. Relative poverty compares with others in society.
Dividing the number of unemployed by total population. Fix: Unemployment rate uses the labour force as denominator.

Exam tips

Make a one-line timeline: 1950 Commission, 1951 First Plan, 1956 Second Plan, 1991 reforms, 2015 NITI Aayog.
Questions often ask for 'difference' between the Planning Commission and NITI Aayog. Learn top-down vs cooperative federalism.
Watch for 'incorrect' or 'except' stems, which hide a true-looking wrong statement.
Do not guess on plan-specific facts you have not studied, as wrong answers lose 0.25 marks.
Expect direct theory MCQs on classification, such as which sector an activity belongs to. These are quick marks.
Look for questions that contrast GDP share with employment share. The answer usually points to low agricultural productivity.
Watch absolute words like always, only and never. They often make an option wrong.
If an option gives exact percentages you do not recall, use the trend to eliminate others before guessing.