1. CONCEPTS IN DEVELOPMENT
Economic Growth: It is defined as long term increase in production potential of the
economy. It is a quantitative concept.
Economic Development: It refers to the economic growth with structural changes in
favour of non-agricultural activities. It is a qualitative concept.
Sustainable Development: It is that development which takes care of the needs of the
present generation without compromising the needs of the future generations. It also
emphasizes on a clean environment.
Quality of Life: It simply indicates the better health, welfare freedom of choice and basic
liberties in a society.
Indicators of Growth
Gross Domestic Product (GDP): It is the sum total of the market value of the final goods
and services produced within the geographical boundary of a country during an
accounting year.
Gross National Product (GNP): GNP = GDP + Net factor income from abroad.
Net factor income = X – M, [X = Income earned and received by nationals in foreign
countries; M=Income earned by foreign nationals in a country.]
It better indicates the production potential of the nationals as against GDP. In India’s
case, GNP is less than GDP. In other words, net factor income is negative in India.
Net National Product (NNP): NNP = GNP – Depreciation
Depreciation is consumption of fixed capital in the process of production.
National Income: When NNP is calculated at factor cost, it is known as National Income.
In other words, it can be represented as,
National Income = NNP at market prices – Indirect taxes + subsidies
Indicators of Development
Human Development Index: It was introduced in 1990 by United Nations Development
Programme (UNDP). It is defined as average of social components, namely, life
expectancy at birth, education attainment and standard of living.
To define the human development level of a country, this index has been divided on a
scale of 1.

2. High human development = HDI value is greater than 0.8.
Medium human development = HDI value is between 0.5 and 0.8.
Low human development = HDI value is below 0.5.
In the UN Human Development Report 2002 India lies in the medium development
group. Its rank is 124 out of 172 nations, with a HDI value of 0.577.
Quality of Life Index: It is calculated on the basis of six parameters (as defined by noted
economists, Dasgupta and Weale).
1. Per capita income in Purchasing Power Party (PPP) in dollars.
2. Life expectancy at birth.
3. Infant mortality rate.
4. Adult literacy rate.
5. Index of political rights.
6. Index of civil rights.
By one view of economists, it is considered as a more comprehensive indicator than HDI.
Explain the following terms.
• Insider Trading: It is a term used to explain the purchase and sale of shares of a
company by accessing information concerning the company that is not publicly available
and is of such a nature that it enables the person to make substantial profits in the share
transaction. This is a punishable offence and SEBI has proposed stringent regulations to
curb it.
• Laissez Faire: It is an economic doctrine which emphasis superiority of free markets
over state regulation of individual markets and of the economy in general. Proponents of
Laissez Faire argue that a private enterprise economy will achieve a more efficient
allocation and use of scarce economic resources and greater economic growth than will a
centrally planned economy where the government owns and directs the use of resources.
• Credit Rating Information Services of India Ltd., (CRISIL): It was set up in 1988 and
has been promoted jointly by the ICICI and UTI to provide credit rating services to the
corporate sector. Credit rating promotes investors’ interests by providing them
information on assessed comparative risk of investment in the listed securities of different
companies. It also helps companies to raise funds more easily and at relatively cheaper
cost, if their credit rating is high.

3. • Non Performing Assets (NPAs): It is a credit facility which ceases to generate income
for a bank. Generally it is one on which interest or principal to be received has remained
“past due” for a period of 180 days. NPAs consist of assets under 3 categories. Standard,
doubtful and loss. Assets classified as NPAs for a period upto 18 months belong to
substandard while doubtful are those that remain NPAs for a period beyond 18 months
and loss assets are those identified as such and have not been written off.
• Birth Rate: Birth rate is the number of live births per 1000 of the population in a place,
state or country, in a year. The difference between this rate and the death rate is used to
calculate the rate of growth of population of the country over a certain period of time.
The birth rate tends to decline as the country attains higher levels of economic
development.
• Repo or Repurchase Options: Repos were introduced in 1992 in India. They are
instruments of repurchase agreement between the RBI and the commercial banks and this
is used by banks for short-term liquidity management. By selling repos RBI mops up
temporary excess liquidity in the financial market. Their rates are market – determined.
• National Bank for Agriculture and Rural Development (NABARD): NABARD was set
up in July 1982. It works as the apex body to look after the credit requirements of rural
sector. It provides short-term credit to state cooperative banks (SCBs) medium-term
credit to SCBs and RRBs and long-term credit SCB, LDBs, RRBs and commercial banks.
It also promotes research in agriculture and rural development. It took over from RBI all
the functions it performed in the field of rural credit and agricultural Refuiannce and
Development Corporation (ARDC) was also merged with NABARD.
• Small Industries Development Bank of India (SIDBI): SIDBI was et up in April 1990 as
a wholly owned subsidiary of IDBI. It functions as the principal financial institution for
the promotion, financing and development of industry in the small sector and to
coordinate the functions of institutions engaged in promoting the small units.
• Hot Money: Hot money refers to large amounts of short term funds held internationally
by banks, financial institutions and wealthy individuals, which quickly move out of or
into a country, in anticipation of interest rate charges or exchange rate fluctuations. This
is, therefore, a very volatile source of funds and its flight from a country in terms of crisis
may trigger a collapse of the economy.
• Agricultural Export Zone (AEZs): The concept AEZs was introduced by the Exim
Policy 2001 to give primacy to promotion of agricultural exports and a reorganization of
our export efforts on the basis of specific products and specific geographical areas. The

4. scheme is already in operation and the exim policy 2002-07 intends to set up 20 more
AEZs.
• Scheduled Bank: A bank registered in the second schedule of the RBI Act, 1934 is
called a scheduled bank and to be included in the schedule it must fulfill the following
criteria:
(i) Paid up capital and reserves must be at least RS. 5 lakh
(ii) Its conduct must not be to the detriment of its depositors.
These scheduled banks are required to maintain cash reserves with RBI and they enjoy
certain privileges such as borrowing facilities from the RBI.
• Infant Mortality Rate (IMR): It is the number of deaths of infants, upto one year of age,
per thousand live births. IMR is high in les developed countries due to lack of healthcare
facilities and proper nutrition to the infants and as development takes place, IMR is
reduced in the country.
• Net Asset Value (NAV): NAV is the net value of the mutual fund’s portfolio, expressed
on a per share basis.
NAV per share = Total net Assets
Total Number of Shares outstanding
‘Total Net Assets’ is calculated by periodically valuing investments are market prices and
other assets are added, while liabilities are deducted. Open-end funds set their sale and
repurchase prices on the basis of their NAVs.
• Hard Currency: A currency that is in strong demand, but in short supply on the foreign
exchange market. Hard currency status is usually associated with an economically strong
country which is running a large surplus on its balance of repayments. Demand for the
currency is high to finance purchases of its exports, but the supply of the currency is
relatively limited because the amount of it being made available through the purchase of
imports is much lower.
• Per Capita Income: It is the per head income of the country and can be obtained by
dividing the gross national product (GNP) or national income of the country by its
population. It can be measured either at current prices of at constant (base year) prices.
Per capita income as a measure of people’s standard of living is flawed as it does not
indicate the distribution of income and the non monetary elements of lifestyle.
• Working Capital: The funds deployed by a company in the form of cash, investories,
accounts receivable and other current assets. The term “working capital” generally means
“Net Working Capital” i.e. the excess of current assets over current liabilities. These

5. current liabilities are repayable within a year. Hence working capital is that portion of
current assets which is financed by long-term funds such as loans, share capital and
retained earnings.
• Equity Shares: Equity shares represent ownership interest is a company and the claim of
equity share holders on earnings and on assets in the event of liquidation, follow all
others. Only equity shareholders are generally entitled to vote at the Annual General
Meetings (AGM) which depend upon the number of shares which they hold. They take
the maximum risks and also have the possibility of highest gains. They are entitled to any
net profits made by their company after all expenses have been paid and they receive it in
the form of dividend.
• Microcredit: It is the credit extended to small and needy borrowers who are outside the
domain of commercial banks. The scope of microcredit is immune, considering the
number of such individuals who may undertake productive activities. It has emerged as a
viable alternative credit channel to the poor as their access to conventional collateral and
high transaction costs. Self help Group (SHG) Bank Lineage Programme propagated by
NABARD, for last 10 years, has been recognized as the largest and fastest growing
micro-finance programme in the world.
• Depression: It is an economic condition that is characterized by a severe contraction in
economic activity, which is manifested in numerous business shut down, widespread
unemployment and declining investment in plant and equipment on account of falling
sales.
• Commodity Futures: A standardized contract guaranteeing delivery of a certain quantity
of a commodity (such as wheat, sugar, soybeans etc.) on a specified future date, at a price
agrees to, at the time of transaction. These contracts are standardized in terms of quantity,
quality and delivery months for different commodities. Contracts on certain commodities
are already traded in India.
• London Inter Bank Offer Rate (LIBOR): LIBOR is an average of interest rates at which
leading international banks are prepared to offer term Eurodollar deposits to each other.
These rates reflect market conditions for international funds and are widely used by the
banks as a basis for determining the interest rates charged on dollar and foreign currency
loans to business customers.
• Treasury Bill: A short-term debt instrument of the Government of India. This security
bears no default risk and has a high degree of liquidity and low interest rate risk in view
to its short term. The instrument is negotiable and is issued at a discount from the face
value. At the maturity, the investor receives the face value and hence the increment

6. constitutes the interest earned.
• Over the country Exchange of India (OTCEI): OTCEI is a floorless national securities
exchange with a screen-based system of trading. This modern market characterized by
fully computerized operations, was promoted by UTI, ICICI and SBI Capital Markets
Ltd., among others, in order to overcome problems such as the lack of transparency,
delays in settlements and prohibitive cost of a public issue through conventional route. It
began operations in 1992 and its network consists of inter-linked counters located all over
the country.
• Debt Trap: It is a financial crisis in which an individual or country raises further loans
in order to fulfill its obligations of interest payment and repayment of principal during a
time period. So the country or individuals is caught in a vicious circle of debt where it
raises more debt in order to retire its earlier debts and finds it difficult to get out of this
trap.
• American Depository Receipts (ADRs): ADRs are instruments traded at US exchange
representing a fixed number of shares of a foreign company that is traded in the foreign
country. By trading in ADRs, US investors manage to avoid some of the problems of
dealing in foreign securities markets. The ADR route enables companies to raise funds in
the US financial markets.
• Venture Capital: It is any share capital or loans subscribed to a firm financial specialists
(for example, the venture capital arms of commercial banks and insurance companies),
thus enabling the form to undertake investment in processes and products which because
of their novelty are rate as especially high-risk projects, and as such would not normally
attract conventional finance.
• EEFC Account: This refers to the Exchange Earners’ Foreign Currency Account, a
scheme introduced in 1992 for exporters and residents receiving foreign exchange. A
certain percentage of the earnings may be maintained in this account in order to limit
exchange rate risk in case of future imports or for other specified purposes.
• Regional Rural Banks (RRBs): The banks sponsored by public sector banks to cater
exclusively to rural areas. The target segments of RRBs loans are small and marginal
farmers, agricultural labourers, agricultural cooperative societies, artisans and small
entrepreneurs among others. The sponsoring bank, besides subscribing to the share
capital, provides managerial and financial assistance to its RRB. There are 196 RRBs in
India, established from 1975.

7. • Export Promotion Capital Goods Scheme (EPCG Scheme): It has been started to permit
the exporters to import capital goods on concessional import duties. Under exim polity
1997-2002 exporters of goods and services could import capital goods by paying only
10% import duty but they had to export goods worth four times to CIF value with 5 years.
This has not only been retained but made more flexible in the exim policy 2002-07.
• ECGC: It is an acronym for Export credit Guarantee Corporation of India Ltd., which
has been playing a crucial role by providing credit insurance cover for exports from the
country. There is great potential for project exports from India with our exporters
winning bids against intense international competition. In order to enable ECGC to
provide adequate underwriting support to such projects, the Government has decided, in
2003-04 Budget, to increase its share capital to Rs. 80 crore.
• Discount and Finance House of India Ltd., (DFHI): An institution promoted by RBI,
public sector banks and financial institutions to meet the long-felt and need of activating
the secondary market as well as developing their primary market for money market
instruments. (SBI has a major 32% stake in DFHI). It was set up on the recommendation
of Vaghul Committee. From April 1992, it began dealing in dated securities and
accredited as a primary dealer in the February 1996.
• Agricultural and Processed Food Products Export Development Authority (APEDA):
APEDA is a body engaged in the export promotion and development of markets for
fruits, vegetables and their products rice, wheat floricultures, processed fruits and juices
and several other miscellaneous agricultural products. It is a promotional agency and
does not undertake direct exports of any products on its own account.
Overseas Banking Units (OBUs): The exim policy 2002-07 permitted registered Indian
Banks to set up OBUs in the SEZs. Through these OBUs exporters in SEZs will have
access to finances at international costs. This is because OBUs would be exempted from
CRR, SLR and priority sector lending requirements which would permit them to operate
at par with their overseas branches. These units have been permitted to accept funds from
NRIs and individuals and so they can raise foreign currency funds from international
markets at global interest rate. These banks should have a minimum capital of $10
million, to set up OBUs. Recently SBI opened the first OBU in Mumbai.