Revision notes · Banking and competitive exams
The Indian economy: sectors, inflation and the budget
The essentials of the Indian economy in plain language, with the key exam points and 60 practice questions.
The Indian economy at a glance
An economy is the system of producing, distributing and consuming goods and services. It includes people, companies, industries, government and foreign trade.
Key facts
- Nominal GDP (US dollars): 4th largest in 2025; reported at about 6th in 2026 after the rupee fell and GDP was rebased. 3rd largest by PPP.
- A developing mixed economy: public and private sectors together
- Young, labour-rich, democratic
- Moving from agriculture to services and manufacturing
Features
- Population about 146 crore; about 65% under 35 (demographic dividend)
- Dual nature: modern and traditional
- Low per-capita income, inequality and unemployment
- Growing integration with world trade
Economic systems
| System | Example |
|---|---|
| Capitalist | USA |
| Socialist | Cuba |
| Mixed (market plus government regulation) | India |
Sectors of the economy
| Sector | What it covers | Share and role |
|---|---|---|
| Primary | Agriculture, forestry, fishing, mining | Employs 40%+ of workers; about 17–18% of GDP |
| Secondary | Manufacturing and industry (textiles, cement, steel); “Make in India” | Industry is about 25–27% of GDP |
| Tertiary | IT, banking, insurance, tourism, education | Largest contributor to GDP (about 54–56%); main source of export earnings |
Key concepts
Economic planning
- Five-Year Plans ran from 1951 to 2017
- Planning now sits with NITI Aayog
- Focus: jobs, infrastructure, digital India, sustainability
National income terms
- GDP: goods and services produced inside India
- GNP: GDP plus income earned from abroad
- NDP: GDP minus depreciation
- Per-capita income: national income divided by population
Employment
Types: seasonal, disguised, structural and educated unemployment. About 90% of jobs are in the informal sector, so skills and manufacturing jobs are the key needs.
Agriculture, industry, services and trade
Agriculture
- Largest employer, but not the largest contributor to GDP
- Depends on the monsoon
- Key crops: rice, wheat, cotton, sugarcane
- Support: MSP, subsidies, crop insurance
Foreign trade and investment
- India trades with 200+ countries
- Exports: petroleum products, textiles, machinery, IT services
- Imports: crude oil, gold, electronics
- Trade deficit: imports exceed exports
- Among the top 5 FDI destinations
Main challenges
- Unemployment, poverty and inequality
- Inflation and agricultural distress
- Bad loans (NPAs) in banks
- Corruption and environmental problems
Important institutions
| Institution | Role |
|---|---|
| RBI | Monetary policy and banking |
| SEBI | Capital markets |
| NABARD | Rural and agricultural finance |
| NITI Aayog | Policy think tank |
| NSO | Economic and statistical data |
India is a member of WTO, IMF, World Bank, G20, BRICS and QUAD. After COVID-19, the economy recovered quickly, helped by digital payments and reforms.
Emerging markets and segments
Emerging segments are fast-growing parts of the economy that are not yet saturated and are driven by technology and lifestyle change.
Digital and tech
- FinTech: India is the 3rd largest fintech ecosystem
- EdTech: online and hybrid learning
- HealthTech: telemedicine and e-pharmacy
- AgriTech: IoT, drones and AI in farming
- Cybersecurity: rising demand
Lifestyle and green
- E-commerce and social commerce
- Organic food, pet care and cosmetics
- Electric vehicles (FAME II)
- Solar, wind and green hydrogen
- Smart cities and eco-friendly construction
Aspirational and niche
- Affordable housing (PMAY)
- Rural e-commerce and two-wheeler finance
- Gaming, eSports and the creator economy
- Space tech, Web3 and blockchain
- Global Capability Centres (GCCs): R&D centres in Tier-2 cities
Opportunities
- Young population
- Digital boom
- China+1 shift
- Government support
Challenges
- Skill gap
- Infrastructure gaps
- Policy uncertainty
- Funding limits
Inflation
Inflation is a general rise in prices, which lowers purchasing power.
| Type | Meaning |
|---|---|
| Demand-pull | Demand is higher than supply |
| Cost-push | Production costs rise |
| Built-in | Wage–price spiral |
| Headline | Includes food and fuel |
| Core | Excludes food and fuel |
| Creeping | Slow rise of 1–3% |
| Galloping | Very high, 10–100% |
| Hyperinflation | Extremely high |
How it is measured
- CPI: retail inflation. New series with base year 2024 (= 100) from January 2026, published by MoSPI. The old base year was 2012.
- WPI: wholesale inflation, base year 2011–12, published by the Office of Economic Adviser
Causes
- Demand: more spending
- Supply: poor monsoon, high fuel prices
- Monetary: high money supply
- External: crude oil and exchange rates
Effects
- Positive: encourages production and reduces the real debt burden
- Negative: reduces purchasing power, hits fixed-income earners and distorts savings
Who gains and loses
| Salaried | Income is eroded |
| Farmers | Gain if crop prices rise |
| Borrowers | Real value of debt falls |
| Savers | Negative real return |
Inflation targeting and control
Inflation targeting was adopted in 2016. The target is 4% ± 2% (2% to 6%), set by the RBI and the government. The Monetary Policy Committee (MPC) meets bi-monthly.
Monetary (RBI)
- Raise the repo rate (now 5.50%, after the hike on 7 October 2026)
- Raise CRR or SLR
- Sell securities through OMO
Fiscal (government)
- Cut the fiscal deficit
- Reduce subsidies
- Rationalise taxes
Supply side
- Import essential goods
- Restrict exports
Recent trends (2026)
- Headline CPI on the new series: 4.38% in June 2026 and 4.45% in July 2026 (MoSPI)
- Later months rose; check MoSPI for the latest release, as figures are revised
- The RBI raised the repo rate to 5.50% on 7 October 2026
Union Budget 2026-27 (presented 1 February 2026)
This is the latest Union Budget. The figures below are the Budget Estimates for 2026-27, with the revised figures for 2025-26 for comparison.
| Item | 2026-27 (Budget Estimate) | 2025-26 (Revised) |
|---|---|---|
| Total expenditure | About ₹53.5 lakh crore | About ₹49.6 lakh crore |
| Net tax receipts | About ₹28.7 lakh crore | — |
| Capital expenditure | About ₹12.2 lakh crore | About ₹11 lakh crore |
| Fiscal deficit | 4.3% of GDP | 4.4% of GDP |
| Debt-to-GDP ratio | 55.6% of GDP | — |
| Gross market borrowings | About ₹17.2 lakh crore | — |
Income tax
The Budget did not change income tax slabs or rates. The new-regime slabs for 2026-27 are the same as in the previous budget (see below). A new Income Tax Act takes effect from 1 April 2026, so check incometax.gov.in for the final rules.
| Income (new regime) | Tax rate |
|---|---|
| Up to ₹4 lakh | Nil |
| ₹4–8 lakh | 5% |
| ₹8–12 lakh | 10% |
| ₹12–16 lakh | 15% |
| ₹16–20 lakh | 20% |
| ₹20–24 lakh | 25% |
| Above ₹24 lakh | 30% |
Important exam points
- India is a mixed economy; services are the largest GDP contributor and agriculture the largest employer
- Inflation target: 4% ± 2%; CPI (MoSPI, new base 2024 from January 2026) and WPI (Office of Economic Adviser, base 2011–12)
- A higher repo rate reduces inflation
- India is the 3rd largest fintech ecosystem; EVs are supported by FAME II
- Renewable energy target: 500 GW by 2030
- Budget 2026-27: fiscal deficit 4.3% of GDP; capital expenditure about ₹12.2 lakh crore; debt 55.6% of GDP
Important points you may have missed
| Topic | Key point |
|---|---|
| NITI Aayog | Replaced the Planning Commission |
| Demographic dividend | A large young population that can add to growth |
| Core inflation | Excludes food and fuel |
| Demand-pull vs cost-push | Demand-pull: demand above supply. Cost-push: higher production costs. |
| GDP vs GNP | GNP = GDP plus net income earned from abroad |
60 practice MCQs
Try each question first, then open the answer.
A. Indian economy basics (1–20)
1. India follows which type of economy?
- a) Capitalist
- b) Socialist
- c) Mixed
- d) Traditional
Answer: C
2. Largest contributor to India’s GDP is:
- a) Agriculture
- b) Industry
- c) Services
- d) Mining
Answer: C
3. Largest employer in India:
- a) Services
- b) Agriculture
- c) Industry
- d) Construction
Answer: B
4. Who releases India’s GDP data?
- a) RBI
- b) NSO
- c) SEBI
- d) NITI Aayog
Answer: B
5. CPI in India is published by:
- a) RBI
- b) MoSPI
- c) Finance Ministry
- d) SEBI
Answer: B
6. WPI is released by:
- a) RBI
- b) NSO
- c) Office of Economic Adviser
- d) SBI
Answer: C
7. Inflation target in India is:
- a) 4%
- b) 4% ± 2%
- c) 2–4%
- d) 5%
Answer: B
8. Headline inflation includes:
- a) Only food
- b) Only fuel
- c) Food + fuel
- d) Core items
Answer: C
9. Core inflation excludes:
- a) Food & fuel
- b) Services
- c) Clothing
- d) Housing
Answer: A
10. Base year for CPI:
- a) 2004–05
- b) 2012
- c) 2020–21
- d) 2024
Answer: D
11. Base year for WPI:
- a) 2004–05
- b) 2011–12
- c) 2012–13
- d) 2010–11
Answer: B
12. Which body controls monetary policy in India?
- a) SEBI
- b) MPC
- c) NITI Aayog
- d) Finance Commission
Answer: B
13. Increase in repo rate leads to:
- a) Increase inflation
- b) Reduction in inflation
- c) Rise in liquidity
- d) Rise in fiscal deficit
Answer: B
14. “Demographic dividend” means:
- a) High elderly population
- b) More youth population
- c) More agriculture land
- d) Lower migration
Answer: B
15. Which is a major problem of Indian agriculture?
- a) Overproduction
- b) High monsoon dependence
- c) High mechanization
- d) Low workforce
Answer: B
16. India’s trade balance is usually:
- a) Balanced
- b) Surplus
- c) Deficit
- d) Zero
Answer: C
17. Largest foreign exchange earner for India:
- a) Petroleum products
- b) Gold
- c) IT & Service exports
- d) Auto parts
Answer: C
18. India’s economy is ranked ____ globally in PPP.
- a) 1st
- b) 2nd
- c) 3rd
- d) 5th
Answer: C
19. NITI Aayog replaced:
- a) RBI
- b) Planning Commission
- c) SEBI
- d) NSO
Answer: B
20. Which sector contributes most to employment?
- a) Public sector
- b) Informal sector
- c) Defence
- d) Railways
Answer: B
B. Emerging sectors (21–35)
21. India is the world’s ___ largest FinTech ecosystem.
- a) 1st
- b) 2nd
- c) 3rd
- d) 5th
Answer: C
22. UPI belongs to:
- a) EdTech
- b) FinTech
- c) HealthTech
- d) AgroTech
Answer: B
23. Online learning platforms belong to:
- a) FinTech
- b) EdTech
- c) FoodTech
- d) InfraTech
Answer: B
24. Drones used in farming are part of:
- a) Cybersecurity
- b) AgriTech
- c) FinTech
- d) HealthTech
Answer: B
25. EV growth in India is supported by:
- a) PMAY
- b) FAME II scheme
- c) MNREGA
- d) Ayushman Bharat
Answer: B
26. India’s renewable energy target by 2030:
- a) 100 GW
- b) 200 GW
- c) 500 GW
- d) 750 GW
Answer: C
27. Gaming & eSports are part of:
- a) Green Tech
- b) Niche Emerging Sectors
- c) Heavy industries
- d) Healthcare
Answer: B
28. Cybersecurity importance increased due to:
- a) GST
- b) Digitalization
- c) Pollution
- d) Pension reforms
Answer: B
29. Organic food, pet care & cosmetics belong to:
- a) Core industries
- b) Lifestyle markets
- c) Power sector
- d) Defence sector
Answer: B
30. Web3 refers to:
- a) Railway system
- b) Decentralized internet
- c) Petroleum system
- d) Email system
Answer: B
31. Green hydrogen is part of:
- a) Oil sector
- b) Renewable energy
- c) Coal sector
- d) FMCG
Answer: B
32. Rural e-commerce boosted due to:
- a) Aadhaar only
- b) BharatNet
- c) GST
- d) RBI
Answer: B
33. Large R&D centers opened by MNCs in India are called:
- a) MSMEs
- b) Global Capability Centres (GCCs)
- c) PSUs
- d) Central Research Units
Answer: B
34. AgriTech helps farmers through:
- a) High taxes
- b) AI, IoT, drones
- c) Subsidy removal
- d) GST hike
Answer: B
35. HealthTech demand increased mainly due to:
- a) Online shopping
- b) COVID-19
- c) GST changes
- d) Budget increase
Answer: B
C. Inflation (36–45)
36. Inflation refers to:
- a) Price fall
- b) General price rise
- c) Growth in GDP
- d) Import reduction
Answer: B
37. Demand-pull inflation happens when:
- a) Demand < supply
- b) Demand > supply
- c) Supply = demand
- d) Goods become cheaper
Answer: B
38. Cost-push inflation occurs due to:
- a) High production cost
- b) Higher exports
- c) Lower wages
- d) Heavy rainfall
Answer: A
39. Core inflation excludes:
- a) Clothing
- b) Food & fuel
- c) Housing
- d) Transport
Answer: B
40. CPI measures:
- a) Wholesale prices
- b) Retail prices
- c) Import prices
- d) Farmer income
Answer: B
41. WPI measures:
- a) Retail basket
- b) Wholesale basket
- c) Salaries
- d) Real estate
Answer: B
42. Inflation target in India:
- a) 2–4%
- b) 4% ± 2%
- c) 5% fixed
- d) 10%
Answer: B
43. Who sets inflation target?
- a) Govt only
- b) RBI only
- c) RBI + Govt
- d) SEBI
Answer: C
44. Who controls monetary policy?
- a) GST Council
- b) MPC
- c) SEBI
- d) NITI Aayog
Answer: B
45. Increase in repo rate results in:
- a) More inflation
- b) Lower inflation
- c) Higher consumption
- d) More liquidity
Answer: B
D. Union Budget 2026-27 (46–60)
46. Fiscal deficit target for 2026-27 (Budget Estimate) is:
- a) 3% of GDP
- b) 4.3% of GDP
- c) 4.4% of GDP
- d) 5% of GDP
Answer: B
47. Capital expenditure in the 2026-27 Budget Estimate is about:
- a) ₹8 lakh crore
- b) ₹11.2 lakh crore
- c) ₹12.2 lakh crore
- d) ₹15 lakh crore
Answer: C
48. Total expenditure in the 2026-27 Budget Estimate is about:
- a) ₹45 lakh crore
- b) ₹49.6 lakh crore
- c) ₹53.5 lakh crore
- d) ₹60 lakh crore
Answer: C
49. Debt-to-GDP ratio in the 2026-27 Budget Estimate is about:
- a) 40%
- b) 50%
- c) 55.6%
- d) 70%
Answer: C
50. Net tax receipts in 2026-27 (Budget Estimate) are about:
- a) ₹20 lakh crore
- b) ₹25 lakh crore
- c) ₹28.7 lakh crore
- d) ₹32 lakh crore
Answer: C
51. Did the Union Budget 2026-27 change income tax slabs?
- a) Yes, a new 25% slab
- b) No, the slabs are unchanged
- c) Yes, a new 40% top slab
- d) Only for senior citizens
Answer: B
52. A new Income Tax Act takes effect from:
- a) 1 April 2026
- b) 1 January 2026
- c) 1 April 2027
- d) 1 July 2026
Answer: A
53. Under the new regime, income up to ₹4 lakh is:
- a) Taxed at 5%
- b) Nil
- c) Taxed at 10%
- d) Taxed at 20%
Answer: B
54. Under the new regime, income of ₹8–12 lakh is taxed at:
- a) 5%
- b) 10%
- c) 15%
- d) 20%
Answer: B
55. Under the new regime, income above ₹24 lakh is taxed at:
- a) 25%
- b) 30%
- c) 35%
- d) 40%
Answer: B
56. Under the new regime, the ₹20–24 lakh band is taxed at:
- a) 15%
- b) 20%
- c) 25%
- d) 30%
Answer: C
57. The Union Budget 2026-27 was presented on:
- a) 1 January 2026
- b) 1 February 2026
- c) 1 March 2026
- d) 1 April 2026
Answer: B
58. Revised estimate of capital expenditure for 2025-26 is about:
- a) ₹8 lakh crore
- b) ₹11 lakh crore
- c) ₹15 lakh crore
- d) ₹20 lakh crore
Answer: B
59. Fiscal deficit for the revised 2025-26 estimate is about:
- a) 3% of GDP
- b) 4.4% of GDP
- c) 5.1% of GDP
- d) 6% of GDP
Answer: B
60. Gross market borrowings planned for 2026-27 are about:
- a) ₹10 lakh crore
- b) ₹12 lakh crore
- c) ₹17.2 lakh crore
- d) ₹25 lakh crore
Answer: C