India agreed to the conditionalities of World Bank and IMF and announced the New Economic Policy (NEP). The NEP consisted of wide ranging economic reforms. The thrust of the policies was towards creating a more competitive environment in the economy and removing the barriers to entry and growth of firms. This set of policies can broadly be classified into two groups: the stabilisation measures and the structural reform measures. Stabilisation measures are shortterm measures, intended to correct some of the weaknesses that have developed in the balance of payments and to bring inflation under control. In simple words, this means that there was a need to maintain sufficient foreign exchange reserves and keep the rising prices under control. On the other hand, structural reform policiesare long-term measures, aimed at improving the efficiency of the economy and increasing its international competitiveness by removing the rigidities in various segments of the Indian economy. The government initiated a variety of policies which fall under three heads viz., liberalisation, privatisation and globalisation.

Standard deffered payment means the payment which is to be made sometime in future. At the time of barter system it is very difficult to purchase goods and return the same and exact quality of goods and at that time there is also a problem of calculating interest on that goods But nowadays landing and borrowing can be easily made and interest also calculated on money. So money solved the problem of deffered payment and solved related problems of barter system .

India opted for planning because planning helps in sorting out how the resources of a nation should be put to use efficiently and economically so that the rate of economic development can be accelerated. ... When India attained independence, there was a complete inbalanced economy. At the time of independence, the Indian economy was in its worst stage. ... So India opted for planning because it helps in spelling out how the resources of a nation should be used efficiently and economically, so that rate of economic growth can be accelerated.

The Indian Policy Resolution was taken up with the main objective of 'rapid industrialisation'. The IPR of 1956 was a major step taken by the government in order to declare the leading role of the government in the industrialisation process. The elements of the IPR namely, three-fold classification of industries, licensing industries and industrial concessions, were also focussed on increasing the growth rate of industries with the objective of overall growth and development. Also, this was done in accordance with the objective of social welfare and regional equity. Hence, the following were the objectives of IPR.
i. Rapid industrialisation
ii. Growth and development
iii. Social welfare
iv. Regional Equity

The main features of Industrial Policy Resolution 1956 can be identified as follows:

(1) Categorization of industries in three schedules:

Schedule A : Industries were made the exclusive responsibility of the states.

Schedule B : Industries were to be progressively state owned.

Schedule C : Industries were left open to private enterprise.

2. Due to the significance of cottage and small scale industries in the Indian economy, the state was bound to promote the use of these industries.

3. Emphasis was laid on removal of regional disparities.

4. Training of technical and managerial personnel was to receive special attention.

5. Provision of improved living and working conditions to workers was emphasised.

Industrial Policy is a formal declaration by the Government whereby it outlines its general policies for industries. Any industrial policy has broadly two parts. First part generally deals with the ideology of the current political dispensation, while other one provides a framework of certain rules / principles.

The main objective of any industrial policy is to augment the industrial production and thereby enhance the industrial growth which leads to economic growth by optimum utilization of resources; modernization; balanced industrial development; balanced regional development (by providing concessions for industrial development in backward areas); balanced development of basic and consumer industry; coordinated development of large as well as  small, medium and cottage enterprises; determination of area of operation under private and public sector; enhance cordial relations between workers and management and proper utilization of the domestic / foreign capital.

Gross National Product at factor cost refers to the sum total of factor incomes generated within the domestic territory of a country during the period of an accounting year, inclusive of depreciation and net factor income from abroad where as Gross Domestic Product at Market price is the sum total of market value of final goods and services produced within the domestic territory of a country during the period of an accounting year, (inclusive of depreciation and exclusive of net factor income from abroad)

 Payment which is received without rendering any service or good in return is called transfer payment (or transfer income). These are unilateral payments which have no obligation of any return. For recipients these are unearned incomes. These are received for free, without having to make any present or future payments in return. Transfer payments are basically welfare-oriented expenditure of the government. This is a receipt concept as compared to factor income which is an earning concept. Thus transfer payment is the payment which one gets without adding anything to the current flow of goods and services. Examples are : old age pension, unemployment allowance, gifts in cash, scholarship amount, subsidies, taxes (compulsory transfer payment), etc. All transfer payments (incomes) are kept out (excluded) of national income because no corresponding goods and services are produced against such payments.

Investment multiplier refers to the number of time by which the increase in output or income exceeds the increase in investment. It is measured as the ratio between change in income and change in investment and it is denoted as 'k'.

Multiplier(k) => Change in income / change in investment = 1/ {1-MPC(c)} where c is the marginal propensity to consume

If MPC = 0.75 and change in income is Rs. 600 crores, then

Multiplier(k) => 600 / change in investment = 1/ {1-MPC(c)}

                     => 600 / change in investment  = 1/ 1- 0.75

                     => 600 / change in investment  = 1/ 0.25

                     =>  600 / change in investment  = 4

                     => change in investment = 600 / 4  = 150 crores rupees.

Therefore, additional investment is of Rs. 150 crores. 

Before the advent of industrial revolution, the rate of resource extraction was less than the rate of regeneration of these resources. But with expanding population and its growing needs the demand for resources for both production and consumption went beyond the rate of regeneration of the resources. This has resulted in a reversal of supply-demand relationship for environmental resources as now there is very high demand for environmental resources and services but their supply is limited due to overuse and misuse.

We know that RBI prints new, money, while on the other hand, commercial bank multiplies money supplied by the RBI through the process of credit creation. People deposit money in their respective bank accounts. As per the central bank guidelines, the commercial banks are required to maintain a portion of total deposits in form of cash reserve. With the help of the past experiences, the commercial banks know that not all the depositor will turn-up for withdrawal at the same day. Consequently, the commercial banks lends the remaining portion (left after maintaining cash reserve of the total deposits to the general public in form of credit, loans and advances. It is the second portion of the total deposits that is responsible for the credit creation (credit money). The process of creation of credit money begins as soon as the commercial banks start the lending process. The amount of the credit money increases as the bank lend loans to more and more number of people in the economy. The deposit of money by the people in the banks and the subsequent lending of loans by the commercial banks is a never-ending process. This lending process of the commercial banks increases the rate of investment and production in the economy, which in turn help in improving the national income in the economy. 

The special feature of Indian monetary system is that it has adopted inconvertible paper currency system. Paper currency is not convertible into precious metal (gold) that is backing it. Thus, currency is said to be inconvertible.

Balanced Budget – A government budget is assumed to be balanced if the expected expenditure is similar to anticipated receipts for a fiscal year.

It has no effect on the liabilities or the reserves of the government.

Fiscal discipline refers to a state of an ideal balance between the revenues and the expenditures of the government. It requires timely check on the expenditures, in view of the limited revenues of the government.

Lack of fiscal discipline causes greater flow of money than the volume of output in the economy. It leads to inflationary condition where wages catch prices and prices catch wages. Because of high cost of production with low aggregate demand, process of investment will be in trouble. When investment get struck or is reduced, then unemployment prevails which lead to low level of equilibrium trap.

Mahalanobis became essentially the key economist of India's Second Five Year Plan, becoming subject to much of India's most dramatic economic debates. The essence of the model is a shift in the pattern of industrial investment towards building up a domestic consumption goods sector. The plan followed the Mahalanobis model, an economic development model developed by the Indian statistician Prasanta Chandra Mahalanobis in 1953. The plan attempted to determine the optimal allocation of investment between productive sectors in order to maximise long-run economic growth.

Foreign trade means the exchange of goods and services between two or more countries/borders or territories. From the time of independence, India has been one of the important trading countries, exporting primary items like cotton, raw silk, sugar, wool, jute, and indigo, etc. Moreover, importer of finished consumer goods like woollen clothes, cotton, silk, and capital goods like light machinery manufactured in Britain.

During this period, Britain held the monopoly of over India’s imports and exports. Therefore, most of the foreign trade was restricted only to Britain and other was while the rest half was allowed to trade with other countries like Ceylon (Sri Lanka), China, and Persia (Iran).

India was a large exporter in the colonial period. However, it did not affect the country’s economy. Commodities like food grains, clothes, kerosene hit the country hard with its scarcity.  

(d)improving the balance of payments

Economic planning in a country is always guided by definite strategy. In all the five year plans, India adopted its definite strategy for the fulfillment of its objectives. The strategy of planning is also subjected to considerable changes in the entire planning process. It emphasised the industrial sector with an aim of trebling national income and doubling of per capita income within a 15-year period. Under this plan, planning and industrialisation were synonymous. An alternative to the Bombay Plan was given by M. N. Roy in 1944. His plan came to be known as People's Plan.

The four factors of production are : 

(i) Land, 

(ii) Labour

 (iii) Capital 

(v) Entrepreneur. 

Their remuneration takes the form of 

 (i) Rent

 (ii) Wages

 (iii) Interest

 (iv) Profit

Economic reforms refer to the fundamental changes that were launched in 1991 with the plan of liberalising the economy and quickening its rate of economic growth. The Narasimha Rao Government, in 1991, started the economic reforms in order to rebuild internal and external faith in the Indian economy.

Churning poor are those who regularly move in and out of the poverty line. It is a sub-classification of transient poor. Transient poor includes the people who keeps on floating on the poverty line. If these people get the employment, they will move above the poverty line.

While framing its plan India focused on achieving certain goals such as Growth, Equity, Modernisation and Self-reliance.Among them the objective of ‘growth with equity’ as a planning objective was important.Economic growth implies an increase in the country’s capacity to produce more goods and services. This growth is indicated by the increase in GDP of the country.

According to the goal of equity, every Indian should be able to meet his/her basic needs, inequality should be reduced and that the benefits of economic prosperity should reach all sections of the society.

Therefore only achieving the objective of economic growth alone will not be beneficial to the country, it is only the benefits of it is spread across the country to every section it will lead to social welfare.Keeping this in mind, the objective of ‘growth with equity’ becomes very important.

Self-reliance as an objective of economic planning is necessary for a developing country because a nation can promote economic growth and modernization by using its own resources or by using resources imported from other nations.The first Seven Five Year Plans gave importance to self-reliance which eans avoiding imports of those goods which could be produced in India itself.This policy was considered a necessity in order to reduce our dependance on foreign countries especially for food. It is understandable that people  who were recently freed from foreign domination should give importance to self-reliance,

Aggregate demand is the sum of four components: consumption, investment, government spending, and net exports.

Aggregate demand (AD) = total spending on goods and services

The formula for calculating aggregate demand is as follows:

AD = C + I + G + ( X-M ) 

• C = Personal Consumption Expenditures.
• I = Gross Private Domestic Investment.
• G = Government Consumption Expenditures.
• (X-M) = Net Exports of Goods and Services.

Net wealth, price level, interest rate, and consumer expectations. A change in any of these factors will shift the consumption function.