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Direct and Indirect Speech Rules

There are two ways of reporting the words spoken by a person. We can reproduce the
words exactly spoken or we can express in our own words the substance of what he
said. The first of there method is called Direct speech or Direct Narration. The second
is called Indirect Speech or Indirect Narration.
Example:
Direct Speech: Sandy said to his father, I need more money.
Indirect Speech : Sandy told his father that he needed more money.

The exact words of the speaker which are put within inverted commas are called
the Reported Speech.

The verb that introduces the Reported speech is called Reporting Verb. In the
above example said is the reporting verb and I need more money is the
reported speech.

The following points should be observed about these two modes of narration.

The Direct speech is always enclosed within inverted commas and it always
begins with a capital letter. It is separated from the Reporting verb by a comma.

In the Indirect Speech, no inverted commas are used and no comma is used to
separate the Reporting Verb from the Reported Speech.

TENSE CHANGE - IN - INDIRECT SPEECH

Present simple tense into Past simple

Present Continuous tense into Past continuous

Present Perfect tense into Pas perfect

Present Perfect Continuous into Past perfect continuous

Past simple into Past Perfect

Past Continuous into Past Perfect Continuous

Past Perfect into Past Perfect

Future simple, will into would

Future Continuous, will be into would be

Future Perfect, will have into would have


Universal truth or a habitual fact
a) If the Reported Speech expresses a universal truth or a habitual fact, its tense
remains unchanged.
Examples:

The teacher said, The earth revolves round the sun.

The teacher said that the earth revolves round the sun.

b) When the Reported Speech contains a time clause and both the main verb and the
verb in
the time clause are the simple past, these verbs are left unchanged.
Example:

He said, The boy stuck to his post till his father ordered him to leave.

He said that the boy stuck to his post till his father ordered him to leave.

However, if the main verb is in the simple past while the verb in the time clause as in
past continuous, it is usual to change the main verb to past perfect and leave the verb
in the time clause unchanged:
Example:

He said, Asif slipped when he was trying to board a bus.

He said that Asif had slipped when he was trying to board a bus.

RULES FOR THE CHANGE OF PRONOUNS:


(a) First Person:
Pronouns of the first person are changed into pronouns of the same person as the
person
of the subject of the Reporting Verb:
Example:
(i) I said, I have done my home work.
I said the I had done my home work.
(ii) You said, I have done my home work.
You said that you had done your home work.
(iii) He said, I have done my home work.
He said that he had done his home work.
(b) Second Person:
Pronouns of the second person are changed into pronouns of the same person as that
of
the object of the Reporting Verb:
Example:

The teacher said to me, You have not done your work well.

The teacher told me that I had not done my work well.

(c) Third Person:


Pronouns of the third person generally remain unchanged:
Example:

I said to you, He should not be trusted.

I told you that he should not be trusted.

When there are two or more third person pronouns in the Indirect Speech, the name of
the person referred to by each may be written in brackets against each of them to
avoid confusion:
Example:

The servant said to his master,I have told you the truth and I can do no more.

The servant told his master that he had told him (master) the truth and he
(servant) could do no more

One has to be little careful while changing the Personal Pronoun we. we can be
retained as we or changed to you or they depending upon the relationship of the
speaker, the person(s) addressed and the person reporting the speech:
Example:
(i) He said to me, We should have tried harder.
He told me that we should have tried harder.
(ii) He said to you, We should have tried harder.
He told you that you should have tried harder.
Conversion of Interrogative Sentences
While changing the interrogative sentences into Indirect Speech, the following
rules should be observed:

Change the Reporting Verb into ask, enquire, demand, wonder, want to know,
etc.

Change the Interrogative form into the Assertive form and remove the sign
of Interrogative

No conjunction is used when the sentence begins with question words like who,
whose,
whom, what, which, when, why, where, how, etc.

Tenses, pronouns and words denoting nearness are changed according to the
rules.

Example:
(i) She said to me, What can I do for you, dear?
She asked me affectionately what she could do for me.
(ii) The old man said to his son, What harm have I done to you?
The old man asked his son what harm he had done to him.
Present modals are changed to past modals

Indirect speech for sentence having MODALS, should, ought to, might, would,
and could
Important Little Chages Direct to Indirect
Conversion of Imperative Sentences

While changing the imperative sentences into Indirect Speech, the following
rules
should be observed:

The Reporting Verb is changed into a verb signifying a command, request,


advice.

Command can be expressed by the words command, order, tell, charge etc.

Request can be expressed by the words request, beg, ask, implore, entreat,
desire,

beseech, solicited, etc.

Besides these words, forbid, persuade, incite, etc. May also be used according to
the context.

The verb of the Reported Speech is changed into an Infinitive.

If the Reported Speech is negative, the word not is placed before the infinitive.

Tenses, pronouns and words denoting nearness are changed according to the
rules.

Examples:
(i) He said to me, Help him in setting the accounts.
He requested me to help him in setting the accounts.
(ii) My friend said to me, Please accept this invitation.
My friend entreated me to accept that invitation.
(iii) The Doctor said to the patient, Give up smoking.
The Doctor advised the patient to give up smoking.
(iv) The Commander said to his men, March further.
The Commander urged his men to march further.

Conversion of Imperative Sentences with Let

Let is often used to make proposals in such cases, he said, Let us do it is


changed to they suggested / proposed doing it or he suggested / proposed that
they should do it.
Example:
(i) I said to my brother, Let us go to some hill station for a change
I suggested to my brother that we should go to some hill station for a change.
(ii) Let us invite some friends to our sons birthday, said the father.
The father proposed that they should invite some friends to their sons birthday.

Conversion of Exclamatory and Optative Sentences

While converting exclamatory and Optative Sentences from Direct to Indirect


Speech the following general rules have to be observed:
Rules 1:
In the case of exclamatory sentences the Reporting Verb is changed to exclaim with
sorrow/Joy/fear/anger, etc., applaud, regret, curse, coy out or any other such verb
that properly
conveys the tone of exclamation.
Rules 2:

The Conjunction that is used to introduce the Reported Speech

Rules 3:

The Exclamatory sentence is changed into an assertive one before it is put

into Indirect Speech.


Rules 4:

Interjections and exclamations are omitted and their sense conveyed by means
of adverbs

or adverbial phrases.
Rules 5:

Tenses, pronouns and words showing nearness are changed according to the
rules already

stated.
Example:
1. What a horrible sight! we all exclaimed. (D.S.)
We all exclaimed that it was a very horrible sight. (I.S.)
2. Alas! I have broken my brothers watch said he.
He exclaimed sorrowfully that he had broken his brothers watch. (I.S.)
3. How beautiful she is! said Boon. (D.S.)
Boon exclaimed joyfully that she was very beautiful. (I.S.)
4. He said, Just my luck! I never thought I would fail this time too
He exclaimed that he was as usual unlucky and added that he had never thought he
would
fail that time too.
English Grammar: Rules of Active Passive Voice
As all you know SSC CGL Tier 2 is going to approch so we are providing you Active
/Passive Rules to score 20 marks easily in this Exam.

Important Rules on Active Passive Voice

Active: They will do the work

Passive: The work will be done by them.

When the person doing the action is the subject, we use an Active verb. But
when the subject is what the action is pointed at, then we use a passive verb.

As in the above example, ACTIVE sentence is the one where the person (THEY) is
also the subject of the sentence.

While PASSIVE sentence is the one, where the subject is the action showing word
(WORK).

NOTE: However, the sentences only with transitive verb (verb with object) can be
changed into PASSIVE VOICE.

For Example,

Active: The man is running.

Passive: Not Possible as the object after verb (Running) is missing.

To Recognize the Active & Passive Sentence easily ask these question.

What is the action/verb in this sentence?

What/who is the subject of this sentence?

Is the subject of the sentence PERFORMING the action/verb?

If the answer to the last question is YES, then the sentence is in the ACTIVE voice. If
the answer to the last question is NO, then the sentence is in the PASSIVE voice.

General Form:
Active: SUBJECT + VERB + OBJECT

Passive: OBJECT (OF ACTIVE VOICE) + HELPING VERB (FORM OF VERB BE) +
PAST PARTICIPLE OF TRANSITIVE VERB + BY + SUBJECT (if required).

NOTE: Sometime while converting sentence from Passive Voice to Active voice, the
subject is missing.

For Example,

Passive: The room was cleaned.

Active: Someone cleaned the room.

BY SOMEONE is missing from the Passive Sentence.

Conversion of Active to Passive Sentence in different Tenses

1. Present Simple Tense

Passive Voice: Object + is/am/are + Verb (3 rd form) + by + Subject

Active voice: He sings a song.

He does not sing a song.

Does he sing a song?

Passive voice: A song is sung by him.

A song is not sung by him.

Is a song sung by him?

2. Past Simple Tense

Passive voice: Object + was/were + Verb (3 rd form) + by + Subject

Active voice: I killed a snake

I did not kill a snake.

Did I kill a snake?

Passive voice:
A snake was killed by me.

A snake was not killed by me.

Was a snake killed by me?

3. Future Simple Tense

Passive Voice: Object + will/shall + be + Verb (3 rd form) + by + Subject

Active voice:

She will buy a car.

She will not buy a car.

Will she buy a car?

Passive voice:

A car will be bought by her.

A car will not be bought by her.

Will a car be bought by her?

4. Present Continuous Tense

Passive Voice: Object + is/am/are + being + Verb (3 rd form) + by + Subject

Active voice:

I am writing a letter

I am not writing a letter.

Am I writing a letter?

Passive voice:

A letter is being written by me.

A letter is not being written by me.

Is a letter being written by me?

5. Past Continuous Tense


Passive Voice: Object + was/were + being + Verb (3 rd form) + by + Subject

Active voice:

He was driving a car.

He was not driving a car.

Was he driving a car?

Passive voice:

A car was being driven by him.

A car was not being driven by him.

Was a car being driven by him?

6. Present Perfect Tense

Passive voice: Object + has/have + been + Verb (3 rd form) + by + Subject

Active voice:

She has finished his work

She has not finished her work.

Has she finished her work?

Passive voice:

Her work has been finished by her.

Her work has not been finished by her.

Has her work been finished by her?

7. Past Perfect Tense

Passive Voice: Object + had + been + Verb (3 rd form) + by + Subject

Active voice:

They had completed the assignment.

They had not completed the assignment.


Had they completed the assignment?

Passive voice:

The assignment had been completed by them.

The assignment had not been complete by them.

Had the assignment been completed by them?

8. Future Perfect Tense

Passive Voice: Object + shall/will + have + been + Verb (3 rd form) + by + Subject

Active voice:

You will have started the job.

You will have not started the job.

Will you have started the job?

Passive voice:

The job will have been started by you.

The job will not have been started by you.

Will the job have been started by you?

Important Points to Remember

Future continuous & perfect continuous tenses do not form passive voice.

Some verb cannot be passive like be, belong, exist, lack, resemble, seem, suit,
have (= own).

For example:

Tom has a guitar.

The building seemed empty.

Certain verb take fixed preposition after them that replaces the by. Such verb
are known to, surprised at/by, amazed at, astonished at, vexed at, annoyed
with/at, contained in, decorated with, filled with, tired of, engulfed in. etc.
For example:

Active: The fire engulfed the building.

Passive: The building was engulfed in the fire.

Some verb have two objects like give, send offer award etc. The sentence having
these words have two possible passive forms.

For example:

Active: He gave me a book .

Passive 1: I was given a book by him.

Passive 2: A book was given to me by him.

Viceroys of India

Lord Canning (AD 1856-62) :

The last Governor General and the first Viceroy. Withdrew Doctrine of Lapse.

Revolt of 1857, Mutiny took place. Indian Penal Code 1860 was passed.

Passed the Act, 1858, which ended the rule of the East India Company. The
Universities of Calcutta, Bombay and Madras were established in 1857.

Lord Elgin (AD 1862) :

Wahabi Movement

Lord John Lawrence (AD 1864-69) :

Established the High Courts at Calcutta, Bombay and Madras in 1865.

Telegraphic communication was opened with Europe. Created the Indian Forest
Department.

Lord Mayo (AD 1869-72) :


Organised the Statistical Survey of India and for the first time in Indian history,
a census was held in 1871.

Started the process of financial decentralisation in India. Established the


Department of Agriculture and Commerce.

Established the Rajkot College at Kathiawar and Mayo College at Ajmer for the
Indian princes.

He was the only viceroy to be murdered in office by a Pathan convict in the


Andamans in 1872.

Lord Northbrooke (AD 1872-76) :

Kuka Rebellion in Punjab, Famine in Bihar.

Lord Lytton (AD 1872-76) :

Known as the 'Viceroy of Reverse Character'

Royal Titles Act of 1876 and the assumption of the title of 'Empress of India' by
Queen Victoria, the Delhi Durbar in January 1877.

Vernacular Press Act (also called the 'Gagging Act' to restrain the circulation of
printed matter) and the Arms Act (made it mandatory for Indians to acquire
license in arms)of 1878.

Lord Rippon (AD 1880-84) :

First Factory Act of 1881 (prohibited labour). Local Self-Government was


introduced in 1882.

Repealed the Vernacular Press Act in 1882. Finances of the centre were
divided.

Lord Rippon is regarded as 'the founding father of local self governance' in


India.

An Education Commission was appointed under Sir William Hunter in 1882 to


improve primary and secondary education.

The Ilbert Bill Controversy (1883) enabled Indian district magistrates to try
European criminals.

Lord Dufferin (AD 1884-88) :


Third Burmese War (AD 1885-86). Establishment of the Indian National
Congress in 1885.

Lord Lansdown (AD 1888-94) :

Factory Act of 1891 granted weekly holiday and stipulated working hours for
women and children.

Civil services were divided into Imperial, Provincial and Subordinate Services.

Indian Councils Act of 1892.

The Durand Commission defined the Durand Line between British India and
Afghanistan (now between Pakistan and Afghanistan) in 1893.

Lord Elgin II (AD 1894-99) :

Southern uprisings of 1899. Great famine of 1896-1897 and Lyall


Commission on famine was established.

Lord Curzon (AD 1899-1905) :

A Commission was appointed under Sir Thomas Raleigh in 1902, to suggest


reforms regarding universities, the Indian Universities Act of 1904 was passed on
the basis of its recommendations.

Ancient Monuments Preservation Act of 1994. Thus, Archaeological Survey of


India was established.

Agricultural Research Institute was established at Pusa in Delhi. Partitioned


Bengal in 1905.

Lord Minto (AD 1905-10) :

Swadeshi Movement (1905-08); foundation of Muslim League (1906); Surat


Session and split in the Congress (1907). Morley-Minto Reforms (1909).

Lord Hardinge (AD 1910-16) :

Capital shifted from Calcutta to Delhi (1911); Delhi Durbar; Partition of Bengal
was cancelled. The Hindu Mahasabha was founded in 1915 by Pandit Madan
Mohan Malaviya.

Lord Chelmsford (AD 1916-21) :


Gandhi returned to India (1915) and founded the Sabarmati Ashram (1916),
Champaran Satyagraha, Satyagraha at Ahmedabad (1981), Kheda Satyagraha
(1918).

August Declaration (1917) by Montague, the then Secretary of State, and


Montford reforms or the Government of India Act of 1919.

Rowlatt Act (March, 1919) and the Jallianwala Bagh Massacre (13 th April,
1919).

Khilafat Committee was formed and Khilafat Movement started (1919-20).

Non-Cooperation Movement started (1920-22). Women's University was


founded at Poona (1916).

Lord Reading (AD 1921-26):

Repeal of Rowlatt Act. Chauri-Chaura incident. RSS, founded in 1925.


Suppreessed Non-Cooperation Movment. Formation of Swaraj Party.

Moplah Rebellion (1921) took place. Kokori Train Robbery on 1 stAugust,


1925. Communal Riots of 1923-25 in Multan, Amritsar, Delhi etc.

Lord Irwin (AD 1926-31) :

Simon Commission visited Indian in 1927. Convress passed the Indian


Resolution in 1929.

Dandi March (12 th March, 1930). Civil Disobediene Movement (1930).

First Round Table Conference was held in England in 1930. Gandhi-Irwin Pact.

Lahore Session of Congress and Poorna Swaraj Declaration (1925).

Lord Willingdon (AD 1931-36) :

Second Round Table Conference in London in 1931 and third in 1932.

Government of India Act (1935) was passed. Communal Awards (16 th August,
1932) assigned seats to different religious communities. Gandhiji went on a epic
fast to protest against this division.

Lord Linlithgow (AD 1936-43) :

Congress Ministries resignation celebrated as 'Deliverance Day' by the Muslim


League (1939), the Lahore Resolution (23 rd March, 1940) of the Muslim League
demanding separate state for the Muslims. (It was at this session that Jinnah
propounded his Two-Nation Theory). Outbreak of World War II in 1939. Cripps
Mission in 1942. Quit India Movement (8 th August, 1942).

Lord Wavell (AD 1943-47) :

Cabinet Mission Plan (16 th May, 1946).

First meeting of the Constituent Assembly was held on 9th December, 1946.

Arranged the Shimla Conference on 25 th June, 1945 with the failure of the Indian
National Congress and Muslim League.

Election to the Constituent Assembly were held and an interim government was
appointed under Nehru.

Lord Mountbatten (March to August, 1947) :

Last Viceroy of British India and the first Governor-General of free India.

Partition of India decided by the 3rd June Plan or Mountbatten Plan.

Retired in June, 1948 and was succeeded by C Rajagopalachari, the first and the
last Indian Governor-General of Free India.

Indian Independence Act was passed by the British Parliament on 4th July, 1947,
by which India became independent on 15 th August, 1947.

Previous Years Exam from Ancient History

1. The source of Swastika symbol - Indus Valley

2. Who is considered as the father of Indian archaeoloy - Alexander Cunningham

3. Meter scale has been discovered from ......... - Harappa

4. Weapon never used by the -Indus people - Sword

5. What was the major industry in Chanhudaro? - Bead making

6. The word Sindhan used by the Indus people denoted - Cotton

7. Evidence of fractional burial has been excavated from - Harappa

8. The word godhume used in the vedic period denote - Wheat

9. Yava denoted - Barley


10. Term used to denote rice in the vedic text - Vrihi

11. Vedic term sita denoted - Ploughed field

12. Which veda mentions about wheel - Rigveda

13. Vedi terms Urvara or kshetra denoted - Cultivated field

14. The famous frog hymn in Rig Veda throws light to - Vedic education

15. Who was considered as the god of the vedas? - Varuna

16. Rigvedic term Duhitri denoted - Milker of cows

17. Method used to calculate the number of cows in the Vedic period
- Ashtakarni

18. Part of which veda has prose part - Yajur Veda

19. Who spread Aryan religion in South India - Agasthya

20. Vedic term Aghanya denotes - Cows

21. The term Bharata and Bharatavarsha were first used in - Rig Veda

22. Upanishad which mentions the four Ashramas of Vedic period - Jabala
Upanishad

23. Largest number of hymns in Rigveda a are in praise of - Indra

24. Edict which mentions about the relation between India and China
- Nagarjunakonda

25. First town in the vedic period to use burned bricks - Kausambi

26. First reference about lending money for interest can be found in - Satpatha
Brahmana

27. Rigvedic paintings have been discovered from Bhagvanpura. It is in which


state - Haryana

28. Upanishad which mentions about police system - Brihadaranyaka


Upanishads

29. God who was considered as God of Gods - Varuna

30. Community which was considered as untouchables by the Buddhists.


- Chandalas

31. The language used by the Jains to spread their religion - Prakrit
32. Who is considered as the St.John of Buddhism - Ananda

33. Who is considered as Devil by the Buddhists - Mara

34. Three daughters of Mara - lust, emotion and desire

35. The ruler who persecuted Buddhists - Pushyamitrasunga

36. Major philosophic school of Bhagvatism - Vishishtadvaita

37. Earliest reference about Srikrishna can be found in - Chandoghya


Upanishad

38. Hindu God who found place in Greek literature - Sri Krishna

39. Jain Thirthankara, who was related to Sri Krishna -- Rishabhadeva (Ist
Thirthankara)

40. Tamil god of the Sangham age for War and Victory - Kottavai

41. Saint who founded the Saivism -Lakulisa

42. Tamil kingdom of the Sangham Age which sent an ambassador to the court
of Roman Emperor - Augusts Pandyas

43. First Sangham was founded by - Saint Agasthya

44. Famous poetess of the Sangham period - Avvaiyar

45. Greeco-Roman traders who visited South India during the Sangham period
were denoted with the term - Yavanas

46. Sangham work which describes about Buddhism - Manimekhalai

47. The word used by Ashoka to denote Buddha - Bhagavati

48. Ashokan inscriptions were desciphered by James prince in the year - 1837

49. Indo-Greek ruler who had his boundaries upto Pataliputra - Menander

50. Yuchi ruler who introduced gold coins for the first time - Vima Kadphesus

Notes on Indian Tax Structure

When country or a state legislature enacts a new tax, the debate usually includes
some opinions about who should pay for running the government or for the particular
program being supported by the tax. A means by which government finance their
expenditure by imposing charges on citizens and corporate entitles.

Economists distinguish between those who bear the burden of a tax and those on
whom a tax is imposed. Taxes in India are imposed by the Central Government and the
state governments. Some minor taxes are also imposed by the local authorities such
as Municipality.

According to Indian Constitution, Article 246 distributes legislative powers including


taxation, between the Parliament of India and the State Legislature. The Central Board
of Revenue or Department of Revenue is the apex body charged with the
administration of taxes. It is a part of Ministry of Finance which came into existence as
a result of the Central Board of Revenue Act, 1924.

Central Government levies taxes on income (except tax on agricultural income, which
the State Governments can levy), customs duties, and central excise and service tax.

State Government levies taxes - Value Added Tax (VAT), Stamp Duty, State Excise,
Land Revenue and Profession Tax.

Local bodies are empowered to levy tax on Properties, Octroi and for utilizations like
water supply, drainage etc.

In Indian taxation system, system is divided into two taxes - Direct


Taxation and Indirect Taxation.

Direct Taxes - In Direct Taxes the burden directly falls on the taxpayer.

Income Tax - According to Income Tax Act 1961, every person, who is an
assessee and whose total income exceeds the maximum exemption limit, shall
be chargeable to the income tax at the rate prescribed in the Financial Act. Such
income tax shall be paid on the total income of the previous year in the relevant
assessment year.

Wealth Tax - Wealth tax, in India, is levied under Wealth-tax Act, 1957. Wealth
tax is a tax on the benefits derived from property ownership. The tax is to be paid
year after year on the same property on its market value. Chargeability to tax
also depends upon the residential status of the assessee same as the residential
status for the purpose of the Income Tax Act.

Indirect Taxes

Service Tax- It is a tax levied on services provided in India, except the State of
Jammu and Kashmir. The responsibility of collecting the tax lies with the Central
Board of Excise and Customs. From 2012, service tax is imposed on all services,
except those which are specifically exempted under law.

Excise Duty -Central Excise duty is an indirect tax levied on goods


manufactured in India. Excisable goods have been defined as those defined as
those, which have been specified in the Central Excise Tariff Act as being
subjected to the duty of excise. There are three types of excise duties:

1. Basic Excise Duty

2. Additional Duty of Excise

3. Special Excise Duty

Custom Duty- Custom or import duties are levied by the Central Government of
India on the goods imported in India. The rate at which customs duty is leviable
on the goods depends on the classification of the goods determined under the
customs traffic.

Value Added Tax - VAT is a multi-stage tax on goods that is levied across
various stages of production and supply with credit given for tax paid at each
stage of value addition.

Economics Notes on Economic Reform in India for SSC Exam


In this post, we are providing notes on Economic reform in India since 1991. This is an
important topic for the upcoming SSC CGL Exam as well as other competitive exam.
Question from this topic are frequently asked.

Economic Reforms in India

There were a large number of events that accumulated simultaneously that led
to economic crises of 1991. In 1991, major factors which led to the downfall of the
Indian Economy were as follows:

Collapse of Soviet Union

The Gulf War

Political Uncertainty

External Macro Imbalance

Grave External Payment Crises


Iraqs annexation of Kuwait

Problem with Public Finance

We must remember that inflation was in double digits and our foreign exchange
reserves had reached their lowest levels, the export market to Iraq and USSR had
disappeared. In order to deal with the immediate crises, the following steps were
taken:-

1. The government leased 20 tonnes of gold to the State bank of India, which in
turn entered into the sale transaction with a re-purchase option in the
international market. This transaction was worth 200 million $.

2. Gold was sent in four instalments to the Bank of England. Total gold sent was 47
tonnes. A total amount of 405 million $ was raised from the Bank of England.

3. The government entered into a loan agreement with the World Bank and Asian
Development Bank.

4. The Indian government devalued/ depreciated the rupee by nearly 18% on July 1
and July 3, 1991 in two instalments. The immediate impact of devaluation was to
improve incentives to export and an increased disincentive towards imports.

5. A fiscal monetary policy was put in place to control inflation. Cash margins on
imports were increased from 50% to 133% and further to 200% by April 1991.
The Reserve Bank of India (RBI) imposed a surcharge of 25% on bank credit for
imports. Import of capital goods was only allowed against foreign lines of credit.
This was done to discourage to imports as imports became more expensive.

Economic Reforms, After pushing an inward-looking development strategy with the


state assuming an important role, for more than four decades, India decided to take a
historic step of changing tracks in 1991. In 1991, the Congress government came into
power under the leadership of P.V. Narasimha Rao and the then Finance Minister (our
present Prime Minister) Dr. Manmohan Singh. A 3 level strategy was introduced to
deal with the short term and long term objectives to be attained by the economy.

Outline reforms were undertaken since 1991:-

1. Immediate management for crises:-

Sale of gold

Borrowing from Indian Monetary Fund (IMF)

2. Macro Economic Stabilization:-

Control of Inflation
Fiscal Adjustment

Balance of Payment (BOP) adjustment

3. Structural Reforms:-

Industrial Policy Reforms:-

Industrial licensing

Foreign investment

Foreign technique agreement

Public sector reforms

Trade Policy Reforms

Financial Sector Reforms

The process of economic reforms was started by the government of India in 1991 for
taking the country out of economic difficulty and speeding up the development of the
country. The centre of economic reforms has been liberalisation, privatisation and
globalisation these three terms are explained as follows:

(A) Liberalisation:

Liberalisation means to unshackle the economy from bureaucratic cobweb to make it


more competitive. Following are its chief features:

(B) Privatisation:

In brief, privatisation means such an economic process through which some public
sector undertaking is brought either partially or completely under private ownership.

(C) Globalisation:

Globalisation means integrating the economy with the rest of the world. Following are
its chief features:

Fiscal Deficits and Balance of Payments

The balance of payments, (BOP), of a domestic territory of a country is the


record of all economic transactions between the domestic territory of the
country and the rest of the world (ROW) over a particular period (over a quarter
of a year).

These financial transactions are made by individuals, firms, and government of


the country.

Thus the balance of payments includes all the external transactions of a


country.

These transactions include payments done for the country's exports and
imports of products/ goods, services, and other financial transactions.

A country's balance of payments is said to be in surplus or we can say


a positive if sources of funds (such as exports or goods sold and bonds sold)
exceed uses of funds (such as paying for imports and paying for foreign bonds
purchased) by that amount.

There is said to be a deficit in the balance of payments or we can


say negative if payment of funds (such as paying for imports and paying for
foreign bonds purchased) exceed sources of funds (such as exports or goods
sold and bonds sold).

Fiscal Deficit

Fiscal deficit presents a view of budgetary imbalances in the financial accounts


of the domestic territory of a country.

Fiscal Deficit is the difference between total revenue and total expenditure of the
government.

We exclude borrowings from the above category of expenditure.

Fiscal Deficit = Total Expenditure - Total Receipts excluding the borrowings.

The conclusion of fiscal deficit are listed below:

Debt Trap:

Fiscal deficit tells us about the total borrowing requirements of the government in
an accounting year. Borrowings involve repayment of the principal amount as
well as payment of interest.

Inflation:
Government mainly borrows from the central bank to meet the problem of its
fiscal deficit.

The central bank issues new currency in the market in order to meet the deficit
requirements.

It not only increases the money supply in the country but also creates an
inflationary pressure.

Foreign Dependence:

The government of the country facing the problem of fiscal deficit also borrows
from rest of the world, which automatically raises the country being dependent on
other countries when it comes to solving the problem of fiscal deficit.

Hinders growth and relations:

Borrowings tend to increase the burden on future generations as they have to


pay for the principal amount as well as interest in the future. It does affect the
future growth and development prospects of the country as well as financial
relations.

Sources of Financing Fiscal Deficit:

When a country faces the problem of a fiscal deficit, the government has the following
options. The main two sources are:

Borrowings:

The problem of the Fiscal deficit can be solved by borrowings from the internal
sources of funds (public banks and commercial banks etc.) or the external
sources of funds (foreign governments and organisations across international
boundaries etc.).

Deficit Financing:

the Government may borrow from the central bank against its securities to
meet the fiscal deficit that the country is facing.

The Central Bank can or may issue a new currency in order to solve the problem.