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Indian Economy

Notes Introduction

In this unit, you will learn about the concept of Indian currency system, Indian Rupee, and the
tactile and security features. You will also understand about the reserve money, money multiplier,
foreign exchange reserves and Capital account convertibility and Current Account Convertibility.
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Indian economy is the 4 largest economy in the world as per the purchasing power parity
(PPP), with a GDP of US $3.36 trillion. When measured in USD exchange-rate terms, it is the tenth
biggest in the world, with a GDP of US $691.87 billion (2004). India was the second fastest
developing major economy in the world, with a GDP growth rate of 8.1% at the end of the first
quarter of 2005–2006. On the other hand, India’s enormous population marks in a somewhat low
per capita income of $3,100 at PPP. The country’s economy is varied and includes agriculture,
handicrafts, industries and a multitude of services. Services are the main cause of economic
growth in India today, however two-thirds of the Indian workforce earns their livelihood by
way of farming directly or indirectly. Lately, India has also capitalised on its large number of
highly polished people who have fluency in English language to develop a main exporter of
financial services, software services, and software engineers.
India has followed to a socialist-inspired method for most of its self-governing history, with
strict control of the government over participation of the private sector, foreign trade, and
foreign direct investment. Since the beginning of 1990s, India has progressively opened up its
marketplaces through economic changes by reducing government reins on investment and
foreign trade. Privatisation of public-owned industries and opening up of certain sectors to
private and foreign players has continued slowly amid political debate.
The socio-economic problem faced by India takes account of growing population and lack of
infrastructure, in addition to growing disparity and unemployment. Poverty also continued to
be a problem even though it has seen a reduction of 10% since the 1980s.
The Rupee is the only lawful tender recognised in the India and is also recognised as legal tender
in neighbouring Nepal and Bhutan, the latter’s exchange value being attached to the rupee.

The rupee is divided into 100 paise. The highest currency note printed is the 1000 rupee note, and
the lowest denomination in circulation is the 10 p coin.

9.1 Indian Currency System

Now let us study about the Indian Currency system. Thus, you will begin with studying the
historical background of the Indian currency system which is as follows:
First gold coins were introduced during the reign of the Gupta’s in 390-550 A.D.
In 1947, India became the member of the IMF and exchange value of the Rupee came to be
fixed by IMF standard.

Paper currency in India was introduced in 1882 by the British Government.
Rupees was the first minted in India during the reign of Sher Shah Suri around 1542 A.D.
With the establishment of the RBI in 1935, the Indian Rupee became an independent
currency, although for exchange purposes it continued to be dependent on sterling.

9.1.1 Decimal System

Let us now discuss the decimal system of the Indian currency:

All Coins and One Rupee notes are issued by the Government of India and therefore, the
one Rupee notes does not bear the signature of the Governor of the RBI.

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