Economy, Business and the Budget — CLAT Current Affairs & GK
A passage reports "the central bank held the repo rate steady as inflation eased." CLAT then asks what the repo rate is, which body sets it, or how it differs from fiscal policy. Economic passages need a working vocabulary of the economy — the RBI, the Budget, taxes and the regulators. This chapter builds that scaffolding so the linked questions become recall, not panic. There is no calculation here — just the concepts.
1. The Reserve Bank and monetary policy
The RBI is India's central bank; it manages the currency and controls monetary policy — the supply and cost of money.
| Tool | What it is |
|---|---|
| Repo rate | The rate at which the RBI lends to commercial banks |
| Reverse repo | The rate at which the RBI borrows from banks |
| CRR (Cash Reserve Ratio) | Share of deposits banks must keep with the RBI |
| SLR (Statutory Liquidity Ratio) | Share of deposits banks must hold in safe assets |
Raising the repo rate makes borrowing dearer and cools inflation; cutting it makes money cheaper and spurs growth.
2. The Union Budget
- The Union Budget is the government's annual statement of receipts and expenditure, presented by the Finance Minister, customarily on 1 February.
- Revenue items are recurring (taxes, salaries); capital items build or reduce assets (roads, borrowings).
- Fiscal deficit = the gap between the government's total expenditure and its total receipts excluding borrowings — how much it must borrow.
A budget is not just numbers — CLAT tests who presents it, when, and what its key terms mean.
3. Taxes — direct and indirect
| Type | Falls on | Examples |
|---|---|---|
| Direct | Income or wealth, paid by the person taxed | Income tax, corporate tax, capital gains |
| Indirect | Goods and services, passed on to the consumer | GST, customs duty |
- GST (Goods and Services Tax) is a single indirect tax that replaced many earlier ones; it is administered by the GST Council, chaired by the Union Finance Minister.
4. The regulators
CLAT tests which regulator oversees which sector:
| Regulator | Sector |
|---|---|
| RBI | Banking and monetary system |
| SEBI | Securities and stock markets |
| IRDAI | Insurance |
| PFRDA | Pensions |
| TRAI | Telecom |
Match the news event to its regulator: a stock-market rule points to SEBI, a banking rule to the RBI.
5. Fiscal vs monetary policy
- Fiscal policy — the government's decisions on taxation and spending (the Budget).
- Monetary policy — the RBI's control of money supply and interest rates.
A common trap: attributing a tax or spending decision to the RBI. Taxes and spending are fiscal (government); interest rates are monetary (RBI).
6. Growth and price terms
- GDP — the total value of goods and services produced in the country; its growth rate signals the economy's health.
- Inflation — the rate at which the general price level rises; measured by the CPI (retail) and WPI (wholesale).
- Recession, fiscal consolidation, subsidy, disinvestment — recurring terms worth knowing by definition.
7. Exam protocol
- Separate monetary (RBI, interest rates) from fiscal (government, taxes and spending).
- Know the Budget basics: presented by the Finance Minister, ~1 February; fiscal deficit means borrowing.
- Classify a tax as direct (income/wealth) or indirect (GST, customs).
- Match each news event to its regulator — SEBI, RBI, IRDAI, TRAI.
- Recognise the RBI tools — repo, reverse repo, CRR, SLR — and their inflation/growth effect.
- Read economic passages for the event, then answer the term-and-body questions from memory.
