Unit 1, 2, 3, 4, 5 - Weather, Climate, Consumer, Money & Economy

Chapter 1: Weather and Climate

Weather vs. Climate

• Weather: Atmospheric conditions (temperature, pressure, wind, humidity, precipitation) for a shorter period over a smaller area.
• Climate: Average weather condition for a longer period (35-40 years) over a larger area.
• Influence of climatic elements: Affects flora, fauna, human life (food, dressing, settlement, occupation, physical/mental conditions, colour, race) and agricultural practices.
• Indian Meteorological Department (IMD): Principal agency for weather observations and forecasts, headquartered in Delhi.

Elements of Weather and Climate

• Atmospheric Temperature
  • Source of energy: Sun (nuclear fusion).
  • Insolation: Amount of sun's rays reaching the earth's surface.
  • Heat Transfer Processes:
    • Conduction: Heat transferred to lower atmosphere in contact with earth's surface.
    • Convection: Heated air expands, rises, transferring heat to higher atmosphere.
    • Advection: Heat transferred horizontally through wind.
    • Radiation: Emission of energy as long waves after earth heats up.
  • Terrestrial Radiation: Re-radiation of energy from earth's surface as long waves.
  • Greenhouse Effect: Absorption of terrestrial radiation by atmospheric gases (like CO2) heating the atmosphere.
  • Heat Budget of the Earth: Balancing process where almost all incoming insolation is radiated back daily, maintaining stable surface temperature.
  • Temperature Measurement:
    • Thermometer: Instrument used.
    • Maximum-Minimum Thermometer: Special type for daily max/min temperatures.
    • Units: Degree Celsius (0°C water melts, 100°C water boils) and Degree Fahrenheit (32°F water melts, 212°F water boils).
    • Calculations:
      • Diurnal Range of Temperature: Difference between maximum and minimum temperature of a day.
      • Daily Mean Temperature: (Maximum temperature + Minimum temperature) / 2.
  • Isotherms: Imaginary lines connecting places with equal temperature.
  • Factors influencing Temperature Distribution:
    • Latitude: Temperature decreases from equator to poles due to incidence angle of sun's rays. Thermal Equator is an imaginary line connecting places with highest mean annual temperature along every longitude.
    • Altitude: Temperature decreases with increase in altitude. Normal Lapse Rate: 6.4°C decrease per kilometre.
    • Differential Heating of Land and Sea: Land heats/cools faster than sea.
    • Distance from the Sea: Coastal areas have moderated temperatures; away from sea, diurnal range increases.
    • Ocean Currents: Warm currents raise temperature, cold currents lower it.
    • Relief: Mountain slopes facing sun get higher temperature.
• Atmospheric Pressure and Winds
  • Atmospheric Pressure: Weight exerted by atmospheric air over earth's surface.
  • Barometer: Instrument to measure atmospheric pressure (Mercury Barometer, Aneroid Barometer). Units: millibars (mb) or hectopascal (hpa). Average: 1013.2 mb/hpa.
  • Factors Affecting Atmospheric Pressure:
    • Temperature: High temperature leads to low pressure (air expands and rises); low temperature leads to high pressure (air contracts and subsides).
    • Altitude: Pressure decreases with altitude (about 1mb per 10 meters) as gas density decreases.
    • Humidity: Humid air is lighter than dry air, so higher humidity leads to lower pressure.
  • Isobars: Imaginary lines connecting places with equal atmospheric pressure.
  • Global Pressure Belts: Formed due to temperature and earth's rotation.
    • Equatorial Low Pressure Belt (Doldrum): Caused by high temperature, vertical air currents, windless zone.
    • Polar High Pressure Belts: Caused by contraction and subsidence of cold air.
    • Sub Tropical High Pressure Belts: Formed around 30°N/S as poleward-moving warm air subsides.
    • Sub Polar Low Pressure Belts: Formed around 60°N/S due to continuous throwing up of air caused by earth's rotation.
    • Shifting of Pressure Belts: Shift 5°-10° northwards in summer, southwards in winter, influencing global climate.
  • Air Movements:
    • Air Currents: Vertical movements of air.
    • Winds: Horizontal movements of air from high to low pressure areas.
  • Coriolis Force: Deflects winds to the right in Northern Hemisphere and to the left in Southern Hemisphere.
  • Factors influencing Wind Speed and Intensity:
    • Pressure Gradient Force: Greater pressure change over horizontal distance means stronger winds.
    • Frictional Force: Obstruction by hills, mountains, forests, man-made structures.
  • Wind Measurement:
    • Anemometer: Measures wind speed.
    • Wind Vane: Indicates wind direction.
  • Types of Winds:
    • Permanent Winds (Prevailing/Planetary winds): Blow constantly in a particular direction throughout the year between global pressure belts.
      • Trade Winds: From Subtropical High to Equatorial Low (North Easterlies in NH, South Easterlies in SH). Inter Tropical Convergence Zone (ITCZ) is where trade winds converge, shifting with sun's apparent movement.
      • Westerlies: Blow from west to east.
      • Polar Winds: Blow from polar regions.
    • Periodic Winds: Subjected to periodic reversal of direction.
      • Diurnal Winds: Land Breezes, Sea Breezes, Mountain Breezes, Valley Breezes.
      • Monsoon Winds: Seasonal reversal in wind pattern (Southwest monsoon in summer, Northeast monsoon in winter).
    • Local Winds: Formed by local temperature/pressure differences, often periodic, known by regional names. Examples: Loo, Chinook, Foehn, Harmattan.
    • Variable Winds: Short duration, unpredictable intensity/direction.
      • Cyclones: Low pressure systems where winds whirl inwards.
        • Tropical Cyclones: Devastative, originate over tropical oceans, dissipate on hitting land, cause intense rainfall and whirlwinds (Hurricanes, Typhoons, Willy Willies, Tornadoes).
        • Temperate Cyclones: Formed in temperate regions where warm/cold air masses meet, larger but less devastative, can move over land.
        • Direction of flow: Anticlockwise in NH, clockwise in SH.
      • Anticyclones: High pressure systems from which winds whirl outwards, generally don't cause disturbances.
        • Direction of flow: Clockwise in NH, anticlockwise in SH.
• Humidity
  • Humidity: Invisible water content (water vapour) in the atmosphere.
  • Absolute Humidity: Actual amount of water vapour per unit volume of atmosphere.
  • Relative Humidity: Ratio of actual water vapour to total water-holding capacity at a given temperature/time, expressed as percentage.
  • Measurement: Hygrometer and Wet and Dry Bulb Thermometer.
  • Saturation Level: Atmosphere fully saturated with moisture.
  • Saturation Point: Temperature at which saturation level is attained.
  • Condensation: Water vapour condenses to form tiny water droplets.
  • Forms of Condensation:
    • Dew: Tiny water droplets on surfaces when atmosphere near earth cools below saturation point.
    • Frost: Tiny ice crystals formed when temperature falls below 0°C.
    • Mist and Fog: Water vapour condenses around dust particles, remaining suspended in lower atmosphere (distinguished by visibility).
    • Clouds: Condensation around dust particles, water droplets < 0.001 cm, suspended in atmosphere.
      • Types (by form/height): Cirrus (thin, high), Stratus (thick-layered, lower), Cumulus (cotton-wool, convection currents, vertical development), Nimbus (dark, rain-bearing, lower). Combinations exist (cirrostratus, stratocumulus, cumulonimbus, nimbostratus).
• Precipitation
  • Precipitation: Water droplets released from clouds falling on earth in various forms when size exceeds resistance against gravity.
  • Forms of Precipitation:
    • Rainfall: Common form, water droplets.
    • Snowfall: Tiny ice crystals in cold regions/winter.
    • Hailstones: Layered ice pellets from repeated condensation at different atmospheric levels.
  • Types of Rainfall:
    • Orographic Rainfall (Relief rainfall): Moisture-laden winds forced to rise along mountain slopes, leading to condensation and rain on windward side; leeward side is Rain Shadow Region.
    • Convectional Rainfall: Due to convection process (afternoon rains in summer, diurnal phenomenon in equatorial regions).
      • Torrential Rain: Intense rain in specific areas for short duration, causing flash floods/landslides.
      • Cloud Burst: Rainfall exceeding 10 cm per hour, common in mountainous regions.
    • Cyclonic Rainfall (Frontal Rainfall): Warm and cold air meet, warm air rises causing condensation and rain.
• Earth's Heat Balance and Climate Change: Earth maintains a natural heat balancing system, which is disturbed by changes in atmospheric composition due to unscientific human interventions.

Chapter 2: Climatic Regions and Climate Change

Major Climatic Regions

• Equatorial Climatic Region: Up to 10° North and South of the equator. High temperatures and high rainfall throughout the year (daily afternoon convectional rains). Evergreen forests.
• Monsoon Climatic Region: Indian subcontinent and similar regions. Long, humid summer; short, dry winter. Diurnal range low in coastal areas, high in interiors. Rainfall varies (50-1000 cm annually). Dense forests, evergreen and deciduous trees. Densely populated, important agricultural region (rice, sugarcane, jute, cotton, tea, coffee), intensive subsistence agriculture, shifting cultivation.
• Savanna Climatic Region (Tropical Grasslands): Between 10° and 30° latitudes in both hemispheres (Africa, Southern Brazil - Campos, Venezuela - Llanos). Hot, humid summers; cool, dry winters. Avg. temp 21-32°C, annual rainfall 25-125 cm. Deciduous trees, tall grasses; short bushes and thorny forests near deserts. Herbivores (giraffes, zebras), carnivores (lion, tiger). Dry farming, animal husbandry, low population density, pastoral life (Maasai), cash crops (cotton in Sudan, coffee in Brazil).
• Hot Deserts: Mostly on western margins of continents in tropical region (Sahara, Arabian, Kalahari, Namib, Australian, Atacama). Hottest regions (avg. 30°C, Al Aziziya 58°C), high diurnal range, annual rainfall < 25 cm. Cactus, shrubs, palms; Oases where water sources are found. Sparsely populated, indigenous tribes (Bushmen of Kalahari), agriculture, animal husbandry, economically valuable minerals (gold, copper, petroleum).
• Mediterranean Climatic Region: Around Mediterranean Sea and between 30° and 45° latitudes in other regions. Dry summers (20-25°C), humid winters (10-16°C), winter rainfall (30-75 cm) due to Westerlies. Tall evergreen trees (oak, sequoia), evergreen conifers (pine, fir), shrubs. Major producers of fruits and vegetables, leading producers of wine (70% citrus fruit export).
• Temperate Grasslands: Between 40° and 50° latitudes in both hemispheres (Steppes, Prairies, Pampas, Veld, Downs). Short summers, long winters. High summer temp (continental interior), winter 2-13°C. Rainfall 25-60 cm. Varieties of grass, few trees. Historically grazing lands for shepherds, now converted to agricultural lands, commercial mechanised grain farming, animal husbandry. Prairies are known as "Granary of the World" (wheat cultivation).
• Taiga Region: Between 55° and 70° in Northern Hemisphere. Short summers (15-20°C), long winters (-13°C to -25°C). Annual rainfall 50-70 cm (snowfall in winter). Sub-Arctic coniferous evergreen trees (pine, fir, spruce). "Taiga" is Russian for coniferous trees. Very less cultivation, lumbering and wool industry (popular in Canadian Taiga).
• Tundra Region: North of Arctic Circle (Alaska, Canada, Greenland, Arctic coasts of Europe and Asia). Extreme cold, winter -25°C to -40°C, summer up to 10°C. Precipitation mainly snowfall. Only short shrubs and mosses; plants grow only in summer due to short growing season.

Climate Change

• Definition: Long-term shift in weather patterns and temperatures, caused by human activity or natural variability.
• Causes:
  • Natural: Ice ages, inter glacial periods, volcanic eruption, ocean currents.
  • Anthropogenic: Deforestation, oil mining, industrialization, land use change, urbanization.
• Impacts:
  • Melting Himalayan glaciers (12-20m/year).
  • Rising global sea level (0.42 cm/year), submerging island nations like Maldives.
  • Shrinking polar ice caps.
  • Desertification, displacing millions.
  • Increase in global surface temperature (1.1°C rise in 2011-2020 compared to 1850-1900).
  • Shift in monsoon rain nature (torrential rain for few days instead of months).
  • Destabilises climate zones and adversely affects ecological balance.
• Greenhouse Effect and Global Warming:
  • Greenhouse Gases: Trap solar energy (CO2, nitrous oxide).
  • Greenhouse Effect: Gases allow sunlight in, intercept terrestrial radiation, keeping atmosphere warm.
  • Global Warming: Increase in atmospheric temperature due to excess greenhouse gas production from human activities (burning fossil fuels, industrial effluents, solid waste). Accelerates climate change.
• International Initiatives to Protect Climate and Environment:
  • World Meteorological Organisation (1950, Geneva).
  • Stockholm Conference (1972, Stockholm).
  • Earth Summit (1992, Rio de Janeiro - UN Agenda 21).
  • Kyoto Protocol (1997, Kyoto - Reduce Greenhouse gases).
  • Montreal Protocol (1987, Montreal - Reduce ozone depleting substances).
  • Paris Agreement (2015, Paris - Reduce Global warming, cope with effects).
  • G20 Summit (2023, New Delhi - Green development, climate finance).
• Climate Refugees: People displaced by climate change-induced disasters (droughts, floods, desertification, sea-level rise).
• Controlling Human Intervention: Promote energy efficiency, protect forests, change technology, encourage non-conventional energy.

Chapter 3: From The Rainy Forests to The Land of Permafrost

Equatorial Climatic Region (Detailed Study)

• Location: Amazon Basin (South America), Central Africa, Southeast Asia (Indonesia, Malay Peninsula, New Guinea).
• Climate Features:
  • Consistently High Temperature: Mean monthly and annual temperature around 27°C, no winter, due to vertical solar rays year-round.
  • Heavy and Well-Distributed Rainfall: Annual rainfall 175-250 cm.
  • Convectional Rainfall: Daily heavy downpours in afternoons due to high temperature and evaporation.
  • Orographic Rainfall: In mountainous areas (Indonesia, Africa).
  • Cyclonic Rainfall: Intermittent, due to convergence of air currents in Doldrums.
  • No Distinct Dry Season: Abundant rainfall throughout the year.
  • Doldrums: Equatorial low-pressure region with minimal horizontal air movement, where trade winds converge.
  • Moderating effect of sea winds along coastal areas.
• Natural Vegetation (Tropical Rainforests / Equatorial Evergreen Forests):
  • Luxuriant, evergreen year-round (no specific season for seeding, flowering, fruiting, shedding leaves).
  • Diversity: Ebony, mahogany, cinchona, rosewood, palms, lianas, epiphytes (orchids), parasitic plants, ferns, grasses (lalang).
  • High species co-existence (e.g., 200 species/acre in Malaysian rainforests).
  • Canopy Layers: Trees form distinct layers at varying heights based on sunlight availability.
  • "Lungs of the World": Absorb CO2, produce O2 at massive rates.
  • Belukar: Less luxuriant secondary forests after abandoned shifting cultivation clearings in Malaysia.
  • Mangrove forests thrive in coastal and brackish swamps.
• Fauna (Wildlife):
  • Rich diversity, most thrive in trees (arboreal animals).
  • Examples: Lemurs, chimpanzees, orangutans, tree-dwelling reptiles, hippopotamuses, alligators, birds (parrots, toucan, hornbills).
  • Undergrowth absent due to dense canopy, so herbivores/carnivores are less common.
• Human Life:
  • Sparsely populated due to physical conditions.
  • Indigenous groups: Pygmies (Congo Basin - short-statured, hunting/gathering, nomadic, temporary huts, collective decisions, traditional rituals), Indian tribes (Amazon Basin), Orang Asli (Malaysia).
  • Subsistence: Hunting, gathering, fishing.
  • Shifting Cultivation (Slash-and-Burn Agriculture): Traditional method of clearing forest, cultivating until land loses fertility, then moving (crops: manioc, yam, maize, bananas, groundnuts).
  • Plantation Agriculture: Extensive cultivation started by Europeans, favorable climate for industrial crops (rubber - Malaysia, Indonesia; cocoa, oil palm, coconuts, sugarcane, coffee, tea, bananas, pineapples).
  • Settlements: Most natives nomadic, houses built with local resources (wood, bamboo, leaves); Maloca (Amazon Basin - steep-sided slanting roofs), Kampongs (Malaysia - wood houses).
  • Modern Cities: Equitas, Quito, Bogotá, Singapore, Jakarta, Manaus, Belem.
• Challenges:
  • Spread of insects/pests/diseases (e.g., Sleeping sickness by Tse Tse flies, yellow fever by mosquitoes).
  • Lack of basic amenities, thick forest hinders development of roads/railways (difficult, expensive).
  • Rapid growth of lalang and thick undergrowth affecting cultivation.
  • Threat from wild animals, disease-spreading insects, poisonous creatures.
  • Lack of modern communication systems in remote parts (rivers are natural highways).
  • Commercial extraction of wood challenging (density, transport difficulty, hardwoods too heavy to float).
  • Limited livestock rearing due to absence of grazing land and insect attacks.
  • Threats to rainforests: Forest fires (e.g., Amazon), human-induced deterioration (agriculture, construction, urbanization, mining).

Tundra Region (Detailed Study)

• Location: Extreme cold zone, north of Arctic Circle, along Arctic coasts of North America and Eurasia (Alaska, Canada, Greenland, Iceland, North Scandinavia, Siberia).
• Categories: Arctic Tundra and Alpine Tundra (in high mountainous regions).
• Climate Features (Arctic/Polar Climate):
  • Very Low Mean Annual Temperature: Mid-winter -25 to -35°C (even lower in interior), short summers (few weeks above 0°C).
  • Long Nights and Days at Poles: Sun never sets for weeks (Arctic Circle to Pole) in summer, never rises for weeks in winter (polar night).
  • Precipitation: Mainly snow in winter.
  • Blizzards: Strong snowstorms causing heavier snowfall.
• Natural Vegetation:
  • Scanty due to insufficient sunlight and long winters; trees normally absent.
  • Common: Mosses, lichens, sedges, bushes, dwarf willows, stunted birches, hardy grasses (in coastal lowlands).
  • Summer: Snow melts, bushes bear berries, flowers bloom.
• Fauna:
  • Scanty diversity.
  • Examples: Reindeer (depend on pastures), Arctic foxes, wolves, polar bears, musk-oxen, arctic hares.
  • Birds and insects migrate in summer.
• Human Life:
  • Sparsely populated, mainly confined to coast (plateaus/mountains uninhabitable).
  • Nomadic tribes: Eskimos/Inuit (Greenland, North Canada, Alaska), Lapps (North Finland, Scandinavia), Samoyeds (Siberia), Yakuts (Lena Basin), Koryaks, Chuckchi (North-Eastern Asia).
  • Subsistence: Hunting and fishing (whales, seals, caribou, fish, birds, fur-bearing animals) for food, clothing, tools.
  • Shelters: Igloos (dome-shaped temporary snow shelters) in winter; portable tents (animal skin) in summer.
  • Transportation: Sledges (slide over snow, pulled by dogs).
  • Modernization: Contact with Europeans has brought modern amenities, speedboats for fishing, schools for children.
  • Economic Activities: Commercial rearing of fur-bearing animals, reindeer farms (Siberian Tundra). Limited cultivation of cereals with short growing season in southern Tundra. Mining leads to new settlements.
• Climate Change Impact:
  • Tundra is adversely affected by global warming.
  • Permafrost melts considerably, affecting ecosystem and environmental equilibrium.

Chapter 4: Consumer: Rights and Protection

Market, Consumption, and Utility

• Market: Place where sellers and buyers establish close links.
• Consumption: Buying and using goods/services to fulfil needs.
• Consumer: Someone who buys and uses goods/services for a price.
• Factors influencing consumption: Price, income, utility, quality, etc.
• Consumer Satisfaction: Main objective of economic activities, but subjective and hard to quantify.
• Utility: The want-satisfying power of a commodity/good. Measured in utils (Alfred Marshall's attempt at quantification - Cardinal Utility Theory).
• Total Utility (TU): Total satisfaction from consuming several units.
• Marginal Utility (MU): Change in total utility from consuming one additional unit.
• Law of Diminishing Marginal Utility: MU declines as consumption increases, keeping other commodities constant.
• Assumptions/Limitations of Cardinal Utility Theory: Products same quality, consumer income/tastes constant, continuous consumption, fixed quantity/quality units.
• Utility vs. Usefulness: All goods have utility, but not all are useful (e.g., cigarettes).
• Utility is individual-based, varies by place/time.

Types of Goods and Services

• Free Goods: Abundant, freely available, no payment (e.g., sunlight, air).
• Economic Goods: Purchased for a price, manufactured or collected (e.g., food, vehicles, clothes, minerals).
• Consumer Goods: Final goods used by consumers to satisfy wants, not for further production (e.g., food, vehicles).
• Capital Goods: Physical products used in production of other products (e.g., factory, machinery). Can also be consumables.
• Durable Goods: Last long, reusable (e.g., house, footwear, table).
• Non-Durable Goods: Used for short period (e.g., milk, vegetables).

Consumer Awareness and Protection

• What to check when buying: Quality, expiry date, price, warranty, safety standards.
• Importance of Bill with GST number: Protects consumer rights, ensures social commitment.
• Goods and Services Tax (GST): Implemented July 2017 (101st Amendment), aims for "One Nation, One Tax," various rates (5%, 12%, 18%, 28%), 50% SGST (State), 50% CGST (Central).
• Consumer Exploitation: When consumers are duped due to lack of understanding of product issues. Scams are violations of consumer rights.
• Consumer Protection Movement: Social movement to protect rights and welfare of consumers.
  • Origin: Consumer Guidance Society of India, Mumbai (1966).
  • Objectives: Protect rights, prevent frauds, empower consumers, legislate, ensure ad credibility, ensure consumer representation in forums.
• Consumer Protection Acts:
  • Consumer Protection Act 1986: Followed UN Resolution (1985), defined consumer rights, established separate judicial system. 24th December is National Consumer Day.
  • Consumer Protection Act 2019: Replaced 1986 Act (effective July 2020), empowering consumers.
    • Features: Established Central Consumer Protection Authority (CCPA), covers unfair e-commerce practices, simplifies dispute resolution, punishes adulteration/counterfeit goods, prohibits misleading advertisements, guarantees right to consumer education.
• Other Laws: Food Safety Act 2006 (food quality).

Consumer Rights and Courts

• Consumer Rights:
  • Right to Safety: Protection from goods/services threatening life/property.
  • Right to Choose: Choose goods/services at competitive prices.
  • Right to Know: Know quality, quantity, purity, price to prevent unfair trade practices.
  • Right to Seek Redressal: From unfair trade practices/exploitation.
  • Right to Consumer Education: Acquire knowledge/skills to be informed consumer.
• Consumer Courts:
  • History: Started with 1986 Act, tribunals for speedy resolution.
  • Structure (3-tiers):
    • District Consumer Disputes Redressal Commission: Compensation up to Rs. 1 crore.
    • State Consumer Disputes Redressal Commission: Compensation Rs. 1 crore to Rs. 10 crore.
    • National Consumer Disputes Redressal Commission (NCDRC): Compensation exceeding Rs. 10 crore (Apex body).
  • Role: Intervene in disputes, provide justice and redressal.
  • Advisory Committees (3-tiers): District, State, National Consumer Protection Councils (advise governments on consumer rights).
• Quality Symbols (on product labels):
  • ISI mark: Bureau of Indian Standards (BIS) for industrial products.
  • AGMARK: For agricultural and forestry products.
  • FSSAI: Ensures food security.
• Consumer Carelessness/Ignorance: Often causes consumers to be cheated.
• Consumer Education: Educating consumers about rights, responsibilities, product choices, markets, and laws.
  • Objectives: Protect rights, awareness of responsibilities, safety in trade, market ethics/regulations, awareness of protection laws, health safety, consumer justice.
  • Promotes awareness, self-protection, prevents frauds.
  • Means: Curriculum, online courses, consumer clubs in schools.
• Sustainable Consumption and Development: Developing mindset to consume only necessary goods, providing opportunity for others, ensuring ethical practices.
• Helplines: State Consumer Helpline website and phone numbers (1800 425 1550, 1967, 1915).

Chapter 5: Money and Economy

Money and its Functions

• Money: Anything accepted in the exchange of goods and services.
• Importance: Facilitates exchange, makes specialization possible.
• Influence: Impacts consumers, producers, suppliers.
• General Functions of Money:
  • Medium of Exchange: Goods/services sold for money, money used to purchase needs; crucial for countless transactions.
  • Measure of Value: Value of all goods expressed in monetary terms; easy to compare values; value of money is its purchasing power (decreases with price increase, increases with price decrease); felt during inflation/deflation.
  • Store of Value: Possible to store value of goods (even perishable items) as money or assets for future use (not possible in barter system).
  • Means of Deferred Payments: Settling financial transactions at a later date, useful for short/long-term business.
• Characteristics of Money: Generally recognised and accepted, durable.
• Money's Role in the Economy:
  • Stimulates economic activities: Production, distribution, consumption.
  • Accelerates functioning: Each currency spent changes hands repeatedly, increasing transactions.
  • Velocity of Circulation of Money: Number of times a unit of money is exchanged in a period. High velocity indicates accelerated economic growth, low velocity indicates slowdown.

Banking System in India

• Central Bank: Reserve Bank of India (RBI)
  • Ultimate authority of money in India, headed by Governor.
  • Establishment: April 1935 (under RBI Act 1934), headquarters shifted to Mumbai (1937), nationalized (1949).
  • Regulates and coordinates banks and non-banking financial institutions.
  • Functions of the Reserve Bank of India:
    • Printing and Issuing Currency: Sole power to print/issue all currencies except coins and one rupee notes (Ministry of Finance handles these). Responsible for design, security features, distribution. Can withdraw notes from circulation (demonetization).
    • Bankers' Bank: Provides emergency loans to commercial banks, maintains their reserves, settles inter-bank transactions.
    • Controls the Supply of Money and Credit: Manages inflation.
      • Inflation: Increase in general price level when money supply increases disproportionately to goods/services. Measured by Consumer Price Index (CPI). RBI controls inflation to prevent decrease in purchasing power and adverse economic growth.
      • Money Supply (M1, M2, M3, M4): Different measures of total money in the economy (coins/currency, savings/fixed deposits in commercial banks/post offices). M1, M2 are narrow money; M3, M4 are broad money.
      • Credit Control Measures:
        • Quantitative Measures:
          • Repo Rate: Interest rate RBI charges commercial banks for loans. (RBI increases to control inflation, decreases to stimulate economy).
          • Reverse Repo Rate: Interest rate RBI gives commercial banks for deposits.
          • Cash Reserve Ratio (CRR): Amount banks must keep as reserves with RBI. (RBI increases to reduce lending capacity, decreases to increase it).
          • Open Market Operations.
        • Qualitative Measures: Margin requirement, Moral suasion.
    • Acts as the Government's Bank: Maintains government accounts, provides banking services, implements financial management, advises on fiscal and monetary policy.
      • Fiscal policy: Regarding taxation and government spending.
      • Monetary policy: Regarding supply of money and interest rate.
    • Custodian of Foreign Exchange Reserves: Sum total of foreign currencies and gold reserves.
    • Publication of Reports: Banking Trends, Monetary Policy Reports, Consumer Surveys, RBI Bulletin.
• Commercial Banks
  • Definition: Licensed by RBI, provide banking services, included in Second Schedule of RBI Act 1934.
  • Ownership: Operations controlled by shareholders (vs. cooperative banks owned by members).
  • Types: Public sector, private sector, small finance, payment, specialized, regional rural, foreign banks. New generation banks emerged after 1990s reforms (Axis Bank, Mahindra Bank, Yes Bank, Indus Bank).
  • Main Functions:
    • Accepting Deposits:
      • Savings Deposit: Instills saving habit, restricted withdrawals, low interest.
      • Current Deposit: For business transactions, no limit on transactions, no interest, overdraft facility.
      • Term Deposit (Fixed Deposit): For money not needed immediately, higher interest than savings, reduced interest if withdrawn early.
      • Recurring Deposits: Fixed amount at regular intervals for specific period, higher interest than savings, lower than fixed deposits.
    • Lending Loans: Provide various loans to individuals/institutions (intermediaries between depositors and borrowers).
      • Keep portion of deposits as reserves, lend rest.
      • Charge interest (higher than paid to depositors).
      • Spread: Difference between interest charged to borrowers and interest paid to depositors (bank income).
      • Accept various collaterals (gold, land documents, salary certificates).
    • Other functions: Providing banking services (Credit/Debit Card, ATM, Locker Facility).
  • Banks and Technology:
    • Increases speed of transactions, 24/7 access.
    • Online/Mobile Banking: Access services via smartphones/computers.
    • NEFT (National Electronic Fund Transfer System): Easier, faster bank transactions using IFSC.
    • RTGS (Real Time Gross Settlement): For large money transfers, completed quickly.
    • Core Banking: Account holders can transact from any branch.
    • UPI (Universal Payment Interface): Real-time money transfers between bank accounts via mobile apps (Google Pay, Paytm, Phone Pay).
    • Cyber security challenges exist.
• Non-Banking Financial Institutions (NBFIs)
  • Definition: Operate in banking sector but perform only some bank functions.
  • Differences from Banks: Cannot accept savings/deposits from public, no cheque withdrawals.
  • Regulation: RBI, SEBI, IRDA, NHB.
  • Examples: Insurance companies (LIC, GIC), mutual fund companies (UTI), KSFE (Kerala State Financial Enterprises).

Sources of Credit and Financial Inclusion

• Sources of Credit in India:
  • Formal Sources: Organized, institutionalized, regulated (Banks, NBFIs, Self-Help Groups, Microfinance Institutions).
  • Informal Sources: Unorganized, non-institutionalized (Local Money Lenders, Friends, Relatives, Other Methods).
• Credit Deposit Ratio: Proportion of a bank's deposits used for loans, monitored by RBI.
• Financial Inclusion: Bringing banking services to common man, rural population, marginalized people for inclusive economic growth.
  • Nationalization of Banks: 14 banks in 1969, 6 in 1980.
    • Objectives: Expand rural banking, provide low-rate credit to farmers, ensure equitable credit distribution, prevent economic power concentration.
  • Co-operative Banking Systems: Crucial for rural economy.
    • Objectives: Inculcate saving habit, protect from private moneylenders, provide low-cost loans.
    • Kerala Bank: Formed by merging district co-operative banks (2019), operates with 823 branches, objectives include financial inclusion, rural development, support to marginalized.
  • Microfinance: Financial services to low-income individuals/families/businesses without access to conventional banking.
    • Goals: Poverty alleviation, women empowerment, entrepreneurship, job creation, quality of life improvement.
    • Examples: Grameen Bank (Bangladesh, Prof. Muhammad Yunus), Kudumbashree (Kerala).
    • Operation: Accept small deposits via Neighborhood Groups (NHGs), Self Help Groups (SHGs), provide loans.
  • Jan Dhan Account (Prime Minister Jan Dhan Account): Scheme to open zero-minimum balance accounts for all unbanked, promotes financial literacy, banking habit.
  • Digital Currency Promotion: Aadhaar-based payment system, e-wallet, National Finance Switch, to reduce physical currency and move towards cashless economy.