Economy and business in the news

Economic news puts many CLAT aspirants off. The pages are full of rates, basis points and deficits, and it is tempting to skip to the next section. That is a mistake. Economy passages in CLAT rarely need calculation or specialist knowledge. They need you to know what a handful of institutions do and what a few terms mean. Once those are clear, the news becomes a set of predictable stories told over and over.

This guide covers what to follow, the background you need, and a sample passage of the kind CLAT sets.

What to follow

• The Union Budget: the headline changes in taxes, spending and the fiscal deficit target.
• RBI policy announcements: changes (or no change) to the repo rate, and the reasons given.
• GST Council meetings: rate changes and major procedural decisions.
• Growth and inflation data: the direction of GDP growth and CPI inflation, not every decimal.
• Trade: free trade agreements, tariff disputes, major WTO developments.
• Regulators: significant orders or rules from SEBI, the RBI and other regulators.

The RBI and its tools

The Reserve Bank of India was established on 1 April 1935 under the RBI Act, 1934, and nationalised in 1949. Its headquarters is in Mumbai. For CLAT, focus on how it controls money and credit.

Worked example: the policy corridor

The SDF rate sits 0.25 percentage points below the repo rate, and the MSF rate 0.25 points above it. Suppose, as a purely hypothetical case, the repo rate is 6.00%.

1. SDF = 6.00 − 0.25 = 5.75%.
2. MSF = 6.00 + 0.25 = 6.25%.
3. The corridor is therefore 5.75% to 6.25%, a width of 0.50 percentage points.

If the RBI cuts the repo rate by 25 basis points (0.25 points) to 5.75%, the SDF moves to 5.50% and the MSF to 6.00%. The width stays the same; the whole corridor shifts down.

Budget and fiscal terms

• Annual Financial Statement (Article 112): the constitutional name for the Budget. It has been presented on 1 February since 2017, when the separate Railway Budget was also merged into it.
• Economic Survey: prepared under the Chief Economic Adviser and presented before the Budget.
• Fiscal deficit: total expenditure minus total receipts other than borrowing. It measures how much the government must borrow.
• Revenue deficit: revenue expenditure minus revenue receipts.
• FRBM Act, 2003: the law that sets targets for fiscal discipline.

GST

The Goods and Services Tax was introduced by the 101st Amendment (2016) and came into force on 1 July 2017. The GST Council, under Article 279A, is chaired by the Union Finance Minister and includes state finance ministers. In September 2025, the Council moved to a simpler structure built mainly on two rates, 5% and 18%, with a separate higher rate for a small set of luxury and "sin" goods (as of 2025).

Regulators and their seats

A sample CLAT-style passage

Until 2016, decisions on India's main policy interest rate were taken by the Governor of the Reserve Bank, advised by internal and external committees. That changed when an amendment to the RBI Act, 1934, created a statutory [1] and gave the RBI a formal inflation target.

The committee has six members. Three come from the Reserve Bank: the Governor, who chairs it, a Deputy Governor responsible for monetary policy, and one other officer. The remaining three are appointed by the Central Government for a term of four years. Decisions are taken by majority; when votes are tied, the Governor has a second or casting vote. The minutes of each meeting, including how each member voted, are published.

The inflation target is set by the Central Government in consultation with the Reserve Bank, once every five years. It has been fixed at 4 per cent inflation, measured by the Consumer Price Index, with a tolerance band of 2 percentage points on either side. If average inflation stays outside the band for three consecutive quarters, the Reserve Bank must report to the government, explaining the reasons, the remedial action it proposes and how long it expects the return to target to take.

The committee must meet at least four times a year; in practice it has met about six times a year. Along with its decision on the rate, it announces a stance, a signal of its likely direction. A stance described as accommodative suggests that cuts are more likely than increases; a neutral stance suggests the committee could move either way. Banks and markets often react as much to a change in stance as to a change in the rate itself.

The committee's main instrument is the repo rate. Raising it makes borrowing costlier across the economy and tends to cool demand and prices; cutting it does the opposite. Supporters of the framework argue that a clear target and a committee structure make policy more predictable and harder to influence for short-term political ends. Critics point out that inflation in India is often driven by food and fuel prices, which interest rates can do little to control in the short run.

Q1. Which body fills [1]?

(a) Financial Stability and Development Council (b) Board for Financial Supervision (c) GST Council (d) Monetary Policy Committee

Q2. According to the passage, how many of the committee's six members are appointed by the Central Government?

(a) Two (b) Three (c) Four (d) Six

Q3. The upper limit of the tolerance band described in the passage is:

(a) 4% (b) 5% (c) 6% (d) 8%

Q4. When a bank parks surplus funds with the RBI overnight without collateral, the rate it earns is:

(a) the repo rate (b) the Marginal Standing Facility rate (c) the bank rate (d) the Standing Deposit Facility rate

Q5. Which criticism of the framework does the passage mention?

(a) Food and fuel prices are hard to control through interest rates.
(b) The committee has no external members.
(c) Votes of members are kept secret.
(d) The target is changed every year.

Answers:

1. (d) The Monetary Policy Committee: six members, statutory, sets the repo rate.
2. (b) Stated in the second paragraph.
3. (c) A 4% target with a band of 2 points on either side gives 2% to 6%, so the upper limit is 6%.
4. (d) Background. The SDF is the uncollateralised deposit window and the floor of the corridor. The MSF is for borrowing, not depositing.
5. (a) Stated in the last paragraph. (b), (c) and (d) contradict the passage.

Common mistakes

• Confusing CRR and SLR. CRR is cash kept with the RBI; SLR is liquid assets kept by the bank itself.
• Mixing up the Finance Commission and the GST Council. See national affairs for CLAT.
• Memorising exact rates early. Rates change at every policy meeting. Learn what each tool does now; note the current values in the final month.
• Misreading basis points. 25 basis points is 0.25 percentage points, not 25%.

What to do next

• Reproduce the RBI tools table from memory.
• Work out the corridor for any repo rate you choose, both before and after a 25 basis point change.
• Note the headline decisions of the next RBI policy announcement and the next GST Council meeting.
• In the final month, note the current repo rate, CRR and SLR from the RBI's website.
• Read science, technology and space next.