Unit - 1 PLANNINGS Economic Planning: • Economic Planning means “It is an outline or broad statement of schemes on programmes designed to realize

certain pre-determined economic objectives, in a particular order of priorities, according to a strategy within a specified period of time is called Economic Planning.” If the government fallows the plans for the development of economy is called plan policy. USSR (Russia) was the first country introduced planning in the world in 1920. After grate economic depression all countries tried to implement Russian planning model. Netaji Subhash Chandra Bose was first recognized economic planning for India After the Second World War all the developed countries followed Russian economic planning model. Centralized Planning: The resources are allocated into different sectors and activities used to be done by the Central planning commission is called Centralized planning. Decentralized Planning: Plans prepare at various levels i.e. Central level by central planning commission, state level by state planning commission and district level by District planning commission and village level by Panchayati planning commission is called Decentralized Planning. Physical Planning: It means, if the resources are allocated in terms of men, materials and machinery is called physical planning. Financial Planning: If the resources allocated in terms of outlay it is called financial planning. Rolling Plan: A variant of short-term plans is what has come to be known as rolling plans. Two major aspects of rolling plans: first, in a rolling plan, the central outlay allotment for major sectors within the overall five-year plan targets will be fixed on a yearly basis. Secondly, the five year horizon (scope) will be extended each year by changing the select central targets for an additional year. Indicative Planning: It provides direction for the development of the economy by spelling (bring) out clear goals and providing help in reaching them. These types of plans started first time in France during 1947-50. Structural Planning: If the plans involve changing the socio-economic institutions it is called the structural planning.

• • • • • •

• • •


• • • • •

Long-run Plans: if the plans prepare for 10, 15, 20 and even more its called long run plan. This also called Perspective plans. Medium term plan: it covers minimum period is 3 to 5 years and maximum is 7 to 10 years. Short run Plan: It relates to as short a period as one year. Fixed term plans: if the plans fixed for particular period of time is called fixed term plan. Imperative Planning (Comprehensive Planning): This type of plans fallows the socialistic countries. In this model plans will not prepare according consumers. All economic activities will determined by Government. This is also called Compressive Plans.

Before 1950 Economic Planning in India: • • In 1934 M. Visweswarayya wrote “Planned for economy for India” and he prepared plans for 10 years to India. In 1938 Indian National Congress established National Planning Commission under the chairmanship of Pandit Jawaharlal Nehru. This commission estimated natural resources, Human resources, plan outlay in India. In 1943-44, in Bombay 8 important Maharastrian industrialists prepared a plan popularly known as “Bombay plan”. They prepared plan for 15 years to increase industrial, agricultural product and service product. This plan draft prepared under the chairmanship of Adarsh Dalal. In 1943-44 M.N. Roy prepared “Peoples Plan”, in which more importance was given to Agriculture, Village production based on Ghandhian ideology. This plan was given more importance to increase double per capita income in 10 years. In 1944 S.N. Agarwal prepared Ghandhian Plan based on the Gandhi ideology. This plan was given more important to small scale industries, Labour intensive method and rural development. In 1944 government established Planning and Development department under the chairmanship of Adarsh Dalal. In 1946, interior government established advisory planning council under the chairmanship of K.C. Niyogi to study and discuss the problems of plans and development. In 1948, National Planning Commission recommended to Planning Commission as advisory body. In 1950 Jayaprakash Narayana prepared Sarvodaya Planning. This plan was given more important to agriculture, industries.

• • • • •


Features of Indian planning: • • • • • Indian planning is based on mixed economy where public and private sectors both existed in economy. Indian plans are preparing based on market oriented decisions planning. Indian plans are based on Capital accumulation. Centralized Planning followed in Indian planning till the 7th Plan. Since 8th plan Indicative Planning following in Indian Planning.

Planning Commission: • • • • • • • • • • • • • • • • To achieve directive principle of state policy targets planning commission established with parliament act. Planning commission established as advisory body. Prime Minister is the ex-officio chairman to the planning commission. One Deputy Chairman Will appointed to planning commission with cabinet status. He will act permanent executive officer. Prime Minister Economic Advisory Council is a nodal agency to planning commission. Present Prime Minister Economic Advisory Council chairman is Dr. C.Rangarajan. Planning Commission is established on March 15, 1950 in India by the Parliament Act, so it is not a Constitutional body and it is non – statutory body. Planning Commission is only Advisory Body to government of India. The executive head or permanent employ to Planning Commission is Deputy Chairman. Programme Evolution Organization (PEO) and National Informatics Centre (NIC) are affiliated bodies to Planning Commission. PEO established in 1952 based on the government of India and Ford Foundation Act. PEO will report various types of development activities to Planning Commission. NIC provide information and technological machines to Planning Commission. National Development Council (NDC) constituted on August 6, 1952. It is also non-statutory body and non constitutional body. National Development Council constituted based on the recommendation of Advisory Planning Council which was headed by K.C. Niyogi (1946). Prime Minister is the Chairman of National Development Council.


• • • •

Planning commission members, all states, Pondcherry and Delhi Chief Ministers and Union Territories Administrators are the members of National Development Council. After 1967 all central cabinet ministers are the members in National Development Council. Planning commission is preparing plans and this draft is sending to National Development Council and after assent of National Development Council plans are implanting by the government. Andhra Pradesh Planning Board established in 1974.

Strategies in Indian Planning: Harrod – Domar Strategy: • • • • • • During the first five year plan this strategy followed in India Harrod and Domar both gave more important for capital accumulation According then capital accumulation have double character. The capital accumulation can increase income one side and anther side production increases. They tried to increase full employment in the long-run period Harrod wrote one book called Towards a dynamic economics in 1959 In the Harrod model 3 main concepts are there 1. Actual rate of growth (G) 2. Warranted rate of growth (GW) 3. Natural rate of growth (GN) According Harrod growth rate = S/COR S= Saving COR= Capital output Ratio Domar wrote the fallowing books 1. Capital expansion 2. Rate of growth and employment 3. Essays in the poverty of economic growth He gave more important dual investment character According him investment increases productivity and real income also increases According him full employment get equilibrium when aggregate demand is equal to aggregate supply

• • • •

• • •

P.C.Mahalnobis: • Mahalanobis 2 sector model implemented during 3rd and 4th five ear plan India • Mahalanobis 4 sector model implemented during 2nd, 5th, 6th and 7th five year plan.


Gandhian Strategy: This strategy implemented during rolling plan from 1978-79 to 1980-81. Rao-Manmohan strategy: This strategy is also called Liberalization, Privatization and Globalization (LPG model). This policy is also called new economic policy. Since 8th five plan plannings are preparing based on LPG model. PURA: • PURA prepared by A.P.J.Abdulkalam in 2003. • PURA announced by government on August 15th, 2004. • Since 2005 plans are preparing based on PURA strategy in the part of Bharaat Nirman programme. Objective of Indian planning: Each and every plan having their own objectives. Along with that’s objectives Indian planning having common objectives to follow in every plan. • Growth: By increasing faster growth of economy in case of capital goods and consumption goods. • Modernization: Institutional changes and shifting feudal and colonial economy to progressive and independent economy • Self-Reliance: The reduction and ultimately elimination of dependence on foreign aids and increase exports to earn foreign reserves for imports. • To reduce regional imbalance and income inequalities • Economic and Social Justice Plans are necessary for the country to achieve Socio Economic justice of the people. In India plans are preparing for five years, so our plans are calling as five year plans. In India five year plans are implementing since April 1, 1951. Financial resources to plannings in India: India planning commission is mobilizing resources through 3 ways. One is domestic resources, foreign sources and deficit financing. Domestic sources: • Taxes • Production of goods and services • Gifts • Disinvestment • Public enterprises 5

• •

Land Administrative income and others

Foreign sources: • World Bank • International Monetary Fund (IMF) • Asian Development Bank (ADB) • Other international banks • Foreign governments and foreign institutions and foreign individuals Deficit financing: • Currency printing • Domestic loans First Five year Plan: • • • • • • • • • • • • • • • • • • • • • • First five year plan period was April 1, 1951 - March 31, 1956. This plan was given more important to Agricultural sector. Increase of food production and correction of disequilibrium in the economy caused by the Second World War and partition of India are the other importance of this plan. First five year plan called as Agriculture and irrigation plan. This plan was prepared based on the Harrod- Domar model. First five year plan proposed outlay was Rs 2378, but actual expenditure was Rs 1960 and private sector investment was Rs 1800. This plan was allocated 31% funds to Agricultural sector. This plan target growth rate was 2.1%. This plan actual growth rate was 3.6%. Food grain production target was 61.6 million tones but actual production was 65.8 million tones from 52.2 million tones. Irrigation facility providing target was 70.7 million acres but actual irrigation facilities provided only 56.2 million acres. Industrial growth rate during this plan was 3.8%. Electricity production target was 3.6MKW but actual production was only 3.4MKW. NI Target was 11% But actual growth rate was 18% Per capita income also increased 11% (from Rs. 246 to Rs. 274) Per capita consumption level increased to 8% during this plan. During this one locomotive Rail factory at Chittaranjan in West Bengal established. Hindustan Cable industry at Durgapur in WB. National Instruments Factory established at Calcutta Fertilizer factory at Sindhri in Jharkhand established. Hindustan Ship yard at Vishakhapatnam. Integral Coach Factory established at Perambadur in Tamilnadu. 6

Details of Public Sector Outlays of First Five year plan: S. Public sector proposed outlay was Rs 4800 cores but actual expenditure by the Government was only Rs 4672 cores and Private sector investment under this plan was Rs 3100 cores. Provide more employment opportunities.5 million hectors to 28 million hectors.7 MKW.• • • • Hindustan Machine tools established at Mysore in Karnataka. 7 . In 1952 Community Development Programme (CDP) started to over all the development of villages with people participation. In core) Community 291. Power production increased from 3. This plan known as Industrial and Transport plan This plan gave more important to Public sector than the Private sector.00 Agriculture and Development Large & medium irrigation Power Village and small scale Industry Industry and minerals Transport & Communication Social services and others Total Second Five Year Plan: • • • • • • • • • • • • • • • Second five year plan period was April 1. 27% funds were allocated to Transport and Communication. Food grain production increased from 65 MT to 75 MT (it is 15%).NO 1 2 3 4 5 6 7 8 Sectors Expenditure Percentage (Rs.5% but actual growth rate was only4.00 459.00 27.00 16.00 4. Indian Telephone Industry established at Bangalore.00 23. reduction income inequalities and economic distribution power were other important objective of this plan.00 310.C.00 15. Bakra-nagal project was constructed during this plan. Around 9 million jobs created during the plan period General prices level increased 30% during this plan. This plan was prepared based on the P.00 43. This plan was given more important to Rapid industrialization with special emphasis on basic and Heavy industries.00 260. Mahalanobis model.00 100.00 1960.3%.4 MKW to 5. 1961.00 13.00 2. This plan targeted GDP at 5% and later reduced to 4. Irrigation increased from 22.00 74.00 523. 1956 – March 31. Per capita growth rate was 2%.

8%. Indian Iron Company and Mysore Iron and Steel Company further increased. One Industrial resolution based on socialistic economy introduced in 1956 popularly known as 1956 Industrial Resolution Policy.00 11. This plan was prepared based on the Ashok Mehata model.1% of funds allocated for heave and small scale industries.30 100. In 1960 Durgapur Iron and Steel industry in West Bengal with cooperation of United Kingdom established.00 1261.00 4672.NO 1 2 3 4 5 6 7 8 Sectors expenditure Percentage (Rs. This plan was given more important to Self-reliance.2% 8 . Self-sufficiency in food grains and substantial expansion of employment opportunities.5 million Employment opportunities provided during this plan. In core) Community 549. NI per annum target was 6% but it was declined too 4.00 9. 9.00 20. 1966. Heavy engineering industry established at Ranchi in Jharkhand.70 4. 1228KM of new rail lines & 3520KM of new roads were constructed Rs.6%. but actual growth rate was only2.00 855. Details of Public Sector Outlays of Second Five year plan: S.00 452.00 938.00 18. Production capacities of Tata Iron steel company. In 1959 Bhilai iron and steel industry in Chattisgarh Pradesh with cooperation of former USSR established during this plan.20 9.00 187.00 Agriculture and Development Large & medium irrigation Power Village and small scale Industry Industry and minerals Transport & Communication Social services and others Total Third Five Year Plan: • • • • • Third five year plan period was April 1 1961 to March 31.70 430.10 27.• • • • • • • • • • 24. 948 cores currency was issued during this and this was caused to high inflation during this plan. In 1955-56 agreement over and established during second five year plan the Roorkela iron and Steel industry in Orissa with cooperation of West Germany established. Targeted GDP growth rate was 5.

00 8577. 9 .NO 1 2 3 4 5 6 7 8 Sectors Agriculture and Community Development Large & medium irrigation Power Village and small scale Industry Industry and minerals Transport & Communication Social services and others Total Expenditure Percentage (Rs.40 100.10 24. Government planned to reduce poverty.8577 cores. Currency (Rupee) is devaluated in this plan.00 1493.60 17.7%. but actual growth rate was only 5. Total investment during this plan was Rs.00 1252.70 664. because of these reasons Government diverted funds foe defence purposes and the development programmes could not be properly implemented. Public sector proposed outlay was Rs.00 241.• • • • • • • • • • • • Food grain production was targeted at 6% but actual growth rate was only 2%.00 7. Industrial annual growth rate target was 14%. 2nd and 3rd five year plan government fallowed Trickle down Theory. This plan was failure due to War with China in 1962 and War with Pakistan in 1965 and failures of monsoons.7500 cores but actual expenditure was Rs.00 1726. In cores) 1089.4100 cores. unemployment and income in equality reduces if economic growth increases this concept is called Trickle down theory.80 20. In 1964.00 2112.80 14. Trickle down theory means government gave more important to increase economic growth.60 2.12677 cores.00 In 1st.00 12. In 1963 National Co-operative Development Corporation (NCDC) established In 1963 Agriculture Refinance Development Corporation (ARDC) started In 1964 Unit Trust of India (UTI) and Industrial Development Bank of India (IDBI) established In 1965 Food Corporation of India (FCI) and Agricultural Price Commission (APC) established Details of Public Sector Outlays of Third Five year plan: S. Private sector investment was Rs. Bokaro iron and Steel industry at Bokaro in Jharkhand state established with cooperation of Russia.

10 . Agricultural production increased from 76MT in 1966-67 to 95. 2.2% during 196768 and 7% during 1968-69. 1968-69 Annual plan outlay was Rs. Growth rate in GDP increased 1. Gadgil model. 1969 to March 31.2221 cores. To remove the strains in the economy arising from many unforeseen events during the third plan. Leontiff input and output model implementing since 4th five year plan in India. 1974. The main objective of Annual Plans are: 1. 1969) known as plan holiday in Indian planning period.1MT in 1967-68 and 98MT in 1968-69.8% during 1966-67. • • • • • • • • • • Fourth Five Year Plan: • • • • Fourth five year plan period was April 1.2377 cores. To secure a feasible growth rate without generating inflationary pressures in the economy. This plan given more importance to Attainment of Economic stability and Self-sufficient in food grain production. To have fuller utilization of the infrastructure already created during previous plan periods.2246 cores. Some time stopped five year plans and implemented 3 Annual plans by replacing five year plan.Annual Plans: (1966-1969): • • • • Due to failure of third five year plan Government of India did not implemented fourth five year plan. This period (April 1. These three annual plans paved the way for removing the strains on economy caused by failure of the Third plan.9% during 1967-68 and 10.1% during 1966-67. 1967-68 Annual plan outlay was RS. 3. Annual plans given more importance to irrigation and Agriculture sector and to control inflation y increasing agricultural production. 9.R. Industrial growth rate was 2.2% during 1968-69. 2. 1966-67 Annual plan outlay was Rs.2081 core and further increased to Rs. In 1968 government started National Textile Corporation. This plan prepared based on the D. In 1969 Lead bank scheme started based on the recommendation of Nariman committee. 1966 to March 31.

7%.15902 cores. Industrial target growth rate was 8-10%. In 1969 Rural Electrification Corporation started In 1973 Foreign Exchange Regulated Act (FERA) made by the government. At the end of fourth plan then and now Prime Minister Mrs. And Private sector investment was Rs.3%.15779 cores. Total investment during this plan was Rs. Pilot Intensive Rural Employment Programme (PIREP) introduced in 1972-73 for construction work in village.24759 cores. 11 . Public sector proposed outlay was Rs.8980 cores. Per capita target growth-1%. Indira Gandhi gave slogan of “Garibi Hatavo” to eradicate poverty in India. Drought Prone Areas Programme (DPAP) introduced in 1973-74 to develop natural resources in drought prone areas.9%. Exports target growth rate. which was almost lost due to the failure of Third five year plan . Food grain production increased from 98 MT to 125MT. In 1970-71 Rural Works Programme started In 1971 North East Council established Crash Scheme for Rural Employment (CSRE) introduced in 1971-72 for rural development through the generation of new employment.7%. but actual expenditure was Rs. During the fourth plan general prices increased to 61%.• • • • • • • • • • • • • • • • • • • • • • • • • Social and economic justice by providing more employment opportunities to weaker sections and balanced regional development to generate the confidence among the people in planning. In 1972-73 employment guarantee scheme in Maharastra started by central government. but actual growth rate was only 3. During this five year plan government implanted 6 points formula for backward development area and started regional development boards. GDP target growth rate-5. In 1973-74 Marginal Farmers and Agriculture Labour Agency (MFALA) started. In 1974-75 Small Farmers Development Agency (SFDA) started In 1972-73 there was surplus in Balance of Trade In 1969 July 14 banks were nationalized In 1969 Monopoly Restriction on Trade and Practice (MRTP) act made to decentralize the economic concentration. Agricultural target growth rate was 5%. but actual growth rate was only 3.

20 points formula stared. 12 .00 18.70 Irrigation and Flood Control 1354. but actual growth rate was 5%. 2.00 18. 1974 to March 31. Details of Public Sector Outlays of Fourth Five year plan: S. SelfReliance.50 Social services and others 2986. This plan prepared based on the D. but did not reach.5% but it reduced to 4. to control Inflation and Reduction of Economic Inequalities.4%. National Income target growth rate was 5. 4. To control Steel plants Government of India established Steel Authority of India Limited (SAIL) in 1973. Electricity production growth rate was 9%. The following industries established during the fourth five year plan--------1.P.NO 1 2 3 4 5 6 7 8 Expenditure Percentage (Rs. Vishaka Steel plant at Vishakhapatnam in Andhra Pradesh.00 18.Dhar Model.00 1.60 Power 2932. Salem Steel plant at Salem in Tamilnadu. but actual growth rate was 4. In core) Agriculture and Related Area 2320.5%. Alloy Steel plant at Durgapur in West Bengal.20 Transport & Communication 3080.• • • In 1974 Andhra Pradesh Planning board established. During this five year plan RRBs established on 2nd October. Vijayanagaram Steel plant at Vijayanagaram in Karnataka.90 Total 15779. In 1974 Minimum Needs Programme was started. Food grain production target was 125 MT. But Janata Government terminated before one year. GDP target first was 5.58%. 3.00 19.2%.50 Industry Industry and minerals 2864.3%. Agriculture growth target was 3. 1st July.60 Village and small scale 243. 1975. Industrial growth rate was 6.00 100.83%.00 8.00 14. but actual growth rate was 4. This plan was give more importance for poverty eradication. 1979.00 Sectors Fifth Five Year Plan: • • • • • • • • • • • • • Fifth five year plan period was April 1. 1975.

But overall satisfactory is good.00 18.877.5830 Cores taken the foreign aid. The fifth plan started with problem and ended with problem.426.00 9. 000 cores.865. only within four years span (1974-78) and introduced a new plan since April 1.400. 426Cores.80 7. Rolling plan period was 1978-1980. but actual expenditure was 39. In 1976 National Population Policy first time announced by the central government.• • • • • • • • • • S. This plan was named as the Rolling plan.40 3.39.00 17. Janata Government came into power in March 1977 and terminated fifth five year plan one year before i. 13 . but due to low level production and rapid population growth resulted in a increase of prices and inflation.40 6833.00 100.00 Rolling Plans: • • • • • • • The Janata Government ended the fifth five year plan one year earlier to its term i.00 24.30 6870. Self-reliance was one of the objectives of the plan but during this plan Rs. 1978. In 1977 National Institute of Rural Development established at Hyderabad.00 17. In 1977-78 Food for Works Programme started by government In 1977-78 Antyodaya Yojana started by central government in Rajasthan state Sectors Agriculture and Related Area Irrigation and Flood Control Power Industry and minerals Transport & Communication Social services and others Total expenditure Percentage (Rs. Ghandhian Strategy was fallowed during the Rolling plan.NO 1 2 3 4 5 6 7 Total public sector outlay was Rs. Exports were encouraged in this plan. Rolling plan given more important for village and cottage industries. 1978. 893 cores funds allocated for the development programmes.00 12. the sixth plan was initially started for 5 years (1978-83) on April 1. In the first phase of this rolling plan.e.80 9581. 19.e.3 39. after four years it was completed and started the concept of rolling plan. The concept of rolling plan was introduced by Gunnar Myrdal in Asian Drama. In core) 4.

2%.7%. 6. To provide basic need like drinking water.Rural Landless Employment Guarantee Programme (RLEGP).5% In 1980 total 6 banks were nationalized.National Agricultural Bank for Rural Development (NABARD). To reduce inequalities in income and wealth. Industrial production of target growth rate was 7%. 1980-(National Rural Employment Programme (NREP). To bring a rise in the standard of living of the poorest of the masses. Sixth Five Year Plan: • • • • Sixth five year plan period was April 1. 3.T Lakdawala model prepared during the sixth five year plan The main objectives of the sixth five year plan were elimination of unemployment. 2. 8. but actual growth rate was 5. 1982. 14 • • • • • • • . Food grain production target was 154 MT.5 MT. health care and roads to rural areas. but actual production was 151. September 1982. July 12. 1980 Oct 2. NI annual average growth rate was 5%. 1985. PCI Increased around 3. In 1979 Training for Rural Youth Self employment programme started but this was merged with Swarna Jayanthi Gram Swarajgari Yojana in 1999.• • • In 1980. Other objectives: 1. 4. GDP target was 5. but actual growth rate was 5. 1980 to March 31. 5. To achieve higher rate of growth of economy by way of optimum utilization of available resources and by improving productivity.Integrated Rural Development Programme (IRDP).1%.Development of Women and Child in Rural Areas (DWACRA). eradication and poverty. According planning commission (in 1979) poverty line means 2400 calories per day consumption in rural area and 2100 calories in urban area decided. D. In 1982 EXIM bank established August 15. Actually this programme was introduced in 1978-89 but implementing since 1980. higher rate of economic growth and self-reliance in technology. 7. the sixth plan (rolling plan) prepared by the Janata Government was abandoned by the congress Government and a new sixth plan was introduced for the period 1980-85. 1983.

In core) Agriculture 6624.292. information 3.00 10. Bramhanada wage good model.09.00 6. • This plan target to reduce the poverty was 30%. reduction of poverty.00 0. Establishment of an independent self sufficient economy. 1985. unemployment and regional imbalances. 3.40 Special area programme 1580. 09.917 14.50 Transport 14. 210 cores.00 Energy 30.40 Irrigation and flood control 10930. Establishment of the social system based on equality and justice.• February.90 Social Services 15. Environmental protection.80 Total 1.NFRD (National Fund for Rural Development). 500 cores. 1990. 2.10 Industries and minerals 16.IRBI (Industrial Reconstruction Bank of India). 15 . 751.00 15. 72.00 3.00 28.00 6. The main objectives of this planning were promotion of efficiency through modern technology and productivity. • Total sixth five year plan outlay was 1.00 13. • In 1984 government established Gas Authority of India Limited (GAIL) to protect oil resources. • Private sector investment was 74. • March. Other importance: 1.60 Others 848.00% Sectors Seventh Five Year Plan: • • • • Seventh five year plan period was April 1. 292 cores.NO 1 2 3 4 5 6 7 8 9 10 11 12 expenditure Percentage (Rs.00 Communication. but actually poverty reduced to 37%. 1984.10 Rural development 6997. 208. 1985 to March 31. S.00 0.00 100. 948. • Public sector outlay was 97. 469. 710 cores.20 and broad costing S&T 1020. This plan prepared based on the Vakil and Prof. But actual expenditure was 1. • In 1985 government made Sick Industrial Company Act (SICA) • At the time of 1980 poverty was in India was 47%.00 1.

DWACRA and IRDP were merged.5 MT in 1985.60 16.789.000 cores.590. In 1985-86 Integrated Crop Insurance Programme started In 1986 September Council for Advancement of People in Action and Rural Technology (CAPART) established at New Delhi. In 1986 speed post system started in postal department. but actual growth rate was 6. Private sector investment was 1.548.960.00 5.00 0. And in this programme NREP.17 MT.00 34. Electricity generation capacity increased from 47705 MW (1985) to 58080 MW in 1989.80 15.00 7.00 1514. Sectors Agriculture Rural development Special area programme Irrigation and flood control Energy Industries and minerals Transport Communication S & T and Environment Economic services Social Services General services expenditure Percentage (Rs.00 1.40 2.00 1.00 3470.220.0%. NRY started to provide employment facilities in urban areas.00 13. In core) 12.41 MT in 1987-88.00 7.50 8. Food grain production wax 151.426. 148 cores. it was reduced to 138. RLEGP.60 61.70 16 .NO 1 2 3 4 5 6 7 8 9 10 11 GDP target growth rate 5.246. But at the time ending of this plan (1990) it increased to 172. Total out lay was 3. 80. Industrial growth rate was 6%. And in this programme SEPUP merged.40 29. 1989 September.148 cores..00 3.10 29.• • • • • • • • • • • • • • • • S.0%.90 3024. In 1986 Self Employment Programme for the Urban Poor (SEPUP) started In 1988 Million Well Scheme started In 1988 Security Exchange Board of India (SEBI) established 1989 April JRY – started to provide employment facilities in rural areas.250.00 13.00 28.793. But actual expenditure was 218730 cores. 68. Public sector outlay was 1. In 1986 government announced new educational policy and established Navodaya schools and government gave important to technical education.00 16. 48.00 1.

gas. Indicative planning implemented since 8th five year plan onwards. Highest growth rate was occurred in 8th five year plan. Mining and quarrying target growth rate was 8. In 1993 PMRY (Prime Minister Rojgar Yojana) started to provide self employment facilities for educated unemployers. Strengthening of infrastructure.1%. Eighth Five Year Plan: • • • Eight five year plan period was April 1.730. 2. 8. • In 1990 government started inter state council • In 1990-91 Urban Poor Basic Service for the development of poor in urban areas started.4%. GDP target growth rate was 5. Per capita income target was 3. 1992 to March 31. 17 .12 13 Total 2.1% Actual growth rate was 4. Other importance: 1.00 100.5%.8% but actual growth rate was 7. 5.5% but actual growth rate was 9. 6. • In 1991 congress again came into power and stared the 8th five year plan.6% and actual growth rate was 6.18. 9. 7.3%. 3. 1997. Manufacturing target growth rate was 7. water supply target growth was 7. full employment and rural development. 8th five year plan given more important for HRD.00 Prof Raj Krishna described the 7th five year plan as Hindu rate of growth Annual Plans: • Due to political instability and crisis in BOP five years plans could not implemented during 1990-92. Provision of safe drinking water and health care system. Electricity. Universilization of elementary education and complete eradication of illiteracy among the people within 15 to 35 years.8%.8% but actual growth rate was 4. • In 1990 SIDBI (small industrial development bank of India) started by government for the development of small scale industries. 10. • In 1991 government announce economic reforms in India. 4.

00 1.00 5.90 Special area programme 6750.34.6% 8.000 cores.926. Private sector investment was 4.100 cores.80 S & T and Environment 9.00 1.00 26.20 Total 4.1% Total plan outlay was 7.80 Transport 55.00 5.00 Ninth Five year Plan: • • • Ninth five year plan period was April 1.60 Irrigation and flood control 32. In core) Agriculture 22.525.50 services Social Services 79.9% 11.90 Communication 25.15.8% 24.7% 1.00 100.00 18. 1997 to March 31.320.50 Energy 1.00 10.00 2.20 Rural development 34.00 7.10 General and Economic 6. 37.No Economic indicators 1 Domestic Saving Rate at GDPFC 2 Investment rate at GDPFC 3 ICOR 4 Export growth rate (annual) 5 Import Growth rate (annual) 6 BOP deficit in Current A/C (annual) • • • • S. Rural development and Agriculture. 100 Cores. 34. First time private sector investment crossed the public sector investment.9% 3. 98.00 7. 61.100.1% 13.012.N O 1 2 3 4 5 6 7 8 9 10 11 12 Target 21.Economic Indicators of the 8th five year plan: S.4% 1.561. But actual expenditure was 4. Sectors expenditure Percentage (Rs. Other importance: 18 .2% 4. 2002.110.467.60 Industries and minerals 46.042.7% 11.6% 23. More importance given to Growth with social justice and equality.922. Public sector outlay was 3. 100 cores.00 12.6% Actual 23.425.

839 cores spent by states and union territories (57:43 ratio by center and states).965.2% 5.1% 4.00 3. 05. Public sector outlay was 8. 41.1% 28. Faster growth rate of the economy with stable prices. But actual growth rate was 5.361 cores spent by center and 3.6% 5. But actual expenditure was 9. 75. 59.8% Actual 23. • • • • • • • • • 1997-98 annual growth rate 1998-99 annual growth rate 1999-2000 annual growth rate 2000-2001 annual growth rate 2001-2002 annual growth rate Average for five years Agriculture sector growth rate Industrial sector growth rate Services sector growth rate was 4.45 19 .5% 6. In core) 37.959 cores.8% 10. Reduction of the growth rate of population.8% Economic indicators of the 9th five year plan: S.5%. in 1997 government started Targeted Public Distribution System (TPDS) to improve public distribution system in the country. Private sector investment was 12. 63.3% 24.0% 14. To provide nutritional food for weaker sections To provide basic needs.1.8% 6. 4. 2.000 cores.96 88.239. Sectoral allocation of public sector during 9th five year plan: S. 3.2% 4.5% 12.2% • Total 9th five year plan outlay was 22.4% 2.200 cores out this 4.00 9. 69. 5.5% 7.No Economic indicators 1 Domestic Saving Rate at GDPFC 2 Investment rate at GDPFC 3 ICOR 4 Export growth rate (annual) 5 Import Growth rate (annual) • • Target 21. but it was reduced to 8.000 cores.041 cores.1% 4. GDP target rate was initially 7% and later it was changed to 6. 89.35% 11.N O 1 2 Sectors Agriculture & related Rural development expenditure Percentage (Rs.4%. 6.0% 5.

00 1. Reduction of non-plan expenditure from 11.19.00 69.41.3% taxes share to GNP by 2007.249. poverty. Universal access to primary education by 2007.00 15.00 13. VAT implementation in central and state level. 10.00 1.00 15.00 2.42 23.2% between 2001 and 2011. Cleaning of all major polluted rivers by 2007.667.00 9. It is implementing since July 2004. All children in school by 2003.75 15.22 9.00 92.000 cores.30 4.94.86 1.646.00 0. Reduction of MMR rate to 2 per 1000 by 2007 (but actual reduction was 4 per 1000) and it was to 1 per 1000 by 2012.734.243. Reduction of IMR rate 45 per 1000 by 2007 (but actual reduction was 58 per 1000) and to 28 by 2012.830.67 1.529. Reduction in gender gaps in literacy rate and wage rates by 2007. Safe drinking water to all villages by 2007.66 1. 5 cores employment creation. Disinvestment target is 78. 2002 to March 31. Reduction of poverty by 5% (from 26% to 21%) by 2007 and to 15% by 2012 but actual reduction in poverty is 19%by the end of 10th five year plan Providing gain full employment. Increase in forest and tree cover to 25% by 2007 and 33% by 2012. 20 .57 7. Reduction of administrative expenditure and subsidies.408. Literacy rate to 75%.041. 750 $ billion revenue target by attracting foreign investments.66 100.695.00 Tenth five year plan: • • • • • • • • • • • • • • • • • • • • • • • Tenth five year plan period was April 1.46 20.3% to 9%. Tenth five year plan given importance for integrated rural development. NDC approved an average annual growth rate of 8% in GDP. employment creation and agriculture.836.00 44. (actual 1. 2007.43.9 crore people got employment) In 2003 FRBM act made by Govt.3 4 5 6 7 8 9 10 11 12 13 Special area programme Irrigation and flood control Energy Industries and mines Transport Communication S&T Economic services Social Services General services Total 5. Reduction of population growth to 16.

8% 8.58% 12.6% 10% 8.0% 9. • Fiscal deficit was 8.3 GDP 1 Investment rate at GDP 28.4% 7.8% 9.7% 3.5% 7. No 1 2 3 4 5 6 7 8 9 10 11 Economic indicators Targ et Domestic Saving Rate at 23.74% 9.6% 9.42% Industrial sector 7% 7.4 1% ICOR -Export growth rate -(annual) Import Growth rate -(annual) Current a/c deficit in GDP -Average inflation based on WPI Agriculture sector growth rate Industry sector growth rate Services sector growth rate GDP target growth rate 5% 4% 8.40 % 8% Actual 26.57% (or) 1.2% 9.30% 7.30% Average 3.8%.3% 8. • Poverty is 19% by 2007.4%.5% 9.Economic indicators of the 10th five year plan: S.10% 3. • Foreign investments increase around 76%.9% 10% 0% 3.2% 9.42% 8.6% 9.02% 3.90 % 9.38% 17. 21 .6% 5.6% Review of the 10th five year plan: • GDP growth rate was 7.8% 11. • Foreign currency reserves was 185 $ billions.9% 2.74% Services sector 7.8% Average annual growth rate in different years: Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 Average (20022007) Agriculture -6.62% 28.13% 1.

639 cores.77 4.927. MMR was 4 per 1000. But actual expenditure was 15.03.47. NFWP and SJGSRY (Swarna Jayanthi Gram Swaraj Rojgar Yojana) Total public sector outlay was 15.939.49 30.53 38.25.21. Sectoral allocation of public sector during 10th five year plan: S.977. Planning commission prepared 11th five year plan approach paper on 19th October 2006.00 7. 25.81 98.391.00 15.300 cores.• • • • • • • Unemployment growth rate was 8.00 3.N O 1 2 3 4 5 6 7 8 9 10 11 12 13 Sectors Agriculture & allied activities Rural development Special area programme Irrigation and flood control Energy Industries and mines Transport Communication S&T Economic services Social Services General services Total expenditure Percentage (Rs.03.00 3. 22 .424. NREGP (National Rural Employment Guarantee Programme) launched on November 2nd. Under the chairman ship of prime minister and approved by the planning commission. 2004 NFWP (National Food Work Programme) launched. 2003 PURA (Provision of Urban Amenities in Rural Areas) announced by prime minister. In August 15. 2007.25.009 cores.3%. 2006 at Anantapur district. 21.37 1.00 3.00 14.00 1.99 20. 2012. In core) 58.00 6.00 1.00 6. 2007 to March 31.86 2. Out of this center’s share at Rs.00 26. 92.99 2.6. 71.77 16.968. On November 14.47 58.879.928.328.291 cores and states & UTs share at Rs.07 100.9.315.639. Planning commission had meeting on November 8.630.00 22.933. IMR was 58 per 1000.0 0 Eleventh Five Year Plan: • • • Eleventh five year plan period was April 1.86 1.00 1.

Broadband connectivity to all villages by 2012. Total public sector outlay is Rs. corporate sector-6.8 ratios between center and states & UTs.3%. Telephone availability to all villages by November 2007. Per Capita should be increase double by 2016-17.2% to 20% by 2012. 7 cores employment creation. 88. Roads to all villages with 1000 and above population 500 population at hilly and tribal areas by 2009. Ensure electricity connection to all villages and BPL households by 2009. Out this Rs. GDP annual target growth rate is 9% and GDP target for five years is 10%. Reduce IMR to 28% and MMR to 1 per 1000 birth lives by 2012.2:40.2% and private sector -24. Current account balance in GDP in is -2. This is the 59. (Public sector -10.1%.36.• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • NDC approved final draft of the 11th plan on December 19.2%) Agriculture target growth rate is 4. This plan given more important to faster economic growth and inclusive growth. Dropouts should be reduced from 52.0%.1%.9%) Domestic Saving rate target rate is 32.8%. 23 . FDI average per year target is 15 $ billions.14. Reduce total fertility rate to 2.718. Reduction of educated unemployment rate to below 5%.21. Poverty reduced to 12%. 2007. public sector enterprises. 147 cores is states and UTs outlay. Literacy rate should be increase to 80%. Reduce the headcount ratio of consumption poverty by 10% points. 44.3%.1%. Government revenue balance is in GDP is -0. government1. Raise the real wage rate of unskilled workers by 20%. Forest increase to 30% by 2011-12. 56. Investment rate in GDP is 35. (House hold-22%. Services sector target growth rate is 9.1%. Raise the sex ratio for age group 0-6 years to 935 by 2011-12 and to 950 by 20116-17. 571 cores center outlay and Rs. Government Fiscal deficit is in GDP is -6. Ensure that at least 33% of the direct and indirect beneficiaries of all government schemes are women and children. Industrial sector target growth rate is 10. Provide clean and drinking water for all by y 2009.9%. And ensure all significant habitation by 2015.2%.5%.

4% 62.74.N O 1 2 3 4 5 6 7 8 Sectors Agriculture & allied activities Energy Industries and mines Transport S&T Economic services General services Social Services 9 Total expenditure Percentage (Rs.793.0 30. 3.67.T. In core) 6.2% 42. • The appointees typically have either been economists of repute or political appointees.553 MW is with Hydro production.00 18.933.54. 58. on the advice of the Prime minister.4% 1.53.3% 87. The appointments are made by the President of India.327. Krishnamachari 17-0221-061953 1960 3 Gulzari Lal Nanda (Minister of 22-0621-09Planning) 1960 1963 3 C.00 23.00 1.105.00 18. Trivedi 22-0902-121963 1963 4 Ashok Mehta (Minister of Planning) 03-1201-091963 1967 24 .Sectoral allocation of public sector during 11th five year plan: S.123. 577 MW. • Deputy Chairpersons of the Indian Planning Commission S.9% 0 100% 11th five year plan power production target is 92.M.NO Deputy Chairpersons from to 1 Gulzari Lal Nanda (Minister of 1951 1953 Planning) 2 V. Out of this 16.283.5% 8.00 4.600.523.380 MW is with nuclear production. the position of the deputy chairperson has great significance. Planning Commission • Since the Prime Minister of India happens to be the ex-officio chairperson of planning commission of India.00 2.00 11.2% 6.02. 14000 MW is with wind production.7% 1.644 MW is with Thermal production.

Gadgil C Subramaniam (Minister of Planning) D.P.V. D. Haksar Dr. Madhu Dandavate (Finance Minister) Mohan Dharia Pranab Mukherjee Prof.C. D. T. Manmohan Singh P. Madhu Dandavate Jaswant Singh K. Narasimha Rao (Minister of Planning) Dr. Dhār (Minister of Planning) P. Lakdawala Narayana Dutt Tiwari (Minister of Planning) Shankarrao Bhaurao Chavan (Minister of Planning) Prakash Chandra Sethi (Minister of Planning) P.R. N.Pant Monetk Singh Ahluwalia 02-091967 02-051971 23-071972 04-011975 01-061977 09-061980 09-081981 20-071984 01-111984 15-011985 25-071987 30-061988 05-121989 07-071990 11-121990 24-061991 01-081996 25-031998 05-021999 04-072004 01-051971 22-071972 31-121974 31-051977 15-021980 08-081981 19-071984 31-101984 14-011985 31-081987 29-061988 16-081989 06-071990 10-121990 24-061991 15-051996 21-031998 04-021999 17-062004 continuing 25 . Shiva Shankar (Minister of Planning) Madhav Singh Solanki (Minister of Planning) Ramakrishna Hegde Prof.5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Dr.

It was 26 . investigation and Rural Development) advisory organization for rural development DDA (Desert Development For controlling the desert expansion and Programme) maintaining environmental balance Food for Work Programme Providing food grains to labour for the works of development Antyodaya Yojana To make the poorest families of the village economically independent.N o 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Year 1952 1960-61 1966-67 July 1969 1972-73 1972-73 1973-74 1972-73 1973-74 1974-75 1974-75 1974 1975 1977 1977-78 1977-78 1977-78 Programme CDP (Community development programme) IADP (Intensive Agriculture District Programme) HYVP (High Yielding Variety Programme) Rural Electrification Corporation Employment Guarantee Scheme of Maharashtra Accelerated Rural Water Supply Programme (ARWSP) DPAP (Drought Prone Area Programme) Objectives or purpose Over all development of rural areas with people’s participation To provide loan. fertilizer tools to the farmers To increase productivity of food grains by adopting latest varieties of inputs for crops Electrification in rural areas To assist the economically weaker sections of the rural society To provide drinking water in the villages To try an expedient for protection from drought by achieving environmental balance and by developing the ground water CSRE (Crash Scheme for To provide employment facilities in rural Rural Employment) areas MFALA (Marginal Farmer For technical and financial assistance to and Agriculture Labour marginal and small farmers and agriculture Agency) labour SFDA (Small Farmer For technical and financial assistance to Development Agency) small farmers CADP (Command Area To ensure better and rapid utilization of Development Programme ) irrigation capacities of medium and large projects MNP (Minimum Needs To provide basic necessaries for people Programme) Twenty points programme To poverty eradication and raising the standard of living of people NIRD (National Institute of To provide training.Development Programmes S. seeds.

To provide financial and technical assistance for self employment T o grant 100% tax rebate to donors and also to provide financial assistance for rural development projects To provide insurance for agricultural crops To provide assistance for rural prosperity 27 28 29 30 31 To provide self employment to urban poor through provision of subsidy and bank credit For providing employment facilities in rural areas. All round development of the rural poor through a programme of asset endowment for self-employment. 1979 October 2nd . 10. 1989 1990 1990 implemented only Rajasthan state Programme of training rural youth for selfemployment. 1986 April. 1982 TRYSEM (Training Rural Youth for SelfEmployment) IRDP (Integrated Rural Development Programme) 20 21 NREP (National Rural Employment Programme) DWCRA (Development of Women and Children in Rural Areas) RLEGP (Rural Landless Employment Guarantee Programme) SEEUY (Self Employment to the Educated Unemployed Youth) NFRD (National Fund for Rural Development ) Comprehensive Crop Insurance Scheme CAPART (Council for Advancement of People’s Action and Rural Technology) SEPUP (Self Employment Programme for Urban Poor) JRY (Jawhar Rojgar Yojana) NRY (Nehru Rojgar Yojana) ARDRS (Agriculture and Rural Debt Relief Scheme) SUME (Scheme of Urban 22 23 24 25 26 August 15th. 1986 Septemb er. 1980 1980 Septemb er. 000 of rural artisans and weavers To provide wages employment after 27 . 1984 April 1.18 19 August 15th. 1985 Septemb er 1. 1989 October. This was merged with SJGSY in 1999. It was started in 1978-79. 1983 1983-84 February . This was merged with SJGSY in 1999. It was merged with JRY in 1989. For providing employment facilities in Urban areas. It was merged with JRY in 1989 To provide suitable opportunities of self employment to the women belonging to the rural families who are living below the poverty line. This was merged with SJGSY in 1999. RLEGP & NREP were merged with JRY. but implementing since 1980 To provide profitable employment opportunities to the rural poor. For providing employment to land less farmers and labourers. To exempt bank loans up to Rs.

To provide capital through special institution for water supply. 1 crore per year to every member of parliament for various development works in their respective areas through District Magistrate of the District. embroiders and tobacco labourers who are living below the poverty line To provide self employment for educated un employees To provide employment of at least 100 days in a year in villages To sanction Rs. To provide financial assistance for rural development To encourage the rural women to deposit in Post Office Saving Account 38 39 40 41 1993 October 2nd. drainage. Bangalore. 1993 28 . 1992 July. 1993 Decembe MPLADS (Member of Parliament Local Area r 23rd. Kolkata. To provide employment by the means of shelter up gradation in the urban areas where population is between 1 to 20 lacks To protect the interest of the employees of Public sector To supply modern tool kits to the rural craftsmen except the weavers. land development and improvement of slum projects undertaken in Mumbai. 1993 Development Scheme) 1993-94 SIDMC (Scheme of Infrastructural Development in Mega Cities) DRDA (District Rural Development Agency) Mahila Samridhi Yojana arranging the basic facilities for poor people in the urban areas where population is less than one lack.Wage Employment) 32 33 34 1990 February . tailors. Chennai and Hyderabad. urban transportation. 1992 1993 SHASU (Scheme of Housing and Shelter Up gradation) NRF (National Renewal Fund) Supply of Improved Toolkits to Rural Artisans PMRY (Prime Minister Rojgar Yojana) EAS (Employment Assurance Scheme) 35 36 37 October 2nd. sewage.

17. At the time of 1950-51 Agriculture sector share in National Income was 55. It was reduced 56.7% in 2001 and present it was reduced to 52%. • • The above causes are lead to increasing of the dependence on agriculture sector.Unit . The growth rate of secondary and tertiary sectors failed in providing employment opportunities to the growing population.1% agriculture sector + 4. Nearly 75% of the peoples were depended on agriculture during 195051. late it was reduced to 30. 1. 5.1% from mining and quarrying) 29 . So rural artisans started depending on agriculture. Employment creations are not increasing as population grows. But primary sector contribution is 21. Around 52% of the peoples are depending on agriculture sector because of the fallowing causes. Agriculture sector is considered to be the backbone of the Indian economy. Since there is no encouragement of handicrafts during the British period. The regional and sect oral mobility of Labour in our country is very low due to illiteracy and social barriers.2 Agriculture Sector • • • • • India is an agrarian economy. The small and cottage industries could not compete with the products of large scale industries. Agriculture sector plays a crucial role in Indian economy. 24. So these industries lost their existence.1% in 2008-09 (according provisional estimate). (17. 3.7% in 20002001 and 18. 2.9% in 1990-91.5% in 2006-07. 4.8% in 2007-08 and it is 17.2% in 2008-09.4%. Majority of the population in our country depends on this sector for livelihood.

78 MT 229. food grain production 51 MT 209 MT 212. 2006-07 9.9 MT 174.61% in 2008-09. Year 1. In 2007-08 agricultural sector growth rate was 4.02 quintals 23. 2001-02 4.4 MT 208.00 quintals Egypt Briton Italy Egypt Highest Country Causes for low productivity in Agriculture in India: 30 .6 MT 217.• • • Agriculture goods contributing 10.50 quintals 96. 2005-06 8. In 2007-08 the fallowing crops have the yield per hector in India and having world’s highest yielding countries as fallows. 2002-03 5.6% of our exports. and is in 2008-09 is 229. 2000-01 3.2 million tones food grains are buffer stocks in India. Crops Paddy Wheat Maize Sugar cane Yield per hector World’s in India 22.02 Quintals 28.86% and it is only 2.8 MT 213. 2003-04 6.35 quintals 690. 2004-05 7. And total 14. 1950-51 2.2 MT 198.5% foreign reserves are coming through Agricultural products.85 MT as against 233 MT targets. Food grain production 51 MT in 1950-51.3 MT 230.85 MT (target was 233 MT) 2008-09 • • Total 19.50 quintals 1190.0 quintals yield 88. 2007-08 10.80 quintals 80.

The fallowing Measures are taking by the government to increase the agriculture productivity. 31 . 1. Controlling population growth rate 7. 4. credit. Irrigation facilities 5. seeds and pesticides. transport etc. Development of infrastructure. Lack of infrastructure facilities like market. Agricultural extension services. 3. Farm mechanism 6. Discouraging rural atmosphere like poverty. Scarcity of Modern inputs like fertilizers. Impact of the British regime. land hunger. Inequalities in the distribution of land. Literacy programmes. Small size land holdings. 8. it was 18% of total cultivated land in 195051 and 39% in 2002. Land reforms 2.• • • • • • • • • • Utilizing of Older or traditional Equipments. Increases of Agriculture holdings Land Reforms • According UNO land reforms means “the re distribution of land with a view to safe guard the interests of small. Pressure of population on agriculture. Defects in land tenure systems. marginal farmers and farm Labour is called land reforms”. Lack of irrigation facilities.

This committee and In 1951 Planning Commission announced the fallowing objectives of Land Reforms 1. To increases agricultural production by implementing land development activities Need for Land Reforms: • • • • For the development of Agriculture sector. under taken by the government for agricultural development are called Land reforms”.• According Indian planning commission “Any reforms of land. For the economic development through agriculture sector. The elimination of all forms of land exploitation 3. 4. To provide social justice with agrarian system to provide security for the tiller of soil. Objectives of Land reforms: • 1948 all India congress agricultural reforms committee constituted under the chairmanship of Komarappa. Orissa. To achieve social justice Salient Features of Land Reforms: • Government has introducing the Land Reforms after independence for the welfare of backward people and agriculture development through Abolition of intermediaries and Tenancy reforms. The removal of all restrictions for agriculture development. Bihar. To increase agriculture productivity. 32 . Abolition of Intermediaries: • • • In 1793 Caraon vallies introduced the Zamindari system This is also called permanent settlement This system introduced in Bengal. 2.

Tamilnadu state fixed rent between 33. • The unit of application shall be a family of 5 members. 3.40%. Manipur and Tripura states fixed rent between 1/5 to ¼ share in total production. • Ceiling on Land Holdings: In 1972 July in Chief Ministers meetings takes some decision regarding ceilings 1. Maharashtra and Rajasthan states fixed rent between 1/6 to ¼ share total productions. Karnataka.Tenancy Reforms: • Tenants are 3 types 1. 6. Occupancy tenants: Permanent tenants (zirayiti rights vunna tenants) 2.3% . Bihar states fixed rent ¼ share total productions. Orissa. Other lands the ceiling should not be more than 54 acres. It should not exceed 27 acres in case of single crop in a year. • Rent was fixed by various states like the fallowing 1. 3. Andhra Pradesh state fixed rent 25% to 30% in delta region land and 20% to 25% in upland region. Assam. Tenants at will: tenants which are without any rights. 2. additional land may be allowed for each member. 4. Punjab. producing two crops in a year varies from 10 to 18 acres. How ever it should not exceed twice the normal ceiling limit. Haryana and Jammu and Kashmir state fixed rent with 1/3 share in the total production. 5. Gujarat. If the number of members in the family exceeds 5. Sub-tenants: (upa kauludarulu): they will take land for rent from occupancy tenants. The ceiling on highly fertile land with assured irrigation facilities. 2. 3. 33 .

72 Million Hectors or -306.36 hectors. -30. 1990-91 4.34 hectors. Land put to non-agriculture uses 8.97 Million hectors.55 hectors 1. 87. -42.80 Million hectors.77 hectors and lowest land holding size was in Kerala with 0. 263 Sqkm). • In 1990-91 land holding size have like in the fallowing 1. -166.66 Million hectors. Total reported area 3. Land under forests 5. In 1970-71 2. after Rajasthan Punjab having the second highest with 3. Land Utilization in India: 1.00 Million Hectors. 2. Total India Geographical area 3.02 Million hectors.04 Million Hectors. Average size of Holding was in India like in the fallowing. Area sown more than once • 1.287 millions Sqkm (32.5 hectors.328. 2000-01 • • 1.69 hectors 1. Net cultivated land 4. 34 . -19.Dantwala said that “the land reforms introduced in our country are in proper direction but the implementation part is not proper”. Barren and un. Land under pastures and trees 9.28 hectors 2.• D. -22.T. -68. 1985-86 3.35 hectors . Marginal holdings are called with less than 1 hectors and total marginal land holdings have 59% in I990-91.34 Million hectors. In USA in 2000-01 average land holding size was 122. 2. -9. Small holdings are called land holding between 1 hectors to 4 hectors and total small land holdings have 32.55 Million hectors. Land not available for cultivation 7. According 1985-86 calculation Rajasthan was having the highest average holding size with 4.cultivable land 6.2% in 1990-91.

3. Maharashtra and Punjab. Father of Green Revolution is called Norman Borlaug from Mexico. Sun Flower: Karnataka. Andhra Pradesh and Maharashtra. Large holdings are called land holdings between more than 10 hectors and total large holdings have 1. Cropping Pattern in India in percentage Crops 1. Maharashtra and Punjab. Gand is the first economist who used the term Green Revolution in 1968 in German Conference.6%. Medium holding are called land holding between 4 hectors to 10 hectors and total medium land holdings have 7. Madhya Pradesh and Tamilnadu. Sugar Cane: Uttar Pradesh. West Bengal. Green Revolution: William .S. 4. Swaminathan. Punjab and Haryana Maize: Andhra Pradesh. Karnataka and Bihar Ground Nut: Gujarat.S. 35 . Cotton: Gujarat.Non crops Total (1 + 2) • • • • • • • • • • • 100% 100% 100% 100% 1950-51 74% 1980-81 80% 20% 2000-2001 75% 25% 2004-05 76% 24% Food 26% Different crops largest producers in India Paddy: 1.Food crops 2.2%. • The main objective of the green revolution is to increase the food grain production. Wheat: Uttar Pradesh. Andhra Pradesh and Uttar Pradesh. Green revolution means “Achieving revolutionary changes in the agriculture sector by introducing new techniques of production is called green revolution”. Father of Indian Green Revolution is called M.

various types of hybrid seeds have been innovated.• According to Cowrie and John Green Revolution is also called in India as Seed Fertilizer Revolution.Paali district in Rajasthan. Raipur district in Chhattisgarh IV. Ludhiana district in Punjab VI. 3) High Yielding Variety Programme (HYVP): It was started by central government in 1966-67 to increase food grain production. These are I. Later it was extended to 7 districts. Intensive Agriculture District Programme extended to 114 districts in this part of programme. Shabaad district in Bihar III. Causes for the Green Revolution: 1) Intensive Agriculture District Programme (IADP): This is started by the central government in 1960-61. Tanjavore district in Tamilnadu The above 4 districts concentrated for Paddy V. West Godavari district in Andhra Pradesh II. 36 . West Godavari district Andhra Pradesh and Tanjavore in Tamilnadu. With Joint Efforts Of Indian Council of Agriculture Research (ICAR) and Agricultural universities in the Punjab. Mainly three districts were selected under this programme as a pilot study. 2) Intensive Agriculture Area Programme (IAAP): this programme started in 1964-65. Aligarh district in Uttar Pradesh The above 2 districts concentrated for Wheat VII. this district concentrated for Jowar. These are one is Ludhiana district in Punjab.

2. In 1963 National Seed Corporation started by government to produce qualitative seeds. Paddy. Oilseeds.1 MH provided at the time of 1991-92. Central government is targeted to provide irrigation to 114 mh by the end of 2010.6 million hectors irrigation is providing and 81. In 1969 started State Farm Corporation of India qualitative seeds. wheat and maize 5) In 1965-66 multi crop system started.5% of water consuming for house hold sector. Jowar. 37 .8 million hectors at the end of 10th five year plan but actual consumption only 87.7% of water consuming for electricity and 8% of water for other purposes. Haryana and Andhra Pradesh.2.4) Introduction of Crops with Short Gestation Period: ICAR and ICRISAT are trying to produce short gestation period seeds of paddy. Irrigation capacity is 102. The benefits of green revolution are limited only to some regions like Punjab. This is 43% in total India’s geographical area. In 1951 total 22.23 million hectors having irrigation capacity. • • • • In India total 141. 4.MH. The main objective of AIBP is to complete projects in the states with cooperation of central government. Maize Ground nut. In 1995-96 Rural Infrastructure Development Fund (RIDF) to produce • • established by NABARD to increase the irrigation facilities In 1996-97 government started Accelerated Irrigation Benefits Programme (AIBP). Irrigation • Out of total Water resources 83% of water consuming agriculture sector. Cotton and Sugar cane. • • • • Most benefited crops of Green Revolutions are Wheat.

000 hectares.25 lacks. S. 5 crores. Punjab.1% 5.7% 5. Punjab.5% 58.19% Irrigation Sources 1950-51 irrigated area 40% 2005-06 irrigated area 31.81% 5. AP and Tamilnadu Wells: UP. Haryana and Bihar.5 crores 2.N O 1 2 3 4 • • • • Canals wells) Tanks Others 17% 14% 4. Small scale irrigation projects: less than Rs. Large irrigation projects: more than 10. Middle irrigation projects: if irrigation facility is between 2000 hectares to 10.7% 2007-08 Irrigated area 29% 60% Wells (open & bore 29% Canals: UP. Tanks: AP. 1. 38 .25 lacks to Rs. • Irrigation sources are like in the fallowing in India. • Since 1978-79 irrigation projects were divided into three types based on the irrigation capacity of the projects. 3. 3. Tamilnadu. 000 hectares irrigation facility projects are called heavy irrigation projects. Medium scale irrigation projects: between Rs. Agriculture Marketing Agricultural marketing can be classified into different stages in India. Haryana. 2. Orissa and Karnataka. 1.Irrigation projects: • Before 1978-79 irrigation projects were divided into three types based on the investment to construct the projects. Large scale irrigation project: more than Rs. Small scale irrigation projects: less than 2000 hectares.

Packing: The processed farm products should be packed properly to ensure better quality. Storing: All he farm products cannot be sold in the market immediately. Some of these products should be stored until appropriate prices are obtained. • Remedial Measures: 1. 3. This process is called grading. Grading: All the assembled products should be graded according to the quality and durability. This process of taking samples is called sampling.1. 5. Assembling: the out put of various farmers should be brought to one place is called Assembling. Lack of Storage facilities 3. 6. Lack of Transport facilities 2. Transportation: the farm products should be transported from the actual farms to the markets to make them available. Existence of Middle man in the markets 4. Malpractices in the markets. 2. 4. This is called processing. 5. This process is called packing. Sampling: Sample should be collected from the graded products for standardization. Lack of organization among the farmers. 200 in December 39 . Lack of Grading facilities 6. 7. This is termed as transportation. Processing: All the farm products should be made use full for direct consumption. • Defects in Indian Agricultural Marketing: 1. Regulate Markets: Regulated markets were started in 1951 with 200 markets and these were increase to 90.

2. 3. second is Medium credit Necessaries and Long. Transport and communication facilities are providing by the government to increase the market facilities. Bhopal. 6. Contract Farming is encouraging to get benefits small and marginal farmers 4. According this committee farmers need credit for three necessaries one is Short term credit necessaries. Present 70% agricultural products selling in the regulated markets. Bhubaneswar and Shillong. Medium Term Credit: this is necessary to purchase cattle and farm tools. 40 . Grading facilities centers are started by central government in India some places like Jaipur. This credit period is between 1 to 5 years. This credit period is between 6 months to one year.Term Credit necessaries. fertilizers. Rythu Bazaars are started by Andhra Pradesh government to sell products farmers directly.2000. Short –Term credit: this credit is necessary to purchase seeds. Co-operative Farming: Co-operative farming is supporting by Government and Reserve Bank of India through National Cooperative Development Corporation. Warehousing facilities constructed by central government to store the agricultural product up to beneficial prices available to farmers. 5. 7. 2. pesticides and to hire the Labour and to bear the Transportation cost. 1. Chandigarh. Agricultural Credit: • • All India credit survey committee divided the credit based on time into three times. Other facilities like AGMARK is providing by increasing grading facilities.

Institutional Credit: Money lenders. • • In 1963 RBI established Agricultural Refinance society to increase institutional credit for agricultural sector. friends and relatives are come under non-institutional credit.3. In 1972 government started dual interest rate. 2. in 1964 government established National Agriculture Credit Council under • • • • chairmanship of Dr. Non. And this committee recommended 3 tier co-operative system in the country. 1. Regional Rural banks and Government etc are come under institutional credit. In 1969 total 14 banks nationalized to increase institutional credit for agriculture. Sources of Agricultural Credit: • Agricultural credits are two types one is Institutional credit and second is non-institutional credit. to take up soil conservation and land development activities. D. Land lords. tractors. Machinery like pump sets. Institution al Credit 2002-03 cores 2004-05 cores 2005-06 cores 2006-07 cores 2007-08 cores 2008-09 cores 41 . Co-operative banks.R. traders and Commission agents. In 1969 Lead Bank scheme started based on the recommendation of Nariman committee. • In 1951 Reserve Bank of India established All India Rural Agricultural Credit Survey to give suggestions and to increase institutional credit.Gadgil and this committee recommended area approach in credit. According this committee recommendation imperial bank of India changed as State Bank of India and agricultural credit. Institutional Credit: commercial banks. Long-Term Credit: this to purchase new farm land.

25.77%) 35. 309 15. 400 29.070 (9.0%) 48258 (18.90% ) 25. 1. 2000 crores in 1999-2000 and it increased to Rs.716 (34. 1. 500 crores capital. It is preparing by NABARD 42 . 560 12.480 (20.11) (%) 2. 455 NABARD: (National Agricultural Bank and Rural Development) • • • Agricultural Refinance Corporation established by RBI and this was merged with NABARD. 2. which is started in 1982. Kisan Credit Card system (KCC) • • Kisan Credit Card (KCC) system started in 1998-99. • Central government announced Farm credit package in June 2004 to increase institutional credit.10% ) 1. And it is increased to Rs.786 (21.087 (71. 5000 crores later and private investment allowed up to 49%.80% ) (%) 66.435 (10. 856 (71.80% ) 20. 657 54.424 (25.477 1. This was merged with NABARD.00% ) (%) 1.51% ) 64. 25.223 (8. July 12th. 2.10% ) 42.00%) 23.747 (13.81.481 (65. 2.90%) 31.00% ) (%) (69. NABARD started in 1982 with Rs.00% ) (%) 81.(%) Commercia 39. 852 (9.485 (69.95% ) 25.00% ) 69.774 l Banks (57.72% ) 02. 486 80.312 (10.404 (9.40%) 39. Regional Rural Banks Cooperative Banks Total 6.

Horticultural products and Commercial Crops. Highest KCC are there in Andhra Pradesh. Seed Government announced National Seed Policy in 2002 to provide the frame work for the growth of the seed sector • • In 2002 established AICIL (Agricultural Insurance Corporation of India) by government with General Insurance Corporation of India. • In 2004 January. Commercial Banks and Co-operative Banks. Seed Bank is operating through National Since 1999-2000 Corporation.7 lacks credit cards is issued. If natural calamities occur in the country it extended First KCC introduced in Rajasthan state. Farm Income Insurance Scheme implementing (it was started in 2003) by the government to providing Insurance Safe 43 . Agricultural Insurance • In 1999-2000 NAIS (National Agricultural Insurance Scheme) started by central government and General Insurance Corporation of India to provide insurance for food grain products. This should be repaying within one year.5000 credit get through KCC system In 2007-08 total 84. Total 808 lacks KCC issued by the end of February 2009. Present 21 states and 2 unio territories are implementing this scheme.• • • • • • • • KCC main objective is to provide short term loans to farmers. In 1999-2000 government started seed insurance. • • Present NAIS is calling as Rashtya Krishi Bhima Yojana. In 2001 Krishi Shramika Suraksha Yojana started by government to provide insurance and pension benefit for age group of 18 to 50 years agricultural labours. KCC are issuing by RRB. Minimum Rs.

Under National Food Security Mission government started Village Knowledge Centre in the district levels. Punjab. • • • In 2004 Varsha Bhima started by AICIL to provide rainfall insurance. • • • Consumers are getting subsidies though Public Distribution System In 2008-09 budget total Rs. Smart card system started as a pilot programme in Haryana and Chandigarh to distribute food grains through Public Distribution System. Agricultural subsidies are two types One is Food subsidies Second is Fertilizer subsidies Food subsidies giving to farmers by giving Minimum Support Price (MSP) and purchasing the food grains through Food Corporation of India. Agricultural subsidies • • • • • • According WTO subsidies should not cross 10%. • Haryana.guards and economic security to farmers when support prices are not available to farmers. but in India subsidies not reached 15%. In 2004 Geneva conference decided that 5% developed countries and 10% subsidies for developing countries.43. 668 cores allocated for food subsidies. In 2007-08 weather based crop insurance scheme (WBCIS) started by central government In 2007 government started National Food Security Mission to increase Paddy. Wheat and Pulses production. Andhra Pradesh and Chattisgarh states are giving Minimum Support Prices (MSP) through Food Corporation of India. 44 . Western Uttar Pradesh.

Phosphorus and Potash should be use in the ratio 4:2:1. in 2009-10 it allocated around 1. Blue Box subsidy: developed countries are giving these types of subsidies. • In 2003-04 fertilizer subsidy was Rs. 4% growth rate per annum for two decades.99. National Agricultural Policy • • • • • • • It was announced in the parliament on July 28. • According agricultural scientists Nitrogen.456 crores in 2008-09. second Tamilnadu and third is Andhra Pradesh. Land reforms should implement farmers Consolidation of land holdings should be implement in all states to distribute land to poor 45 . this is extended to Complex in 1979 and to Phosphate in 1982. Green Box subsidies: This subsidy gives for the research on control pests and increase basic facilities and food security. Land should be registered in the name of women.6:2. • • • More Fertilizer consuming per hectare is in Punjab. Retention Price Scheme started in November 2007 for Nitrogenous fertilizers.2:1 ratio.• • Government is Fertilizer Subsidies are giving through Retention Price Scheme for fertilizer producers. These countries are paying money to farmers directly to control yield.11.11.276 crores. This policy emphasis to promote agricultural exports after fulfilling domestic demand.835 crores and it was Rs. 2000. This policy has been planned under the provision of World Trade Organization to face the challenges of agricultural sector. but these are consuming in India in 2005-06 is 5.

Green Revolution production 2. 2000. Golden Revolution production -to increase FRUITS (apple) -to increase MILK production -to increase -to increase OILSEED -to increase POTATO -to increase FOOD GRAIN SHRIMP(ROYYALU) production -to increase FISH production -to increase MEAT or 46 . Yellow Revolution (Operation Gold Flow) production (1986 started) 4. Red Revolution TOMATO production 8. 1. White Revolution 5. Brown or Round Revolution production 3. Pink Revolution 6.• • • • • • • • • • Promoting private investments in agriculture sector. Insurance for crops should be provide Biotechnology should be implement in the agriculture sector Promoting research for developing new varieties and ensuring protection to the developed varieties Institutional credit has to increase in agriculture sector Horticulture crops should be promote Markets are extended Contract farming and Corporate farming should be encouraged In the part of new agriculture policy Rainbow Revolution should be implemented In the part of Rainbow Revolution the fallowing revolutions are announced on July 29. Blue Revolution 7.

Grey Revolution production 10. 11. Swami Nathan and this committee submitted its report in 2006. he supported organic farming to succeed the double food grain production. National Commission on Farmers • In 2004 UPA government appointed national commission on farmers under the chairman ship of M. • This committee given 5 major recommendations 1. S. Agricultural Price Policy • In 1957 Ashok Mehta Committee appointed to enquiry food grain.Clinic to research or to invent new seeds. • M. • In 2001 government encouraged to start Agri . • Silver Revolution Black Revolution -to increase FERTILIZERS -to increase EGGS production -to increase CRUDE OIL production White Revolution started in 1970 by Vargis Kurian to develop MILK production. Land fertility should be increase 2.S. And he targeted to 4% growth rate in agriculture sector and he given important to contract farming and he suggested insurance for agriculture sector. Credit and insurance facility should be increase 4. Swami Nathan gave a call for EVER GREEN Revolution to increase double good grain production from 210 MT to 420 MT. Market facility should be increase. Since 2001 India is the largest producer of milk in the world. Technology in agriculture should be increase 5.9. Irrigation facility should be increase 3. 47 .

Support prices are two type 1) Minimum Support Prices (MSP) 2) Statutorily Minimum Prices • Government will purchase the farmers agricultural productions with guarantee prices even the during Market fluctuations this prices are called MSP. • The statutory prices are announcing by the government to buyers. 48 . Agricultural Prices are 3 types 1) Support Prices 2) Procurement Prices 3) Issues Prices 1). Buyers should be purchase the products according the statutory prices. Procurement Prices: • For the purpose of PDS the government will procure the food grains for certain prices from the farmers. Based on his recommendation Agricultural Price Commission established in 1965. In 1964 L. • • In 1966 Food Grain Committee also recommended that Minimum Support Price (MSP) should be announced before seeding. MSP are announcing by the Government based on the advice of CACP before seeding. 2).• • In 1959 Ford Foundation recommended that before seeding Minimum Support Price (MSP) should be announced. Support Prices: • • Government will give guarantee to the farmers of their production by announcing support prices. MSP are announcing for 24 crops.K. And this name is changed as Commission on Agriculture Costs and Prices (CACP) in 1985. this price is called Procurement prices. Jha committee constituted for giving reasonable price for paddy. wheat and also recommended that ration shops should be established.

These prices are called issue prices. Hanumantha Rao Committee recommended Support Prices.• • Generally this prices more than the Minimum Support Prices (MSP) and less to Market Prices. Based on this recommendation first time in India Agricultural Support Prices announced by Government in 1967-68. Jha committee. Swami Nathan committee appointed to study the problems of the farmers and to decide the MSP. In 2003 Prof.H. FCI. State Civil Supply Corporation are procuring the food grains behalf of Government.K. In 2002 Abhijit Sen Committee also supported the food grains procurement policy. Mahindra Singh Dev. MSP for 2007-08: Kharif: 1) Paddy 2) Paddy 3) Wheat 4) Jowar 5) Maize 6) Raagi 860 840 915 Grade-A Normal 880+50 = 930 850+50 = 900 1080 49 . In 1990 C. Issue Prices: • Central government announces these prices to supply the food grains for the states for certain prices. 3). Agricultural Prices Commission (APC): • • • • • • • APC Established in 1965 based on the recommendation of L.S. In 1985 government APC has changed as CACP present chairman is Prof. Alagh Committee also recommended the MSP IN 2006 M.

Kerosene and oil etc are distributing through PDS Below poverty line people get monthly food grains increased from 10kgs to 20kgs in 2000-01 and it was increased to 35kgs in 2002. Sugar.18 per Quintal (811. After independence PDS started in 1965.32 to 34 based on the kind Public Distribution System (PDS) • • • • In 1943 PDS started in India.8 per Tones) Rs. 50 .7) Moong 8) Green gram 9) Arhar (tur) 10) 11) Rabi 12) 13) 14) 15) Masur (lentil) Cotton Ground Nut length 2000 2520 2520 2500 for staple length and 3000 for long 2100 1870 1830 680 1730 Rapeseed (mustard) barley Gram Other crops: 16) 17) 18) Sun flower Sugar Cane Tobacco 2115 81. • Below poverty line people will pay 50% less than normal price. Food grains.

From this programme total 320 million people got benefit. additionally implemented in 671 blocks. and Banana. Under this programme below poverty line family 10 kgs get from central government with less than issue prices. • • RPDS implemented in 1775 blocks in India and in 1995. From this programme 160 million people get benefit. 51 . India is the second place in case of Fruits and vegetable production India is the largest producer of Sapota.65.5. consumer and exporter of Spices in the world. India is the largest producer. In 1996 December TPDS (Targeted Public Distribution System) started. India is the first place in case of Grapes productivity India is the largest producer of Cauliflower in the world.• • Above poverty line people pays normal prices. India is the second largest producer of Onion in the world. In 1992 January RPDS (Reconstruction or Revamped Public Distribution System) started. Horticulture • • • • • • • • • Horticulture crops are occupying 10% of the land out total agricultural land. India is the third largest producer of Coconut and largest producer of Areca nut in the world. India is the third largest producer of Cabbage in the world. • • In 2001 July rice per kg rate was Rs. Coupons system started in Andhra Pradesh in 1998-99. desert areas and tribal areas. Mango. According this programme essential commodities are providing in drought areas.

7% 52 . This will protect the tribal’s from private traders. Pulses and Maize) to increase the oil seeds production and edible oil production.1% in 2008-09 Manufacture sector contribute to GDP is 15. • 2006-07 year is called Agricultural Renewal Year. This is the apex bank in co-operative marketing. Rubber and Tobacco.6 lacks hectors land is under the horticulture crops. Present National Horticulture Mission is working in 340 districts in India in 18 states and 2 Union territories Last three years total 7. This head quarter is Delhi.1100 cores funds allocated for this mission in 200809 budget. National Agricultural co-operative Marketing Federation of India (NAFEED) started on October 1958.• • • • • • National Agricultural Mission was started in 2005 by the central Government. Industrial Sector • • • • Industrial sector comprises Mining & Quarrying. • • In April 2003 Price Stabilization Fund started to reduce the price fluctuation in Tea. Mining and Quarrying contribute to GDP is 4. gas & water supply and construction. • Tribal co-operative marketing development federation of India (TRIFED) started in 1987. electricity. Total Rs. In 1986 TMOP (Technology Mission on Oilseeds. During the XI five year plan 85% center and 25% states funds contributed for National Horticulture Mission. Manufacturing. But in secondary sector Mines and Quarrying not included. Coffee.

but it was increased to 19% in 2007-08. but its growth rate is 2. Industrial sector growth rate is 8. Before independence government announced one industrial resolution policy in 1945 April 21.5% Secondary sector contribute to GDP 19. This policy was base to announce 1948 industrial resolution policy.3% in 1950-51 to 26. During 1951 around 11% employment provided industrial sector. Gas and Water supply contribute to GDP 2.7% to GDP in 2008-09 (secondary sector 19.5% in 2007-08.4% in 2006-07.6% Industrial sector is contributing 23.4% in 2008-09. Industrialization is the process of building up country’s capacity to utilize raw materials and manufacture goods for consumption or further production. • • The 1945 industrial resolution policy identified the importance of government role to industrial development or industrialization.4% Construction contribute to GDP is 1.• • • • • • • • • • • Electricity.6% + mining and quarrying 4. • • A country’s economic development is determined by its industrialization According Singer “economic development means the changing 80% agrarian working population to 15% agrarian working population” Importance of Industrialization: 53 . During the British period traditional industries destroyed and modern industries did not developed In 1944 government established palling and development department under the chairman ship of Adarsh Dalal.1%) Secondary sector contribution to National Income increased from 13. Industrial sector contribution in total exports is around 65%.

Iron. 4. State Monopoly: Arms and ammunitions. The existing private undertakings in the field were allowed to continue for ten years. Shyam Prasad Mukherjee. Industrial development changes the social factors. Steel. Industrial sector can generate productive employment. the first industrial resolution policy was declared on April 16. Due to industrialization developed countries having more national income. 3. 1948 by union industrial minister Mr. Mobility of labour from agriculture sector to industrial sector can take place Industrial policies in India: 1948 Industrial Resolution Policy: • After independence. Ship Building Manufacture of Telephone. atomic energy and rail transport etc will come under this category. This industrial resolution policy divided the industries into 4 types. • • • • This industrial resolution policy announced a base for mixed and controlled economy 1948 industrial resolution policy gave more important to public sector.1. 2. The national objective of self-reliance can be achieved only through industrial development. Raising income: Industrial development alone increase income. 54 . Mixed sector: industries which are working under control of the government are come under this category. Industrial sector can strength the Indian economy. The existing private undertakings in the field were allowed to continue for ten years. 1. Coal. minerals oil etc will come under this category. 2. 5. All the key industries are to be started in public sector. This industrial resolution policy clearly divided the industrial sector into public and private sector.

55 . To speed up Industrialization 2. To increase employment opportunities 5. • 1956 Industrial Resolution Policy had divided all the industries into 3 categories. According 1951 industrial development and regulated act license system is not necessary less than 5 lacks. This Industrial Resolution Policy announced based on Socialistic pattern. 4. These industries were allotted to private sector but they work under the control of government. To expand Public sector 3. 1956 at Avadi in Tamilnadu. Regulated Industries: 18 industries are included in this category. Cotton. Cement. Private • • Industries: This category included which are not mentioned above three categories. To prevent monopolies. Tractors. 1956 industrial resolution policy is called “financial constitution of India” 1956 Industrial Resolution Policy given more important to Public sector. Objectives of the 1956 Industrial Resolution Policy 1. and Electrical Engineering etc will come under this category. Automobiles. 1956 Industrial Resolution Policy: • • • • • 1956 Industrial Resolution Policy announced by Jawaharlal Nehru on April 30th. According this industrial resolution policy government made industries development and regulated act in 1951.3. To develop heavy and basic industries 4.

chemical industry.C. Schedule C: Those industries which are not included in the above two schedules will come under this schedule. Schedule A: This schedule consists of 17 industries which are exclusive responsibility of the state. In 1967 Hazari committee appointed to study the license system in India. mineral oils. Schedule B: It consists of 12 industries which were working under the private sector but under the control of government. air craft.1. 1956 In Industrial Resolution Policy given permission to to import the technology. ship building and electricity etc. 3.Dasgupta committee appointed to decentralize the economic power in the country. Arms and Ammunitions. 1964 Mahalanobis committee appointed decentralize economic power in the country. Atomic energy. coal. In 1964 Swami Nathan and K. • • • • • • • • • 1956 Industrial Resolution Policy also encouraged small scale industries. 56 . rail. Aluminum. Based on 1956 Industrial Resolution Policy MRTP act made in 1969 to control the concentration of economic power. iron and steel. capital according necessary. 1956 Industrial Resolution Policy had laid down the foundation for the industrial development in India. rubber. 2. In 1969 Monopoly Restriction Trade and Practice (MRTP) act made based on the recommendation of Dutt (1967) committee and it was implemented from 1970. fertilizers. 1956 Industrial Resolution Policy decided to start industrial estates and training centers for the unskilled labour. road transport and sea transport etc.

1 crores to Rs. In 1975 again government amended industrial resolution and 21 industries removed from license system. According this amendment act every bone can be participate to investment except schedule A and reserved small scale industries.5 lacks investment industries are called medium investment industries • Less than or equal to Rs. 35 crores investment industries are called Core industries. • • • According R C Dutt committee joint sector encouraged by government In 1973 FERA act made by government to control foreign reserves in private sector and to increase foreign reserves in government sector. Reserved Industries: Less than or equal to 7. 1977 Industrial Resolution Policy: 57 industries categories . Core industries: More than or equal to Rs.• According MRTP act any private company should not have more than 20 crores asset. 5 crores investment industries are called high investment industries 4. This sector is also called priority sector. 1. High Investment Industries: Between Rs. 1 core investment industries removed from license system in 1970. 5 crores to Rs. 35 crores investment industries are called high investment industries. 2. 1970 Industrial Resolution amendment: 1956 industrial resolution are policy divided amended into 4 in 1970. Total 9 industries are included in this sector. But it was amended in 1980 and MRTP range increased from 20 crores to 100 crores. According based on this the amendment investment. 1973 Industrial Resolution Amendment: • • In 1973 core industries in public sector increased from 19. 3. Medium Investment Industries: Between Rs. In 1973 amended the MRTP act.

This is also Small Scale Industrial Resolution Policy. This policy given more important to small scale industries. 1977 Industrial Resolution Policy announced by Janata Government. 1980 Industrial Resolution Policy: 58 . • • According 1977 Industrial Resolution Policy told less than 15 lacks investment industries are called auxiliary industries. This policy announced based on decentralization in the country. 3.000 populated towns with less than one lack investment industries are called micro industries according 1977 Industrial Resolution Policy. This Industrial Resolution Policy is called Janata Industrial Resolution Policy. 1. Small Scale Industries: less than 10 lacks investment industries are called small scale industries. In 1990these numbers increased from 807 to 836 (present only 21 are there) • • In 1978 District industrial centre established (present total 422 district industrial centers are there) According this policy government departments have should be purchase small industries goods. 1977. In this policy government introduced micro industries concept. Cottage industries: 2. According 1977 Industrial Resolution Policy Small scale reserved industries increased from 180 to 807.• • • • • • • • 1977 Industrial Resolution Policy announced on 23 rd December. 1977 Industrial Resolution Policy divided the Small Scale Industries into 3 types. Micro Industries or Tiny industries: those industries established in less than 50.

• • This Industrial Resolution Policy announced on 3 rd July. 2. 5. This Industrial Resolution Policy exempted License for 28 industries in 1980 and it was implemented in 1988. Tiny or Micro industries investment increased from Rs.2 lack in 1980 and it increased to 5 lacks in 1990. taken initiation establish in scale industries in every district. • • • • • • • • Small Scale Industries investment increased this Industrial Resolution Policy.25 Lacks. 4. MRTP range increased from Rs. Central Government established Board of Industries and Finance Reconstruction (BIFR) in 1987 to reconstruct sick industries or to merge sick industries into other industries.10 lacks in 1980 and it was increased to 60 lacks in 1990.20 cores to Rs. 1980 by congress government. Government provided has financial assistance to to establish small in backward areas. Government 6. Sick Industrial Company Act (SICA) made central government in 1985 based on Tiwari committee. Employment creation. 3. Government industries should be stabilize. 1. Small Scale industries investment decided Rs. Objectives of 1980 Industrial Resolution Policy. Optimum utilization of installed capacity. Auxiliary Industries investment increased from Rs.15 Lacks to Rs.1 Lack to Rs. 1991 Industrial Resolution Policy: 59 . Export promotion and import substitution.100 cores based on Sachar committee (1977) and it was implemented since 1985.

Electronic. 3. Industrial explosives 60 . 1991 for Large and Medium Scale Industries. It is educed to 5 industries in 2002. Privatization and Globalization model or Rao and Manmohan model. Cigarettes and Tobacco products. 1991 for Small Scale industries. To increase economic growth. To expand private sector.• • • • • • 1991Industrial Resolution Policy announced in two times. 6. Present (2006-07) only 5 industries are necessary to get license and these are 1. To reduce economic inequalities and to achieve economic development 4. • 1991 industrial resolution policy exempted license system to all industries except 18. To provide gain full employment in the private sector. Aerospace and all defense equipments. 2. 5. Objectives of 1991 Industrial Resolution Policy. Distillation of Alcoholic Drinks. 1. First time Industrial Resolution Policy announced on 24 Th July. 2. 1991 Industrial Resolution Policy gave more important to Private sector. 4. Second time Industrial Resolution Policy announced on August 6th. • • • • It is reduced to 15 industries in 1993 It is reduced to 8 industries in 1998. It is reduced to 6 industries in 1999. To increase the productive capacity of industries 3. To attain international competitiveness. Or except 18 industries remaining industries should not necessary license to establish. This policy announced based on Liberalization.

Present only 3 industries are allotted for public sector these are 1. Again it is reduced to 4 in 1999 (1.5. Railways and 4. 1964 Das Gupta committee recommended the MRTP act government made it in 1969 and implementing since 1 st June. 61 . Note: If any body establish any industry in more than or equal to 10 lacks population cities and around 25 kms from that cities that industry should be get license system. • • • • In 1973 FERA act made by government In 1991 FERA act amended by government. Atomic energy. 1970. • • • • • 1991 Industrial Resolution Policy allotted 8 industries for Public sector.) Again in 2001-02 these are reduced to 3. Hazardous Chemicals. In 2002 according Raghavan committee MRTP act banned and in the place of MRTP Competitive act came into force. 2. FEMA established in 2000 April but implementing since 1 st June. According competitive act companies can earn asset but companies should not made any agreement with competitive and small scale industries should not be take over by large scale industries. • In 1960 Prasant Chandra. 2002. Railways. Atomic energy 2. Atomic minerals. Atomic minerals. 3. Mahalanobis. 3. To control economic concentration • • • In 1991 MRTP amended MRTP range removed. Arms and amenities. But it is reduced to 6 industries in 1993. In 1999 FERA is replaced by FEMA.

• In 1992 government established National Renewal Fund to reconstruct or to merge or to close small scale industries. • • • In 2002 National company law tribunal established after abolishing SICA and BIFR based on Raady committee. Hindustan Petroleum Corporation Limited -1997 4. Steel Authority of India Limited -1997 8. But it was closed in 2000. NTPC Limited -1997 6. In 1997 government started Voluntary Retirement Scheme (VRS) to reduce supervisory cost. Navaratnas can spend Rs. Economic companies. Vidheshi Sanchar Nigam Limited – 1997 9.Ratnas: • • • • Central government given Navaratna status to highest profit making public sector to give autonomous status in 1997. 1991 industrial resolution policy increased small scale industries investment up to Rs. Indian Petroleum Chemical Limited – 1997. and administration freedom provided for Navaratnas 62 . Bharat Petroleum Corporation Limited -1997 3. Initially in 1997 total 9 companies are selected 1. Bharat Heavy Electricals Limited -1997 2.1000 crores or 15% of their net worth without approval of government. Indian Oil Corporation Limited -1997 5. Oil & Natural Gas Corporation Limited -1997 7. Navaratnas and Min. 5 lacks.

Later in course of time some more 2008 January • • • • • Net profit in past 3 years and in one year 30 cores profits getting company get the mini ratna-I. companies are got Navaratna status. But in 2002 Indian petroleum chemical limited sold to Reliance and Vidheshi Sanchar Nigam Limited sold to TATA Company. Coal India Limited -2008.500 crores or equal to its worth can spend without approval of government by mini ratna-I Rs. Net profit earned past 3 years companies gets Mini Ratnas-II. Hindustan Aeronautics Limited -2007 June Power Finance Corporation Limited -2007 June National Mineral Development Corporation Limited National Aluminum Company Limited -2008 May Power Grid Corporation of India Limited -2008 May Rural Electrification Corporation Limited -2008May Shipping Corporation of India Limited -2008. 14. Rs. Bharat Electronics Limited (Jun 2007). 13. 18. 12. 2005 total mini Ratnas are 45 (30 – Mini Ratnas-I and 15 Mini Ratnas-II). Mini Ratnas Again Navaratnas are reduced to 9. So Navaratna companies increased from 9 to 11. 10. 16. 17.• Later in 1997 November two companies one is Mahanagar Telephone Nigam Limited and second is GAIL (India) Limited -1997 November got Navaratna status.300 crores or 50% of its worth which ever is lower can spend without approval of the government by mini ratnas-II In March 31st. 15. 63 . 11.

5000 crores without approval of government. 4. • The fallowing companies got Mahanavaratna status.• • In 2006 may total Mini Ratnas are 51 (41 – Mini Ratnas-I and 13 Mini Ratnas-II) In 2008 December total 55 mini ratnas are there (43 mini ratnas-I and 12 mini ratnas -II) Mahanavaratna • In 2009-10 financial year central government gave Mahanavaratna status for highest profit making public sectors. Natural Gas companies 3. • Mahanavaratna status companies can spend up to Rs.Rangarajan 64 . Oil companies. Iron and Steel industries. Withdrawal of investment in public sector is called Disinvestment. 6. In 1992-93 disinvestment committee established under chairmanship of Dr. 5. Electronic Companies.C. 7. Civil Aviation. 8. Telecom Companies. Disinvestment: • • • In the part of economic reforms to encourage private participation in public sector government started Disinvestment. Heavy Industries. 2. 1. Power Sector.

E.100%. Mines. But UPA government banned disinvestment in profitable public sectors. After 2009 congress government started again dis.commerce is allowing 100% 5. roads and hotels are allowing 100% 7. 1. printing.V. airports. This board will look after disinvestment process. 4. Power Generation is allowing 100% 2. Oil refinery is allowing 100%. Courier services are allowing 100% 8. in 2001 disinvestment commission chairman was R.investment process. • • In December 1999 disinvestment ministry established and disinvestment minister post created. SEZs are allowing 100%.• In August 1996 disinvestment commission established under the chairmanship of G. 3. real estates are allowing 100% 65 . • • • • BRPSE chairman is Ratan Tata and Deepak Parekh and Ashok Gnguly are members in this board. Foreign Investment: • Total 34 priority sectors are allowing foreign investment between 51% . • This disinvestment committee divided the companies into core group and noncore group and upto 49% Disinvestment can permit in core groups. Tourism. Non-Banking Financial companies are allowing 100% 6. In 2004-05 budget BRPSE (Board of Reconstruction in Public Sector enterprises) enterprises established under the control of finance minster.Ramakrishna.H Patil.

98.0$ billion in 2006-07 In 2007-08 but 24.23% 9. From 2000 to November 2007 highest FDI inflows from Maritutes 44. 664 crores) FDI inflow to India. Telecommunication is allowing 100% 10. 11. Foreign investment are two types one is FDI Second is FII FDI (Foreign Direct Investment) • • • • • • FDI is inflows in India 6. Singapore 8% 3. 12.1.53% 44% 5. 22. Services sector 2. Japan 8% 7% 3% 23% 10. • Privates banks are allowing 74% Insurance is allowing 49% (it was 26% before 2008) Private media is allowing 26% In Defense instruments production is allowing 26%. 309 $ million (Rs. Housing and real estate 3. UK 6. In 2008-09 total 27. Netherland 5% • In 2008-09 highest FDI inflows to 1.2$ billion in 2001-02 23.24% In 2008-09 highest FDI inflows from 1. USA 4.9. 919 crores) inflows to India. Telecom 66 . Mauritius 2. 13. 579$ million (Rs.

In 2001-02 21.3$ billions.39% 9.1$ billion .54% 12. 2006-07 is 111. FII or Port Polio Investment: • • • • • • • • • • • • • According Global Development Report (2006) FII 70% total share in total Foreign Investment. 67 . Through ADR & GDR portfolio investment getting by foreign investment.69% 10. In 2007-08.39% 235924 $ million Public Sector Enterprises: • Since 1948 central government started to establish public sector industries. total 82% foreign investment inflows through FII. Highest foreign investment attracting companies in India First place is electrical equipments Second is transport and industry Third place Soft ware sector Fourth place is 17. And remaining 18% foreign investment through FDI. 2007-08 In India Foreign Investment attracting states First place is Maharashtra Second place is Karnataka Third place is Tamilnadu Fourth place is Gujarat. second place is Hong Kong and third position is Mexico.9$ billions (109622 $ million). 2004-05 is 23. First place is China.• According Global Development Report (2006) India is 10th position in case of attracting FDI.

Small scale industries definitions: • First time finance commission given definition for small scale industries in 1951. If investment is up to Rs. 29 crores investment. 21.• In 1951 only 5 public sector enterprises were there in India with Rs.49 million people are working in the small scale industries.7%. 242 crores small scale production value exported. 7. 5 lacks that type of industries are called small scale industries. 50. after UP (1).5 lacks they were called Auxiliary industries. UP (2). By the end of March 2006 total 123. Haryana (4) TN (5). Punjab (3). 5 lacks or less than Rs. • • Corporation: if the companies established with government act they were called corporations. But these numbers increased to 242 with investment of Rs. By the end of March 2007 total 29. In India after agriculture sector highest people are getting employment in small scale industries. According finance commission recommendation if investment is up to Rs. Public Companies: If the companies established based on 1956 company act they were called public company. 4. • 68 . Maharashtra (2). Total small scale industries export value in India is around 45% to 50% Total small scale industrial share in industrial production is around 35%. By the end of March 2006 total Rs. 089 crores. 1. Small Scale Industries • • • • • • • • • In case of production small scale industries position is the 6th place in the country after Maharashtra (1). Total small scale industries share in GDP is 6. According Industrial growth and regulated act 1951 small scale industries means labours should be work up to 50 is that industry consumes machines and if that industry can’t machine labours should be work up to 100 to call small scale industry. In case of number wise AP is 3rd position in the country.40 lacks unregistered industries and 118 lacks registered industries are there in the country.

After 1951 government changed investment for small scale industries in course of time like the fallowing table for small scale industries, micro industries and Auxiliary industries. Year 195051 1966 1977 1980 1985 1991 1997 199900 2006 Micro industries --1 lack 2 lacks 2 lacks 5 lacks 25 lacks 25 lacks 25 lacks Small industries 5 lacks 7.5 lacks 10 lacks 15 lacks 35 lacks 60 lacks 3 crores 1 crores 5 crores scale Auxiliary industries 7.5 lacks 10 15 20 45 75 ---lacks lacks lacks lacks lacks

According 2006 Small and Medium enterprises Development Act 2006 industries divided into 3categories based on the investment in production sector and services sector. Type of industries Production and raw materials) Micro industries Small industries Medium industries Large industries scale Moe than 10 cores More than 5 cores investment investment scale 5 cores to 10 cores 2 cores to 5 cores Up to 25 lacks sector Services equipments) Up to 10 lacks 10 lacks to 2 cores sector on

(investment on Machines (investment

scale 25 lacks to 5 cores

Government measures for the development of small scale industries:


• •

Government taking so many measures for the development of small scale industries in different five year plans. In 1947 central government established small scale industrial board. But during first five year plan this board divided into different boards like Rubber board, Tea Board, Coffee board, Handloom board etc.

• •

Central government taken initiation to establish industrial estates in 1953. In 1955 government established cottage and small scale industrial development corporation to provide financial support to small scale industries.

• • • • •

In 1955 Karvey committee to give some suggestion for small scale industries. In 1951 government made one act in parliament to establish state finance corporations. In 1967 Hazari committee for licensing system In 1967 Dutt committee for licensing system and also proposed MRTP. In 1977 Janata government announced small scale industrial resolution policy. And this policy increased number of reserved small scale industries from 180 to 807.

• • • •

In 1978 government established District industrial centers to provide training and financial support to small scale industries. In 1986 government started small industrial development fund to financial support for small scale industries. in 1990 central government established small industrial development bank of India (SIDBI) In 1985 Sick Industrial Companies Act made only private companies are come under this act but after 1991 Public sector industries also coming under this company act.

In 1992 National Renewable Fund started.


• •

In 1993 Goswami committee for sick industries In 1997 Abid Hussain committee recommended small scale industrial investment ad this investment increased from Rs. 60 lacks to Rs. 3 crores. But again this investment range decreased fro Rs. 3 crores to Rs. 1 crores.

In 2001 government established Khadi Rural industrial committee under the chairmanship of K.C.Panth.

Industrial Credit: • IFCI: this institute established in 1948. IFCI (industrial Finance Corporation of India) is getting refinance from IDBI, Commercial banks, LIC etc. • SFC (State finance corporations): Central government made act in 1951 to establish state finance corporation. in 1953 first started by Punjab state and Andhra Pradesh in 1956. Present total 18 state finance corporations are there in India. • • ICICI (Industrial credit and Investment Corporation of India): it is established in 1955. in 2002 ICICI bank limited merged with ICICI. UTI (Unit Trust of India): It is established in 1964. UTI mobilizing fund through various schemes like India funds, India growth fund, US-64, Rajyalakshmi, Master gain etc. but US-64 scheme made many controversy in the country. (According Deepak Parekh committee and Malegam committee suggestions Unit Trust of India divided into UTI-I and UTI-II in 2003, present UTI-I is under the control of Government of India and UTI-II is under the control of LIC, SBI, Punjab National Bank and Bank of Baroda.). Present UTI-2 is working as a mutual fund. • IDBI (Industrial Development Bank of India): it was established in 1964. Initially it was established as a affiliated body to RBI. It is the Apex bank in industrial credit. In 1976 IDBI established as 71

In 2005 IDBI limited merged with IDBI bank. Later in 1995 IRBI changed as Industrial Investment Bank of India (IIBI). • SIDBI (Small Scale Industrial Development Bank of India): It was established in 1990 to provide financial support to small scale industries in the country. • IIBI (Industrial Investment Bank of India): in 1971 government started Industrial Reconstruction Corporation of India (IRCI) to provide financial support for private sick industries. SIDCs (State Industrial Development Corporations): First SIDCs established at Andhra Pradesh and Bihar in 1960. Due to partition of India 40% of cotton production area went to Pakistan. and present total 28 SIDCs are there in the country. First textile industry established at Kolkatta (Port Gloster) in 1818. At the time of 1947 total 394 textile industries are there in India.autonomous institution. • • EXIM (Export and Import Bank): It was established in 1982 to provide financial support to exports and imports. Present around 2 crores people are working in textile industry in India. This export share is around 38% in o total industrial export. IRCI changed as a Industrial Reconstruct Bank of India (IRBI) in 1984. 72 . Technology up gradation introduced in textile industry in 1999 to utilize modern technology in industry. Important heavy industries in India: Textile Industry: • • • • • • • • This industry was oldest industry in India. In 1854 Bombay Spinning and Weaving Company established and this is the first modern textile industry in India.

• First sugar industry started at Bihar in 1903. In 4th five year plan Salem iron and steel industry in Tamilnadu. Present 20 Million tones steel production capacity is there in India. This is the first iron and steel industry in India. 73 . Durgapur Iron and steel industry with cooperation of United Rukhela iron and steel industry with cooperation of West Germany established. And they are 615 b the end of March 2008. In 1907 Tata iron and steel company established at Jhemshedpur and in 1919 Indian and iron and steel company at Barampur established. In 2nd five year plan Bhilai iron and steel company with cooperation of USSR. • • In 3rd five year plan Bokaro iron and steel industry with cooperation of USSR established. Sugar industry: • In 1951 total 317 sugar industries are there in India. Government target is to increase steel production capacity to 40 million tones by the end of 2020. Vijayanagar Iron and steel industry in Karnataka and Vishakha iron and steel industry in Andhra Pradesh established. In 1870 Bengal iron works started at Kuldhi near Kolkatta. • In 1974 government established Steel Authority of India Limited (SAIL) for the development of iron and steel industry in India. (in Andhra Pradesh Apparel park is there at Vishakapatnam) Iron and steel industry: • • • • • • This is the most important heavy and basic industry in India.• In 2003-04 Apparel Parks established at 9 places in the country to increase ready made exports.

40% output government determined the price. Keeping to the Minimum import of non essential consumer goods.• • • • • • Since 1979 government fallowing double price policy system in sugar industry. Jute Industry: • • • • • • • • First Jute industry was established in 1855 at Rishi in West Bengal Jute industry concentrated in Bengal area. National Jute policy announced by Government in 2005. After partition of Bengal 75% of the sugar cane producing land went to Bangladesh. Objective of Trade Policy: 1. 60% of the food grain product should be used Jute packing. In 1987 government made the Packaging Materially Act to protect Jute industry in India. 74 . India is second largest producer of sugar with 15% of the total world product. Total 78 Jute industries are there in India. 60% output can sell for market price. In 1998 government exempted licensing system for sugar industry. After 2002 onwards it reduced 10% so 30% product price determined by government. 40% of the sugar package should be used Jute. India is largest consumer of sugar in the world. out of them 61 Jute industries are concentrated in the Bengal area. But since 1923 some type of import restriction was adopted to protect domestic industries. After independence we have a clear trade policy. Trade Policy • • • India did not have clear cut trade policy before independence.

85% 0. iron ore.36% Hand made goods including Jems and Jewelleries Tea.58% Agriculture and allied accounts -11.2. fertilizers and paper. edible oils. To produce import goods in India i.1% 1. pulses. India’s Trade in world trade: year 1950 1990 19992000 200405 200506 200607 200708 2008--2.52% 0.59% 0. spices. 3.70% Import share 1.e. carbon chemical. rice.6% --1. coffee.00% Export share 1. Export promotion India’s major exports: • • • • Manufacture goods and petroleum -63.70% trade .66% 0. for import substitution 4.80% Total share 1. capital goods.78% 0. tobacco. India’s major imports: • Petroleum products.00% --1. medical.71% 0.2% 75 --1. Comprehensive control of various items of imports. jute.0% -0. engineering goods.

8% in % Balance of Trade -3.9% 20.4% 200607 22.13.6% 12.9% 27.8% in % Imports in GDPMP 8. 1.1% -4.3% . Trade policy in the pre reform period.8% -12.0% -2.9% 2008-09 (April Dec) 17. Trade policy in the pre reform period: 76 -5.6% 200708 28.8% -6. Trade policy in the post reform period.9% 21. 1.4% 35.1% 21.2% to December) 10.1% Total exports and imports growth in BOP: Items/Year 199091 Growth of export in 9.1% 200203 200405 200607 200708 2008-09 (April 15.6% 200506 23.2% 30.1% 32.09 Total exports and imports in GDPMP: Items/year 199091 Exports in GDPMP 5.7% 16.7% + 1.2% .8% -7.6.4% -8.1% 14.4% BOP % Balance of trade Trade policies: • We can divide the trade policies into 2 types in India.0% 12. 2.5% to .0% BOP in % Growth of imports in 14.2% 14.

• During this period government gave important two things in import policy. Export promotion 2.. Import substitution • In 1980 a large number of capital goods were placed under OGL (Open General License) category i. Export led growth 3. 1991 trade policy was reduced customs restrictions from 300% to • 85%.e. Import restrictions 2. 1. 1991. providing finance and reducing taxes for export services. they could be imported without any import license. 2. Based on the Raja Chelliah committee recommendations Later it was gradually y reduced and present there is taxes fro non-agricultural product is 12. 77 . Main Features of New trade policy (1991): • • • Removal of Quantitative restrictions Exchange rate liberalization Establishment of Trading or star hotels to give duty free imports of exports raw materials. Trade policy in the post reform period: • • • • It was announced on July 24. SEZ led growth. This trade policy was called New trade policy Since 1991 because of economic reforms trade was liberalized. • During pre economic reforms period export was encouraged by various methods like reducing tax system. Import substitution 4.5% Strategy of New trade policy: 1.

• • • • Reducing tariff rate Free trade Zones (FTZs) it was announced in 1999-2000. Small Scale industries goods. 300 cores but actual amount is 66. SEZs are providing direct employment over around 1. 78 . 2004 UPA government announced trade policy for five years (2004-09). 638 cores it was more than 92% over the previous year. 2000. • • • Present 195 SEZs are there with 1277 units in India. textiles Gems and Jewelers and electronics goods. During 2007-08 exports expected from SEZs is 67. 2004-2009 Trade policy: • August 31st. Among them 40% are women. SEZs (Special Economic Zones) started in India on March 31st. • • • In 2001 trade policy Agricultural exports zones introduced. In March 31st2002 government announced long term trade policy by Murasolimaran for 2002-2007. 2005 and made as SEZ act. Present FTZs are called export promotion zones. Main target of the 2002-07 trade policy is to promote the exports of agriculture products.79 lack people. • • Off-shore banks established to promote the exports units of SEZs in 2002-07 trade policy. 2006. 2005 government introduced SEZ bill introduced in the parliament and it was paused by the parliament on June 23rd. Export Promotion Zones are converted into SEZs. Here no customs duty. But SEZ act is implementing since February 10th. To expand the market this trade policy started “focus Latin America and Focus Africa”. May.

To achieve the above amount 26% annual growth rate should be there. 2004-09 trade policy introduced three new export promotion schemes 1. 2004-09 trade policy has been planned Free Trade and Warehousing Zones (FTWZs) on lines of SEZs. Served from India.• • • • The main objective of this trade policy is to increase India’s trade in the world trade to 1. 2004-09 trade policy exempted from services tax fro absolute export sector for cutting down the export cost. Liberalization of EPCG scheme (Export Promotion Capital Goods) in 2004-09 trade policy. 79 . Handcrafts. Served from India scheme will boost exports of services New service export promotion council has been constituted to increase services.5% by 2009. Liberal Import conditions for seeds made in 2004-09 trade policy. To achieve this target exports has to increase from 61. Target plus Schemes started for exporters incentives. Duty Free imports fro service exporters. Target plus scheme 2.8$ billion (2002-03) to 195% billion by 2009. handlooms. 3. Vishesh Krish Upaj Yojana. • • • 2004-09 trade policy given important to increase exports along with employment creation. 2004-09 trade policy special focused on five traditional exports like agriculture. leather and footwear and Jems and jewelers. • • • • • • • • Vishesh Krish Upaj Yojana to be introduced for boosting exports of agriculture products.

2007-08 Trade policy: • • • It was announced on April 19. Trade deficit is 39$ billions.• • Ban on old Machinery imports lifted in 2004-09 trade policy In the part of Long term trade policy (2004-09) complementary trade policies announced for 2005-06. 1. 2006 with a slogan of “Export for Employment”. 3.24% service tax.state trade council. 4. 2007. 2006-07. Handcrafts. Exports target was 101$ billions Imports target was 140% billions. Served from India Scheme liberalized. handlooms. The target rate of exports is fixed at 20% for 2006-07. 2006-07 Trade policy: • • • • • • • This trade policy announced by Kamalnath on April 17th. No safeguards and anti-dumping duty on imports under advance. Main features of 2005-06 trade policy. Focus product and focus market have been introduced for promoting employment opportunities in rural and urban areas. 80 creation in traditional areas like agriculture. Employment jewelers. All export oriented services delivered in India made exempted from 12. Export target for 2007-08 is 160$ billions and Export target for 200809 will be 200$ billions. 2. leather and footwear and Jems and . 2007-08 and 2008-09 2005-06 Trade policy: • • It is a complementary trade policy to 2004-09 trade policy. Setting up inter . By 2010 country exports are targeted to be 165$ billions.

000. • • • • • • Split-up facility under DFIA Scheme introduced. textiles products and iron & steel products are the major exports from India to USA. gas turbines. Coverage of FMS has been increased and additional 10 countries have been included. Macedonia. Value of jeweler parcels. Medical and surgical equipments.1. through Foreign Post Office is raised to US$ 75. Earlier it was from US$ 50. Djibouti. instead of the present system of paying duty on consignment basis. telecom. Duty free import of samples has been increased from Rs. Sea foods. EOUs shall be allowed to pay excise duty on monthly basis. computers and computer parts. Income tax benefit to 100% EOUs has been extended by Government.000. Bosnia-Herzegovina. • • • Refund of service tax on almost all the services. Albania. Croatia. And DEPB (Duty Enlightenment Pass Book) extended up to March 31st 2008. plastic are the major imports from USA to India. Setting up a new Export Promotion Council for Telecom Sector. Fish. Sudan. Customs duty payable under EPCG (Export Promotion Capital Goods) Scheme has been reduced from 5% to 3%.000. Honduras. These are Mongolia. Highlights of 2008-09 trade Policy • DEPB scheme has been extended till May 2009. Trade with UK: Trade with USA 81 .• SEZs benefits should be extended. 00. Precious stones. 000 to Rs. • • • India is the 24th rank among the trade partners of the USA in terms of exports and 18th in terms of imports. Ghana and Colombia.75.

Telecom Equipments. Machinery is major imports from China with consisting of 36% of China’s imports to India. iron and steel. oil and gas and services sector. but in 2007 India is become 5th largest trading partner with UK. organic chemicals and cotton are the major exports from India to China. • • Present in IMF total 185 countries are members. leather goods. International Organization International Monetary Fund (IMF) • IMF was established in December 27th. Cotton Yarn. oils are major imports from China to India. And it was started functioning since March 1st. cement. telecom. Transport equipments are the major imports from Japan to India. Nuclear reactors. Tea. Plant related products. • Electrical machinery and equipments. Transport Equipments And Industrial Machinery Are The Major Imports From UK to India. Major FDI inflows to India from UK have taken place in the power. Among them iron ore is major exports consisting of 53% of India’s exports to China. Trade with China: • Ores. 1947. Rough Diamond. software and pharmaceutical products are the major exports from India to UK.• • • • Till 2002 India is the second partner with UK. Rice. 1945 at Washington based on the recommendation of Briton woods Conference. plastics. Power Generating Equipments. Electronic. Machinery. silk. Before 1971 all transactions and quotas made in terms US $ 82 . Garments. Gold. Gems and Jewelry. organic chemicals. Gems and Iron ore are the major exports from India to Japan. Trade with Japan: • • Marine products.

9. 1. India is 13th largest quota holding country in IMF. China.France. 6. International Development Association. International Finance Corporation. 11. India quota in IMF is 4158. Japan. IBRD. 3.• • • • In 1971 SDR (Special Drawing Rights) started and this is also called paper gold From 1971 to 1981 one SDR value = One US $ value (only US $ determined SDR value) Since 1981 5 currencies are determining SDR value In 1991 5 currencies are having weight like the fallowing 1. 7. Italy. Japan Yen 4. 4. France Franck 17% 11% 11% 40% 21% • • • • • • In 1995 one SDR = 1. USA. UK. Russia.585 $ IMF financial year is MAY 1st to April 30. Germany. 12. IBRD (International Bank for Development and Reconstruction) or World Bank • • • • IBDR started in December 1945 based on the recommendation of Briton woods conference. Netherland. 10. IBRD started functioning since June 1946. Belizium and 13. 5.961% share n total quota. British £ 5. India. German Mark 3. IBRD is one of the World Bank group. Saudi Arabia. 8. US $ 2.2 million SDRs. 2. Canada. Multilateral Investment Guarantee Agency (MIGA) and 83 . This is 1.

It kept membership open to all members of World Bank. IDA provides loans to member’s countries but it will not collect any interest for long-term loans.International Centre for THE Statement Investment Disputes (ICSID) are the members in World Bank group. During 1995-96 India rank is first among the nations getting assistance from IDA. MIGA having 173 members ICSID having 143 members. Each member country have 250 Votes and additional vote given for 1. Present total 185 countries are the World Bank. Present 168 members are there in IDA. International Development Association (IDA) • • • • • • • • IDA (International Development Association) established September 24. India was founder member of World Bank among 30 countries. 00. IDA provides loans for poor countries. It provides loans to private industries in developing countries without any government guarantee. 84 . • • • • • • India having membership in all World Bank group except in ICSID. 000 $ share in capital stock held. IDA is an association institution of World Bank. International Finance Corporation (IFC) • • It was established in July 1956 by World Bank. 1960. IDA administered by the same group which manages the World Bank.

. 1995. Doha (Qatar) 6. which came into existence on January 1st.December 13 to 18 2005. GATT (General Agreement on Tariffs and Trade) • • • • • • • October 30. Hong Kong . 1998. Geneva 3. 1947. This is known as GATT. The highest decision making body of the WTO is the Ministerial Conference. 2001. 1967. 1. 1948. (Switzerland) .September 1. 85 . • It was started in December 1960 on the recommendation of Economic Commission for Asia and Far East (ECAFE). . 1999. December 12th. 2003.September 9 to 14. . Six Ministerial Conferences have been held. Since the establishment of WTO. 1994 GATT was abolished and replaced by WTO. 23 countries at Geneva signed an agreement related to tariff imposed on trade.November 30 to December 3. Singapore 2. Asian Development Bank (ADB) 5. GATT came into force on January 1st. which has to meet at least every two years once.May 18 to 20. • The main aim of this bank is to accelerate economic and social development in Asia and Pacific region.December 9 to 13 1996. Seattle (USA) 4.• IFC memberships are total 181 countries by the end of March 2005. Cancun (Mexico) . Present there are 153 (as an 2007 July) countries are the members of the WTO.to 14. This bank started functioning on January 1st.

Sri Lanka. Association of South East Asian Nations (ASEAN) It started on August 8th.• • • • • • • • • • • • • The head of this bank is at Manila in Philippines. 2nd is from Europe and 3rd is from Asia. Bangladesh. Bangladesh. 3 deputy chairmen are there for this bank one from USA. SAFTA has come into force since January 1st. 29th SAARC foreign ministers meeting held in New Delhi on 7-8th December 2007. SAARC 14th Summit held at New Delhi in India on January 2007. Pakistan. 2006. In this summit SAARC members countries signed for SAFTA India. Bhutan. Maldives. Maldives. India. Pakistan. 1967. Head quarter is at Kathmandu (Nepal) In every year alternative countries are acting as Chairman of the SAARC. 2006. 39th ADB summit took place in Hyderabad on May 3 to 6th. South Asia Free Trade Area (SAFTA) • • • • 12th SAARC summit held in January 4-6 2004 at Islamabad. 1985. Nepal and Sri Lank have agreed upon to create a South Asia Free Trade Area (SAFTA). This bank chairman is always allotted for Japanese. SAARC declared the 2005 year as Year of South Asia Tourism and 2008 as Year of Good Governance. Nepal and Afghanistan. Bhutan. Total 67 members are there at present. 86 . South Asian Association for Regional Co-operation (SAARC) It started on the recommendations of Dhaka conference on December 78. SAARC 15th Summit held on Maldives in 2008.

Vietnam (1995). Cambodia (1999) became the membership in ASEAN. Ecuador. West Germany. OPEC countries are producing total 75% of the petroleum. Kuwait. UAE. Indonesia. Myanmar (1997). Algeria. Saudi Arabia and Venezuela were its founder members. OPEC head quarter is at Vienna in Austria. 33rd G-8 summit held at Helligendomm Germany in 2007.• • • • • • • • • • • • • • • • • Indonesia. Laos (1997). 34th G-8 summit held at Japan in 2008 and 35th G-8 summit will be held at Italy in 2009. France. Iran. Philippines. All these G-7 countries are non-socialistic and highly industrialized countries. G-8 account for 49% of global exports. Organization of the Petroleum Exporting Countries (OPEC) It is started at Bagdad in 1960. 51% of industrial outputs exports from these countries. G-8 In 1975 November USA. Qatar. Singapore and Thailand are the members of ASEAN. Nigeria and Angola countries are joined later Present there 13 members in OPEC. Libya. Iraq. So G-7 is calling as G-8. Brunei (1984). and Japan held meting at Rambonilet in Paris. After adopting free market policies in the economy Russia also became member of G-7 in 1997. Malaysia. It head quarter is at Jakarta. G-15: 87 . UK. Later in 1976 Canada and Italy also joined this is called G-7. G-8 countries having 49% asset in IMF.

India. Argentina. IORARC (Indian Ocean Rim Association for Regional Co- operation): • it was established on March 5th. Chile. In this organization total 14 countries are there. Mexico. Venezuela. Jamaica. 29 members are there in OECD. Peru. Australia and South Africa had been making all efforts for this co-operation for last 2 years. 88 . It is started in 1958. Asian Pacific Economic Co-operation (APEC): • • • it is started in November 1989. Head quarter is rotated to the country belonging to the Chairman of the group. Its head quarter is in Brussels in Belgium. Iran. OECD: • it was started in 1948 in the name of Organization of European Economic Co-operation (OEEC). Zimbabwe. Brazil. Netherland and Luxemburg. Present 21 countries are the members In APEC BENELX: It is a commercial union of Belgium. Nigeria. Algeria. Indonesia.• It is established in 1989 in NAM summit AT Belgrade. 1961. The Secretariat of G-15 is at Geneva. Egypt. Malaysia. India. 1997 at Port Louis of Mauritius for promoting economic co-operation among the countries in coastal regions of Indian Ocean. it was renamed as Organization for Economic Co-operation and Development (OECD) in September 30th. Senegal. • G-77: it’s started in 1964 under the banner of UNO it includes 130 members which were third world countries. it head quarter is in Paris. Kenya and Sri Lanka are the members of G-15.

Maharashtra (2). Brazil (4). India is the 7th largest country in the world after Russia (1). USA (3). 89 . India is the second largest populated country in the world. India’s peninsular and Andaman Nicobar Islands coastal line is 7516 KM. Karnataka (4). Tamilnadu (6). Andhra Pradesh (7).263sqkm). 200 KM. Total India’s territorial boundary is 15. • • • • • • • Lowest coastal line has to Goa state. Gujarat (1). India’s population share in the world is 16. china(5). 23 ½ ̊ Karkata Curve is going middle of India.287 millions Sqkm (32.4% in the world. Australia (6). after China. In India 23 ½ ̊ Karkata Curve passing through Gujarat. India’s East to West length is 2933 KM. Goa (3). Indian peninsular coastal line is 6100KM. Andhra Pradesh 82 ½ ̊eastern Longitude is considering as Indian standard curve or Indian time line.7%. 87. Canada (2). Total 9 Indian states have the coastal line i. Orissa (8) and West Bengal (9). India’s geographical share is 2. Kerala (5). Madhya Pradesh. Chhattisgarh. Orissa.e. India’s North to South length is 3214 km. • Among the states highest coastal have to Gujarat state and after Gujarat Andhra Pradesh have highest coastal line but east side highest coastal line having to Andhra Pradesh.Unit – 3 Geographical size Dasari Muniswamy Geographical conditions of India: • • • • • • • • Total India’s geographical area is 3.

India’s pradeshika water is 12 Nautical miles. India’s special economic zone is 320 KM. Assam. Punjab and Jammu and Kashmir have the territorial boundary with Pakistan with 3310 KMs. Tibet. Arunachal Pradesh and Sikkim having territorial boundary with China with 3917 KMs. 90 . Gujarat. Myanmar North – China. Chhattisgarh. Pakistan North west (vayuvyamu). Andhra Pradesh states in India. Nepal and Bhutan • India’s Boundaries are West – Arabian sea.Afghanistan East – Bangladesh. Nepal and Bhutan South – Indian Oceans • • • • • India having territorial boundaries with 8 countries In south India and Srilanka is separated by Palk Strait and Gulf of Mannar. Indian standard time is 5 ½ faster than the Greenwich curve or international standard time. Uttaranchal.Afghanistan East – Bangladesh. Myanmar and Bay of Bengal North – China. Rajasthan. India’s territorial boundaries are West – Pakistan North west (vayuvyamu). Orissa. Tibet. Jammu and Kashmir.• • • • • • 82 ½ ̊eastern Longitude is passing through Uttar Pradesh. Among them Rajasthan having highest territorial boundary with Pakistan. West Bengal. Madhya Pradesh. Himachal Pradesh. 82 ½ ̊eastern Longitude curve is passing through Allahabad town in Uttar Pradesh and Kakinada town in Andhra Pradesh. Meghalaya. Tripura and Mizoram having the territorial boundary with Bangladesh with 4096 KMs.

Uttar Pradesh and Uttaranchal having the territorial boundary with Nepal with 1752 KMs. Arunachal Pradesh. Madhya Pradesh (2). In 1961 Goa and Daman and Diu got from Portuguese and made as Union Territories. In 1956 total 14 states and 6 Union territories had in India. Largest state in India is Rajasthan (1. This is also called pigmolian point. Bihar (3) and West Bengal (4) and Andhra Pradesh (5). Smallest Populated state is Sikkim. Maharashtra (2). Smallest state in India is Goa. Nagaland. In 2000 Jharkhand made as 28th state from Bihar. In 2000 Chhattisgarh made from Madhya Pradesh as 26th state. West Bengal. Sikkim.• • • • • • • • • • • • • • • • • • • • • Sikkim. Manipur and Mizoram having the territorial boundary with Myanmar with 1458 KMs. Andhra Pradesh (4). West Bengal. Jammu and Kashmir having the territorial boundary with Afghanistan with 80KMs. 91 . Largest populated states are Uttar Pradesh (1). At present total 28states and 7 Union Territories are there in India. There is RadCliph curve between India and Pakistan. In 2000 Uttaranchal made as 27th state from Uttar Pradesh. In 1987 Goa made as state as 25th state. Bihar. Indian Northern most point is Kilik davas pass in Jammu and Kashmir. Sikkim and Arunachal Pradesh having the territorial boundary with Tibet. Maharashtra (3). Assam. Arunachal Pradesh having the territorial boundary with Bhutan with 587KMs. There is Mechohan Curve between India and China There is Durand curve between India and Afghanistan Indian Southern most point is Indira point.

2. • India’s climate affected by two seasonal winds. 4. 3. Ganga and Indus Plains. Jharkhand. Chhattisgarh states are called Land locked states (Bhuparivestita Rastralu). Madhya Pradesh. 2. 3. Rainy or South-Western Monsoon – June to September. 1. Desert region 4. North – East Monsoon (Eesanya) it is known as winter monsoons blows from land to sea. Physical Features of India: • Indian physical features can divided into four main regions.. 1. Southern Peninsular. 92 .. Winter – January to February. Post-Monsoon or North – East Monsoon – October to December. South – West Monsoon (Nyruthi). Great Mountain Zone: this is almost Himalayan regions with 2400 KMs length and 240KMs to 320 KMs width. total 8 states have the boundary with Uttar Pradesh. 1. Climatic Conditions: • Indian climate of India may be broadly described as tropical monsoon type. These are four seasons.• • • • Second lowest populated state is Mizoram. it is known as Summer Monsoon blows from sea to land. among them 204 islands are there in Bay of Bengal. Uttar Pradesh state having the highest boundaries with another states. 2. Total 247 islands have to India. Hot Weather Summer – March to May.

Minerals are basically natural resources. Wajrakarur in Anantapur and Kimberlite at Raichur in Karnataka.Natural Resources: • • • The availability of minerals determines the peace of economic development of a country to great extent. Graphite: Orissa. West Bengal. manganese. Bulk of the coal production comes from Bengal – Jharkhand coal fields. Bauxite: India stands 5th in the world. chromites. Limestone: Mandhya Pradesh. Tamilnadu. bauxite. Diamond: The main diamond bearing areas in India are Panna belt in Madhya Pradesh. Karnataka. One is Kolar Gold fields in Kolar district in Karnataka. second is Hutti Gold fields in Raichur district in Karnataka and third is Ramgiri Gold fields in Anantapur district in Andhra Pradesh. Cromites: highest available in Orissa late Andhra Pradesh. Orissa is having highest resources after Andhra Pradesh is second place. Mandhya Pradesh. Barytes: Andhra Pradesh is having highest resources. Managampet of Kadapa district having highest resources in Andhra Pradesh. Orissa. Andhra Pradesh. Munimadugu – Banaganpalle conglomerate in Kurnool ditrict. mica. Orissa Jharkhand. dolomite and limestone etc. Mandya Pradesh. Iron ore: Jharkhand. 93 . They contribute 60 to 65% of the total production. barites. Coal: India is 3rd place in the world. Andhra Pradesh. Chhattisgarh. Bihar. India having ample deposits of coal. Gold: there are three important gold fields in India. Jharkhand. Gujarat. gypsum. Gypsum: Rajasthan and Jammu & Khasmir. iron. Lead and Zinc: Rajasthan. Dolomite: Orissa. Copper: Rajasthan. Madhya Pradesh. Lignites: Tamilnadu having highest resources. and MP.

Bihar. May 17th 1498. Mica: Andhra Pradesh. Extension of private sector Use of foreign modern technology for exploration and extraction. the Indian economy was caught up in a vicious circle of poverty Like low income – low level of saving – low capital formation – low investment – low employment – low level of income. Kushans and guptas issued gold coins in large scale. Maharastra. Crude Oil: At present oil is being explorated in India at many places of Assam and Gujarat. Magnesite: Tamilnadu and Uttarakhand. which included the fallowing salient features. Jharkhand. Orissa. 1993. In 1542 Shersha issued silver rupee coins 1882 paper currency issued in India by britishers Since 1935 Indian rupee became independent established in 1935 The pre-independence period was a period of near stagnation of the Indian economy At the time of independence. Nickle: Orissa. Stress on environment protection Indo Greeks issued first time gold coins in India. Rajasthan. Portuguese enter to India December 31.Manganese: Karnataka. Government of India had announced a New Mineral Policy on March 5th. • • • • • • • • • • • • • • • Permitting foreign companies to share mineral extraction. 1600 British east India company established In 1602 Dutch east India company any British east India company entered to India because RBI was Indian Economy Before independence: 94 .

ZAMINDARI SYSTEM: in 173 Karan walis introduce this system as permanent settlement. • • The Indian handi craft fell after 1813. First stage or the period of mercantilist phase. The second stage: 1813 to 1858. Bihar and Orissa this system was there 2. the Indian economy was transformed from a surplus and self-sufficient economy into a colonial economy. Land Systems During British Period 1. During this period EIC completely monopolized trade and began the direct plunder of Indian wealth the company used its political power to dictate terms to the weavers of Bengal who were forced to sell their products at a low prices. central India it was there 3. 2. when the Indians traders last foreign markets and domestic markets. 1. ayodhya. goa. Zamindari power given to hereditary Bengal . it introduced by Thomas Munro as a collector of ceded districts. British colonial exploitation in India can be broadly divided into 3 stages or 3 periods. Madras and Mumbai it was there. Rytwari system: it was introduced in 1802. Mahalwari system: in 1800 Sir mekanji recommended this system.• In 1664 French east India company entered to India ECONOMIC IMPACT OF THE BRITISH RULE • After the battle of plassy and bauxar. • The basic aim of British administration in India was to transform Indian sub-continent as a consumer market for British finished goods. This stage was called industrial phase. • • This period is between 1757 and 1813. which was lead to the drain of Indian wealth for the interest of British industry 95 .

post offices and telegraph. So India was forced to export raw materials instead of exporting manufactured goods. silk. indigo and tea. jute. railways. oilseeds. wheat. The doors of India were open to foreign trade but the Indian products had to compete with British products with heavy import duties on entry into Briton. India was a self sufficient of food grains but during the British period Famines occurred due to commercialization of agriculture. During this period British imported raw materials from India and brought back manufactured goods to India. Commercialization of Agriculture: • Before Britishers entered to India. banking to meet their social and commercial needs. 96 . 3. some time it was 400% more high.• • • The industrial revolution in British has completely transformed Britons economy and its economic relationship with India. India exported only raw cotton. The Britishers constructed roads. • • • During this period Indian sugar had to pay on entry into Briton 3 times of price. The third stage: • • • • • • This stage is also called finance colonialism It was started after 1860 The 1857 revolution was basic factor to change the nature of colonialism. British capitalist invested money on various activities As a result the Indian public debt increased to British so India became a real colony to British.

Transport: • • • • • • Lord Dalhousie initiated a programme of wide railway construction in India.• Indigo: two types of indigo cultivators I.Zirat or Raiyyati: where the farmers were forced to grow it. nij: Directly under the supervision of British investors. During the 1850 Land revenue was – 50% 97 . monopoly abolished on trade and started Lassies Faire There was no tariff to protect the Indian industries But there were high tariffs in Briton to Indian goods. he defined the economic reason behind the railway construction In 1853 Bombay to thane started the first railway line By 1905 nearly 45. It was one side free trade Indian exports reduced rapidly due to their policy According to Amiya Bagahi the % of the people depends on industries reduced from 18. In 1813. the dependence of agriculture increased from 55% in 1931 to 72% in 1951 Due to de-industrialization the artisans were forced to migrate to villages as landless laborers. • Tinka tiya system: where the peasants were forced to grow indigo on 3/20 per bigha.5% in 1809-13 to 8% in 1901. Due decline of handi crafts. II. In his famous mint on railways.000 Kms of railways had been built Nearly 350 cores invested by British capitalist with very high rate of interests. Deindustrialization: • • • • • • • • • The industrial revolution in Briton transformed the position of the industries in India.

• • • • • • • • •

Opium-17% Salt-7% Costoms-8% Excise-4% Income or license tax -0.3% Public expenditure increased around 41.9% in 1881-82 During Curzon period it was increased by 51.9% Civil administration including legislative, judiciary, pensions etc accounted for about 25% of the total public expenditure. Between 1875-76 to 1898-99 the home charges amounted to 16% of the current revenue and it was increased to 33% in 1933.

The drain off wealth • • • • • • • • • • The drain of wealth explained by dadabai Naroji, R.C.Dutt, R.P.Dutt and Bipin Chandra. Dadabai Naouroji brought it to light in his book titled poverty and un British rule in India. R.C.Dutt – economic history of India R.P.Dutt – India to day Industrial evolution of India- D.R.Gadgil Famines in India – B.M.Bhatia Colonialism and metrolisem- bipin Chandra After plassy was drain was started But after 1858 the drain of wealth increased more Drain of wealth took place through various forms, like I. II. III. • Home charges after 1857 this was constituted 24% of the total revenue in India Civil and military charges Interests on foreign capital investments

According dadabai naouroji30% to 40% drain per annum 98

• •

According Prof. C.N.Venkil- the drain of wealth was rs.591 million from 1834 to 1924. During 1757-65 company officials expenditure was £6 million

Characteristics of Indian Population: FLORA: • • • • India is a rich in flora India is the 10th position in the world in case of flora (plant diversity) India is the 4th position in Asia in case of flora in plant diversity Botanical survey of India Kolkata described around, 46,000 species of plants after surveying 70% of geographical area.

FAUNA: • • • • • • • • • • • • According Zoological survey of India (Kolkata), India has great variety of fauna numbering over 89,000 species Out of 89,000 species 2577 are protista 5070 are Mollusca 68,389 are Arthropod 209 are Amphibians 390 are Mammalian 456 are Reptilian 119 are Protochardata 2546 are Pisces 1232 are Aves 8329 are others

CENSUS: • In 1830 -1 billion (100 cores) total world population 99

• • • • • • •

In 1930 – 2 billion total world population (in 100 years 1 billion population increased) In 1960 – 3 billion total world population (in 30 years 1 billion population increased) In 1975 – 4 billion total world population (in 15 years 1 billion population increased) In 1987 July 11 – 5 billion total world population (in 12 years 1 billion population increased) In 1999 October 12 – 6 billion total world population (in 12 years 1 billion population increased) July 11th is called world population day October 12th is called a 6th billion day

INDIA’S POPULATION: • • • • • • • • • Year 1901 1921 1951 1961 1971 1981 1991 2001 -population (cores) -23.83 -25.13 -36.1 -43.9 -54.8 -68.33 -84.64 (84, 64, 21, 039) -102.87 (102, 87, 37, 436) Average annual growth rate (%) --


Population cores) 23.83


Decadal growth rate (in %) --




54 0. In this stage there is population explosion.31 11.9% & death rate decreased from 49% to 27% In third stage birth rate decreased from 40% to 37% and death rate decreased from 27% to 15%.87 (102.64 24.31 21. 1951-1981 period is called third stage. 101 .25 1. it is called rapid growth rate in population 1981-2001 period is called fourth stage.33 1.64.64 (84.2 3 4 5 6 7 8 9 10 11 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 25.80 24.66 23.81 68. it is called stagnation in population.86 36.92 54.21.22 2.33 84.14 1.13 27. it is called decreasing growth rate in population In First stage high birth rate and death rate also very high In second stage birth rate decreased from 49% to 39.96 2.039) 102.87.04 1.89 31. 1921-1951 period is called second stage.20 2. it is called steady but low growth rate in population.56 -0.436) 5.03 1.75 -0.37.22 13.95 Indian population and different stages: • • • • • • • 1801-1921 periods is called first stage.00 14.87 21.20 25.10 43.

650) Second lowest populated UTs is Daman and Diu with 0.40. Maharashtra Bihar West Bengal Andhra Pradesh 9.09% (9.10.4% (7.80% for decade) In fourth stage population growth rate started to reduce.01.007) 16. 38.79% (8.35% (1.05% (5.16% (16. 61.93% Great divide year in India population is 1921.76.01% (60. During 1981-91 16.09% (8.42% ( cores population increased During 1981-91 annual growth rate was 2.573) Highest Union territory population UTs is Delhi with 1.197) 7. Small dive year was 1951 because population decreased less Divide year was 1981 because from this year population started to decrease Most populated states: • • • • • Uttar Pradesh India.204) Highest growth rate states: 102 .02% (1.• • • • • • • • • In 1971 there was highest growth rate in population (24.98.07% (8.11% During 1991-2001 annual growth rate was 1.78.851) Second lowest populated state was Mizoram with 0.31 cores population increased During 1921-2001 18. 97. 507) Second highest populated UTs is Pondicherry with 0.509) 7. 74. Because I this year there was negative growth rate in population.921) in total population of Lowest Populates states: • • Lowest populated state was Sikkim with 0.345) Lowest populated UTs is Lakshadweep with 0. 50.62.29. 58.627) 8.

000 to 19.22% 55. population was 44.2 103 .00.VI towns –less than 5000.000 to 99.00.000 Class-II towns – between 50.000 to 49.53% 59.000) From Andhra Pradesh Hyderabad and Vizag.999 Class –V towns –between 5. population was 62.73% 40.999 Class –III towns -between 20.3% According 2001 census there are 35 million cities.000 to 9. Highest population growth city was Jaipur.59% There are six type of town are there in India • • • • • • • • • • • Class-I Towns – above 1. Rural and urban population Population S.8 Urban 10.4% In 2001 there was class-I .• • • • Nagaland Daman and Diu Chandigarh 64.999 Class -IV towns -between 10.8 11.2 88. In 1951 there was class –I. (More than 10.NO YEAR 1 2 1901 1921 million) Rural 213 223 Urban 26 28 (in Population (in %) Rural 89.28% Dadranagar Haveli Lowest Populated states: • • • Kerala Tamilnadu Andhra Pradesh 9.999 Class.72% 14.43% 11.

3 4 5 6 • • • • • • • • • • 1951 1981 1991 2001 299 524 629 743 62 159 218 286 82. 22.02% Fourth position was Uttar Pradesh with 21.2 17.15% 85.7 76.6% Lowest town % populated states is Himachal Pradesh with 9. 000.72% third position was West Bengal with 23.000.8 According 2001 census total S.8% and second lowest Bihar with 10. 66. 51.20% highest % of S. Nagaland 4. 33.94% 94. First Lakshadweep 2. 48.20% STs Population highest state is Madhya Pradesh with 1. Meghalaya 94.43. Mizoram 3.8% and second is Mizoram with 49. According 2001 census total STs Population India was 8.C Population 16.46% • • • • • Highest Town populated state first is Maharashtra and second is Uttar Pradesh Lowest town populated states are first is Sikkim and second lowest is Arunachal Pradesh More town population % state is Goa with 49.2% Highest town populated UTs is Delhi 104 . 36.51% 89.26.3 72.7 27.3 23. STs population % states 1.85% second position Himachal Pradesh with 24.C population state was Punjab with 28.C population 5 16.15% but population wide this is the first state with 3.000 STs % in total population is 8.7 74.3 25.000 Total S.

Highest population density UTs is Delhi with 9340 in 2001 and 6352 in 1991. Lowest population density UTs is Andaman Nicobar Islands with 43 in 2001 and 34 in 1991.NO First Second Third Fourth Fifth population density 117 142 177 216 267 324 STATE west Bengal Bihar Kerala Punjab 2001 903 881 819 690 484 1991 767 (1) 685 (3) 749(2) 548(4) 403(5) Highest density states Uttar Pradesh Andhra Pradesh population density was 277 in 2001 and 242 in 1991. Lowest density states Arunachal Pradesh with 13 in 2001 and 10 in 1991. Second highest population density UTs is Chandigarh with 7900 in 2001 and 5632 in 1991.• Lowest Town populated UTs is Lakshadweep Population Density: • • • • • • • • • • • • • • • • • • • • • • It is defined as the number of persons lived per Square Kilometer. Year 1951 1961 1971 1981 1991 2001 S. 105 . Second lowest density states are Mizoram with 42 in 2001 and 33 in 1991.

Sex Ratio: • • • • • • • • • • • • • • • • • • • • • • It is defined as the number of female population pre thousand male populations. The sex ratio in the our country had always remained unfavorable to females At the time of beginning of 20th century sex ratio was 972:1000. but later it was declined Year 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 sex ratio 972:1000 964:1000 955:1000 950:1000 945:1000 946:1000 941:1000 930:1000 934:1000 926:1000 933:1000 Highest sex ratio states are First Kerala with 1058:1000 Second Chhattisgarh with 989:1000 Third Tamilnadu with 987:1000 Fourth Andhra Pradesh with 978:1000 Lowest sex ratio among the state is Haryana with 861:1000 Second lowest sex ratio state among the states is Sikkim with 875:1000 106 .• Second lowest population density UTs is Dadranagar Haveli with 449 in 2001 and 282 in 1991.

76% 39.35% 21.97% 29.3% 34.67% Highest literary states: rank first State Kerala Total 90.45% 43.29% 53.40% 45.38% 64.• • • • • • Highest sex ratio among the UTs is Pondicherry with 1001:1000 Second highest sex ratio among the UTs is Lakshadweep with 948:1000 Lowest sex ratio among the UTs is Daman and Diu with 710:1000 Second lowest sex ratio among the UTs is Chandigarh with 777:1000 Highest sex ratio among the states and UTs is Kerala with 1058:1000 Lowest sex ratio among the states and UTs is Daman and Diu with 710:1000 Literacy Rate: • • • A person aged seven and seven.21% 64.57% 52.33% 28.13% 75.72% 107 . who can only read but cannot write is not a literate But before 1991 census means up to 1981 census children five years of age necessary treated as illiterates.96% 56. Year Total literacy Male rate (male + literacy female) 1951 1961 1971 1981 1991 2001 18. who can both read and write with understanding in any official language is treated as a literate A person.26% Female literacy rate 8.86% 15.84% rate 27.24% 87.86% male Female 94.16% 40.

97% 67.88% 76.53% 80.47% 81.03% 85.71% 81.48% 90.33% 74.34% 63.42% Total 47% male Female 59.53% 54.01% 76.83% 43.18% 86.33% 75.37% 85.24% 88.35% 67.12% Second Jharkhand 53.63% 71.90% and 78.61% 57.94% 86.second Mizoram third fourth fifth Goa Maharashtra Himachal Pradesh Lowest Literacy state: rank Lowest lowest Third Lowest UTs literacy rate: Rank First Second Third Fourth Fifth Sixth UTs Lakshadweep Chandigarh Delhi Andaman Nicobar Pondicherry Daman Diu Seventh Dadranagar Haveli Arunachal Pradesh State Bihar 88.53% Total male female 86.80% 82.18% 40.76% 65.47% 81.75% 88.24% 81.23% 108 .68% 33.56% 63.72% 86.66% 92.67% 87.14% 76.42% 75.62% 73.30% 86.83% 43.

7% Un-productive population 39.0% 6. If there is more population more than 60 years. 109 .8% 42.5% 34.Age Composition: • • The age between 0to 14 years and above 60 years is called unproductive population India.2% 57.2% 57. Productive population can help for the development of economy.9% 41. we describe that there is a high population growth rate in the country.3% years group 60.1% 58.8% 36. The age group between 15 years to 60 years is called the working population in India.3% If there is more population between 0-14 years.7% More than 60 age years group 1.0% age Productive and un-productive population in India in different years Year 1911 1991 2001 • • • Productive population 60. we can describe that life expectancy and standard of living of the people is increasing. Different age group composition in different years Year 0-14 years 15-60 age group 1911 1991 2001 38.1% 58.4% 7.

4% 931:1000 936:1000 Literacy Female rate 65.1% literacy rate 53.5% per 1000.73% Highlights of 2001 population census: • • • • • • • • • • • Total Population 102.84% 1009:1000 80.1% 76.9 years In 2006 there is IMR (Infant Mortality Rate) is 57 per 1000 births In 2006 there is male IMR (Infant Mortality Rate) is 56 per 1000 births In 2006 there is female IMR (Infant Mortality Rate) is 59 per 1000 births In 2006 there is birth rate in India is 23.3% 893:1000 953:1000 940:1000 -69.1% 59.22 millions Female population – 49.8% Jain Others 0. 110 .1% 47.5% 13.65% Life expectancy is 63.33% Sikhs 1.7% 94.1% 61.87 millions Male population – 53.4% 72.2 years Male life expectancy is 62.3% Female life expectancy is 63.6% 33. In 2006 there is death rate in India is 7.4% 0.5% per 1000.0% Buddhists 0.7% 90.2% Christians 2.2% 50. Religion % of the Sex ratio population Hindu Muslim 80.Religion wide population India based on the 2001 census.2% 63.

42nd constitutional amendment act decided the Lokh Sabha seats based on the 1971 population census up to 2001. Diphtheria. • The main objective of this policy is to encourage two children and to stabilize the population by 2046 A. whooping cough etc should be taking. 3. National Population policy 2000: • Based on the recommendation of M. MMR should be reduce below 1000 per 1.000 lives 4. 6. Universal immunization against TB. hospitals and medical institutions with trained staff.Population policy: First time national population policy announced by government in 1976 • • • • • Compulsory Family planning system implemented in India Girls marriage age increased from 15years to 18 years Men marriage age increased from 18 years to 21 years. Polio. 111 . The main features of 2000 population: 1. 2. Access to information including information of AIDS and prevention of communicable deceases. They changed Family planning control department name changed as family planning and welfare department.S Swaminathan (1994) NDA government announced National population policy on February 15. Achieving 80% deliveries in regular dispensaries. But 2000 population policy extended from 2001 to 2026.D. 5. In 1977-78 Janata Government Voluntary Family Planning system started. 2000. IMR should be reducing to below 30 per 1000 live births.00.

12. National Rural Health Mission (NHRM) Started by the government on April 12.100 cores on June. Incentive to adopt two-child small family norm and increasing facilities for safe abortions. Special rewards for girls marriage after 21 years and opting Health insurance coverage to those below the poverty line who The appointment of a national commission on population to be terminal method of contraception after the second child undergo sterilization after having two children headed by the Prime Minister to monitor the implementation of population policy • Indian population crossed the 10 cores on May 11.e. 2005 to increase the village quality by providing health services. Government started Janasankhya Sthirata Kosh (JSK) with Rs. by 2026. Population growth rate during 2001-2006 would be 36% 112 . 11. 3. 9. • • • Vice chairman of this national population commission is deputy planning commission chairman. 8. Strict enforcement of child marriage restraint Act and pre-Natal Diagnostic technologies Act.7. Sex ratio will be 930:1000. Population density will be 426 per Sqkm 4. 1. 10. Total India population will be 140 cores. 2000 and same day Government constituted national population commission under the chairman ship of Prime Minister. 2. 2003 to stabilize the population by 2046. • The technical group of National population commission projected that India population will be like the fallowing after 20 years i. Raising the marriage of girls from 18 years to 20 years preferably more.

8. Age group composition would be like in the fallowing. By the end 2006 Uttar Pradesh population will be 24.4 years 60 58. 6. Highest population growth rate during 2001-2006 will be Delhi with 102%. according technical national population commission.0 years 12.5.7 years 64. Lowest population growth during 2001-06 will be Tamilnadu with 15% and Kerala with 17% 7.4 years 2001 (Actual) 2026 (projection) 34.9 Cores.3 years 23.3 years 113 . Age group 0-14 years 15 to years Above60 years 7.

Different types of Money: 1. iron and gold are called metallic money. 7.M. Anything which is widely accepted in payment for goods or in discharge of other kinds of business of obligations —ROBERTSON 5. Money is what money does —WAKER 2. In order to eliminate these problems money was introduced.Dasari Muniswamy Unit. The barter system of exchange had many problems such as lack of double coincidence of wants. Money that delivery of which debt-contracts and prices contracts are discharged and in the shape of which a store of general purchasing power is held —J. difficulty in the fine divisibility of goods and storing of goods for future use. The word MONEY derived from Latin word MANETA (may be this word used because coins printed at Maneta goddess temple).4 MONEY The exchange of goods is called Barter System Barter means in which goods or services are directly exchanged for other goods and/or services. Money is a temporary purchasing power of the house – Milton Friedman. cows and skin of animal 2. Ex: Copper. difficulty in establishing exchange rates among commodities to be exchanged. silver. • Full body or Standard money: If the metal internal and face value is equal that is called full bodied money in India between 1835 and 1893 this type of was in a circulation. This type of money again divided into 3 types. 114 . • Token Money: Internal value is more than the face value. Commodity Money: Food grins. Metallic Money: If the metal used for as a currency is called metallic money. Barter system was existed when money was not in a circulation. without the use of money. there was a less economic activities and less desires of the people. Anything that is generally acceptable as a means of exchange and the same time acts as a measure of value – CROWTHER 4. cowries.SELIGMAN 3.KEYENS 6. Money is one that possesses general acceptability -. animals. Definitions 1.

Legal Tender Money: Legal tender money. 1. Acceptability Criterion: Based on the acceptability money divided into 2 types first is Legal Tender Money and Optional Money.1000 by the debtor.• Denominators money: To use the small transactions. b. Fiat Money: Currency which is legally decreed as valid means of financing transactions. Cheques are not legal tender money because it may or may not be accepted by the public. If we want it can convert into paper currency into metal. creditor may not accept if 4000 25 Paise pays to repay Rs. This paper currency again divided into two types. a. Rupee coins and ½ Rupee coins for the repayments of debts. But present 25 Paise is not in a use in India. The state and the people accept it as means of payment to discharge their debts. Ex. 3 Paper currency: Paper currency again divided into different types • • • Representative paper currency: This currency has 100% metallic value. Cheques. drafts etc. Ex. 115 . which is legally made acceptable as a medium of exchange is called legal tender money. In case of unlimited tender money people have to accept all type notes. So this type of paper currency is not necessary to maintain metal value ratio. So we have to maintain the existence of metal. are called credit money.25 only. Legal tender money again divided into unlimited legal money and Limited legal tender money. 2. 25 Paise can pay up to Rs. currency will issue without any relation with metal. Optional Money: This type of money will not issued by central bank or government. This type of money may issued by the govt in emergency period. 1. Currency cannot change into metal. It doesn’t have any legal tender. Gold. Credit money: it is also called bank money. Inconvertible paper currency: in case of this paper currency. In case of limited legal tender money there is some restrictions in case of repayments the loans. All currency notes and coins issued by the central government or central bank are legal tender money. Convertible paper currency: If we want convert paper currency into metal we can change it.

Actual Money: (Vyavaharika money) Present circulation money is called actual money. $. 4. 7. Elasticity. Certificates issued by post-offices.M. Hot money: Funds which flow into a country to take advantage of favorable rates of interest in that country. • • • • • • • ] The characteristics of good money: 1. Utility or Value because of this only gold and silver used as currency 6. Drafts etc. Shares. 116 . Dear Money: In which loans and advances are made available on high interest rates. This is also called Head money. Ex: rupee. Commercial banks which are having deficit money reserves will take loans from others banks which are having more money reserves. Durability if there is no durability money can’t reserve for long time. Acceptability by all 3. Others: • Near money: The financial assets which do not come under the definition of money but which can be readily convertible into medium of exchange are called Near Money. It is also called tight money. If the currency will print based on the belief on Govt. Cheques. Bonds.Debentures. 5. Fiduciary Money: (Viswasam) present in India currency printing based on the minimum reserve ratio. Stability money value will not change in short period 8. High Powered Money: The money which is under the control of RBI is called High Powered Money. bank money are known as optional money. found. Insurance papers. Divisibility it has to divide into various types 5. Cheap Money: In which loans and advances are made available on low interest rates. Cheques. Call Money: This money will repay within 14 days. Cognoscibility it has to identify easily 2. central bank. Account Money: J. Avarja money (Account money) it is money using for to maintain the account. It will help to control inflation in the economy. securities. Portability it mean easy transportable.Keynes divided money into Account money and actual money. Drafts etc. Ex. Because of Hot money country will get financial crisis.

money is used to measure the value of goods and services. (2).Functions of money Money plays a vital role in modern exchange of economy. A modern economy is rightly known as monetary economy because of the crucial position money occupies in this economy. When the values of goods and services are expressed in terms of money. Today it is impossible to think of any economic activity without the intervention of money.Secondary Functions: Along with the above the primary functions money does these functions called secondary functions.Primary Functions: Primary money does two types of functions (a) Medium of Exchange (b) Measure of Value (a) Medium of Exchange: The most important function of money is to serve as medium of exchange. (b) Measure of Value: Money serves as a yardstick for measuring the value of goods and services. The functions of money is divided into three types • • • Primary Functions Secondary Functions Subsidiary Functions (1). A money economy is more efficient than a barter economy because the former has a standard value. For an example to take place barter economy needs what is known as double coincidence of wants. In a barter system all exchanges are made in physical term which means that goods are exchanged for goods. These are (a) Store of Value (b) Standard for deferred Payments & Transfer of Value. they become prices. So people prefer to keep their assts in the form of money. Money occupies a key position by virtue of its functions. (a) Store of Value: Money as a measure of value provides a liquid store of value. Just as we use yards to measure length. wheat gets spoiled and the value of most of the commodities diminish with the 117 . The importance of this function is better understood if we focus on the problems of barter system. Where as in a money economy a person can easily transfer goods and services for money and then exchange money for goods and services that he needs. In a barter system it is difficult to store wealth for future use. It is possible to compare the relative value of different goods in a money economy. A possessor of good must have information about the existence of a seller who would offer him the goods that he desires and is ready to accept his good in exchange. Money has general purchasing power over all goods and services. Most of the goods like paddy. kilograms to measure weight.

Kinley.e. If money is to serve as a fair and correct standard of deferred payments. an efficient store of value. To measure this inconvenience and pay for their waiting time money is useful. (2) Dynamic functions. consumption and distributions are influence the economy. money facilitates lending. borrowing and hires purchasing of transactions. store of value and standard for deferred payments. It is also provides assurance that future buying opportunities can be exploited. Due to these functions only price mechanism will constitute in economy but due to static functions economy of any country will not develop. (b) Standard for deferred Payments & Transfer of Value: Money serves as a measure of deferred payments. 118 . But the value of money can be kept stable for a long time. Thus money acts as a bridge from the present to the future i.passage of time. Deferred payments refer to future payments. (3) Subsidiary Functions: According the Prof. Often people engage in exchange that involve payments over some period of time. • MS= C + DD Chicago economist definition: “Money is any thing that serves the function of providing a temporary house of purchasing power” • MS= C + DD + +TD. in which medium of exchange. productions. Money does the following subsidiary functions along with the primary and secondary functions. Measure of Value. As much money is helpful not only in current transactions but also in conducting future transactions. • Money will provide Liquidity • It creates credit • It will measure the National Income • Money will distribute the NI among the factors of productions • Money will determine the value of goods • Money will act as a major role in daily transactions for According Paul N Jing the functions of money are divided into two types (1) Static Functions. its value must remain stable. There will be an inherent inconvenience in the receipt of payments at a later date because people prefer liquidity in shorter time over liquidity in a longer time. Money would perform the store of value function more effectively if its value remains stable. in which price level. By providing a unit for measuring debts. Money supply: Money supply means “Total stock of money held by public in spendable form” Classical definition: according this definition the function of money will confined to only medium of exchange.

L2. The group suggested four new money measures (M0. (C + DD + OD) • M1 is called narrow money • M1 having highest liquidity • M1 is equal to classical definition of money supply. M2 = M1 + saving deposits with Post. M3 = M1 + Time deposits with banks (fixed or time deposits).which are made by other than the banks known as intermediaries. M1 = Money with public (currency notes and coins) + Demand deposits of banks (current and saving deposits of all banks) + other deposits with RBI.Gurley & Shah: • MS = C + DD + TD + Loans and advances which are made by other than the banks + saving deposits + bonds. This working group was constituted in December 1997. In 1967-68 the scope of money supply increased in India. and M3) and three liquidity measures (L1. C+ DD + TD+ Loans and advances & bonds. (C + DD + OD + TD) • M3 is called broad money • It is equal to Chicago economists definition of money supply M4 = M3 + all deposits of post. Deputy Governor of RBI.offices M1 measures the most liquid form of money among 4 money stock measures and it is known as NARROW MONEY. In 1977 RBI introduced 4 type of money supply in India. MS = C + DD + TD. M2. And M3 is the most important component among all money stock measures which is generally termed as BROAD MONEY. 119 . M1. L3). Y. Besides the group also recommended the publishing of financial sector survey after every three months to capture the dynamic linkages between banks and rest of the organized financial sector. which submitted its recommendations to RBI on June 23. has suggested major changes in money stock measures. The working group under the chairmanship of Dr. It was used only C + DD. M4 possesses the lowest liquidity among these 4. The word aggregate monetary resources used in money supply.V. Rad Cliph: “money supply covers the whole liquidity position that is relevant to spending decisions” (costs nirnayalaku sambandhinchina total liquidity stithini money supply antaru) so this method is also called liquidity method. According Radcliph and Gurley & Shah it is a part of total liquidity.offices. Money supply in India: Before 1967-68 money supply scope was very less. Reddy. 1998.

Banking Financial Companies. Interest rates 11. Currency ratio (cash which are there in the banks SLR) 5. L2 = L1 + Term deposits with term lending institutions and refinancing institutions + Term borrowing by financial institutions + Certificates of deposit issued by financial institutions. It is equal to old M1. Determinants of Money supply: 1. Among them Reserve Money is most important factor. Belief on bank money 6. It is also called Primary Money. Monetary policy 12. time deposits ratio 7. (C+ DD + TD + OD + CR) 2. money multiplier (MS = RM x Money multiplier) 3. Economic position (Prosperity and depression) Money Multiplier In any economy there are so many factors to determine Money supply. 120 .Depositary Financial Corporations by the banking system.office savings banks excluding National saving Certificates. L3 = L2 + Public deposits of Non. Real income (If real income increase MS also increases) 10. M3 = M2 + Term deposits of residents with a contractual maturity of over one year with banks + Call borrowing from Non. Money value (If the money value is high MS also increases) 9. Monetary base or high powered money (it is under the control of RBI). Reserve ratio (Which is reserved in the RBI in the name of CRR) 4.Monetary Aggregates: M0 = Currency in circulation + Bankers deposits with RBI + other deposits with RBI. Economic growth (EG increases MS also increases) 8. M1 = Currency with public + Demand or Current Deposits with banks + other deposits with RBI (Currency with the public + Current deposits with the banking system + demand liabilities portion of Saving deposits with the banking system + other deposits with the RBI) M2 = M1 + Time liabilities portion of savings deposits with the banking system + Certificates of deposit issued by banks + Certificates of deposit issued by banks + Term deposits maturing within one year. Liquidity Aggregates: L1 = New M3 + all deposits of post.

76 5. Consumption propensity: according Keynes velocity of money will increase if the consumption will increase.in crore) 19.(Cash reserves) For M1 (Narrow money) m = M1/RM For M3 (Broad money) m = M3/RM If CR increases RM will increase.Money Multiplier means “the amount by which a change in the monetary base is multiplied to determine the resulting change” Money multiplier explains that the money supply is how many times more than the RM. 6. In the following table showed money multiplier for selected years. credit institutions 3. money supply or quantity of money 2. Distribution of income: if money has held with rich person velocity of money will be low.3 4. cash transactions 4.07 Velocity of money: It means the speed at which money is transferred from one person to anther person or circulating through the economy in a particular period of time.7%) Multiplier (m3) 2. RM means the money which is reserved in the RBI.88 3. If RM will increase m will decrease If m will decrease MS will decrease. The velocity of money supply will determined by 1. Economic position: during inflation velocity of money supply will increase. Italian economist in 1588. M = M/RM RM = C + DD + CR.in crore) 55. That means it will explain the ratio between the money supply and RM. Quantity Theories of Money: 1.770 265830 1313220 2729530 3310278 RM (Rs. 5. 121 . 2. According economists opinion in economy always quantity of money is equal to quantity of goods.0 4.450 87780 (33%) 303370 (23%) 573060 (21%) 652687 (19. Year 1980-81 1990-91 2000-01 2005-06 2006-07 M3 (Rs. First time quantity of theory of money was explained by Davan Jatti.

If quantity of money will decrease double price level also decreases double. • According his theory quantity of money increase double prices also increases double. Fisher formula = MV= PT M= Money supply which is in circulation V= Velocity of Circulation of Money P= Price level T= Transactions M x V = Money supply P x T = Money demand MV (Money supply) = PT (Demand for money) P = MV/T After changing fisher theory the formula formulated as MV + M1V1 = PT or P = MV + M1V1/T M1= credit money V1= credit money velocity. • There is positive relation between Quantity of money or money supply and price level. • According him price level or money value is always depending on Money supply.. PT is related for goods. Keynes quantity theory of money 4.. • Fisher theory will tell the relation between the money supply and prices. 1. MV = ∑PQ or MV = PT In the above formula MV is related for money. 1911. Friedman quantity theory of money 1.PnQn. 122 . 3. MV = PQ + P1Q1 + P2Q2 + . • Because according him in any economy prices will increase when quantity of money will increase without increasing commodity. P. • Fisher theory of money will also know as classical theory of money.Fisher theory of money: American economist called Irving Fisher explained his quantity theory of money in his book called Purchasing Power of Money. Father of quantity theory money is Jean Bodin. Neo-classical quantity theory of money or Cambridge quantity theory of money. 2. A French Economist. and V. Quantity theory of money can be discuss in four stages. Classical or Fisher quantity theory of money.3. • According him demand for money is depending on T.

• • • • • • • MV=PT If Money supply (M) multiplies with velocity of money (V) we get aggregate money supply. Marshal Formula = M=Ky (a) • • • • • • • M= Money supply Y= Real National Income K= the portion money which is reserved by people out the total real income. Robertson. According Fisher people will demand money for business transactions. According this theory there is negative relation ship between the quantity of money and value of money. If price level (P) multiply with transaction (T) we get the aggregate demand. 123 . According Marshal the value of Money is depending not only on Money supply (M) but also K. Cambridge economists said that where the money supply and demand for money will be equal the value of money will determine. P = Ky/M P= Purchasing power of money. there is positive relations ship between prices and quantity of money. But according Cambridge economists’ people will demand money for expected and unexpected future requirement for transactions and speculative purposes. They developed their theories based on the cash reserves. Pigou. So this theory is also called Cash Balances Quantity theory of money According them the value of money will depend on Money supply and demand for money. From Marshal Formula we can know the Purchasing power of the money or value of money. According his theory money value is depending on money supply and demand for money 2. Cambridge quantity theories of Money: • • • • • • • • • Cambridge students. But in an economy full employment is there according classical economists so y is fixed. So Y increases T increase if Y decrees T also decrees. Marshal. Keynes etc. So aggregate demand is equal to aggregate supply According him money supply determined by central bank so T is depending on his income. and their theories are called Cambridge theories of quantity theory of money.

At the same time the is a negative relationship between P and K or T Robertson formula is close to fisher formula. According Pigou If MS increase the purchasing power of Money is decreases. MS decrease purchasing power of money increases. K = the portion of money which is reserved out of T. We are explaining the P as purchasing power of the money. Pigou Formula: (b) • • • • • • • • • • • P = KR/M P = Purchasing power of money or Money value. A. R = Aggregate real income. (c) Robertson Formula: • • • • • • • • • • P = M/KT P = Price level M= money supply T= Total goods services within one year. means before publishing the considered as neo . M = total cash reserves of society or people or money supply. N = PK or P = N/K N= Total money supply P= consumer goods prices. K = the portion money which is reserved by people out the total real income. general theory we 124 .• • K is more impacting the Purchasing power of money (P) Marshal gave more important to K than the M to determine the money value. K= the portion money to reserve out of income. If prices reduce K will increase.C. (d) Keynes Formula: • • • • • • Before 1936.classical economists. There is opposite relationship between money supply and purchasing power. If prices increase K is going to reduce. Pigou gave more important to K. According him there is a positive relationship between P and M. because prices will increases when money supply increase and prices will come down when money supply will decrease. If we show the P as prices then we have to write P = M/KR.

• • • • • • • • • • • • • • • •

There is positive relation between N and P Keynes theory of money is also known as income theory and saving investment theory. According Keynes the cause to change aggregate demand is income not Money supply. So the value of money (price level) in fact is the consequence of the aggregate income rather than the supply of money. According him income is two types (1) money income (2) real income Y=C+S According him people will spend money on two commodities (1) Consumers goods (2) Capital Goods. It means Aggregate Income = Aggregate expenditure Y=C+I Y=C+S I=Y-C S=Y-C So that S=T According Keynes Investment Is More Than The Saving, Then Productivity, Production And Income Increases Result Is Saving Also Increases. So Saving Increase Equal To Investment Keynesian income quantity theory of money is related to short-run period only

(3) M. Friedman Theory: • • • • Friedman belongs to Chicago University His theory is called theory of demand for money. In 1956 “The quantity theory of money – restatement” book he explained the quantity theory of money. According him demand for money depending on 4 things. 1. General Price level. 2. Real income 3. Current rate of interest. 4. Increasing rate of general prices. According Friedman there is positive and equal relation ship between prices and demand for money. Ex 10 % p increases demand for also increase 10%. According him there is a positive relation ship between real income and demand for money. Negative relationship is between rate of interest and demand for money. There also negative relation between demand for money and general price increase rate. 125

• • • •

According Friedman income and price changes are not changing the money supply

W.J.Baumol: • • • • • • • • According to him income of individual and firms’ income may not be equal to their income. There must be an Inventory (stock) or demand of cash in hand The firms and individuals always try to minimize the cost of holding money for their transaction purpose. These costs are called opportunity cost or withdrawal costs. The opportunity cost is represented by current rate of interest (I) The problem of transaction demand for money is, then the problem of determining the optimal amount of cash the individual will hold. In order to solve that problem of optimum balances of money to be held at minimal cost. He evolve the formula to determine the size of cash withdrawals (conversions of bonds to money), which would minimize the total cost of keeping an inventory of optimal cash balances large enough to meet transaction demand. Formula is C = 2bt/i C= optimal withdrawal of cash, t= is the total transaction in the given period, b= is the cost associated with conversion of earning assets into cash, i= is the rate of interest. Optimum level of transaction of cash varies inversely with the level of transaction costs.

• • •

Tobin’s model of portfolio Balance (Asset Choice): • • His demand analysis of the demand for money shows that the real demand for money will vary inversely with the rate of interest And the real demand for money positively with the level of output. Inflation Continuously increasing general prices is called inflation. Inflation is a situation in which general price level rises or it is the same thing as saying that the value of money falls. Continuously rise in prices caused by an increase in the money supply. It is the situation where amount of money in the country in an excess of the volume of goods available.


Definitions of Inflation: • • • • • • Issue of too much currency is inflation – Prof.Hawtrey. Too much money is chasing too few goods is called inflation – Dalton. And Colborn. Persistent and appreciable rise in the general or average of price is called inflation – Gardner Ackley Inflation occurs when the volume of money increases faster than the available supply of goods – Irving Fisher. Inflation is a phenomenon which is always and every where a monetary phenomenon – M. Friedman It is a state in which the value of money is falling i.e. prices are rising is called inflation – Crowther.

• Types of inflation: • • • • • • Creeping inflation: It is known as mildest inflation. According to Kent in this inflation prices will not increase more than the 3% a year. Walking Inflation: Here the rise in the price level is 4% to 5%. Running Inflation: Price level increases around 10% Hyper or Galloping Inflation: When price rise rapidly we call it as hyper inflation. Price level increase more than the 10% and there is no upper limit. Suppressed Inflation: If the inflation is suppressed by the government controls and rationing price will decrease. When controls are lifted prices rise again. Stagflation: in case of stagflation economic activity will come down, but wage and price continue to rise. This is also called inflationary recession. Inflation + Stagnation = Stagflation. Reflation: In a situation where there are large number of unemployed men and unutilized resources, the level of employment in the economy can be increased by raising the level of aggregate demand. Deflation: it is a state of falling prices on account of insufficient of effective demand. Disinflation: Without effecting production and employment prices will fall. True Inflation: If the price will increase after full employment level is called true inflation Inflationary Gap = Net Disposable income – Real goods services of production.

• • • • •


Demand (in crore) Total money 300 Taxes -50 Disposable 250 Saving 50 Net disposable 200 Supply (in crore) income NI 270 Expenditure on wars 90 income Availability of production for Consumption 180 income - Inflationary Gap = 200 – 180 =20 Causes for inflation: • Demand push inflation: price increases when aggregate demand is more than the aggregate supply. Increasing govt expenditure increasing population deficit budgeting people consumption increasing increasing exports internal debt repaying money supply increasing From Supply side: 1. An increase in wages. 1. • When the country increases exports domestic goods circulation decreases because of scarcity of goods prices rises. • Population • Traders reserve the goods in ware houses. Such type of inflation is caused by four factors. 6. 4. • Cost-push inflation: It arises due to an increase in cost of production. 5. 3. A rise in raw material price. • Mixed inflation: • If the Government expenditure increase on unproductively activities like war. Imposition of heavy taxation and 4. 2. production not increase but money supply increase. Natural calamity 2. 2. 7. From demand side: 1. So demand for goods increases the price increases. This type of inflation will occur in the country when there is full employment equilibrium. scarcity of factors of production supply 128 . An increase in the profit margin 3.

Once full employment is reached. 2006. and money wages decrease unemployment rate will increase.W Phillips (British economist in 1958) curves examine the relationship between Inflation and Unemployment. further increase in prices will not increase output and employment.3.Friedman but this is related to short run period. 5. Creeping inflation has favorable effect on production particularly when there are unemployed resources in the country. if the traders store the goods high rate of wages high rate of taxes if the organizers take the more profits Effects of Inflation: Out put: The effect of inflation on output depends on whether it is moderate or very rapid. But own cultivating land lords and tenants gets gain BOP: During inflation BOP is unfavorable to country because this time prices domestic goods prices will increase so imports will increase and exports will decrease. Phillips curve: The A. It measures the prices of some over 2000 commodities at level of their first transactions. It is similar to CPI In construction. According M. According him if money wages increase unemployment rate will decrease. 6. if there is a high rate of unemployment. When inflation is rapid it creates business uncertainty and adversely affects production. 4. So there is inverse or opposite relationship between money wages and rate of unemployment. Measures of Inflation: WPI: It is also known as the producer Price index (PPI). people want more employment they will not demand high wages. To measure inflation based on the WPI base year is (1993-94) 2000-01 from April 1. To measure inflation through 129 . In any economy to get price stability without inflation there must be more unemployment rate. Distribution: Debtors Get benefits and Creditors get Lose Salaried class: Lose Fixed Income Class: Lose Producers get benefit Traders get benefit and consumers get losses Investors: Share market investors (share holders) get gain and fixed investors are lose Farmers: Landlord those are given land for rent loses during rising prices because they get fixed rents. Because. This curve tell that the relationship between the money wages and rate of unemployment.

lubricants goods and manufacturing goods are taking. Bedding and Footwear Miscellaneous Total Weighting for CPI 2001 is base year 46.WPI primary goods. housing etc.00 GNP Implicit Price Deflator: It is implicit because it is not measured directly as CPI & WPI. A single index is calculated for all the goods and services in the basket as well as separate indices for groups of items like food. Annual plans Annual inflation rate was 7. and is derived as is the implicit price deflator for GNP as a whole.26 100.2001 (1982 is previous base year) is base year to measure inflation with CPI.1 WPI. Inflation in India: 1st five year plan WPI reduced 17.1% to 172% 4th plan Annual inflation rate was 40. CPI: This index is designed to reflect changes in the prices of a Market basket of consumer goods and services purchased by all urban consumers.8% and WPI increased from 165.9% CPI Annual inflation rate was 5. energy.1 to 165. fuel. It is calculated by dividing current GNP by constant GNP.43 15.58 23. 63. Items FOOD Pan.0% and CPI reduced from 101 to 96% 2nd five year plan WPI increased from 92.5% to 124. and intoxicants Fuel and Light Housing Clothing. Consumer Expenditure implicit Price Deflator: It is an index of price change for all of the goods and services including in the personal consumption expenditure (PCE) component of the GNP.0% 7th plan Annual inflation rate was 7% Year 1990-91 Inflation (WPI) 10.3% 3rd five year plan 125.75% weighting is giving for manufacturing goods. 5th plan congress government period inflation was 6.4% and during Janata government period 21.0% 6th plan annual inflation rate was 10.0% and WPI increased from 172 to 274%.19 2. tobacco.27 6.3 rate (%) 130 .27 6.

1 8.7 10. There has been continuous reduction in the import duty on edible oils.6 4. the central issue price for rice and wheat hs not revised since July 2002. (2) Fiscal Measures: Fiscal measures are the part of the budgetary operations of government in terms of Public Expenditure. (3) Other Measures: Output adjustment.57 11. SLR and Open Market Operations and qualitative controls like margins.9 3. More important among the monetary measure are Bank rate policy.26 The various measures that can be adopted to check inflation can be classified in three groups (1) Monetary measures: Monetary measures aim at regulating the supply of money in an economy.3 7.0 6.3 5.5 8.4 12. Wage policy and Price control and Rationing During 2007-08 government of India took some of the antiinflationary measure: • • • • Public sectors agencies are importing wheat to increase the availability of wheat during 2007-08 To maximize procurement of wheat and paddy the government increased the bonus To maintain price stability.92 7. 131 .1 4.89 0. Taxation and public Borrowings.4 5.1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2004-05 2005 August 2007 May 2008 March 8 2008 April 19 2008 July 12 2009 March 7 Control of Inflation in India: 13.5 3.27 5. CRR.

Bank of Baroda • 1911.Bank of Barcelona 1407. • 1770.Bank of England it is called first central bank 1800.Bank of Bengal • 1840 – Bank of Bombay • 1843.Bank of India • 1909. 1. SB Of Bikaner and Jaipur 2.Peoples Bank • 1906.present oldest bank in India • 1901.Bank of Hindustan -1791 closed • 1786.Central Bank of India • 1921.50 crore capital.Central Bank in America Banks in India: 1688. So present only 6 SBI allied banks are there.bank of Geneva Bank of Geneva and Bank of Venis continued till 18th century.Rigs bank in Sweden was oldest central bank but 1694. 1401.Imperial Bank of India. SB of Travancore. These two banks closed during 1929-32.Bengal bank – 1791 closed • 1806. SB of Patiala 6. SB of Indore 4.Bank of Madras • 1881. On July 19.Bank established in Madras province and in 1724 Inko Bank in Bombay and these two banks are called Agency Houses. It was Nationalized on July 1.PNB. SB of Mysore 5.Bank of Venis oldest bank in the world. 1955 and named as SBI • According SBI Act 1959 8 SBI allied banks established and later SB OF Bikaner and SB of Jaipur merged and recently SB of Sowrastra merged with SBI on 2007 Jun. 1.Bank of Amsterdam and Bank of Hamburg 1656.The Bank of France 1914.BANKING • • • • • • • • • • • The word bank derived from Germen word called banc In German. Central Bank of India 132 • . 1609.Oudh Bank first Indian bank • 1894. the word Banc means Joint stock company 1157. SB Hyderabad 3. 1969 14 banks nationalized which are having more than Rs.

Development Credit Bank 7. Canara Bank 7. Indian Bank On April15. Corporation Bank 6. Bank of Rajasthan 3. Jammu & Kashmir Bank 17. Axis Bank (formerly UTI Bank) 2. Kumfu Blade Bank 10. ING Vysya Bank 16. Oriental Bank of Commerce September 4. Dena Bank 5. ICICI Bank 13. Kotak Mahindra Bank 20. PNB 9. Bank of India 3. United Bank of INDIA 10. Lakshmi Vilas Bank 21. Private sector banks (21+13) 1. Catholic Syrian Bank 5. 1. 1980. new Bank of India merged with PNB so present there are only 19+1+6=26 Public sector Nationalized banks are there. Federal Bank 9. Punjab & Sind Bank 3. HDFC Bank 12. IDBI Bank 14.2. Syndicate Bank 6. Ganesh Bank of Kurundwad 11. Andhra Bank 2. Dhanalakshmi Bank 8. Indian Overseas Bank 12. Allahabad Bank 4. United Commercial Bank 8.200 crore. Bank of Baroda and 14. Karnataka Bank Limited. 18. Lord Krishna Bank ( now Centurion Bank of Punjab) 133 . Karur Vysya Bank 19. Vijaya Bank 4. Bank of Maharastra 13. Uco Bank 5. Union Bank of INDIA 11. 1993. 6 banks nationalized which are having more than Rs. Bharath Overseas Bank 4. IndusInd Bank 15. City Union Bank 6.

Calyon Bank 15. 28. 24. Abu Dhabi Commercial Bank Ltd 3. Standard Chartered Bank 28.V. 27. Cho Hung Bank 17. HSBC (Hong Kong & Shanghai Banking Corporation) 21. BNP Paribas 14. Citibank 18. 30. Bank of America 8. Bank of Ceylon 10. JPMorgan Chase Bank 22. ABN AMRO Bank N. National Bank Ratnakar Bank Rupee Bank Saraswati Bank SBI Commercial and International Bank South Indian Bank Tamilnadu Mercantile Bank Ltd. 26. Bank International Indonesia 7. Oman International Bank 26. Bank of Bahrain & Kuwait 9. Scotia 30. American Express Bank 4. Barclays Bank 13. DBS Bank 19. Thane Janata Sahakari Bank Bassein Catholic Bank YES Bank Foreign banks 1. 25. Krung Thai Bank 23. State Bank of Mauritius 29.22. Société Générale 27. 2. Mashreq Bank 24. Taib Bank 134 . Bank of Nova Scotia 11. 29. Arab Bangladesh Bank 6. Mizuho Corporate Bank 25. 31. 23. China Trust Commercial Bank 16. Deutsche Bank 20. Bank of Tokyo Mitsubishi UFJ 12. Antwerp Diamond Bank 5.

G. L.5 crore RBI nationalized on January 1. Sir Osborne Smith -1935-1937 2. 1949. M. A. But it was not passed. Bank of England is the model of our RBI According RBI Act 1934.Puri -1975-77 13. Keynes plan. K. Since this time government identified the necessary of Central Bank According Royal Commission (1926) suggestion government introduced a bill in legislative assembly.N. 4 deputy governors and 20 Board of Directors run the RBI functions. 1935 with RS.Jha -1967-70 9.R.Sen Gupta -1975 12. present Governor Dr.Ambegaonkar -1957 6.G. P.V.N.Sir Osborne Arkal Smith.C. C.D. governor will appoint one nominee among deputy governor RBI. First Governor. Jagannathan -1970-75 11.Adarkar -1970 10.R.I. H.Malhotra.D.M.Deshmukh RBI. RBI established based on the J.Bhattacharya -1962-67 8.Deshmukh -1943-49 4. K. Gosh -1985 17. D Subba Rao. S.1985-90 135 . R.K. Mumabi and New Delhi and 22 regional offices One Governor.RBI Initially General Bank of Bengal and Bihar (1773) had the characters of Central Bank but it was worked for short period.C. Sir James Taylor -1937-43 3. RBI head quarter is in Mumbai RBI having 4 Regional Head offices in Kolkata. Again in 1931 Central Banking Enquiry Committee suggested the necessary of Central Bank. RBI first Indian Governor. Dr.Patel -1977-1982 15. Chennai. RBI established on April 1. 1933 and made 1934 RBI act and as a result on April 1. Based on this committee recommendation new bill introduced on September 8.Iyengar -1957-62 7.C. Dr. 1935 RBI established.Narasimhan -1977 14. N. Bengal Rama Rao -1949-57 5. When governor is on leave. Manmohan Singh -1982-85 16. List of governors: 1. B.

to facilitate this availability RBI established clearing houses in Mumbai. Subba Rao since 2008 continuing Functions of RBI: RBI function divided into two types 1. Traditional Functions 2. 20. Banker to Banker and Lender of last source: By granting accommodation in the form of re-discount and collateral (security) advances to commercial banks. Patna and New Delhi. 6. Bimal Jalan -1997-2003 Dr. Maintenances of Clearing Houses: Each and every bank every day will get so many Cheques. Kolkata.V. 4. Currency issuing: Currency or note issue is the monopoly power of the central bank in a country and its notes are full of legal tenders. Maintenance of Exchange rate: It maintains the stability of the exchange rate of the currency. Hyderabad. RBI keeps the banking accounts of government departments. 136 . 21. RBI acts as the lender of the last source. but it is not possible to collect by their staff.18. Banker to the Government: As the government’s banker. 2. Bangalore.C.Y. 22. Protection of Foreign Reserves: It has become the custodian (guardian) of the country’s reserves of international currencies. Kanpur. Except one rupee all type of currency is issuing by RBI. S. Development Functions I.D. Venkataramana – 1990-92 Dr. and other financial institutions. 5. 19. besides enforcing exchange control regulations. And controls the whole system of banking in the country. 3. Traditional Functions: 1. Chennai. One rupee currency issuing by the Indian finance department. board and enterprises and performs the same functions as a commercial bank performs for its customers. Thus RBI as lender of the last source is a big source of cash and also influences prices and market rates. Nagpur.Rangarajan -1992097 Dr.Reddy 2003-2008 Dr .

It will publish books related RBI Bulletin. 3. RBI is encouraging to establish banks in rural areas like in bank less villages. 2. To Development of banking system RBI established Banking Transaction Department. Control of Credit: To achieve price stability or to control the inflation.7. RBI can change CRR between 3% and 15%. It will establish training college to provide training for bank employers. to prevent the inflationary and deflationary. It is the rate of interest at which the RBI lends money to other banking institutions. and decrease during deflation. Quantitative Credit Controls: a. Bank Rate: It is a rate prescribed by the RBI. SLR. Credit Policy: The objective of credit policy is to stabilize Prices. to stabilize Foreign Exchange rate. Qualitative credit controls I. OMO and changing Margins. b. During inflation period CRR rate will increase and decrease during deflation. 4. RBI started Credit Guarantee Scheme to provide credit facilities to small scale industries. To promote the Industrial Credit RBI taking so many measures and it helped to start IFCI. Present Bank Rate is 6%. It will sell and buy the government securities in open market 6. NABARD is established under the control of RBI to Promote the Agricultural Credit. RBI adopted two types of credit control methods 1. Quantitative credit controls. CRR: The commercial banks are required to keep a certain amount of cash reserves at RBI. reports of currency and banking and Statistical Tables relating to Banks in India. During inflation Bank rate will increase by RBI. Present CRR rate is 5%. 137 . It will act as representative of the country in IMF 5. This percent of amount is called CRR. 7. to control trade cycle and full Employment. CRR. to control the trade cycles to get full employment RBI implement the credit policy through quantitative and qualitative methods such as Bank rate. 2. II. Development Functions: 1. IDBI and SFCs.

c. with review of the same in October. and bonds of government. With decline in the share of agricultural credit and rise in that of industrial credit. 4. and inflation to stabiles the price. Two sets of objectives have been pursued for long. Consumer Credit Regulation – RBI can increase in down payments to reduce the transaction. RBI monetary policy influences the money supply. 5. As a part of economic reforms this policy renamed as Monetary and credit policy. 2. Ex: Primary deposit is Rs. 1.10. Direct Action – this action may not used against all banks but against go wrong banks Monetary Policy Monetary Policy was known as the credit policy statements till 1992. RBI started making the annual policy statement in April. SLR: The commercial banks under banking regulations have to maintain a certain specified proportion of their total deposits of various categories in liquid assets is called SLR. For this 138 . Open Market Operations: This method refers to sale and purchase of securities. Both they concerned with the supply of money and as also of credit to the economy. Since 1999-2000 RBI is announcing annual policy. April to September announces). Qualitative Credit control methods: These methods also called selective credit control methods. bill. Rationing of credit – RBI will direct to banks to provide advances and loans.000 and cash reserves are 10% Credit quantity = 10000 X 1/10/100 = 10000 X 100/10 = 100000 So here credit increasing 10 times. interest rates.It is to achieve full need of production and trade and at the same time moderating the growth of money supply to contain the inflationary pressures in the economy. It is also lays down norms for financial institutions governed by RBI. Credit quantity = Primary deposits X 1/ Cash reserves. d. During the inflation to reduce the volume of money RBI will sell the securities and if RBI wants to increase the volume of money RBI will buy the bonds. Present SLR rate is 24% Credit quantity is depending on cash reserves (CRR & SLR). 1. Moral Suasion – RBI advices to banks in terms of informal request. Prescribing Margin Requirement 3. This statement will announce twice in a year till 1998-1999 (for October to March in October announces and in April. II. Controlled expansion of money.

SLR and Open Market Operations. steel. These sectors which have received special attention are core industries (iron. as also the interest rates among different sectors. regional rural banks and State co-operatives banks are scheduled banks. to 68500 as on Jun 30. coal. The scheduled banks are those which are entered in the second schedule of RBI Act. Sectoral deployment (consumption) of funds – Depending upon the priorities laid down in the plans. Commercial Banks Under the RBI 1934 Act. SBI had got 466 branches in 1955. and engineering goods) food grains (rice. 40% of total net bank credit has been earmarked to the priority sectors. Total number of branches of the 19 nationalized banks was 32963 as on Jun 30. For this purpose a certain amount is allocated. 1934. 2. banks were classified as scheduled banks and nonscheduled banks. wheat). CRR. EX. Various Measures have also been adopted by the RBI to achieve the objective of Sectoral deployment of credit. Diagram of Commercial banks in India: • The number of total branches of all commercial banks has gone up from 8252 as in Jun. priority sector (agriculture and small scale industries) and weaker section of the people.purpose RBI Changing Bank rate. 2005. SBI and allied banks expanded from 2462 branches in Jun 30. the RBI has determined the allocation of funds. 1969 to 13684 in Jun 2005. All commercial banks Indian and Foreign. 2004. 1969. 139 . Similarly structure of interest rates has been so used to provide low-interest loans to certain sectors like agriculture and export and weaker section of the people.

there were 48. Recurring Deposits are also called fixed deposits but the deposit money is paid not in lumpsum but every month or various periods ranging from 12 to 120 monthly. 140 . • Demand Deposits: These deposits include saving deposits and current deposits. 2004. Banks attract savings from the people and encourage investment in industry. The branch offices of Foreign Banks have gone up from 130 in 1969 to 251 as on Jun 30. 2005. trade and commerce. Commercial banks functions can divide into two types.8% bank offices in these areas as on Jun 30. The difference between these two interest rates constitutes the profit for banks. Bank of Baroda had highest concentration. As against 22. 1.4% bank offices located in rural areas in Jun 1969. Banks will pay low rate of interest for demand deposits. with 38 branches. 1. Subsidiary Functions. Or more. 1969 to 62045 as on Jun 30. 13 Indian banks (8public+5private) had operations overseas. The banks collect cash from the customers in the form of Primary deposits and use it for purchasing various types of financial assets. Functions of Commercial Banks: Commercial banks ply a very important role in the economic growth of a country. The average population served per bank office which was around 65000 in 1969 has come down to 16000 in 2004. • Time Deposits: Time deposits are also called term deposits. which have their presence in 42 countries with a net work of 99 branches. Time deposits are made by the customers for a specified period and they can not be withdrawn before the specified period. SBI is 2nd position with 24 branches Bank of India 3rd position with 19 branches. The bankers allow compound interests on recurring deposits. As on 30 Jun 2005. 2005. Time deposits consist of fixed deposits and recurring deposits. The rate of interest differs from period to period. Banks are paying less interest rate for the people’s deposits and hey are collecting high interest rate for the loans advances. Primary Functions 2. Primary Functions: Primary Functions are again divided into two types. I. And demand deposits are part of money supply. Fixed deposits are made for specified period ranging from 15 days to 5 years.• • • • • • • The branches of Public sector banks have gone up from 7051 as on Jun 30. These deposits must be returned to the depositor on demand without insisting prior notice. Receiving deposits: Commercial banks receive deposits from the public. Primary deposits are two types.

Now a day’s banks are issuing ATM cards for easy withdrawal of money. Banks issue letters of credit to help the traders and business men to obtain credit at different places. Banks grant call loans and also grant consumer credit for buying durable goods like Television sets. the transactions are either on cash or on credit. documents and valuable goods. This is called credit money. Bank loans and advances carry a high rate of interest. When the buyer of goods is unable to pay the amount immediately. bills etc. Banks act as agents and representatives of their customers. drafts.2. 2. securities and lend in the form of cash credit to the businessmen. The banks facilitate trade and commerce by discounting these bills of exchange. Vehicles etc. • II. Discounting Bills Of Exchange: In business. Lending Loans: the banks collect cash from the public in the form of Primary deposits. 3. These deposits are called Secondary Or Derivative deposits. Cash Credit: Banks give cash credit to business firms and industries against current assets such as shares. 4. With help of these primary deposits banks buys various assets like Shares. 141 . the seller may demand written undertaking from the buyer to pay the amount after a specified period. The current holders are given facility of over draft by which they are allowed to draw an amount above their balances. Subsidiary Functions: 1. Banks collect and Cheques. While buying these assets or lending money to the business people cash is not given to them but demand deposits are opened. bonds. Generally banks lend in four ways • • • Over Draft: Over draft is permissible on Current account only. Bank provides locker facility for the safe custody of Jewelers. These written undertakings are bills of Exchange. stocks. Loans: A loan is granted against the securities of assets or the personal security of the borrower.

• Every day in the banks some people deposits Cheques and some people takes money through Cheques. “Credit creation means to increase deposits in several times”. Credit creation is the process by which a group of deposit-taking and lending institutions. “Credit means obtaining purchasing power with a promise to repay it some time in future. Modern bank is also called a factory for the manufacturing of credit. C. • Money supply is depending on deposits. Suppose there four banks namely A. • Credit creation is depending on deposits of banks. X and after the loan has been made the balance sheet of bank A will be as follow. Suppose the person say X is depositing Rs.1000 is primary deposit of bank A. • Credit creation is also depending upon Cash Reserves. After this deposit banks balance sheet will become like following Liabilities Assets Deposit: Cash: 1000 1000 Bank A is now increase 1000 extra cash. Liabilities Assets Deposits: Cash: 1000 200 Loan: Total: 800 1000 Total: 1000 142 .1000 in bank A. • From credit creation process deposits creates equal to bank lending money. Now Rs. • So credit is causes for deposits at the same time deposits are cause for credit.” “Credit is an exchange which is completed after the expiry of a certain period of time after transactions”. Then it has Rs. • Demand deposits of banks are considering as equal to money supply. • The effects of volume of lending money by deposits demand deposits this process is called credit creation. D.800 extra cash which it lends to Mr. It has to keep only 20% of reserve in the form of cash.Credit Creation: Credit creation is one of most important functions of modern bank. • If loans increase deposits also increases. B. • So when the banks are giving credit then deposits will create. and Cash Reserves is 20%.

The balance sheet of C will be Assets Liabilities Cash: Deposits: 640 128 Loan: Total: 512 640 Total: 640 Additional Additional Additional Additional Additional Additional Aggregates Aggregates Aggregates Aggregates Aggregates Aggregates deposits deposits deposits deposits deposits deposits = = = = = = primary deposit X 1/cash reserves. Then the balance sheet of bank B will be as follows. Liabilities (B bank) Assets Deposits: Cash: 800 800 Total: Total: 800 1000 Now B begins its operations and lends RS 640 (800-160) then the balance sheet of B banks. 1000 X 1/20% 1000 X 1/20/100 1000 X 1X1/5 1000 X 5 5000 143 . X deposits Rs.800 with bank B. Liabilities Assets Deposits: Cash: 160 800 Loan: 640 Total: 800 Total: 800 We assume that those persons who have taken loans from bank B and deposit them with bank C and its balance sheet will be Liabilities Assets Deposits: Cash: 640 640 Total: Total: 640 640 Now bank C will give loan to another person is Rs.512 After keeping 20% of Rs.Now one Creditor Mr.640 (128) as cash reserve.

Certificates of demand mean it is a certificate issued by banks to persons and firms deposits. But because of liquidity preference people may reserves money with in terms of cash credit creation will decrease. These bills send to RBI by the Govt. Organized sector can divided into two types 1 is Banking sector 2. 4. Kolkata. 6. These markets are concentrating in Mumbai. 3. • Certificates of Deposits: According to Waghal Working group committee recommendations certificates of demands started on Jun. 144 . Every 15 days once will bid by RBI. other financial institutions will get short term investments from this bill. The interest rates which are paying for these loans are called call money rates. • 364 bill market: This is started in 1992. These commercial bills are traditionally called HUNDIS. • Bill market: Bills markets are two types 1 is Treasury bills markets 2 is Commercial bills markets. Generally treasury bills having 91 days period. Banks. Trade cycles: Boom period credit creation will increase because of more transaction. 1989. banks make it more plentiful. Monetary policy: Monetary policy of RBI sets certain limits to credit creating capacity of commercial banks. Amount of Cash: When money s plentiful. Sub. 5. Delhi and Ahemmadabad.Limitations to Credit creation: 1. 2. Liquidity preference of the people: If people are ready to deposit money in the banks then credit will increase. Money market in India Money markets can divided into two types 1 is organized money sector 2 is unorganized money sector. During Depression credit creation will decrease because of less transaction. Commercial bills means One particular firm will issue bill on the name of another firm for the purpose of trade.This bill will not discount by RBI. Chennai. People belief on banks: If people believe that deposit money is safe in the banks people will deposit due to these deposits credit creation will increase.money markets: • Call money market: These are short term loans considering for 1 to 14 days. Ratio of Cash Reserves: If there is less % of cash reserves the more credit will create and if there is more % of cash reserves less credit will creates by banks.

ICICI: Technology Development and Investment Corporation of India in 1986. SFCs () 4. IDBI (1964). Marvaries). • Mutual Funds: The main objective of the Mutual Funds is its will attract the savings from the people and invests in the stock Markets. Because in this markets. Intermediary Financial institutions: • Merchants Banks: The main function of Merchant banks are will market the Corporate Securities.Commercial paper: These papers introduce by RBI in March 1989 based on the recommendations of Waghal committee report. Grindles Bank: India Investment Fund 6. 1945 there are 21 stock exchanges 145 • . 3. RCTC: Risk Capital Technology Corporation 5. Chit Fund companies. Nidhi). Development Finance institutions: IFCI ( 1948). Industrial securities markets: Private securities are called industrial securities markets or corporate securities markets. 1. Mutual Funds will works under the control of SEBI. Ltd in 1985. The following financial institutions are started venture capitals. 3. UTI: Technology Development & Information Company of India Ltd in 1989 with cooperation of ICICI. and Money lenders are will come. Capital Market in India 1. 4. 2. ICICI (1955). and Securities are called Stock Exchanges. Debenture. First Indian stock exchange is BSE in 1875 1939 there are 7 stock exchanges. Indigenous banks (Some private firms they will collect deposits from peoples and provides loans Ex Chettis. Governments Bonds. SBI: SBI Capital Markets Ltd Stock Exchanges: Selling and Buying of Trade and Industrials Shares. IFCI: Risk Capital & Technology Finance Corporation. Gild-edged markets: This is also called Government securities. Un-organized Money Markets: Under this markets unregulated non-banking financial institutions (Finance companies. IIBI (1985 IRBI and its renamed as IIBI in 1997). securities will sell and buys which are agreed by Governments? 2. UTI (1964). • Venture Capital Funds: It is a Capital Accumulation for new investors and small investors with the purpose of new technology and to start new projects.

GIC Refinance Corporations: NABARD. SEBI is given the statutory statues on January 30. etc. Currency Future: It is a contract to exchange the currency in future for a determined rate Special Economic Institutions: EXIM Bank. UTI. 2007 First time NIFTY crossed 6000 points. Among 23 Stock Exchanges 2 are the National level NSE & OTCEI (Over the Counter Exchange of India Limited) NSE is established in 1992 in the national level at Mumbai. 1992. Infrastructure Development Finance Company (IDFC). Main Share Price Index in Famous Share Market of the World BSE DOLEX SENSEX NSE S & PCNX NIFTY FIFTY New York DOW JONES Tokyo NIKKEI Frankfurt MID DAX (Germany) HANG SENG Hong Kong SIMEX Singapore STRAITS TIMES Bulls: At current prices will buy the securities and will sell in future at high prices because the will assumes that prices increase in future. are called special economic finances companies. NIFTY AND FIFTY: this is related to NSE. Bears: If they may think that prices will decrease in future they will securities present. SENSEX it is related to BSE 30 firms listed in BSE in 1986 it is established INDONEXT: This is a place where small companies are trades National Index: this is also related to BSE 50 companies listed in this. On the recommendation of Phervani committee. BSE-200: 200 Companies listed in this. 2007 first time in India 20000 SENSEX closed. SEBI is established April 12. NHB (national housing bank) 146 . Investment financial institutions: LIC. Tourism finance of India. Among them BSE is important.At present there are 23 listed stock exchanges. 2007 crossed 20000 above not closed) December 11. December 11. 1988 as a non-statutory body. 50 Companies are listed in this now this name changed as S&PCNX Public issue: If the capital accumulation is by selling shares to people is called public issue. DOLLEX: bse-200 $ value is called DOLLEX. (Actually first time October 29.

2003 SBI and Allied Banks started SBI Life Insurance Company to enter in insurance sector. 2000 Insurance Regularity Development started (IRDA) With Head quarter in Hyderabad. Private companies are allowed to insurance with Rs. Indian Mercantile Insurance Company Ltd established In 1950 Tritan General Insurance Company Ltd started in Kolkata. According this People will get investment benefits and life insurance and Life Threat insurance.Madras Equitable Life Insurance Society at Madras.Chennai Above 4 companies except Air Insurance and Crop Insurance all type of Insurance are doing by these companies. 1. This company is maintained by GIC. Genera Insurance: In 1907 in Mumbai. United India Insurance Company Limited. New India Assurance Company Limited.Indian Insurance Company Act in 1928 another act for insurance. December 20. First time in India in 1871 Bombay Mutual Life Assurance Society Life Insurance Premium accepted from Indians. 2002 AICIL (Agriculture Insurance Company of India Limited). These Insurance are doing by GIC it self. 1938 New Insurance Act September 1. 1994. February 13. In 1999 Government made Insurance Regulatory Development Authority and according this act April 19. National Insurance Company Limited. Oriental Insurance Company Limited-New Delhi 4. above 4 Companies and NABARD. 2. 2001 LIC started Bima Plus.Oriental Life Insurance Company at Kolkata. 1912. 1823. In 1972 Central Government started General Insurance Corporation of India started. 147 . Jun. 1956 total 284 India and foreign insurance nationalized. Present there are 4 Companies are working under this company 1.Insurance Sector 1818.100 crore paid up capital.Bombay Life Insurance Company at Mumbai 1829. And same day LIC of India started with head quarter at Mumbai based on the Parliament act.Mumbai 3. MALHOTRA Committee: To study and to give suggestion for improvement of Insurance sector Government of India constituted Malhotra Committee in 1993 and this committee submitted its report to finance minister on January 7.Kolkata.

8. Banks should be given more autonomy. 10.5% to 27% in March 1997 and again reduced to 25% in October 1997. 3. But Government did not concentrate. 1. 5.Narasimhan (This is called 1st Narasimhan Committee. This committee submitted to its report on December 5. As a part of the economic reforms to reform in banking sector Government appointed one committee to give the suggestion for reforms in August 1991 and this committee submitted report on December 17. Only Government representative should be there. RBI’s representative should not be included in the management boards of banks. 4-tier banking system should be introduced in the country • I tier 3 to 4 International banks • II tier 8 to 10 National Level banks • III tier Regional banks • IV tier rural banks 2. 4.). Implementations: 1. Reforms in Banking Sector: 1985 Chkravarti Committee was gave some suggestions regarding reforms in banking. Branch licensing system for opening new bank branches should be abolished. The then present of SBI in September 1990. 7. Increase in bank interest rates on saving accounts. SLR for banks should be reduced to the level of 25% within 5 years. 1998 this was called 2nd Narasimhan Committee 1st Narasimhan Committee Recommendations: The main recommendations of committee are follows 1. 1991 under the chairman ship of M. Computerization in banks should be promoted. LIC has to privatize. Private Banks should be allowed. CRR should also be reduced in various phases. Again in 1996 constituted one committee under the chairman ship of M. 6. 1991.Goiporia.Narasimhan and submitted report on April 23. Providing Tax benefit on bank deposit Amounts. 148 . 9. 3. A liberal view should be adopted for allowing foreign banks in the country. 3. Extension of banking hours for all works excluding cash payments. RBI is having power to regulate the banking system.N. Recommendations of Goiporia Committee: RBI constituted a committee under the chairman ship of M.2. 2. Foreign companies are allowed to insurance with joint venture by Indian companies. SLR reduced from 38.

But it is again increased to 7. 1.5% in 2007. Jaipur.Janakiraman and this committee submitted its report on May 7.5% in October 2007 and 8. Within one month customer should be reported to Ombudsman. Banks divided into 3 types • International level (2 or3) • National level (8 to 10) • Local level 4. Chandrasekhar Committee: SEBI constituted a committee under Chandrasekhar as Chairman for improving the process of share and this committee report on April 1997.2. Interest rates determined according market 6. all Commercial Banks and All Primary Co-operative Banks have been brought under the Ombudsman Scheme. Kanpur. 1995 for giving a solution for customer’s complaints. 5. 2. Bhopal. 3. 11 Ombudsman appointed for different regions (New Delhi.Narasimhan and this committee submitted report on April 23. More autonomous should be give for public sector banks. Un-renewable banks should be closed. It was banned in 1978. 7. (22 Y) 149 . Joint Parliamentary Committee: A30 members Joint Parliamentary committee set up under the chairman ship of Ram Niwas Mirdha (20 + 10 =30) on August 10. 1992 under the chairman ship of R. Bangalore. Non performing assets have to reduce. This committee was identified several types of irregularities in securities transactions. 1993. Guwahati and Bhuvaneswar). 2000. Profits banks should be merged but weak banks should not merge with strong banks. Chandigarh. CRR also reduced in various phases CRR reduced from 15% to 13% in 1996 and 6. 3. • Rs. 1998 this was called 2nd Narasimhan Committee. Patna. 1992 to study scam in securities and shares. Banking Ombudsman Scheme: RBI introduced a Banking Ombudsman Scheme in the country on Jun 14.25% in April 2008. In state level or for some districts small and local banks should be open Recommendations of Janikiraman committee: RBI set up a high level enquiry committee on April 30. 10 new private banks established 2nd Narasimhan Committee Recommendations: Again in 1996 constituted one committee under the chairman ship of M. Mumbai. Except RRBs. Hyderabad.1000 note issued by RBI since October 9.

PNB is the first bank initiated to introduce B. operational risks and the capital required to cover these risks. Mostly this accord or agreement is related to credit risk. Supervisory review. ICICI and HDFC reached target. 1. a three track approach has been adopted by RBI. the Basel Committee proposed a set of minimal capital requirements for banks this is known as Basel – I. 2.• • India Millennium Deposit (IMD) Scheme was launched by SBI on October 21. In 1988. The study of the nature and Principles of state expenditure and state revenue is called Public Finance – Adam Smith.II norms. 3. FDI limited in Private sector banks rose to 74%. • In the first track are commercial banks they have maintain capital for credit risk and market risk as Basel-I framework. In January 1999. Basel II uses three pillars concept. • The Indian banks with branches abroad (overseas) will have to implement the norms by March 2008. Minimum capital requirements – it is to provide banks with guidelines to measure the various types of risks the face such as credit. • To prepare banks for the implementation of BASEL. which is known as Basel – II. Maturity period is 5 years. norms. market. • SBI. The Basel Norms Basel Norms beginning in 1974 The committee was formed in response to the bankruptcy (ruin) of a troubled Cologne (Germany) based bank in 1974. • In the second track are the cooperative banks they are required to maintain prescribed capital for credit risk as per Basel-I frame work • RRBs are third track they have to maintain a minimum capital which may not be on par with Basel-I rules. 2000 for non resident Indians. 150 . the Basel Committee proposed a new capital accord. It is related to Revenue and Expenditure of the Government. PUBLIC FINANCE Public Finance: Public Finance is the study of financial aspects of governments. With regard to capital adequacy rules. The finalized Basel II accord was released in June 2004. Banks only local presences (within India) have time till March 2009. Market Discipline: it is to promote greater stability in the financial system.

distribution and individuals. Public Revenue: Method of raising public revenue.507. Ex: Duties of National defense.243. • Individual may thing present but government will think future also. Ex: who drinks a cup of coffee benefits from the consumption of that cup of coffee. Non-Plan Expenditure figured out at Rs.Public Finance deals with the income and expenditure of public authorities and with the way which is used to one to another – Dalton Public Finance deals with the revenue. control and problems relating to the preparation of budget are studied and analyzed in fiscal administration. Public Goods: A pure public good is defined as a good that one person’s consumptions of the goods does not reduce the amount available to others i. park. debt and fiscal system of the government.499 crore. • Government has more resources than the individual. The methods of administration. • Both have always faced the problem of adjustment of income and expenditure. • Individuals sell the goods more than production cost where as government sell equal to production cost.e. Public Expenditure: Public expenditure deals with the principles of public expenditure on the production. • Individual maintain the secret of his budget where as government will give more publicity about the budget. Public works. Difference between Public and Private Finances: Similarities • Private finance is concerned with the satisfaction of personal wants where as public finance is concerned with the satisfaction of social or entire community wants. • Individual will try for surplus budget where as government are following deficit budgeting. judiciary. It is denied to others. the consumption of a public good is non-rival.386 crore. Plan Expenditure has been approximated at Rs. • Both have receipts and expenditure • Both should be borrowed when current income is less. Differences: • Individual adjust his expenditure to his income but Government will adjust income according expenditure. police. expenditure. 151 . Fiscal Administration: Financial Administration relates to the mechanism by which the activities of public expenditure and public debt are carried on. taxation and other related problems studied. Private Goods: Private goods yield utility only to the person consuming the good. Public Debt: Problems related to rising of loans and repayments of loans are studied under Public Debt.

The amount of benefit derived by government expenditure will go on decreasing i. marginal utility of expenditure will be negatively sloped (MU).Say state duties confined to only protection of state and maintenance of law and order. Conditions of maximum social advantage: • Public expenditure carried for community benefit. Ricardo. J.B. the burden of sacrifice will go on increasing i. 152 . Y MS Utility Of sacrifice U e MU X M Money supply • • • With every additional unit of tax raised.e.Social Goods: Social wants are those wants which are satisfied by services that must be consumed in equal amounts by all. • The social benefit will be maximum where marginal utility of state expenditure will be equal to marginal disutility of taxation. Public revenue and public expenditure are two important financial operations of a state. Social Advantages will be Maximum where MS is equal to MU. Merit Goods: Goods for which it is thought that consumption should be encouraged are called merit goods. The principle says that the state should collect revenue and spend the money so as to maximize the welfare of the people. Principle of Maximum Social Advantages: This theory was developed by Hugh Dalton A. These two operations of the state must be governed by some fundamental principles. According modern economists modern states are welfare states. marginal sacrifice of taxation curve will be positively sloped (MS).Pigou called this as Maximum Aggregate Welfare theory According classical economists like Adam smith.e.C.

3. 7. According Hicks to maximize social advantage production has to increase and distribute has to regulate for sound implementation. Creation of income or revenue is to meet the public expenditure. Canon of Economy: The cost of collection of taxes should be minimum. 4. The tax system should not be too complicated. 2. Canon of Acceptability: Public Revenue: Public revenue includes the different sources of government’s income. The following are the important sources of public revenue. Canon of Convenience: The method and timings of tax payment should be. 1. Development or special taxes: If the government collects the tax for the development activities is called special taxes. Or the cost of collection of taxes should not be more the tax income Others proposed the canons. Canon of Simplicity: A tax should easily understand by taxpayer. There is no Quid Pro Quo system in the case of Taxes. Canon of Equity: This canon tries to observe the objective of economic justice. According ability to pay taxation theory. 9. 8.This is the optimum limit of states public finance activity. the quantity to be paid. Canon of Elasticity: Canon of elasticity stresses the fact that the yield of the taxes can be easily increased or decreased according to the needs of government. ought all to be clear and plain to the contributor. Canon of certainty: The time of payment. Canons of Taxation: Adam Smith in 1776 gave 4 more important canons 1. In case of special taxes those who get benefit development activity and those wealth will • • 153 . Taxes: A tax is a compulsory levy and those who are taxed have to pay the sums irrespective of any corresponding return of services or goods by the governments to meet the government expenditure. It indicates that the richer should pay more taxes like progressive taxes. Canon of Diversity: State should not depend upon too few a source of public revenue. Canon of Productivity: Taxes should have productivity according Bastable and Gladstone. Different type of taxes should be collected from people then tax rate will decrease. 2. 5. the method of payment. convenient to taxpayer. 6. How ever too much multiplicity of taxes also to be avoided. so far as possible.

custom duties. In case of Fees those who get benefit from government services they will pay the Fees. Financial relation between centre and state: Article 264 to 293 explains the financial relation between centre and states in 7th schedule of the constitution 1. stock exchanges 3. Gifts: These are called voluntary contributions. peoples can give to anther govt. tax on motor vehicle entertainment tax tolls. excise taxes on drugs. Income from public sectors. Levied by centre and collected and appropriated by the states: stamp duties. electricity tax. 2. Ex: Central government is giving to state governments. state sales tax agricultural income. 4. Centre levied and collected but assigned to related state: estate duty (Agri). 6. Generally Grants will give for special purpose it may for to development educational facilities or to implement the welfare programmes. Commercial Revenues: Govt is getting income by selling products which are produced in public sector. excise tax. corporation tax. 9. Levied. income from endowments. 7. Ex: Toll tax. During wars. trade. union excise taxes. gift also can give one govt to anther govt. 4. 8. (except agricultural income). Fines and Penalty: If the people violation the government laws the government will impose the fine or penalty. Income from government lands. collected and appropriated by the states: Land revenue. Fees: If the government collects the tax for the government services is called Fees. 3.increase they only pay the taxes. There is a Quid Pro Quo system in the case of Fees. Grants: Grant means one government will give to another government without asking again. Forfeiture (Japtu): If the person’s failure to implement agreement which is having with government then government will occupy the individual property by the bidding. Ex: Court Fees. medical preparations containing alcohol. collected and appropriated: like income tax. news papers and advertisements and inter state trade. Natural calamities like floods tsunami etc. estate tax (not Agri). Levied and collected by centre and share with states: Income tax. Central levied. Exam Fees. Income from government property ex. 154 . It is called Escheats. 10. land and buildings. Escheats: If the person will die without any inheritance that proper will taken by the government. mines and forests. There is a Quid Pro Quo system in the case of special taxes. Registration Fees. 5. 5.

001/.00. 1860 in India for five years only again in 1866 regularly income tax is imposing. 5.000/Nil Rs.to Rs.to Rs.000 Above Rs.00. 5. Tax on Property: All type of property mainly agriculture.00.000/For Women Upto Rs. Tax rate decrease when the income is increasing 6. Union Budget 08-09 Highlights INCOME TAX For Men Upto Rs.00. Progressive when the rate of taxation increases as the tax payer income increases.00. This is imposing on personal income.000/Rs. 3.00. 155 .001/. 4.001/. 1.00. 1.000 20 per cent Above Rs.to Rs. Proportional Taxes: This is levied at the rate at all income levels. 3.000/Rs. 5.Classifications of taxes: 1.50.to Rs. Direct and Indirect taxes. 5. Before 1959 it was called surcharge.00.000/30 per cent Corporation Tax: After First World War this tax was called as super tax (> 50.000/Nil 10 per cent 20 per cent 30 per cent Nil 10 per cent 20 per cent 30 per cent For resident individual of 65 years or above Upto Rs. 5. 5. Regressive taxes. 5.00. 3.00. Digressive taxes if income increases rate of taxes increases with decreasing rate. 2. Capital Gain tax: it is imposing on the capital income which difference between buying value and selling value.001/.25.50. Direct Taxes Income Tax: 1798 in England. 1864 in America. 3.001/. 3.000/10 per cent Rs. 1. 1965-66 onwards Super tax and companies income tax both mixed and named as Company income tax or Corporation Tax. 2. 1.000/Rs.80. 3.000/Rs.to Rs. 3. Single tax and multiple taxes.00.00. 2.000).001/.80.000 Above Rs.to Rs.25.

Entry Tax: This is imposed by States on interstate transport Entertainment Tax: First time in India in Bengal (1922). Gift Tax: According Kaldor recommendation since 1958 this tax imposing on transferring income or property. China in 1994. Terminal tax or Consignment Tax: This is entry tax. Ad Valorem Tax: It is a kind of indirect tax which is expressed as proportion of the price of a commodity. In other words a tax levied on the value added to goods at each stage of production is called VAT. VAT introduced first time by France in 1954 in the place of Turn over tax. Punjab & Up (1937. This tax is imposed by Central Government on Rail. And it was implemented in 2001-02 Budget with the introduction of single tax system 156 . Mumbai (1923). It is equal to excise tax in central level and sales tax in state level. Escheats duty: Since 1953 this tax is imposing on the property whose die without having any inheritance that proper will taken by the government. Later it was introduced in UK in 1973. MODVAT was implementing since March 1986 in the place of excise tax. lorry cars and tractors Advertisement Tax: Taxes on Advertisement. It is imposes on inputs or all stages. VAT: It is a tax imposes on the value added at every stage of manufacturing. Electricity Tax: First time this tax imposed in Mumbai in 1932 on electricity.and implemented as MANVAT In the place of excise tax. Sales Tax: Since 1937 this tax imposing on goods sale and purchase Custom Duties: This tax is imposing on Exports and Imports. In India VAT suggested by L. water and air ways. This tax is also called export and import tax. Jha committee in 1978. It is levied on the value of commodity. Here there is difference between wealth and property. In 1992 Raja Chelliah committee was recommended CENVAT. Indirect Taxes Excise Tax or Production Tax: This tax is imposing on final goods before going to consumer. Madras (1939) on entertainment. Switzerland in 1995 and at present total VAT is implementing in 140 countries. This type of tax imposed on supplies and suppliers collect tax from people and pay t to the Government Tax on Motor Vehicles: This tax is imposing on all types of Public and Private Vehicles.Wealth Tax: In 1955 Kaldor imposed on wealth. buses.K. It is called Escheats. Except related agriculture land and crops remaining property is called wealth.

Between 500000 to 4000000 turn over producers they may select VAT or Turn over tax.7% Direct tax ration in GDP is 5. 16% and 24%. April 1. Chhattisgarh. In 2008-09 it was reduced to 10% On total GDP service tax share is 1. 2006 onwards 5 BJP ruling states implemented.5% Petrol Tobacco -20% (turn over tax) Gold and Silver . In 2003-04 it increased to 8% on 50 items In 2004-05 to 10% and 58 items In 2005-06 same rate but on 81 items In 2006-07 to 12% and 91 items In 2007-08 same rate but 95 items. Service tax: Service tax started in 1993-94 but implemented since 1994-95 with 5% was imposed only on three items 1) telecom.5% In 2007-08 Tax ratio in GDP is 11. 2007 TN implementing. Central Government issued white paper on VAT. 75% 06-07 50% 07-08. In the place of 3 tax rate system of Ad -volerm tax with 9%. 2006 January 1 Uttaranchal implemented. 2003 VAT is implementing in Haryana. January 1. Jharkhand. Since April 1. Under VAT total 550 goods are there Among them 270 raw materials having 4% VAT 280 normal goods – 12. More than 4000000 turn over producers must follow VAT. 3 Union territories implemented. According that below 500. VAT implementation committee established in July 2000 with All state finance ministers to implement the VAT in the place of State Sales tax. Andaman Nicobar and Lakshadweep Did not implementing VAT.i. Gujarat. it is the first state VAT loss paid by Central Government 100% in 2005-06. 2) insurance and 3) is stock exchanges. January 1.1% and in National Income it share was 0.e. Rajasthan.000 turnover no VAT. TN. CENVAT with 16%. UP. (5 BJP ruling states like MP. 2008 UP is implementing VAT Pondicherry.1% (special VAT) Since 2005 April 1 total 20 states + Delhi. Uttaranchal.7% 157 . Pondicherry not implemented VAT).

N. Kaldor Mahavir Tyagi Bhutalingam Wanchoo Chowcksy K. Rajamannar 1966-69 5. But 24% from total receipts.K. P.91% 2008-09 from tax revenue.Jha Rekhi Raja Chelliah Vijay Kelkar 1978 1992 1993 2002 Finance Committees Chairman’s: 1.9% Service tax ratio in GDP is 1.Indirect tax ratio in GDP is 5. 6. L. 158 . V. C. 3. Vijay Kelkar 2010-15. A. Salvey 1989-95 10. 4.Khusrou 2000-05 12.7% in 2007-08. 3. A. 7.Raj Raja Chelliah Vijay Kelkar 1952 1958 1967 1970 1971 1972 1991 2002 Committees on Indirect taxes: 1. Mahavir Tyagi 1969-74 6.M. 2. Chawan 1984-89 9.8: 50. K. N. Shelat 1979-84 8. K. Chanda 1962-66 4.00:47. J. Santanam 1957-62 3. Committees on Direct taxes: 1. K. Pant 1995-2000 11. It was 32. 8. C.P. Niyogi 1952-57 2. M. 4. Rangarajan 2005-10 13. 2. C.00 in 2008-09 Corporation tax was 30. Bramhanada Reddy 1974-79 7. 5.K. B. K. K.9 in 2007-08 Share of direct and indirect taxes is around 53.1% Share of direct and indirect taxes is 48. Y.

increasing. legislatives meetings. This called according Wagner “Law of increases of state Activities”. Private expenditure may be motivated by profit. Effects of public expenditure: • Effects on production.Public expenditure: Public Expenditure: Public expenditure deals with the principles of public expenditure on the production. If the people income increases the people can save the money. • Effect on distribution. State and local government either for protecting citizens or promoting their social and economic welfare. • Welfare activities. Causes for Public Expenditure: The fallowing factors are the main causes for Public expenditure. But public expenditure generally planned with the objective of long-term benefits rather than short term benefits. • Effect on will to work and save. Differences Between public and private expenditure: • • • Private expenditure is determined by the income. Public expenditure on education. • For defence P. • S & T. But public expenditure is determined the amount of necessary to meet that expenditure. • Democracy activities like elections. If the public expenditure increases on welfare activities equality increases. • Administrations. cheap housing facilities and transport and communication etc will increase the ability of people to work. • In developing countries has an active role to play in reducing regional and personal disparities. The plans of private expenditure are made in relation to the near future. 159 . If the public expenditure increases peoples saving can increase due o higher saving investment also increases. It creates the effective demand and it create the market push up.E. • Public expenditure refers to the expenses of the public authorities Central. medical services. distribution and individuals. • Public expenditure is increasing because of the state activities are increasing. • Effect on investment. • Interest payments. • Increasing population. But public expenditure is motivated by welfare activities.

Schumpeter. Development: 4.J. B. Economic development is a process where by an economy real per capita income increases over a long period time – M . Todaro Economic development means transmission of labour from agriculture sector to industrial sector . 6. Economic growth means transformation of economy from agrarian to highly industrialized society and this transformation is mainly reflected in a sustained and steady rise in national and per capita income. That means growth is refers to short period and development is refers to long period of time. Literal meaning of economic growth is an increase in the country’s national income. Economic development means it is economic growth accompanied by rise in productivity. technological and institutional changes – according Kindle Berger. Latin America and African continent. 3. Hicks explained the difference between growth and development. Increasing of National Income or output is called growth. Difference between growth and Development: • • Economic growth refers to a rise in output but economic development implies changes in distribution. Economic development is a multi-dimensions process and growth is a uni-dimensional process – Michel P.Dasari Muniswamy Unit – 5 GROWTH AND DEVELOPMENT • • • Before 2nd world war economists used the terms economic growth for developed countries mainly in European countries. 160 • • . 2. Clark. But after 2nd world war economists look after developing countries in Asian. Growth: 1. Economic development means economic growth with structural changes in economy. Over all development of the country is called development 5. Meier and Baldwin.G. Sustainable Development: Sustainable development defined as that level which takes care of the needs of the present generation without compromising the needs of the future generation.

Lewis given more important to natural resources to development of the any economy. unemployment and economic in equality – Dudley Seers. In 1950-51 he suggested saving and investment should be 5% to 12% for the development of economy. 2. Robertson described foreign trade as an Engine to economic development. Transmission of economy from lower social position to upper position is called development – Gunnar Myrdal. But present economists are telling that saving and investment should be there 25% to 30% for the development of economy. Human resources: Edwin canon and Ragner Nurkse given important for human resources to development of any economy but Malthus did not supported population. H. Foreign trade: D.A. “Growth without development” written by Robert Clover.A. We can take the example human growth to understand the difference between the growth and development. K. Schumpeter and J. knowledge and personal development is called development. Rich countries national income increases is called growth and developing countries or poor countries national income increases is called economic development – Madison. 3. Skilled labour 7. Hicks. Determinants of Growth or Development 1. Availability of Capital: according W.• • • • • • • Economic development is related to developing countries and economic growth related to developed countries – Kindle Berger. R. Economic development means reduction of poverty. J. only physical weight increases it is called growth and along with physical weight his mind maturity. Average production increasing by optimum utilization of resources of the country is called economic development – S. 5. Technological progress 6. Growth is measuring based on the national income growth rate. Boumal and W. Natural Resources: W. Mukherjee. Lewis capital is necessary for the development of economy. QT – QT-1 Growth rate (GT) = ------------QT-1 GT = growth rate QT = current year quantity or national income QT-1 = Previous year quantity 161 . In his book he wrote that in Liberian country growth was there without development but some peoples are only getting return of growth and majority of the people are in poverty. Institutional Factors: 4.

Low income countries: the countries having the less than or equal to 905 $ (≤ 905 $). developing countries.115 $. 2. 2. 3. 4. under development countries. 1. Low income countries: the countries having the less than or equal to 875 $ (≤ 875 $). Upper middle income countries: the countries having the per capita income between 3466 $ to 10. Middle income countries: the countries having the per capita income between 906 $ to 11. 3rd world countries are those countries are trying to develop by fallowing either capitalistic or socialistic or mixed economy. 725$. 2. 2nd world countries are those countries are developed based on the socialistic pattern. 4. 115 $ (≥ 11.Developing economies • • • • • • According to Development economics poor countries are calling with different names like backward countries. 1.. 3. low income countries and III world countries. High income countries: the countries having the per capita income more than or equal to 10. 115 $) According to World Bank report classification low income countries and middle income countries both are called developing countries and high income countries are called developed countries. Low middle income countries: the countries having the per capita income between 876 $ to 3465 $. 726 $ (≥ 10. High income countries: the countries having the per capita income more than or equal to 11. Low income countries: the countries having the less than or equal to 735 $ (≤ 735 $). 162 • • • . 726 $) According World Bank development report classification in 2008 world countries divided into 3 types based on the per capita income. High income countries: the countries having the per capita income more than or equal to 9076 $ (≥ 9076 $) According World Bank development report classification in 2007 world countries divided into 4 types based on the per capita income. 1st world countries are those are developed based on he capitalistic pattern. 1. Low middle income countries: the countries having the per capita income between 736 $ to 2935 $. That means 1st and 2nd world countries are developed countries and 3rd world countries are back ward countries. According World Bank development report classification in 2004 world countries divided into 4 types based on the per capita income. 3. Upper middle income countries: the countries having the per capita income between 2936$ to 9075$.

Lack of infrastructure facilities 12. 2.favorable foreign trade 13. According UNO experts developing economies. According A. Mass poverty 6. Lack of entrepreneurs. K. which are having less real per capita income compared to USA. 10.8% in the world income. Dualistic economy: according Heggins this countries having two type of economies 1 is traditional sector and 2 is modern sector. According Indian Planning commission “one side under utilization of human resources and another side under exploitation of natural resources countries are called developing economies” Characteristics of Developing countries: 1. According this report China population in the world is 20. High population 8. India population is 17% in the world population and 1.3% and 5% in the world income. More Income in equalities 4. But in developing countries it is only 15% to 20% in GDP. Low standard of living of the peoples. Under utilization of natural resources. 14. More dependence on Agriculture sector: country % of the people Agriculture depending on sector agriculture sector contribution to GDP Briton 2% 1% USA 2% 2% Japan 5% 7% India 56. Australia and Western European countries. Cairon Cross developing countries are called slums of the world economy. Low per capita income 5. Scarcity of Capital: in developed countries saving and investment is 30% to 40% in their GDP. More un skilled labour 9. Canada.• • • • • • According this report developing countries population is 84% and their income in the world income is only 21% According this report India population is about 109 crores in 2005 and per capita income is 720 $. 11.7% 18% 3. Un. 163 . More un employment 7.

National income may increase by increasing the some people income. Meier and Baldwin national income is a good measure to development of any economy. But this is not going to explain about the distribution and consumption. Hence per capita income is better measurement than the national income measurement to development. If Lorenz curve is far to equal distribution curve then there is more in equality among the people. then there may be economic growth but there may not be economic development. Y National Income growth Rate BRITON INDIA O TIME India Briton X 2) Per capita income: Per head income per year is called per capita income. According them real national income is the most convenient method to measure the economic development. If national income increases lower than population growth rate. If national income increases faster than the population growth rate. Kuznets. The economist called Lorenz draw the curve based on the income which is received by people. He given the 164 . Per capita income will decide the standard of living of the people.Measurement or indexes of economic growth or development 1) National Income: according Prof. Real Per capita income = Real National Income ÷ population of the country 3) Lorenz curve: The concept of income inequality explained by Lorenz and Gini. it is undoubtedly a mark of economic development. PCI gets by dividing the National Income with that country’s population. This curve will explain the income inequality among the people. If the Lorenz curve is equal to equal distribution curve then there is an inequality in the country. so this curve is called Lorenz curve.

According him upper limit is 100 and lower limit is 1. • Morris given the lower limits and upper limits per each index. Life expectancy (LEI) ii. If the Lorenz curve is equal to ox axis then value is 1. According Gini the value is 0 then there is inequality among the people. • According Morris 1 is lowest position and 100 is highest position in the above indexes. This is called Gini Index. Is the value is 100 there are more in equalities among the people. 165 .values between 0 to 1. If Lorenz curve is equal to equal distribution curve then value is zero. Literacy Rate (LRI) • Based on the above 3 indexes Morris prepared Simple Compound Index. Upper limit shows the better position and lower limit shows that lowest or worst position. • Based on the Lorenz curve Gini explained the inequality among the people by taking the values from 0 to 100 on scale. Infant Mortality Rate (IMR) iii. • But later in 1979 this was developed by David Morris. • Morris given rating from 1 to 100 on the scale. According Gini index India’s rank in 2006 is 62nd. means there is income inequality among the people. 4) PQLI: Physical Quality Life Index: • This was first explained by John tin Bergen in 1976. • In PQLI 3 indexes are there i. means more inequality among the people.

nutrition food.market activities + expenditure on environmental pollution. industrial products consumption. Composite Index of Development: this was developed by Everet Heggins.Indexes Life Expectancy IMR Literacy Rate • Upper Limit Lower Limit (100) (1) 77 years 28 years 9 per 1000 100% 229 per 1000 1% LEI + IMR + LRI PQLI = ------------------------3 Actual Value – Minimum Value • To measure the each Index the formula is = --------------------------------------------Maximum Value – Minimum Value 5) Net Economic Welfare: this concept was explained by William Nordapus and James Tobin as Economic Welfare index to measure the development. • Later it was developed by Paul Samuelson as Newt Economic Welfare. Among them 9 are social factors remaining 7 are economic factors. • This is measured by Irma Adelman and Sindhia Morris with 41 factors. Communication. 166 6) 7) . • He taken the factors like health. • Composite index of development is measured by Donald Newresky with 14 factors. employment. education. • According Paul Samuelson Net Economic Welfare Index = Real GNP + taking rest + non. urbanization and per capita income etc. UNRISD: United Nations Research Institute for Social Development: This institute was measured the economic development with 16 factors.

562 0.00 According 2008 report based on 2006 data 26 countries are low human development countries. 2007 on 2006 based data HDI HDI Value Rank 0.968 0. on 2005 HDI Value 167 .742 0. 78 countries are middle human development countries and 75 are high human development countries are there.950 0.weighted average of three components i.960 0. High human development countries: the value is from 0.965 0. In report UNDP measured HDI for 179 countries. Low human development countries: the value is from 0.329 Report. the United Nations Development Programme has been publishing every year a Human Development Report. 2.968 0. 1.967 0.609 0. The HDI is Equi . Life Expectancy Index (LEI) ii.80 to 1.0 to 0.50 2.806 0.79 3. Middle human development countries: the value is from 0.762 0. UNDP announced the 2008 report based on the 2006 data. 1. According 2008 report India’s HDI value is 0. Standard Of Living Index or per capita in PPP with $ (PCI) Based on the HDI value countries are divided into different countries. Out of 179 countries Country 2008 based data HDI rank Iceland 1 Norway 2 Canada 3 Australia 4 Ireland 5 USA 15 Russia 73 China 94 Srilanka 104 India 132 Pakistan 139 Sierrolien 179 Report. This Human Development Report giving ranking for various countries based on the Human Development Index.609 and its rank is 132 out of 179 countries.8) HDI: (Human Development Index): since 1990.51 to 0. Educational Attainment Index (EAI) iii.

Standard of living is represented by per capita income. Educational Attainment: it is a combination of adult literacy rate (ALR) and combined enrolment ratio (CER). (LEI + EAI +PCI) HDI = ----------------------3 Components of HDI i. • Gender Empowerment index: it is measuring since 995.1 years In 2008 report based on 2006 data adult literacy rate is 65.2% In 2008 report based on 2006 data comib9ne gross enrollment is 61. First per capita income is converted into purchasing power parity in dollars. Here 2/3 part given weighted for Adult Literacy Rate (ALR) and 1/3 part given to Combined Enrolment Rate (CER). Minimum and Maximum values for indexes. Life expectancy : ii. 168 . Actual Value – Minimum Value Dimension Index = ---------------------------------------------Maximum Value – Minimum Value • Gender Related Development Index: it is measuring since 1995. Educational attainment Index (EAI) and GNP Per Capita Income.In 2008 report based on 2006 data life expectancy at birth in India is 64. S. Therefore educational attainment index may be given as EAI = 2/3 ALR + 1/3 CER. iii.000 $ (PPP$) in dollars ($) Minimum value 25 years 0% 0% 100 $ To calculate the HDI components index the fallowing formula is using.0% In 2008 report based on 2006 data GNP per capita income 2489 $ The index HDI is an equal weighted average of life expectancy index (LEI).NO Indicators Maximum value 1 Life expectancy 85 years at birth 2 Adult literacy 100 % rate in % 3 Combine gross 100 % enrolment ratio in % 4 GDP Per Capita 40.

169 . 4. Labour also transformed from primary sector to secondary sector and finally they transformed to services sector. He divided the growth stages with historical perspective. Primitive society stage II. Money exchange system stage III. These are fallows I.• Human Poverty index. Karl Marks: He divided the growth stages into 5 types. Adult literacy rate 3. Agriculture and industrial stage IV. Human Poverty index –II: It is measuring since 1998 based on 4 factors. Credit Exchange system stage 3. Expanding of Innovation • • STAGES OF GROWTH 1. Land lord society stage IV. Here health services and safe drinking water. Adult illiteracy 3. 1. Agricultural stage III. 2. industrial and trade stages 2. Simon Kuznets: According him total economy is depending on the agriculture sector initially and due change in technology secondary sector share increase and gradually primary sector share decrease. 1. Creation of technology 2. Village or rural stages II. Agriculture. 1. But since 1998 it is measures to only developing countries. Brunei field: he divide growth stages into 3 type based on the changes in currency I.I: it is measuring since 1997. Communist or Socialist society stage 4. Barter exchange system stage II. Slave society stage III. Life expectancy is taking only those who are dying below 40 years. Provide of human skills to all 3. People having less than 50% of the country average income. Here also HDI factors are taking but with little bit differences. Standard of living of people. Technological Achievement Index: It is measuring since 2001. Capitalist society stage V. Unemployment % in total one year. German’s Historians growth stages classified into 4 types I. below 60 years death % 2.

Pre-take off stage: (PURVA PLAVANA DASHA) • • • • • • • This Stage Is The Bridge Between Traditional stage and Take – off stage Risk bearing entrepreneurs develop during this stage. Fallowing are the 5 stages I. Requirement conditions developed to get take off stage during this stage Trade. for their culture due lack of aware about the development activities II. customs. and traditions. 3.Rostow: • He wrote one book called “The stage of Economic growth” in 1960 • This book also called Anon-communist Manifesto. investment and modern firms will develop during this stage Briton crossed first time this stage. W.5. Technology in agriculture must be develop 2. When industrial sector developing initially the raw material should be import. because this book is alternative for communist manifesto. • . Traditional Society: • This stage had up to Newton law was discovered • After discover of Newton science and technology was discovered this stage was changed • This stage is also called Pre-industrial stage • During this stage limited production function will be there due to lack of Technology • Around 75% of the people were depending on the agriculture sector • Most of the people spend money for temples. Take off stage: (PLAVANA DASHA) According to Rostow this Is the Most Important Stage 170 III. • He divided growth stages into 5 types. To get the modern returns from traditional stage its will take some time. Infrastructure should be developing. To reach take off stage 3 conditions must be develop 1.W. Imports – exports sectors should be develop.

Russia -1890-1914 8. Germany -1850-73 5. So industrialization start in the country • During this stage link between agriculture and industrial sector will developed • Saving and Investment rate increased from 5% to 10% • Due to the development of progressive sectors growth rate also increases • Briton reached in first time this stage during 1783-1860 • The fallowing countries reached to this stage during the fallowing period 1. France -1830-60 3. which are available in the country with availability of technology” Investment rate in National Income increases more than 10% New progressive sectors will developed during this stage Services sector share will increases in the income The fallowing countries reached to this stage. Japan -1878-1900 7. Sweden -1868-1899 6. 2. Maturity stage or Drive to maturity: (PARIPAKVA DASHA) • • • • • • • 1. China -1952 10. Briton -1783-1860 2. Briton -1850 (this country has reached to this stage first time) USA -1900 Germany -1910 Japan -1940 • 171 . This stage is also called stage of self-sustained growth This countries utilized modern technology Rostow described about this as “countries are consuming the optimal resources. India -1952 9. 3. IV. 4. So Surplus food grain production produces the countries during this stage • Availability of Raw material increases to industrial sector Due to surplus production in agriculture sector.During this stage industrial sector and services sector developed • Cities and towns developed during this stage • Sufficient technology in agriculture developed. USA -1843-60 4.

Actual rate of growth (G) 5. Learning Curve: Any economy growth starts with slow later starts rapid and finally slow growth stats this concept known as Learning curve. GROWTH STRATEGIES 1.V. Harrod and Domar strategy: • • • • • • During the first five year plan this strategy fallowed in India Harrod and Domar both gave more important for capital accumulation According then capital accumulation have double character. This is also called Gampetdge growth rate. They tried to increase full employment in the long-run period Harrod wrote one book called Towards a dynamic economics in 1959 In the Harrod model 3 main concepts are there 4. Warranted rate of growth (GW) 6. The capital accumulation can increase income one side and anther side production increases. High Mass DASHA) • • • • • • • • • • • • consumption stage: (SAMUHIKA VINIYOGA This stage is also called high income stage All people in the country will perishable consume consumption goods and luxury goods Urban population increased during this stage All types of commodities available during this stage So community may not think about the production means supply Community concentration change from supply side to demand Community concentration change from production problem to welfare problem During this stage the country command can increases in international level Labour welfare activities will increase during this stage New trade centers and new markets generate during this stage USA reached first time this stage in 1920 Later Briton in 1930 and Russia in 1950 reached this stage. Natural rate of growth (GN) According Harrod growth rate = S/COR S= Saving COR= Capital output Ratio Domar wrote the fallowing books 172 • • • • .

Unlimited labor supply theory: This theory was developed by W.A.• • • 4.Pollar. Capital expansion 5.J. 173 . Investment sector • According him development can increases by transforming the labors from subsistence sector to investment sector 3. Capital –turn over-criterion: • • • • This theory was propounded by J. These countries have always saving and investment very low If they will try to increase the national income population also increase along with national income. Low level equilibrium trap: • • • • This theory was propounded by Nelson According him under development countries always have their per capita income equal to their subsistence level. Essays in the poverty of economic growth He gave more important dual investment character According him investment increases productivity and real income also increases According him full employment get equilibrium when aggregate demand is equal to aggregate supply 2. S. so again the per capita income reach to equal to their subsistence level • • 4.S.Bucknon and Chinary This theory also called minimum capital intensive or law of minimum capital investment This theory will tell that how much production increases per one unit of capital According this theory tells that how we get maximum production with low capital in short run period and how we have invest on other projects. Rate of growth and employment 6. Lewis He wrote one book called Development with unlimited supply of labour • According him economic systems are two types 1. Subsistence sector 2.

7. Capital intensive method This theory explains that Among these two methods which is the best method to get maximum production in particular period of time 174 . This theory also called law of surplus rate or law of average marginal investment ratio.K. This theory tells that how the national income maximizes by investing the limited resources on projects by changing their values as productive value. This theory telling that even capital scarcity countries also should be use the capital intensive method. Labour intensive method 2. Social Marginal Productivity investment theory: • • This theory was propounded by A.Khan and H. This theory will tell that per capita income should be increase in the future not in the present. Critical Minimum Effort: • • • This theory was propounded by Leibenstein in his book called “Economic Backwardness and economic growth” According him to develop any economy we have to broke up Vicious circles and per capita income should be increase According him Vicious circles and per capita income can change only through this theory. Time series Criterion: • • • • This theory was propounded by A.Sen This theory will tells How To get maximum production in determining period According him to produce the commodities two methods are there 1. Robinson theory: • • Smt.B. . Robinson wrote “the accumulation of capital” in 1956 and “Essays in the theory of Economic growth” in 1963 According her steady growth with full employment is called golden age in economy.5. According them there is more part in profits in capital intensive method. Re-investment theory: • • • • • This theory was propounded by Gallenson and Leibenstein.E. 8. so this profits are use full for re-investment 9.Chinary. 6.

Karl Marks Surplus Value theory: • • • • • • • • According him production is in terms of Labour. real wage rate. He observed economy in terms of historical perspective According him capitalist exploiting labour Because capitalist paying salaries for less hours but labours are working more hours According him if labour get salary equal to his work he will work more So production increases and income increases for both labour and capitalist He suggested that capitalist should be give share to labour or capitalist gave partnership for labours to development of any economy. Division of labour lead to specialization Specialization can expand the markets and it can increase the technology and quality of goods Due to the above activities countries goes from development to growth 175 .• • He proposed that capital intensive methods for less population and more capital countries and labour intensive method for more populated and less income countries. Initially losses which occurring from capital intensive method if we get from labour intensive method that period is called recovery period. technology and different people consumption propensity influence the development. planning targets. 12. He also supported heavy industrial strategy In heavy industry he supported labour intensive methods for consumption goods and capital intensive methods for capital goods. He also supported that developing countries should be use capital intensive methods after getting full employment 11. Goutham Mathur Model: • • • • • He developed steady growth model According him initially resources. Adam Smith growth model: • • • • • • • He is known as father of economics He wrote a book called “An enquiry into the nature and causes of Wealth of Nations” in 1776 He proposed division of labour in the production process for rapid growth of any economy So he is known as father of division of labour. According labour (srama) is production and production is labour. 10.

Rosenstein Rodan He wrote one book called Industrialization of eastern and south Eastern Europe in 1943. Balanced growth theory: • • This theory was first propounded by Rosenstein Rodan Later it was developed by Ragner Nurkse 176 . High amount of investment is necessary to overcome the obstacles to development in an developing economies W. According him spread effects and back wash effects are causes for international inequalities and regional inequalities in the developing countries.A. Development area attracts the qualitative people and factor of productions and capital every this so this area may not develop. In case of spread effects: in case of spread effects one area development help to develop another area.13. Big push Theory of growth: • • • • • • This theory was propounded by Paul. Back was effects: it means one area development effects gave a path under development of another area. N. organization are physical factors of production and social factors are non physical factors of production 14. 16. Lewis and Ragner Nurkse supported this theory According him there is a indivisibility in production. labour. According him in developing countries has strong back wash effects and week spread effects. Innovations theory: • • • This theory was propounded by Schumpeter According him factors of productions are two types 1. Non physical factors of production According him land. • • • 15. Physical factors of production 2. F these area develop another area which are producing raw materials are going to develop. indivisibility in demand and indivisibility in the supply of savings Given these three indivisibilities and the external economies to which they give rise a big push investment is required to overcome the obstacles to development in developing countries. Gunnar Myrdal growth theory: • • • Gunnar Myrdal wrote “Asian drama” In Asian drama he wrote the spread effects back wash effects. capital.

According Prof. 17. Singer and Kurihara in the fallowing grounds 1. The problem of the planning is to determine sequence of expansion that will maximize induced decision making. Either method of 177 • • • • • . it is equal to Divergent series of investment 2. The doctrine of balanced growth requires a balance between different sectors of the economy during the process of economic growth Investment should be made equal in different sectors According Nurkse around 30% of disguised unemployment the in the under developed countries This theory was criticized by Hirschman. Social Overhead Capital (SOC). Directive Productive Activity (DPA). saving and investment. Hirschman “the best strategy of development is the creation of imbalances in the economic since it is observed that efforts to correct the existing disequilibrium constitute a major step for the progress of the economy”.• • • • • • • Ragner Nurkse wrote one book called Problems of capital formation in under developed countries in 1953. According Hirschman two types of sector are there to investment. Hirschman assumed that since under developed countries have limited ability to utilize the resources. So SOC and DPA cannot expand simultaneously. it is equal to Convergent series of investment. Under development countries are having low level of consumption. Disproportionate of factors of production 3. Hirschman the most effective way of breaking the vicious circle is to deliberately plan for imbalance. Convergent Series of Investment: This type investment can consume more external economies then the creation. Cost aspect ignored. 2. 1. A country can start either expanding SOC or expanding DPA. According Nurkse vicious circle of poverty are at work in developing countries. Divergent Series of Investment: This type of investment can crate more external economies then consumption. According Prof. Unbalanced growth theory: • • • Prof. Lack of resource 2. Hirschman developed this theory Kindleberger also supported this theory. which are obstacle to the development of economy According him vicious circles are operate both on supply side and demand side. According Hirschman investment can be two types 1. production.

In this case the total economic welfare decreases. the increases in national income will not result in increase in economic welfare. • The economic welfare cannot be said to have increased. income of the richer sections of the society increases and the poor do not gain at all from it. derived demand or backward linkage effects. But this relationship depends on a number of factors.• • • unbalanced results in additional investment and output. • Even with the increase in national income and per capita income. This is known as output utilization or forward linkages effects. forward linkages and backward linkages. • It is possible that with the increase in national income. Because of incentives and pressures. Every activity that does not by its nature caters exclusively to attempts find demands will induce to utilize to outputs and inputs in some new activities. 178 . if the increase in national is due to exploitation of labour. The increase in economic welfare results in the increase of total welfare and vice versa. In such a situation. the economic welfare may decrease.primary noneconomic activity will induce attempts to supply through domestic production. Welfare is a state of mind which reflects human happiness and satisfaction. the backward linkage encourages investment in earlier stages of production. This is known as input provision. Every non. the inputs needed in that activity. the population may increase at the same pace and thus the per capita income may not increase at all. Growth and welfare: Economic growth increases the volume of national income. According Hirschman iron and steel industry having the greatest linkages. • If the change in national income were due to change in price. it would be difficult to measure the real change in economic welfare. Growth – Distribution or Welfare. On other hand. Any particular investment project may have both. which leads to increase in economic welfare. The forward linkage encourages investment in subsequent stages of production. This is the case when as a result of the increase in national income. the rate of growth is likely to be faster with chronic imbalances.

It is the capital formation that leads to the further utilization of resources. Importance of capital formation: • • • • Economic growth is synonymous with the development of socioeconomic overhead capital. Amartya Sen has combined the dimensions of level and distribution of income to produce the measure of welfare.Amartya Sen’s Measure of Welfare: • Prof. A rapid rate of capital formation is necessary to disperse with foreign aid. G = measure of inequality. raw material partly finished goods and means of transport. Countries with huge population always aim at high capital labour ratio.made and its supply can be increased by human efforts. W will increase when µ grows and G dimensions. When one remembers that µ is NNP divided by population. According the Nurkse. It is man. Investment in capital equipment not only increases production but also employment opportunities Capital formation leads to expansion of the market. income and employment. • • Sources of Growth: Capital: Capital plays a vital role in promoting economic development in a country. Without capital growth is not possible. income. since the capital labour ratio is very low in these countries. It helps in creating socio-economic overhead.G) Where W = welfare. Capital formation makes development possible even with increasing population. buildings and all kinds of industrial plant. it is clear that NNP should rise at higher rate than the population. W = µ (1 . Capital is defined as a produced means of production. Due to lack of adequate capital. factory. • 179 . the vicious circle of poverty in an underdeveloped economy can be broken only through capital formation. the better it is. Thus. capital formation leads to increase in size of national output. investment and employment are deficient and are at a very low level. In mathematical terms. The more the growth rate of NNP relative to that of population. Capital stock of a country consists of machinery tools.

Capital formation is thus an important determinant of economic development. since increasing capital formation leads to increased production of manufactured and primary goods. cultural. External sources of capital formation: 1. neglecting political. 5. Establishments of financial institutions. like saving is a habit which can be included by propaganda. social. Foreign aid 2. 2. 4. Profits of public corporations. Inflation 8. Savings drivers. Mobilization of savings through financial and credit institutions. Investment of savings. Utilization of the disguised un. Increase in national income 2. technological and entrepreneurial factors. Favourable terms of trade.• • The inflationary pressure in an economy can be removed with the help of adequate capital formation. Restriction of imports 3. Increasing rural savings. however. 3. 9. 180 . an over simplification to regard economic development as a matter of capital formation alone. Increasing profit 7. There are one is domestic sources and second is external sources. Perpetuation of income inequalities. Domestic sources of capital formation: 1.employment. and 3.iot would be. 6. An increase in the rate of capital formation raises the level of national income. Increase in the volume of real savings. Capital formation can be divided into two categories. Sources of growth of capital formation: The process of capital formation involves three steps: 1.

Study programmes fro adults. Health facilities and services. Human capital means ability and skill of labour which can be brought in the field of production of goods and services. 4.W. Migration of individuals and families to adjust to changing job opportunities. individuals and from the angle of society. According T. Human capital formation in Developing Countries are mainly on the fallowing factors. At the individual level. Schultz. • There should be planning of human resources • There should be an attempt to radically change the traditional value system into a new vale system that would give stress on the importance of modern sciences and better living in this world rather than living in heaven after death. 1. 6. 3. 5. Health and Adequate Diet Suggestions to improve human capital formation in developing county. Health services 3. 1. Thus. 2. The import of technical assistance expertise and consultants. Education 2. there are 6 ways os developing human resources. education and experience which are critical for the economic and political development of a country. 181 . he can produce more. On the job training including old type apprenticeships originated by firms. Thus human capital formation is associated with investment in man and his development as a creative and productive resource. • Rigorous steps must be taken to effectively check rapid growth of India’s population that is taking place.Human Capital: The term human capital refers to the process of acquiring and increasing the number of persons who have the skills. human capital means quality of the labour force or work force that is used in the production of various goods and services. Human capital formation can be viewed at two levels. Success of all other policies and steps in this direction would go waste. raise his income and live a higher standard of living. if rate of growth of population is not effectively brought down. Formally organized education at the elementary secondary and higher levels. by investing on his education and on improvement of technical skills.

capital and labour abundant. Malthus advocated moral restraint on the size of families.• There should be established a vast network of social and cultural institutions in the country to train and increase efficiency of Indian workforce. Optimum theory of population and Demographic transition theory. without preventive checks population would outstrip the available means of subsistence and force the positive and drastic checks on the population involving various forms of miseries. It was only Malthus and Ricardo who created an alarm about the effect of population growth on the economy. Population growth has helped the growth of such economies because they are wealthy have abundant capital and scarcity of labour. Population growth and economic development: The consequence of population growth on economic development has attracted the attention of economists ever since Adam Smith wrote his Wealth of Nations. Thus it is felt that an increasing population hampers the process of rapid economic development in a number of ways. Many economists have presented theories of population to explain the behavior of the population. “The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniences of life”. According to Malthus. Theses economies are poor. where as the natural resources necessary to support the population grew at a rate similar to an arithmetic progression. And Adam Smith wrote. But their fears have proved unfounded because the growth of population in Western Europe has led to its rapid industrialization. the consequence of population growth on the development of less developed countries are not the same because the condition availing in these countries are quite different from those of developed economies. Society should make enough investment to raise the rate of human capital formation. According to Marshall. However. 182 . Among them various theories important one are: Malthusian theory of population. Malthusian Theory of Population: Malthus was the first economist to give the population problem a series attention. population had a natural growth rate described by a geometric progression.

On the other hand. High stationary stage: in this stage high birth rates and high death rates with the results that the growth rate of population is low. According this theory there is optimum point for every economy. If a country is underpopulated. The declining stage: a continuing decline in birth rate when it is not possible to lower death rate further. it is considered to be under-populated. The low stationary stage: in this stage low birth rate and low death rate. if its population exceeds the optimum. 2. The early expanding stage: this stage marked by high birth rate and high but declining death rate results high growth rate of population. the theory of demographic transition states that every country passes through five different states of population growth. As a results.Theory of Optimum Population: Prof.P. but at a diminishing rate. an increase in population would lower the level of per capita income. 4. According to C. an increase in population would raise the level of per capita income. population grows. The existence of this stage in any developed country is a matter of speculation. capital equipment. as a results a decline in the growth arte of population.Blacker. 5. it is considered to be overpopulated. gives existing technical knowledge. natural resources and national income per capita is maximum. 183 . 3. This acceleration in growth rate of population is known as population explosion. in the advanced countries leads to a declining stage of population. if it is over populated. they are 1. giving a low rate of growth of population. Theory of Demographic Transition: Based on the demographic history of Western countries. The late expanding stage: the late expanding phase with declining in birth rate but death rate declining more rapidly. Cannon formulated a theory of population in the beginning of the twentieth century which has come to be known as theory of optimum population. If the population of a country falls short of the optimum. on the other hand. Optimum population is that level of population at which.

Importance of Foreign Trade: • When a country specializes in the production of a few goods due to division of labour and international trade. In the non-economic field. the very aim of the aidreceiving country should be to ensure that its utilization results in the creation of export capacity either directly or indirectly. This brings us to trade. it exports those commodities which it produces cheaper in exchange for what others can produce at a lower cost. There choice of projects and the conditions of purchase of goods under the aid programme are determined by the donor country. be unsuitable to the factor endowments of the recipient country. As we know that. 184 . Finally we may state that from the points of view of the developing countries. the developed and the developing countries should be “Aid and Trade”. The type of technology made available under this aid programme may at times. aid must eventually lead to more export earnings for the developing countries else they would not be able to repay their debts. Tied aid has a number of disadvantages for the recipient country because it limits its freedom in a number of ways. but there are significant difference between the two. foreign aid is frequently made available in the form of Tied aid. will dry up. For this purpose the developed countries will have to change their selfish narrow outlook and pull down heir trade barriers to enable the developing countries to export earnings. both aid and trade have important roles to play. the greatest risk is that of the political interference of the donor country in the domestic affairs of the recipient country. The slogan “Aid or a Trade” is a misnomer. The approach of both. Thus aid should ultimately lead to more trade. It also fills up the foreign exchange gap and technological gap. The way out of this crisis is a substantial expansion of recipient country. Thus aid must be accompanied by more trade. provides resources to the developing countries to implement programmes of economic development which otherwise wouldn’t have been undertaken.Growth and Foreign Trade and Foreign Aid: In recent decades in interesting debate has been raised over the relative virtue of trade and aid. the burden can soar to seen high limits that the entire export earnings of the country is likely to suffer a set back as the capacity to exports to goods. However. Though both are means of acquiring external resources in the form of foreign exchange. Thus even if a country starts its planning process by giving more importance to aid it must eventually turn its attention to trade. In the economic field the greatest risk is the burden of repayment. Aid. essential for economic development. Aid exposes the recipient country to a number of risks. In fact. At times.

185 . • Difference between saving and investment is cause to domestic saving gap. so there gap for investment. Two Gap model of Foreign Aid: • H. reflected in high average cost of production and low productivity of labour and capital due to unskilled labour and obsolete capital equipment and has high capital-output ratio. • Foreign aid helps in building economic overhead capital like rails. • According to two gap model. saving gap and foreign exchange gap are two separate and independent constraints on the attainment of a target rate of growth in developing countries.Chenery developed this model. So the there is a gap for foreign exchange. • According Chenery.• • Small size of domestic market in under developed countries fails to absorb sufficient volume of output. • Chenery suggests foreign aid as a way of filling these two gaps in order to achieve the target growth rate of the economy. So this is called foreign exchange gap. • Difference between imports and exports is cause to foreign exchange gap. • Importance of capital creates more employment opportunities. it opens up inaccessible areas helps in augmenting natural resources. • Foreign aid overcomes the balance of payments difficulties experienced by under development countries. This is called domestic saving gap. This leads to low inducement to invest. Foreign trade also helps to transform the subsistence sector into the monetized sector by providing markets for farm produce and raises the income and standard of living. • With the help of foreign aid untapped natural resources can be exploited. Importance of foreign aid: • Under development countries suffer from technological backwardness. due to low level of income saving is very low.B. • According Chenery developing countries having the less export value than the imports value. road and power projects which provide the necessary infrastructure for development. • Foreign capital helps in industrializing the economy.