Economics-2

# (only for reading purpose)

Contents

S. NO. Topic
I Course Outline
II Economic Profile of India/Indian Economy
III Key Highlights of Economic Survey 2018-19

1 The Economy and The Constitution of India

2 Economic Systems
3 Concepts- Growth, Development and
Sustainable Development
4 Models of economic growth
5 Justice and Economic Justice
6 Economic Equality
8 Economic Liberty/Freedom
9 Welfare and Economic Welfare
10 Economic Planning
11 NITI Aayog
12 Fiscal Federalism
13 Finance Commission
14 Poverty- Measurement, Eradication Policies
15 Unemployment Measurement, Policies
16 Black Economy/Economic offences
17 Wages
18 Primary Sector- Performance, Problems, Policy
19 Secondary Sector- Performance, Problems, Policy
20 Tertiary Sector- Performance, Problems, Policy
21 New Economic Policy
22 Social Security
DAMODARAM SANJIVYYA NATIONAL LAW UNIVERSITY, VISAKHAPATNAM

COURSE OUTLINE

Title of the Subject: Economics-2

Name of the Faculty: Mr. Abhishek Sinha Total No. of Hours: 60
Note: Academic Session – July 2019– November 2019

Objective of the course:

1. To gain an understanding of core economic principles and how they apply to a wide
range of real-world issues.
2. To master the theoretical and applied tools necessary to critique and create analytical
learning in economics as well as in other field of knowledge.
3. To learn how to articulate pragmatic, principles-based policies to enhance economic
well-being and promote social justice.
4. To become familiar with salient developments in the Indian economy, in both
present-day and historical contexts.
UNIT 1 Topic: Economic Development and Growth No. of Hours
1.1 Economic Systems- Economic Socialism, Socialistic Vs 3
Capitalistic pattern, Characteristics of Developed and Less
Developed countries
1.2 Concept of Economic Growth, Economic Development, 3
Inclusive Growth, Sustainable Development.
Features, indicators and differences of growth and
development
1.3 Models of economic growth- classical and neo-classical 3

UNIT 2 Topic: Economics and the Constitution

2.1 Justice and Economic Justice - its concept and kinds 3
2.2 Economic Equality- its concept and measurement 3
2.3 Economic Liberty/Freedom-its concept and measurement 3
2.4 Welfare- its concept and kinds and Economic Welfare – 3
concept and measurement

UNIT 3 Topic: Economic Planning and Fiscal Federalism

3.1 Objectives, Importance and Strategies of Economic 3
Planning
3.2 Reforms in Planning: NITI Aayog, Make in India policy 3
and Role of the State
 3.3 Fiscal Federalism- concept and its application in India 3

3.4 Finance Commission and Recommendations of Fourteenth 3

Finance Commission

UNIT 4 Topic: Problems of Indian Economy

4.1 Poverty Measurement and Poverty Eradication Policies 3
4.2 Unemployment Measurement and policies-MGNREGA 3
4.3 Black Economy/Economic Offences- its impact on the 3
Economy
4.4 Wages- Minimum Wage 3
UNIT 5 Sectors of Indian Economy
5.1 Primary Sector: Performance, Problems, 3
Commercialization and Agricultural Policy
5.2 Secondary Sector: Industrial Performance, Problems and 3
Industrial Policies
5.3 Tertiary sector: Service Performance, Problems 3
5.4 New Economic Policy; Changing role of Markets and 3
Planning, Private- Public Partnership
5.5 Social Security Policy and problems 3

Essential Readings-
1.) Development Economics; Debraj Ray; Princeton University
2.) The Economics of Sustainable Development -The Case of India; Kumar,
Surender, Managi, Shunsuke; Springer International Publishing AG.
3.) Indian Economy, 2016; Rudra Datta and K. P. M .Sundaram; S. Chand & Sons
Suggested Readings-
1.) Economics of Development and Planning; R.C.Agarwal; Lakshmi Narain
Agarwal
2.) Indian Economy, 2018; S. K .Mishra and V. K. Puri; Himalaya publications
3.) Development Experience in the Indian Economy: Inter State Perspectives (Eds)
(2001); Brahmananda, P.R. and Panchmukhi, V.R; Bookwell, Delhi.
4.) Twelfth Five Year Plan Document; Planning Commission; planning
commission.gov.in
Advanced Readings-
1.) India: Development And Participation; Dreze Sen; Oxford Press
2.) Inclusive Growth in India; S. Mahendra Dev; Oxford press
3.) India’s Economic Reforms and Development; Isher Judge Ahluwalia & I.M.D.
Little; Oxford University Press
4.) On Economic Inequality; Amartya Sen; Oxford University Press
5.) Social Dimensions of Law & Justice; Julius Stone; Universal Law Publishing
Co.
6.) The Idea of Justice; Amartya Sen; Allen Lane, Penguin Books
7.) A Theory of Justice; John Rawls; Universal Law Publishing House
 Economic Profile of India/Indian Economy
• ABOUT INDIAN ECONOMY GROWTH RATE & STATISTICS
• Introduction
• India has emerged as the fastest growing major economy in the world and is expected
to be one of the top three economic powers of the world over the next 10-15 years,
backed by its strong democracy and partnerships.
• Market size
• India’s GDP is estimated to have increased 7.2 per cent in 2017-18 and 7 per cent in
2018-19. India has retained its position as the third largest startup base in the world
with over 4,750 technology start-ups.
• India's labour force is expected to touch 160-170 million by 2020, based on rate of
population growth, increased labour force participation, and higher education
enrolment, among other factors, according to a study by ASSOCHAM and Thought
Arbitrage Research Institute.
• India's foreign exchange reserves were US$ 405.64 billion in the week up to March 15,
2019, according to data from the RBI.
• Recent Developments
• With the improvement in the economic scenario, there have been various investments
in various sectors of the economy. The M&A activity in India reached record US$ 129.4
billion in 2018 while private equity (PE) and venture capital (VC) investments reached
US$ 20.5 billion. Some of the important recent developments in Indian economy are as
follows:
• During 2018-19 (up to February 2019), merchandise exports from India have increased
8.85 per cent year-on-year to US$ 298.47 billion, while services exports have grown
8.54 per cent year-on-year to US$ 185.51 billion.
• Nikkei India Manufacturing Purchasing Managers’ Index (PMI) reached a 14-month
high in February 2019 and stood at 54.3.
• Net direct tax collection for 2018-19 had crossed Rs 10 trillion (US$ 144.57 billion) by
March 16, 2019, while goods and services tax (GST) collection stood at Rs 10.70
trillion (US$ 154.69 billion) as of February 2019.
• Proceeds through Initial Public Offers (IPO) in India reached US$ 5.5 billion in 2018
and US$ 0.9 billion in Q1 2018-19.
• India's Foreign Direct Investment (FDI) equity inflows reached US$ 409.15 billion
between April 2000 and December 2018, with maximum contribution from services,
computer software and hardware, telecommunications, construction, trading and
automobiles.
• India's Index of Industrial Production (IIP) rose 4.4 per cent year-on-year in 2018-19
(up to January 2019).
• Consumer Price Index (CPI) inflation stood at 2.57 per cent in February 2019.
• Net employment generation in the country reached a 17-month high in January 2019.
• Government Initiatives
• The interim Union Budget for 2019-20 was announced by Mr Piyush Goyal, Union
Minister for Finance, Corporate Affairs, Railways and Coal, Government of India, in
Parliament on February 01, 2019. It focuses on supporting the needy farmers,
economically less privileged, workers in the unorganised sector and salaried
employees, while continuing the Government of India’s push towards better physical
and social infrastructure.
• Total expenditure for 2019-20 is budgeted at Rs 2,784,200 crore (US$ 391.53 billion),
an increase of 13.30 per cent from 2018-19 (revised estimates).
• Numerous foreign companies are setting up their facilities in India on account of
various government initiatives like Make in India and Digital India. Mr. Narendra
Modi, Prime Minister of India, has launched the Make in India initiative with an aim to
boost the manufacturing sector of Indian economy, to increase the purchasing power of
an average Indian consumer, which would further boost demand, and hence spur
development, in addition to benefiting investors. The Government of India, under the
Make in India initiative, is trying to give boost to the contribution made by the
manufacturing sector and aims to take it up to 25 per cent of the GDP from the current
17 per cent. Besides, the Government has also come up with Digital India initiative,
which focuses on three core components: creation of digital infrastructure, delivering
services digitally and to increase the digital literacy.
• Some of the recent initiatives and developments undertaken by the government are
listed below:
• In February 2019, the Government of India approved the National Policy on Software
Products – 2019, to develop the country as a software hub.
• The National Mineral Policy 2019, National Electronics Policy 2019 and Faster
Adoption and Manufacturing of (Hybrid) and Electric Vehicles (FAME II) have also
been approved by the Government of India in 2019.
• Village electrification in India was completed in April 2018. Universal household
electrification is expected to be achieved by March 2019 end.
• The Government of India released the maiden Agriculture Export Policy, 2018 which
seeks to double agricultural exports from the country to US$ 60 billion by 2022.
• Around 1.29 million houses have been constructed up to December 24, 2018, under
Government of India’s housing scheme named Pradhan Mantri Awas Yojana (Urban).
• Prime Minister's Employment Generation Programme (PMEGP) will be continued with
an outlay of Rs 5,500 crore (US$ 755.36 million) for three years from 2017-18 to 2019-
20, according to the Cabinet Committee on Economic Affairs (CCEA).
• Road Ahead
• India's gross domestic product (GDP) is expected to reach US$ 6 trillion by FY27 and
achieve upper-middle income status on the back of digitisation, globalisation,
favourable demographics, and reforms.
• India's revenue receipts are estimated to touch Rs 28-30 trillion (US$ 385-412 billion)
by 2019, owing to Government of India's measures to strengthen infrastructure and
reforms like demonetisation and Goods and Services Tax (GST).
• India is also focusing on renewable sources to generate energy. It is planning to achieve
40 per cent of its energy from non-fossil sources by 2030 which is currently 30 per cent
and also have plans to increase its renewable energy capacity from to 175 GW by 2022.
• India is expected to be the third largest consumer economy as its consumption may
triple to US$ 4 trillion by 2025, owing to shift in consumer behaviour and expenditure
pattern, according to a Boston Consulting Group (BCG) report; and is estimated to
surpass USA to become the second largest economy in terms of purchasing power
parity (PPP) by the year 2040, according to a report by PricewaterhouseCoopers.
• Exchange Rate Used: INR 1 = US$ 0.0145 as on March 29, 2019
• India’s GDP is estimated to have increased 7.2 per cent in 2017-18 and 7 per cent in
2018-19.
• Gross Value Added (GVA) Composition by Sector (2017-18 2nd Advance
Estimate)
• Services: 53.9 per cent
• Industry: 29.1 per cent
• Agriculture: 17.1 per cent
• Forex Reserves: US$ 405.64 billion in the week up to March 15, 2019.
• Gross Fixed Capital Formation (GFCF) at current prices: Gross Fixed Capital
Formation (GFCF) at current prices is estimated to be Rs 40.61 trillion (US$ 587.09
billion) between Apr-Dec 2019.
• Value of Exports: India's exports stood at US$ 483.92 billion in 2018-19 (up to
February 2019.
• Export Partners: US, Germany, UAE, China, Japan, Thailand, Indonesia and
European Union. India is also tapping newer markets in Africa and Latin America.
• Currency (code): Indian rupee (INR)
• Exchange Rates: Indian rupees per US dollar - 1 USD = 69.1713 INR (March 29,
2019)
• Fiscal Year: April 01 – March 31
• Cumulative FDI Equity Inflows: US$ 409.15 billion (April 2000 to December 2018)
• Share of Top Investing Countries FDI Equity Inflows: Mauritius (32 per
cent), Singapore (19 per cent), Japan (7 per cent), UK (6 per cent), Netherlands
(6 per cent), USA (6 per cent), Germany (3 per cent), Cyprus (2 per cent), France
(2 per cent), UAE (1 per cent)
• Major Sectors Attracting Highest FDI Equity Inflows: Services Sector (17 per cent),
Computer Software and Hardware (9 per cent), Telecommunications (8 per cent), ,
Construction Development (6 per cent), Trading (5 per cent), Automobiles (5 per cent),
Drugs and Pharmaceuticals (4 per cent), Chemicals (4 per cent), Construction Activities
(4 per cent), Power (3 per cent)
• Transportation in India
• Airports: Airports Authority of India (AAI) manages 129 airports in the country,
which includes 23 international airports and 20 civil enclaves at defence airfields.
• International Airports: Ahmedabad, Amritsar, Bengaluru, Chennai, Goa, Guwahati,
Hyderabad, Kochi, Kolkata, Mumbai, New Delhi, Thiruvananthapuram, Port Blair,
Srinagar, Jaipur, Nagpur, Calicut.
• Railways: The Indian Railways network is spread over 108,706 km, with 12,617
passenger and 7,421 freight trains each day from 7,172 stations plying 23 million
travellers and 3 million tonnes (MT) of freight daily.
• Roadways: India’s road network of 4.87 million km is the second largest in the world.
With the number of vehicles growing at an average annual pace of 10.16 per cent,
Indian roads carry about 65 per cent of freight and 85 per cent of passenger traffic.
• Waterways: 14,500 km
• Major Ports of Entry: Chennai, Ennore, Haldia, Jawaharlal Nehru Port Trust (JNPT),
Kolkata, Deen Dayal, Kochi, Mormugao, Mumbai, New Mangalore, Paradip, Tuticorin
and Vishakhapatnam.
• Demographic profile
• Population: 1,326,801,000
• Population Growth Rate: 1.2 per cent (2015)
• Religions: Hinduism, Islam, Christianity, Sikhism, Buddhism, Jainism
• Languages: Hindi, English and at least 16 other official languages
• Literacy: Total population: 74.04 per cent (provisional data-2011 census)
• Male: 82.14 per cent
• Female: 65.46 per cent
• Suffrage: 18 years of age; universal
• Life expectancy: 66.9 years (men), 69.9 years (women) (2015 – WHO 2016 Report)
• Population of India 2019- India Population 2019, Most Populated States
• Population of India 2019: Looking into the latest UN data, the approximate population
of India is 1,350,438,098.
• The population of India is rising at alarming rate and this is why the country is known
as the second most populous country in the world after China.
• The current population of China is more than 1.41 billion. If we analyze this figure it is
not wrong to say that one out of 6 people on this planet belongs to India.
• The population of India is increasing with growth rate at 1.19% and it will touch the
1.53 billion by the end of 2030 (Prediction).
• If we talk about the population density of India, it is 387.9 people per square
kilometer (1,004.7/square mile).
• Hence, India holds its 31st position in the world in terms of population density.
• A Quick Analysis of India Population 2019
• Almost 73% people of India’s current population lives across 638,000 villages and rest
27% lives in urban area. It is quite difficult to expect the exact population of India in
2019, however, we can provide you the estimated structure:

Years Population

2013 1.252 Billion

2014 1.26 Billion

2015 1.30 billion

2016 1.32 billion

2017 1.3366 billion

2018 1.35 billion (expected data)

2019 1.37 billion (expected data)

• Facts About Population of India

• India is the seventh largest country in terms of area and most populous democracy in
the world.
 • In the year 2017, the economy of India was the third largest by buying power parity and
sixth largest by nominal GDP.
• Some of the most populated states of the country include Uttar Pradesh, Maharashtra,
Bihar, West Bengal and Madhya Pradesh.
• Some of the most populated cities of India include Mumbai, Delhi, Bangalore,
Hyderabad and Ahmedabad.
• The sex ratio of the country is:

By birth 1.10 male(s)/female (Estimated in 2013)

Under 15 Age 1.10 male(s)/female (Estimated in 2009)

15–64 years 1.06 male(s)/female (Estimated in 2009)

65 and over 0.90 male(s)/female (Estimated in 2009)

Key Highlights of Economic Survey 2018-19
The Union Minister for Finance and Corporate Affairs, Smt. Nirmala Sitharaman tabled the
Economic Survey 2018-19 in the Parliament today. The Key Highlights of Economic Survey
2018-19 are as follows:
Shifting gears: Private Investment as the Key Driver of Growth, Jobs, Exports and Demand
Survey states that pathways for trickle-down opened up during the last five years; and benefits
of growth and macroeconomic stability reached the bottom of the pyramid.
Sustained real GDP growth rate of 8% needed for a $5 trillion economy by 2024-25.
“Virtuous Cycle” of savings, investment and exports catalysed and supported by a favourable
demographic phase required for sustainable growth.
Private investment- key driver for demand, capacity, labor productivity, new technology,
creative destruction and job creation.
Survey departs from traditional Anglo-Saxon thinking by viewing the economy as being either
in a virtuous or a vicious cycle, and thus never in equilibrium.
Key ingredients for a self-sustaining virtuous cycle:
Presenting data as a public good.
Emphasizing legal reforms.
Ensuring policy consistency.
Encouraging behaviour change using principles of behavioural economics.
Nourishing MSMEs to create more jobs and become more productive.
Reducing the cost of capital.
Rationalizing the risk-return trade-off for investments.
Policy for Real People, Not Robots: Leveraging the Behavioural Economics of “Nudge”
Decisions by real people deviate from impractical robots theorized in classical economics.
Behavioural economics provides insights to ‘nudge’ people towards desirable behaviour.
Key principles of behavioural economics:
Emphasizing the beneficial social norm.
Changing the default option.
Repeated reinforcements.
Using insights from behavioral economics to create an aspirational agenda for social change:
From ‘Beti Baco Beti Padhao’ to ‘BADLAV’ (Beti Aapki Dhan Lakshmi Aur Vijay Lakshmi).
From ‘Swachh Bharat’ to ‘Sundar Bharat’.
From ‘Give it up” for the LPG subsidy to ‘Think about the Subsidy’.
From ‘Tax evasion’ to ‘Tax compliance’.
Nourishing Dwarfs to become Giants: Reorienting policies for MSME Growth
Survey focuses on enabling MSMEs to grow for achieving greater profits, job creation and
enhanced productivity.
Dwarfs (firms with less than 100 workers) despite being more than 10 years old, account for
more than 50% of all organized firms in manufacturing by number.
Contribution of dwarfs to employment is only 14% and to productivity is a mere 8%.
Large firms (more than 100 employees) account for 75% employment and close to90% of
productivity despite accounting for about 15% by number.
Unshackling MSMEs and enabling them to grow by way of:
A sunset clause of less than 10 years, with necessary grand-fathering, for all size-based
incentives.
Deregulating labor law restrictions to create significantly more jobs, as evident from Rajasthan.
Re-calibrating Priority Sector Lending (PSL) guidelines for direct credit flow to young firms
in high employment elastic sectors.
Survey also focuses on service sectors such as tourism, with high spill-over effects on other
sectors such as hotel & catering, transport, real estate, entertainment etc., for job creation.
Data “Of the People, By the People, For the People”
Society’s optimal consumption of data is higher than ever given technological advances in
gathering and storage of data.
As data of societal interest is generated by the people, data can be created as a public good
within the legal framework of data privacy.
Government must intervene in creating data as a public good, especially of the poor and in
social sectors.
Merging the distinct datasets held by the Government already would generate multiple benefits.
Ending Matsyanyaya: How to Ramp up Capacity in the Lower Judiciary
Delays in contract enforcement and disposal resolution are arguably now the single biggest
hurdle to the ease of doing business and higher GDP growth in India.
Around 87.5 per cent of pending cases are in the District and Subordinate courts.
100 per cent clearance rate can be achieved by filling out merely 2279 vacancies in the lower
courts and 93 in High Courts.
States of Uttar Pradesh, Bihar, Odisha and West Bengal need special attention.
Productivity improvements of 25 percent in lower courts, 4 percent in High Courts and 18
percent in Supreme Court can clear backlog.
How does Policy Uncertainty affect Investment?
Significant reduction in Economic Policy Uncertainty in India over the last one decade, even
when economic policy uncertainty increased in major countries, especially the U.S.
Uncertainty dampens investment growth in India for about five quarters.
Lower economic policy uncertainty can foster a salutary investment climate.
Survey proposes reduction in economic policy uncertainty by way of:
Consistency of actual policy with forward guidance.
Quality assurance certification of processes in Government departments.
India's Demography at 2040: Planning Public Good Provision for the 21st Century
Sharp slowdown in population growth expected in next 2 decades. Most of India to enjoy
demographic dividend while some states will transition to ageing societies by 2030s.
National Total Fertility Rate expected to be below replacement rate by 2021.
Working age population to grow by roughly 9.7mn per year during 2021-31 and 4.2mn per
year during 2031-41.
Significant decline to be witnessed in elementary school-going children (5-14 age group) over
next two decades.
States need to consolidate/merge schools to make them viable rather than build new ones.
Policy makers need to prepare for ageing by investing in health care and by increasing the
retirement age in a phased manner.
From Swachh Bharat to Sundar Bharat via Swasth Bharat: An Analysis of the Swachh Bharat
Mission
Traceable health benefits brought about by Swachh Bharat Mission (SBM).
93.1% of the households have access to toilets.
96.5% of those with access to toilets are using them in rural India.
100% Individual Households Latrine (IHHL) Coverage in 30 states and UTs.
Financial savings from a household toilet exceed the financial costs to the household by 1.7
times on average and 2.4 times for poorest households.
Environmental and water management issues need to be incorporated in SBM for sustainable
improvements in the long-term.
Enabling Inclusive Growth through Affordable, Reliable and Sustainable Energy
2.5 times increase in per capita energy consumption needed for India to increase its real per
capita GDP by $5000 at 2010 prices, and enter the upper-middle income group.
4 times increase in per capita energy consumption needed for India to achieve 0.8 Human
Development Index score.
India now stands at 4th in wind power, 5th in solar power and 5th in renewable power installed
capacity.
Rs 50,000 crore saved and 108.28 million tonnes of CO2 emissions reduced by energy
efficiency programmes in India.
Share of renewable (excluding hydro above 25 MW) in total electricity generation increased
from 6% in 2014-15 to 10% in 2018-19.
Thermal power still plays a dominant role at 60% share.
Market share of electric cars only 0.06% in India while it is 2% in China and 39% in Norway.
Access to fast battery charging facilities needed to increase the market share of electric
vehicles.
Effective Use of Technology for Welfare Schemes – Case of MGNREGS
Survey says that efficacy of MGNREGS increased with use of technology in streamlining it.
Significant reduction in delays in the payment of wages with adoption of NeFMS and DBT in
MGNREGS.
Demand and supply of work under MGNREGS increased, especially in distressed districts.
Vulnerable sections of the society viz. women, SC and ST workforce increased under
MGNREGS during economic distress.
Redesigning a Minimum Wage System in India for Inclusive Growth
Survey proposes a well-designed minimum wage system as a potent tool for protecting workers
and alleviating poverty.
Present minimum wage system in India has 1,915 minimum wages for various scheduled job
categories across states.
1 in every 3 wage workers in India not protected by the minimum wage law.
Survey supports rationalization of minimum wages as proposed under the Code on Wages Bill.
Minimum wages to all employments/workers proposed by the Survey.
‘National Floor Minimum Wage’ should be notified by the Central Government, varying
across five geographical regions.
Minimum wages by states should be fixed at levels not lower than the ‘floor wage’.
Minimum wages can be notified based either on the skills or on geographical region or on both
grounds.
Survey proposes a simple and enforceable Minimum Wage System using technology.
‘National level dashboard’ under the Ministry of Labour & Employment for regular
notifications on minimum wages, proposed by the Survey.
Toll-free number to register grievance on non-payment of the statutory minimum wages.
Effective minimum wage policy as an inclusive mechanism for more resilient and sustainable
economic development.
State of the Economy in 2018-19: A Macro View
India still the fastest growing major economy in 2018-19.
Growth of GDP moderated to 6.8 per cent in 2018-19 from 7.2 per cent in 2017-18.
Inflation contained at 3.4 per cent in 2018-19.
Non-Performing Assets as percentage of Gross Advances reduced to 10.1 per cent at end
December 2018 from 11.5 per cent at end March 2018.
Investment growth recovering since 2017-18:
Growth in fixed investment picked up from 8.3 per cent in 2016-17 to 9.3 per cent next year
and further to 10.0 per cent in 2018-19.
Current account deficit manageable at 2.1 percent of GDP.
Fiscal deficit of Central Government declined from 3.5 percent of GDP in 2017-18 to 3.4
percent in 2018-19.
Prospects of pickup in growth in 2019-20 on the back of further increase in private investment
and acceleration in consumption.
Fiscal Developments
FY 2018-19 ended with fiscal deficit at 3.4 per cent of GDP and debt to GDP ratio of 44.5 per
cent (Provisional).
As per cent of GDP, total Central Government expenditure fell by 0.3 percentage points in
2018-19 PA over 2017-18:
0.4 percentage point reduction in revenue expenditure and 0.1 percentage point increase in
capital expenditure.
States’ own tax and non-tax revenue displays robust growth in 2017-18 RE and envisaged to
be maintained in 2018-19 BE.
General Government (Centre plus states) on the path of fiscal consolidation and fiscal
discipline.
The revised fiscal glide path envisages achieving fiscal deficit of 3 per cent of GDP by FY
2020-21 and Central Government debt to 40 per cent of GDP by 2024-25.
Money Management and Financial Intermediation
Banking system improved as NPA ratios declined and credit growth accelerated.
Insolvency and Bankruptcy Code led to recovery and resolution of significant amount of
distressed assets and improved business culture.
Till March 31, 2019, the CIRP yielded a resolution of 94 cases involving claims worthINR1,
73,359 crore.
As on 28 Feb 2019, 6079 cases involving INR2.84 lakh crores have been withdrawn.
As per RBI reports, INR50, 000 crore received by banks from previously non-performing
accounts.
Additional INR50, 000 crore "upgraded" from non-standard to standard assets.
Benchmark policy rate first hiked by 50 bps and later reduced by 75 bps last year.
Liquidity conditions remained systematically tight since September 2018 thus impacting the
yields on government papers.
Financial flows remained constrained because of decline in the equity finance raised from
capital markets and stress in the NBFC sector.
Capital mobilized through public equity issuance declined by 81 per cent in 2018-19.
Credit growth rate y-o-y of the NBFCs declined from 30 per cent in March 2018 to 9 per cent
in March 2019.
Prices and Inflation
Headline inflation based on CPI-C continuing on its declining trend for fifth straight financial
year remained below 4.0 per cent in the last two years.
Food inflation based on Consumer Food Price Index (CFPI) also continuing on its declining
trend for fifth financial year has remained below 2.0 per cent for the last two consecutive years.
CPI-C based core inflation (CPI excluding the food and fuel group) has now started declining
since March 2019 after increment during FY 2018-19 as compared to FY 2017-18.
Miscellaneous, housing and fuel and light groups are the main contributors of headline inflation
based on CPI-C during FY 2018-19 and the importance of services in shaping up headline
inflation has increased.
CPI rural inflation declined during FY 2018-19 over FY 2017-18. However, CPI urban
inflation increased marginally during FY 2018-19. Many States witnessed fall in CPI inflation
during FY 2018-19.
Sustainable Development and Climate Change
India’s SDG Index Score ranges between 42 and 69 for States and between 57 and 68 for UTs:
Kerala and Himachal Pradesh are the front runners with a score of 69 amongst states.
Chandigarh and Puducherry are the front runners with a score of 68 and 65 respectively among
the UTs.
Namami Gange Mission launched as a key policy priority towards achieving the SDG 6, with
a budget outlay of INR. 20,000 crore for the period 2015-2020.
For mainstreaming Resource Efficiency approach in the development pathway for achieving
SDGs, a national policy on Resource Efficiency should be devised.
A comprehensive NCAP launched in 2019 as a pan India time bound strategy for:
Prevention, control and abatement of air pollution
Augmenting the air quality monitoring network across the country.
Achievements in CoP 24 in Katowice, Poland in 2018:
Recognition of different starting points for developed and developing countries.
Flexibilities for developing countries.
Consideration of principles including equity and Common but Differentiated Responsibilities
and Respective Capabilities.
Paris Agreement also emphasizes the role of climate finance without which the proposed NDCs
would not fructify.
Though the international community witnessed various claims by developed countries about
climate finance flows, the actual amount of flows is far from these claims.
Scale and size of investments required to implement India’s NDC requires mobilizing
international public finance and private sector resources along with domestic public budgets.
External Sector
As per WTO, World trade growth slowed down to 3 per cent in 2018 from 4.6 per cent in 2017.
Reasons:
Introduction of new and retaliatory tariff measures.
Heightened US-China trade tensions.
Weaker global economic growth.
Volatility in financial markets (WTO).
In Indian rupee terms growth rate of exports increased owing to depreciation of the rupee while
that of imports declined in 2018-19.
Net capital inflows moderated in April-December of 2018-19 despite robust foreign direct
investment (FDI) inflows, outweighed by withdrawals under portfolio investment.
India’s External Debt was US$ 521.1 billion at end-December 2018, 1.6 per cent lower than
its level at end-March 2018.
The key external debt indicators reflect that India’s external debt is not unsustainable.
The total liabilities-to-GDP ratio, inclusive of both debt and non-debt components, has
declined from 43 per cent in 2015 to about 38 per cent at end of 2018.
The share of foreign direct investment has risen and that of net portfolio investment fallen in
total liabilities, reflecting a transition to more stable sources of funding the current account
deficit.
The Indian Rupee traded in the range of 65-68 per US$ in 2017-18 but depreciated to a range
of 70-74 in 2018-19.
The income terms of trade, a metric that measures the purchasing power to import, has been on
a rising trend, possibly because the growth of crude prices has still not exceeded the growth of
India’s export prices.
The exchange rate in 2018-19 has been more volatile than in the previous year, mainly due to
volatility in crude prices, but not much due to net portfolio flows.
Composition of India’s exports and import basket in 2018-19(P):
Exports (including re-exports): INR23, 07,663 Cr.
Imports: INR35, 94,373 Cr.
Top export items continue to be Petroleum products, precious stones, drug formulations, gold
and other precious metals.
Top import items continue to be Crude petroleum, pearl, precious, semi-precious stones and
gold.
India’s main trading partners continue to be the US, China, Hong Kong, the UAE and Saudi
Arabia.
India has signed 28 bilateral / multilateral trade agreements with various country/group of
countries. In 2018-19,
Exports to these countries stood at US$121.7 billion accounting for 36.9 per cent of India’s
total exports.
Imports from these countries stood at US$266.9 billion accounting for 52.0 per cent of India’s
total imports.
Agriculture and Food Management
Agriculture sector in India typically goes through cyclical movement in terms of its growth.
Gross Value Added (GVA) in agriculture improved from a negative 0.2 per cent in 2014-15 to
6.3 per cent in 2016-17 but decelerated to 2.9 per cent in 2018-19.
Gross Capital Formation (GCF) in agriculture as percentage of GVA marginally declined to
15.2 per cent in 2017-18 as compared to 15.6 per cent in 2016-17.
The public sector GCF in agriculture as a percentage of GVA increased to 2.7 per cent in 2016-
17 from 2.1 per cent in 2013-14.
Women’s participation in agriculture increased to 13.9 per cent in 2015-16 from 11.7 per cent
in 2005-06 and their concentration is highest (28 per cent) among small and marginal farmers.
A shift is seen in the number of operational land holdings and area operated by operational land
holdings towards small and marginal farmers.
89% of groundwater extracted is used for irrigation. Hence, focus should shift from land
productivity to ‘irrigation water productivity’. Thrust should be on micro-irrigation to improve
water use efficiency.
Fertilizer response ratio has been declining over time. Organic and natural farming techniques
including Zero Budget Natural Farming (ZBNF) can improve both water use efficiency and
soil fertility.
Adopting appropriate technologies through Custom Hiring Centers and implementation of ICT
are critical to improve resource-use efficiency among small and marginal farmers.
Diversification of livelihoods is critical for inclusive and sustainable development in
agriculture and allied sectors. Policies should focus on
Dairying as India is the largest producer of milk.
Livestock rearing particularly of small ruminants.
Fisheries sector, as India is the second largest producer.
Industry and Infrastructure
Overall Index of Eight Core Industries registered a growth rate of 4.3 percent in 2018-19.
India’s ranking improved by 23 to 77th position in 2018 among 190 countries assessed by the
World Bank Doing Business (DB) Report, 2019.
Road construction grew @ 30 km per day in 2018-19 compared to 12 km per day in 2014-15.
Rail freight and passenger traffic grew by 5.33 per cent and 0.64 per cent respectively in 2018-
19 as compared to 2017-18.
Total telephone connections in India touched 118.34 crore in 2018-19
The installed capacity of electricity has increased to 3, 56,100 MW in 2019 from 3, 44,002
MW in 2018.
Public Private Partnerships are quintessential for addressing infrastructure gaps
Building sustainable and resilient infrastructure has been given due importance with sector
specific flagship programmes such as SAUBHAGYA scheme, PMAY etc
Institutional mechanism is needed to deal with time-bound resolution of disputes in
infrastructure sector
Services Sector
Services sector (excluding construction) has a share of 54.3 per cent in India’s GVA and
contributed more than half of GVA growth in 2018-19.
The IT-BPM industry grew by 8.4 per cent in 2017-18 to US$ 167 billion and is estimated to
reach US$ 181 billion in 2018-19.
The services sector growth declined marginally to 7.5 per cent in 2018-19 from 8.1 per cent in
2017-18.
Accelerated sub-sectors: Financial services, real estate and professional services.
Decelerated sub-sectors: Hotels, transport, communication and broadcasting services.
Services share in employment is 34 per cent in 2017.
Tourism:
10.6 million Foreign tourists received in 2018-19 compared to 10.4 million in 2017-18.
Forex earnings from tourism stood at US$ 27.7 billion in 2018-19 compared to US$ 28.7 billion
in 2017-18.
Social Infrastructure, Employment and Human Development
The public investments in social infrastructure like education, health, housing and connectivity
is critical for inclusive development.
Government expenditure (Centre plus States) as a percentage of GDP on
Health: increased to 1.5 per cent in 2018-19 from 1.2 per cent in 2014-15.
Education: increased from 2.8 per cent to 3 per cent during this period.
Substantial progress in both quantitative and qualitative indicators of education is reflected in
the improvements in Gross Enrolment Ratios, Gender Parity Indices and learning outcomes at
primary school levels.
Encouraging Skill Development by:
Introduction of the skill vouchers as a financing instrument to enable youth obtain training
from any accredited training institutes.
Involving industry in setting up of training institutes in PPP mode; in curriculum development;
provision of equipment; training of trainers etc.
Personnel of Railways and para-military could be roped in for imparting training in difficult
terrains.
Create a database of Instructors, skill mapping of rural youth by involving local bodies to assess
the demand-supply gaps are some of the other initiatives proposed.
Net employment generation in the formal sector was higher at 8.15 lakh in March, 2019 as
against 4.87 lakh in February, 2018 as per EPFO.
Around 1, 90, 000 km of rural roads constructed under Pradhan Mantri Gram Sadak Yojana
(PMGSY) since 2014.
About 1.54 crore houses completed under Pradhan Mantri Awas Yojana (PMAY) as against a
target of 1 crore pucca houses with basic amenities by 31st March, 2019.
Accessible, affordable and quality healthcare being provided through National Health Mission
and Ayushman Bharat scheme for a healthy India.
Alternative healthcare, National AYUSH Mission launched to provide cost effective and
equitable AYUSH healthcare throughout the country to address the issue of affordability, by
improving access to these services.
Employment generation scheme, MGNREGA is prioritized by increasing actual expenditure
over the budgetary allocation and an upward trend in budget allocation in the last four years.
Source: - Press Information Bureau, Government of India, Ministry of Finance
04-July-2019 12:37 IST
 1.) The Economy and The Constitution of India

• 1.) The preamble

• 2.) Fundamental Rights- Article 14, 15(1)&15(3), 16(1)&16(4), 19, 23, 24, 31C, 32,
• 3.) Directive Principles of State Policy- Article 36, 37, 38, 39, 39A, 40, 41, 42, 43, 43A,
44, 45, 46, 47, 48, 48A, 49, 50, 51
The Preamble
• Economic System- Democratic Socialist Economy
• Objectives/Goals-
• 1.) Economic Justice
• 2.) Economic Equality
• 3.) Economic Liberty/Freedom
• Significance of the preamble:
• The preamble embodies the basic philosophy and fundamental values: political, moral
and religious- on which the constitution is based.
• It contains the grand and noble vision of the constituent assembly, and reflects the
dreams and aspirations of the founding fathers of the constitution.
• Fundamental Rights
• Right to Equality
• 14 Equality before law.
• 16 Equality of opportunity in matters of public employment.
• Right to Freedom
• 19 Protection of certain rights regarding freedom of speech, etc.
• Right to Life with dignity
• 21 Protection of life and dignity
• Right against Exploitation
• 23 Prohibition of traffic in human beings and forced labour.
• 24 Prohibition of employment of children in factories, etc.
• Saving of Certain Laws
• 31C Saving of laws giving effect to certain directive principles.
• Right to Constitutional Remedies
• 32 Remedies for enforcement of rights conferred by this Part.
• DIRECTIVE PRINCIPLES OF STATE POLICY
• 36 Definition.
• 37 Application of the principles contained in this Part.
• 38 State to secure a social order for the promotion of welfare of the people.
• 39 Certain principles of policy to be followed by the State.
• 39A Equal justice and free legal aid.
• 40 Organization of village panchayats.
• 41 Right to work, to education and to public assistance in certain cases.
• 42 Provision for just and humane conditions of work and maternity relief.
• 43 Living wage, etc., for workers.
• 43A Participation of workers in management of industries.
• 44 Uniform civil code for the citizens.
• 45 Provision for free and compulsory education for children.
• 46 Promotion of educational and economic interests of Scheduled Castes,
Scheduled Tribes and other weaker sections.
• 47 Duty of the State to raise the level of nutrition and the standard of living and to
improve public health.
• 48 Organization of agriculture and animal husbandry.
• 48A Protection and improvement of environment and safeguarding of forests and
wild life.
• 49 Protection of monuments and places and objects of national importance.
• 50 Separation of judiciary from executive.
• 51 Promotion of international peace and security.
• Articles for Socio-economic Rights
• Article 15 (1) prohibits discrimination on the grounds of religion, race, caste, sex, or
place of birth.
• Article 15(3) enables that, the state would be entitled to make special provisions for
women and children, and for advancement of any social and educationally backward
classes of citizens, or for the SC/STs.
• A similar exception is provided to the principle of equality of opportunity prescribed
by Article 16 (1) in as much as Article 16(4) allows the state to make provision for the
resolution of appointments or posts in favour of any backward class of citizens which,
in the opinion of the state, is not adequately represented in the services under the state.
• Article 17 proclaims that untouchability has been abolished & forbids its practice in
any form & it provides that the enforcement of untouchability shall be an offence
punishable in accordance with law.
• Article 19 enshrines the fundamental rights of the citizens of this country.
• The six sub-clauses of Article 19(1) guarantee the citizens seven different kinds of
freedom and recognize them as their fundamental rights.
• Article 19 considered as a whole furnishes a very satisfactory and rational basis for
adjusting the claims of individual rights of freedom and the claims of public good.
• Articles 23 and 24 provide for fundamental rights against exploitation.
• Article 24, in particular, prohibits an employer from employing a child below the age
of 14 years in any factory or mine or in any other hazardous employment.
• Article 31 makes a specific provision in regard to the fundamental right to property and
deals with the vexed problem of compulsory acquisition of property.
• Article 38 (1) requires that:- The State shall strive-
• to promote the welfare of the people by securing and protecting as effectively as it
may a social order in which justice, social, economic and political, shall inform all the
institutions of the national life
• Article 38 (2) requires that:-The State shall,
• in particular, strive to minimise the inequalities in income, and endeavour to eliminate
inequalities in status, facilities and opportunities, not only amongst individuals but also
amongst groups of people residing in different areas or engaged in different vocations.
• Article 39 requires-
• The State shall, in particular, direct its policy towards securing—
• (a) that the citizens, men and women equally, have the right to an adequate means of
livelihood;
• (b) that the ownership and control of the material resources of the community are so
distributed as best to subserve the common good;
• (c) that the operation of the economic system does not result in the concentration of
wealth and means of production to the common detriment;
• (d) that there is equal pay for equal work for both men and women;
• (e) that the health and strength of workers, men and women, and the tender age of
children are not abused and that citizens are not forced by economic necessity to enter
avocations unsuited to their age or strength;
• (f) that children are given opportunities and facilities to develop in a healthy manner
and in conditions of freedom and dignity and that childhood and youth are protected
against exploitation and against moral and material abandonment.
• Article 41 recognizes:-
• Every citizen’s right to work, to education and to public assistance in cases of
unemployment, old age, sickness & disablement and in other cases of undeserved want.
• Article 42 stresses:-
• The importance of securing just and humane conditions of work and for maternity
relief.
• Article 43 holds:-
• before the working population the ideal of the living wage and
• Article 46 emphasizes:-
• the importance of the promotion of educational and economic interests of schedule
castes, schedule tribes and other weaker sections.
• This is the code of provisions dealing with the problem of achieving the ideal of
socio- economic justice in this country which has been prescribed by the
Constitution of India.
• The social justice scenario is to be investigated in the context of two streams of
entitlements:
• (a) sustainable livelihood, which means access to adequate means of living, such as
shelter, clothing, food, access to developmental means, employment; education, health,
and resources;
• (b) social and political participation (enabling or empowering means), which is built on
the guarantee of fundamental rights, and promotion and empowerment of the right to
participation in the government, and access to all available means of justice, and on the
basis of which “justice as a political programme” becomes a viable reality.
• various issues relating to government policies on topics such as:
• (a) the right to food and water;
• (b) housing, which includes resettlement and rehabilitation;
• (c) access to education,
• (d) access to provisions of health and healthcare,
• (e) right to work, and
• (f) access to information and the right to communication.
• Governmental justice consists of:-
1.) various welfare schemes,
2.) law, legal literacy,
3.) administrative forms of arbitration such as tribunals, boards, courts,
4.) public interest litigation,
5.) new legal education,
6.) plus the constitutional idea of protection of weaker sections of the society and
7.) introduction of positive/protective discrimination.
• Economic policy:-
• The distribution of income among individuals or households at the local or national
level, based on classifications such as socio-economic status, profession, gender,
location, and income percentiles, is the most widely used measure of the degree of
equality or inequality existing in a society.
• For most contemporary societies, income distribution remains the most legitimate
indicator of the overall levels of equality and inequality.
• Gap between rich and poor is wider in our country. Besides historical reason, there are
many reasons which are producing poverty.
• Governments are morally bound to provide education, health, employment and other
basic needs.
• Due to globalization and privatization, it is now being debated that the Governments
are not supposed to do business and provide employment but are for maintenance of
law and order and foreign policy etc.
• Successive governments have attempted to meet the basic needs of people by spending
large sums of money on various subsidies, a variety of employment generation and
poverty alleviation schemes.
• While these schemes have created a huge distributive bureaucracy only a small
percentage of the sums sanctioned actually reach the intended recipient groups.
• They have bred corruption on a massive scale.
• A phenomenal amount of resources are wasted, destabilizing public finances, harming
economic development and burdening future generations.
• Alongside of measures to liberalize the economy which would create new employment
opportunities, there is need to encourage entrepreneurship and self-employment
particularly in the light of fast developing technology.
• This would spur an upward movement of people and each entrepreneur can provide
work for one or more persons.
• Jobs and self-employment opportunities have to be encouraged in sectors like
agriculture, plantations, and in a variety of infrastructural activities, etc.
• Employing techniques that involve a judicial mix of machines and manual labour, the
country’s enormous economic potential can be exploited to the benefit of the less
fortunate sections of the population.
• Without administrative and political decentralization the goals of social justice may not
be accomplished.
• Letting people decide what their development needs are will not only generate social
and political awareness among them but also instill a sense of self-respect and build
strong leadership at the local and community levels.
 2.) Economic System/Economy
What is an economic system?
Economic system is more than simply a way to make a decision. It is a way of life. Differs
among societies and reflects a wide variety of values for individuals. One value cannot prove
superior to others as a general rule. Values are set in cultures and cultures set by economic
system.
Capitalism vs Socialism
What is Capitalism?
Accumulation of factors of production. Productive labor (work for wages/become
productive/produce more/ more accumulation of financial capital and capital). Profits are the
motivational factor to production and wages
Definition of Capitalism
Capitalism is defined as an economic system in which the means of production, trade, and
industry are owned and controlled by the private individuals or corporations for profit.
Also known as the free market economy or laissez-faire economy.
Under this political system, there is minimal government interference, in the financial affairs.
The key elements of a capitalistic economy are private property, capital accumulation, profit
motive and highly competitive market.
3 Basic Freedoms Capitalism Depends On
Private property- we are protected by our Constitution to own property.
Private enterprise- we can go into business if we desire.
Freedom of choice- jobs, school, businesses, production, consumption,
The salient features of capitalism are as under:
The factors of production are under private ownership. They can use them in a manner they
think fit. Although government can put some restriction for public welfare.
There is a freedom of enterprise, i.e. every individual is free to engage in the economic activity
of his choice.
The gap between haves and have-nots are wider due to unequal distribution of income.
Consumer sovereignty exists in the economy i.e. producers produce those goods only that are
wanted by the customers.
Extreme competition exists in the market between firms which uses tools like advertisement
and discounts to call customer attention.
The profit motive is the key component; that encourages people to work hard and earn wealth.
Merits of Capitalism:
The main merits and advantages of capitalism are as follows:
1. Production According to the Needs and Wishes of Consumers
2. Higher Rate of Capital Formation and More Economic Growth
3. There is Complete Freedom of Choice in a Capitalist Economy
4. Optimum Utilisation of Resources Available
5. Efficient Production of Goods and Services
6. Varieties of Consumer Goods
7. In Capitalism there is no Need of Inducement or Punishment for Good and Bad Production
8. It Encourages the Entrepreneurs to Take Risks and Adopt Bold Policies
9. It Provides the Best Atmosphere for Inventions
10. It Provides a Good Deal of Flexibility
De-Merits of Capitalism
The main de-merits or dis-advantages of capitalist economy are as follows:
1. Inequality of Distribution of Wealth and Income
2. Class Struggle as Inevitable in Capitalist Economy
3. Social Costs are Very High
4. Unnecessary Multiplicity and too Much of Competition
5. Instability of the Capital Economy
6. Unemployment and Under-employment
7. Working Class does not have Adequate Social Security
8. Slow and Unbalanced Growth
9. No Bargaining Capacity of Labourers hence Exploitation
10. Growth of Monopolies with their Evils
Definition of Socialism
The word socialism has been defined as “such type of socialist economy under which economic
system is not only regulated by the government to ensure, welfare equity of opportunity and
social justice to the people.”
Socialist Economy or Socialism is defined as an economy in which the resources are owned,
managed and regulated by the State.
The central idea of this kind of economy is that all the people have similar rights and in this
way, each and every person can reap the fruits of planned production.
As the resources are allocated, in the direction of the centralized authority, that is why it is also
termed as a Command Economy or Centrally Planned Economy.
Under this system, the role of market forces is negligible in deciding the allocation of factors
of production and the price of the product.
Public Welfare is the fundamental objective of production and distribution of product and
service.
The salient features of Socialism are as under:
In socialistic economy, collective ownership exists in the means of production that is why the
resources are aimed to utilize for attaining socioeconomic goals.
Central Planning Authority exists for setting the socioeconomic objectives in the economy.
Moreover, the decisions belonging to the objectives are also taken by the authority only.
There is an equal distribution of income to bridge the gap between rich and poor.
People have the right to work, but they cannot go for the occupation of their choice as the
occupation is determined only by the authority.
As there is planned production, consumer sovereignty has no place.
The market forces do not determine the price of the commodities due to lack of competition
and absence of profit motive.
The main merits of the socialist economy are as under:
1. Social Justice is Assured
2. Rapid Economic Development
3. Production According to Basic Needs
4. Balanced Economic Development
5. It has Economic Stability
6. It has More Flexibility
7. Conservation of Natural Resources
8. Equitable Distribution of Wealth and Income
9. No Exploitation and Class Struggle
10. Social Welfare Activities
11. There is no Wastage of Competitive Advertisement
12. Foresightedness
Demerits of Socialism
1. No Suitable Basis of Cost Calculation
2. Choice of Working Incentives
3. It Becomes Lack of Incentives
4. There is Loss of Economic Freedom
5. Lack of Data, Experts and Administrators for Planning
6. Loss of Economic Freedom and Consumer Sovereignty
7. Imperfections in Planning Lead to Dis-satisfaction on a Big Scale
8. Too Much Power is Concentrated in the State
9. There is Loss of Personal Liberty
10. Bureaucracy and Red-Tapism
Difference between Capitalism and Socialism
A capitalist economy is featured with the free market and less government intervention in the
economy, wherein top most priority is given to capital.
As opposed to a socialist economy, refers to the organization of society, which is characterized
by the abolition of class relations and thus give more importance to people.

Comparison Chart
Conclusion
As we all know that every coin has two aspects, one is good and the other is bad and same is
the case with the two economic systems. It is very difficult to say which system is better than
the other. Capitalism leads to the development of the economy of the country along with the
creation of wealth but it advocates distinction between the haves and have-nots.
Socialism fills the gap between rich and poor, and makes everything available to all the persons,
but at the same time it wipes out the encouragement to work hard, due to which the country
Gross Domestic Product falls down and everyone turns out to be poor.
In my opinion, the combination of the two economies is the best i.e. mixed economy that
accepts the merits of both. It can help the country to grow and prosper along with less gap
between haves and have-nots. There will be a public-private partnership in the economy and
administered price exist.
Economists now agree that there are certain imperfections in a free enterprise economy which
must be corrected. The Government must come out to regulate the economic machine so that
it does not run down occasionally. Government has a positive role to play in promoting
unemployment, price stability and orderly growth. The difference of opinion now is not on
whether the government should regulate or not, but is rather on how much control is appropriate
under different circumstances.
Salient Features of Mixed Economy:
Having described the two extremes of capitalism and socialism, it is now possible to define a
mixed economy in functional terms.
A mixed economy is characterized by:
i) A balance between the market economy and the planning mechanism;
ii) A clear demarcation of the boundaries of public sector and private sector so that 'the core
sector and strategic sectors are invariably in the public sector;
iii) while profit motive influences decision-making in the private sector, the economic viability
criteria for investment decisions in the public sector is based on social cost-benefit analysis;
iv) the ownership of means of production as between public sector, private sector, joint sector
and cooperative sector is so decided that there is a balance between personal and social
incentives and sectional and general interests;
v) There is occupational freedom and freedom of consumers' choice;
vi)The government intervenes to prevent undue concentration of economic power, and
monopolistic and restrictive trade practices;
vii) The government endeavours to take care of the consumption levels and objectives of the
weaker sections of the society through public distribution system, poverty alleviation
programmes etc.
viii) Social objectives of equity, employment, balanced regional development, family welfare
are emphasized;
ix) The doctrinaire rigidities of socialism are avoided and a pragmatic approach to decision-
making for promoting economic growth is usually adopted; and
x) Mixed economy is not merely an economic concept and the rights of the individual are
respected and protected subject only to the requirements of public law and order and morality
MARXIAN SOCIALISM
Movement to overthrow capitalism by force is traced to Marx. Marx disturbed by living
conditions of working class- in 1848 wrote Communist Manifesto- urged “workers to unite,
you have nothing to lose but your chains.”
In major work Das Kapital, Marx forecast the end of capitalism. Doomed cause based on
inequality. Capitalists vs Prolitariat. Capitalists controlled factors which gave them power and
control. Capitalists gained profit at expense of workers – Theory of Labor value suggested by
Marx.
MARXISM
Dictatorship would rule working class-become central planners- making all economic
decisions. Through socialism people’s material and spiritual well-being would improve. A true
classless society would come into existence. All property would be owned collectively. All
people would work to the best of their abilities to produce goods and services. People would
consume only what they need. People would worship the government.
 3.) Economic Growth and Development – Conceptual Approach

What is the difference between Economic Growth and Development? We will start by defining
Economic growth and development. Having economic growth without economic development
is possible.
Economic growth in an economy is demonstrated by an outward shift in its Production
Possibility Curve (PPC). Another way to define growth is the increase in a country’s total
output or Gross Domestic Product (GDP). It is the increase in a country’s production.
A country’s economic development is usually indicated by an increase in citizens’ quality of
life. ‘Quality of life’ is often measured using the Human Development Index, which is an
economic model that considers intrinsic personal factors not considered in economic growth,
such as literacy rates, life expectancy and poverty rates.
Economic growth is, in a limited sense, an increase of the national income per capita, and it
involves the analysis, especially in quantitative terms, of this process, with a focus on the
functional relations between the endogenous variables; in a wider sense, it involves the increase
of the GDP, GNP and NI, therefore of the national wealth, including the production capacity,
expressed in both absolute and relative size, per capita, encompassing also the structural
modifications of economy.
The economic development is taken as a process that generates economic and social,
quantitative and, particularly, qualitative changes, which causes the national economy to
cumulatively and durably increase its real national product.
We could therefore estimate that economic growth is the process of increasing the sizes of
national economies, the macro-economic indications, especially the GDP per capita, in an
ascendant but not necessarily linear direction, with positive effects on the economic-social
sector, while development shows us how growth impacts on the society by increasing the
standard of life.
Typologically, in one sense and in the other, economic growth can be: positive, zero, negative.
Positive economic growth is recorded when the annual average rhythms of the macro-
indicators are higher than the average rhythms of growth of the population. When the annual
average rhythms of growth of the macro-economic indicators, particularly GDP, are equal to
those of the population growth, we can speak of zero economic growth. Negative economic
growth appears when the rhythms of population growth are higher than those of the macro-
economic indicators.
Economic growth is a complex, long-run phenomenon, subjected to constraints like: excessive
rise of population, limited resources, inadequate infrastructure, inefficient utilization of
resources, excessive governmental intervention, institutional and cultural models that make the
increase difficult, etc.
Economic growth is obtained by an efficient use of the available resources and by increasing
the capacity of production of a country. It facilitates the redistribution of incomes between
population and society. The cumulative effects, the small differences of the increase rates,
become big for periods of one decade or more. It is easier to redistribute the income in a
dynamic, growing society, than in a static one.
There are situations when economic growth is confounded with economic fluctuations. The
application of expansionist monetary and tax policies could lead to the elimination of
recessionary gaps and to increasing the GDP beyond its potential level.
Economic growth supposes the modification of the potential output, due to the modification of
the offer of factors (labour and capital) or of the increase of the productivity of factors (output
per input unit).
When the rate of economic growth is big, the production of goods and services rises and,
consequently, unemployment rate decreases, the number of job opportunities rises, as well as
the population’s standard of life.
Some economists state that a rate of the GDP growth of 3% a year allows a rise of the potential
GDP with 10% in three years and a doubling in 23 years. According to the “rule of 70”, a rate
of growth of 1% doubles the potential GDP over a period of seventy years [2].
Other economists think that if the rate of growth of the real GDP per capita were maintained at
2% a year, then the GDP per capita would double every 35 years and, therefore, each generation
could hope for a better standard of life than in the present. Fr this reasons, we should take into
consideration the fact that the small differences in the rate of economic growth over long
periods lead to big differences between the standard of life of the different successive
generations. The economic growth is also the process that allows the receding of phenomena
with a negative economic and social impact, like unemployment or inflation. But, obviously, a
durable economic growth sustains human development.
According to Leszek Balcerowicz, economic growth is a process of quantitative, qualitative
and structural changes, with a positive impact on economy and on the population’s standard of
life, whose tendency follows a continuously ascendant trajectory.
Leszek Balcerowicz thinks that the economic development has four dimensions [3]: - The
initial level of development (reflected, for instance, by the income per capita) or the level
existing when the rhythm of development starts being determined; - The human capital or the
people’s level of education and professional training; - The internal economic condition or the
economy’s structures; - The external economic circumstances.
The last three factors should be related to the period for which the rhythm of economic
development is determined, which, in its turn, is the result of different interactions between the
four groups of factors. The initial level of development is essential for the subsequent rhythm
of development. Staying behind involves certain impulses of acceleration – the countries with
a lower rhythm of development can reach a faster one compared to the richer countries because
a state not keeping pace can us at an institutional and technological level the solutions that the
developed countries have already found and could learn from their mistakes, an aspect that
Balcerowicz deem more important than the former one.
The developing countries have an out-of-date economic structure, most of the population
working in fields of low productivity, especially in agriculture, but there are possibilities to
transfer resources towards more productive domains. The third factor is characteristic to
formerly socialist countries and refers to the disproportion between the relatively high level of
education of the population and the possibilities to exploit this training. The high level of
education represents an advantage for the countries that joined the economic development
trend.
It is also worth pointing out that between economic growth and economic development there
are similarities and differences [6]. Similarities refer to the fact that: - Growth and development
are continuous processes, with stimulating effects in economy; - Both processes involve the
allotment and utilization of resources and the increase of efficiency; - The finality of growth
and development is the improvement of the standard and quality of life; - Growth and
development are cause and result of the general trend, influencing its rhythm and ensuring
passages from one level to the other.
The differences between economic growth and development refer to the fact that, while
economic growth concerns the quantitative side of economic activity (the increase of results,
of quantities, of sizes), development has a larger scope, including qualitative changes that take
place in economy and society. In fact, development is a qualitatively higher step of macro-
economic evolution. We often refer to growth theories when we speak about the developed
countries and to the theories of development when we approach the economic problems that
are specific to the developing or less developed countries.
A country is able to develop fast when: - industries and people have the possibility to plan their
activity on the long run, which requires political, legislative and monetary stability; - the results
of economic activity depend on free initiative, on the efficient utilization of resources, on
efficient labour, etc. - Investments are not sacrificed in favour of immediate consumption.
When most of the current incomes are reinvested, the productive capital increases and,
consequently, the real incomes too; - the decisions regarding investments and production are
correct, and the wealth accumulated in time is adequately used to achieve assets as efficient as
possible from an economic standpoint; - the degree of education and civilization rises and
records a leap forward at the level of consciousness; - any decision takes into consideration the
protection and conservation of eco-system (durable development); - economic, social, spiritual
values are respected.
Economic growth and development determine social progress, that is the progressive evolution
of the society, which involves an improvement of the human condition, a step higher on the
scale of the human being’s standard [8], based on economic progress. The accentuation of the
social side of economic development should not be understood as abandonment of economic
growth. The economic achievements create bases for the improvement of the standard of life,
for adequate conditions of medical care, for the improvement of the educational system and a
better redistribution of incomes in society.
Thus, economic growth remains a priority, while the correlation of economic problems with
social ones should lead to the development of any national economic system, especially when
structural crises demonstrate that the limits of the system are about to be reached.
The final purpose of economic growth and development is, undoubtedly, the fulfilment and
multilateral development of human personality, the increase of the people’s material and
spiritual wealth, their stepping higher on the scale of civilization and culture.
In the General Assembly of the United Nations in September 2000, also known as the
Millennium Summit, the status of human development was analysed, considering all its diverse
aspects, and a set of eight objectives, with phases and deadlines, was adopted. The diversified
approach of the wide topic of this process allows for a series of aspects, alarmingly intense and
dramatic in different countries and areas, to be examined. Among other topics, the ones
concerning extreme poverty, illiteracy, the lack of utilities and particularly the lack of access
to running water, as well as the pollution of the environment, were considered. In the 21st
century, in a phase of economic and social evolution dominated by knowledge, the gaps of
development get sharper. Many voices considered that liberalization and, implicitly,
globalization could be the salutary solution for the eradication of negative phenomena existing
at an international level. On the one hand, the advantages associated with economic openness
proved to be beneficial, on the other hand, we have seen how strong nations, playing the good
Samaritan, used the natural and human resources of the poor states that they enslaved for their
benefit, and emptied of their own possibilities of development, under the promise of a better
future. Any hope for the better disappeared once the current economic crises began, whose
sizes are much bigger than we could have anticipated. Of course, the wish for economic growth
and development, fully justified, remains, but hope in the case of developing and less developed
countries dies while their dependence upon the powerful states of the world rises. Economic
and social vulnerability is the weak feature that the centres of power of the world would not
hesitate to profit from. Yet, the differentiation of the two analyzed phenomena is obvious. If,
theoretically, we continue talking about them as a pair, in practice there is a gap between them.
We can notice how the focus is placed on growth, quantity, wealth at any price. We are aware
of how much knowledge we can find, we have possibilities to stock and to use it, but we do not
have the will to assimilate and to correlate them in order to give value judgments. It is not
actually possible to accumulate it all, and there is also a huge gap between the volume of
existing information and the one that most of the people hold. Knowledge will bring down
those who will not be able or willing to assimilate, and will render efficient those able to
capitalize it; it will strengthen personality, change ways of action and of life. The human
being’s intelligence, imagination and intuition will become more and more important compared
to machines in the decades to follow [10]. The developing countries aim at catching up with
the developed ones. In terms of wealth, obviously. Focusing on richness, people forget, more
or less deliberately, how important education and solidarity are. The chase for money leaves
time only for ignorance, and this is the source of wrong decisions. The mechanism works. Due
to the mirage of globalization and to the desire to “sit with the rich”, many countries accepted
to be manipulated, accepted to grow and not to develop. This is how the current economic-
social situation emerged. We do not blame liberalization or globalization, which are good if
they are based on correct principles, but the lack of morality, of education and spirituality that
transform masses of people into weak, ignorant characters, avid for money. Economic and
social growth and development should be considered together, and the increase of quantities
should have an equivalent in the increase of the humanity’s standard of life and degree of
consciousness. It would not be a bad thing to change the direction of the paradigm referring to
economic growth and development. A step was made when the concept of sustainable
development was brought forth. The next step would be the introduction of the concept of
sustainable development in solidarity, based on moral and spiritual values as well.
Under these circumstances, granted by economic and social reality, any policy of economic
development should consider three main objectives: 1. new possibilities to achieve and
distribute the goods that satisfy the society’s basic needs, starting from the inequality limited
resources and unlimited needs; 2. the increase of the standard of life that involves high incomes,
low unemployment rate, the increase of the level of education, etc.; 3. the increase of the level
of economic and social opportunities available for persons and countries.
Although the issue of economic development pertains, first of all, to the economy of each
country, the effects at a world level are particularly important. Presently, the economic,
technological and cultural gaps grow larger and larger, instead of being reduced. Some states
do not hold resources to compensate the imports of assets necessary to economic growth,
sometimes not even for those meant for basic needs, while the economically developed
countries have inefficient commercial surpluses.
(Japan’s case at the moment when Asian crisis started), high unemployment rate, difficulties
in dissimulating the results of an increasingly productive and complex economy.
The internal problems of the developing countries are numerous and ample, and the pressure
created by these problems make difficult a classification of priorities. Approaching those needs
sustained internal efforts, a democratic framework and a competent governing. John Keneth
Galbraith said, about this, that the “success of an economy depends on a stable, efficient and
active governmental structure, that would support and guide it. If it is absent, none of the main
conditions of economic development could be fulfilled” [5]. There should be as many equitable
societies as possible, but “in an equitable society, nobody can suffer from starvation or for
lacking a home. The first condition is that of a sufficient number of job and gain opportunities
that would not stimulate inactivity” [5].
Though there are countries facing problems like unemployment or poverty, we could state that
all of the world states are in a process in which individuals and wealth multiply and develop.
Hegel [7] thought that the world goes towards progress and freedom. He was right, but we
realize that freedom and wealth are for the rich, not for the poor, according to the famous
principle that “we are all equal, but some are more equal than others”, to paraphrase George
Orwell [9].
Starting with 1990, the level of economic and social development is estimated by the
calculation of the HDI (Human Development Index).
The permanent presence in the world reports of the human development index (HDI) as a basic
synthetic indicator, determined the Nobel Prize winner for economics in 1998, Amartya Sen,
to state that this indicator became the “emblem of the World Report on human development”
Analysing the extreme values of HDI one can easily notice that in the field of human
development some progress was obtained reflected in the increase of its extreme values, and in
the decrease of the relation between these values. On the other hand, maintaining a high level
of the amplitude of extreme values reflects the level of disparities existing at a world level.
Being a composite indicator, the HDI is a function of three elements: life expectancy at birth,
education and incomes, and it does not take into consideration essential qualitative elements.
HDI is calculated starting from a basket of measurable indicators that do not reflect the
evolution at the level of human values.
The final purpose of practical utilization of the theories of economic growth and development
and of the application of the policies of economic growth is the improvement of the quality of
life, which is not the same thing as the increase of the standard of life, as this is just one
component of the quality of life. “The standard of life reflects only the degree of fulfilment of
the vital needs of a country’s population, of a social group or of a person. The quality of life,
on the other hand, reflects the totality of natural, technical, economic, social, political, cultural,
ethical, etc. conditions that ensure the integrity and the biological, social and spiritual progress
of the human being” [4].
For the process of economic growth to have positive effects, it must be accompanied by
economic growth as well, that is by the increase of the quality of life per capita from one phase
to the other, and by progress at the level of the moral and spiritual human values. It is possible
for a country to record economic increase, but not to achieve economic development. Thus, it
is possible for the GDP/per capita to increase and no improvement of the standard of life and
of the quality of life to be recorded, no improvement, therefore, in the demographic structure,
in the structure and amount of incomes and in the goods and services consumption by the
population, in the work conditions, health condition, access to education and culture, while the
natural and social environment could degenerate. Many countries have led and continue to lead
a policy of increase of the military power, they wasted great amounts of resources by irrational
macro-economic policies and by investments in inefficient huge projects, damaging the
standard of life and the quality of life. For that, it is necessary for the economic growth to be
recorded together with a policy of rational utilization of resources, in order to achieve
individual and social progress in each country.
The ideal situation, from the standpoint of the standard of development, would be equality, if
a wide range of opportunities existed that would allow a faster development and would bring
forth as few inequalities as possible. Between development and progress there are a series of
contradictions that we will approach in the following. One of the contradiction of development
and progress for any economy is the one between its limited resources (raw materials, power,
capacity of production, labour, financial means) and the increasing productive and individual
consumption needs, more and more diversified. This calls for each country to act for a better
capitalization of the resources it has, for their saving, for the discovering the attraction in the
economic circuit of new resources, for the promotion of the technical-scientific progress, etc.
The system of social needs, specific to each country, and the necessity to fulfil the continuously
regenerating, evolving and diversifying needs maintain the progress of national economies. We
should take into consideration the fact that between needs, their generation and their fulfilment,
come production, distribution of incomes, the market and its varied mechanisms, the social
system, provoking big discrepancies and distortions in the system of needs, in their evolution,
in the degree and manner of fulfilling them. Another contradiction is that between the great
potential of resources of a country in certain fields and its limited or insufficient possibilities
of assimilation, processing and effective utilization of this potential. This could be solved by
increasing internal and external investments, by creating new job opportunities, by raising the
technical level of production, etc. A different contradiction emerges between the needs of
consumption, of growth, of diversification, and the possibilities to fulfil them. This stimulates
the development of production of consumer goods and services. In some countries, one can
notice a contradiction between the level of the production forces and their structure, and the
forms of organization and management of the economic activities. A country can hold rich
natural resources, and yet be deprived of the technical and financial possibilities necessary in
capitalizing them and fulfilling needs. The adoption of some systems and methods of
organization and management adapted to the changes that occur systematically create a
framework that encourages economic progress. The existence of these contradictions is a
warning signal as for the factors on the basis of which higher rates of growth are recorded and
as for the way in which the results of the process of growth are transposed in the economic and
social development. Conclusions Economic growth and development have been and will be
a permanent preoccupation of mankind and an always present topic of scientific debates. In
this paper I have presented the concepts of growth and of development and the main warning
signals that we should consider in the current situation, far from agreeing with the objectives
and possibilities that the global economy and society theoretically offer. The globalist ideology
presented the world and, above all, the poor countries, a bright future. The promises for better
became true in the case of the great powers and of the economic decision makers, while the
second- and third-world states were left with hope. On the background of the current crisis, the
concept of growth and development, priorities of economic policy, should be reanalyzed and
redefined, an aspect that we tried to underline in the current paper, as a solution of recovery
and of economic and social progress.

Sustainable Development
Introduction
In 1987, the Bruntland Commission published its report, Our Common Future, in an effort to
link the issues of economic development and environmental stability. In doing so, this report
provided the oft-cited definition of sustainable development as “development that meets the
needs of the present without compromising the ability of future generations to meet their own
needs” (United Nations General Assembly, 1987, p. 43). Albeit somewhat vague, this concept
of sustainable development aims to maintain economic advancement and progress while
protecting the long-term value of the environment; it “provides a framework for the integration
of environment policies and development strategies” (United Nations General Assembly,
1987). However, long before the late 20th century, scholars argued that there need not be a
trade-off between environmental sustainability and economic development.
Economics of Sustainability By utilizing economic tools, early theorists offered that policies
to protect the environment could also promote innovation and turn a profit. In 1920, Arthur
Pigou noted that the presence of incidental, uncharged services act as a barrier to achieving
equilibrium in the market. In his work “The Economics of Welfare”, Pigou noted that the
divergence between marginal private costs and benefits and marginal social costs and benefits
create what we now call “externalities” (Pigou, 1920). These externalities are conceived as
transaction spillovers, or costs and benefits unaccounted for in the given price of a good or
service. In order to correct the market failure, Pigou proposed a tax on those activities that
produce negative externalities at a rate equal to those external costs. By levying this charge,
called a Pigouvian tax, the market price will more accurately reflect the comprehensive costs
and benefits of the activity.
From this, Michael Porter and Claas van der Linde theorized that pollution is a sign of
inefficient resource use. Therefore, win-win opportunities for the environment and economy
can be captured through improvements which reduce pollution in production processes (Porter
& van der Linde, 1999). These authors argue that competitive advantages rely on the capacity
for innovation; thus, “by stimulating innovation, strict environmental regulations can actually
enhance competitiveness” (Porter & van der Linde, 1995, p. 98). As the Porter Hypothesis
states, properly designed environmental policies that make use of market incentives can
encourage the introduction of new technologies and reduce production waste. The tests of this
theory have yielded mixed results, but scholars generally agree that policy design and public
support are crucial elements to the success of these incentives. Nonetheless, market-based
environmental tools are generally perceived as more “business friendly” than traditional
command and control policies (Cooper & Vargas, 2004).
The appreciation of our natural resource constraints is also in our best interest. Truly rational
and “effective governance requires a nation to consider and protect the environment and natural
resources on which its current and future development depend. Any other approach is self-
defeating. The connections between the environment and development thus provide a powerful
rationale for environmental protection: enlightened self-interest” (Dernbach J. C., 1998, p. 20).
This inherent interdependence between the long-term stability of the environment and the
economy is the foundation of the field of sustainable development. Similar to Porter’s winwin
hypothesis that a trade-off isn’t necessary, sustainable development policies look to tackle the
sources of environmental degradation, not just the symptoms, while still providing
opportunities and creating incentives for economic advancement (Porter & van der Linde,
1995).
Components of a healthy environment, such as clean air and water, are considered public goods
in that they are non-rivalrous and nonexcludable. Thus, it is up to the public sector to maintain
the provision of these goods and services. More recently, nations have moved towards the
implementation of these marketbased mechanisms to internalize the complete costs of pollution
and ensure long-term stability of the environment; in other words, to ensure sustainable
development.
Sustainable Development: Definition and Principles Although many definitions abound, the
most often used definition of sustainable development is that proposed by the Brundtland
Commission (Cerin, 2006; Dernbach J. C., 1998; Dernbach J. C., 2003; Stoddart, 2011). The
explanation does, however, touch on the importance of intergenerational equity. This concept
of conserving resources for future generations is one of the major features that distinguish
sustainable development policy from traditional environmental policy, which also seeks to
internalize the externalities of environmental degradation. The overall goal of sustainable
development (SD) is the long-term stability of the economy and environment; this is only
achievable through the integration and acknowledgement of economic, environmental, and
social concerns throughout the decision making process.
In the application of this definition of sustainable development, one issue concerns the
substitutability of capital. There are several types of capital: social, natural, and man-made.
The definition of weak sustainable development explains that only the aggregate level of capital
matters: man-made, or manufactured, capital is an adequate alternative to natural capital.
Strong sustainability, on the other hand, recognizes the unique features of natural resources
that cannot be replaced by manufactured capital. Most ecologists and environmentalists are
proponents of the strong sustainability definition (Stoddart, 2011).
In addition to substitutability, this definition of sustainability is also founded on several other
important principles. Contained within the common definition of sustainable development,
intergenerational equity recognizes the long-term scale of sustainability in order to address the
needs of future generations (Dernbach J. C., 1998; Stoddart, 2011). Also, the polluter pays
principle states that “governments should require polluting entities to bear the costs of their
pollution rather than impose those costs on others or on the environment” (Dernbach J. C.,
1998, p. 58). Thus, government policy should ensure that environmental costs are internalized
wherever possible; this also serves to minimize externalities.
The precautionary principle establishes that “where there are threats of serious or irreversible
damage, lack of full scientific certainty shall not be used as a reason for postponing
costeffective measure to prevent environmental degradation” (United Nations Conference on
the Human Environment, 1992). Therefore, the proponent of an activity bears the burden of
proving that this action will not cause significant harm. Explicitly stated in the Rio Declaration,
the notion of common but differentiated responsibilities recognizes that each nation must play
their part on the issue of sustainable development. This principle also acknowledges the
different contributions to environmental degradation by developed and developing nations,
while appreciating the future development needs of these less developed countries (Brodhag &
Taliere, 2006; Dernbach J. C., 1998; United Nations Conference on the Human Environment,
1992). Developed nations, therefore, bear greater responsibility in light of the resources they
require and the pressures they exert on the environment.
The key principle of sustainable development underlying all others is the integration of
environmental, social, and economic concerns into all aspects of decision making. All other
principles in the SD framework have integrated decision making at their core (Dernbach J. C.,
2003; Stoddart, 2011). It is this deeply fixed concept of integration that distinguishes
sustainability from other forms of policy.
Institutionally, government organizations are typically organized into sectoral ministries and
departments. This works fairly well until the system encounters something very comprehensive
and highly integrated in nature, such as sustainable development. In practice, sustainable
development requires the integration of economic, environmental, and social objectives across
sectors, territories, and generations. Therefore, sustainable development requires the
elimination of fragmentation; that is, environmental, social, and economic concerns must be
integrated throughout decision making processes in order to move towards development that
is truly sustainable.
Sustainable Development as a concept dominates much of the literature concerning the broader
implications of technology and modernity.
• Classic Definition
“Sustainable development meets the needs of the present without compromising the ability of
future generations to meet their own needs” (The World Commission on Environment and
Development, United Nations, 1987)
Other Definitions of Sustainable Development
• Improvement in the quality of human life within the carrying capacity of supporting
ecosystems (World Wildlife Fund)
• A condition in which the ecosystem maintains its diversity and quality— and thus its capacity
to support people and the rest of life—and its potential to adapt to change and provide a wide
change of choices and opportunities for the future. A condition in which all members of society
are able to determine and meet their needs and have a large range of choices to meet their
potential
• Economic growth that provides fairness and opportunity for all the world's people, not just
the privileged few, without further destroying the world's finite natural resources and carrying
capacity (Pronk and ul Haq 1992).
What is to be sustained? : Broadly Accepted Elements of Sustainability
• Economic – Human Capital – Human-made Capital
• Environment – Natural Capital
• Social – Social Capital
What is Economic Sustainability?
• Human-made Capital – Traditional economic capital – Produced means of production
• Human Capital – Often simply refers to labor – More subtly, the ability of an individual to
produce or increase income • Knowledge
• Skills
• Health
• Values – Activities that increase human capital
• Education
• Training
• Medical care
Environmental Sustainability
•Maintenance of Natural Capital – Ecosystem services that enable life
•Sources – Stocks of raw materials – Flows of renewable resources
•Sinks – Capacity to assimilate wastes
Environmental Sustainability: Goodland 95
•Output Rule: – Waste emission can’t exceed assimilative capacity of local environment
•Input Rule – Renewables: Harvest rates should be within regenerative rates – Non-renewables:
Harvest rates should be below that rate at which renewable substitutes are developed
Social Sustainability
• Social Capital – No Consensus definition – Knowledge and rules of interaction in culture and
institutions
• Legal system
• Government
• Social Sustainability general includes addressing basic needs of population
• Recognitions of social issues in traditional development economics predate environmental
concerns – Income distribution – Quality of life
• Illiteracy
• Hunger – Institutional participation – Increasing choice
Capital Substitutability: Trading off over resources or time
•Strong Sustainability – Cannot make trade-offs among sustainability of various resources –
What is an example of a potential trade-off?
•Weak Sustainability – Some resources / ecosystem capabilities may deteriorate if the value
extracted is reinvested in substitutable capabilities.
4.) Models of Economic Growth
 5) Justice
Concept of justice
The word justice has been originated from Latin word ‘Jus’ which means bond or tie. This
means that justice is a system in which men are tied in close relationship. A man living in
society is attached to another man in one way or the other. This relationship has few rights and
duties attached to it. When a man while enjoying his rights also fulfils his duties and behaves
in an appropriate manner with others, then he is said to be doing justice.
Meaning of Justice
According to Salmond, “Justice means provide everyone his share”
According to Plato, ‘Justice is a quality.
In simple words the meaning of justice is to discharge one’s duties honestly and not to interfere
in other actions. So justice is concerned with human welfare.
Characteristics of Justice
1.) Human welfare
2.) Ethical concept
3.) Changeability
4.) Fulfillment of reasonable interest
5.) Performance of duties
6.) To provide everybody his reasonable share
7.) Justice is related to values prevailing in society

Basic postulates of Justice

1.) Truth
2.) Uniform values
3.) Equality before law
4.) Liberty
5.) Impartiality
6.) Respect of individual’s ability and capability
7.) Protective discrimination is not injustice
8.) Provision of rights
9.) Fulfillment of basic needs

Various Dimensions of Justice

1.) Legal dimensions of justice
2.) Political dimensions of justice
3.) Social dimensions of justice
4.) Economic dimensions of justice

Legal dimension of justice

1.) Justice and laws have close affinity with each other.
 2.) State makes laws and implements them in order to establish justice in the society.

Following conditions are necessary to ensure legal justice:-

1.) Just laws
2.) Equality before law
3.) Uniform legal system
4.) Impartial and independent judiciary
5.) Inexpensive and efficient justice
6.) Democratic organization of legislative bodies

Political dimensions of justice

Nobody should be denied of political rights and to provide equal political rights is political
justice.
Following conditions are necessary to ensure political justice:-
1.) Universal adult franchise
2.) Right to contest elections
3.) Right to criticize the government
4.) Right to form political parties
5.) Right to protest
6.) Right to petition
7.) Respect of human right
8.) Protection of the interests of minorities
9.) Political authority should be based on the consent of the people
10.) Democratic system
11.) Special provisions for the protection of the interests of backward classes and
backward tribes

Social Dimensions of Justice

Social justice means to give proper opportunities to every citizens, in every sphere of life, to
develop his personality and to end all types of social inequalities.
Following conditions are necessary to ensure Social justice:-
1.) Equality before law
2.) Absence of special rights
3.) Prohibitions of discrimination
4.) To end caste system
5.) Just distribution of wealth
6.) Democratic government
7.) Just balance between freedom and social control
8.) Social security
9.) Provision of equal political rights
10.) Protection of interest of minorities
11.) Abolition of social values
Economic Dimensions of Justice
By economic justice mean to provide equal opportunities to everybody to earn his livelihood.
It also mean to help such people who are not able to work and earn their livelihood. The basic
needs of everybody such as food, cloth and shelter should be fulfilled and the unequal
distribution of wealth needed to be stopped.
Following conditions are necessary to ensure economic justice:-
1.) Right to work for everybody
2.) Fulfillment of basic needs
3.) To reduce wide economic disparities
4.) Protection of the interest of workers
5.) From each according to his ability and to each according to his needs
6.) Just distribution of wealth
7.) End of economic exploitation
8.) Special protection of the interest of weaker section
9.) Limited right to property
10.) Question of state interference in economic needs
11.) Fixed economy is better
12.) Equal wages for same job

Relationship between liberty, equality, property and justice

Relationship between liberty and justice: - liberty is the first need of justice. Every ruler who
attacks the civil liberties is considered unjust ruler. We cannot even think of one without the
other.
1.) Purpose of both is common.
2.) Liberty is the first condition of justice
But absolute freedom is against justice.
Relation between justice and property
There are contradictions in views regarding the relationship between justice and property.
According to liberalists: - liberalists accept a close relationship between justice and property
and they think right to property is necessary for the establishing economic and social justice,
because:
1.) It create incentive to work.
2.) It gives social status to man
3.) To reap the fruit of your labour is justice

Views of contemporary liberalist:-

Contemporary liberalist are against giving absolute right to property. They are of the view that
right to property can be limited by keeping in mind social interest and social justice. They are
in favour of mixed economy.
Views of Marxists:- According to Marxist there is no close relationship between justice and
personal property, rather, they are opposed to each other. Marxist are of the view that personal
property is against liberty, equality and justice, because:-
1.) Exploitation is its basis.
2.) It divides society into classes.
3.) It creates social tension

Conclusion
We can conclude that justice is concerned with human welfare and the protection of reasonable
interests. It can be experienced only when each citizen will perform his duties in right
perspective. A just society is that society where every individual gets legal, political, social,
economic justice. For every just society there should be a proper combination among equality
liberty and justice. There is a close mutual relationship among them. These concepts are closely
knitted to each other with an unseen thread. The individual is the subject matter of these
concepts. The main purpose of these concepts is the development of human beings welfare and
the protection of reasonable interests. It can be experienced only when each citizen will perform
his duties in right perspective. A just society is that society where every individual gets legal,
political, social, economic justice. For every just society there should be a proper combination
among equality liberty and justice. There is a close mutual relationship among them. These
concepts are closely knitted to each other with an unseen thread. The individual is the subject
matter of these concepts. The main purpose of these concept is the development of human
beings.
 6) Economic Justice
Economic justice is a concept in which the economic policies must result in distribution of
benefits equally to all. Economic justice must touch both the individual and the social order.
Most economic institutions are designed upon the principle of economic justice. Economic
justice mainly aims at giving freedom to each person to engage creatively in unlimited work.
According to the principles of economic justice the jobs created by state and local tax incentives
must go to local people and taxpayers without any discrimination.
We begin with a general definition of justice.
Justice is the virtue or good habit of rendering to another that which is owed.
In economic affairs there are three principles of justice that apply:
1.) the principle of equivalence,
2) the principle of distributive justice, and
3.) the principle of contributive justice.
We call the three "principles of economic justice" because they apply strictly in the economic
order.
Other principles of justice, as for example in criminal affairs with no direct ties to economic
affairs --as in the case of child or spouse abuse or treason, are not our concern here.
There are three principles of economic justice because there are only three modes of human
interaction in economic affairs:
1.) person to person,
2.) superior to subordinate,
3.) and member to group.
The principle of equivalence sets forth the duty of buyer and seller in the marketplace and
worker and employer in the workplace.
The principle of distributive justice defines the duties of the superior to his/her subordinates,
whether that interaction takes place in the marketplace or the workplace.
Finally, the principle of contributive justice sets down the duties of the member to the group in
interactions occurring in the marketplace or the workplace
Economic justice must include support for-
fair wages and benefits; access to adequate housing, social services, child care, adult daycare,
education, health care, legal services, financial services, and transportation; the removal of
environmental and occupational hazards that disproportionately affect low-income people;
respect for treaty rights government and corporate policies that promote economic investment
in the urban core and rural communities; a more equitable criminal justice system; tax systems
that prevent affluent individuals and corporations from sheltering assets and income at the
expense of those less privileged; and Campaign reforms that ensure equal access to the electoral
process regardless of wealth.
What is economic justice? And why does it matter?
 Economic justice is the idea that the economy will be more successful if it is fairer: that
prosperity and justice go hand-in-hand rather than in opposition to one another.
Here’s why.
First, economic justice about creating a successful economy that achieves sustainable growth.
This means improving productivity, the measure of what you get out for what you put in. This
is important in generating prosperity; but at the same time, it is also about creating good jobs
that make the best of people’s talents. Eg. From Britain. Today, there are some five million
people working in jobs that are below their skill level. This means they aren’t able to earn what
they could, and the productive potential of the economy is held back. Sustainable growth
matters because a declining economy hits the poorest hardest. Moreover, as new research in
the Commission’s report shows, GDP growth is no longer translating into rising wages – and
we are in the midst of the longest stagnation in wages in 150 years.
Second, economic justice is about making sure that the benefits of that growth go to people
rather than profits – as the Archbishop of Canterbury, one of the Commissioners, says we need
“an economy in service of human flourishing”. The economy exists to serve society, not the
other way round. This means over time, the economy should be increasing the share of national
income that goes to wages rather than profits. Indeed, today, workers in Britain are getting the
rawest deal since the Second World War as the labour share has declined since 1980 and flat-
lined since 2010. Not only is that not good for living standards, it also reduces demand in the
economy for goods and services and holds back growth. An economy that puts more into wages
has the potential to grow faster by creating a virtuous circle.
The third aspect of economic justice is making sure that prosperity is broadly-shared across
households, regions and sectors of the economy. Research from the IMF shows that
redistributing income from the richest to the poorest in society actually boosts growth because
poorer people are more likely to spend in the economy (a higher "marginal propensity to
consume"). This flies in the face of the free market ideologues who have long claimed that
inequality is the price paid for efficiency: that those at the top need to be disproportionately
reward as ‘wealth creators’. Moreover, the UK has the most imbalanced economy in Europe,
with both the continent’s richest region in London and other regions that are amongst the
poorest. This is a choice that we could reverse by following the example of others, such as
Denmark or Germany that have invested in long-term industrial strategies.
Fourth, economic justice is about fairness across generations – ensuring that the economic
promise of rising living standards for successive generations. Even among diehard supporters
of the status quo there is a growing recognition that it is hard to convince new generations of
the virtues of capitalism if they have no capital. And with home ownership – and indeed car
ownership – plummeting among millennials, the problem is on the rise. Not only do
millennials expect to be poorer than their parents, on current trend, they will be. An economy
which has justice as its organizing principle should at the very least offer the same opportunities
to present generations that past generations have enjoyed.
Indeed, what was so striking about the huge turnout of young people in the general election of
2017 was that their political demands were so limited: the opportunity to have education
without being saddled by debt; a decent job with a living wage; and the possibility of owning
their own home. Each of these were precisely what their parents were able to enjoy.
Finally, economic justice is about an economy that builds the common good – the things that
we share and value in common, from the natural environment through to public services. It
recognises that our national wealth is so much broader than household income or company
profits. The good economy values the common good and invests in it. So why is the economy
today not functioning as it should? And where do we go from here?
The Interim Report of the IPPR Commission on Economic Justice
WIRING THE ECONOMY FOR JUSTICE
A just deal at work the economy needs to create better, higher-paying and more secure jobs.
This is the key requirement for ensuring a fair distribution of economic rewards. Better jobs
help to raise productivity, which in turn allows for higher wages. This will require new forms
of partnership between employees and employers.
We are exploring the following areas:
Good jobs. We are considering policies to incentivize and support businesses and public sector
organizations to provide ‘good jobs’ through, for example, the creation of a ‘good jobs’ or ‘fair
work’ standard (as already exists in Scotland). This would include strengthening employees’
voice and engagement in the workplace, with the aim of raising productivity. We are also
exploring how firms can work to improve the representation of women, black and minority
ethnic groups and disabled people at all organizational levels, including the elimination of pay
gaps and tackling discrimination
Modern trade unions. There is a strong correlation between earnings and the bargaining power
of labour. We are exploring whether auto-enrolment for trade unions (similar to pensions),
combined with measures to create stronger rights to collective bargaining, could help to raise
labour’s share of national income and tackle insecure and exploitative employment
relationships. We are also examining how to extend the role of trade unions in the ‘gig
economy’
Productivity partnerships for higher pay. We are exploring ways to give everyone a greater
stake in the success of companies, for example through greater profit sharing and employee
ownership. We are looking at ways to raise wages in the public sector, particularly in low-paid
sectors such as health and social care – there may be scope, for example, for linking public
sector pay to economy-wide productivity improvements. We are also looking at the structure
and level of the national minimum wage
Regulation of the ‘gig economy’.
We are examining how workers’ rights and pay can be enhanced in the new economy of flexible
work, and the appropriate requirements on employers. We are exploring how the minimum
wage might be applied in the gig economy, as well as creative ways for workers in the gig
economy to share in the benefits of the new business models that have been created
Better work/life balance.
We are looking at ways to enable women and men to achieve a better balance between work,
childcare and other caring responsibilities, both within the working week and over a lifetime.
More generally, we are examining how average working hours might be reduced over time, to
allow people to enjoy productivity gains in the economy not just as higher incomes but also as
more time spent in other parts of life. This might be done through reductions in the working
day, or in the working year – for example by gradually increasing the number of public
holidays.
(9) Better tax
The UK’s public finances are in poor shape. Compared with other European countries, the
problem is not that we spend too much but that we raise too little – and we do so in the wrong
way to promote the economy we need. We are exploring how the tax system can be reformed
to raise the revenue society needs in a fairer, more economically efficient and publicly
accountable way:
The level of taxation.
We are considering the appropriate level of taxation for a modern and just economy, and
mechanisms to make tax more accountable and publicly acceptable. For example, we are
examining the case for hypothecating or earmarking certain revenue streams to those areas of
spending most affected by an ageing population
Fairer tax.
We are exploring how the tax system can be made more progressive, particularly by reducing
the average and marginal rates of tax (both direct and indirect) paid by the lowest-income
households. We are looking at how wealth, including land and property wealth, can be more
fairly taxed. We are considering how to rationalize the taxation of business assets so that
different types of asset – whether fixed, financial or digital – are treated fairly. We are exploring
new models for taxing international digital companies, for example on the basis of revenues
rather than reported profit. We are also considering how tax avoidance and evasion can be
reduced.
Smarter tax.
We are looking at how the tax system can be designed to incentivize more strongly economic
‘goods’, such as investment and employment, and disincentives ‘bads’, such as rising land and
property prices, pollution and natural resource use. We are considering how far taxes could be
further devolved, particularly within England • Simpler tax. The tax system is overly complex.
We are exploring how it can be simplified.
(10) Broadly shared wealth and ownership The UK is a wealthy nation, and growing wealthier.
But wealth is very unequally shared, both between households and by geography, age and
gender. The distribution of wealth has a crucial bearing on life chances. We are interested both
in the better taxation of wealth (as discussed above) and in establishing new ways to spread
wealth more widely and fairly.
We are considering the following areas:
Access to housing wealth. We are exploring innovative ways to expand the housing stock at
affordable prices, and mechanisms to spread housing wealth such as shared ownership and
community land trusts. We are also examining the case for removing the capital gain exemption
on primary residences above a certain valuation and the introduction of a land value tax
A sovereign wealth fund.
We are exploring whether a national sovereign wealth fund should be established, to enable
the collective sharing of national wealth. We are examining different possible objectives and
structures for such a fund, innovative ways to capitalize it, and the different ways its dividends
might be used
Sharing in the returns to capital.
We are examining the case for giving employees stronger shares in the ownership of
companies. Possible mechanisms might include mandatory employee profit sharing for
companies above a certain size; the creation of employee ownership funds paying out an annual
dividend on top of wages; and the promotion of cooperative and mutually owned enterprises.
We are looking, for instance, at the possibility of establishing a ‘right to buy’ for employees
when companies are sold, and providing stronger investment support for cooperative and
mutual firms, for example through a specialized arm of the British Investment Bank.
Seven Principles of Economic Justice in an Increasingly Globalized World.
In the coincidence of the Church’s social teaching, non-malthusian economic theory, and the
United Nations Declaration of Human Rights, one can find three objectives which need to be
actualized in a complementary way in order to optimize the economic common good, cultural
common good, individual rights, and individual dignity:
1. The human person must be viewed as having intrinsic dignity and therefore deserving of the
inalienable rights of life, liberty, and property.
2. Society and culture can actualize human dignity only if they recognize the intrinsic dignity
of the individual and the principle of equal access of necessary economic and social goods.
3. Free markets optimize human creativity, freedom, productivity, and use of resources when
Principles (1) and (2) are operative
“Complementarity” here implies both solidarity (the optimization of the common good) and
subsidiarity (decisions should be made at the level at which they will operate).
Operating assumption is Paul Zane Pilzer’s non-malthusian principles. Education,
technologically innovation, and increases in communication will alleviate worldwide resource
shortages, therefore, increasing the population need not lead to decreased economic and social
goods per capita. Rather, it will lead in the opposite direction if the above three objectives are
pursued through solidarity and subsidiarity.
Seven principles are necessary to optimize these three objectives through the principles of
solidarity and subsidiarity:
1. The Person as End. The individual person is the highest end. Violation of individual human
rights cannot occur either for the optimization of the common good or for the optimization of
wealth in free markets. (Principle of minimalistic justice is therefore mandatory).
2. Access to Social and Economic Goods. In order to optimize human creativity, freedom,
productivity, and distribution (velocity of money), it is incumbent upon society both macro-
economically and micro-economically to assure minimal access to social and economic goods,
and, if possible, to optimize access to these goods.
a. Education
b. Skills
c. Technology
d. Credit
3. Alleviation of Poverty and Alienation from Work and Society.
a. Principle (2) will partially alleviate poverty
b. Redressing past unjust structures which have impeded necessary access to economic and
social goods
c. Optimizing dignity of workers and work micro-economically
4. Alleviation of Micro-economic and Macro-economic Exploitation.
5. Free Markets must be Just Yet Protected.
a. Avoid monopoly/cut-throat competition
b. Just wage
c. Just price (especially of inelastic goods)
d. Just distribution of inelastic economic and social goods
6. Use of Surplus Capital. The common good is optimized when:
a. Surplus capital is reinvested in business, which will create more work.
b. If surplus is removed from business, it is best to invest it in high velocity, inelastic goods.
This not only optimizes employment, but also productivity and distribution among social strata,
therefore, optimal creation of wealth. (Principle of Maximalistic Justice—The Common
Good).
7. Globalization Entails Redressing the Gaps:
a. Education Gap
b. Technology Gap
c. Opportunity Gap
 8) Economic Freedom
Economic freedom- Defined both at an individual and at an institutional level.
Economic freedom is defined as-
“the condition in which individuals can act with maximum autonomy and minimum obstruction
in the pursuit of their economic livelihood and greater prosper” (Miller & Kim, 2006:48).
At an institutional level, economic freedom indicates the extent to which countries rely on free
and open markets to allocate resources rather than using government intervention (Gwartney
& Lawson, 2013).
Q.1. what is economic freedom?
Economic freedom is the fundamental right of every human to control his or her own labor and
property. In an economically free society, individuals are free to work, produce, consume, and
invest in any way they please. In economically free societies, governments allow labor, capital,
and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent
necessary to protect and maintain liberty itself.
Q.2. what are the benefits of economic freedom?
Economic freedom brings greater prosperity. The Index of Economic Freedom documents the
positive relationship between economic freedom and a variety of positive social and economic
goals. The ideals of economic freedom are strongly associated with healthier societies, cleaner
environments, greater per capita wealth, human development, democracy, and poverty
elimination.
Q.3. How do you measure economic freedom?
Economic Freedom index by The Heritage Foundation.
Measures economic freedom based on 12 quantitative and qualitative factors, grouped into four
broad categories, or pillars, of economic freedom:
1.) Rule of Law (property rights, government integrity, judicial effectiveness)
Government Size (government spending, tax burden, fiscal health)
2.) Regulatory efficiency (business freedom, labor freedom, monetary freedom)
Open Markets (trade freedom, investment freedom, financial freedom)
Each of the twelve economic freedoms within these categories is graded on a scale of 0 to 100.
A country’s overall score is derived by averaging these twelve economic freedoms, with equal
weight being given to each.
Q.4. which components of economic freedom are most important?
The Index of Economic Freedom considers every component equally important in achieving
the positive benefits of economic freedom. Each freedom is weighted equally in determining
country scores. Countries considering economic reforms may find significant opportunities for
improving economic performance in those factors in which they score the lowest.
These factors may indicate significant binding constraints on economic growth and prosperity.
For well over a hundred years, the economic world has been engaged in a great intellectual
debate.
On one side of this debate have been those philosophers and economists who advocate an
economic system based on private property and free markets—or what one might call economic
freedom.
The key ingredients of economic freedom are-
1.) Personal choice,
2.) Voluntary exchange,
3.) Freedom to compete in markets, and
4.) Protection of person and property.
Institutions and policies are consistent with economic freedom when they allow voluntary
exchange and protect individuals and their property.
Role of Government in achieving Economic Freedom
A.) Governments can promote economic freedom by
1.) Providing a legal structure and
2.) A law enforcement system that protect the PROPERTY RIGHTS of owners and enforce
contracts in an evenhanded manner.
B.) Economic freedom also requires governments to refrain from
1.) Taking people’s property and
2.) From interfering with personal choice,
3.) Voluntary exchange, and
4.) The freedom to enter and compete in labor and product markets.
C.) When governments substitute-
Taxes, government expenditures, and regulations for personal choice, voluntary exchange, and
market coordination, they reduce economic freedom.
D.) Restrictions that limit entry into-
1.) Occupations and
2.) Business activities also reduce economic freedom.

Economist’s Views regarding Economic Freedom

Favour
ADAM SMITH was one of the first economists to argue for a version of economic freedom,
and he was followed by a distinguished line of thinkers that includes JOHN STUART MILL,
LUDWIG VON MISES, FRIEDRICH A. HAYEK, and MILTON FRIEDMAN, as well as
economists such as Murray Rothbard
Against
On the other side of this debate are people hostile to economic freedom who instead argue for
an economic system characterized by centralized economic planning and state control of the
means of production.
Advocates of an expanded role for the state include Jean-Jacques Rousseau and KARL MARX
and such twentieth-century advocates as ABBA LERNER, JOHN KENNETH GALBRAITH,
Michael Harrington, and Robert Heilbroner.
These scholars argue that free markets lead to-
1.)monopolies,
2.)chronic economic crises,
3.)income inequality, and
4.)increasing degradation of the poor, and
5.)that centralized political control of people’s economic lives avoids these problems of
the marketplace.
They deem economic life simply too important to be left up to the decentralized decisions of
individuals
Examples
The stark differences in the standards of living of people in economically freer systems
compared with those in less free systems have become more and more obvious:
North versus South Korea,
East versus West Germany,
Estonia versus Finland,
and Cubans living in Miami versus Cubans living in Cuba
In each case, people in the freer economy have better lives, in virtually every way, than their
counterparts in the less-free economies.

Measuring Economic Freedom

The comparisons are suggestive.
But is it possible to find a relationship between economic freedom and prosperity over a wider
range of nations? In the 1980s, scholars began to measure and rate economies based on their
degree of economic freedom.
Organizations such as-
1.) Freedom House,
2.) the Heritage Foundation, and
3.) the Fraser Institute,
 4.) As well as individual scholars, published “economic freedom indexes” attempting to
quantify economic freedom.
In 1996, the Fraser Institute, along with a network of other think tanks, began publishing the
Economic Freedom of the World (EFW) annual reports, which present an economic freedom
index for more than 120 nations.
Using data from the World Bank, International Monetary Fund, Global Competitiveness
Report, International Country Risk Guide, PricewaterhouseCoopers, and others, the report rates
countries on a zero-to-ten scale. Higher scores indicate greater economic freedom.
The overall index is based on ratings in five broad areas. Counting the various subcomponents,
the EFW index uses thirty-eight distinct pieces of data. Each subcomponent is placed on a scale
from zero to ten that reflects the range of the underlying data.
The component ratings within each area are averaged to derive ratings for each of the five
areas.
The summary rating is the average of the five area ratings.
The five major areas are:
1.) Size of government
2.) Sound money
3.) Property rights and rule of law
4.) International trade
5.) Regulation
1.) Size of government.
A. Government consumption
B. Transfers and subsidies
C. Government enterprises and investment
D. Top marginal tax rate
(i) Top marginal income tax rate
(ii) Top marginal income and payroll tax rate
To get high ratings in this area, governments must tax and spend modestly, and MARGINAL
TAX RATES must be relatively low. While governments are important in protecting property
rights, enforcing contracts, and providing some services, as governments grow they inevitably
infringe on people’s economic freedom to engage in trade and enjoy the fruits of their labor.
1.) Size of government.
A. Government consumption
B. Transfers and subsidies
C. Government enterprises and investment
D. Top marginal tax rate
(i) Top marginal income tax rate
(ii) Top marginal income and payroll tax rate
To get high ratings in this area, governments must tax and spend modestly, and MARGINAL
TAX RATES must be relatively low. While governments are important in protecting property
rights, enforcing contracts, and providing some services, as governments grow they inevitably
infringe on people’s economic freedom to engage in trade and enjoy the fruits of their labor.
3.) Property rights and rule of law.
A. Judicial independence
B. Impartial courts
C. Protection of property rights
D. Military interference in rule of law and politics
E. Integrity of the legal system
F. Legal enforcement of contracts
G. Regulatory costs of the sale of real property
H. Reliability of police
I. Business costs of crime
This area measures the consistency of a country’s legal system with the protection of property,
enforcement of contracts, and evenhanded application of the law. This is perhaps the most
important area of economic freedom, as economic freedom requires that people be secure in
their persons and physical property; it also requires a judicial system that enforces contractual
agreements fairly
4.) International trade.
A. Tariffs
(i) Revenue from trade taxes (% of trade sector)
(ii) Mean tariff rate
(iii) Standard deviation of tariff rates
B. Regulatory trade barriers
(i) Non-tariff trade barriers
(ii) Compliance costs of importing and exporting
C. Black-market exchange rates
D. Controls of the movement of capital and people
 (i) Foreign ownership / investment restrictions
(ii) Capital controls
(iii) Freedom of foreigners to visit
Countries that refrain from enacting protectionist tariffs, quotas, and capital controls get higher
ratings in this area. Economic freedom means that people can engage in trade with any person
of their choosing. If the government taxes or otherwise prevents people from buying or selling
with people in other countries, it reduces their freedom.
5.) Regulation.
A. Credit market regulations
(i) Ownership of banks
(ii) Private sector credit
(iii) Interest rate controls / negative real interest rates
B. Labor market regulations
(i) Hiring regulations and minimum wage
(ii) Hiring and firing regulations
(iii) Centralized collective bargaining
(iv) Hours regulations
(v) Mandated cost of worker dismissal
(vi) Conscription
C. Business regulations
(i) Administrative requirements
(ii) Bureaucracy costs
(iii) Starting a business
(iv) Extra payments / bribes / favoritism
(v) Licensing restrictions
(vi) Cost of tax compliance
REGULATIONs such as interest-rate controls (usury laws), restrictions on bank ownership by
foreigners, MINIMUM WAGES, military CONSCRIPTION, business licensing, and PRICE
CONTROLS are included. Such controls and regulations violate the principles of economic
freedom.
To get high ratings, countries must refrain from such regulations, leaving people free to set
prices, open businesses, and trade.
KEY FINDINGS OF THE 2018 INDEX
The Heritage Foundation / heritage.org/Index
Economic freedom is a critical element of human well-being and a vital linchpin in sustaining
a free civil society. As the Index of Economic Freedom catalogues, the best path to prosperity
is the path of freedom:-
Letting individuals decide for themselves how best to achieve their dreams and aspirations and
those of their families. Now in its 24th edition, the Index analyzes economic policy
developments in 186 countries.
Countries are graded and ranked on 12 measures of economic freedom that evaluate- the rule
of law, government size, regulatory efficiency, and the openness of markets.
THE PROFILE OF GLOBAL ECONOMIC FREEDOM
Economic freedom has taken an upturn in the majority of world economies. The global average
economic freedom score of 61.1 is the highest ever recorded in the 24-year history of the Index.
Economic freedom improved globally for the sixth year in a row, with the average score up by
two-tenths of a point from the previous year. The world average is now more than three points
higher than in the first edition of the Index in 1995.
Of the 180 economies graded in the 2018 Index, the scores of 102 economies are better, the
scores of 75 are worse, and the scores of three are unchanged.
Six economies have sustained very high economic freedom scores of 80 or more, putting them
in the ranks of the economically “free.”
The next 28 countries have been rated as “mostly free” economies, recording scores between
70 and 80. With scores of 60 to 70, 62 countries have earned scores that place them in the
“moderately free” category.
Thus, a total of 96 economies—more than half of all nations and territories graded in the 2018
Index—provide institutional environments in which individuals and private enterprises benefit
from at least a moderate degree of economic freedom in the pursuit of greater economic
development and prosperity.
At the other end of the spectrum, nearly half of the countries graded in the Index—84
economies—have registered economic freedom scores below 60. Of those, 63 have economies
that are considered “mostly unfree” (scores of 50–60), and 21 have economies in which most
aspects of economic freedom are “repressed” (below 50).
Average levels of economic freedom vary widely among the five regions of the world.
Europeans on average enjoy the highest levels of economic freedom with an average score of
68.8, far higher than the world average of 61.1. The Middle East/ North Africa, Asia–Pacific,
and Americas regions have overall economic scores near the world average at 61.5, 61.0, and
60.1, respectively, while the Sub-Saharan Africa region falls significantly short at only 54.4.
THE PROVEN POWER OF ECONOMIC FREEDOM
1.) Economies rated “free” or “mostly free” in the 2018 Index enjoy incomes that are more than
twice the average levels in all other countries and more than five times higher than the incomes
of “repressed” economies.
2.) Economic freedom is closely related to openness and limited government, advancing
entrepreneurial activity. Given this relationship, it should be apparent that a government’s most
effective stimulus activity is not increasing its own spending or putting in place more layers of
regulation, both of which reduce economic freedom. The best results are often achieved instead
through policy reforms that limit the size of government and create greater economic dynamism
in the private sector.
3.) There is a robust relationship between improvements in economic freedom and levels of
economic growth per capita. Whether long-term (20 years), medium-term (10 years), or short-
term (five years), the relationship between positive changes in economic freedom and rates of
economic growth is consistent. This relationship holds over all levels of development.
4.) Improvements in economic freedom are a vital determinant of whether or not countries will
achieve rates of economic growth sufficient to reduce poverty. As the global economy has
moved toward greater economic freedom over the life of the Index, the world economy has
nearly doubled in size. This progress has lifted hundreds of millions of people out of poverty
and cut the global poverty rate in half.
5.) The link between economic freedom and overall human development is clear and strong.
People in economically free societies live longer, have better health, are able to be better
stewards of the environment, and push forward the frontiers of human achievement in science
and technology through greater innovation.
6.) Economically freer countries that open their societies to new ideas, products, and
innovations have largely achieved high levels of social progress. It is not massive
redistributions of wealth or government dictates that produce the most positive social
outcomes. Instead, mobility and progress require lower barriers to market entry, freedom to
engage with the world, and less government intrusion.
 9) Economic Welfare
Economic welfare:
The level of prosperity and quality of living standards in an economy. Economic welfare can
be measured through a variety of factors such as GDP and other indicators which reflect welfare
of the population (such as literacy, number of doctors, levels of pollution etc.) Economic
welfare is a general concept which doesn’t lend to easy definition.
Basically, it refers to how well people are doing. Economic welfare is usually measured in
terms of real income/real GDP. An increase in real output and real incomes suggests people
are better off and therefore there is an increase in economic welfare.
Measuring living standards
The most common method for measuring living standards is using GDP per capita. This is
national income divided by population and gives a rough guide to average incomes. High real
GDP per capita indicates citizens are able to purchase more goods and services.
Difficulties measuring living standards
1. Purchasing Power Parity
2. Economic activity not measured
3. Externalities of growth
4. Hours worked
5. Poverty
6. Intangibles
7. Literacy
8. What do we mean by living standards?
Difficulties measuring living standards
1. Purchasing Power Parity. When comparing living standards between different countries, it
is important to take into account different purchasing power parity’s (PPP) – GDP per capita
in $ terms does not necessarily reflect the local purchasing power of a country.
For example, in Namibia incomes may be quite low – say $1,000 per capita. However, living
costs are likely to be much lower in Namibia than say the US. With $1,000 you can buy a lot
more in Namibia than in the UK or US. Therefore, it is important to take these factors into
consideration when comparing living standards between countries.
If we use GDP per capita in purchasing power parity (PPP) then income differentials are
smaller.
2. Economic activity not measured. Some countries may have large ‘black market’ or economic
activity that isn’t measured by official statistics.
For example, in a country like Namibia, there is likely to be a significant degree of subsistence
farming. This makes zero contribution to GDP statistics because nothing is officially produced,
but people may have decent living standards.
3. Externalities of growth. Higher GDP suggests higher living standards, but higher economic
growth may be at the cost of increased pollution and congestion. This leads to a decline in
living standards (poor health from pollution, time wasted from congestion) therefore GDP
overestimates living standards. This has been an issue for countries like China – whose
breakneck economic growth has been at the expense of pollution.
4. Hours worked two countries may have similar GDP, but if one country has an average hourly
week of 60 hours worked, this suggests lower living standards than a country which has an
average of only 40 hours per week.
5. Poverty. Living standards need to take into account how income and expenditure are
distributed through society. A country may have high GDP per capita but still have significant
poverty.
Other measures of living standards, such as Human Development Index (HDI), try to include
these factors.
6. Intangibles. Living standards are not just about consumption of goods and services. Arguably
a key factor in living standards is issues such as a degree of individual liberty/democracy and
freedom. This becomes difficult to quantify from an economic perspective.
7. Literacy. Access to education is considered an important aspect of living standards. Without
education, people will struggle to obtain their potential and their human capital will be lower.
Education can also improve living standards in non-monetary ways – enjoying a greater degree
of culture
8. What do we mean by living standards? Some may think of living standards through financial
measures (e.g. income etc.). Others may place less emphasis on this and focus on issues such
as the environment, ‘general well-being’ and levels of happiness. However, economic welfare
will be concerned with more than just levels of income.
For example, people’s living standards are also influenced by factors such as levels of health
care, and environmental factors, such as congestion and pollution.
These quality of life factors are important in determining economic welfare-
Factors influencing economic welfare
1.) Real income – influencing potential consumption
2.) Employment prospects – unemployment significant cost
3.) Job satisfaction – satisfaction at work as important as income and wage
4.) Housing – High income but unaffordable housing diminishes economic welfare. Good,
cheap housing essential to economic welfare
5.) Education – opportunities to study through lifetime, influence welfare
6.) Life expectancy and quality of life – access to healthcare, also are lifestyles healthy, e.g.
levels of obesity/smoking rates
7.) Happiness levels – normative judgements on whether people are happy.
8.) Environment – economic growth can cause increased pollution, which damages health and
living standards.
9.) Leisure time – high wages due to working very long hours diminishes economic welfare.
Leisure has economic value.
Economic Welfare and Utility
Economics is concerned with ideas of utility.
Utility represents the satisfaction/happiness of a consumer.
For example, if you are willing to pay Rs.10 for a CD, then presumably you get a utility of at
least Rs.10 worth from the good.
Welfare Economics
This is a branch of economics devoted to determining the optimal allocation of resources in
society. It is concerned with allocative efficiency and social efficiency
Definition of allocative efficiency
This occurs when there is an optimal distribution of goods and services, taking into account
consumer’s preferences.
A more precise definition of allocative efficiency is at an output level where the price equals
the Marginal Cost (MC) of production. This is because the price that consumers are willing to
pay is equivalent to the marginal utility that they get. Therefore the optimal distribution is
achieved when the marginal utility of the good equals the marginal cost.

Allocative Efficiency
At an output of 40, the marginal cost of the good is Rs.6, but at this output, consumers would
be willing to pay a price of Rs.15.
The price (which reflects the good’s marginal utility) is greater than marginal cost – suggesting
under-consumption. If output increased and price fell, society would benefit from enjoying
more of the good.
At an output of 110, the marginal cost is Rs.17, but the price people are willing to pay is only
Rs.7.
At this output, the marginal cost (Rs.17) is much greater than the marginal benefit (Rs.7) so
there is over-consumption.
Society is over-producing this good.
Allocative efficiency will occur at a price of Rs.11.
This is where the marginal cost (MC) = marginal utility.
Perfect competition – allocatively efficient
Firms in perfect competition are said to produce at an allocative efficient level because at Q1,
P=MC

Monopolies – allocatively inefficient

Monopolies can increase price above the marginal cost of production and are allocatively
inefficient. This is because monopolies have market power and can increase price to reduce
consumer surplus.
Monopoly sets a price of Pm. This is allocatively inefficient because at this output of Qm, price
is greater than MC.
Allocative efficiency would occur at the point where the MC cuts the Demand curve so Price
= MC.
The area of deadweight welfare loss shows the degree of allocative inefficiency in the
economy.
Measure of Economic Welfare (MEW)
During the late 1960s, many economists began to question the over-reliance of governments
and agencies on narrow, exclusively GDP-based, measures of economic welfare.
It was at this time that the adverse environmental effects of uncontrolled economic growth
began to be considered, prompting the search for a wider measure of welfare, not exclusively
based on raw GDP figures.
Nordhaus and Tobin
In 1972, Yale economists William Nordhaus and James Tobin introduced their Measure of
Economic Welfare (MEW)* as an alternative to crude GDP. MEW took national output as a
starting point, but adjusted it to include an assessment of the value of leisure time and the
amount of unpaid work in an economy, hence increasing the welfare value of GDP. They also
included the value of the environment damage caused by industrial production and
consumption, which reduced the welfare value of GDP. MEW can be seen as the forerunner
of later attempts to create a sophisticated index of sustainable development.
Measure of economic welfare (MEW)
This was developed in 1972 as an alternative to GDP. It was developed by William Nordhaus
and James Tobin. (Nordhaus, WD and Tobin, J (1972) Is Growth Obsolete? It adjusts the
measure of total national output, to include only items that help improve economic well-being.
In addition to GNP the MEW includes:
1.) The value of leisure time enjoyed by citizens.
2.) Value of unpaid work
3.) Economic output in the underground economy (not measured by official GDP statistics)

The MEW also excludes factors which reduce economic welfare, such as
1.) Environmental damage
It is also known as net economic welfare (NEW) (Samuelson and Nordhaus, 1992).

The Index of Sustainable Economic Welfare

The Index of Sustainable Economic Welfare (ISEW), develops MEW by adjusting GDP further
by taking into account a wider range of harmful effects of economic growth, and by excluding
the value of public expenditure on defence.
Index of Human Development Index HDI
A related concept is that of Human development index (HDI). This is a measure which seeks
to look at the available choices that people have. It is a composite indicator comprised of 3
basic factors affecting living standards – income, life expectancy and education.
The three components are:
1.) Real GDI per Capita, adjusted for the local cost of living (PPP)
2.) Life expectancy
3.) Education – levels of literacy
The highest human development is given a value of 1. Low levels of Human development are
given a value close to 0.
What the HDI shows
The HDI give an overall index of economic development. It has some limitations and excludes
several factors that might have been included, but it does give a rough ability to make
comparisons on issues of economic welfare – much more than just using GDP statistics show.
Limitations of Human Development Index
Wide divergence within countries. For example, countries like China and Kenya have widely
different HDI scores depending on the region in question. (e.g. north China poorer than south-
east). HDI reflect long-term changes (e.g. life expectancy) and may not respond to recent short-
term changes. Higher national wealth does not indicate welfare. GNI may not necessarily
increase economic welfare; it depends on how it is spent. For example, if a country spends
more on military spending – this is reflected in higher GNI, but welfare could actually be lower.
Also, higher GNI per capita may hide widespread inequality within a country. Some countries
with higher real GNI per capita have high levels of inequality (e.g. Russia, Saudi Arabia)
However, HDI can highlight countries with similar GNI per capita but different levels of
economic development.
Economic welfare depends on several other factors, such as – threat of war, levels of pollution,
access to clean drinking water etc.
Well-being index
The Office of National Statistics has an interactive site for people to contribute to concepts of
what should count as ‘national well-being’. The ONS is currently developing a new index for
well-being and is inviting people to take part. This is a measure of economic well-being and
life satisfaction, created by the ONS. It looks at health, relationships, education and skills, what
we do, where we live, our finances and the environment.
It includes positive data but also includes surveys and questionnaires – it also uses quite a new
methodology and is experimental in terms of economic data.
What is National Well-being?
It is effectively our living standards, our quality of life. Are we happy? From an economic
perspective, we tend to start with GDP, Gross Domestic Product. This measures the value of
National income. GDP per Capita is a measure of average incomes. Higher GDP, ceteris
paribus, implies a higher standard of well-being because we can consume more goods and
services. However, raw GDP is only a partial guide to ‘well-being’. We need to consider much
more than just average incomes:
Things That Could Be Included in National Well Being
1.) Existing Statistics
2.) Rate of Unemployment – especially higher weighting for long term and youth
unemployment.
3.) Economic Inactivity – due to sickness or discouragement.
4.) Income distribution – What is the level of inequality
5.) Level of reported crime – Does higher GDP encourage more crime?
6.) Rates of accidental deaths – Premature deaths, e.g. over 2,300 die on British roads every
year.
 7.) Rates of suicide
8.) Life Expectancy – health standards
9.) Divorce Rates
10.) Consumer Confidence

Other Factors that could be included

1.) Levels of reported pollution
2.) Levels of congestion – time spent in traffic jams.
3.) % of open green space (with easy access)
4.) Charitable giving – Do we help others who are less fortunate?
5.) Participation in sport – are we healthy or lethargic?
6.) Participation in cultural events. – Numbers going to opera / museum / football?
7.) Transport options available – Is there good public transport?
8.) Attitude to pets / animals – are we kind to animals?
For every statistic, we could evaluate its importance. For example, you could argue that a higher
divorce rate is a bad thing as it suggests relationships breaking down. On the other hand, you
could argue a higher divorce rate allows people to leave love-less marriage and move on in life.
This shows this kind of statistic would be hard to incorporate.
1.) Measuring the Intangibles
2.) Environmental factors such as how clean the city is.
3.) Architecture. To some people this modern block of flats would reduce living standards.
To others it represents progress a utilitarian project to offer most efficient way of
building.
The more factors you include the more debate there will be about their relative importance.
But, what factors would you want to include in an index of national well-being? There are
already several different measures which seek to include a wider variety of factors which
influence living standards.
 10) Economic Planning
What is an Economic Plan?
An economic plan is an outline of schemes designed to achieve certain pre-determined
economic objectives, in a particular order of priorities within a specified period of time. This
is the technique that a state follows to achieve economic development. The economy, which
makes efforts to achieve development through economic plans, is known as planned economy.
The Concept of Planning:
Planning is a continuous process that involves choices and decision making about allocation of
available resources with the objective of achieving effective and efficient utilization and
growth of these resources.
In India, planning is done both at the center as well as the state level. Economic planning is
done by the central authority after a complete survey of the economic situation. The policy
objectives are designed based on the future development goals of the country.
Aims of Economic Plan- The aims of economic planning are –
1.) improving the economic system,
2.) making the social and moral up-liftment of the people, and
3.) Strengthening the country’ from the political point of view.

At present, economic planning is adopted by almost all economies of the world in some form
or the other so as to remove vicious circle of poverty. India has accepted economic planning
for its Central and State Governments.
Features of Economic Plan
The main features of economic planning are as follows:
1. Determining the objectives that are to be achieved.
2. Estimating the resources that are available in the country.
3. Determining the order in which the objectives are to be achieved.
4. Designing suitable schemes for realizing of the objectives.
5. Determining the plan outlay and investment.
6. Allocation of resources between different sectors as per the priority of objectives
7. Establishing a body for the formulation, organization and appraisal of the plans
Need for Economic Plan
The factors, which emphasis the need for economic planning in India, are as follows:
1. To attain steady economic development in a free market economy.
2. To remove unemployment, poverty and inequalities among people.
3. To provide infrastructural facilities such as banking, power, water, transport and
communications.
4. To allocate resources properly between present and future needs.
5. To attain balanced regional development.
Types of Economic Plan
Economic planning can be divided into four types such as-
1. Perspective Plans: Perspective plan is a long-term plan. Generally, it is formulated for a
period ranging from 15 years to 20 years.
2. Five-year Plans: Five-years plans as their name indicate are designed for a period of five
years. It is an integral part of perspective plan.
3. Annual Plans: Annual plan is a part of five-year plan. It is prepared year-wise. So for each
five-year plan, five annual plans will be prepared in a detailed manner.
4. Rolling Plans: Rolling plans do not have a fixed period of time. These plans have only
duration and move forward. As it moves forward the year, which was completed, is deleted
and one year is added at the end.

Economic Planning in India

In India, until 2014, planning was the responsibility of the National Planning Commission that
was established on March 15, 1950. The first five-year plan was prepared by the Planning
Commission for the period 1951-56. The first Prime Minister of India, Pandit Jawaharlal Nehru
was the first chairman of the Planning Commission. The Prime Minister was always the ex-
officio chairman of the Planning Commission. The Deputy Chairman who was nominated by
commission held the rank of a cabinet minister.
In 2014, the government led by Prime Minister Narendra Modi dissolved the Planning
Commission and replaced it by the think tank called NITI Aayog. NITI here, stands for
National Institution for Transforming India.
Objectives of Planning in India:
1. Economic Growth and Development
2. Increase in Employment
3. Increase in Investment
4. Social Justice and Equity
5. Balanced Regional Development
6. Modernization
Objectives of Planning:
Planning plays a very significant role especially in a developing country like India.
The following are some of the objectives of economic planning in India:
1. Economic Growth and Development:
Every five-year plan had a growth target that had to be achieved by the end of the planning
period. In order to bring about an improvement in standard of living of the people, the per
capita income has to rise. A rise in per capita income is necessary to overcome the problems
of poverty and its effects.
2. Increase in Employment:
The developing economies generally suffer from open unemployment and disguised
unemployment. India is no exception to it. Slow growth of the agricultural sector and lack of
investments in the industrial sector are major causes for high levels of unemployment in the
country. Measures have been taken in every five- year plan to create employment opportunities,
thereby, increasing labor productivity.
3. Increase in Investment:
Economic growth cannot be achieved unless adequate investments are made to bring about an
increase in output capacity. Investments help in creating employment opportunities. One of the
objectives of planning is, thus, to push up the rate of investment to ensure smooth flow of
capital to various sectors of the economy.
4. Social Justice and Equity:
The five-year plans also focused on reducing inequalities in the distribution of income in order
to ensure social justice. Prevalence of inequalities in the economy results in exploitation of the
poor wherein the rich become richer and the poor become poorer.
5. Balanced Regional Development:
In India, there exists a wide gap in the development of different states and regions. While
Gujarat, Tamil Nadu, Maharashtra etc., enjoy high levels of development, there are states like
Bihar, Odisha, Nagaland etc., which remain backward. Planning aims at bringing about a
balanced regional development by diverting more resources to the poor and backward regions.
6. Modernization:
Modernization refers to a shift in the composition of output, innovation and advancement in
technology. Modernization helps an economy to advance at a faster pace and compete with the
developed nations of the world. The objective of planning is to encourage and incentivize
investments into various sectors of the economy, especially the industrial sector, to help them
adopt new technologies and thus, increase efficiency.

An Overview of the Five Year Plans in India:

First Five-Year Plan:
It was formulated for the period 1951-56, when India was confronting the problems of huge
influx of refugees, food shortage and severe inflation. The plan, thus, focused on the primary
sector, that is, the agricultural sector to increase the food production in India to overcome the
crisis. The monsoon was favorable to agriculture in those years and therefore, the production
increased.
The first five-year plan was quite successful as the targeted growth rate was 2.1 percent and
the achieved growth rate was 3.6 percent.
Second Five-Year Plan:
It was formulated for the period 1956-61 and it focused on rapid industrialisation. The plan
aimed at the development of heavy and basic industries and conceived that agricultural sector
could be given lower priority as it has been able to achieve its targets in the previous plan. The
second plan achieved only a moderate success due to the severe shortage of foreign exchange
on account of huge imports to meet the requirements of the industrial sector. The actual growth
rate achieved in the plan was 4.3 percent against the target of 4.5 percent.
Third Five-Year Plan:
It was formulated for the period 1961-66. The third five- year plan was prepared with the
mindset that India has entered the ‘take-off stage’ and it is time for it to become a self-reliant
and self-generating economy. The plan gave priority to both agriculture as well as the industrial
sector. However, the Indo-China conflict in 1962 and the Indo-Pakistan conflict in 1965 made
the plan a complete failure as huge amount of expenditure had to be allocated to meet the
defence requirements. The actual growth rate achieved in the plan was 2.8 percent as against
the target of 5.6 percent.
The failure of the third plan led to the formulation of three annual plans for the years 1966-67,
1967-68 and 1968-69, before the launch of the fourth plan. The period from 1966 to 1969 was,
therefore, termed as “Plan Holiday”. It was during this period that green revolution was
introduced to overcome the food crisis. Green revolution advocated the use of high-yielding
variety of seeds, fertilizers, pesticides and extensive use of irrigation.
Fourth Five-Year Plan:
It was formulated for the period 1969-74 and had two basic objectives growth with stability
and progressive achievement of self-reliance. It stressed upon the growth of the agricultural
sector and it was during this period that various family planning measures were introduced to
control the rising population. While the plan aimed at a highly ambitious growth rate of 5.7 per
cent, it could achieve only 3.3 percent. This failure could be attributed to the huge influx of
refugees from Bangladesh and the Indo-Pakistan war in 1972.
Fifth Five-Year Plan:
It was formulated for the period 1974-79 and proposed two main objectives removal of poverty
and attainment of self-reliance. The plan aimed at achieving its objectives by achieving high
growth rate, equitable distribution of income and increase in domestic savings. However, the
plan was an utter failure due to high levels of inflation.
With the Janta Government taking over the power, the plan was terminated in 1978. The growth
rate achieved during this period was 4.8 percent as against the target of 4.4 percent. The Janta
Government formulated the sixth five-year plan for the period 1978-83 with the objective of
creating employment opportunities. The Janta Government, to its misfortune, lasted only for
two years and was replaced by the Congress Government that came up with a different plan.
The Planning Commission, in the meanwhile, introduced the ‘Rolling Plan’ in 1978, which is
said to incorporate three kinds of plans first plan for the current year, second plan for a specific
period of 3, 4 or 5 years, according to the needs of the Indian economy and the third plan, for
a longer term like 10, 15 or 20 years. The rolling plan was, however, subjected to many
criticisms and was later abandoned with Congress Government coming up with the sixth five-
year plan.
Sixth Five-Year Plan:
It was introduced by the Congress Government for the period 1980-85. It was based on Nehru’s
model of growth and aimed at a direct attack on the problem of poverty by creating conditions
for increasing employment opportunities. Many employment generation schemes such as
Training of Rural Youth for Self Employment (TRYSEM) and Integrated Rural Development
Programme (IRDP) were introduced.
Though the plan progressed as perceived by the planners during the first four years, a severe
famine occurred in the fifth year i.e., 1984-85. Therefore, the agricultural output declined
drastically. However, the economy still managed to grow at 5.7 percent as against the target of
5.2 percent.
Seventh Five-Year Plan:
It was formulated for the period 1985-1990 and it aimed at accelerating food grain production,
creating employment opportunities and raising labor productivity. The focus of the plan was
on ‘food, work and productivity’. The plan was quite successful and recorded a growth rate of
6 per cent as against the targeted growth rate of 5 per cent.
Eighth Five-Year Plan:
This plan could not be formulated in 1990 due to uncertain political situation at the centre.
Therefore, two annual plans for the years 1990-91 and 1991-92 were formulated. During 1991,
India had to face severe balance of payment crisis. The debt burden was mounting and the
fiscal deficit was widening.
The inflation level was rising and the industrial sector was going through a recession. Because
of this crisis and the pressure from International Organisations such as IMF, the government
led by P.V. Narasimha Rao introduced the economic reforms in 1991, post which the eighth
plan was launched in 1992 for the period 1992-97 reflecting the reforms with various structural
adjustment policies.
The role of the private sector increased and several liberalisation measures were introduced.
As a result, the growth rate was the highest as compared to the previous plans. The eighth plan
achieved a growth rate of 6.8 percent as against the targeted growth rate of 5.6 percent.
Ninth Five-Year Plan:
It was formulated for the period 1997-2002 and its aim was to achieve “growth with social
justice and equality”. The plan recognised the critical role of the state in the social sectors such
as health care, education and infrastructure, since the market forces, by themselves, may not
make these areas attractive to the private sector.
The plan stressed upon the need for public investment in these areas. The ninth plan aimed at
a GDP growth rate of 7 percent. However, due to poor performance of the economy during
1997-98, the growth target was revised to 6.5 percent. Yet, the target could not be achieved
and the economy grew only at a rate of 5.4 percent.
Tenth Five-Year Plan:
It was formulated for the period 2002-2007. It was realised that the development goals cannot
be achieved by targeting the economic growth alone. Therefore, the tenth five year plan set
forth measurable targets on development indicators such as infant mortality rate, literacy,
access to electricity, sanitation facilities, sustainable food production and environment.
The tenth plan targeted a growth rate of 8 percent. Further, it laid down targets for each state
to ensure balanced development. The tenth plan was, however, not successful in terms of
poverty reduction, generating employment opportunities and performance of agricultural
sector. Many poor states faced decelerating growth.
Thus, the plan was not successful in bringing about balanced regional development as well.
The plan also failed to achieve its target on infant mortality and maternal mortality rate. The
tenth plan recorded a growth rate of 7.6 percent as against the targeted growth rate of 8 percent.
Eleventh Five-Year Plan:
It was formulated for the period 2007-2012 and the plan document was titled “Towards faster
and more inclusive growth”. With the objective of achieving fast and inclusive growth, the
eleventh plan had set targets for various socio-economic indicators.
It aimed at achieving a GDP growth rate of 9 percent, agricultural growth rate of 4 percent,
generating 58 million employment opportunities, increase in wages of unskilled laborers,
reduction in poverty by 10 percent, reduction in drop-out rate, increasing literacy to 85 percent,
reducing gender gap, infant mortality rate and total fertility rate, reducing malnutrition among
children, provision of safe drinking water, improvement in sex ratio, development of
infrastructure and communication.
It also had measurable targets for environmental protection such as increase in forest and tree
cover by 5 percent, improving air quality and increasing energy efficiency.
The eleventh plan had an ambitious target of achieving a growth rate of 9 percent. Though, the
economy took off well achieving a growth rate of 9.3 percent during the first year, it had a
drastic fall to 6.7 percent in 2008-09 due to the global financial crisis. The economy, however,
managed to achieve a growth rate of 8 percent during this plan due to expansionary measures
taken by the government.
Twelfth Five-Year Plan:
It was formulated for the period 2012-2017 and it focused on achieving faster, inclusive and
sustainable growth. It aimed at achieving an inclusive growth by reducing poverty, reducing
inequality, empowering people and by bringing in balanced regional development. The goals
towards sustainable development focused on environmental sustain ability, improvements in
health and education sector and development of physical infrastructure such as transport,
telecommunication, power etc.
It had set a growth target of 8 percent and had set monitor able targets for poverty, education,
health, infrastructure, environment and sustainability. It also aimed at providing banking
services to 90 percent of the households and introduced Adhaar based direct cash transfer of
subsidies and welfare payments.
The Planning Commission was replaced by the think tank called NITI Aayog (National
Institution for Transforming India). The appraisal of the twelfth five year plan is now the
responsibility of the NITI Aayog. Further, it has also been stated by the Vice Chairman of the
NITI Aayog, Mr. Arvind Panagariya that the five year plans would now terminate with the end
of the twelfth five-year plan and would be replaced by three documents.
The documents are said to cover the short-term by the formulation of a three-year Action Plan,
the medium-term by the conceptualisation of a seven-year strategy and the long-term by laying
down a 15 year Vision Document. The Vision document is said to express what India would
achieve in 2022-23. India is, thus, all set to experience the new action plans of the NITI Aayog.
Achievements of Economic Planning in India:
1. Economic Growth
2. Progress in Agriculture
3. Industrial Growth
4. Public Sector
5. Infrastructure
6. Education and Health Care
7. Growth of Service Sector
8. Savings and Investment
9. Science and Technology
10. Foreign Trade
Achievements of Economic Planning in India:
Economic planning in India, formally conceived in 1951, has come a long way in helping the
economy to tackle the challenges in various sectors and has enabled it to achieve rapid
economic progress.
Some of the major achievements of planning in India are as follows:
1. Economic Growth:
Economic planning in India has been successful in increasing the national income and the per
capita income of the country resulting in economic growth. The net national income at factor
cost increased from Rs. 4393.45 billion in 1966- 67 to Rs.45, 733 billion in 2011-12 (at 2004-
05 prices). The per capita income increased from Rs.8876 to Rs.38, 048 during the same period
(at 2004-05 prices).
The average growth rate has increased from 3.5 percent during 1950 to 1970 to about 5.5
percent after 1990’s. The economy recorded a growth rate of 7.8 percent during the eleventh
five- year plan.
2. Progress in Agriculture:
The first five-year plan focused on agricultural development. However, agricultural sector did
not receive priority in the subsequent plans. Yet, with various initiatives implemented in the
agricultural sector such as the green revolution and agricultural pricing policies, there has been
a considerable increase in the output of the agricultural sector.
The index of agricultural production increased from 85.9 in 1970-71 to 165.7 in 1999-2000
(Base year- 1981-82). The production of major food grains which includes rice, wheat, coarse
cereals and pulses has increased from 77.14 million tons in 1958-59 to 252.22 tons in 2015-16.
With the introduction of green revolution, the yield per hectare of food grains has increased
from 662 kg in 1959-60 to 2056 kg in 2015-16.
Similarly, the production of commercial crops has also recorded an increasing trend. Various
reforms in the agricultural sector such as the Rashtriya Krishi Bima Yojana and Kisan credit
cards during the ninth plan and National Food Security Mission and Rashtriya Krishi Vikas
Yojana during the eleventh plan have been quite successful in improving the performance of
the agricultural sector.
3. Industrial Growth:
Economic planning has also contributed to the progress of the industrial sector. The index of
industrial production increased from 54.8 in 1950-51 to 152.0 in 1965-66 (Base year- 1960-
61) which is about 176 percent increase in production during the first three five-year plans.
It went up from 109.3 in 1981-82 to 232.0 in 1993-94 (Base year- 1980-81). Taking 2004-05
as the base year, the index of industrial production recorded an increase from 108.6 in 2005-
06 to 181.1 in 2015-16. The introduction of reforms in 1991 relieved the industrial sector from
numerous bureaucratic restrictions that were prevalent earlier.
This has led to the rapid growth of the industrial sector in India. India has made remarkable
progress in cotton textiles, paper, medicines, food processing, consumer goods, light
engineering goods etc.
4. Public Sector:
The public sector played a predominant role in the economy immediately after the
independence. While there were only 5 industrial public sector enterprises in 1951, the number
increased to 244 in 1990 with an investment of Rs.99, 330 cores. However, the number of
public sector enterprises fell to 217 in March 2010.
Yet, the cumulative investment went up to Rs.5, 79,920 cores. The ratio of gross profit to
capital employed increased from 11.6 percent in 1991-92 to 21.5 percent in 2004-05. Heavy
engineering and transport equipment industries recorded a 117 percent and 111 percent growth
respectively in 2006-07 over the previous year.
Very high profits were recorded by petroleum, telecommunication services, power generation,
coal and lignite, financial services, transport services and minerals and metal industries. The
government has eliminated a number of restrictions on the operational and financial powers of
the Navaratnas, Miniratnas and several other profit making public sector enterprises.
5. Infrastructure:
Development of infrastructure such as transport and communication, power, irrigation etc., is
a pre-requisite to rapid economic growth and development. Expansion of transport facilities
enables easy movement of goods and services and also enlarges the market. Irrigation projects
contribute significantly to rural development.
Power projects help in meeting the growing demand for power by both industrial and household
sector. The total road length increased from about 400,000 km in 1951 to about 4.7 million km
in 2011. India has the second largest road network in the world with about 5,472,444 kilometers
of road, as on March 31, 2015.
The route length of the Indian railway network has increased from about 53,596 km in 1951 to
about 64,450 km in 2011. The investment in infrastructure as a percentage of GDP was about
5.9 percent during the tenth plan and increased to about 7.2 percent during the eleventh plan.
6. Education and Health Care:
Education and health care are considered as human capital as they contribute to increased
productivity of human beings. Considerable progress was achieved in the education as well as
health sector during the five-year plans. The number of universities increased from about 22 in
1950-51 to 254 in 2000-01. There were about 22 central universities, 345 state universities,
123 deemed universities and about 41,435 colleges in 2016.
The number of institutions in higher education has increased to over 100 percent since 2008.
With the growth in the number of institutions, the literacy rate in India has increased from 16.7
percent in 1950-51 to 74.04 percent in 2011. With improvements in the health infrastructure,
India has been able to successfully control a number of life threatening diseases such as small
pox, cholera, polio, TB etc.
As a result, there has been a fall in the death rate from 27.4 per thousand persons in 1950-51 to
7.3 per thousand persons in 2016. The life expectancy has increased from about 32.1 years in
1951 to 68.01 years in 2014. The infant mortality rate has declined from 149 per thousand in
1966 to 37.42 per thousand in 2015.
7. Growth of Service Sector:
Service sector is the key contributor to the economic growth of India. The service sector
contributed to about 53.2 percent of the gross value added growth in 2015-16. The contribution
of the IT sector to India’s GDP increased from about 1.2 percent in 1998 to 9.5 percent in 2015.
The service sector has recorded a growth rate of about 138.5 percent in the last decade.
Financial services, insurance, real estate and business services are some of the leading services
that have been recording a robust growth in the past few years. The rapid growth of the service
sector in India could be attributed to the inflow of huge amount of FDI in this sector. India’s
share of service exports in the world service exports has increased from 0.6 percent in 1990 to
3.3 percent in 2011.
8. Savings and Investment:
Savings and Investments are major driving forces of economic growth. The gross domestic
savings in India as a proportion of GDP has increased from 8.6 percent in 1950-51 to about 30
percent in 2012-13. The gross capital formation has increased from 8.4 percent in 1950-51 to
34.70 in 2012-13. Capital accumulation is the key to economic development. It helps in
achieving rapid economic growth and has the ability to break the vicious circle of poverty.
9. Science and Technology:
India is the third most preferred destination for technology investments. It is among the top
most countries in scientific research and space exploration. India is also making rapid progress
in nuclear technology. ISRO has made a record of launching 104 satellites in one go on a single
rocket. India today has the third largest scientific manpower after U.S.A and Russia.
The government has undertaken various measures such as setting up of new institutions for
science education and research, launching the technology and innovation policy in 2013,
strengthening the infrastructure for research and development in universities, and encouraging
public- private partnership etc.
10. Foreign Trade:
On the eve of independence, India’s primary exports were agricultural commodities and UK
and US were its major trading partners. India was largely dependent on other countries for
various capital and consumer goods. However, with the development of heavy industries
during the five-year plans, India has been able to reduce its dependence on other countries and
was able to achieve self-reliance in a number of commodities.
With the liberalisation of trade, India now exports about 7500 commodities to about 190
countries and it imports about 6000 commodities from about 140 countries. The exports of the
country increased from Rs. 54.08 billion in 1977- 78 to Rs. 17,144.24 billion in 2015-16. And
imports have increased from Rs. 60.20 billion in 1977-78 to Rs. 24, 859.27 billion in 2015-16.
Shortcomings of Economic Planning in India:
1. Slow Growth
2. Neglect of Agriculture
3. Unemployment
4. Widespread Poverty
5. Inflation
6. Rising Inequality
7. Political Instability
Shortcomings of Economic Planning in India:
1. Slow Growth:
The planning process in India has been able to achieve considerable increase in the national
income and per capita income. Yet, the rate of increase has been slow as compared to
developing countries like China, which have been able to achieve more than 10 percent growth
rate consistently. India was able to achieve a growth rate of only about 4 to 5 percent during
the pre-reform period. It was only during the post reform period that is after 1991, that the
country could experience a growth rate of over 7 percent.
2. Neglect of Agriculture:
The five year plans failed to pay attention to the agricultural sector except for the first five-year
plan. As a result, the agricultural growth rate declined from 3.62 percent in 1991-92 to 0.81
percent during 2009-10. And the share of agriculture in GDP declined from about 50 percent
during 1950-51 to about 16 percent of the GDP in 2015.
3. Unemployment:
The plans have failed to address the problem of unemployment which is a cause of many social
evils. The unemployment rate has marginally reduced from 8.35 percent during 1972-73 to
about 6.53 percent in 2009-10. It was about 4.19 percent in 2013. The growth rate of
employment has recorded a decline from 2.61 percent in 1972-73 to 1.50 percent during 2009-
10. The employment in primary sector recorded a negative growth rate of 0.13 percent in 2009-
10.
4. Widespread Poverty:
Failure to address the problem of unemployment has resulted in widespread poverty in the
country. The first four plans failed to address the problem of poverty. It was only during the
fifth five-year plan that measures were taken to tackle poverty directly by introducing various
poverty alleviation programmes. These programmes, however, have achieved only limited
success. The poverty rate in India declined from about 26.1 percent in 2000 to 21.9 percent in
2011.
5. Inflation:
Poverty is aggravated under the situation of inflation. The five-year plans have not been able
to stabilise the prices due to which there has been a steep rise in the general prices. The inflation
rate was around 10 percent in 2012.
6. Rising Inequality:
With rapid economic growth, the country has been witnessing a rise in the level of inequality.
It has been estimated that the richest 1 percent own about 58 percent of the country’s wealth.
Poor performance of the agricultural sector and lack of investments in rural infrastructure are
cited as the primary reason for such rising inequalities.
7. Political Instability:
Political instability and inefficient administration are the major hurdles in successful
implementation of the plans. Though the plans are formulated after complete analysis of the
economic situation, most of the plans fail to achieve the targets due to inefficient
administration, corruption, vested interests and red tapism.
The achievements and failures of the economic planning in India, thus, reveal the underlying
gaps in the process of planning. It is an undeniable fact that the current level of growth and
development that the country has achieved could not have been possible without planning.
Yet, systematic and efficient implementation of the plans and strategic policies to tackle the
problem of unemployment and poverty could take the country to greater heights. It is strongly
believed that the NITI Aayog would address these gaps that existed in the planning process in
India and would strive to build a vibrant economy over the years.
 11.) NITI Aayog

National Institution for Transforming India

Introduction: TRANSFORMING INDIA
India has undergone a paradigm shift over the past six decades – politically, economically,
socially, technologically as well as demographically. The role of Government in national
development has seen a parallel evolution, keeping with these changing times, the Government
of India has decided to set up NITI Aayog (National Institution for Transforming India), in
place of the erstwhile Planning Commission, as a means to better serve the needs and
aspirations of the people of India.
The new institution will be a catalyst to- the developmental process; nurturing an overall
enabling environment, through a holistic approach to development going beyond the limited
sphere of the Public Sector and Government of India.
This will be built on the foundations of:
An empowered role of States as equal partners in-national development; operationalizing the
principle of Cooperative Federalism.
A knowledge hub of- internal as well as external resources; serving as a repository of good
governance best practices, and A Think Tank offering domain knowledge as well as strategic
expertise to all levels of government.
A collaborative platform facilitating Implementation; by monitoring progress, plugging gaps
and bringing together the various Ministries at the Centre and in States, in the joint pursuit of
developmental goals.
Context: INDIA HAS CHANGED
The Planning Commission was constituted on 15.3.1950 through a Government of India
Resolution, and has served India well.
India, however, has changed dramatically over the past 65 years. While this has been at multiple
levels and across varied scales, the biggest transformatory forces have been the following:-
1.) Demography- Our population has increased over three-fold to reach 121 crores.
This includes an addition of over 30 crore people to Urban India. An increase of 55 crore youth
(below the age of 35), which is more than one and a half times the total population of the
country then. With increasing levels of development, literacy and communication, the
aspirations of our people have soared, moving from scarcity and survival to safety and surplus.
We are therefore looking at a completely different India today, and our governance systems
need to be transformed to keep up with the same.
2.) Economy- Our economy has undergone a paradigm shift. It has expanded by over a hundred
times, going from a GDP of Rs 10,000 crore to Rs 100 lakh crore at current prices, to emerge
as one of the world’s largest.
Agriculture’s share in this has seen a dramatic drop, from more than 50% to less than 15% of
GDP. And our central government’s Twelfth Five Year Plan size of Rs 43 lakh crore, dwarfs
the First Five Year Plan size of Rs 2,400 crore.
Priorities, strategies and structures dating back to the time of the birth of the Planning
Commission, must thus be revisited. The very nature of our planning processes needs to be
overhauled to align with this shift in sheer scale.
3.) Private enterprise- The nature of our economy, and the role of the Government in it, has
undergone a paradigm shift as well.
Driven by an increasingly open and liberalized structure, our private sector has matured into a
vibrant and dynamic force, operating not just at the international cutting edge, but also with a
global scale and reach.
This changed economic landscape requires a new administrative paradigm in which the role of
Government must evolve from simply allocating resources in a command and control eco-
system, to a far more nuanced one of directing, calibrating, supporting and regulating a market
eco-system.
National development must be seen beyond the limited sphere of the ‘Public Sector’.
Government must thus transition from being a ‘provider of first and last resort’ and ‘major
player’ in the economy, to being a ‘catalyst’ nurturing an ‘enabling environment’, where the
entrepreneurial spirits of all, from small self-employed entrepreneurs to large corporations, can
flourish.
This importantly, frees up the Government to focus its precious resources on public welfare
domains such as essential entitlements of food, nutrition, health, education and livelihood of
vulnerable and marginalized groups.
4.) Globalization- The World at large has also evolved. Today, we live in a ‘global village’,
connected by modern transport, communications and media, and networked international
markets and institutions.
As India ‘contributes’ to global dynamics, it is also influenced by happenings far removed from
our borders. This continuing integration with the world needs to be incorporated into our policy
making as well as functioning of government.
5.)States- The States of the Union of India have evolved from being mere appendages of the
Centre, to being the actual drivers of national development. The development of States must
thus become the national goal, as the nation’s progress lies in the progress of States.
As a consequence, the one-size-fits-all approach, often inherent in centralized planning, is no
longer practical or efficient. States need to be heard and given the flexibility required for
effective implementation.
Dr. B. R. Ambedkar had said with great foresight that it is "unreasonable to centralize powers
where central control and uniformity is not clearly essential or is impracticable".
Therefore, while emanating from global experiences and national synergy, our strategies will
need to be calibrated and customized to local needs and opportunities.
6.) Technology- Advancements in technology and access to information have unleashed the
creative energy that emerges from the Indian kaleidoscope. They have integrated our varied
regions and eco-systems in an interlinked national economy and society, opening up newer
avenues of coordination and cooperation.
Technology is also playing a substantial role in enhancing transparency as well as efficiency,
holding government more accountable. It thus needs to be made central to our systems of policy
and governance.
Rationale: INSTITUTIONS MUST CHANGE
This changing reality and growing mismatch has been recognized for years now; with experts,
including many from within the erstwhile Planning Commission, recommending appropriate
changes:
1.) The 8th Five Year Plan document- the very first after the liberalization of 1991 – itself
categorically stated that, as the role of Government was reviewed and restructured, the role and
functions of the Planning Commission too needed to be rethought.
The Planning Commission needed to be reformed to keep up with changing trends; letting go
of old practices and beliefs whose relevance had been lost, and adopting new ones based on
the past experiences of India as well as other nations.
2.) The Standing Committee on Finance of the 15th Lok Sabha observed in its 35th Report on
Demand for Grants (2011-12) that the Planning Commission "has to come to grips with the
emerging social realities to re-invent itself to make itself more relevant and effective for
aligning the planning process with economic reforms and its consequences, particularly for the
poor".
3.) Former Prime Minister and noted economist, Dr. Manmohan Singh in his farewell address
to the Commission in April 2014 - also urged reflection on "what the role of the Planning
Commission needs to be in this new world.
Are we still using tools and approaches which were designed for a different era?
What additional roles should the Planning Commission play and what capacities does it need
to build to ensure that it continues to be relevant to the growth process?"
4.) Mahatma Gandhi had said: "Constant development is the law of life, and a man who always
tries to maintain his dogmas in order to appear consistent drives himself into a false position".
Keeping true to this principle our institutions of governance and policy must evolve with the
changing dynamics of the new India while remaining true to the founding principles of the
Constitution of India, and rooted in our Bharatiyata or wisdom of our civilizational history and
ethos.
5.) NITI Aayog (National Institution for Transforming India) is to be the institution to give life
to these aspirations. It is being formed based on extensive consultation across the spectrum of
stakeholders, including inter alia state governments, relevant institutions, domain experts and
the people at large.
New Role: FUNCTIONS OF NITI
As Indian nationhood has matured and deepened, we have embraced a greater measure of
pluralism and decentralization. This necessitates a paradigm shift in how the Central
government approaches governments at the State as well as local levels. They must be made
equal partners in national development. Their developmental needs and aspirations understood
as well as supported. And their varied local realities incorporated into national policies and
programs, with the required flexibility.
Actualizing this principle of Team India, NITI Aayog will:
1. Cooperative and Competitive Federalism
2. Shared National Agenda
3. State’s Best Friend at the Centre
4. Decentralized Planning
5. Vision & Scenario Planning
6. Domain Strategies
7. Sounding Board
8. Network of Expertise
9. Knowledge and Innovation hub
10. Harmonization
11. Conflict Resolution
12. Coordinating interface with the World
13. Internal Consultancy
14. Capacity building
15. Monitoring and Evaluation

1. Cooperative and Competitive Federalism- Be the primary platform for operationalizing

Cooperative Federalism; enabling States to have active participation in the formulation of
national policy, as well as achieving time-bound implementation of quantitative and qualitative
targets through the combined authority of the Prime Minister and Chief Ministers.
This will be by means of systematic and structured interactions between the Union and State
Governments, to better understand developmental issues, as well as forge a consensus on
strategies and implementation mechanisms.
The above would mark the replacement of the one-way flow of policy from centre-to-state,
with a genuine and continuing Centre-State partnership.
This Cooperation would be further enhanced by the vibrancy of Competitive Federalism; with
the Centre competing with the States and vice versa, and the States competing with each other,
in the joint pursuit of national development.
2. Shared National Agenda:
Evolve a shared vision of national development priorities and strategies, with the active
involvement of States. This will provide the framework ‘national agenda’ for the Prime
Minister and Chief Ministers to implement.
3. State’s Best Friend at the Centre:
Support States in addressing their own challenges, as well as building on strengths and
comparative advantages.
This will be through various means, such as coordinating with Ministries, championing their
ideas at the centre, providing consultancy support and building capacity.
4. Decentralized Planning:
Restructure the planning process into a bottom-up model, empowering States, and guiding
them to further empower local governments; in developing mechanisms to formulate credible
plans at the village level, which are progressively aggregated up the higher levels of
government.
5. Vision & Scenario Planning: Design medium and long-term strategic frameworks of the big
picture vision of India’s future - across schemes, sectors, regions and time; factoring in all
possible alternative assumptions and counterfactuals.
These would be the drivers of the national reforms agenda, especially focused on identifying
critical gaps and harnessing untapped potentialities.
The same would need to be intrinsically dynamic with their progress and efficacy constantly
monitored for necessary mid-course recalibration; and the overall environment (domestic and
global) continuously scanned for incorporating evolving trends and addressing emerging
challenges.
The above would mean a fundamental transition from merely planning for where the Nation’s
money goes, to planning where we want the Nation to go.
And given its unique position as the aggregator and integrator of all developmental initiatives
of the Government of India and States, the NITI Aayog would be ideally suited for the same.
6. Domain Strategies: Build a repository of specialized domain expertise, both sectoral and
cross-sectoral; to assist Ministries of the Central and State governments in their respective
development planning as well problem solving needs.
This will especially enable the imbibing of good governance best practices, both national as
well as international; especially with regards to structural reform.
7. Sounding Board: Be an in-house sounding board whetting and refining government
positions, through objective criticisms and comprehensive counter-views.
8. Network of Expertise: Main-stream external ideas and expertise into government policies
and programmes through a collaborative community of national and international experts,
practitioners and other partners.
This would entail being Government’s link to the outside world, roping in academia
(universities, think tanks and research institutions), private sector expertise, and the people at
large, for close involvement in the policy making process.
Let us welcome noble thoughts flowing in from all directions.
9. Knowledge and Innovation hub: Be an accumulator as well as disseminator of research and
best practices on good governance, through a state-of-the-art Resource Centre which identifies,
analyses, shares and facilitates replication of the same.
An increasingly mature Indian population has steadily increased the focus on, and demand for,
actual delivery and results.
To keep up with such enhanced aspirations, NITI Aayog’s mandate will have to go beyond
mere planning and strategizing, to facilitating Implementation of the development agenda as
well.
This would involve making implementation central to the planning process, through an
emphasis on tangible outcomes, realistic targets, strict time lines and robust monitoring and
evaluation - a transition from the isolated conceptualization of merely ‘planning’, to ‘planning
for Implementation’.
Niti Aayog will also act as a catalyst to the government machinery at large; filling gaps,
enhancing capabilities and de-clogging bottlenecks, as and where required:
10. Harmonization: Facilitate harmonization of actions across different layers of government,
especially when involving cross-cutting and overlapping issues across multiple sectors;
through communication, coordination, collaboration and convergence amongst all
stakeholders. The emphasis will be on bringing all together on an integrated and holistic
approach to development.
11. Conflict Resolution: Provide a platform for mutual resolution of inter-sectoral, inter-
departmental, inter-state as well as centre-state issues; facilitating consensus acceptable and
beneficial to all, to bring about clarity and speed in execution.
12. Coordinating interface with the World: Be the nodal point for strategically harnessing
global expertise and resources coming in from across nations, multi-lateral institutions and
other international organisations, in India’s developmental process.
13. Internal Consultancy: Offer an internal consultancy function to central and state
governments on policy and program design; providing frameworks adhering to basic design
principles such as decentralization, flexibility and a focus on results. This would include
specialised skills such as structuring and executing Public Private Partnerships.
14. Capacity building: Enable capacity building and technology up-gradation across
government, benchmarking with latest global trends and providing managerial and technical
knowhow.
15. Monitoring and Evaluation: Monitor the implementation of policies and programmes, and
evaluate their impact; through rigorous tracking of performance metrics and comprehensive
program evaluations. This will not only help identify weaknesses and bottlenecks for necessary
course correction, but also enable data-driven policy making; encouraging greater efficiency
as well as effectiveness.
Purpose: GUIDING PRINCIPLES- In carrying out the above functions, NITI Aayog will be
guided by an overall vision of development which is inclusive, equitable and sustainable. A
strategy of empowerment built on human dignity and national self-respect, which lives up to
Swami Vivekananda’s idea of our duty to encourage everyone in his struggle to live up to his
own highest idea”. A model of development which is all round, all pervasive, all-inclusive and
holistic:
1.) Antyodaya
2.) Inclusion
3.) Village
4.) Demographic dividend
5.) People’s Participation
6.) Governance
7.) Sustainability
Antyodaya: Prioritize service and uplift of the poor, marginalized and downtrodden, as
enunciated in Pandit Deendayal Upadhyay’s idea of ‘Antyodaya’.
Development is incomplete and meaningless, if it does not reach the farthest individual. In the
centuries old words of Tiruvalluvar, the sage-poet, nothing is more dreadfully painful than
poverty”.
Inclusion: Empower vulnerable and marginalized sections, redressing identity-based
inequalities of all kinds gender, region, religion, caste or class. As Sankar Dev wrote decades
ago: "to see every being as equivalent to one’s own soul is the supreme means (of attaining
deliverance)".
Weaker sections must be enabled to be masters of their own fate, having equal influence over
the choices the nation makes.
Village: Integrate our villages into the development process, to draw on the vitality and energy
of the bedrock of our ethos, culture and sustenance.
Demographic dividend: Harness our greatest asset, the people of India; by focussing on their
development, through education and skilling, and their empowerment, through productive
livelihood opportunities.
People’s Participation: Transform the developmental process into a people-driven one, making
an awakened and participative citizenry the driver of good governance.
This includes our extended Indian family of the Non-Resident Indian community spread across
the world, whose significant geo-economic and geo-political strength must be harnessed.
Governance: Nurture an open, transparent, accountable, pro-active and purposeful style of
governance, transitioning focus from Outlay to Output to Outcome.
Sustainability: Maintain sustainability at the core of our planning and developmental process,
building on our ancient tradition of respect for the environment.
Mechanism: STRUCTURE OF NITI
NITI Aayog will be a lean organisation, modelled as a network of expertise; focusing on-
1.) functionality,
2.) flexibility and
3.) Domain knowledge.
NITI Aayog will comprise:
Chairperson: Prime Minister of India
Governing Council: comprising the Chief Ministers of all States and Lt. Governors of Union
Territories.
Regional Councils: will be formed to address specific issues and contingencies impacting more
than one state or region.
Strategy and Planning in the NITI Aayog will be anchored from State-level; with Regional
Councils convened by the Prime Minister for identified priority domains, put under the joint
leadership of related sub-groups of States (grouped around commonalities which could be
geographic, economic, social or otherwise) and Central Ministries.
Regional Councils will:
● Have specified tenures, with the mandate to evolve strategy and oversee implementation.
● Be jointly headed by one of the group Chief Ministers (on a rotational basis or otherwise)
and a corresponding Central Minister.
● Include the sectoral Central Ministers and Secretaries concerned, as well as State Ministers
and Secretaries.
● Be linked with corresponding domain experts and academic institutions.
● Have a dedicated support cell in the NITI Aayog Secretariat.
States would thus be empowered to drive the national agenda. As a consequence, deliberation
would be more grass-roots informed, and recommendations would have more ownership, given
their joint formulation.
Special Invitees: experts, specialists and practitioners with relevant domain knowledge as
special invitees nominated by the Prime Minister.
Full-time Organizational Framework: will comprise of, in addition to the Prime Minister as the
Chairperson:
● Vice-Chairperson: to be appointed by the Prime Minister.
● Members: full-time.
● Part-time Members: maximum of 2, from leading universities, research organizations and
other relevant institutions in an ex-officio capacity. Part time members will be on a rotational.
● Ex-Officio Members: maximum of 4 members of the Union Council of Ministers to be
nominated by the Prime Minister.
● Chief Executive Officer: to be appointed by the Prime Minister for a fixed tenure, in the rank
of Secretary to the Government of India.
● Secretariat: as deemed necessary.
Consultancy Wing that will provide a market-place of whetted panels of expertise and funding,
for Central and State Governments to tap into; matching their requirements with solution
providers, public and private, national and international.
By playing match-maker instead of providing the entire service itself, NITI Aayog will be able
to focus its resources on priority matters, providing guidance and an overall quality check to
the rest.
Team India Wing comprising representatives from every State and Ministry, will serve as a
permanent platform for national collaboration.
Each representative will:
● Ensure every State/Ministry has a continuous voice and stake in the NITI Aayog.
● Establish a direct communication channel between the State / Ministry and NITI Aayog for
all development related matters, as the dedicated liaison interface.
A national Hub-Spoke institutional model will be developed, with each State and Ministry
encouraged to build dedicated mirror institutions, serving as the interface of interaction. These
institutions, in turn, will nurture their own networks of expertise at State and Ministry level.
NITI Aayog will function in close cooperation, consultation and coordination with the
Ministries of the Central Government, and State governments. While it will make
recommendations to the Central and State Governments, the responsibility for taking and
implementing decisions will rest with them.
 12.) Changing Role of The STATE/GOVERNMENT In India

Introduction
Adam smith- “Invisible Hand”
Classical Economists- “Laissez Faire”
Keynes- “Deliberate State Action”
The role of the Indian government has been divided into four categories:
The government as a regulator,
The government as a promoter,
The government as an entrepreneur,
The government as a planner.
Restructured Role
Restructured role of the government must act in accordance with the following three functions:
1. Minimal function
2. Intermediate function
3. Activist function
Minimal Function- Under minimal function the government must address the market failure by
providing public goods like defense, property rights and macroeconomic management; and
improve the equity by promoting welfare programs for the poor.
Intermediate Function- Under intermediate function government must provide basic education,
environmental protection, and redistributive pension and unemployment benefits.
Activist Function- Finally, under activist function government must develop a good
redistributive policy so that whatever is produced even by the private sector can reach to the
poor in a self-liquidating manner.
 13.) Fiscal Federalism

Introduction
The word ‘Federalism’ originates from the Latin word “foedus” which means ‘treaty’ or
‘covenant’. A Federal State is one where some free states are bound together by an agreement.
Federalism allows a system of government of a country-to emerge where a central or Union
government and several state governments coexist, as contrasted with a unitary state.
Under this system, power is allocated between the central and state governments, such that
each has authority in their independent spheres but maintain cooperation and coordination in
favor of the nation.
As per Oates, the purpose of fiscal federalism is to- allocate functions and instruments that
should best be centralized and which are mostly suitable for decentralized stages of govt.
Fiscal Federalism is described as a study of- how expenditure competencies and revenue fiscal
instruments are distributed across different levels of administration.
It also allows for an understanding of- evolving a system of grants and sharing of revenues
between central government and states governments.
Fiscal federalism creates a normative framework for- assigning roles to the various forms of
govt. and allows for creation of fiscal instruments to implement fiscal functions.
Federal systems are seen to provide safeguards against the threat of centralized exploitation as
well as decentralized opportunistic behavior while bringing decision makers closer to the
people.
The principles of fiscal federalism are concerned with the design of fiscal constitutions – that
is how taxing, spending, and regulatory functions are allocated among governments and how
intergovernmental transfers are structured.
These arrangements are of fundamental importance to- efficient and equitable provision of
public services.
Basic concepts of federalism
1.) Unitary Government 2.) Federal Government
1. Unitary Government
A unitary country has a single or multi-tiered government in which effective control of all
government functions rests with the central government.
A unitary form of government facilitates centralized decision making to further national unity.
It places a greater premium on uniformity and equal access to public services than it does on
diversity.
2. Federal Government
A federal form of government has a multi-order structure, with all orders of government having
some independent as well as shared decision making responsibilities
Federalism
Federalism represents either- a “coming together” or a “holding together’”of constituent
geographic units to take advantage of the greatness and smallness of nations in a flat
(globalized) world in which many nation-states are too large to address the small things in life
and too small to address large tasks.
Subscribing to the “coming together” view of federalism, Daniel J. Elazar pointed out and
elaborated that the word “federalism” has its roots in the Latin foedus, meaning “league,”
“treaty,” or “compact.”
More recently, Robert Inman noted that- “the word ‘federal’ has come to represent any form
of government that brings together, in an alliance, constituent governments each of which
recognizes the legitimacy of an overarching central government to make decisions on some
matters once exclusively the responsibility of individual member states.”
“Coming together” has been the guiding framework for mature federations such as the United
States, Canada, and, more recently, the European Union.
The alternative “holding together” view of federalism, also called “new federalism,”
represents- an attempt to decentralize responsibilities to state-local orders of government with
a view to overcoming regional and local discontent with central policies.
This view is the driving force behind the current interest in principles of federalism in unitary
countries and in relatively newer federations such as Brazil and India and emerging federations
such as Iraq, Spain, and South Africa.
A federal form of government promotes- decentralized decision making and, therefore, is
conducive to greater freedom of choice, diversity of preferences in public services, political
participation, innovation, and accountability. It is also better adapted to handle regional
conflicts.
Such a system, however, is open to a great deal of duplication and confusion in areas of shared
rule and requires special institutional arrangements to secure national unity, ensure regional
equity, and preserve an internal common market.
Types of Federalism
1.) Dual Federalism
2.) Co-operative Federalism
3.) Asymmetric Federalism
4.) Market Preserving Federalism
Federal countries broadly conform to one of two models: dual federalism or cooperative
federalism.
Under dual federalism, the responsibilities of the federal and state governments are separate
and distinct. According to William H. Riker, under such a system,
“(1)two levels of government rule the same land and the people,
(2) each level has at least one area of action in which it is autonomous, and
(3) there is some guarantee … of the autonomy of each government in its own sphere.”
Under cooperative federalism, the responsibilities of various orders are mostly interlinked.
Market Preserving Federalism
Barry Weingast has advanced a theoretical concept for comparative analyses of federal
systems.
Market-preserving federalism is put forth as an ideal form of federal system in which
(1) multiple governments have clearly delineated responsibilities;
(2) subnational governments have primary authority over public goods and services for local
autonomy;
(3) the federal government preserves the internal common market;
(4) all governments face the financial consequences of their decisions (hard budget
constraints); and
(5) political authority is institutionalized.
The genesis of fiscal federalism
Several accepted theories provide a strong rationale for decentralized fiscal constitutions on
the grounds of
1.) efficiency,
2.) accountability,
3.) manageability, and
4.) autonomy.
Home Rule
George Stigler identifies two principles of jurisdictional design:
(1) a representative government works best the closer it is to the people, and
(2) people should have the right to vote for the kind and amount of public services they want.
These principles suggest that decision making should occur at the order of government closest
to the people consistent with the goals of allocational efficiency.
Thus the optimal size of a jurisdiction would vary with specific instances of economies of scale
and benefit-cost spill-outs.
Fiscal Equivalency
A related idea on the design of jurisdictions has emerged from the public choice literature.
Mancur Olson argues that, if a political jurisdiction and benefit area overlap, the free-rider
problem is overcome and the marginal benefit equals the marginal cost of production, thereby
ensuring the optimal provision of public services.
Equating the political jurisdiction with the benefit area is called the “principle of fiscal
equivalency” and requires a separate jurisdiction for each public service.
Wallace Oates proposes a related idea, the so-called “correspondence principle.”
According to this principle, the jurisdiction determining the order of provision of each public
good should include precisely the set of individuals that consume it.
This generally requires a large number of overlapping jurisdictions.
The Decentralization Theorem
According to the “decentralization theorem” advanced by Oates, “each public service should
be provided by the jurisdiction having control over the minimum geographic area that would
internalize the benefits and costs of such provision.”
The practical implications of this theorem require a large number of overlapping jurisdictions.
Bruno Frey and Reiner Eichenberger have extended this idea to define the concept of
functional, overlapping, and competing jurisdictions (FOCJ).
They argue that jurisdictions can be organized along functional lines while overlapping
geographically and that individuals and communities could be free to choose among competing
jurisdictions.
Revenues are raised from members in return for delivery of services to them.
The school communities of the Swiss canton of Zurich and special districts in North America
follow the FOCJ concept.
The Subsidiarity Principle
According to the subsidiarity principle advanced by the European Union, taxing, spending, and
regulatory functions should be exercised by the lowest order of government (the government
closest to the people) unless a convincing case can be made for assigning these to higher orders
of government.
Nature of Fiscal Federalism
Relations between Centre & States
There are three relations that exist between the Centre & States:
1.)Legislative Relations
2.)Administrative Relations
3.)Financial Relations
Legislative Relations:
The Constitution of India splits legislative authority between the Union and the States in three
lists:
The Union list contains 97 entries/items (see amendments) on which only the Union Parliament
has authority to enact laws. Items contained within the list relate to foreign trade, posts &
telegraphs, defence, etc.
The State list consists of 66 (see amendments) subjects on which usually only the States alone
can make laws. Items included in the list relate to agriculture, police, judiciary, administration
of local governments, etc.
The Concurrent list contains 47 (see amendments) items. Items included in the list relate to
criminal & civil procedure, marriage & divorce, economic & special planning, trade unions,
electricity, education, population control etc. Both Union Parliament and State legislatures can
form laws on subjects included in the Concurrent list, but the Centre has a priority to legislate
on current subjects.
Administrative relations:
The Constitution of India is centered on the principle that the executive power is co-extensive
with legislative power. This infers that the Centre or states can handle all matters on which
Parliament or state legislature can legislate. The executive power over Concurrent list can be
implemented by the states unless the Union government overrules.
In matters of defence, communications, railways, protecting interests of minorities and
scheduled tribes, the Centre can issue directives to the state to adhere to laws made by
Parliament.
Actually the Centre usually acquires control over states decisions by control; exerted through
All India Services, grants-in-aid.
Likewise the Parliament alone can adjudicate in inter- state river disputes.
The Union government can assume all the executive powers of the state during emergencies or
failure of constitutional machinery in a state.
Financial Relations:
The Constitution of India has provided both the Union government & the states with
autonomous sources of revenue.
While Union Parliament can impose taxes on the subjects contained within the Union list, states
can impose taxes on the subjects in the state list.
There aren’t any taxes on the subjects in the Concurrent List.
However, the States are greatly dependent on the Centre for finances to meet their ever
increasing developmental expenditures.
The Centre can implement control over state finances through the Comptroller & Auditor
General of India and grants-in-aid.
During any financial crisis, the President has the supremacy to append provisions concerning
division of taxes amongst the Centre & the states.
Article 280 of the Constitution, allows for the formation of a Finance Commission by the
President one time in every 5 year for making recommendations about distribution of net
earnings of the taxes amongst the Centre & the states, and principles governing grants-in-aid.
Cooperative and Organic Federalism
Cooperative Federalism occurs when the Centre and states co-operate through various
instruments to promote the common purpose, instead of fighting for power.
India at present is following Organic Federalism, where everyone functions as a part of one
organization to achieve the common governmental purposes.
The Constitution of India offers a number of instruments to uphold co-operative federalism.
Article 263 enables the President to create Inter-State Council to encourage better co-ordination
between the Centre & States.
Inter-State Council is headed by the Prime Minister & comprises of 6 Cabinet ministers of the
Union & Chief Ministers of all the states & union territories.
To guarantee better cooperation among states on ground of planning & other matters of national
prominence Zonal Councils are made under the State Re-organization Act, 1956.
The act separated the country into 6 zones and offered a Zonal Council in every zone.
Every council involves the Chief Minister & 2 other ministers of each of the states in the zone
& the administrator in stance of the union territory.
The Union Home Minister is designated to be the common chairman of every zonal councils.
However the Indian Federation has been envisioned with a resilient Centre as the framers of
the constitution were sentient that there were widespread economic disparities among several
areas of India because of diversity and its huge size.
Role of Constitution
PART XI RELATIONS BETWEEN THE UNION AND THE STATES,
CHAPTER I.—LEGISLATIVE RELATIONS, Distribution of Legislative Powers
245. Extent of laws made by Parliament and by the Legislatures of States
246. Subject-matter of laws made by Parliament and by the Legislatures of States
247. Power of Parliament to provide for the establishment of certain additional courts
248. Residuary powers of legislation
249. Power of Parliament to legislate with respect to a matter in the State List in the national
interest
250. Power of Parliament to legislate with respect to any matter in the State List if a
Proclamation of Emergency is in operation
251. Inconsistency between laws made by Parliament under articles 249 and 250 and laws
made by the Legislatures of States
 252. Power of Parliament to legislate for two or more States by consent and adoption of such
legislation by any other State
253. Legislation for giving effect to international agreements
254. Inconsistency between laws made by Parliament and laws made by the Legislatures of
States
255. Requirements as to recommendations and previous sanctions to be regarded as matters
of procedure only
CHAPTER II.—ADMINISTRATIVE RELATIONS, General
256. Obligation of States and the Union
257. Control of the Union over States in certain cases
257A. [Repealed.]
258. Power of the Union to confer powers, etc., on States in certain cases
258A. Power of the States to entrust functions to the Union
259. [Repealed.]
260. Jurisdiction of the Union in relation to territories outside India
261. Public acts, records and judicial proceedings
Disputes relating to Waters
262. Adjudication of disputes relating to waters of inter-State rivers or river valleys
Co-ordination between States
263. Provisions with respect to an inter-State Council
PART XII FINANCE, PROPERTY, CONTRACTS AND SUITS
CHAPTER I.—FINANCE General
264. Interpretation
265. Taxes not to be imposed save by authority of law
266. Consolidated Funds and public accounts of India and of the States
267. Contingency Fund
Distribution of Revenues between the Union and the States
268. Duties levied by the Union but collected and appropriated by the States
268A. Service tax levied by Union and collected and appropriated by the Union and the States
269. Taxes levied and collected by the Union but assigned to the States
270. Taxes levied and distributed between the Union and the States
271. Surcharge on certain duties and taxes for purposes of the Union
272. [Repealed.]
273. Grants in lieu of export duty on jute and jute products
274. Prior recommendation of President required to Bills affecting taxation in which States are
interested
275. Grants from the Union to certain States
276. Taxes on professions, trades, callings and employments
277. Savings
278. [Repealed.]
279. Calculation of “net proceeds”, etc.
280. Finance Commission
281. Recommendations of the Finance Commission
CHAPTER II.—BORROWING
292. Borrowing by the Government of India
293. Borrowing by States
A federal system owes its existence to the constitution. All executive, legislature or judicial
powers, whether belonging to the Centre or states, are subordinated to and controlled by the
constitution.
Every provision must be defined by a written instrument to be workable and ensure stability of
the system.
All constitutional provisions must be binding on the Centre and state governments.
None of the governments must be in a situation to overrule the provisions of the constitution
concerning to the power & status which everyone is to appreciate.
A constitution must also be rigid to be regarded as a supreme law of the land.
The procedure of amendment of constitutional provisions is very complicated and difficult.
To maintain legalism of amendments to the constitution the distribution of powers made by the
constitution must be effectively protected by the judiciary.
The Indian Constitution has some more distinctive features, when compared with other federal
constitutions.
Indian Constitution has no provision for dual citizenship, as there is a dual polity with single
citizenship.
All Indians have the same rights of citizenship, no matter in which state he resides, as there is
no independent state citizenship.
Unlike USA, in India states are not allowed to have a separate constitution. There is a common
constitution that must be adhered to by Centre and all States.
In normal times, the Indian Constitution effectively works as a federal system, but during wars
and national emergencies can work as a unitary system.
The Indian constitution does not set up the states as rivals to one another or to the centre.
All are expected to work efficiently in their own areas without disturbance by others.
However there is provision of a dominant power of the Centre, if it is crucial in public interest.
Recent Issues in Indian Fiscal Federalism
Federalism is a dynamic concept, not static.
In a process of evolution certain adjustments are required to address the contemporary needs.
The problems between Centre & states can be settled by negotiations and discussions to bring
about cooperation.
Given the era of merger governments at the Centre and also in several states, fiscal federalism
assumes a greater significance.
However its very essence is getting diluted.
There is a requirement for greater fiscal federalism as: central government is finding it difficult
to meet the compelling requirements of various constituencies simultaneously, so they need to
build local capacity by giving responsibilities to state governments; central government is
dependent on state governments to cooperated with it on implementing economic development
strategies; and
State governments have been asking for autonomy in functioning and provision of taxation
powers to meet their expenditure responsibility.
The Centre plays an important role in the economy by correcting instances of- market failure,
ensuring equitable distribution of income, maintaining macroeconomic stability at full
employment levels and controlling inflation.
Market failures need to be corrected- by providing public goods, and as these depend on local
inputs and needs these should be under the state control.
So coordination needs to be developed between central and state governments.
Over the years, there have been certain issues with states’ power to utilize available fiscal
instruments on the revenue side, at a time when their expenditure policies are heavily
influenced by central plan and the manner of transfer of Centre’s funds to the states.
Moreover by announcing several Centre sponsored schemes the Centre has systematically
eroded fiscal autonomy of states as state governments are forced to bear a noteworthy share of
their costs.
As state governments face increasing burden with their fiscal responsibilities, centrally-
sponsored schemes should be entirely provided for by central government.
This will result in state governments’ willingness to undertake better implementation of such
schemes.
On many issues, the Centre should limit itself to policy making and leave implementation to
states as they are in a better position to understand local social welfare needs.
The Centre is bound to collect certain taxes for the states, and must share a substantial portion
with the state governments.
But while deciding taxation the Centre does not consult with the states for all relevant tax
related matters.
Over time the proportion of plan assistance to states from the Centre has reduced hugely and
now is just about 10 percent of total outlays from around 60 percent earlier.
Over time the autonomy of Finance Commission has been affected mainly due to political
understanding between Centre-state fiscal relations.
The Centre determines finance commissions ‘terms of reference’ and also interprets their
recommendations to suit its own needs.
Finance Commissions are compelled to first determine the requirements of central government
including budgetary support to the Centre’s plan, leaving little for allocating amongst the states.
There have been issues where state governments were denied their legitimate share of revenues
due to political differences with the Centre.
Actually state governments are much more competent than the Centre to undertake
provisioning of most public goods whose needs are local in nature.
So they should have commensurate power to raise revenue, and get a larger share of revenues
from the Centre as non-plan expenditure.
Summary
Indian government in India is of a quasi-federal form, as it is both federal and unitary.
The federal nature allows for the distribution of powers between the Center and States, and
unitary nature allows for retention of Centre’s control over certain State matters.
There are certain constitutional provisions related to emergencies, such that all powers of a
State can be transferred to the Center.
For making Indian federalism a viable system, any difference between the centre and the state
need to be settled amicably to allow for successfully meeting the great challenges of diversity,
defence, and socio-economic development.
 14.) Finance Commission

The Fourteenth Finance Commission (FFC) – Implications for Fiscal Federalism in India?
“I feel more and more that we must function more from below than from the top… too much of
centralization means decay at the roots and ultimately a withering of branches, leaves and
flowers.”
- Prime Minister Pandit Jawaharlal Nehru
“We want to promote co-operative federalism in the country. At the same time, we want a
competitive element among the states. I call this new form of federalism Co-operative and
Competitive Federalism”
- Prime Minister Narendra Modi
INTRODUCTION
The Finance Commission is a Constitutional body formulated under Article 280 of the Indian
Constitution. It is constituted every five years by the President of India to review-
1.) The state of finances of the Union and the States and
2.) Suggest measures for maintaining a stable and sustainable fiscal environment
3.) To make recommendations
It consists of a chairman and four other members to be appointed by the president.
It makes recommendations regarding -
1.) the devolution of taxes between the Center and the States
from the divisible pool which includes all central taxes excluding surcharges and cess
which the Centre is constitutionally mandated to share with the States.
2.) The distribution of the net proceeds of taxes between the Centre and the states and the
allocation between the states of the respective shares of such proceeds
3.) The principles that should govern the grants-in-aid to the states by the Centre
4.) The measures needed to augment the consolidated fund of states to supplement the resources
of the local governments in the states on the basis of the recommendations made by the State
Finance Commissions.
5.) Any other method referred to it by the President in the interests of the sound finance.
The recommendations made by finance commission are only advisory in nature and hence, are
not binding on the government.
Fourteenth Finance Commission
The Fourteenth Finance Commission (FFC) was appointed on 2nd January, 2013 under the
chairmanship of Dr. Y. V. Reddy.
In addition to the primary objectives mentioned, the terms of reference for the commission
sought suggestions regarding the principles which would govern the quantum and distribution
of grants-in-aid (nonplan grants to states), the measures, if needed, to augment State
government finances to supplement the resources of local government and to review the state
of the finances, deficit and debt conditions at different levels of government.
The FFC has submitted its recommendations for the period 2015-16 to 2020-21. They are likely
to have major implications for center-state relations, for budgeting by, and the fiscal situation
of, the center and the states.
Finance Commission - Concepts and definitions
Tax Devolution
One of the core tasks of a Finance Commission as stipulated in Article 280 (3) (a) of the
Constitution is to make recommendations regarding- the distribution between the Union and
the states of the net proceeds of taxes.
This is the most important task of any Finance Commission, as the share of states in the net
proceeds of Union taxes is the predominant channel of resource transfer from the Centre to
states.
Divisible Pool
The divisible pool is that portion of gross tax revenue which is distributed between the Centre
and the States.
The divisible pool consists of all taxes, except surcharges and cess levied for specific purpose,
net of collection charges.
Prior to the enactment of the Constitution (Eightieth Amendment) Act, 2000, the sharing of the
Union tax revenues with the states was in accordance with the provisions of articles 270 and
272, as they stood then.
The eightieth amendment of the Constitution altered the pattern of sharing of Union taxes in a
fundamental way.
Under this amendment, article 272 was dropped and article 270 was substantially changed.
The new article 270 provides for sharing of all the taxes and duties referred to in the Union list,
except the taxes and duties referred to in articles 268 and 269, respectively, and surcharges on
taxes and duties referred to in article 271 and any cess levied for specific purposes.
Grants-in-aid
Horizontal imbalances are addressed by the Finance Commission through- the system of tax
devolution and grants-in-aid, the former instrument used more predominantly.
Under Article 275 of the Constitution, Finance Commissions are mandated to- recommend the
principles as well as the quantum of grants to those States which are in need of assistance and
that different sums may be fixed for different States.
Thus one of the pre-requisites for grants is the assessment of the needs of the States.
Fiscal capacity/Income distance
The income distance criterion was first used by Twelfth FC, measured by per capita GSDP as
a proxy for the distance between states in tax capacity.
When so proxied, the procedure implicitly applies a single average tax-to-GSDP ratio to
determine fiscal capacity distance between states.
The Thirteenth FC changed the formula slightly and recommended – the use of separate
averages for measuring tax capacity, one for general category states (GCS) and another for
special category states (SCS).
Fiscal discipline
Fiscal discipline as a criterion for tax devolution was used by Eleventh and Twelfth FC to
provide an incentive to states managing their finances prudently.
The criterion was continued in the Thirteenth FC as well without any change.
The index of fiscal discipline is arrived at- by comparing improvements in the ratio of own
revenue receipts of a state to its total revenue expenditure relative to the corresponding average
across all states.
Special Category States (SCS) and General Category States (GCS)
The concept of a special category state was first introduced in 1969 when the Fifth Finance
Commission sought to- provide certain disadvantaged states with preferential treatment in the
form of central assistance and tax breaks.
Initially three states Assam, Nagaland and Jammu & Kashmir were granted special status but
since then eight more have been included (Arunachal Pradesh, Himachal Pradesh, Manipur,
Meghalaya, Mizoram, Sikkim, Tripura and Uttarakhand).
All other states barring these are treated as General Category States.
The rationale for special status is that these states because of - inherent features, have a low
resource base and cannot mobilize resources for development.
Some of the features required for special status are:
(i) Hilly and difficult terrain;
(ii) Low population density or sizeable share of tribal population;
(iii) Strategic location along borders with neighboring countries;
(iv) Economic and infrastructural backwardness; and
(v) Non-viable nature of state finances.
The First Commission had laid down five broad principles for determining the eligibility of a
State for grants.
1.) The first was that the Budget of a State was the starting point for examination of a need.
2.) The second was the efforts made by States to realize the potential and
3.) The third was that the grants should help in equalizing the standards of basic services across
States.
4.) Fourthly, any special burden or obligations of national concern, though within the State's
sphere, should also be taken into account.
5.) Fifthly, grants might be given to further any beneficent service of national interest to less
advanced States.
Grants recommended by the Finance Commissions are predominantly in the nature of general
purpose grants meeting the difference between the assessed expenditure on the non-plan
revenue account of each State and the projected revenue including the share of a State in Central
taxes.
These are often referred to as 'gap filling grants'.
Over the years, the scope of grants to States was extended further to cover special problems.
Following the seventy-third and seventy-fourth amendments to the Constitution,- Finance
Commissions were charged with the additional responsibility of recommending measures to
augment the Consolidated Fund of a State to supplement the resources of local bodies. This has
resulted in further expansion in the scope of Finance Commission grants. The Tenth
Commission was the first Commission to have recommended grants for rural and urban local
bodies. Thus, over the years, there has been considerable extension in the scope of grants-in-
aid.
MAJOR RECOMMENDATIONS OF FFC
Some of the major recommendations are as follows;
• The FFC has radically enhanced the share of the states in the central divisible pool from the
current 32 percent to 42 per cent which is the biggest ever increase in vertical tax devolution.
The last two Finance Commissions recommended viz.
Twelfth (period 2005-10) had a state share of 30.5 per cent (increase of 1 percent) and
Thirteenth (period 2010-15) had a state share of 32 percent (increase of 1.5 percent),
respectively in the central divisible pool.
The FFC has also proposed a new horizontal formula (Table 10.1) for the distribution of the
states’ share in divisible pool among the states.
There are changes both in the variables included/excluded as well as the weights assigned to
them.
Relative to the Thirteenth Finance Commission, the FFC has incorporated two new variables:
1.) 2011 population/Demographic change and
2.) Forest cover; and
3.) Excluded the fiscal discipline variable.
Thirteenth Finance Commission
Table 8.1:
Criteria and Weights for Tax Devolution
(per cent)
Criteria Weight
1. Population (1971) 25.0
2. Area 10.0
3. Fiscal Capacity Distance 47.5
4. Fiscal Discipline 17.5
Fourteenth Finance Commission
Table 8.1:
Criteria and Weights
Criteria Weight (per cent)
Population 17.5
Demographic Change 10
Income Distance 50
Area 15
Forest Cover 7.5
Major recommendations of FFC
Several other types of transfers have been proposed, Including grants to rural and urban local
bodies, A performance grant along with grants for disaster relief and revenue deficit.
These transfers total to approximately 5.3 lakh crore for the period 2015-2020. The FFC has
not made any recommendation concerning sector specific-grants unlike the Thirteenth Finance
Commission.
Sharing of Union Taxes
Increasing the share of tax devolution to 42 per cent
The divisible pool would serve the twin objectives of-
1.) increasing the flow of unconditional transfers to the States and
2.) yet leave appropriate fiscal space for the Union to carry out specific purpose transfers to the
States.
No minimum guaranteed devolution to the States.
As service tax is not levied in the State of Jammu & Kashmir, proceeds cannot be assigned to
this State.
Local Governments
Local bodies should be required to spend the grants only on- the basic services within the
functions assigned to them under relevant legislations.
Distribution of grants to the States using
2011 population data with weight of 90 per cent and area with weight of 10 per cent.
The grant to each state will be divided into two-
1.) a grant to duly constituted Gram panchayats and
2.) a grant to duly constituted Municipalities, on the basis of urban and rural population of that
state using the data of census 2011.
The grants to be divided in two parts –
1.) a basic grant and
2.) a performance grant for duly constituted gram panchayats and municipalities.
In the case of gram panchayats, 90 per cent of the grant will be the basic grant and 10 per cent
will be the performance grant.
In the case of municipalities, the division between basic and performance grant will be on an
80:20 basis.
The grants should go only to those gram panchayats- which are directly responsible for the
delivery of basic services, without any share for other levels using the formula given by the
recent SFC.
Similarly, the basic grant for urban local bodies will be divided into tier-wise shares and
distributed across each tier namely-
1.) the Municipal corporations,
2.) Municipalities (the tier II urban local bodies) and
3.) the Nagar panchayats (the tier III local bodies) using the formula given by the respective
SFCs.
In case the SFC formula is not available, then the share of each gram panchayat as specified
above should be distributed across the entities using 2011 population with a weight of 90 per
cent and area with a weight of 10 percent.
In the case of urban local bodies, the share of each of the three tiers will be determined on the
basis of population of 2011 with a weight of 90 per cent and area with a weight of 10 per cent
and then distributed among the entities in each tier in proportion to the population of 2011 and
area in the ratio of 90:10.
Performance grants are being provided to address the following issues:
(i) Making available reliable data on local bodies' receipt and expenditure through audited
accounts; and
(ii) Improvement in own revenues.
Comparison with 13th Finance Commission, Enhanced the share of the states in the central
divisible pool from 32% (by 13th FC) to 42% which is the biggest ever increase in vertical tax
devolution.
It has not made any recommendation concerning sector-specific grants unlike the 13th FC.
Table 10.1: Horizontal Devolution Formula in the 13th and 14th Finance Commissions
Variable Weights accorded 13th 14th
Population (1971) 25 17.5
Population (2011) 0 10
Fiscal capacity/Income distance 47.5 50
(See box-1)
Area 10 15
Forest Cover 0 7.5
Fiscal discipline (See box-1) 17.5 0
Total 100 100
Source: Reports of 13th and 14th Finance Commission
IMPLICATIONS OF FFC RECOMMENDATIONS FOR FISCAL FEDERALISM: A WAY
AHEAD
Based on its recommendations and projections, the FFC has assessed and quantified the
implications for the revenues of states.
In this analysis the revenue implications are reassessed based on more recent data (for
2014/15) and slightly differing assumptions about GDP growth, tax buoyancy and other fiscal
parameters.
The estimated benefits (both from tax devolution and FFC grants together), based on certain
assumptions related to both FY2014-15 and FY2015-16.
The total increase in FFC transfers in FY 2015-16 from FY2014-15 is estimated to be about 2
lakh crores (both from tax devolution and FFC grants).
Several points are worth noting.
All states stand to gain from FFC transfers in absolute terms.
However, to assess the distributional effects, the increases should be scaled by- population, Net
State Domestic Product (NSDP) at current market price, or by states’ own tax revenue receipts.
The biggest gainers in absolute terms under GCS are Uttar Pradesh, West Bengal and Madhya
Pradesh while for SCS it is Jammu & Kashmir, Himachal Pradesh and Assam.
A better measure of impact is benefit per capita.
The major gainers in per capita terms turn out to be Kerala, Chhattisgarh and Madhya Pradesh
for GCS and Arunachal Pradesh, Mizoram and Sikkim for SCS.
The FFC recommendations are expected to add substantial spending capacity to states’
budgets. The additional spending capacity can better be measure by scaling the benefits either
by NSDP at current market price or by states’ own tax revenue.
In terms of the impact based on NSDP, the benefits of FFC transfers are highest for-
Chhattisgarh, Bihar and Jharkhand among the GCS and for states like Arunachal Pradesh,
Mizoram and Jammu & Kashmir among the SCS.
While in terms of states’ own tax revenues, the largest gains accrue to- GCS of Bihar,
Jharkhand and Chhattisgarh and SCS of Arunachal Pradesh, Mizoram and Nagaland.
The FFC transfers have more favorable impact on the states (only among the GCS) which are
relatively less developed which is an indication that the FFC transfers are progressive i.e. states
with lower per capita NSDP receive on average much larger transfers per capita.
The correlation between per capita NSDP and FFC is transfer per capita is -0.72.
This indicates that the FFC recommendations do go in the direction of equalizing the income
and fiscal disparities between the major states. However, FFC transfers are less progressive
compared to the transfers of Thirteenth Finance Commission (TFC).
The correlation coefficient between the NSDP per capita and TFC transfers per capita (average
of 2011-12, 2012- 13 and 2013-14) per capita is-0.84.
A final interesting finding relates to the decomposition of the resource transfers through tax
devolution due to the increase in the divisible pool per se and due to the change in the horizontal
devolution formula itself.
The significant impact due to increase in the divisible pool is on states like- Uttar Pradesh,
Bihar, Madhya Pradesh, West Bengal and Andhra Pradesh (United) while states like-
Arunachal Pradesh, Chhattisgarh, Madhya Pradesh, Karnataka and Jharkhand are the major
gainers due to a change in the horizontal devolution formula which now gives greater weight
to a state’s forest cover.
BALANCING FISCAL AUTONOMY AND FISCAL SPACE
The spirit behind the FFC recommendations is to increase the automatic transfers to the states
to give them more fiscal autonomy and this is ensured by increasing share of states from 32 to
42 per cent of divisible pool.
Assuming the recommendations of FFC were to be implemented as it is, there is concern that
fiscal space or fiscal consolidation path of the Centre would be adversely affected.
However, to ensure that the Centre’s fiscal space is secured, the suggestion is that there will be
commensurate reductions in the Central Assistance to States (CAS) known as “plan transfers.”
One immediately noteworthy fact is that CAS transfers per capita are only mildly progressive:
the correlation coefficient with state per capita NSDP is -0.29.
This is a consequence of plan transfers moving away from being Gadgil formula-based to being
more discretionary in the last few years. Greater central discretion evidently reduced
progressivity.
A corollary is that implementing the FFC recommendations would increase progressivity
because progressive tax transfers would increase and discretionary and less progressive plan
transfers would decline.
Balancing the enhanced fiscal autonomy of the states with preserving fiscal space of the Centre
entails reduction in CAS transfers.
But there are many ways of doing the latter from the totally discretionary to formula-based.
Within the latter too there are many options:
(i) proportionate cuts across the states in CAS transfers;
(ii) ensuring the implementation of legally-backed/mandated schemes and then proportionately
cutting the residual;
(iii) equal per capita distribution of CAS transfers;
(iv) implementing the legally-backed schemes and then distributing the remaining amount in
line with the FFC formula for tax devolution; and many more.
Essentially to answer the question of whether the states, if they wanted to, can maintain the
same level of spending on the programs financed by the CAS especially the legally-backed
schemes? And still have additional resources to finance their own new programs? If they do
not want to accept Centrally Sponsored Schemes, all the increase in FFC transfers is new,
unencumbered money.
All the GCS gain from FFC transfers net of CAS reduction.
The top three gainers in absolute terms under GCS are- Uttar Pradesh, West Bengal and
Madhya Pradesh while for SCS- it is Jammu & Kashmir, Himachal Pradesh and Arunachal
Pradesh.
The better way of measuring the surplus/ shortfall would be in per capita terms.
The major gainers are- Goa, Kerala and Chhattisgarh for GCS and Arunachal Pradesh,
Mizoram and Himachal Pradesh for SCS.
The surplus/shortfall as per cent of NSDP at current market price can be reflected.
The states which add up maximum fiscal resources are Chhattisgarh, Jharkhand and Bihar
among the GCS while among the SCS it is Arunachal Pradesh, Mizoram and Jammu &
Kashmir.
The surplus is going to add significant amount to the states revenue.
There are nine states among the GCS which are expected to get more than 25 per cent of their
own tax revenue.
CAVEATS
Some caveats or complications to this exercise must be noted.
1.) First, they are sensitive to the assumptions underlying GDP growth, revenue and
expenditure estimations/projections for 2014-15 and 2015-16.
2.) Secondly, assumptions are also made about CAS amounts in 2014-15 and about reductions
in CAS amounts in 2015-16.
So, these must be treated as illustrative calculations.
For example, another option would simply be to transfer those schemes that are on State list
back to the states.
Also, estimates have only been presented for the year 2015-16.
Thereafter, additional factors such as GST implementation and the next Pay Commission
awards will affect projections beyond the coming year.
CONCLUSION
With these caveats, the main conclusions are that- the FFC has made far-reaching changes in
tax devolution that will move the country toward greater fiscal federalism, conferring more
fiscal autonomy on the states. This will be enhanced by the FFC-induced imperative of having
to reduce the scale of other central transfers to the states.
In other words, states will now have greater autonomy on the revenue and expenditure fronts.
The numbers also suggest that this renewed impulse toward fiscal federalism need not be to
the detriment of the center’s fiscal capacity.
A collateral benefit of moving from CAS to FFC transfers is that overall progressivity will
improve. To be sure, there will be transitional costs entailed by the reduction in CAS transfers.
But the scope for dislocation has been minimized because the extra FFC resources will flow
precisely to the states that have the largest CAS financed schemes.
In sum, the far-reaching recommendations of the FFC, along with the creation of the NITI
Aayog, will further the Government’s vision of cooperative and competitive federalism.
The necessary, indeed vital, encompassing of cities and other local bodies within the embrace
of cooperative and competitive federalism is the next policy challenge.
 15.) POVERTY- CONCEPT AND MEASUREMENT

Adam smith on Poverty- “NO SOCIETY CAN SURELY BE FLOURISHING AND HAPPY,
OF WHICH THE FAR GREATER PART OF THE NUMBERS ARE POOR AND
MISERABLE”…Adam Smith, the Father of Economics
Jawaharlal Nehru said, "the country’s independence is but a step, an opening of opportunity,
to the great triumphs and achievements that await us… the ending of poverty and ignorance
and disease and inequality of opportunity.”
EVOLUTION OF THE CONCEPTS OF POVERTY
The first is income-poverty or its common proxy (because less unreliable to measure)
consumption-poverty. This needs no elaboration. When many, especially economists, use the
word poverty they are referring to these measures. Poverty is what can be and has been
measured, and measurement and comparisons provide endless scope for debate.
The second cluster of meanings is human poverty. Besides income, this includes lack of or
little wealth and lack or low quality of other assets such as shelter, clothing, and furniture,
personal means of transport, radios or television, and so on. This also tends to include no. or
poor access to services like education and health.
A third cluster of meanings derives from Amartya Sen, and is expressed as capability
deprivation, referring to what we can or cannot do, can or cannot be. This includes but goes
beyond material lack or want to include human capabilities, for example skills and physical
abilities, freedom of choice and also self-respect in society.
A fourth cluster takes a yet more broadly multi-dimensional view of deprivation, with material
lack or want as only one of several mutually reinforcing dimensions.
Alternative Poverty Measures
Head Count Ratio (HCR): proportion of total population that falls below poverty threshold
income or expenditure. Based on either national (Poverty Line)PL or dollar-a-day PL.
Poverty Gap Index (PGI): unlike HCR, it gives us a sense of how poor the poor are. It is
equivalent to income gap below PL per head of total population, and expressed as a percentage
of the poverty line.
Squared Poverty Gap index (SPG): Adds the dimension of inequality among the poor to the
poverty gap index. For a given value of the PGI, population with greater dispersion of income
among poor indicates a higher value for the SPG.
Poverty Measures
1.) Head Count Ratio (HCR),
2.) Poverty Gap (PG) and
3.) squared poverty gap (SPG)
 m
HCR 
n

  z  yi
m

n 
PG  1 ( )
i 1 z

 
 z  yi 
m 2

n 
SPG  1  
i 1  z 

m= no. of poor population, n = total population, z= poverty line, yi =income of i-th person
Head-Count Ratio (HCR)
Head-Count Ratio is the proportion of households (or) population deriving less than the poverty
line income. It is frequently expressed as a percentage of total households.
HCR = (m/n) X 100
Where, m= the no. of persons below the poverty line
n = the total population including non-poor
For Ex: There are four persons with incomes: 100, 200, 300, 400 and poverty line=300
HCR = 2/4 X 100 = 50%
The Poverty Gap Ratio (PGR)
The poverty gap represents the average distance between the poverty line and the actual income
of the poor, using total population in calculating the average and expressing the average as a
percentage of the poverty line.
PG = (1/n)  [(Z-Yi)/Z] x100
Where, PG = the Poverty Gap
Z = the poverty Line
Yi = the income of the poor person
n = the total population including non-poor
For the above example, the estimate of poverty gap comes to 25%.
PG = 1/4  [((300 – 100)/300 + (300 – 200)) / 300] x 100
= 1/4 x (1/3+2/3) x 100 = 25%
3. Square Poverty Gap (SPG)
A given short fall in income from the poverty line gives grater suffering for a person further
away from the poverty line than to a person who is closer to the poverty line. Hence, a rupee
short fall of a poorer person should receive a higher weight than that of a better off person. This
measure achieves it by squaring the gap of each person’s income from the poverty line and
averaging these squared gaps.
SPG = (1/n)  [(Z-Yi) / Z]2 x 100
Where, SPG = Squared Poverty Gap
Z = the poverty line
Yi = the income of the poor person
N = the total population including the non-poor
For the above example, squared poverty gap is estimated as follows.
Square Poverty Gap (SPG)

HCR=m/n= 2/4*100=50%
PGR=1/4*(2/3+1/3)*100=1/4*1*100=25%
SPG =1/4*(4/9+1/9)100 = (1/4*5/9)*100 =5/36*100 = 13.88 %
INDIA'S POVERTY SCENARIO- POVERTY TRENDS AND POLICIES
Introduction
India’s economic structure has changed dramatically over last 5-6 decades; among the most
dynamic economies recently.
Benefits of growth not widely spread to various sections in society, reached only marginally to
low income groups.
Similar experience of other countries too.
Question then arose: Can we guarantee to all at least a minimum level of living necessary for
physical and social development of a person?
Absolute poverty literature grew out of this question.
Why estimate poverty?
Poverty estimates are vital input to design, monitor and implement appropriate anti-poverty
policies.
Analysis of poverty profiles by regions, socio-economic groups
Determinants - factors affecting poverty
Relative effects of factors affecting poverty
Allocation of resources to different regions and to various poverty reduction programs
Precise estimates of poverty neither easy nor universally acceptable. Yet, can act as a broad
and reasonably policy guide.
Intellectual genesis of poverty was very old
Adam Smith, Ricardo, Marx: subsistence wage concept
An early empirical work by Dadabhai Naoroji, 1901
Estimated an income level “necessary for the bare wants of a human being, to keep him in
ordinary good health and decency”.
Estimated cost of food, clothing, hut, oil for lamp, barber and domestic utensils to arrive at
‘subsistence per head’.
In the absence of income distribution data, Naoroji compared computed subsistence level with
per capita production to draw attention to mass poverty.
Remarkable work that parallels an early work on British poverty by Rowntree, 1901.
Dandekar and Rath of Gokhale Institute,pune have made nutrition base poverty estimates in
1970-71 by developing poverty lines, thus making a bench mark.
Poverty is a multidimensional Deprivation in income, illiteracy, malnutrition, mortality,
morbidity, access to water and sanitation, vulnerability to economic shocks.
Income deprivation is linked in many cases to other forms of deprivation, but do not always
move together with others.
This discussion focuses on Income poverty.
Measurement of Poverty (Percentage of Poor)
Two basic ingredients in measuring poverty:
(1)Poverty Line: definition of threshold income or consumption level
(2)Data on size distribution of income or consumption (collected by a sample survey
representative of the population)
Poverty Line (PL): Absolute vs. Relative
Relative PL defined in relative terms with reference to level of living of another person; or, in
relation to an income distribution parameter.
Examples: 50% of mean income or median, mean minus one standard deviation.
Absolute PL refers to a threshold income (consumption) level defined in absolute terms.
Persons below a pre-defined threshold income are called poor.
Indian Poverty Line
A minimum level of living necessary for physical and social development of a person.
Estimated as: total consumption expenditure level that meets energy (calorie) need of an
average person.
PL comprises of both food and non-food components of consumption.
Considers non-food expenditure actually incurred corresponding to this total expenditure.
Difficult to consider minimum non-food needs entirely on an objective basis
Relationship Between Calorie Intake and Per Capita Expenditure
 3500
Per Capita Calorie Intake per day

3000
2500
2000

1500
1000
500
0
0 100 200 300 400 500 600 700 800 900 1000
Per Capita Consumption Expenditure per Month
(Rupees)

An Example of Size Distribution of Consumption Expenditure

MPCE %Population
0-150 3.2
150-200 4.0
200-250 6.5
250-300 8.6
300-340 10.0 (half of 10% are below poverty line 320)
340-400 11.3
400-450 8.6
450-500 9.2
500-550 9.3
550-650 11.4
650-800 8.9
800-1000 5.0
Above 1000 4.0
All classes 100.0
MPCE: Monthly Per Capita Consumption Expenditure
Poverty Line: Rs. 320 per capita per month
HCR= 3.2+4.0+6.5+8.6+5.0 = 27.3%
Factors affecting Poverty
Poverty depends on- per capita household income which in turn affected by employment, wage
rate, land productivity, industrialisation, expansion of service sector and other general growth
and distribution factors.
Special role of-
Per capita agricultural income
Employment and real wage rate
Inflation rate and relative food prices
Government expenditure
Per capita development expenditure
Social sector expenditure
Demographic Dividend
As fertility drops, ratio of workers to non-workers rises.
Provides a window of opportunity provided potential workers acquire skills and find productive
employment
About a fourth of poverty reduction could be attributed to demographic factors in India
Right economic policies critical, otherwise the scenario could turn out to be demographic
liability
Dividend for 2-3 decades only since proportion of older population would eventually increase
with increasing dependency ratio again
Long term scenario for Poverty
Long term growth prospects fairly optimistic: India likely to continue among the fasted
growing economies, BRIC to dominate world economy
India might surpass Japan and Germany in terms of total size of the economy, yet its per capita
income would be less than world average for a long time
Poverty could be reduced faster provided- inequality is under control, labour intensive activities
must grow, removal of rigidities in land and labour market critical for reallocation of resources
Government can afford to devote more resources for poverty removal programmes:
wage employment (NREGA) or
self employment type (SJSY).
Millennium Development Goals (1990-2015)
1. Eradicate extreme poverty and hunger
* Halve the proportion of people with less than one dollar a day.
* Halve the proportion of people who suffer from hunger.
2. Achieve universal primary education
* Ensure that boys and girls alike complete primary schooling.
3. Promote gender equality and empower women
* Eliminate gender disparity at all levels of education.
4. Reduce child mortality
* Reduce by two thirds the under-five mortality rate.
5. Improve maternal health
* Reduce by three quarters the maternal mortality ratio. 8
6. Combat HIV/AIDS, malaria and other diseases.
* Reverse the spread of HIV/AIDS.
7. Ensure environmental sustainability
* Integrate sustainable development into country policies and reverse loss of environmental
resources.
* Halve the proportion of people without access to potable water.
* Significantly improve the lives of at least 100 million slum dwellers.
8. Develop a global partnership for development
* Raise official development assistance
* Expand market access.
* Encourage debt sustainability.
Source: The Costs of Attaining the Millennium Development-Goals, World Bank, 2003
 16.) Unemployment

• Definition of Unemployment
• Unemployment is defined as a situation where someone of working age is not able
to get a job but would like to be in full-time employment.
• Note: If a mother left work to bring up a child or if someone went into higher education,
they are not working but would not be classed as unemployed as they are not actively
seeking employment.
• One grey area is voluntary unemployment. This occurs when the unemployed choose
not to take a job at going wage rate (e.g. wrong job, benefits too high etc.) They could
be counted as unemployed because they are still seeking a job (they just don’t want to
take one they are offered.
• Types of unemployment
• Summary of Unemployment types
• Demand Deficient Unemployment– Lack of aggregate demand in economy (e.g.
unemployment rises in a recession)
• Structural Unemployment- workers lack necessary skills or suffer from geographical
immobility
• Real Wage Unemployment- wages above equilibrium, e.g. due to high national
minimum wage.
• Frictional Unemployment– workers in between jobs
• Voluntary Unemployment- workers prefer not to work
• Demand Deficient Unemployment.
• Demand deficient unemployment occurs in a recession or period of very low growth.
• If there is insufficient aggregate demand, firms will cut back on output.
• If they cut back on output, then they will employ fewer workers.
• Firms will either cut back on recruitment or lay off workers.
• The deeper the recession, the more demand deficient unemployment there will be.
• This is often the biggest cause of unemployment, especially in a downturn.
• This is also known as cyclical unemployment – referring to how unemployment
increases during an economic downturn.
• Diagram showing fall in AD and lower output – which leads to higher
unemployment
•
• Structural Unemployment
• This is unemployment due to inefficiencies in the labour market. It may occur due to a
mismatch of skills or geographical location.
• For example, structural unemployment could be due to:
• Occupational immobility. There may be skilled jobs available, but many workers may
not have the relevant skills. Sometimes firms can struggle to recruit during periods of
high unemployment. This is due to the occupational immobility.
• Geographical immobility. Jobs may be available in London, but, unemployed workers
may not be able to move there due to difficulties in getting housing etc..
• Technological change. If an economy goes through technological change, some
industries will decline. This is likely to lead to structural unemployment. For example,
new technology (nuclear power) could make coal mines close down leaving many coal
miners unemployed.
• Real Wage Unemployment / Classical Unemployment
• This occurs when wages are artificially kept above the equilibrium.
• For example, powerful trades unions or minimum wages could lead to wages above the
equilibrium leading to an excess supply of labour (this assumes labour markets are
competitive) Keynesian analysis suggests a fall in AD can lead to real wage
unemployment as wages are sticky downwards and a fall in AD doesn’t lead to wages
clearing.
• Frictional unemployment
• This occurs when workers are in between jobs e.g. school leavers take time to find
work.
• There is always likely to be some frictional unemployment in an economy as people
take time to find a job suited to their skills.
• Voluntary Unemployment.
• This occurs when workers choose not to take a job at the going wage rate.
• For example, if benefits offer a similar take home pay to (wage – tax), the unemployed
may feel there is no incentive to take a job.
• Other Concepts about Unemployment
• Seasonal Unemployment. In certain regions, unemployment may be seasonal e.g.
unemployment rises in winter when there are no tourists.
• Disguised / Hidden unemployment. Often unemployment statistics don’t include
certain types of workers. For example, those put on incapacity benefit may not be
counted as unemployed, but, it may really be a type of structural unemployment.

Natural Rate of Unemployment. This is the level of unemployment when the labour
market is in equilibrium. It is the difference between the labour force and those willing
and able to accept a job at going wage rate. It encompasses the different supply side
unemployment like frictional and structural unemployment.

Under-employment. This is when people have a job, but it is part time or temporary.
They would like to work full time, but only have a part time income.
• Economic costs of unemployment
• The economic and social costs of unemployment include
• personal costs (lost income),
• costs to government (lost tax revenue) and
• Costs to society in general (social problems, lost GDP.

•
• More detail on costs of unemployment
• Loss of earnings to the unemployed. Unemployment is one of the biggest causes of
poverty in the UK. Prolonged periods of unemployment can push households into debt
and increase rates of relative poverty.
• Potential homelessness. Loss of income can leave people without sufficient income to
meet housing costs. Rises in unemployment often exacerbate the rates of homelessness.
• Harms future prospects. Those who are unemployed will find it more difficult to get
work in the future (this is known as the hysteresis effect)
• Stress and health problems of being unemployed. Amongst studies of unemployed
men, signs of depression, mental anxiety, and health problems are noticeably higher.
(Effects of unemployment on health (US Library of Health)
• Lost human capital. If people are out of work, they miss out on ‘on the job training’
this is a vital component of human capital and labour skills; high rates of unemployment
can reduce labour productivity. If someone is out of work for two years, they miss out
on latest working practices and trends. Being unemployed can also affect the confidence
of the unemployed and they become less employable in the future.
• Increased government borrowing. Higher unemployment will cause a fall in tax
revenue because there are fewer people paying income tax and also spending less
 (hence lower VAT). Also, the government will have to spend more on unemployment
and related benefits. The government doesn’t just pay unemployment benefit, but a
family who has unemployment will be more likely to receive housing benefit and
income support.
• Lower GDP for the economy. High unemployment indicates the economy is operating
below full capacity and is inefficient; this will lead to lower output and incomes. The
unemployed are also unable to purchase as many goods, so will contribute to lower
spending and lower output. A rise in unemployment can cause a negative multiplier
effect.
• Increase in social problems. Areas of high unemployment (especially youth
unemployment) tend to have more crime and vandalism. It can lead to alienation and
difficulties in integrating young unemployed people into society.
• Political instability. The period of mass unemployment in the 1930s led to social
unrest. In Germany, an unemployment rate of 6 million was an important factor in the
rise of Hitler and the Nazi party.
• Economic and Social Consequences of Unemployment :-
• Unemployment is a biggest issue which the economy faces today and a hurdle in the
growth and development of the economy.
• There are many type of unemployment (Rural unemployment; disguised
unemployment; Seasonal unemployment; Urban unemployment; Industrial
unemployment; Educated Unemployment) Which are existed in India and the root
cause of problems like poverty in India.
• Thus the economic consequences of unemployment are :-
• – Non utilisation of manpower; human resources are not fully utilized. It is sheer
wastage for the society.
• – Loss of output in the economy because unemployed persons only live as consumer
not as producers.
• – Thus living only as consumer will add up the consumption not the production. They
don’t earn nor do they save for investment; thus capital formation is low.
• – Due to disguised unemployment there is a low level of productivity which implies
lesser surplus from an output for future generation.
• Thus these consequences leads to not only low level of present output but also the low
level of future output because of lesser surplus for future investment.
• * Social Consequences :-
Unemployment leads to low quality of life which leads to the state of perpetual sufferings.

• – Higher the degree of unemployment; higher will be the inequality in the distribution
of income and wealth.
• – Unemployment divides the Society into have or have not. Accordingly class conflict
that compounds the problem of social unrest.
• – Unemployment leads to the vicious circle in society by causing problems like
illiteracy; poverty; etc.
• Thus social consequences of unemployment is that it is a social menace as it denies
social justice and enhances social unrest by increasing the disparity between have and
haven’t.
• Thus unemployment effects a lot to the economically and socially and still is a reason
of concern for our leaders to how to get rid of this problem.
• MAJOR EMPLOYMENT PROGRAMMES
• National Rural Employment Programme (NREP)
• Food for Work Programme (FWP)
• Rural Employment Generation Programme (REGP)
• Jawahar Rozgar Yojana (JRY)
• Jawahar Gram Samridhi Yojana (JGSY)
• Integrated Rural Development Programme (IRDP)
• Swarana Jayanti Shahari Rozgar Yojana (SJSRY)
• Sampoorna Grameen Rozgar Yojana (SGRY)
• Swarjnayanti Gram Sworozgar Yojana (SGSY)
• Employment Assistance to Special Categories
• Prime Minister's Rozgar Yojana (PMRY).
•
 17.) Economic offences

Definition of Crime- Sir William Blackstone in his ‘Commentaries on Law of

England', Sir William Blackstone defined Crime as:-
"an act committed or omitted in violation of Public Law forbidding or commanding it"
An Act/Omission can be called as Crime depends on:-
Place
A crime varies from place to place. Adultery is an offence in India under Sec. 497 of IPC, but
not an offence in America. It is a Civil wrong in England.
Time
A crime also changes from time to time. Consumption of Alcoholic drinks is a crime during
prohibition, but not in case the prohibition is lifted.
Therefore Law has JURISDICTION.
Fundamental Elements of Crime-
There are four elements which go to constitute a crime, these are:-
·Human being (not necessary)
· Mens rea or guilty intention
· Actus reus or illegal act or omission
· Injury to another human being (not necessary)
Stages of Crime
There are Four stages in commission of a Crime:-
1.) Intention
2.) Preparation
3.) Implementation/Attempt
4.) Accomplishment/Commission
Classification of crimes
It is suggested that crimes be classified according to the great categories of the interest
attacked or violated, viz.:-
--the safety of the state and maintenance of the authority of the government;
--the conformity to legislative policy;
--the purity of justice and administration;
--the maintenance of peace, security and good order;
--the purity of sex relation;
--the ordinary or common safety of person and property;
Making the following great classes:-
(1.) Political offenses
(2.) Statute violations
(3.) Administrative crimes
(4.) Police offenses
(5.) Crimes against morality
(6.) Common or ordinary crimes and
(7.) Economic offences/crimes
White collar crime: - The phrase "white-collar crime" was coined in 1939 during a
speech given by Edwin Sutherland to the American Sociological Society.
Sutherland defined the term as: - "crime committed by a person of respectability and
high social status in the course of his occupation."
• The term today generally encompasses a variety of non-violent crimes usually
committed in commercial situations for financial gain.
• Many white-collar crimes are especially difficult to prosecute because the
perpetrators use sophisticated means to conceal their activities through a series
of complex transactions.
• The most common white-collar offences include:-
Antitrust violations, computer and internet fraud, credit card fraud, phone and telemarketing
fraud, bankruptcy fraud, healthcare fraud, environmental law violations, insurance fraud, mail
fraud, government fraud, tax evasion, financial fraud, securities fraud, insider
trading, bribery, kickbacks, counterfeiting, public corruption, Money
laundering, embezzlement, economic espionage and trade secret theft
Definition of Economic Crime
Economic crimes refer to illegal acts committed by an individual or a group of individuals to
obtain a financial or professional advantage. In such crimes, the offender’s principal motive
is economic gain. Cyber crimes, tax evasion, robbery, selling of controlled substances, and
abuses of economic aid are all examples of economic crimes.
OR
Economic and financial offence
Economic offence is an offence which is committed in the course of an economic activity for
monetary gain, which affects economy directly or indirectly.
Economic and financial offences cover fraud, forgery and counterfeiting, offences against the
legislation governing cheques (in particular forgery or use of stolen cheques), forgery or use
of credit cards, undeclared employment, offences against companies (such as misuse of
company assets)
Distinction between Tort and Crime
Tort is a kind of Civil Wrong. A Civil Wrong is a Private Wrong and is redressible in a Civil
Court.
Distinction between Crime and Breach of Contract
A Contract is an agreement entered into between two or more parties/persons subject to
certain terms and conditions for a lawful consideration.
Offence
Since there is no satisfactory definition of Crime, the Indian Penal Code, 1860 uses the word
'Offence' in place of Crime. Section 40 of the IPC defines Offence as an act punishable by the
Code or by special law or local law. An Offence takes place in two ways, either by
commission of an act or by omission of an act.
When a Crime is done, any member of the public can institute proceedings against the person
accused of the offence. Only in certain exceptional cases, the persons concerned alone can
institute the criminal proceedings. Example of such crimes include Matrimonial cases, dowry
cases, defamation etc
Crimes under the Special and Local Laws (SLL)
I.) Arms Act, 1959;
II.) Narcotic Drugs & Psychotropic Substances Act, 1985;
III.) Gambling Act, 1867;
IV.) Excise Act, 1944;
V.) Prohibition Act;
VI.) Explosives & Explosive substances Act, 1884 &1908.
VII.) Immoral Traffic (Prevention) Act, 1956;
VIII.) Railways Act, 1989;
IX.) Registration of Foreigners Act, 1930;
X.) Protection of Civil Rights Act, 1955;
XI.) Indian Passport Act, 1967;
XII.) Essential Commodities Act, 1955;
XIII.) Terrorist & Disruptive Activities Act;
XIV.) Antiquities & Art Treasures Act, 1972
XV.) Dowry Prohibition Act, 1961;
XVI.) Child Marriage Restraint Act, 1929;
XVII.) Indecent Representation of women (Prohibition Act, 1986;
XVIII.) Copyright Act, 1957;
XIX.) Sati Prevention Act,1987;
XX.) SC/ST (Prevention of Atrocities) Act,1989;
XXI.) Forest Act, 1927;
XXII.) Other crimes (not specified above) under Special and Local Laws including
Cyber Laws under Information Technology Act (IT), 2000
General Penal law
Broad classification of crimes under the Indian Penal Code (IPC)
1.) Crimes Against Body: Murder, Its attempt, Culpable Homicide not amounting to Murder,
Kidnapping & Abduction, Hurt, Causing Death by Negligence;
2. Crimes Against Property: Dacoity, its preparation & assembly, Robbery, Burglary, Theft;
3. Crimes Against Public order: Riots, Arson;
4. Economic Crimes: Criminal Breach of Trust, Cheating, Counterfeiting;
5. Crimes Against Women: Rape, Dowry Death, Cruelty by Husband and Relatives,
Molestation, Sexual harassment and Importation of Girls;
6. Crimes Against Children: Child Rape, Kidnapping & Abduction of Children, Procreation
of minor girls, Selling/Buying of girls for Prostitution, Abetment to Suicide, Exposure and
Abandonment, Infanticide, Foeticide;
7. Other IPC crimes.
Economic Offences in India defined under various Acts are as follows:-
Economic Crimes
Economic Crimes Acts of Legislation
 1.)Tax Evasion  1.) Income Tax Act,
 2.)Illicit Trafficking in  2.) Customs Act 1962/ THE
Contraband Goods (Smuggling) CONSERVATION OF FOREIGN
 3.)Evasion of Excise Duty EXCHANGE AND
 4.)Cultural Object’s Theft PREVENTION OF
 5.)Money Laundering SMUGGLING ACTIVITIES
 6.)Foreign Contribution ACT, 1974
Manipulations  3.) Central Excise and Salt Act,
 7.)Land Hijacking/Real Estate 1944
Fraud  4.) Antiquity and Art Treasures
 8.)Trade in Human Body parts Act, 1972
 9.)Illicit Drug Trafficking  5.) Prevention of Money
 10.)Fraudulent Bankruptcy Laundering Act, 2002
 11.)Corruption and Bribery of  6.) Foreign Contribution
Public Servants (Regulation) Act, 1976
 12.)Bank Fraud  7.) IPC
 13.)Insurance Fraud  8.) Transplantation of Human
 14.)Racketeering in Employment Organs
  15.)Illegal Foreign Trade
 16.) Racketeering in False Travel
Documents
 17.)Credit Card Fraud
 18.)Terrorists Activities
 19.)Illicit Trafficking in Arms
 20.)Illicit Trafficking in Explosives
 21.)Theft of Intellectual Property
 22.)Computer Crime/Software
Piracy/ Cyber Law
 23.)Stock Market Manipulations
 24.)Company Fraud (Contraband)
 9.) Narcotics Drugs and
Psychotropic Substances Act 1985
& NDPS Act, 1988
 10.) Banking Regulation Act, 1949
 11.) Prevention of Corruption
Act, 1988
 12.) IPC
 13.) IPC
 14.) IPC
 15.) 1mport & Export (Control)
Act, 1947
 16.) Passport Act, 1920/IPC
 17.) IPC
 18.) POTA-2002
 19.) Arms Act, 1959
 20.) Explosives Act, 1884 &
Explosive Substance Act, 1908
 21.) Copyright Act, 1957
(Amendments 1984 & 1994)
 22.) Copyright Act, 1957/I.T. Act,
2000
 23.) IPC, SEBI Act,
 24.) Companies Act, 1956/IPC
MRTP Act, 1968

Impact of Economic Offences on National Economy

The economic offences cause-
 significant damage to general economy of the country, adversely affect the
growth and development of the nation.

Some of the major impacts that may be caused by the economic offences
illustratively are:-
 1.) Increase in inflationary pressure
 2.) Uneven distribution of resources and creation of elitism
 3.) Marginalisation of tax base
 4.) Generation of abundant black money
 5.) Creation of a parallel economy
 6.) Development works/efforts are undermined
 7.) Country’s economic equilibrium is at stake.
 8.) Breeding ground of corruption
 9.) Illicit business and public office corruption thrive and affect normal business
activities.
 10.) Resources of financial institutions and commercial institutions are diverted
and distorted.
 11.) Weakens morale and the commitment of the citizens.
 12.) The poor/weak continue to be poorer and are at risk

 INCREASE IN BLACK MONEY(BM)

 INCREASE IN INCOME(Y)
 INCREASE IN AGGREGATE DEMAND(AD)
 (FEW GOODS AND SERVICES CHASED BY HUGE AMOUNT OF MONEY)
 INCREASE IN GENERAL PRICE LEVEL(P)
 INFLATION(I)= P= P(t)-P(t-1)/P(t)
 INFLATIONARY PRESSURE
So how does inflation affect us?
Inflation can be defined as the currency losing its purchasing power by a certain
percentage. But this is inflation at its most basic. What can be most disastrous for the
economy is when this percentage of excess money supply is restricted in the hands of few,
while the living standards of the rest of the population shrinks by the same percentage.
That is what happens when black money causes inflation. Needless to say, levels of
corruption also increase in tandem.
Corruption and black money are two sides of the same coin. Black money is generated
through corrupt activities like bribes, and “cuts” paid to officials, hoarding and selling
commodities at more than market prices, and tax evasion. India ranked 76 with a score
of 38.38 (0 - highly corrupt, 100 - very clean) as per the 2015 survey of 168 countries and
territories. Corruption prevents the natural laws of the economy from functioning freely.
As a result, corruption in a nation's political and economic operations causes its entire
society to suffer.
Industrialists who have money to bribe government officials can manipulate policies and
market mechanisms thereby circumventing the law of economics, which requires
improving the quality of goods and services, and still sell at a high price. Corruption leads
to uneven distribution of wealth and uneven distribution of resources.
Also, as black money is unaccounted for, it cannot be taken into consideration while
forming the fiscal and monetary policies. Thus, the government becomes incapable of
forming realistic and effective policies.
Black money and corruption hits the economy from every side, impairs development,
steals the wealth of a nation and impoverishes its people. The government needs to plug
loopholes in the system that allow the generation of black wealth and take drastic steps
to be control corruption.

To begin with, given the progressive structure of income taxation, the incentive to make
black income through understatement of legal source incomes clearly increases with
income.
So we should expect richer households to earn proportionately greater black incomes
through this means.
As for illegal source black income, whether through illegal economic activity or illegal
transfers, on balance,
we suggest that the opportunities for earning such black incomes are skewed in favor of
the 'haves' (such as industrialists, traders, real estate operators, contractors, lawyers,
accountants, politicians, bureaucrats and artists), rather than 'have-nots', such as small-
holder farmers, landless rural labor and casual labor.
And, in the case of all types of black income, it is at least plausible that the secondary
effects associated with expenditure from black incomes do not compensate for the initially
greater skewedness in the opportunities for making these incomes.
Wealth: Having it all and wanting more’ , a research paper published by Oxfam in
January 2015, shows that the richest 1 percent have seen their share of global wealth
increase from 44 percent in 2009 to 48 percent in 2014, and at this rate, it will be more
than 50 percent in 2016. The 80 richest people on the planet have the same wealth as the
poorest 3.5 billion people, the report says.
Tentative conclusion would be that the distribution of actual household income (from
all sources) is likely to be even more skewed in favor of the rich (say, the top decile) than
is indicated in surveys carried out by the NSS.

Of the remaining 52 percent of global wealth, almost all (46 percent) is owned by the rest
of the richest fifth. The remaining 80 percent share just 5.5 percent. Stark enough–even
more simply, think of global wealth as a pizza.

While the post 1990s economic boom led to large increases in wealth, thus pulling many
out of abject poverty, disparities have grown because public policy is dictated by the rich–
lobbying, access to finance and tax havens help enrich the rich.
The Indian context
A new report on inequality in South Asia released by the World Bank shows that
concentration of billionaire wealth in India (12 percent of GDP) is unusually large for
economies in the same stage of development. This is borne out by trends in wealth
distribution:
The two charts above say a lot about India’s wealth building journey:
• The 2008 crisis saw concentration peak and proved to be a leveler of sorts
• Share of the very wealthy is higher in India, but China’s catch-up is by far the
steepest
• At the start of the economic boom, India’s wealth concentration lagged that of North
America, but by 2014, India’s rich owned a larger portion of wealth than North
Americans do.
The starkest statistic:
While the trend in top decile wealth is broadly in line with other countries (and well
below the global average), the top percentile’s share of wealth is at 50 percent, ahead of
any other part of the world
When compared with China, India has far greater wealth disparity as shown by the
comparison of Gini Coefficients (higher Gini coefficients signify greater inequality in
wealth distribution, with 1 being complete inequality and 0 being complete equality).
While India’s income-based Gini (which measures disparity in per capita GDP) shows
much greater equality than in China, the wealth-based Gini shows much greater
disparity
• The gap between the ‘have-a-lot’, the ‘haves’ and the ‘have-nots’ is clearly much
larger in India. India’s rich are disproportionately richer while India’s poor are
disproportionately poorer than their global peers. In layman’s terms, there is an
even larger share of pizza going around for the richest of the Indian rich. And
it’s growing.
• For Indians, excess wealth (which sounds like an oxymoron to most) has ended
up in under-utilised real estate in Dubai, London and New York (real estate
advisory firm Knight Frank suggests that on average, wealthy Indians park 44
percent of their investments in real estate), private jets that have no space to be
parked and operate under onerous restrictions besides luxury yachts docked all
over the globe due to poor (!) infrastructure at home… next up, private islands.
• While one shouldn’t grudge those who have earned their keep in an honest
manner, the utility of wealth needs to be defined and understood better.
• The question for India really is that can a country ranked 135/187 in the UNDP’s
Human Development Index afford persistent and growing wealth disparity?
• The HDI reflects long-term progress in three basic dimensions of human lives--a
long and healthy life, access to knowledge and a decent standard of living.
• Despite being a much larger economy and growing at a faster rate than its
regional peers, India’s progress on HDI has been dismal due to poor social
indicators.
• Why this matters?
This isn’t just about morality-inequality plainly hurts economic growth (or will
someday); a better balance actually sets the foundation for sustainable growth.
• Equitable distribution would be beneficial for many reasons:
The aspirational poor tend to take on too much leverage in order to achieve a
lifestyle of a certain order, thus creating boom-bust cycles at the micro and
macro levels. The less rich spend a much larger portion of their wealth.
• The under-rich can buy only so many homes or cars.
• Hence, growth will accelerate only when wealth is more evenly distributed.
Costs of inequality are borne by the rich, eventually:
• First order cost effects of inequality are in the form of schemes such as NREGA,
FSB, fuel subsidies, etc, borne by the entire tax-payer base
• Second order effects come from a stunted future for the world where
malnourished and under-educated sections of the population deflate notions of a
demographic dividend
• Third order effects are social disorder, rise in terrorism, Naxalism, street crime,
disease, etc. The rich cannot wish these problems away nor can they insure
themselves against these, beyond a point
• Take the case of ebola or closer home, dengue for instance, long considered a
poor man’s disease, prevalent in a world very distant from the rich.
• Focus and funds have built up only when they began to cross national and social
boundaries
• Wealth: A Means to an End
Two of the three richest men in the world, Bill Gates and Warren Buffett (worth
over $150 bn combined), have committed most of their wealth to charity.
• Additionally, Bill Gates is funding and promoting market-based, sustainable,
for-profit initiatives across the world to end poverty, improve education and
boost sanitation while Buffett has convinced 128 billionaires to join his ‘Giving
Pledge’.
• Back home, Azim Premji has already committed 25 percent of his $18 billion
wealth to charity.

So the answer to the question, ‘what would you do (for yourself) with a billion
dollars?’ is, in the case of some billionaires, ‘Not much’.
• Alongside this increasing disparity, commercialization and a consumerist social
order, terms like ‘minimalist living’, ‘freelancing’, ‘volunteer work’ and
‘sabbaticals’ are also entering the Indian business dictionary.
• An increasing number of people are looking for that deeper purpose or true
calling.

The common thread: Obtaining wealth is a means to something, not an end in

itself.

Even as trends suggest a staggering disparity in wealth distribution, in a

globalized world, the interests of the rich and poor will increasingly converge.
• An investment in equality would thus be an investment in one’s own future
 18.) Wages
Introduction
With rising wage inequality, the introduction of a legal minimum wage has become an
important policy issue in many countries
In countries with an expanding low wage sector, a minimum wage prevents ‘unfair’
competition
Earnings of people working full-time should be sufficient to cover at least the basic minimum.
For this, a minimum wage is a means to prevent the emergence of the so-called ‘working poor’.
Minimum wage in some countries are not only for setting wages at the bottom of the wage
pyramid, but also for higher paid workers whose wages are set at multiples of the minimum
Minimum wages could contribute to the reduction of poverty and inequality by increasing the
incomes of those affected by the legislation
Meaning of Wages
Wages are a payment for the services of labour, whether mental or physical.
Though in ordinary language an office executive, a minister or a teacher is said to receive a
salary; a lawyer or a doctor a fee; and a skilled or unskilled worker a wage, yet in economics
no such distinctions are made for different services and all of them are said to receive a wage.
In other words, wages include fees, commissions and salaries.
It is another thing that some may be receiving more in the form of real wages and less in terms
of money wages and vice versa.
Types of Wages:
A) (i) Time and Piece Wages
(ii) Money Wages and Real Wages
B) (i) Living Wages
ii) Fair Wages
iii) Minimum Wages
(i) Time and Piece Wages:
Time wages-
Wages may be paid weekly, fortnightly, or monthly and partly at the end of the year in the form
of bonus.
But the bonus may be a task wage if a work is finished within a specified period or before that.
Sometimes, time wages are supplemented by wages earned by working extra time.
They are over-time wages.
Piece wages-
Wages are also paid in accordance with the amount of work done, say in a shoe factory or a
tailoring department as per one pair of shoes or pants manufactured.
If the rate per pair of shoes or for pants is Rs 50, a worker will be paid according to the number
of pairs of shoes or pants manufactured.
(ii) Money Wages and Real Wages:
Money wages or nominal wages relate to the amount of money income received by workers
for their services in production.
Real wages include the various facilities, benefits and comforts which workers receive in terms
of goods and services for their work.
These are in addition to the money wages of workers.
Real wages depend upon the following factors-
a. Price Level
b. Money wages
c. Regularity of Work
d. Nature of Work
e. Future Prospects
f. Extra Benefits
g. Trade Expenses
h. Social Prestige
i. Form of Payment
j. Conditions of Work
Real wages depend upon the following factors.
a. Price Level:
The purchasing power of money depends upon the price level. When the price level rises, the
purchasing power of money gets reduced, thus adversely affecting the real wages of workers.
Every increase in the price level reduces the purchasing power of money. This leads to a fall
in the real wages of workers.
b. Money wages:
The size of the pay packet received by the worker is an important determinant of his real wages.
The greater the money wages, the greater will be the real wages, other things remaining the
same.
c. Regularity of Work:
A permanent job, even though it carries a smaller money income, is considered to be better
than a temporary job which may yield high reward in terms of money.
d. Nature of Work:
The nature of work also plays an important role in determining the level of real wages. Some
jobs are pleasant, while others are not.
Similarly, some occupations are enjoyable while others are disagreeable.
All these considerations have to be given weightage in determining real wages.
e. Future Prospects:
An occupation carrying the promise of better prospects of promotion in the future is considered
to be better than the one which does not do so, even though the money wages offered by the
latter may be high.
f. Extra Benefits:
In some occupations, employees receive in addition to their pay, some extra benefits. For
example, the manager of a firm gets in addition to his pay, a well-furnished bungalow, free
medical help etc. Such benefits increase the real wage of a worker.
g. Trade Expenses:
This refers to the expenses one has to incur in the course of one’s occupation. These expenses
are high in some occupations while in others they may be moderate. These expenses should be
deducted from the money income in order to arrive at the real wage.
h. Social Prestige:
The real wages of employees engaged in prestigious occupations are high as compared to the
real wages of employees working in ordinary occupations.
i. Form of Payment:
Real wages are influenced by the form of payment. Generally, workers are paid money wages.
But in certain occupations, in addition to money wages, workers receive subsidized ration or
free lunch, and living quarters. All these facilities increase the real wages of workers.
j. Conditions of Work:
Conditions of work also affect real wages. In some cases, it is found that conditions of work
are not congenial and they adversely affect their health. In such cases, the real wages of workers
are low.
Theories of Wages:
(i) The Subsistence Theory of Wages
(ii) The Standard of Living Theory of Wages
(iii) The Wage Fund Theory
(iv) The Residual Claimant Theory
(v) The Marginal Productivity Theory of Wages
The Modern Theory of Wages
The wage rate, like any price, is determined by the demand for and supply of labour. It is a
point where the cost of employing labour (the wage rate) equals the marginal revenue product
of the labour to the employer.
For full equilibrium, it is essential that marginal revenue product of labour should equal its
marginal cost (marginal wage) and the average revenue product be equal to the average cost of
labour (average wage).
AW = MW
... And MRP = MW
ARP = AW
... MRP = MW = AW = ARP

Union and Wages – Collective Bargaining

The main function of a trade union is to raise wages and to improve the working conditions of
its members.
It replaces individual bargaining by collective bargaining and makes the rates of wages uniform
for the same category of workers over the entire industry.
Under perfectly competitive labour market, wages in a particular industry are fixed by the
forces of demand and supply.
But unions can raise wages in the short-run by reducing the supply of labour.
This is illustrated in Panels (A) and (B) of Figure 6.
Panel (A) shows the equilibrium wages rate OW being determined by the equality of demand
and supply of labour OE at point a. in Panel (B), at a given wage rate OW or WS the firm
employs Oe units of this labour.
If the workers employed in this industry form a union, they cannot affect the demand for labour
in the short-run.
They may demand a wage rate above the equilibrium rate OW but it will tend to reduce the
number of workers employed.

Suppose the union asks for OW1 wage rate.

This will tend to make the supply curve of labour perfectly elastic so that it now becomes
W1S1 in place of SS in Panel (A).
The new equilibrium position is established at n where the demand curve D intersects the
supply curve W1S1 and the number of workers employed in the industry is reduced from OE to
OE1
The given wage rate for the firm being W1S1 it will also employ less workers than before, Oe1 <
Oe as shown in Figure 6 (B).
If the union wishes to maintain the increased wage rate, it will have to reduce the supply of
labour, it may do so in a variety of ways:
1. by encouraging the unemployed to seek jobs in other industries;
2. by raising the membership fee for new entrants;
3. by raising the apprenticeship period and
4. by encouraging restrictions on immigration, etc.

Above all, the reduction in supply will depend upon the elasticity of demand for labour. If the
demand for labour is quite inelastic, then the reduction in supply would be small. But this is
not likely to be the normal situation in the case of an industry.
If somehow the union is able to shift the MRP curve (demand curve for labour) upward to the
right, the wage rate would be raised substantially and the employment would also expand. But
to raise the demand for labour is not an easy job for the unions. This is possible over the long-
run when technological changes raise the demand for the industry’s product.
The union can then demand a wage increase, the rise being negotiated by collective bargaining.
Marshall has conceived of certain situations when the union of a particular group of workers
can raise the wages of its members by threatening to withdraw their supply.
It is possible if:
The demand for the services of that set of workers is inelastic; or
(ii) The demand for the commodity which the group helps to produce is inelastic; or
(iii) The wage-bill of this group forms a very small proportion of the total wage-bill of the
concern so that a rise in their wages does not substantially affect the total cost of production of
the commodity; and
(iv) Lastly, if the other cooperate factors are squeezable, that is, the wages of the other group
of workers are reducible or the raw material suppliers are forced to accept low prices, etc.
The union will be successful if any of these conditions is fulfilled. This is only possible in the
short-run.
In the long-run, the employer may try for substitutes by adopting a device to replace this group
of workers.
In a perfectly competitive labour market, wages are paid equal to the marginal revenue product
of labour.
But competition is not perfect and labour is paid much below the marginal revenue product.
A trade union can raise wages up to the marginal revenue product level by collective
bargaining.
A rise in the wage rate which equals the marginal revenue product of labour would neither
affect employment nor output adversely.
Assuming that the employers are not united a powerful trade union can force the industry to
pay wages equal to the marginal revenue product. In such a situation, it is difficult to import
even the ‘Black-legs’.
In the case of a monopolist buyer of the services of labour, the workers will be paid less than
their marginal revenue product and even the number of workers employed will be much smaller
than the under perfectly competitive labour market.
In Figure 7, OE quantity of labour is employed at OW wage rate by the monopolist, as against
OE1, quantity of labour at OW2 wage rate if there were perfect competition in the labour
market.
If the workers are organized, their union through collective bargaining can raise the wage rate
to OW2 and at the same time increase employment to OE1 up to the competitive market level
C.
But if the union tries to push up the wage rate above OW2 employment will fall.
If the union follows the ‘closed shop’ policy and does not bother about increasing the level of
employment, it can at best raise the wage rate to OW1.
But employment will be reduced from OE1 to OE.
It means that the trade union has a monopoly in the selling of the services of labour and aims
at destroying monopolist exploitation by asking for OW1 wage rate.
This is the case of bilateral monopoly.
Wage Differentials
The causes of these various types of wage differentials are numerous:-
A. Smith’s Reasons
B. Non-Competing Groups
C. Non-Equalizing Differences
D. Equalizing Differences
E. Geographical Differences
F. Market Imperfections
Wage Differentials
There are wide differences in wages received by individuals from occupation to occupation,
from industry to industry, from district to district and from region to region within a country.
International wage differences are, however, the greatest.
Why is it that a college lecturer with pleasant work, long vacations and interesting students
receives more pay than a bus driver’s nerve-straining back-breaking and tiresome job?
Why is it that an agricultural labourer receives a lower wage per hour than a coal-miner, a
factory worker at Cochin receives less than a worker in Chennai, and a worker at Faridabad
gets a lower wage, than a worker at Mumbai?
The causes of these various types of wage differentials are numerous.
A. Smith’s Reasons: Assuming labour of the same efficiency and perfectly, mobile between
occupations and places, Adam Smith assigned five reasons for wage differentials.
(1) “The agreeableness or the disagreeableness of the employments themselves” is the main
cause of variations in wages. People are prepared to accept a low paid job which is pleasant
and light as against a tiresome and dirty job which offers more pay.
(2) “The easiness and cheapness or the difficulty and expense of learning them.” Occupations
which are easy and cheap to learn carry low wages as against those which are difficult, more
expensive and take more time to learn. The wages for the services of lawyers, physicians and
engineers are higher as compared with other occupations.
(3) “The constancy and inconstancy of employment in them.” Jobs of a temporary nature carry
higher wages than those which are permanent. A factory worker earns less per day as against a
mason, for the latter gets work only for a part of the year.
(4) “The small or great trust which must be reposed in those who exercise them.” Persons in
whom greater trust or responsibility is reposed are paid higher wages than the ordinary lot. That
is why the wages of goldsmiths, jewelers and managers are very high.
(5) “The probability or improbability of success in them.” Smith pointed out that where success
is uncertain, wages must be high. But despite the risk of failure involved in the legal profession,
many persons are attracted into it, but their real earnings are low if we were to take into account
the period involved in becoming successful.
The above causes of wage differentials, as given by Adam Smith, are applicable to a society
where full employment exists.
But in the world we live, there is neither full employment nor perfect mobility of labour.
Labour is not homogeneous.
Men differ in efficiency and so do their wages.
Actual wage differentials, thus, run counter to Adam Smith’s explanation: the janitor with the
most unpleasant work is among the lowest paid members of the community and so is a casual
labourer, to cite a few instances.
In this world, where imperfect competition is the rule, the real causes of wage differences are
to be found in the following factors.
B. Non-Competing Groups:
There are certain occupational groups in which the supply of labour is limited because all and
sundry cannot enter them. It is not easy to pass from one group to another.
Prof. Taussig distinguished five distinct groups:
(i) The unskilled workers like ordinary labourers who carry earth, sand or bricks in construction
work;
(ii) The semi-skilled workers like those who can mix sand and cement in the required
proportions;
(iii) The skilled workers who require special training and skills, like the mechanic, the
locomotive driver, the plumber;
(iv) The clerical workers who possess some minimum academic qualification; and
(v) The professional group such as the lawyer, the teacher, the physician, the actor and the
manager.
There is limited competition among the first three groups.
An unskilled worker can become semi-skilled within a few months and the semi-skilled can be
a skilled worker by acquiring some education and training.
C. Non-Equalizing Differences:
But the real difficulty starts when we move to the fourth and fifth groups.
Carpenters cannot enter the teaching profession.
A clerk cannot become the manager of a concern.
For movement from a lower group to a higher group requires exceptional ability long and
costly education and training.
Even within groups there are non-competing groups.
An administrative officer cannot fill the post of a nuclear physicist.
The existence of non-competing groups is due to social stratification, family environment,
differences in ability, financial position and opportunity.
The son of a petty shopkeeper can become a surgeon or an engineer if he has the ability and
enough money to support him during his academic career.
But such cases are rare.
Generally, children belonging to workers in the first three groups have little chance of going
up the ladder in the fourth and the fifth groups due to their family set-up.
D. Equalizing Differences:
Such wage differences exist among jobs for which people from the same group are eligible.
Within each group some jobs are more pleasant and secure while others are strenuous and
dangerous. Very few people are willing to enter the latter. So higher wages are paid to attract
workers.
In the pleasant job, there are many entrants and they are paid comparatively low wages.
A college lecturer earns less than a doctor.
The higher earnings of the doctor compensate him for longer and often irregular hours of work
and for the more expensive and strenuous period of training undergone as compared to the
lecturer.
Such wage differentials are ‘equalizing differences’ for they tend to equalize the non-monetary
differences existing in the job belonging to the same group.
E. Geographical Differences:
There are the geographical wage differentials which are, in fact, due to industrial and
occupational differences.
In examining geographical wage differences, we are concerned with real wages and not with
money wages.
Money wages are generally low in rural areas than in cities.
But the living is also less costly there, so real wages may be the same in both areas.
Besides the differences in the cost of living between rural and urban areas, there are other
factors responsible for their wage differentials.
The ruralities are unskilled and unorganised workers whereas in the cities workers are mostly
skilled and organised into trade unions.
Moreover, the regular sources of labour supply of the cities are the ruralities who must be
offered higher wages to attract them.
F. Market Imperfections:
The main cause of rural-urban and regional wage differentials lies in market imperfections.
Inertia, family and familiar associations, attachment to land and property keep the worker tied
down to one place.
The cost of movement, the fear of adjusting one’s self to new surroundings the fear that one
may not be a success in the new occupation, the risk in surrendering seniority and chances of
promotion in the existing occupation are some of the considerations, which make the workers
reluctant to leave the present job.
Often workers are ignorant of better job opportunities.
There are also discriminations on the basis of race, sex and age which hinder mobility of labour.
Last but not the least, certain unions follow the closed-shop policy. This does not mean that
wage differentials exist due to market imperfections.
•Structure of Minimum Wages in India
The Minimum Wages Act (1948) – lays down wages for all categories of workers – applicable
for both formal and informal sector provided the industry is enlisted under the Schedules of the
Act
• No specific criteria for fixing minimum wages - fixed by both Central and State governments
– multiple rates of minimum wages for different employments in each state
• Wide range of institutions influence mechanisms for fixing minimum wages in India – Pay
Commissions, collective bargaining, Industrial Wage Boards
• There is a non-binding national minimum wage floor but no legally binding national minim
wage
• The number of scheduled employment has increased over the years; presently, the Central
government sets minimum wages for 48 different categories of scheduled employments and
the state governments set wages for 1,679 job categories making a grand total of about 1,727
different minimum wage rates in India.
• Revisions made to state-level minimum wages over time are adjusted to inflation; it is
however not known if they are any other economic factors that influence these adjustments
Fixation of minimum wages in India
Comparing Minimum Wages with Actual Wages
• The minimum wages fixed are often less than the average wages prevalent in the market
• The rise in real wages for casual workers was initially slower than the rise in minimum
wages; post 2004-05 however, the rise in real wages was significantly higher than the minimum
wages
Enforcement and Implementation of Minimum Wages
• Large proportion of wage workers legally covered by the Minimum Wages Act are, in reality,
paid wages less than the minimum wage levels
• Non-compliance continues to be an important problem in India
• Rates of non-compliance are higher among the low skilled workers, women workers and
socially vulnerable groups.
• The complexity of the minimum wage system in India, with multiple rates, poor levels of
enforcement and inspection has rendered minimum wages ineffective as a labour market
instrument
The Committee on Fair Wages defined three different levels of wages viz;
(i) Living wage
(ii) Fair wage
(iii)Minimum Wage
LIVING WAGE:
The living wage, according to the Committee, represented the highest level of the wage
which should enable the worker- to provide for himself and his family not merely the basic
essentials of food, clothing and shelter but a measure of frugal comfort including education for
children, protection against ill health, requirements of essential social needs and a measure of
insurance against more important misfortunes including old age.
But the Committee felt that when such a wage is to be determined, the considerations of
national income and the capacity to pay of the industry concerned has to be taken into account
and the Committee was of the opinion that living wage had to be the ultimate goal or the target.
FAIR WAGE:
The Fair Wages Committee in this connection observed: the objective is not merely to
determine wages which are fair in the abstract, but to see that employment at existing levels is
not only maintained, but if possible increased.
From this point of view, it will be clear that the levels of the wages should enable the industry
to maintain production with efficiency.
The capacity of industry to pay should, therefore, be assessed by the Wage Boards in the light
of this very important consideration.
The Fair Wages Committee also recommended that the fair wage should be related with the
productivity of labour.
In this connection it may be said that in India since the existing level of wages is unable to
maintain the workers on subsistence plus standard, it is essential that the workers must be first
assured a living wage and only after this minimum has been done, the wages should be related
to the productivity.
The Committee further recommended that the fair wage should be related with the prevailing
rates of the wages, though in view of unduly low wages prevailing even in organized industries
in the country, it laid that the wage fixing machinery should, therefore, make due allowance
for any depression of wages caused by unequal bargaining.
With regard to the machinery to be adopted for the fixation of fair wages, the Committee
favoured the setting up of Wage Boards.
It recommended that there should be a State Board for each State, composed of independent
members and representatives of employers and employees in equal numbers.
In addition to the State Board, there should be a Regional Board for each of the industry taken
up for wage regulation.
Finally, there should be Central Appellate Board to which appeals may be preferred from the
decision of the Wage Boards.
On the recommendations of the Committee on Fair Wages, a bill was introduced in the
Parliament in August 1950, known as Fair Wages Bill.
It aimed at fixing fair wages for workers employed in first instance, in factories and mines.
It contained various other useful provisions also. But the bill now stands lapsed.
The Fair Wage Committee appointed by the Government of India, as stated earlier, drew a
distinction between a minimum and a living wage and observed that the minimum wage is less
than the living wage.
With regard to the fair wage, the Committee recommended that it should be above the minimum
wage and below the living wage.
MINIMUM WAGE:
The Committee was of the view that a minimum wage must provide not merely for the bare
sustenance of life, but for the preservation of the efficiency of the worker.
For this purpose the minimum wage must also provide for- some measure of education, medical
requirements and amenities.
The statutory Minimum Wage is the wage determined according to the procedure prescribed
by the relevant provisions of the Minimum Wages Act, 1948.
The question of establishing statutory wage fixing machinery in India was, therefore, discussed
at the third and fourth meetings of the Standing Labour Committee held in 1943 and 1944
respectively and at successive sessions of the Tripartite Labour Conference in 1943, 1944 and
1945.
The last of these approved in principle the enactment of minimum wages legislation.
On April 11, 1946, a Minimum Wages Bill was introduced in Parliament but the passage of the
Bill was considerably delayed by the constitutional changes in India.
It was, however, passed into an Act in March 1948.
The Act applies to the employments that are included in Parts I and II of the Schedule
Appended to the Act.
The authority to include an employment in the schedule and to take steps for getting the
minimum rates of wages fixed or revised vests with the Government Central or State, according
to the nature of employment.
Once the minimum rates of wages are fixed according to the procedure prescribed by law, it is
the obligation of the employer to pay the said wages irrespective of the capacity to pay

CONCEPT OF NATIONAL FLOOR LEVEL MINIMUM WAGE

In order to have a uniform wage structure and to reduce the disparity in minimum wages across
the country, the concept of National Floor Level Minimum Wage was mooted on the basis of
the recommendations of the National Commission on Rural Labour (NCRL) in 1991.
Keeping in view the recommendation of NCRL and subsequent rise in price indices, the
National Floor Level Minimum Wage was fixed at Rs. 35/- per day in 1996.
The Central Government raised the National Floor Level Minimum Wage to Rs. 40/- per day
in 1998 and further to Rs. 45/- with effect from 01.12.1999, and Rs. 50/- per day with effect
from 1.9.2002.
Based on the norms suggested by the Working Group and its acceptance by the Central
Advisory Board subsequently in its meeting held on 19.12.2003, national floor level minimum
wage was revised upward to Rs. 66/- per day with effect from 1.02.2004.
The Central Government has increased the National Floor Level Minimum Wage from Rs. 66/-
to Rs. 80/- per day with effect from September, 2007.
The Central Government has fixed the National Floor Level Minimum wage at Rs 160.00 per
day with effect from 1 July 2015. This is the minimum wage fixed irrespective of any kind of
schedule of employment both at Centre and state level.
The National Floor Level Minimum Wage, however, has no statutory backing.
The State Governments are persuaded to fix minimum wages such that in none of the scheduled
employments, the minimum wage is less than National Floor Level Minimum Wage.
 19.) Agriculture in India

Introduction
Agriculture is the primary source of livelihood for about 58 per cent of India’s population.
Gross Value Added by agriculture, forestry and fishing is estimated at Rs 18.53 trillion (US$
271.00 billion) in FY18.

The Indian food industry is poised for huge growth, increasing its contribution to world food
trade every year due to its immense potential for value addition, particularly within the food
processing industry. The Indian food and grocery market is the world’s sixth largest, with retail
contributing 70 per cent of the sales. The Indian food processing industry accounts for 32 per
cent of the country’s total food market, one of the largest industries in India and is ranked fifth
in terms of production, consumption, export and expected growth. It contributes around 8.80
and 8.39 per cent of Gross Value Added (GVA) in Manufacturing and Agriculture respectively,
13 per cent of India’s exports and six per cent of total industrial investment.

Market Size
During 2017-18* crop year, food grain production is estimated at record 284.83 million tonnes.
In 2018-19, Government of India is targeting foodgrain production of 285.2 million tonnes.
Milk production was estimated at 165.4 million tonnes during FY17, while meat production
was 7.4 million tonnes. As of September 2018, total area sown with kharif crops in India
reached 105.78 million hectares.

India is the second largest fruit producer in the world. Production of horticulture crops is
estimated at record 314.7 million tonnes (mt) in 2018-19 as per third advance estimates.
Total agricultural exports from India grew at a CAGR of 16.45 per cent over FY10-18 to reach
US$ 38.21 billion in FY18. Between Apr 2018-Feb 2019 agriculture exports were US$ 34.31
billion. India is also the largest producer, consumer and exporter of spices and spice products.
Spice exports from India reached US$ 3.1 billion in 2017-18. Tea exports from India reached
a 36 year high of 240.68 million kgs in CY 2017 while coffee exports reached record 395,000
tonnes in 2017-18.

Food & Grocery retail market in India was worth US$ 380 billion in 2017.
Investments
According to the Department for Promotion of Industry and Internal Trade (DPIIT), the Indian
food processing industry has cumulatively attracted Foreign Direct Investment (FDI) equity
inflow of about US$ 8.57 billion between April 2000 and December 2018.
Some major investments and developments in agriculture are as follows:

 Investments worth Rs 8,500 crore (US$ 1.19 billion) have been announced in India for
ethanol production.
 By early 2019, India will start exporting sugar to China.
 The first mega food park in Rajasthan was inaugurated in March 2018.
 Agrifood start-ups in India received funding of US$ 1.66 billion between 2013-17 in
558 deals.
 In 2017, agriculture sector in India witnessed 18 M&A deals worth US$ 251 million.

Government Initiatives
Some of the recent major government initiatives in the sector are as follows:

 Prime Minister of India, launched the Pradhan Mantri Kisan Samman Nidhi Yojana
(PM-Kisan) and transferred Rs 2,021 crore (US$ 284.48 million) to the bank accounts
of more than 10 million beneficiaries on February 24, 2019.
 The Government of India has come out with the Transport and Marketing Assistance
(TMA) scheme to provide financial assistance for transport and marketing of
agriculture products in order to boost agriculture exports.
 The Agriculture Export Policy, 2018 was approved by Government of India in
December 2018. The new policy aims to increase India’s agricultural exports to US$
60 billion by 2022 and US$ 100 billion in the next few years with a stable trade policy
regime.
 In September 2018, the Government of India announced Rs 15,053 crore (US$ 2.25
billion) procurement policy named ‘Pradhan Mantri Annadata Aay SanraksHan
Abhiyan' (PM-AASHA), under which states can decide the compensation scheme and
can also partner with private agencies to ensure fair prices for farmers in the country.
 In September 2018, the Cabinet Committee on Economic Affairs (CCEA) approved a
Rs 5,500 crore (US$ 820.41 million) assistance package for the sugar industry in India.
 The Government of India is going to provide Rs 2,000 crore (US$ 306.29 million) for
computerisation of Primary Agricultural Credit Society (PACS) to ensure cooperatives
are benefitted through digital technology.
 With an aim to boost innovation and entrepreneurship in agriculture, the Government
of India is introducing a new AGRI-UDAAN programme to mentor start-ups and to
enable them to connect with potential investors.
 The Government of India has launched the Pradhan Mantri Krishi Sinchai Yojana
(PMKSY) with an investment of Rs 50,000 crore (US$ 7.7 billion) aimed at
development of irrigation sources for providing a permanent solution from drought.
 The Government of India plans to triple the capacity of food processing sector in India
from the current 10 per cent of agriculture produce and has also committed Rs 6,000
crore (US$ 936.38 billion) as investments for mega food parks in the country, as a part
 of the Scheme for Agro-Marine Processing and Development of Agro-Processing
Clusters (SAMPADA).
 The Government of India has allowed 100 per cent FDI in marketing of food products
and in food product e-commerce under the automatic route.

Achievements in the sector

 Sugar production in India has reached 27.35 million tonnes (MT) in 2018-19 sugar
season, as of March 15 2019, according to the Indian Sugar Mills Association (ISMA).
 The Electronic National Agriculture Market (eNAM) was launched in April 2016 to
create a unified national market for agricultural commodities by networking existing
APMCs. Up to May 2018, 9.87 million farmers, 109,725 traders were registered on the
e-NAM platform. 585 mandis in India have been linked while 415 additional mandis
will be linked in 2018-19 and 2019-20.
 Agriculture storage capacity in India increased at 4 per cent CAGR between 2014-17
to reach 131.8 million metric tonnes.
 Coffee exports reached record 395,000 tonnes in 2017-18.
 Between 2014-18, 10,000 clusters were approved under the Paramparagat Krishi Vikas
Yojana (PKVY).
 Between 2014-15 and 2017-18 (up to December 2017), capacity of 2.3 million metric
tonnes was added in godowns while steel silos with a capacity of 625,000 were also
created during the same period.
 Around 100 million Soil Health Cards (SHCs) have been distributed in the country
during 2015-17 and a soil health mobile app has been launched to help Indian farmers.

Road Ahead
India is expected to achieve the ambitious goal of doubling farm income by 2022. The
agriculture sector in India is expected to generate better momentum in the next few years due
to increased investments in agricultural infrastructure such as irrigation facilities, warehousing
and cold storage. Furthermore, the growing use of genetically modified crops will likely
improve the yield for Indian farmers. India is expected to be self-sufficient in pulses in the
coming few years due to concerted efforts of scientists to get early-maturing varieties of pulses
and the increase in minimum support price.

The government of India targets to increase the average income of a farmer household at
current prices to Rs 219,724 (US$ 3,420.21) by 2022-23 from Rs 96,703 (US$ 1,505.27) in
2015-16.

Going forward, the adoption of food safety and quality assurance mechanisms such as Total
Quality Management (TQM) including ISO 9000, ISO 22000, Hazard Analysis and Critical
Control Points (HACCP), Good Manufacturing Practices (GMP) and Good Hygienic Practices
(GHP) by the food processing industry will offer several benefits.

India has the 10th-largest arable land resources in the world. With 20 agri-climatic regions, all
15 major climates in the world exist in India. The country also possesses 46 of the 60 soil types
in the world. India is the largest producer of spices, pulses, milk, tea, cashew and jute; and the
second largest producer of wheat, rice, fruits and vegetables, sugarcane, cotton and oilseeds.
Further, India is second in global production of fruits and vegetables, and is the largest producer
of mango and banana. During 2017-18 crop year, food grain production is estimated at record
284.83 million tonnes. In 2018-19, Government of India is targeting food grain production of
285.2 million tonnes. Production of horticulture crops is estimated at 306.82million tonnes (mt)
in 2017-18 as per third advance estimates. India is among the 15 leading exporters of
agricultural products in the world. Agricultural exports from India reached US$ 38.21 billion
in FY18 and US$ 39.13 billion in FY19. Exports of ready to eat items from India reached US$
689.80 million in FY18 and have reached US$ 681.95 million in FY19. The Agriculture Export
Policy, 2018 was approved by Government of India in December 2018. The new policy aims
to increase India’s agricultural exports to US$ 60 billion by 2022. India was the ninth largest
exporter of agricultural products in 2017.

The Electronic National Agriculture Market (eNAM) was launched in April 2016 to create a
unified national market for agricultural commodities by networking existing Agriculture
Produce Marketing Committees (APMCs). Up to May 2018, 9.87 million farmers, 109,725
traders were registered on the e- NAM platform. 585 mandis in India have been linked while
415 additional mandis will be linked in 2018- 19 and 2019-20. Cumulative trade on the
platform reached Rs 41,855 crore (US$ 6.49 billion) by March 2018. The Budget 2019 has
identified Agriculture Sector as one of the key drivers of the economy. Under the budget
Agricultural Marketing Infrastructure (AMI) scheme 40 lakh MT of storage capacity & 400
other marketing Infrastructure projects are targeted by 2019-20.

The Government of India has introduced several projects to assist the agriculture sector. They
are Pradhanmantri Gram Sinchai Yojana: The scheme aims to irrigate the field of every farmer
and improving water use efficiency to achieve the motto `Per Drop More Crop’. Overall the
scheme ensures improved access to irrigation. Around 285 new irrigation projects will be
undertaken in 2018 to provide irrigation for 18.8 million hectares of land. As per Union Budget
2019-20 the scheme has been allocated US$ 565.16 million.

Paramparagat Krishi Vikas Yojana (PKVY): The scheme aims to motivate groups of farmers
to take up organic farming.
 20.) Industrial Sector in India
New Industrial Policy, 1991
The Government announced a new industrial policy on July 24, 1991. The basic philosophy
of the new policy has been summed up as:- ‘continuity with change’.

Objectives
• 1. Unshackle the Indian economy from cobweb of bureaucratic control
• 2. Liberalising the policy regarding FDI.
• 3. To abolish restriction on FDI.
• 4. Redefining the role of public sector.
• 5. Bringing of welfare scheme of Indian industries.
• 6. Remove restriction imposed by FERA on international trade
• 7. To ensure quality standards.
• 8. Emphasis on research and development capabilities.
• 9. Abolishing of MRTP act.
• 10. Improve the productivity of Indian industry.
• 11. To prepare Indian industry for globally competitive.
• 12. Integration of Indian industry with the world.
• MAJOR INITIATIVES OF NEW INDUSTRIAL POLICY:-
• (I) Abolishing Industrial Licensing:-
• For liberalize the economy, abolishing of industrial licence was done.
• now 5 industries require Compulsory licensing are as follows:-
• 1. Distillation and brewing of alcoholic drinks
• 2. Cigars and Cigarettes of tobacco and manufactured tobacco substitutes
• 3. Hazardous chemicals ,Drugs and Pharmaceuticals
• 4. Electronics aerospace and Defence equipment
• 5. Industrial explosives – including detonating fuses, safety fuses, gunpowder,
nitrocellulose and matches.
• (2) Role of public sector:
• Inspite of huge investment public sector was not performing good so, need was felt to
redefine the role of public sector.
• The number of industries reserved for public sector reduced from 17 to 8 and then
further to 6.
• These six industries are as follows:-
• a) Defence products
• b) Mineral oil
• c) Atomic Energy
• d) Railway transport
• e) Coal and lignite
• f) Mineral
• (3) Foreign Investment:
• Earlier it was necessary for every industry to take the prior approval of government
which led to unnecessary delay and sometime due to frustration foreign investors do
not invest to promote export of Indian goods in the world market unconditional
approval was given under new industrial policy 1981 for FDI upto 51 % in high
priority industries.
• (4) MRTP Act:
• New industrial policy 1991 removed the threshold limit of assets in respect of MRTP
companies this eliminates the company for prior approval of central government for
expansion, establishment of new industries undertaking, merger etc.
• (5) Foreign technology:
• (i) Automatic permission for foreign technology agreement in high priorities
industries up to 1 crore
• 5% royalty for domestic sales
• 8% for export
• (ii) No permission for hiring of foreign technicians
• (6) Convertibility of Rupee:
• The new industrial Policy of the year 1991 has given the privileges to the industrial
regarding import of raw material and technology.
• The new policy has introduced the rupee convertibility on current account as well as
on capital account.
• The government made the current account fully convertible, while under the capital
account the repayment of loan and deprecation of assets has been made convertible.
• Further, under the previous provisions the financial institution extending loans to
industrial houses had an option to convert their 20% loans into equity it was a major
threat to the industrialist in posting threat to their positions.
• Under the new industrial policy such as compulsory clause of conversion of loans in
to equity has also been abolished.
 • (7) Reservation for Small Scale Industries:
• In the year 2006, small scale units were defined as a unit having investment of 5 cr. In
Plant and machinery.
• In oct 2008, 21 items were reserved for manufacturing in small scale industries.
• (8) Encouragement to Industries in Backward Areas:
• Government has taken various measures to encourage the industries in backward
areas.
• Various incentives will be offered by govt to industries in the backward region for
reducing regional disparities.
• (9) Freedom from Administrative Control:
• Expansion programmes launched by government are exempted from administrative
controls and already existing units will be free to produce any commodity on the basis
of the licensed already issued.
APPRAISAL OF NEW INDUSTRIAL POLICY
• POSITIVE ASPECT OF NEW INDUSTRY POLICY:
• 1. Building Competitiveness in Indian Industries
• 2. Attracting FDI
• 3. Import of Technology in India
• 4. Development of global Quality Standard in India
• 5. Removal of MRTP act
• 6. Removal of Restrictive Condition of FERA
• 7. Development of social accountability in India
• 1. Building Competitiveness in Indian Industries:-
• The new industrial policy undoubtedly claims the credit of creating and promoting
competitive economic conditions in the Economy.
• It includes:
• New Industrial policy almost removed all kinds of protections given to the domestic
industry.
• It has opened the industries for private investment that were previously reserved for
investment by the public sector only.
• The new industrial policy has also liberalized the location norm and has also made the
import of technology free from government restrictions.
• The procedural delays have been removed leading reduced cost of the project.
• 2. Attracting FDI:-
• Under the new policy the government has broken up the natural monopoly of the
public sector units by attracting the private and foreign capital in to the industries that
were earlier reserved for public sector.
• Now, in high priority industries no prior approval of the government is required for
FDI Upto 51%.
• 3. Import of Technology in India:-
• The process of import of technology in India was simplified with grant of automatic
permission in high priority industries to remove unnecessary delays that were
hampering the decision making process regarding import of technology
• 4. Development of global Quality Standard in India:
• The Objective of New industrial policy was to focus on development of global quality
Standard in India for improving the quality of production in all respects.
• In order to promote exports and bring global competitiveness in Indian Industry.
• The policy emphasized the shifting of quality standard from Indian Standard
Industries and International Standard Organization
• 5. Removal of MRTP act:
• Removal of restrictive conditions of MRTP Act like pre entry scrutiny of investment
decision by MRTP commission, prior approval of centre for expansion, establishment
of new undertaking.
• Merger, amalgamations, takeover and provisions to appoint foreign Director will
strength such units.
• 6. Removal of Restrictive Condition of FERA:
• The Industrial policy has abolished almost all the restrictive provisions of FERA.
• The abolition of FERA was a major relief provided to the industries engaged in export
activities.
• 7. Development of social accountability in India:
• The new Industrial Policy has shifted the role of state prove a regulatory in nature to
managerial one.
• Under the new Industrial Policy the state has to create competitive economic
conditions to make the industry more accountable to the society
• NEGATIVE ASPECT OF NEW INDUSTRY POLICY:
• 1. More Weight age to Foreign Investor
• 2 Exploitation of Domestic Resources
• 3. Threat to Environment
• 4. Reduction in growth of production of Industrial goods
• NEGATIVE ASPECT OF NEW INDUSTRY POLICY:
• 1. More Weight age to Foreign Investor:
• The New Industrial Policy has laid more emphasis on FDI in India. In fact, FDI
considered a panacea of all the socio-economic problem of the country.
• It has been decided to provide approval for direct foreign investment upto 51%
foreign equity in high priority industries.
• 34 high priority industries, having provisions for automatic permission for foreign
investment, would make it possible for large multinational companies to dominate
certain growing areas of our country
• If the same amount of incentives and concessions are being provided to indigenous
industry houses then better results can be expected without taking the risk of foreign
capital.
• 2 Exploitation of Domestic Resources: -
• The natural resources are limited.
• Each country of the world, either developing or developed, intends to make optimum
use of available resources for the overall growth and development of the country.
• The critics of New Industrial policy are of the opinion that the provisions of huge
foreign capital in the country will lead to wastage and even misuse of resources
available with the country .
• The multinational companies have huge marketing and financial resources. They have
the latest technologies and huge production capacities.
• The MNCs will utilize their natural resources to produce the products belonging to
non-priority categories for serving the world market.
• It leads to the early depletion of available resources of the country.
• 3. Threat to Environment:-
• The environmental laws in all the developed countries of the world are very strict and
their violation leads to harsh consequences for the industries.
• On the other side, the environment laws in developing and least developed countries
and their implementations also ineffective.
• Further the developing countries are victims of corruption, favouritism and other
malpractices.
• 4. Reduction in growth of production of Industrial goods:-
• The most negative indicator goes against the industrial policy is the sudden fall in
production of industrial growth.
• In the initial years of liberalisation the growth of industrial goods has shown the
negative figures.
• SUGGESTIONS FOR EFFECTIVENESS OF INDUSTRIAL POLICY
• 1. Effectiveness of private sector:-
• There is a need that government should provide sufficient sources to the private sector
in the form of technical support, infrastructural support, liberal credit policy so that
they can develop their industries in a good manner and can compete with the foreign
enterprises.
• 2. Enhance the profitability of public sector:-
• This is very important that public sector should be more efficient and profitable.
• The following steps should be taken-
• More and more efficient human resources are appointed.
• Promotion to employees should be on the basis of merit not on seniority basis.
• Inspections should be done properly.
• Production capacity of older public sector enterprises should be increased.
• Accounting records are properly checked with time to time.
• Non planned expenditure should be reduced at most.
• 3. Development of infrastructure: -
• Government should take effective measures to strengthen the infrastructure of the
economy, in the field of transportation, communication, power supply etc.
• In the lack of strong infrastructure, the economy of India cannot develop in the proper
way.
• 4. Not too much dependence upon the Foreign Investment:
• The government should ensure that there is not having too much independence upon
the foreign capital inflow in the country.
• Too much flow of foreign inflows results the deficit finance in the country resultant
into negative balance of payments.
• 5. Proper attention to sector enterprises:-
• Small Scale sector of India needs so much improvements.
• Various fiscal and non –fiscal incentives should be given to small scale units to
support them.
• If proper attention to be given to this sector, unemployment situation of the country
can be reduced to greater extent because of highly labour intensive utilisation.
• 6. Set up units in backwards areas:-
• To remove the regional imbalances there should be a proper set up of units in the
backward areas.
• For this special assistance should be provided by the government to reduce the
regional imbalance in the country.
• 7. Support to Domestic Industrial units for their expansion:-
• Government should provide financial assistance to domestic sector unit’s so that they
can expand their business not only to the domestic territory but also can expand
business in foreign countries also.
• INDUSTRIAL POLICY 2010-15
• The government has announced a new industrial policy for 2010-15, enhancing the
investment limit of mega projects from Rs. 100 to Rs. 250 crore for the purpose of
offering benefits to them.
• For micro and small industries the investment subsidy has been increased from Rs. 15
Lakh to Rs. 20 Lakh.
• In case of women entrepreneurs, not only ten percent of the plots in an industrial area
but also offering 5 percent additional subsidy subject to a maximum of Rs. 5 Lakh.
• Attract investments in the industry and services sector
• Maximize employment opportunities, implement self-employment schemes
effectively, and provides jobs to local people in the upcoming industrial units in the
states.(Pradhan mantra employment generation programme launched by the
government of India.)
• Promote agro-based and food processing industry to make agriculture a most profitable
proposition.
• In order to ensuring productive uses of land, multi stored complexes for micro and
small enterprises/industries will be constructed either through department’s
corporations or through or private sector participation at potential sites.
 21.) Services sector in India
Introduction
The services sector is not only the dominant sector in India’s GDP, but has also attracted
significant foreign investment flows, contributed significantly to exports as well as provided
large-scale employment. India’s services sector covers a wide variety of activities such as trade,
hotel and restaurants, transport, storage and communication, financing, insurance, real estate,
business services, community, social and personal services, and services associated with
construction.
Market Size
The services sector is the key driver of India’s economic growth. The sector has contributed
54.17 per cent of India’s Gross Value Added at current price in 2018-19*. Net service exports
stood at US$ 60.25 billion in April-December 2018 (P).
Nikkei India Services Purchasing Managers' Index (PMI) stood at 52.5 in February 2019. The
expansion in services activity was driven by boost in capacity and demand along with
favourable public policies.
Investments
Some of the developments and major investments by companies in the services sector in the
recent past are as follows:

 Leisure and business travel and tourism spending are expected to increase to US$ 234.4
billion and US$ 12.9 billion in 2018, respectively.
 India’s earnings from medical tourism could exceed US$ 9 billion by 2020.
 Indian healthcare companies are entering into merger and acquisitions with domestic
and foreign companies to drive growth and gain new markets.

Government Initiatives
The Government of India recognises the importance of promoting growth in services sectors
and provides several incentives in wide variety of sectors such as health care, tourism,
education, engineering, communications, transportation, information technology, banking,
finance, management, among others.
The Government of India has adopted a few initiatives in the recent past. Some of these are as
follows:
Under the Mid-Term Review of Foreign Trade Policy (2015-20), the Central Government
increased incentives provided under Services Exports from India Scheme (SEIS) by two per
cent.
Government of India is working to remove many trade barriers to services and tabled a draft
legal text on Trade Facilitation in Services to the WTO in 2017.

Achievements
Following are the achievements of the government in the past four years:

 India’s rank jumped to 24 in 2018 from 137 in 2014 on World Bank’s Ease of doing
business - "Getting Electricity" ranking.
 Five times more growth in major ports’ traffic between 2014-18, compared to 2010-14.
 Six-fold increase in Government spending on telecommunications infrastructure and
services in the country – from Rs 9,900 crores (US$ 1.41 billion) during 2009-14 to Rs
60,000 crores (US$ 8.55 billion) (actual + planned) during 2014-19.
  A total of 11 projects worth Rs 824.80 crore (US$ 127.98 million) were sanctioned
under the Swadesh Darshan scheme.
 Highest ever revenue was generated by Indian IT firms at US$ 167 billion in 2017-18.

Road Ahead
Services sector growth is governed by both domestic and global factors. The Indian facilities
management market is expected to grow at 17 per cent CAGR between 2015 and 2020 and
surpass the US$19 billion mark supported by booming real estate, retail, and hospitality sectors.
The implementation of the Goods and Services Tax (GST) has created a common national
market and reduced the overall tax burden on goods. It is expected to reduce costs in the long
run on account of availability of GST input credit, which will result in the reduction in prices
of services.
Exchange Rate Used: INR 1 = US$ 0.0139 as on Q3 FY18
 22.) Social Security
The ILO’s view…
…the security that society furnishes… against certain risks to which its members are
exposed… contingencies against which the individual of small means cannot effectively
provide by his own ability or foresight … alone or in private combination with his fellows.
Defining Social Security
• The term social security has been defined differently by various authorities and
thus, there is no commonly accepted definition of the term.
Recently, some new concepts viz.

Social safety nets, social protection and social funds relating to social security have emerged.
• Social safety nets are measures to mitigate the negative effects of structural adjustments
mostly in form of cash payments.
• Broadly all these concepts are part of the all-pervasive term ‘social security’.
• Social Security is a critical federal program that promotes income stability among
millions of households
• It does so by providing a steady stream of income to replace wages lost due to
retirement, disability, or death.
• Social Security is the foundation of their economic security.

• Why provide Social Security?

• Objectives:
• Compensation – for loss of earning capacity
• - Life, limb, health or work
• Restoration – of actual earning capacity
• Cure, Re-employment, Rehabilitation
• Prevention- of loss of earning/ capacity
• - Create systems and structures
• A universal Fundamental Right
• UN General Assembly (1948) adopted the Universal Declaration of Human Rights:
• Access to Social Security
• Right to life (Indian Constitution) has inherent in it
• Right to livelihood
• (Supreme Court)
• Forms of Social Security
• Social Assistance
• Social Insurance
• Family Benefits
• Public Services
• Provident Funds
• The importance of Social Security
• Related to high ideals of-
• human dignity and social justice
• Influence public policy in all countries
• Useful protection of labour stability
• Protection of labour and
• Stability of labour force
• A measure of progress made by a Country and its people
Role of Social Security in the Economy
• Social Security has a much greater impact on the economy than just the dollar amount
of its benefit payments.
• When Social Security beneficiaries spend their monthly benefit checks,
• The effects ripple through the economy.
• Its a “multiplier”, effect which represents the cumulative effect of these payments as
they move through the economy.
• Social Security benefits as income of beneficiaries and thus,
• Social Security supports personal consumption.
• For most retirees and their families, Social Security is a very important source of
retirement income
• Social Security is also a significant source of income for disabled workers and their
families.
• Social Security benefits are paid regardless of the state of the overall economy and may
even rise during recessions.
• During a recession, disability benefits typically rise because some previously employed
workers with a disability lose their jobs and must rely on Social Security.
• In addition, some older individuals are unable to find employment and must apply for
early retirement benefits.
• This can be critical not only for beneficiaries, but also as a stabilizing influence during
an economic downturn or slow recovery, much like we experienced from the Great
Recession, because these payments help support consumption.
MEASURING SOCIAL SECURITY BENEFITS’ IMPACT ON THE ECONOMY
Social Security beneficiaries spend most of their benefits.
• Social Security recipients spend their benefits on a variety of goods and services, such
as food, furniture, and medical care.
• Many beneficiaries spend most of their Social Security payments, with the remainder
going to savings and paying taxes.
• The tendency to spend from a source of income is known as the marginal propensity
to consume (MPC) out of income.
• The higher the average MPC out of Social Security income, the bigger the economic
impact will be because more benefit dollars circulate in the economy.

• The spending and saving pattern can be represented by the life-cycle hypothesis.
• The life-cycle hypothesis is based on the premise that people want to smooth
consumption over their lifetime for a given amount of lifetime income.
• In its simplest interpretation, a person will borrow when young against future earnings,
followed by a period of accumulating assets and savings, and
• then a period of spending down assets during retirement to support consumption,
including health care needs.
• In reality, some older people may want to save to protect against health shocks or
finance long-term care needs.

• The multiplier process begins when beneficiaries spend their Social

Security benefits.
• In the initial round of spending, the beneficiary uses part or all of the benefits to buy
goods and services.
• These successive rounds of spending within input-output analysis as the direct, indirect,
and induced impacts that occur when Social Security beneficiaries spend their benefits.
• In an input-output economic model, these definitional categories may change slightly
depending on whether initial spending is modeled as a change in household income, a
change in household expenditures, or a change in institutional (government) spending.
• The general concepts remain much the same, however.

• For example
• A retiree may spend a substantial part of his or her Social Security income at local
merchants—such as the grocery store, the pharmacy, the gas station, or the hardware
store.
• These local merchants use this revenue to pay their employees and to buy more goods
from their suppliers to sell to future customers.
• The stores’ employees and their suppliers spend some of their paychecks in the local
economy.
• Some of this additional income that companies receive may be used to hire additional
employees, who may also spend part of their paychecks in the local economy.
• Together, these successive rounds of spending make up the total impact of Social
Security on the economy.
• The multiplier is the ratio of the total impact on the economy to the amount of the
original Social Security benefit payments.
• For example, if the original amount of benefits paid by a program was $1 billion, and
the total amount of the spending caused by those payments was $2 billion, then the
output multiplier for that program would be 2 because each dollar of benefits paid
resulted in $2 of output.

• The Interim National Government of India

• The interim national government during its power had drawn up a programme for the
welfare of the working classes in our country.

• This programme had the following major characteristics:-

• a) Statutory prescription of minimum wages in sweated industries and occupations in
agriculture.
• b) Promotion of fair wage agreements.
• c) Steps to secure for workers in plantations a living wage.
• d) Reduction in the hours of work in mines to bring the working hours in line with the
hours of work in factories which have been reduced from 54 to 48 hours in a week.
• e) Legislation to regulate the hours of work, spread over weekly rest periods and
holidays with pay for other classes of workers not now subject to regulation, that is,
those employed in shops and commercial undertakings, road transport services, docks
and municipal labour.
• f) Overhaul of the Factories Act with a view to the prescription and enforcement of
right standards in regard to lighting, ventilation, safety, health and welfare of workers.
• Conditions of work are to be improved, particularly in unorganized industries and
workplaces, to which the present Factories Act does not apply.
• g) Organization of industrial training and apprenticeship schemes on a large scale with
a view to improve the productive and earning capacity of workers.
• h) Steps to secure for workers in plantations, mining and other categories provision of
housing.
• i) Organization of the Health Insurance Scheme, applicable to the factory workers to
start with for the provision of medical treatment and monetary relief during the
sickness, maternity benefit on an extended scale, medical treatment in case of
disablement and to dependents in case of death in place of lump sum payments.
• j) A central law for maternity benefit to secure for other than factory workers the
extended scale of benefits provided under the Health Insurance Scheme.
• k) Right to leave with allowances during the period of sickness.
• l) Provision for crèches and canteens.
• m) Welfare of coal mining labour and welfare of the mica mining labour.
• n) Strengthening of the inspection staff and the inspection of mines.

• Social Security and Five Year Plans

• The labour policy followed in the successive five year plans since independence
adopted an approach which rested on considerations that the basic needs of workers for
food, clothing and shelter must be satisfied.
• The objective of achieving ‘socialistic pattern of society’ was the avowed goal of early
five year plans and provisions were made accordingly for the welfare of workers.
• Not much could be achieved by way of all these efforts.
• Majority of the labour laws enacted sought to benefit only the organized sector.
• 45th Session of the Indian Labor Conference Concludes with a Resolve
to Provide Universal Social Security Coverage and Assured Pension to
the Entire Working Population
• During the course of Conference the Labor Ministers of State Governments, Central
Trade Union Leaders, Employers’ representatives, and Officials of the central and state
governments deliberated on four agenda items namely,
• (a) service conditions, wages and social security for various categories of workers
employed in different Central and State Government schemes;
• (b) social security with special reference to Assured Pension with indexation for all
workers including self-employed;
• (c) labor laws for MSME sector;
• (d) and measures to improve employment and employability.