Professional Documents
Culture Documents
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CONTENTS
Foreword iii
A few introductory words for teachers v
Chapter 1
DEVELOPMENT 2
Chapter 2
SECTORS OF THE INDIAN ECONOMY 18
Chapter 3
MONEY AND CREDIT 38
Chapter 4
GLOBALISATION AND THE INDIAN ECONOMY 54
Chapter 5
CONSUMER RIGHTS 74
Suggested Readings 90
NOTESFORTHETEACHER
CHAPTER 5 : CONSUMER RIGHTS
This chapter proposes to discuss the issue of understand the issues at a deeper level. Making
consumer rights within the context of the ways posters collectively is another way to think about
markets operate in our country. There are many these issues. This lesson contains activities,
aspects of unequal situations in a market and which require visits – visit to consumer
poor enforcement of rules and regulations. Hence, protection councils, consumer organisations,
there is a need to sensitise learners and encourage consumer court, retail shops, market places, etc.
them to participate in the consumer movement. Organise the visits to maximise learners’
This chapter provides case histories – how some experience. Have a discussion with them about
consumers were exploited in a real life situation the purpose of the visit, things they need to do
and how legal institutions helped consumers in beforehand and things that need to be collected
getting compensated and in upholding their rights and the task (report/ project / article, etc.) they
as consumers. The case histories would enable would carry out after the visit. As part of this
the students to link these narratives to their life chapter, the learners may do letter-writing and
experiences. We have to enable students to speaking activities. We may have to be sensitive
understand that the awareness of being a well- to the language aspect of exercises.
informed consumer arose out of consumer
movement and active participation of people This chapter contains materials collected
through their struggles over a long period. This from authenticated websites, books, newspapers
chapter also provides details of a few and magazines. For example, http://
organisations helping consumers in different www.mca.gov.in is a website of Central
ways. Finally it ends with some critical issues of Government Ministry of Consumer Affairs.
the consumer movement in India. Another website www.cuts-international.org is the
website of a consumer organisation working in
Aspects of Teaching / Sources of Information India for more than 20 years. It publishes a
variety of materials to create consumer
This chapter has questions, case studies and
awareness in India. They need to be shared
activities. It would be preferred that students
among learners so that they can also collect
discuss these in groups orally. Some of these
materials as part of their activities. For example,
could be answered in writing individually.
case histories were taken from newspaper
While carrying out each activity you could clippings and consumers who fought in
start with a brainstorming session about the consumer courts. Let learners collect and read
activity. Similarly there are many opportunities such materials from different sources: consumer
for role-play in this chapter and this could be a protection councils, consumer courts and
useful way to share their experiences and internet.
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CHAPTER 5
CONSUMER
CO
ONS UME
ER RIGHTS
R I GHTS
TS
The collage you see below contains what are the ways in which they can
some news clippings of consumer exercise their rights as consumers to
court verdicts. Why did the people go get a fair deal from the sellers when
to the consumer court in these cases? they felt they had been denied a just
These verdicts came about because treatment?
some people persisted and struggled
to get justice. In what ways were they
denied justice? More importantly,
THE CONSUMER IN THE MARKETPLACE
We participate in the market both as Likewise, rules and regulations are
producers and consumers. As required for the protection of the
producers of goods and services we consumers in the marketplace.
could be working in any of the sectors Individual consumers often find
discussed earlier such as agriculture, themselves in a weak position.
industry, or services. Consumers Whenever there is a complaint
participate in the market when they regarding a good or service that had
purchase goods and services that they been bought, the seller tries to shift
need. These are the final goods that all the responsibility on to the buyer.
people as consumers use. Their position usually is – “If you
didn’t like what you bought, please
In the preceding chapters we
go elsewhere”. As if the seller has no
discussed the need for rules and
responsibility once a sale is
regulations or steps that would
completed! The consumer movement,
promote development. These could be
as we shall discuss later, is an effort
for the protection of workers in the
to change this situation.
unorganised sector or to protect
people from high interest rates Exploitation in the marketplace
charged by moneylenders in the happens in various ways. For
informal sector. Similarly, rules and example, sometimes traders indulge
regulations are also required for in unfair trade practices such as when
protecting the environment. shopkeepers weigh less than what
they should or when traders add
For example, moneylenders in the
charges that were not mentioned
informal sector that you read about
before, or when adulterated/defective
in Chapter 3 adopt various tricks to
goods are sold.
bind the borrower: they could make
the producer sell the produce to them Markets do not work in a fair
at a low rate in return for a timely loan; manner when producers are few and
they could force a small farmer like powerful whereas consumers
Swapna to sell her land to pay back purchase in small amounts and are
the loan. Similarly, many people who scattered. This happens especially
work in the unorganised sector have when large companies are producing
to work at a low wage and accept these goods. These companies with
conditions that are not fair and are huge wealth, power and reach can
also often harmful to their health. To manipulate the market in various
prevent such exploitation, we ways. At times false information is
have talked of rules and regulations passed on through the media, and
for their protection. There are other sources to attract consumers.
organisations that have struggled For example, a company for years
for long to ensure that these rules are sold powder milk for babies all over
followed.
CONSUMER MOVEMENT
The consumer movement arose out quality of goods and services on the
of dissatisfaction of the consumers sellers.
as many unfair practices were being In India, the consumer movement
indulged in by the sellers. There was as a ‘social force’ originated with the
no legal system available to necessity of protecting and promoting
consumers to protect them from the interests of consumers against
exploitation in the marketplace. For unethical and unfair trade practices.
a long time, when a consumer was Rampant food shortages, hoarding,
not happy with a particular brand black marketing, adulteration of food
product or shop, he or she generally and edible oil gave birth to the
avoided buying that brand product, consumer movement in an organised
or would stop purchasing from that form in the 1960s. Till the 1970s,
shop. It was presumed that it was consumer organisations were largely
engaged in writing articles and
the responsibility of consumers to be
holding exhibitions. They formed
careful while buying a commodity
consumer groups to look into the
or service. It took many years for malpractices in ration shops and
organisations in India, and around overcrowding in the road passenger
the world, to create awareness transport. More recently, India
amongst people. This has also witnessed an upsurge in the number
shifted the responsibility of ensuring of consumer groups.
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Consumers International
In 1985 United Nations adopted
the UN Guidelines for Consumer
Protection. This was a tool for
nations to adopt measures to
protect consumers and for
consumer advocacy groups to
press their governments to do
so. At the international level, this
has become the foundation for
consumer movement. Today,
Consumers International has
become an umbrella body of 240
organisations from over 100
countries.
Reji’s
ej ’’ss Suffering
S ri
ri g
Reji’s suffering shows how a
hospital, due to negligence by the
Reji Mathew, a healthy boy studying in doctors and staff in giving
Class IX, was admitted in a private clinic in anaesthesia, crippled a student for
Kerala for removal of tonsils. An ENT life. While using many goods and
surgeon perfor med the tonsillectomy services, we as consumers, have the
operation under general anaesthesia. As a right to be protected against the
result of improper anaesthesia Reji showed marketing of goods and delivery of
symptoms of some brain abnormalities services that are hazardous to life and
because of which he was crippled for life. property. Producers need to strictly
His father filed a complaint in the State follow the required safety rules and
Consumer Disputes Redressal Commission regulations. There are many goods
claiming compensation of Rs 5,00,000 for and services that we purchase that
medical negligence and deficiency, in require special attention to safety. For
service. The State Commission, saying that example, pressure cookers have a
the evidence was not sufficient dismissed safety valve which, if it is defective, can
it. Reji’s father appealed again in the cause a serious accident. The
National Consumer Disputes Redressal manufacturers of the safety valve have
Commission located to ensure high quality. You also need
in New Delhi. The public or government action to see
National Commission that this quality is maintained.
after looking into the However, we do find bad quality
complaint, held the products in the market because the
hospital responsible supervision of these rules is weak and
for medical negligence the consumer movement is also not
and directed it to pay strong enough.
the compensation.
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Information about goods and product and find it defective well
services within the expiry period, we can ask
for a replacement. If the expiry period
When you buy any commodity, you
was not printed, the manufacturer
will find certain details given on the
would blame the shopkeeper and will
packing. These details are about
not accept the responsibility. If people
ingredients used, price, batch
sell medicines that have expired
number, date of manufacture, expiry
date and the address of the severe action can be taken against
manufacturer. When we buy them. Similarly, one can protest and
medicines, on the packets, you might complain if someone sells a good at
find ‘directions for proper use’ and more than the printed price on the
information relating to side effects and packet. This is indicated by ‘MRP’ —
risks associated with usage of that maximum retail price. In fact
medicine. When you buy garments, consumers can bargain with the seller
you will find information on to sell at less than the MRP.
‘instructions for washing’. In recent times, the right to
Why is it that rules have been made information has been expanded to
so that the manufacturer displays this cover various services provided by the
information? It is because consumers Government. In October 2005, the
have the right to be informed about Government of India enacted a law,
the particulars of goods and services popularly known as RTI (Right to
that they purchase. Consumers Information) Act, which ensures its
can then complain and ask for citizens all the information about the
compensation or replacement if the functions of government departments.
product proves to be defective in any The effect of the R TI Act can be
manner. For example, if we buy a understood from the following case.
Waiting...
g
Amritha, an engineering
graduate after submitting all
the certificates and attending
the interview for a job in a
government department, did
not receive any news of the
result. The officials also
refused to comply with her
queries. She therefore filed an
application using the RTI Act
saying that it was her right to
know the result in a
reasonable time so that she
could plan her future. She
soon got her call letter for
appointment.
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LET’S WORK THESE OUT
1. When we buy commodities we find that the price charged is sometimes higher or
lower than the Maximum Retail Price printed on the pack. Discuss the possible
reasons. Should consumer groups do something about this?
2. Pick up a few packaged goods that you want to buy and examine the information
given. In what ways are they useful? Is there some information that you think
should be given on those packaged goods but is not? Discuss.
3. People make complaints about the lack of civic amenities such as bad roads or
poor water and health facilities but no one listens. Now the RTI Act gives you the
power to question. Do you agree? Discuss.
Re nd
A Refund
Abirami, a student of choose. The Institute
Ansari Nagar, joined a two- again appealed in the
year course at a local State Consumer Com-
coaching institute for mission. The State
professional courses in Commission upheld the
New Delhi. At the time of district court’s direction
joining the course, she and further fined the
paid the fees Rs 61,020 institute Rs 25,000 for a
as lumpsum for the entire frivolous appeal. It also
course of two years. directed the institute to
However, she decided to opt out of the pay Rs 7000 as compensation and
course at the end of one year as she litigation cost.
found that the quality of teaching was
The State Commission also restrained
not up to the mark. When she asked
all the educational and professional
for a refund of the fee for one year, it
institutions in the state from charging
was denied to her.
fees from students for the entire
When she filed the case in the District duration of the course in advance and
Consumer Court, the Court directed that too at one go. Any violation of this
the Institute to refund Rs 28,000 order may invite penalties and
saying that she had the right to imprisonment, the commission said.
What do we understand from this if you buy a tooth brush. If you are
incident? Any consumer who receives a not interested in buying the brush,
service in whatever capacity, regardless your right to choice is denied. Similarly,
of age, gender and nature of service, has sometimes gas supply dealers insist
the right to choose whether to continue that you have to buy the stove from
to receive the service. them when you take a new connection.
Suppose you want to buy In this way many a times you are
toothpaste, and the shop owner says forced to buy things that you may not
that she can sell the toothpaste only wish to and you are left with no choice.
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LET’S WORK THIS OUT
The following are some of the catchy advertisements of products that we purchase
from the market. Which of the following offers would really benefit consumers? Discuss.
z 15 gm more in every 500 gm pack.
z Subscribe for a newspaper with a gift at the end of a year.
z Scratch and win gifts worth Rs 10 lakhs.
z A milk chocolate inside a 500 gram glucose box.
z Win a gold coin inside a pack.
z Buy shoes worth Rs 2000 and get one pair of shoes worth Rs 500 free.
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3. PRAKASH ENQUIRES ABOUT THE
MONEY ORDER IN THE POST OFFICE 4. THE POST OFFICE DOES NOT RESPOND
TO THE QUERY SATISFACTORILY
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The consumer movement in India Under COPRA, a three-tier quasi-
has led to the formation of various judicial machinery at the district,
organisations locally known as state and national levels was set up
consumer forums or consumer for redressal of consumer disputes.
protection councils. They guide The district level court deals with the
consumers on how to file cases in the cases involving claims upto Rs 20
consumer court. On many occasions, lakhs, the state level courts between
they also represent individual Rs 20 lakhs and Rs 1 crore and the
consumers in the consumer courts. national level court deals with cases
These voluntary organisations also involving claims exceeding Rs 1 crore.
receive financial support from the If a case is dismissed in district level
government for creating awareness court, the consumer can also appeal
among the people. in state and then in National level
If you are living in a residential courts.
colony, you might have noticed Thus, the Act has enabled us as
name boards of Resident Welfare
consumers to have the right to
Associations. If there is any unfair
represent in the consumer courts.
trade practice meted out to their
members they take up the case on
their behalf.
I and
ISI n
ndd Agmark
Agm rk
Categorise the following cases under different heads and mark against each in
brackets.
(a) Lata got an electric shock from a newly purchased iron. She complained to the
shopkeeper immediately. ( )
(b) John is dissatisfied with the services provided by MTNL for the past few months.
He files a case in the District Level Consumer Forum. ( )
(c) Your friend has been sold a medicine that has crossed the expiry date and you
are advising her to lodge a complaint ( ).
(d) Iqbal makes it a point to scan through all the particulars given on the pack of any
item that he buys. ( )
(e) You are not satisfied with the services of the cable operator catering to your
locality but you are unable to switch over to anybody else. ( )
(f) You realise that you have received a defective camera from a dealer. You are
complaining to the head office persistently ( ).
5. If the standardisation ensures the quality of a commodity, why are many goods
available in the market without ISI or Agmark certification?
6. Find out the details of who provides Hallmark and ISO certification.
EXERCISES
1. Why are rules and regulations required in the marketplace? Illustrate with a few examples.
2. What factors gave birth to the consumer movement in India? Trace its evolution.
3. Explain the need for consumer consciousness by giving two examples.
4. Mention a few factors which cause exploitation of consumers.
5. What is the rationale behind the enactment of Consumer Protection Act 1986?
6. Describe some of your duties as consumers if you visit a shopping complex in your locality.
7. Suppose you buy a bottle of honey and a biscuit packet. Which logo or mark you will have
to look for and why?
8. What legal measures were taken by the government to empower the consumers in India?
9. Mention some of the rights of consumers and write a few sentences on each.
10. By what means can the consumers express their solidarity?
11. Critically examine the progress of consumer movement in India.
12. Match the following.
(i) Availing details of ingredients of a product (a) Right to safety
(ii) Agmark (b) Dealing with consumer cases
(iii) Accident due to faulty engine in a scooter (c) Certification of edible oil and cereals
(iv) District Consumer Court (d) Agency that develop standards for
goods and services
(v) Consumers International (e) Right to information
(vi) Bureau of Indian Standards (f) Global level institution of
consumer welfare organisations
13. Say True or False.
(i) COPRA applies only to goods.
(ii) India is one of the many countries in the world which has exclusive courts for consumer
redressal.
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87
(iii) When a consumer feels that he has been exploited, he must file a case in
the District Consumer Court.
(iv) It is worthwhile to move to consumer courts only if the damages incurred
are of high value.
(v) Hallmark is the certification maintained for standardisation of jewellry.
(vi) The consumer redressal process is very simple and quick.
(vii) A consumer has the right to get compensation depending on the degree of
the damage.
2. Mrs. Krishna bought a colour television (CTV) against six months warranty. The
CTV stopped working after three months. When she complained to the dealer /
shop where it was purchased, they sent an engineer to set it right. The CTV
continues to give trouble and Mrs Krishna no longer gets any reply to the complaint
she made to the dealer / shop. She decides to write to the Consumer Forum in
her area. Write a letter on her behalf. You may discuss with your partner / group
members before you write it.
– Buyers, Beware
– Consumers be cautious
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For each question, tick one. Always Sometimes Never
A B C
Note
(i) You are extremely aware as a consumer if your answers for
Qns. 5, 12, 13, 15 and 16 are (C) and for the rest (A).
(ii) If your answers are (A) for Qns. 5, 12, 13, 15 and 16 and the
rest (C), then you have to wake up as consumer.
(iii) If your answer is (B) for all the questions – you are somewhat
aware.
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SUGGESTED READINGS
Books
Abijit Vinayak Banerjee, Roland Benabou and Dilip Mookherjee (eds.),
Understanding Poverty, Oxford University Press, New York, 2006.
Amit Bhaduri, Development with Dignity: The Case for Full Employment, National
Book Trust, New Delhi, 2005.
Bimal Jalan (ed.), Indian Economy, Penguin Books, New Delhi, 2002.
CUTS, State of the Indian Consumer: Analyses of the Implementation of the United
Nations Guidelines for Consumer Protection, 1985 in India, Consumer Unity
Trust Society, Jaipur, 2001.
Jan Breman and Parthiv Shah, Working in the mill no more, Oxford University
Press, Delhi, 2005.
Jean Dreze and Amartya Sen, India: Development and Participation, Oxford
University Press, Delhi, Third Impression, 2007.
John K.Galbraith, Money: Whence it Came, Whence it Went, Indian Book Company,
New Delhi, 1975.
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Government Publications
Ministry of Finance, Economic Survey, Government of India.
NSSO, Key Results of Employment-Unemployment Rounds, National Sample Survey
Organisation, Ministry of Statistics and Programme Implementation, Govt
of India, New Delhi.
Planning Commission, National Human Development Report 2001, Government
of India, New Delhi.
Other Reports
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No
Nott es
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N OT E F
NOTES
NOTE O T
FOR
FO E TE A CH E R
THE
C A E I : DEVELOPMENT
CHAPTER V L M N
Development has many aspects. The bringing the learners closer to their real-life
purpose of this chapter is to enable situations.
students to understand this idea. They have
to understand that people have different There are certain terms used in this
perspectives on development and there are chapter that would require clarification
ways by which we can arrive at common — Per Capita Income, Literacy Rate,
indicators for development. To do this, we Infant Mortality Rate, Attendance Ratio,
have used situations that they can respond Life Expectancy, Gross Enrolment Ratio,
to in an intuitive manner; we have also and Human Development Index. Though
presented analysis that is more complex and data pertaining to these terms are
macro in nature. provided, these would need further
explanation. You may also need to clarify
How can countries or states be
the concept of purchasing power parity
compared using some selected development
indicators is another question that that is used to calculate per capita income
students would read about in this chapter. in Table 1.6. It is necessary to keep in
Economic development can be measured mind that these terms are used as an aid
and income is the most common method to the discussion and not something to
for measuring development. However, the be memorised.
income method, though useful, has several Sources for Information
weaknesses. Hence, we need newer ways
of looking at development using indicators The data for this chapter is taken from reports
of quality of life and environmental published by the Government of India
sustainability. (Economic Survey), United Nations
It is necessary for you to expect the Development Programme (Human Development
students to respond actively in the Report) and World Bank (World Development
classroom and on a topic such as the above Indicators). These reports are being published
there would be wide variation in opinion every year. It may be interesting to look up
and possibility of debate. Allow students to these reports if they are available in your school
argue their point of view. At the end of each library. If not, you may log on to the websites
section there are a few questions and of these institutions (www.bugetindia.nic.in,
activities. These serve two purposes: first, www.undp.org, www.worldbank.org). Data is
they recap the ideas discussed in the also available from the Reserve Bank’s
section and second, they enable better Handbook of Statistics on Indian Economy,
understanding of the themes discussed by available at www.rbi.org).
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CHAPTER I
DEVELOPMENT
The idea of development or progress
has always been with us. We have
aspirations or desires about what we
would like to do and how we would
like to live. Similarly, we have ideas
about what a country should be like.
What are the essential things that we
require? Can life be better for all? How
should people live together? Can there
be more equality? Development
involves thinking about these
questions and about the ways in
which we can work towards achieving
these goals. This is a complex
task and in this chapter we shall
make a beginning at understanding
development. You will learn more
about these issues in greater depth
in higher classes. Also, you will find
answers to many of these questions
not just in economics but also in your
course in history and political science.
This is because the way we live today
is influenced by the past. We can’t
desire for change without being aware
of this. In the same way, it is only
through a democratic political
process that these hopes and “Without me they cannot develop...
possibilities can be achieved in in this system I cannot develop!”
real life.
DEVELOPMENT 3
WHAT DEVELOPMENT PROMISES —
DIFFERENT PEOPLE, DIFFERENT GOALS
YOU WANT A C R THE WAY OUR COUNTRY IS
CAR?
Let us try to imagine what SET UP ALL YOU CAN HOPE FOR IS MAY BE TO
ONE DAY OWN THE RICKSHAW YOU PULL!
development or progress is likely to
mean to different persons listed in
Table 1.1. What are their aspirations?
You will find that some columns are
partially filled. Try to complete the
table. You can also add any other
category of persons.
Having filled Table 1.1, let us now They seek things that are most
examine it. Do all of these persons important for them, i.e., that which
have the same notion of development can fulfil their aspirations or desires.
or progress? Most likely not. Each In fact, at times, two persons or
one of them seeks different things. groups of persons may seek things
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which are conflicting. A girl expects So, two things are quite clear: one,
as much freedom and opportunity as different persons can have
her brother, and that he also shares different developmental goals and
in the household work. Her brother two, what may be development for
may not like this. Similarly, to get one may not be development for
more electricity, industrialists may the other. It may even be
THOSE
T OS PEOPLE L
want more dams. But this may destructive for the other. DON’T WANT TO
submerge the land and disrupt the DEVELOP!
lives of people who are displaced – such
as tribals. They might resent this and
may prefer small check dams or tanks
to irrigate their land.
NATIONAL DEVELOPMENT
If, as we have seen above, individuals different persons could have
seek different goals, then their notion different as well as conflicting
of national development is also likely notions of a country’s development.
to be different. Discuss among
However, can all the ideas be
yourselves on what India should do
considered equally important? Or, if
for development.
there are conflicts how does one
Most likely, you would find that decide? What would be a fair and just
different students in the class have given path for all? We also have to think
different answers to the above question. whether there is a better way of doing
In fact, you might yourself think of things. Would the idea benefit a large
many different answers and not be too number of people or only a small
sure of any of these. It is very group? National development means
important to keep in mind that thinking about these questions.
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LET’S WORK THESE OUT
Discuss the following situations:
1. Look at the picture on the right. What should
be the developmental goals for such an area?
2. Read this newspaper report and answer the
questions that follow:
0 tonnes
A vessel dumped 50
wa st es in to
of liq ui d to xic
mp s in a cit y and
open-air du
se This
a.
in the surrounding
cit y ca lle d
ha pp en ed in a
Iv or y Co as t, a
Ab id ja n in
Af ric a. Th e fumes
country in
xic wa ste
fro m th e hi gh ly to
sk in rashes,
caused nausea,
oe a etc . After a
fainting, diarrh we re
ve n pe rs on s
mo nt h se and
sp ita l
dead, twenty in ho at ed
nd tre
twenty six thousa g.
of po iso nin
for symptoms
mpany
A multinational co
leu m an d
de al in g in pe tro loc al
co nt ra cte d a
metals had t to
Co as
company of the Ivory fro m
ste
dispose the toxic wa
its ship.
ACTIVITY 1
If even the idea of what constitutes
development can be varied and
conflicting, then certainly there can be
differences about ways of developing. If
you know of any such
controversy, try to find out
arguments advanced by different
people. You may do so by talking to
different persons or you may find it from
newspapers and television.
DEVELOPMENT 7
HOW TO COMPARE DIFFERENT COUNTRIES
OR STATES?
You might ask — if development can more developed than others with less
mean different things, how come some income. This is based on the
countries are generally called understanding that more income
developed and others under - means more of all things that human
developed? Before we come to this, beings need. Whatever people like,
let us consider another question. and should have, they will be able to
get with greater income. So, greater
When we compare different things,
income itself is considered to be one
they could have similarities as well as
important goal.
differences. Which aspects do we use
to compare them? Let us look at Now, what is the income of a
students in the class itself. How do country? Intuitively, the income of the
we compare different students? They country is the income of all the
differ in their height, health, talents residents of the country. This gives
and interests. The healthiest student us the total income of the country.
may not be the most studious one.
However, for comparison between
The most intelligent student may not
countries, total income is not such an
be the friendliest one. So, how do we
useful measure. Since, countries have
compare students? The criterion we
different populations, comparing total
may use depends on the purpose of
income will not tell us what an average
comparison. We use different criterion
person is likely to earn. Are people in
to choose a sports team, a debate
one country better off than others in a
team, a music team or a team to
different country? Hence, we compare
organise a picnic. Still, if for some
the average income which is the total
purpose, we have to choose the
income of the country divided by its
criterion for the all-round progress of
total population. The average income
children in the class, how shall we
is also called per capita income.
do it?
In World Development Report
Usually we take one or more
2006, brought out by the World
important characteristics of
Bank, this criterion is used in
persons and compare them based
classifying countries. Countries with
on these characteristics. Of
per capita income of Rs 4,53,000 per
course, there can be differences about
annum and above in 2004, are called
what are important characteristics
rich countries and those with per
that should form the basis of
capita income of Rs 37,000 or less are
comparison: friendliness and spirit of
called low-income countries. India
cooperation, creativity or marks
comes in the category of low-income
secured?
countries because its per capita
This is true of development too. income in 2004 was just Rs 28,000
For comparing countries, their per annum. The rich countries,
income is considered to be one of excluding countries of Middle East
the most important attributes. and certain other small countries, are
Countries with higher income are generally called developed countries.
8 U NDERST D G E CONOMIC
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Av era g I
Average me
Income
While ‘averages’ are useful for comparison, they also hide disparities.
For example, let us consider two countries, A and assured of being its fifth citizen
B. For the sake of simplicity, we have assumed but if it is a lottery that decides
that they have only five citizens each. Based on our citizenship number then
data given in Table 1.2, calculate the perhaps most of us will prefer to
average income for both the countries. live in country A. Even though
both the countries have identical
TABLE 1.2 COMPARISON OF TWO average income, country A is
COUNTRIES preferred because it has more
Monthly incomes of citizens in 2007 equitable distribution. In this
Country (in Rupees) country people are neither very
I II III IV V Average rich nor extremely poor. On the
other hand most citizens in
Country A 9500 10500 9800 10000 10200 country B are poor and one
Country B 500 500 500 500 48000 person is extremely rich. Hence,
while average income is useful
Will you be equally happy to live in both these for comparison it does not tell us
countries? Are both equally developed? Perhaps how this income is distributed
some of us may like to live in country B if we are among people.
COUNTRY WITH NO RICH AND NO POOR COUNTRY WITH RICH AND POOR
WE
MADE THE
CHAIRS
AND WE
USE
THEM.
WE
LET’S WORK THESE OUT MADE THE
CHAIRS
1. Give three examples where an average is used for comparing situations. AND HE
TOOK
2. Why do you think average income is an important criterion for development? Explain. THEM.
3. Besides size of per capita income, what other property of income is important in
comparing two or more societies?
4. Suppose records show that the average income in a country has been increasing
over a period of time. From this, can we conclude that all sections of the economy
have become better? Illustrate your answer with an example.
5. From the text, find out the per capita income level of middle-income countries as
per WDR 2006.
6. Write a paragraph on your notion of what should India do, or achieve, to become a
developed country.
DEVELOPMENT 9
INCOME AND OTHER CRITERIA
When we looked at individual
aspirations and goals, we
found that people not only
TABLE 1.3 PER CAPITA INCOME
think of better income but OF SELECT STATES
also have goals such as State Per Capita Income
security, respect for others, for 2002-03 (in Rs)
equal treatment, freedom etc. Punjab 26000
in mind. Similarly, when we Kerala 22800
think of a nation or a region, Bihar 5700
we may, besides average
income, think of other equally
important attributes.
What could these attributes be? Bihar is at the bottom. This means
Let us examine this through an that, on an average, a person in
example. Table 1.3 gives the per capita Punjab earned Rs 26,000 in one year
income of Punjab, Kerala and Bihar. whereas, on an average, a person in
Actually, these figures are of Per Bihar would earn only around
Rs 5,500. So, if per capita income
Capita Net State Domestic Product at were to be used as the measure of
Current Prices for 2002-03. Let us development, Punjab will be
ignore what this complicated term considered the most developed and
exactly means. Roughly we can take Bihar the least developed state of the
it to be per capita income of the state. three. Now, let us look at certain other
We find that of the three, Punjab has data pertaining to these states given
the highest per capita income and in Table 1.4.
10
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What does this table show? The The problem does not end with
first column of the table shows that in Infant Mortality Rate. The last column
Kerala, out of 1000 children born alive shows that more that half of the
11 died before completing one year of children in Bihar do not even get to
age but in Punjab the proportion of go to school. This means that if you
children dying within one year of birth went to school in Bihar more than half
is 49, which is nearly five times more. of your class would be missing. Those
On the other hand, the per capita who could have been in school are not
income of Punjab is much more than there! If this had happened to you,
Kerala as shown in Table 1.3. Just you would not be able to read what
think of how dear you are to your you are reading now.
parents, think of how every one is so
happy when a child is born. Now, try
to think of parents whose children die
before they even celebrate their first
birthday. How painful it must be to
these parents? Next, note the year to
which this data pertains. It is 2003.
So we are not talking of old times; it is
56 years after independence when our
metro towns are full of high-rise
buildings and shopping malls! Most babies do not get basic health care
PUBLIC FACILITIES
How is it that the average person in Actually for many of the important
Punjab has more income than the things in life the best way, also the
average person in Kerala but lags cheapest way, is to provide these goods
behind in these crucial areas? The and services collectively. Just think –
reason is — money in your pocket will it be cheaper to have collective
cannot buy all the goods and security for the whole locality or for
services that you may need to live each house to have its own security
well. So, income by itself is not a man? What if no one, other than you,
completely adequate indicator of in your village or locality is interested
material goods and services that in studying? Would you be able to
citizens are able to use. For example, study? Not unless your parents could
normally, your money cannot buy afford to send you to some private
you a pollution-free environment or school elsewhere. So you are actually
ensure that you get unadulterated able to study because many other
medicines, unless you can afford to children also want to study and
shift to a community that already has because many people believe that the
all these things. Money may also not government should open schools and
be able to protect you from infectious provide other facilities so that all
diseases, unless the whole of your children have a chance to study. Even
community takes preventive steps. now, in many areas, children,
particularly girls, are not able to
achieve secondary level schooling
because government/society has
not provided adequate facilities.
DEVELOPMENT 11
Kerala has a low Infant Mortality PDS shop, i.e. ration shop, does not
Rate because it has adequate function properly in such places, the
provision of basic health and people there are able to get the
educational facilities. Similarly, in problem rectified. Health and
some states, the Public Distribution nutritional status of people of such
System (PDS) functions well. If some states is certainly likely to be better.
ACTIVITY 2
Study Table 1.5 carefully and fill in the blanks in the following paragraphs. For this,
you may need to make calculations based on the table.
(a) The literacy rate for all age groups, including young and old, is _____ for rural
males and _____ for rural females. However, it is not just that these many
adults could not attend school but that there are _____ who are currently not in
school.
(b) It is clear from the table that _____ % of rural girls and _____% of rural boys are
not attending school. Therefore, illiteracy among children in the age group 10-
14 is as high as _____% for rural females and _____% for rural males.
(c) This high level of illiteracy among __________ age group, even after more than
60 years of our independence, is most disturbing. In many other states also
we are nowhere near realisation of the constitutional goal of free and compulsory
education for all children up to the age of 14, which was expected to be achieved
by 1960.
12
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ACTIVITY 3 HUMAN
A DEVELOPMENT
VE
D VE OP E T
One way to find out if adults are undernourished is to R
REPORT
calculate what nutrition scientists call Body Mass Once it is realised that even though
Index (BMI). This is easy to calculate. Take the weight
the level of income is important, yet
of the person in kg. Then take the height in metres.
Divide the weight by the square of the height. If this it is an inadequate measure of the
figure is less than 18.5 then the person would be level of development, we begin to
considered undernourished. However, if this BMI is think of other criterion. There could
more than 25, then a person is overweight. Do be a long list of such criterion but
remember that this criterion is not applicable to growing then it would not be so useful. What
children.
we need is a small number of the
Let each student in a most important things. Health and
class find out the weight
education indicators, such as the
and height of three adult
persons of different ones we used in comparison of
economic backgrounds Kerala and Punjab, are among them.
such as construction Over the past decade or so, health
workers, domestic and education indicators have come
servants, office workers, to be widely used along with income
business-persons etc.
Collect the data from
as a measure of development. For
all the students and instance, Human Development
make a combined table. Report published by UNDP compares
Calculate their BMI. Do countries based on the educational
you find any relationship levels of the people, their health
between economic
status and per capita income. It
background of person and
her/his nutritional status? would be interesting to look at
certain relevant data regarding India
and its neighbours from Human
Development Report 2006.
DEVELOPMENT 13
Isn’t it surprising that a small added to the Human Development
country in our neighbourhood, Sri Report but, by pre-fixing Human to
Lanka, is much ahead of India in every Development, it has made it very clear
respect and a big country like ours that what is important in
has such a low rank in the world? development is what is happening to
Table 1.6 also shows that though citizens of a country. It is people, their
Nepal has half the per capita income health, their well being, that is most
of India, yet it is not far behind India important.
in life expectancy and literacy levels.
Do you think there are certain
Many improvements have been other aspects that should be
suggested in calculating HDI and considered in measuring human
many new components have been development?
SUSTAINABILITY OF DEVELOPMENT
Whichever way we define
development, suppose for the present “We have not inherited
that a particular country is quite the world from our
developed. We would certainly like this forefathers — we have
level of development to go up further borrowed it from our
or at least be maintained for future children.”
generations. This is obviously
desirable. However, since the second
half of the twentieth century, a number
of scientists have been warning that
the present type, and levels, of
development are not sustainable.
ND WHY
LET’S UNDERSTA
RO UG H THE
THIS IS SO TH
LL OW IN G EX AMPLE:
FO
Example
xa p e 1:: Groundwater
Gro
G nd
ro n d a e in Ind
India
a
“Recent evidence suggests that the groundwater is under
serious threat of overuse in many parts of the country. About
300 districts have reported a water level decline of over 4 metres
during the past 20 years. Nearly one-third of the country is
overusing their groundwater reserves. In another 25 years,
60 per cent of the country would be doing the same if the present
way of using this resource continues. Groundwater overuse is
particularly found in the agriculturally prosperous regions of
Punjab and Western U.P., hard rock plateau areas of central
and south India, some coastal areas and the rapidly growing
urban settlements.”
(a) Why ground water is overused?
(b) Can there be development without overuse?
14
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Groundwater is an example of Non-renewable resources are those
renewable resources. These resources which will get exhausted after years
are replenished by nature as in the of use. We have a fixed stock on earth
case of crops and plants. However, which cannot be replenished. We do
even these resources may be discover new resources that we did
overused. For example, in the case of not know of earlier. New sources in
groundwater, if we use more than this way add to the stock. However,
what is being replenished by rain then over time, even this will get exhausted.
we would be overusing this resource.
UDE OIL THAT WE
FOR EXAMPLE, CR
E EARTH IS A NON-
EXTRACT FROM TH
URCE. HOWEVER WE
RENEWABLE RESO DID
CE OF OIL THAT WE
MAY FIND A SOUR NS
RLIER. EXPLORATIO
NOT KNOW OF EA TIME.
RTAKEN ALL THE
ARE BEING UNDE
mp
Example 2
2:: E xhau t o off
Exhaustion
N u a l Resources
Natural es u rces
Look at the following data for crude oil.
DEVELOPMENT 15
Consequences of environmental social scientists are working
degradation do not respect national together.
or state boundaries; this issue is In general, the question of
no longer region or nation specific. development or progress is perennial.
Our future is linked together. At all times as a member of society
Sustainability of development is and as individuals we need to ask
comparatively a new area of where we want to go, what we wish to
knowledge in which scientists, become and what our goals are. So
economists, philosophers and other the debate on development continues.
EXERCISES
1. Development of a country can generally be determined by
(i) its per capita income
(ii) its average literacy level
(iii) health status of its people
(iv) all the above
2. Which of the following neighbouring countries has better performance in terms of
human development than India?
(i) Bangladesh
(ii) Sri Lanka
(iii) Nepal
(iv) Pakistan
3. Assume there are four families in a country. The average per capita income of
these families is Rs 5000. If the income of three families is Rs 4000, Rs 7000
and Rs 3000 respectively, what is the income of the fourth family?
(i) Rs 7500
(ii) Rs 3000
(iii) Rs 2000
(iv) Rs 6000
4. What is the main criterion used by the World Bank in classifying different
countries? What are the limitations of this criterion, if any?
5. In what respects is the criterion used by the UNDP for measuring development
different from the one used by the World Bank?
6. Why do we use averages? Are there any limitations to their use? Illustrate with
your own examples related to development.
7. Kerala, with lower per capita income has a better human development ranking
than Punjab. Hence, per capita income is not a useful criterion at all and should
not be used to compare states. Do you agree? Discuss.
8. Find out present sources of energy used by people in India. What could be
possibilities fifty years from now?
9. Why is the issue of sustainability important for development?
16
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10. “The Earth has enough resources to meet the needs of all but not enough to
satisfy the greed of even one person”. How is this statement relevant to the
disscusion of development? Discuss.
11. List a few examples of environmental degradation that you may have observed
around you.
12. For each of the items given in Table 1.6, find out which country is at the top and
which is at the bottom.
13. The following table shows the proportion of undernourished adults in India. It is
based on a survey of various states for the year 2001. Look at the table and
answer the following questions.
(i) Compare the nutritional level of people in Kerala and Madhya Pradesh.
(ii) Can you guess why around 40 per cent of people in the country are
undernourished even though it is argued that there is enough food in the
country? Describe in your own words.
DEVELOPMENT 17
NOTES FOR THE TEACHER
CHAPTER 2: SECTORS OF THE INDIAN ECONOMY
18 U NDERST
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M C D E VELOPMENT
CHAPTER 2
SECTORS
OF THE INDIAN ECONOMY
20 U NDERSTA
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different categories,
tiv iti es , th ou gh , ar e grouped into three
Economic ac e examples.
ghly inte rd ep en de nt. Let us look at som
are hi
S ECTORS
R OF T E
THE I NDIAN E CONOMY
O 21
COMPARING THE THREE SECTORS
The various production activities in the primary, secondary
and tertiary sectors produce a very large number of goods
and services. Also, the three sectors have a large number of
people working in them to produce these goods and services.
The next step, therefore, is to see how much goods and services
are produced and how many people work in each sector. In
an economy there could be one or more sectors which are
dominant in terms of total production and employment, while
other sectors are relatively small in size.
22 U NDERSTA
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value of all other intermediate goods administrators, army etc. However, at
would have been included. To count this stage, most of the goods produced
the value of the flour and wheat were natural products from the
separately is therefore not correct primary sector and most people were
because then we would be counting also employed in this sector.
the value of the same things a number
Over a long time (more than
of times. First as wheat, then as flour
hundred years), and especially
and finally as biscuits.
because new methods of
The value of final goods and manufacturing were introduced,
services produced in each sector factories came up and started
during a particular year provides expanding. Those people who had
the total production of the sector earlier worked on farms now began
for that year. And the sum of to work in factories in large numbers.
production in the three sectors gives People began to use many more
what is called the Gross Domestic goods that were produced in factories
Product (GDP) of a country. It is the at cheap rates. Secondary sector
value of all final goods and services gradually became the most important
produced within a country during a in total production and employment.
particular year. GDP shows how big Hence, over time, a shift had taken
the economy is. place. This means that the importance
of the sectors had changed.
In India, the mammoth task of
measuring GDP is undertaken by a In the past 100 years, there has
central government ministry. This been a further shift from secondary to
Ministry, with the help of various tertiary sector in developed countries.
government departments of all the The service sector has become the most
Indian states and union territories, important in terms of total production.
collects information relating to total Most of the working people are also
volume of goods and services and their employed in the service sector. This is
prices and then estimates the GDP. the general pattern observed in
developed countries.
Historical Change in Sectors
What is the total production and
Generally, it has been noted from the
employment in the three sectors in
histories of many, now developed,
India? Over the years have there been
countries that at initial stages of
changes similar to the pattern
development, primary sector was the
observed for the developed countries?
most important sector of economic
We shall see in the next section.
activity.
As the methods of farming LET’S WORK THESE OUT
changed and agriculture sector began
1. What does the history of developed countries indicate
to prosper, it produced much more about the shifts that have taken place between sectors?
food than before. Many people could
now take up other activities. There 2. Correct and arrange the important aspects for calculating
GDP from this Jumble.
were increasing number of craft-
persons and traders. Buying and To count goods and services we add the numbers that
are produced. We count all those that was produced in
selling activities increased many times.
the last five years. Since we shouldn’t leave out anything
Besides, there were also transporters, we add up all these goods and services.
S ECTORS
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PRIMARY, SECONDARY AND TERTIARY
SECTORS IN INDIA
Graph 1 shows the
production of goods Graph 1 : GDP by Primary, Secondary and
and services in the Tertiary Sectors
three sectors. This
210000
is shown for two
200000
years, 1973 and
190000
2003. You can see 180000
how the total 170000
production has 160000
grown over the 150000
thirty years. 140000
Rupees (Crore) 130000
LET’S WORK THESE 120000
OUT 110000
100000
Answer the following questions by 90000
looking at the graph: 80000
70000 Tertiary sector
1. Which was the largest producing
sector in 1973? 60000
Secondary sector
50000
2. Which is the largest producing
40000
sector in 2003? Primary sector
30000
3 . Can you say which sector has 20000
grown the most over thirty years? 10000
4. What was the GDP of India in 2003? 0
1973 2003
GDP
60%
sections of people start demanding Secondary sector
50%
many more services like eating out,
40%
tourism, shopping, private hospitals, Primary sector
30%
private schools, professional training 20%
etc. You can see this change quite 10%
sharply in cities, especially in big cities. 0%
1973 2003
Fourth, over the past decade or so,
certain new services such as
those based on information and
communication technology have A remarkable fact about India is
become important and essential. The that while there has been a change
production of these services has been in the share of the three sectors in
rising rapidly. In Chapter 4, we shall GDP, a similar shift has not taken
see examples of these new services place in employment. Graph 3
and the reasons for their expansion. shows the share of employment in
the three sectors in 1973 and 2000.
However, you must remember that
The primary sector continues to be
not all of the service sector is growing
the largest employer even in the
equally well. Service sector in India
year 2000.
employs many different kinds of
people. At one end there are a limited
number of services that employ highly
Graph 3 : Share of Sectors in Employment (%)
skilled and educated workers. At the
other end, there are a very large 100%
number of workers engaged in 90%
services such as small shopkeepers, 80%
Tertiary sector
Employment
26 U NDERSTA
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LET’S WORK THESE OUT
1. Complete the table using the data given in Graphs 2 and 3 and answer the question
that follows.
Share in GDP
Share in employment
What are the changes that you observe in the primary sector over a span of thirty
years?
2. Choose the correct answer:
Underemployment occurs when people
(i) do not want to work
(ii) are working in a lazy manner
(iii) are working less than what they are capable of doing
(iv) are not paid for their work
3. Compare and contrast the changes in India with the pattern that was observed for
developed countries. What kind of changes between sectors were desired but did
not happen in India?
4. Why should we be worried about underemployment?
S ECTORS
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application and harvesting). So, two rate of interest. If the local bank gives
more members of the family can be her credit at a reasonable rate of
employed in her own field. Now interest, she will be able to buy all these
suppose a new dam is constructed in time and cultivate her land. This
and canals are dug to irrigate many means that along with water, we also
such farms. This could lead to a lot of need to provide cheap agricultural
employment generation within the credit to the farmers for farming to
agricultural sector itself reducing the improve. We will look at some of these
problem of underemployment. needs in Chapter 3, Money and Credit.
Now, suppose Laxmi and other Another way by which we can
farmers produce much more than tackle this problem is to identify,
before. They would also need to sell some promote and locate industries and
of this. For this they may be required to services in semi-rural areas where a
transport their products to a nearby large number of people may be
town. If the government invests some employed. For instance, suppose
money in transportation and storage of many farmers decide to grow arhar
crops, or makes better rural roads so and chickpea (pulse crops). Setting
that mini-trucks reach everywhere up a dal mill to procure and process
several farmers like Laxmi, who now these and sell in the cities is one such
have access to water, can continue to example. Opening a cold storage could
grow and sell these crops. This activity give an opportunity for farmers to
can provide productive employment to store their products like potatoes and
not just farmers but also others such as onions and sell them when the price
those in services like transport or trade. is good. In villages near forest areas,
we can start honey collection centres
Laxmi’s need is not confined to
where farmers can come and sell wild
water alone. To cultivate the land, she
honey. It is also possible to set up
also needs seeds, fertilisers,
industries that process vegetables and
agricultural equipments and
agricultural produce like potato,
pumpsets to draw water. Being a poor
sweet potato, rice, wheat, tomato,
farmer, she cannot afford many of
fruits, which can be sold in outside
these. So she will have to borrow money
Gur Making in markets. This will provide
Haryana from moneylenders and pay a high
employment in industries located in
semi-rural areas and not necessarily
in large urban centres.
S ECTORS
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DIVISION OF SECTORS AS ORGANISED AND
UNORGANISED
Let us examine another way of classifying activities in the economy. This looks
at the way people are employed. What are their conditions of work? Are there
any rules and regulations that are followed as regards their employment?
a
Ka n tta
Ka
nds her office from
Kanta works in an office. She atte
s her salary regularly
9.30 a.m. to 5.30 p.m. She get
ition to the salary,
at the end of every month. In add
as per the rules laid
she also gets provident fund
also gets medical and
down by the government. She
s not go to office on
other allowances. Kanta doe
y. When she joined
Sundays. This is a paid holida
tment letter stating
work, she was given an appoin
work.
all the terms and conditions of
K am a l
Kamal is Kanta’s neighbour.
He is a
da ily wa ge lab our er in a
nea rby
grocery shop. He goes to the
shop at
7:30 in the morning and works
till 8:00
p.m. in the evening. He gets
no other
allowances apart from his wa
ges. He
is not paid for the days he doe
s not
work. He has therefore no leave
or paid
holidays. Nor was he given any
formal
let ter say ing tha t he ha
s bee n
employed in the shop. He can be
asked
to leave anytime by his emplo
yer.
differences in
Do you see the
s of w or k
th e co n d it io n organised because it has some formal
and Kamal?
between Kanta processes and procedures. Some of
these people may not be employed by
Kanta works in the organised anyone but may work on their own
sector. Organised sector covers those
but they too have to register
enterprises or places of work where
themselves with the government and
the terms of employment are regular
follow the rules and regulations.
and therefore, people have assured
work. They are registered by the Workers in the organised sector
government and have to follow its enjoy security of employment. They
rules and regulations which are are expected to work only a fixed
given in various laws such as the number of hours. If they work more,
Factories Act, Minimum Wages Act, they have to be paid overtime by the
Payment of Gratuity Act, Shops and employer. They also get several other
Establishments Act etc. It is called benefits from the employers. What are
30 U NDERSTA
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these benefits? They get paid leave, low-paid and often not regular. There
payment during holidays, provident is no provision for overtime, paid
fund, gratuity etc. They are supposed leave, holidays, leave due to sickness
to get medical benefits and, under the etc. Employment is not secure. People
laws, the factory manager has to can be asked to leave without any
ensure facilities like drinking water reason. When there is less work, such
and a safe working environment. as during some seasons, some people
When they retire, these workers get may be asked to leave. A lot also
pensions as well. depends on the whims of the
In contrast, Kamal works in the employer. This sector includes a large
unorganised sector. The unorganised number of people who are employed
sector is characterised by small and on their own doing small jobs such
scattered units which are largely as selling on the street or doing repair
outside the control of the government. work. Similarly, farmers work on their
There are rules and regulations but own and hire labourers as and when
these are not followed. Jobs here are they require.
S ECTORS
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How to Protect Workers in Who are these vulnerable people
the Unorganised Sector? who need protection? In the rural
areas, the unorganised sector mostly
The organised sector offers jobs that
comprises of landless agricultural
are the most sought-after. But the
labourers, small and marginal
employment opportunities in the
farmers, sharecroppers and artisans
organised sector have been expanding
(such as weavers, blacksmiths,
very slowly. It is also common to find
carpenters and goldsmiths). Nearly
many organised sector enterprises in
80 per cent of rural households in
the unorganised sector. They adopt
India are in small and marginal
such strategies to evade taxes and
farmer category. These farmers need
refuse to follow laws that protect
to be supported through adequate
labourers. As a result, a large number
facility for timely delivery of seeds,
of workers are forced to enter the
agricultural inputs, credit, storage
unorganised sector jobs, which pay a
facilities and marketing outlets.
very low salary. They are often
exploited and not paid a fair wage. In the urban areas, unorganised
Their earnings are low and not sector comprises mainly of workers in
regular. These jobs are not secure and small-scale industry, casual workers
have no other benefits. in construction, trade and transport
etc., and those who work as street
Since the 1990s, it is also common
vendors, head load workers, garment
to see a large number of workers
makers, rag pickers etc. Small-scale
losing their jobs in the organised
industry also needs government’s
sector. These workers are forced to
support for procuring raw material
take up jobs in the unorganised
and marketing of output. The casual
sector with low earnings. Hence,
workers in both rural and urban
besides the need for more work, there
areas need to be protected.
is also a need for protection and
support of the workers in the We also find that majority of
unorganised sector. workers from scheduled castes, tribes
and backward communities
find themselves in the
unorganised sector. Besides
getting the irregular and low
paid work, these workers also
face social discrimination.
Protection and support to
the unorganised sector
workers is thus necessary
for both economic and
social development.
32 U NDERSTA
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LET’S RECALL
With so many activities taking place around us, one needs to use the
process of classification to think in a useful manner. The criterion for
classification could be many depending on what we desire to find out.
The process of classification helps to analyse a situation.
In dividing the economic activities into three sectors — primary,
secondary, tertiary — the criterion used was the ‘nature of activity’. On
the basis of this classification, we were able to analyse the pattern of total
production and employment in India. Similarly, we divided the economic
activities into organised and unorganised and used the classification to
look at employment in the two sectors.
What was the most important conclusion that was derived from the
classification exercises? What were the problems and solutions that were
indicated? Can you summarise the information in the following table?
TABLE 2.4 CLASSIFYING ECONOMIC ACTIVITIES
Sector Criteria used Most important Problems indicated and
conclusion how they can be tackled
Primary, Nature
Secondary, of activity
Tertiary
Organised,
Unorganised
S ECTORS
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of the private sector. Also, collecting cost. In this way, the government
money from thousands of people who supports both farmers and
use these facilities is not easy. Even if consumers.
they do provide these things they
There are a large number of
would charge a high rate for their
activities which are the primary
use. Examples are construction of
responsibility of the government. The
roads, bridges, railways, harbours,
government must spend on these.
generating electricity, providing
Providing health and education
irrigation through dams etc. Thus,
facilities for all is one example. We
governments have to undertake such
have discussed some of these issues
heavy spending and ensure that
in the first chapter. Running proper
these facilities are available for
schools and providing quality
everyone.
education, particularly elementary
There are some activities, which education, is the duty of the
the government has to support. The government. India’s size of illiterate
private sector may not continue their population is one of the largest in the
production or business unless world.
government encourages it. For
Similarly, we know that nearly half
example, selling electricity at the cost
of India’s children are malnourished
of generation may push up the costs
and a quarter of them are critically ill.
of production of industries. Many
We have read about Infant Mortality
units, especially small-scale units,
Rates. The infant mortality rate of
might have to shut down. Government
Orissa (87) or Madhya Pradesh (85)
here steps in by producing and sup-
is higher than that of the poorest
plying electricity at rates which these
regions of the world such as the
industries can afford. Government
African countries. Government also
has to bear part of the cost.
needs to pay attention to aspects of
Similarly, the government in India human development such as
buys wheat and rice from farmers at availability of safe drinking water,
a ‘fair price’. This it stores in its housing facilities for the poor and food
godowns and sells at a lower price to and nutrition. It is also the duty of
consumers through ration shops. You the government to take care of the
have read about this in the chapter poorest and most ignored regions of
on Food Security in Class IX. The the country through increased
government has to bear some of the spending in such areas.
SUMMING UP
In this chapter we have looked at ways of what all can be done for increasing
classifying economic activities into some employment opportunities in the country.
meaningful groups. One way of doing this Another classification is to consider whether
is to examine whether the activity relates to people are working in organised or
the primary, secondary or tertiary sectors. unorganised sectors. Most people are
The data for India, for the last thirty years, working in the unorganised sectors and
shows that while goods and services protection is necessary for them. We also
produced in the tertiary sector contribute looked at the difference between private and
the most to GDP, the employment remains public activities, and why it is important for
in the primary sector. We have also seen public activities to focus on certain areas.
34 U NDERSTA
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EXERCISES
1. Fill in the blanks using the correct option given in the bracket:
(i) Employment in the service sector _________ increased to the same extent
as production. (has / has not)
(ii) Workers in the _________ sector do not produce goods.
(tertiary / agricultural)
(iii) Most of the workers in the _________ sector enjoy job security.
(organised / unorganised)
(iv) A _________ proportion of labourers in India are working in the unorganised
sector. (large / small)
(v) Cotton is a _________ product and cloth is a _________ product.
[natural /manufactured]
(vi) The activities in primary, secondary and tertiary sectors are_________
[independent / interdependent]
(c) GDP is the total value of _________ produced during a particular year.
(i) all goods and services
(ii) all final goods and services
(iii) all intermediate goods and services
(iv) all intermediate and final goods and services
S ECTORS
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3. Match the following:
Problems faced by farming sector Some possible measures
1. Unirrigated land (a) Setting up agro-based mills
2. Low prices for crops (b) Cooperative marketing societies
3. Debt burden (c) Procurement of food grains by government
4. No job in the off season (d) Construction of canals by the government
5. Compelled to sell their grains to (e) Banks to provide credit with low interest
the local traders soon after harvest
36 U NDERSTTANDING
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PM
13. Service sector in India employs two different kinds of people. Who are these?
14. Workers are exploited in the unorganised sector. Do you agree with this view?
Give reasons in support of your answer.
15. How are the activities in the economy classified on the basis of employment
conditions?
16. Compare the employment conditions prevailing in the organised and unorganised
sectors.
17. Explain the objective of implementing the NREGA 2005.
18. Using examples from your area compare and contrast that activities and functions
of private and public sectors.
19. Discuss and fill the following table giving one example each from your area.
20. Give a few examples of public sector activities and explain why the government
has taken them up.
21. Explain how public sector contributes to the economic development of a nation.
22. The workers in the unorganised sector need protection on the following issues :
wages, safety and health. Explain with examples.
23. A study in Ahmedabad found that out of 15,00,000 workers in the city, 11,00,000
worked in the unorganised sector. The total income of the city in this year
(1997-1998) was Rs 60,000 million. Out of this Rs 32,000 million was generated
in the organised sector. Present this data as a table. What kind of ways should
be thought of for generating more employment in the city?
24. The following table gives the GDP in Rupees (Crores) by the three sectors:
(i) Calculate the share of the three sectors in GDP for 1950 and 2000.
(ii) Show the data as a bar diagram similar to Graph 2 in the chapter.
(iii) What conclusions can we draw from the bar graph?
S ECTORS
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NOTES FOR THE TEACHER
CHAPTER 3 : MONEY AND CREDIT
Money is a fascinating subject and full of familiar to your students. The other crucial
curiosities. It is important to capture this issue of credit is its availability to all,
element for the students. The history of especially the poor, and on reasonable
money and how various forms were used at terms. We need to emphasise that this is a
different times is an interesting story. At this right of the people and without which a large
stage the purpose is to allow students to section of them would be kept out of the
realise the social situation in which these development process. There are many
forms were used. Modern forms of money innovative interventions, such as that of
are linked to the banking system. This is the Grameen Bank, that students may be made
central idea of the first part of the chapter. familiar with but it is important to realise
that we don’t have answers to all questions.
The present situation in India, where
We need to find new ways and this is one of
newer forms of money are slowly spreading
the social challenges that developing
with computerisation of the banking system,
countries face.
offers many opportunities to students to
explore on their own. We need not get into a Sources for Information
formal discussion of the ‘functions of money’
but let it come up as questions. There are The data on formal and informal sector credit
certain areas that are not covered such as used in this chapter is drawn from the
‘creation of money’ (money multiplier) or the survey on rural debt by the National Sample
backing of the modern system that may be Survey Organisation (All India Debt and
discussed if you desire. Investment Survey, 2003, conducted by
NSSO, Report No. 501, December 2005). The
Credit is a crucial element in economic information and data on Grameen Bank is
life and it is therefore important to first taken from newspaper reports and websites.
understand this in a conceptual manner. In order to get the details of bank-related
What are the aspects that one looks at in statistics or a particular detail of a bank,
any credit arrangement and how this affects you can log on to the websites of Reserve
people is the main focus of the second part Bank of India (www.rbi.org) and the
of the chapter. The world around us offers concerned banks. Data on self-help groups
a tremendous variety of such arrangements is provided on the website of National Bank
and it would be ideal to explain these for Agriculture and Rural Development
aspects of credit from situations that are (NABARD) (www.nabard.org).
38
3 8 U NDERST D G E CONOMIC
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CHAPTER 3
MONEY AND
CREDIT
MONEY AS A MEDIUM OF EXCHANGE
The use of money spans a very large difficult it would be if the shoe
part of our everyday life. Look around manufacturer had to directly
you and you would easily be able to exchange shoes for wheat without the
identify several transactions involving use of money. He would have to look
money in any single day. Can you for a wheat growing farmer who not I DON’T NEED
make a list of these? In many of these only wants to sell wheat SHOES. I NEED
I’LL GIVE
transactions, goods are being bought YOU SHOES but also wants to buy the CLOTHES.
and sold with the use of money. In FOR YOUR shoes in exchange.
some of these transactions, services WHEAT. That is, both parties
are being exchanged with money. For have to agree to
some, there might not be any actual sell and buy each
transfer of money taking place now others commodities.
but a promise to pay money later. This is known as
double coincidence
Have you ever wondered why
of wants. What a person
transactions are made in I WANT SHOES.
desires to sell is exactly what the
money? The reason is simple. BUT I DON’T HAVE
other wishes to buy. In a barter WHEAT.
A person holding money can easily
system where goods are directly
exchange it for any commodity or
exchanged without the use of money,
service that he or she might want.
double coincidence of wants is an
Thus everyone prefers to receive
essential feature.
payments in money and then
exchange the money for things that In contrast, in an economy where
they want. Take the case of a shoe money is in use, money by providing
manufacturer. He wants to sell shoes the crucial intermediate step
in the market and buy wheat. The eliminates the need for double
shoe manufacturer will first exchange coincidence of wants. It is no longer
shoes that he has produced for necessary for the shoe manufacturer
money, and then exchange the money to look for a farmer who will buy his
for wheat. Imagine how much more shoes and at the same time sell him
M ONEY A ND C REDIT
DI 39
wheat. All he has to do is find a buyer
for his shoes. Once he has exchanged
his shoes for money, he can purchase
wheat or any other commodity in the
market. Since money acts as an
intermediate in the exchange process,
it is called a medium of exchange.
40
4 0 U NDERST D G E CONOMIC
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Demand deposits offer another made by cheques instead of cash.
interesting facility. It is this facility For payment through cheque, the
which lends it the essential payer who has an account with the
characteristics of money (that of a bank, makes out a cheque for a
medium of exchange). You would specific amount. A cheque is a
have heard of payments being paper instructing the bank to pay
a specific amount from the
person’s account to the person in
UNDERSTAND whose name the cheque has been
LET US TRY AND
UE PAYM ENTS ARE made.
HOW CHEQ
ISED WITH
MADE AND REAL
AN EXAM E.
PL
Cheque
Che
Che e Payments
e s
A shoe manufacturer, M. Salim has to make a payment to the leather supplier and writes
a cheque for a specific amount. This means that the shoe manufacturer instructs his
bank to pay this amount to the leather supplier. The leather supplier takes this cheque,
and deposits it in his own account in the bank. The money is transferred from one bank
account to another bank account in a couple of days. The transaction is complete without
any payment of cash.
Account number
Bank branch
code
Thus we see that demand deposits You must remember the role that
share the essential features of money. the banks play here. But for the
The facility of cheques against demand banks, there would be no demand
deposits makes it possible to directly deposits and no payments by
settle payments without the use of cash. cheques against these deposits. The
Since demand deposits are accepted modern forms of money — currency
widely as a means of payment, along and deposits — are closely linked to
with currency, they constitute money the working of the modern banking
in the modern economy. system.
M ONEY A ND C REDIT
DI 41
LET’S WORK THESE OUT
1. M. Salim wants to withdraw Rs 20,000 in cash for making payments. How would he
write a cheque to withdraw money?
2. Tick the correct answer.
After the transaction between Salim and Prem,
(i) Salim’s balance in his bank account increases, and Prem’s balance increases.
(ii) Salim’s balance in his bank account decreases and Prem’s balance increases.
(iii) Salim’s balance in his bank account increases and Prem’s balance decreases.
3. Why are demand deposits considered as money?
DEPOSITORS BORROWERS
People make People take
deposits loans
42
4 2 U NDERST D G E CONOMIC
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TWO DIFFERENT CREDIT SITUATIONS
A large number of transactions in our day-to-day activities
involve credit in some form or the other. Credit (loan) refers to
an agreement in which the lender supplies the borrower with
money, goods or services in return for the promise of future
payment. Let us see how credit works through the following
two examples.
(1 Festival
(1) est v l Season
ea so
It is festival season two months from now now and promises to pay him later.
and the shoe manufacturer, Salim, has Second, he obtains loan in cash from the
received an order from a large trader in large trader as advance payment for
town for 3,000 pairs of shoes to be 1000 pairs of shoes with a promise to
delivered in a month time. To complete deliver the whole order by the end of the
production on time, Salim has to hire a few month.
more workers for stitching and pasting
At the end of the month, Salim is able to
work. He has to purchase the raw
deliver the order, make a good profit, and
materials. To meet these expenses, Salim
repay the money that he had borrowed.
obtains loans from two sources. First, he
asks the leather supplier to supply leather
(2)
( ) Swapna’s
w na s Problem
P ob
ob
Swapna, a small farmer, grows groundnut on her three
acres of land. She takes a loan from the moneylender
to meet the expenses of cultivation, hoping that her
harvest would help repay the loan. Midway through
the season the crop is hit by pests and the crop
fails. Though Swapna sprays her crops with
expensive pesticides, it makes little difference. She
is unable to repay the moneylender and the debt
grows over the year into a large amount. Next
year, Swapna takes a fresh loan for cultivation.
It is a normal crop this year. But the earnings
are not enough to cover the old loan.
She is caught in debt. She has to sell
a part of the land to pay off the debt.
M ONEY A ND C REDIT
DI 43
In rural areas, the main demand In Swapna’s case, the failure of the
for credit is for crop production. Crop crop made loan repayment
production involves considerable impossible. She had to sell part of the
costs on seeds, fertilisers, pesticides, land to repay the loan. Credit, instead
water, electricity, repair of equipment, of helping Swapna improve her
etc. There is a minimum stretch of earnings, left her worse off. This is an
three to four months between the time example of what is commonly called
when the farmers buy these inputs debt-trap. Credit in this case pushes
and when they sell the crop. Farmers the borrower into a situation from
usually take crop loans at the which recovery is very painful.
beginning of the season and repay the
In one situation credit helps to
loan after harvest. Repayment of the
increase earnings and therefore the
loan is crucially dependent on the
person is better off than before. In
income from farming.
another situation, because of the
crop failure, credit
pushes the person into
LET’S WORK THESE OUT a debt trap. To repay
1. Fill the following table. her loan she has to sell
Salim Swapna
a portion of her land.
She is clearly much
Why did they need credit? worse off than before.
What was the risk? Whether credit would
What was the outcome? be useful or not,
therefore, depends
2. Supposing Salim continues to get orders from traders. What would be on the risks in the
his position after 6 years? situation and whether
3. What are the reasons that make Swapna’s situation so risky? Discuss there is some support,
factors – pesticides; role of moneylenders; climate. in case of loss.
TERMS OF CREDIT
Every loan agreement specifies an repayment of the principal. In
interest rate which the borrower must addition, lenders may demand
pay to the lender along with the collateral (security) against loans.
Collateral is an asset that the
borrower owns (such as land,
building, vehicle, livestocks,
deposits with banks) and uses this
as a guarantee to a lender until
the loan is repaid. If the borrower
fails to repay the loan, the lender has
the right to sell the asset or collateral
to obtain payment. Property such as
land titles, deposits with banks,
livestock are some common examples
of collateral used for borrowing.
A H
House
Hou
ou Loan
oa
oa
Megha has taken a loan of Rs 5 lakhs from the
bank to purchase a house. The annual interest
rate on the loan is 12 per cent and the loan is to
be repaid in 10 years in monthly instalments.
Megha had to submit to the bank, documents
showing her employment records and salary
before the bank agreed to give her the loan. The
bank retained as collateral the papers of the new
house, which will be returned to Megha only
when she repays the entire loan with interest.
M ONEY A ND C REDIT
DI 45
a ri y off Credit
Variety ed t A em s
Arrangements
Example of a Village
Rohit and Ranjan had finished reading about the terms of credit in class.
They were eager to know the various credit arrangements that existed in
their area: who were the people who provided credit? Who were the
borrowers? What were the terms of credit? They decided to talk to some
people in their village. Read what they record...
6. er s a n d
15th Nov, 200 fi el d s w h er e m o s t fa rm fields
tl y fo r th e e day. The
W e h ea d d ir ec be working at this time of th hyamal, a small
S
labourers would potato crops. We first meet
ted w ith ge .
are plan ted villa
r, a small irriga
farmer in Sonpu We next meet Arun who is supervising the
work of one farm labourer. Arun has seven
Shyamal tells us that every season he needs acres of land. He is one of the few persons
loans for cultivation on his 1.5 acres of land. Till in Sonpur to receive bank loan for
a few years back, he would borrow money from cultivation. The interest rate on the loan
the village moneylender at an interest rate of is 8.5 per cent per annum, and can be repaid
five per cent per month (60% per annum). anytime in the next three years. Arun plans
For the last few years, Shyamal has been to repay the loan after harvest by selling a
borrowing from an agricultural trader in the part of the crop. He then intends to store
village at an interest rate of three per cent the rest of the potatoes in a cold storage
per month. At the beginning of the cropping and apply for a fresh loan from the bank
season, the trader supplies the farm inputs on against the cold storage receipt. The bank
credit, which is to be repaid when the crops offers this facility to farmers who have
are ready for harvest. taken crop loan from them.
Besides the interest charge on the loan, the
trader also makes the farmers promise to Rama is working in a neigh
bouri
sell the crop to him. This way the trader wo rks as an agricultural lab ng field. She
can ensure that the money is repaid several months in the ye ourer. There are
ar when Rama has
promptly. Also, since the crop prices are low no work, and needs credit
to meet the daily
after the harvest, the trader is able to expenses. Expenses on
sudden illnesses or
make a profit from buying the crop at a low functions in the family ar
e also met through
price from the farmers and then selling it loans. Rama has to depend
on her employer,
later when the price has risen. a medium landowner in
Sonpur, for credit.
The landowner charges
an interest rate of
5 per cent per month.
Rama repays the
money by working for th
e landowner. Most
of the time, Rama has to
take a fresh loan,
before the previous loa
n has been repaid.
At pr es en t, sh e ow es
th e lan do wn er
Rs 5,000. Though the
landowner doesn’t
treat her well, she continu
es to work for him
since she can get loans
from him when in
need. Rama tells us that
th
credit for the landless pe e only source of
ople in Sonpur are
the landowner-employers.
oa
Loans o
from C o er t v es
Cooperatives
Besides banks, the other major source of cheap credit
in rural areas are the cooperative societies (or
cooperatives). Members of a cooperative pool their
resources for cooperation in certain areas. There are
several types of cooperatives possible such as
far mers cooperatives, weavers cooperatives,
industrial workers cooperatives, etc. Krishak
Cooperative functions in a village not very far away
from Sonpur. It has 2300 farmers as members. It
accepts deposits from its members. With these
deposits as collateral, the Cooperative has obtained
a large loan from the bank. These funds are used to
provide loans to members. Once these loans are
repaid, another round of lending can take place.
Krishak Cooperative provides loans for the purchase
of agricultural implements, loans for cultivation
and agricultural trade, fishery loans, loans for
construction of houses and for a variety of other
expenses.
M ONEY
N D
AND C REDIT
E T 47
FORMAL SECTOR CREDIT IN INDIA
We have seen in the
above examples that
Graph 1 : Sources of Credit
people obtain loans from for Rural Households in India in 2003
various sources. The Traders
various types of loans 3% Relatives and
can be conveniently Friends
30% 7%
grouped as formal
Moneylenders Others
sector loans and 7%
informal sector loans.
Among the former
Landlords 1 %
are loans from banks
and cooperatives. The 25% 27%
informal lenders include Commercial Cooperative
moneylenders, traders, Banks Societies
employers, relatives and
friends, etc. In Graph 1
you can see the various
sources of credit to rural
households in India. Is more credit the RBI sees that the banks give loans
coming from the formal sector or the not just to profit-making businesses
informal sector? and traders but also to small
cultivators, small scale industries, to
The Reserve Bank of India
small borrowers etc. Periodically,
supervises the functioning of formal
banks have to submit information to
sources of loans. For instance, we
the RBI on how much they are
have seen that the banks maintain a
lending, to whom, at what interest
minimum cash balance out of the
rate, etc.
deposits they receive. The RBI
monitors that the banks actually There is no organisation which
maintain the cash balance. Similarly, supervises the credit activities of
lenders in the informal sector. They
BUT WHY SHOULD can lend at whatever interest rate they
A BANK WANT US TO
HAVE A HIGHER INCOME?
choose. There is no one to stop them Formal and Informal Credit:
from using unfair means to get their Who gets what?
money back.
Graph 2 shows the importance of
Compared to the formal lenders, formal and informal sources of credit
most of the informal lenders charge a
for people in urban areas. The people
much higher interest on loans. Thus, are divided into four groups, from
the cost to the borrower of informal poor to rich, as shown in the figure.
loans is much higher. You can see that 85 per cent of the
Higher cost of borrowing means a loans taken by poor households in the
larger part of the earnings of the urban areas are from informal
borrowers is used to repay the loan. sources. Compare this with the rich
Hence, borrowers have less income urban households. What do you
left for themselves (as we saw for find? Only 10 per cent of their loans
Shyamal in Sonpur). In certain are from informal sources, while 90
cases, the high interest rate of per cent are from formal sources. A
borrowing can mean that the amount similar pattern is also found in rural
to be repaid is greater than the areas. The rich households are
income of the borrower. This could availing cheap credit from formal
lead to increasing debt (as we saw for lenders whereas the poor households
Rama in Sonpur) and debt trap. Also, have to pay a heavy price for
people who might wish to start an borrowing!
enterprise by borrowing may not do What does all this suggest? First,
so because of the high cost of the formal sector still meets only about
borrowing. half of the total credit needs of the
For these reasons, banks and rural people. The remaining credit
cooperative societies need to lend needs are met from informal sources.
more. This would lead
to higher incomes Graph 2 : Of all the loans taken by urban housholds in 2003, what
and many people percentage was formal and what percentage was informal?
could then borrow
cheaply for a variety
of needs. They 15% 10%
could grow crops, do 28%
business, set up 53% 47%
85% 72% 90%
small-scale industries
etc. They could set up
new industries or poor households well-off rich
trade in goods. Cheap housholds with few assets households households
and affordable credit
is crucial for the
BLUE : Per cent of loans from the INFORMAL sector
country’s develop-
ment. PURPLE : Per cent of loans from the FORMAL sector
M ONEY A ND C REDIT
DI 49
Most loans from informal lenders Secondly, while formal sector
carry a very high interest rate and do loans need to expand, it is also
little to increase the income of the necessary that everyone receives
borrowers. Thus, it is necessary these loans. At present, it is the richer
that banks and cooperatives households who receive formal credit
increase their lending particularly whereas the poor have to depend on
in the rural areas, so that the the informal sources. It is important
dependence on informal sources that the formal credit is distributed
of credit reduces. more equally so that the poor can
benefit from the cheaper loans.
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their earlier loans. However, the to be granted — the purpose, amount,
moneylenders charge very high rates interest to be charged, repayment
of interest, keep no records of the schedule etc. Also, it is the group
transactions and harass the poor which is responsible for the repayment
borrowers. of the loan. Any case of non-
repayment of loan by any one
In recent years, people have tried
member is followed up seriously by
out some newer ways of providing
other members in the group. Because
loans to the poor. The idea is to
of this feature, banks are willing to
organise rural poor, in particular
lend to the poor women when
women, into small Self Help Groups
organised in SHGs, even though they
(SHGs) and pool (collect) their
have no collateral as such.
savings. A typical SHG has 15-20
members, usually belonging to one Thus, the SHGs help borrowers
neighbourhood, who meet and save overcome the problem of lack of
regularly. Saving per member varies collateral. They can get timely loans
from Rs 25 to Rs 100 or more, for a variety of purposes and at a
depending on the ability of the people reasonable interest rate. Moreover,
to save. Members can take small loans SHGs are the building blocks of
from the group itself to meet their organisation of the rural poor. Not
needs. The group charges interest on only does it help women to become
these loans but this is still less than financially self-reliant, the regular
what the moneylender charges. After meetings of the group provide a
a year or two, if the group is regular platform to discuss and act on a
in savings, it becomes eligible for variety of social issues such as health,
availing loan from the bank. nutrition, domestic violence, etc.
Loan is sanctioned in the
name of the group and is A women’s self-help group
meeting in Gujarat
meant to create self-
employment opportunities
for the members. For
instance, small loans are
provided to the members for
releasing mortgaged land,
for meeting working capital
needs (e.g. buying seeds,
fertilisers, raw materials
like bamboo and cloth), for
housing materials, for
acquiring assets like sewing
machine, handlooms, cattle,
etc.
Most of the important
decisions regarding the
savings and loan activities
are taken by the group
members. The group
decides as regards the loans
M ONEY A ND C REDIT
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Grameen
ra
ra n Bank
nk off Bangladesh
ngla
n gl a esh
Grameen Bank of Bangladesh is one of the
biggest success stories in reaching the poor to “If credit can be made available to
meet their credit needs at reasonable rates. the poor people on terms and
Started in the 1970s as a small project, conditions that are appropriate and
Grameen Bank now has over 6 million reasonable these millions of small
borrowers in about 40,000 villages spread people with their millions of small
across Bangladesh. Almost all of the borrowers pursuits can add up to create the
are women and belong to poorest sections of biggest development wonder.”
the society. These borrowers have proved that Professor Muhammad Yunus,
not only are poor women reliable borrowers, the founder of Grameen Bank,
but that they can start and run a variety of and recipient of 2006 Nobel Prize for Peace
small income-generating activities successfully.
SUMMING UP
In this chapter we have looked at the credit vary substantially between
modern forms of money and how they formal and informal lenders. At
are linked with the banking system. present, it is the richer households
On one side are the depositors who who receive credit from formal sources
keep their money in the banks and on whereas the poor have to depend on
the other side are the borrowers who the informal sources. It is essential
take loans from these banks. Economic that the total formal sector credit
activities require loans or credit. Credit, increases so that the dependence on
as we saw can have a positive impact, the more expensive informal credit
or in certain situations make the becomes less. Also, the poor should
borrower worse off. get a much greater share of formal
Credit is available from a variety of loans from banks, cooperative
sources. These can be either formal societies etc. Both these steps are
sources or informal sources. Terms of important for development.
EXERCISES
1. In situations with high risks, credit might create further problems for the borrower.
Explain.
2. How does money solve the problem of double coincidence of wants? Explain with
an example of your own.
3. How do banks mediate between those who have surplus money and those who
need money?
4. Look at a 10 rupee note. What is written on top? Can you explain this statement?
5. Why do we need to expand formal sources of credit in India?
6. What is the basic idea behind the SHGs for the poor? Explain in your own words.
7. What are the reasons why the banks might not be willing to lend to certain borrowers?
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8. In what ways does the Reserve Bank of India supervise the functioning of banks?
Why is this necessary?
9. Analyse the role of credit for development.
10. Manav needs a loan to set up a small business. On what basis will Manav decide
whether to borrow from the bank or the moneylender? Discuss.
11. In India, about 80 per cent of farmers are small farmers, who need credit for cultivation.
(a) Why might banks be unwilling to lend to small farmers?
(b) What are the other sources from which the small farmers can borrow?
(c) Explain with an example how the terms of credit can be unfavourable for the
small farmer.
(d) Suggest some ways by which small farmers can get cheap credit.
12. Fill in the blanks:
(i) Majority of the credit needs of the _________________households are met
from informal sources.
(ii) ___________________costs of borrowing increase the debt-burden.
(iii) __________________ issues currency notes on behalf of the Central
Government.
(iv) Banks charge a higher interest rate on loans than what they offer on
__________.
(v) _______________ is an asset that the borrower owns and uses as a guarantee
until the loan is repaid to the lender.
13. Choose the most appropriate answer.
(i) In a SHG most of the decisions regarding savings and loan activities are taken by
(a) Bank.
(b) Members.
(c) Non-government organisation.
(ii) Formal sources of credit does not include
(a) Banks.
(b) Cooperatives.
(c) Employers.
M ONEY A ND C REDIT
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NOTESFORTHETEACHER
CHAPTER 4 : GLOBALISATION AND THE INDIAN ECONOMY
Most regions of the world are getting increasingly of trade and investment policies and, pressures
interconnected. While this interconnectedness from international organisations such as the
across countries has many dimensions — WTO. Improvement in technology is a fascinating
cultural, political, social and economic — this area for students and you may, with a few
chapter looks at globalisation in a more limited directions, encourage them to do their own
sense. It defines globalisation as the integration explorations. While discussing liberalisation, you
between countries through foreign trade and have to keep in mind that the students are
foreign investments by multinational unaware of what India was like in the
corporations (MNCs). As you will notice, the more pre-liberalisation era. A role-play could be
complex issues of portfolio investment have been conceived to compare and contrast the pre and
left out. post-liberalisation era. Similarly, international
negotiations under WTO and the uneven
If we look at the past thirty years or so, we
balances in power are interesting subjects that
find that MNCs have been a major force in the
can be covered in a discussion mode rather than
globalisation process connecting distant regions
of the world. Why are the MNCs spreading their as lectures.
production to other countries and what are the The final section covers the impact of
ways in which they are doing so? The first part globalisation. To what extent has globalisation
of the chapter discusses this. Rather than contributed to the development process? This
relying on quantitative estimates, the rapid rise section draws on the topics covered in Chapters
and influence of the MNCs has been shown 1 and 2 (for example, what is a fair development
through a variety of examples, mainly drawn goal), which you can refer to. Also, examples and
from the Indian context. Note that the examples activities drawn from the local environment are
are an aid to explain a more general point. While a must while discussing this section. This might
teaching, the emphasis should be on the ideas include contexts that have not been covered in
and examples are to be used as illustrations. the chapter, such as the impact of imports on
You can also creatively use comprehension local farmers, etc. Collective brainstorming
passages like the one given after Section II to sessions can be conducted to analyse such
test and reinforce new concepts. situations.
Integration of production and integration of Sources for Information
markets is a key idea behind understanding the
process of globalisation and its impact. This has The call for a fairer globalisation has been given,
been dealt with at length in this chapter, among others, by the International Labour
highlighting the role of MNCs in the process. You Organisation — www.ilo.org. Another interesting
have to ensure that the students grasp this idea resource is the WTO website http://www.wto.org.
with sufficient clarity, before moving on to the It gives access to the variety of agreements that
next topic. are being negotiated at the WTO. For company
related information, most MNCs have their own
Globalisation has been facilitated by several websites. If you want to critically look at
factors. Three of these have been highlighted: the MNCs, one recommended website is
rapid improvements in technology, liberalisation www.corporatewatch.org.uk.
54 U NDERST
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GLOBALISATION
AND
A D THE
TH E INDIAN
IND I A N ECONOMY
CONOMY
C ONOM Y
As consumers in today’s world, some
of us have a wide choice of goods and
services before us. The latest models
of digital cameras, mobile phones and
televisions made by the leading
manufacturers of the world are within
our reach. Every season, new models
of automobiles can be seen on Indian
roads. Gone are the days when
Ambassador and Fiat were the only
cars on Indian roads. Today, Indians
are buying cars produced by nearly
all the top companies in the world. A
similar explosion of brands can be
seen for many other goods: from shirts
to televisions to processed fruit juices.
Such wide-ranging choice of goods
in our markets is a relatively recent
phenomenon. You wouldn’t have
found such a wide variety of goods in
Indian markets even two decades
back. In a matter of years, our
markets have been transformed!
How do we understand these
rapid transformations? What are the
factors that are bringing about these
changes? And, how are these changes
affecting the lives of the people?
We shall dwell on these questions in
this chapter.
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PRODUCTION ACROSS COUNTRIES
Until the middle of the twentieth multinational corporations (MNCs)
century, production was largely emerged on the scene. A MNC is a
organised within countries. What company that owns or controls
crossed the boundaries of these production in more than one nation.
countries were raw materials, food MNCs set up offices and factories for
stuff and finished products. Colonies production in regions where they can
such as India exported raw materials get cheap labour and other resources.
and food stuff and imported finished This is done so that the cost of
goods. Trade was the main channel production is low and the MNCs can
connecting distant countries. This was earn greater profits. Consider the
before large companies called following example.
S rea
Spreading o Production
of d c ti n
cti
b an MNC
by C
A large MNC, producing industrial equipment, designs its
products in research centres in the United States, and then
has the components manufactured in China. These are then
shipped to Mexico and Eastern Europe where the products
are assembled and the finished products are sold all over the
world. Meanwhile, the company’s customer care is carried out
through call centres located in India.
This is a call centre in Bangalore, equipped with telecom facilities and access to
Internet to provide information and support to customers abroad.
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In this example the MNC is not only for their closeness to the markets
selling its finished products globally, in the US and Europe. India has
but more important, the goods and highly skilled engineers who can
services are produced globally. As understand the technical aspects of
a result, production is organised in production. It also has educated
increasingly complex ways. The English speaking youth who can
production process is divided into provide customer care services. And
small parts and spread out across the all this probably can mean 50-60 per
globe. In the above example, China cent cost-savings for the MNC!
provides the advantage of being a The advantage of spreading out
cheap manufacturing location. production across the borders to the
Mexico and Eastern Europe are useful multinationals can be truly immense.
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But the most common route for
MNC investments is to buy up local
companies and then to expand
production. MNCs with huge wealth
can quite easily do so. To take an
example, Cargill Foods, a very large
American MNC, has bought over
smaller Indian companies such as
Parakh Foods. Parakh Foods had
built a large marketing network in
various parts of India, where its brand
was well-reputed. Also, Parakh Foods
had four oil refineries, whose control
has now shifted to Cargill. Cargill is
now the largest producer of edible oil
in India, with a capacity to make 5
million pouches daily!
In fact, many of the top MNCs
have wealth exceeding the entire
budgets of the developing country Jeans produced in developing countries being
sold in USA for Rs 6500 ($145)
governments. With such enormous
wealth, imagine the power and
influence of these MNCs!
There’s another way in which The products are supplied to the
MNCs control production. Large MNCs, which then sell these under
MNCs in developed countries place their own brand names to the
orders for production with small customers. These large MNCs have
producers. Garments, footwear, tremendous power to determine price,
sports items are examples of quality, delivery, and labour
industries where production is conditions for these distant
carried out by a large number of producers.
small producers around the world. Thus, we see that there are a
variety of ways in which the MNCs are
Women at home in Ludhiana making footballs for large MNCs
spreading their production and
interacting with local producers in
various countries across the globe. By
setting up partnerships with local
companies, by using the local
companies for supplies, by closely
competing with the local companies
or buying them up, MNCs are exerting
a strong influence on production
at these distant locations. As a
result, production in these widely
dispersed locations is getting
interlinked.
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LET’S WORK THESE OUT
Ford Motors, an American Read the passage on the left and answer the questions.
company, is one of the 1. Would you say Ford Motors is a MNC? Why?
world’s largest 2. What is foreign investment? How much did Ford Motors invest in India?
automobile manufacturers
3. By setting up their production plants in India, MNCs such as Ford
with production spread
Motors tap the advantage not only of the large markets that countries
over 26 countries of the such as India provide, but also the lower costs of production. Explain
world. Ford Motors came the statement.
to India in 1995 and
4. Why do you think the company wants to develop India as a base for
spent Rs. 1700 crore to manufacturing car components for its global operations? Discuss the
set up a large plant near following factors:
Chennai. This was done (a) cost of labour and other resources in India
in collaboration with (b) the presence of several local manufacturers who supply auto-
Mahindra and Mahindra, parts to Ford Motors
a major Indian (c) closeness to a large number of buyers in India and China
manufacturer of jeeps 5. In what ways will the production of cars by Ford Motors in India lead to
and trucks. By the year interlinking of production?
2004, Ford Motors was 6. In what ways is a MNC different from other companies?
selling 27, 000 cars in
the Indian markets, 7. Nearly all major multinationals are American, Japanese or European,
such as Nike, Coca-Cola, Pepsi, Honda, Nokia. Can you guess why?
while 24,000 cars were
exported from India to
South Africa, Mexico and
Brazil. The company
wants to develop Ford
India as a component
supplying base for its
other plants across the
globe.
Cars made by Indian workers being
transported to be sold abroad by MNCs.
Chinese
Ch n To s in
Toys
To n In d a
India
Ind
Chinese manufacturers learn What is happening here? As a
of an opportunity to export toys result of trade, Chinese toys
to India, where toys are sold at come into the Indian markets.
a high price. They start In the competition between
exporting plastic toys to India. Indian and Chinese toys,
Buyers in India now have the Chinese toys prove better.
option of choosing between Indian buyers have a greater
Indian and the Chinese toys. choice of toys and at lower
Because of the cheaper prices prices. For the Chinese toy
and new designs, Chinese toys makers, this provides an
become more popular in the opportunity to expand business.
Indian markets. Within a year, The opposite is true for Indian
70 to 80 per cent of the toy toy makers. They face losses,
shops have replaced Indian as their toys are selling
toys with Chinese toys. Toys much less.
are now cheaper in the Indian
markets than earlier.
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In general, with the opening of
trade, goods travel from one market
to another. Choice of goods in the
markets rises. Prices of similar goods
in the two markets tend to become
equal. And, producers in the two
countries now closely compete against
each other even though they are
separated by thousands of miles!
Foreign trade thus results in
connecting the markets or
integration of markets in different
countries.
Small traders of readymade garments facing stiff
competition from both MNC brands and imports.
WHAT IS GLOBALISATION?
In the past two to three decades, more
and more MNCs have been looking for
locations around the world which
would be cheap for their production.
Foreign investment by MNCs in these BE CAREFUL! THAT’S
countries has been rising. At the same OUR WORLD YOU’RE
time, foreign trade between countries PLAYING WITH!
SOMEDAY YOU’LL
has been rising rapidly. A large part HAVE TO PAY THE
of the foreign trade is also controlled PRICE!
by MNCs. For instance, the car
manufacturing plant of Ford Motors GLOBALISATION
IS FUN!
in India not only produces cars for the
Indian markets, it also exports cars
to other developing countries and
exports car components for its many
factories around the world. Likewise,
activities of most MNCs involve
substantial trade in goods and also
services.
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The result of greater foreign contact with each other than a few
investment and greater foreign trade decades back.
has been greater integration of
Besides the movements of goods,
production and markets across
services, investments and technology,
countries. Globalisation is this
there is one more way in which the
process of rapid integration or
countries can be connected. This is
interconnection between countries.
through the movement of people
MNCs are playing a major role in
between countries. People usually
the globalisation process. More
move from one country to another in
and more goods and services,
search of better income, better jobs or
investments and technology are
better education. In the past few
moving between countries. Most
decades, however, there has not been
regions of the world are in closer
much increase in the movement of
people between countries due to
LET’S WORK THESE OUT various restrictions.
Containers for
transport of goods
Goods are placed in containers
that can be loaded intact onto
ships, railways, planes and trucks.
Containers have led to huge
reduction in port handling costs
and increased the speed with
which exports can reach markets.
Similarly, the cost of air transport
has fallen. This has enabled much
greater volumes of goods being
transported by airlines.
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Even more remarkable have been amazing world of internet, where you
the developments in information and can obtain and share information on
communication technology. In almost anything you want to know.
recent times, technology in the areas Internet also allows us to send instant
of telecommunications, computers, electronic mail (e-mail) and talk
Internet has been changing rapidly. (voice-mail) across the world at
Telecommunication facilities (tele- negligible costs.
graph, telephone including mobile
phones, fax) are used to contact one
another around the world, to access
information instantly, and to ...BUT WHERE
communicate from remote areas. This IS THE
ELECTRICITY?...
has been facilitated by satellite
communication devices. As you
would be aware, computers have now
entered almost every field of activity.
You might have also ventured into the
chnology
d communication te
Inform ation an
s played a major
role in U sing IT in
Using i
(or IT in short) ha rvices
oduction of se Globalisation
o lis
li s t n
spreading out pr w.
s. Let us see ho
across countrie
A news magazine published for London
readers is to be designed and printed in
Delhi. The text of the magazine is sent
through Internet to the Delhi office. The
designers in the Delhi office get
orders on how to design the magazine
from the office in London using
telecommunication facilities. The
designing is done on a computer. After
printing, the magazines are sent by air
to London. Even the payment of money
for designing and printing from a bank
in London to a bank in Delhi is done
instantly through the Internet
(e-banking)!
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Liberalisation of foreign trade of only essential items such as
and foreign investment machinery, fertilisers, petroleum
policy etc. Note that all developed
countries, during the early stages of
Let us return to the example of imports
development, have given protection to
of Chinese toys in India. Suppose the
domestic producers through a variety
Indian government puts a tax on
of means.
import of toys. What would happen?
Those who wish to import these toys Starting around 1991, some far-
would have to pay tax on this. reaching changes in policy were made
Because of the tax, buyers will have in India. The government decided that
to pay a higher price on imported toys. the time had come for Indian
Chinese toys will no longer be as producers to compete with producers
cheap in the Indian markets and around the globe. It felt that
imports from China will automatically competition would improve the
reduce. Indian toy-makers will performance of producers within the
prosper. country since they would have to
improve their quality. This decision
Tax on imports is an example of
was supported by powerful
trade barrier. It is called a barrier
international organisations.
because some restriction has been set
up. Governments can use trade Thus, barriers on foreign trade and
barriers to increase or decrease foreign investment were removed to a
(regulate) foreign trade and to decide large extent. This meant that goods
what kinds of goods and how much could be imported and exported
of each, should come into the country. easily and also foreign companies
could set up factories and offices
The Indian government, after
here.
Independence, had put barriers to
foreign trade and foreign investment. Removing barriers or restrictions
This was considered necessary to set by the government is what is
protect the producers within the known as liberalisation. With
country from foreign competition. liberalisation of trade, businesses are
Industries were just coming up in the allowed to make decisions freely
1950s and 1960s, and competition about what they wish to import or
from imports at that stage would not export. The government imposes
have allowed these industries to come much less restrictions than before
up. Thus, India allowed imports and is therefore said to be more
liberal.
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WORLD TRADE ORGANISATION
We have seen that the liberalisation of rules regarding international trade,
foreign trade and investment in India and sees that these rules are obeyed.
was supported by some very powerful 149 countries of the world are
international organisations. These currently members of the WTO
organisations say that all barriers to (2006).
foreign trade and investment are
Though WTO is supposed to allow
harmful. There should be no barriers.
free trade for all, in practice, it is seen
Trade between countries should be
that the developed countries have
‘free’. All countries in the world
unfairly retained trade barriers. On
should liberalise their policies.
the other hand, WTO rules have forced
World Trade Organisation (WTO) is the developing countries to remove
one such organisation whose aim is trade barriers. An example of this is
to liberalise international trade. the current debate on trade in
Started at the initiative of the agricultural products.
developed countries, WTO establishes
Deba te on
Debate n Trade
ra d Practices
P a t c
You have seen in Chapter 2, that Developing countries are, therefore, asking the
the agriculture sector provides the developed country gover nments, “We have
bulk of employment and a reduced trade barriers as per WTO rules. But you
significant portion of the GDP in have ignored the rules of WTO and have
India. Compare this to a developed continued to pay your farmers vast sums of
country such as the US with the money. You have asked our governments to stop
share of agriculture in GDP at 1% supporting our farmers, but you are doing so
and its share in total employment yourselves. Is this free and fair trade?”
a tiny 0.5%! And yet this very
small percentage of people
who are engaged in A typical cotton farm in USA consists of thousands of acres owned by
a huge corporation that will sell cotton abroad at lowered prices.
agriculture in the US receive
massive sums of money from
the US gover nment for
production and for exports to
other countries. Due to this
massive money that they
receive, US farmers can sell
the far m products at
abnormally low prices. The
surplus farm products are
sold in other country markets
at low prices, adversely
affecting farmers in these
countries.
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LET’S WORK THESE OUT
1. Fill in the blanks.
WTO was started at the initiative of __________countries. The aim of the WTO is to
____________________. WTO establishes rules regarding ________________ for
all countries, and sees that ___________________ In practice, trade between countries
is not ______________________________. Developing countries like India have
___________________, whereas developed countries, in many cases, have continued
to provide protection to their producers.
2. What do you think can be done so that trade between countries is more fair?
3. In the above example, we saw that the US government gives massive sums of money
to farmers for production. At times, governments also give support to promote production
of certain types of goods, such as those which are environmentally friendly. Discuss
whether these are fair or not.
Secondly, several of the top Indian are some Indian companies which
companies have been able to benefit are spreading their operations
from the increased competition. They worldwide.
have invested in newer technology and
Globalisation has also created
production methods and raised their
new opportunities for companies
production standards. Some have
providing services, particularly those
gained from successful collaborations
involving IT. The Indian company
with foreign companies.
producing a magazine for the London
Moreover, globalisation has based company and call centres are
enabled some large Indian companies some examples. Besides, a host of
to emerge as multinationals services such as data entry, account-
themselves! Tata Motors (auto- ing, administrative tasks, engineering
mobiles), Infosys (IT), Ranbaxy are now being done cheaply in
(medicines), Asian Paints (paints), countries such as India and are
Sundaram Fasteners (nuts and bolts) exported to the developed countries.
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Small producers: Compete or perish
For a large number of small producers and
workers globalisation has posed major
challenges.
Riisiin
n g Co
Co m p
pettiittiio
o
onn
Ravi did not expect that he wo
uld have use d to buy dif fer ent com
to face a crisis in such a sho pon ent s
rt period inc lud ing cap aci tor s in bul k
of his life as industrialist. Rav for the
i took a ma nu fac tur e of tel evi sio
loan from the bank to start n set s.
his own Ho we ver, com pet itio n from the
company producing capacitors MN C
in 1992 bra nds for ced the Ind ian tele
in Hosur, an industrial town vis ion
in Tamil com pan ies to mo ve into ass
Nadu. Capacitors are used em blin g
in many activities for MNCs. Even wh
electronic home appliances inc en some
luding of them bought capacitors, the
tube lights, television etc. Wit y would
hin three pre fer to imp ort as the pri ce
yea rs, he wa s ab le to of the
exp an d imp ort ed ite m wa s ha lf the
pro du ctio n an d ha d 20 pri ce
wo rke rs charged by people like Ravi.
working under him.
His struggle to run his compan Ravi now produces less than
y started half the
wh en the gov er nm ent rem capacitors that he produced in
ove d the year
restrictions on imports of capaci 200 0 and has onl y sev en
tors as wo rke rs
per its agreement at WTO in 200 working for him. Many of Ravi’s
1. His friends
main clients, the television com in the same business in Hy
panies, derabad
and Chennai have closed the
ir units.
68 U NDERSTANDING
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Competition and Uncertain Employment
Globalisation and the pressure of competition have substantially changed the lives
of workers. Faced with growing competition, most employers these days prefer to
employ workers ‘flexibly’. This means that workers’ jobs are no longer secure.
Factory workers folding garments for export. Though globalisation has created opportunities for paid work for
women, the condition of employment shows that women are denied their fair share of benefits.
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The conditions of work and the hardships of the workers described above
have become common to many industrial units and services in India. Most
workers, today, are employed in the unorganised sector. Moreover, increasingly
conditions of work in the organised sector have come to resemble the
unorganised sector. Workers in the organised sector such as Sushila no longer
get the protection and benefits that they enjoyed earlier.
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7 1
EXERCISES
1 What do you understand by globalisation? Explain in your own words.
2. What was the reasons for putting barriers to foreign trade and foreign investment by
the Indian government? Why did it wish to remove these barriers?
4. What are the various ways in which MNCs set up, or control, production in other
countries?
5. Why do developed countries want developing countries to liberalise their trade and
investment? What do you think should the developing countries demand in return?
6. “The impact of globalisation has not been uniform.” Explain this statement.
7. How has liberalisation of trade and investment policies helped the globalisation
process?
8. How does foreign trade lead to integration of markets across countries? Explain
with an example other than those given here.
9. Globalisation will continue in the future. Can you imagine what the world would be
like twenty years from now? Give reasons for your answer.
10.Supposing you find two people arguing: One is saying globalisation has hurt our
country’s development. The other is telling, globalisation is helping India develop.
How would you respond to these organisations?
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13.Choose the most appropriate option.
(i) The past two decades of globalisation has seen rapid movements in
(a) goods, services and people between countries.
(b) goods, services and investments between countries.
(c) goods, investments and people between countries.
(ii) The most common route for investments by MNCs in countries around the
world is to
(a) set up new factories.
(b) buy existing local companies.
(c) form partnerships with local companies.
(iii) Globalisation has led to improvement in living conditions
(a) of all the people
(b) of people in the developed countries
(c) of workers in the developing countries
(d) none of the above
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