Five-Year Plans of India

From 1947 to 2017, the Indian economy was premised on

the concept of planning. This was carried through
the Five-Year Plans, developed, executed, and monitored
by the Planning Commission (1951-2014) and the NITI
Aayog (2015-2017). With the prime minister as the ex-
officio chairman, the commission has a nominated deputy
chairman, who holds the rank of a cabinet
Minister. Montek Singh Ahluwalia is the last deputy
chairman of the commission (resigned on 26 May 2014).
The Twelfth Plan completed its term in March 2017.Prior
to the Fourth Plan, the allocation of state resources was
based on schematic patterns rather than a transparent
and objective mechanism, which led to the adoption of
the Gadgil formula in 1969.
Revised versions of the formula have
been used since then to determine the
allocation of central assistance for state
plans. The new government led
by Narendra Modi, elected in 2014, has
announced the dissolution of the
Planning Commission, and its
replacement by a think tank called
the NITI Aayog (an acronym for National
Institution for Transforming India).
First Plan (1951–1956)
The first Indian Prime Minister, Jawaharlal
Nehru, presented the First Five-Year Plan to
the Parliament of India and needed urgent
attention.
The First Five-year Plan was launched in 1951
which mainly focused in development of
the primary sector.
The First Five-Year Plan was based on
the Harrod–Domar model with few
modifications.
The total planned budget of Rs.2069 crore (2378 crore
later) was allocated to seven broad areas:
irrigation and energy (27.2%), agriculture and community
development(17.4%), transport and communications (24
%), industry (8.4%), social services (16.6%), rehabilitation
of landless farmers (4.1%), and for other sectors
and services (2.5%). The most important feature of this
phase was active role of state in all economic sectors.
Such a role was justified at that time because
immediately after independence, India was facing basic
problems—deficiency of capital and low capacity to save.
The target growth rate was 2.1% annual gross domestic
product (GDP) growth; the achieved growth rate was
3.6% the net domestic product went up by 15%.
The monsoon was good and there were relatively
high crop yields, boosting exchange reserves and the per
capita income, which increased by 8%. National income
increased more than the per capita income due to rapid
population growth. Many irrigation projects were
initiated during this period, including
the Bhakra, Hirakud, Mettur Dam and Damodar
Valley dams. The World Health Organization (WHO), with
the Indian government, addressed children's health and
reduced infant mortality, indirectly contributing
to population growth.
At the end of the plan period in 1956,
five Indian Institutes of Technology (IITs)
were started as major technical institutions.
The University Grants Commission (UGC) was
set up to take care of funding and take
measures to strengthen the higher
education in the country. Contracts were
signed to start five steel plants, which came
into existence in the middle of the Second
Five-Year Plan. The plan was quasi-successful
for the government.
Second Plan (1956–1961)

The Second Plan focused on the development of the public

sector and "rapid Industrialisation". The plan followed
the Mahalanobis model, an economic development model
developed by the Indian statistician Prasanta Chandra
Mahalanobis in 1953. The plan attempted to determine the
optimal allocation of investment between productive
sectors in order to maximise long-run economic growth. It
used the prevalent state-of-the-art techniques of
operations research and optimization as well as the novel
applications of statistical models developed at the Indian
Statistical Institute. The plan assumed a closed economy in
which the main trading activity would be centred on
importing capital goods.
Hydroelectric power projects and five steel plants
at Bhilai, Durgapur, and Rourkela were established
with the help of Russia, Britain (the U.K) and West
Germany respectively. Coalproduction was
increased. More railway lines were added in the
north east.
The Tata Institute of Fundamental
Research and Atomic Energy Commission of
India were established as research institutes. In
1957, a talent search and scholarship program was
begun to find talented young students to train for
work in nuclear power
The total amount allocated under the
Second Five-Year Plan in India was
Rs.48 billion. This amount was allocated
among various sectors: power and irrigation,
social services, communications and
transport, and miscellaneous.
The target growth rate was 4.5% and the
actual growth rate was 4.27%
Third Plan (1961–1966)
The Third Five-year Plan, stressed agriculture and
improvement in the production of wheat, but the
brief Sino-Indian War of 1962 exposed weaknesses
in the economy and shifted the focus towards the
defence industry and the Indian Army. In 1965–
1966, India fought a War with Pakistan. There was
also a severe drought in 1965. The war led to
inflation and the priority was shifted to price
stabilisation. The construction of dams continued.
Many cement and fertilizer plants were also
built. Punjab began producing an abundance
of wheat.
Many primary schools were started in rural areas.
In an effort to bring democracy to the grass-root
level, Panchayat elections were started and
the states were given more development
responsibilities.
State electricity boards and state secondary
education boards were formed. States were made
responsible for secondary and higher education.
State road transportation corporations were
formed and local road building became a state
responsibility.
The target growth rate was 5.6%, but the actual
growth rate was 2.4%
Plan Holidays (1966–1969)

Due to miserable failure of the Third Plan the

government was forced to declare "plan holidays" (from
1966–67, 1967–68, and 1968–69). Three annual plans
were drawn during this intervening period. During 1966–
67 there was again the problem of drought. Equal
priority was given to agriculture, its allied activities, and
industrial sector. The government of India declared
"Devaluation of Rupee" to increase the exports of the
country. The main reasons for plan holidays were the
war, lack of resources, and increase in inflation.
Objective of Twenty Point Programme
The basic objective of the 20-Point
Programme is to eradicate poverty and to
improve the quality of life of the population
of the country. The programme covers
various Socio-economic aspects like poverty,
employment, education, housing, health,
agriculture and irrigation, drinking water,
protection and empowerment of weaker
sections, consumer protection, environment
etc.
Annual Plans (1990–1992)
The Eighth Plan could not take off in 1990 due to
the fast changing political situation at the centre
and the years 1990–91 and 1991–92 were
treated as Annual Plans. The Eighth Plan was
finally formulated for the period 1992–1997.
Eighth Plan (1992–1997)

1 P.V. Narasimha Rao was the ninth Prime Minister of the

Republic of India and head of Congress Party, and led one
of the most important administrations in India's modern
history
2 overseeing a major economic transformation and
several incidents affecting national security. At that time
Dr. Manmohan Singh (later Prime Minister of India)
launched India's free market reforms that brought the
nearly bankrupt nation back from the edge. It was the
beginning of liberalization, privatisation and globalization
(LPG) in India.
3 Modernization of industries was a major highlight of
the Eighth Plan. Meanwhile, India became a member of
the World Trade Organization on 1 January 1995
4 The major objectives included, controlling population
growth, poverty reduction, employment generation,
strengthening the infrastructure, institutional building,
tourism management, human resource development,
involvement of Panchayati rajs, Nagar Palikas, NGOs,
decentralisation and people's participation.
The target growth rate was 5.6% and the actual growth
rate was 6.8%.
Ninth Plan (1997–2002)
1 Atal Bihari Vajpayee was the Prime Minister of India during
the Ninth Five-Year Plan. The Ninth Five-Year Plan tried
primarily to use the latent and unexplored economic
potential of the country to promote economic and social
growth.
2 The Ninth Five-Year Plan also saw joint efforts from the public
and the private sectors in ensuring economic development of
the country. In addition, the Ninth Five-Year Plan saw
contributions towards development from the general public as
well as governmental agencies in both the rural and urban
areas of the country. New implementation measures in the
form of Special Action Plans (SAPs) were evolved during the
Ninth Five-Year Plan to fulfill targets within the stipulated time
with adequate resources.
The SAPs covered the areas of social infrastructure, agriculture,
information technology and Water policy.
Objectives
The main objective of the Ninth Five-Year Plan was to correct
historical inequalities and increase the economic growth in the
country. Other aspects which constituted the Ninth Five-Year Plan
were:
1 Population control.
2 Generating employment by giving priority to agriculture and
rural development.
3 Reduction of poverty.
4 Ensuring proper availability of food and water for the poor.
5 Availability of primary health care facilities and other
basic necessities.
6 Primary education to all children in the country.
7Empowering the socially disadvantaged classes
like Scheduled castes, Scheduled tribes and other
backward classes.
8Developing self-reliance in terms of agriculture.
9 Acceleration in the growth rate of the economy with
the help of stable prices.
Performance
1 The Ninth Five-Year Plan achieved a GDP growth rate of
5.4% against a target of 6.5%
2 The agriculture industry grew at a rate of 2.1% against
the target of 4.2%
3 The industrial growth in the country was 4.5% which was
higher than that of the target of 3%
4 The service industry had a growth rate of 7.8%.
An average annual growth rate of 6.7% was reached.
The target growth was 7.1% and the actual growth was 6.8%.
Tenth Plan (2002–2007)
The main objectives of the Tenth Five-Year Plan:
1 Attain 8% GDP growth per year.
2 Reduction of poverty rate by 5% by 2007.
3 Providing gainful and high-quality employment at least
to the addition to the labour force.
4 Reduction in gender gaps in literacy and wage rates by at
least 50% by 2007.
5 20-point program was introduced.
6 Target growth: 8.1% – growth achieved: 7.7%.
The Tenth Plan was expected to follow a regional
approach rather than sectoral approach to bring down
regional inequalities.
6 Reduction of gender inequality.
7 Environmental sustainability.
8 To increase the growth rate in agriculture,
industry and services to 4%, 10% and 9%
respectively.
Provide clean drinking water for all by 2009.
Increase agriculture growth to 4%
Eleventh Plan (2007–2012)
1 It was in the period of Manmohan Singh as a prime
minister.
2 It aimed to increase the enrolment in higher
education of 18-23 years of age group by 2011-12.
3 It focused on distant education, convergence of
formal, non-formal, distant and IT education
institutions.
3 Rapid and inclusive growth (poverty reduction).
4 Emphasis on social sector and delivery of service
therein.
5 Empowerment through education and skill
development
Twelfth Plan (2012–2017)
The Twelfth Five-Year Plan of the Government of India has been
decided to achieve a growth rate of 8.2% but the National
Development Council (NDC) on 27 December 2012 approved a
growth rate of 8% for the Twelfth Five-Year Plan.
The objectives of the Twelfth Five-Year Plan were:
1 To create 50 million new work opportunities in the non farm
sector.
2 To remove gender and social gap in school enrolment.
3 To enhance access to higher education.
4 To reduce malnutrition among children aged 0-3 years.
5 To provide electricity to all villages.
6 To ensure that 50% of the rural population have accesses to proper
drinking water.
7 To increase green cover by 1 million hectare every year.
8 To provide access to banking services to 90% of households
NITI Aayog and United Nations in
India sign Sustainable
Development Framework for
2018-2022
New Delhi, 28 September 2018: NITI Aayog and United
Nations in India signed the Sustainable Development
Framework for 2018-2022 at a function in the capital
today. The agreement is a reflection of the commitment
and efforts made by India towards attaining the
Sustainable Development Goals. The Government of India-
United Nations Sustainable Development Framework
(UNSDF) for 2018-2022 was signed by the CEO, NITI
Aayog, Amitabh Kant and United Nations Resident
Coordinator in India Yuri Afanasiev, at a special signing
ceremony presided over by Vice Chairperson, NITI Aayog,
Dr. Rajiv Kumar. Members of NITI Aayog and Heads of UN
agencies in India were present on this occasion.
The Sachet Revolution in Rural India
My father Chinni Krishnan used to say,
‘Whatever I make must be affordable for the
common man’. It was a dream that made
him the father of the sachet revolution in
India,” says C.K. Ranganathan, 47, chairman
and managing director of Cavinkare, a Rs
500-crore cosmetics company.
Krishnan, a school teacher who wanted to
make products affordable even to
rickshawpullers, switched to the
pharmaceutical packaging business and tried
innovations in it. He put talcum powder and
epsom salt in sachets but did not succeed.
“But he did sow the seed of the sachet
revolution,” emphasises Ranganathan, who
learnt his first business lessons from his
father.
After splitting from his brothers’ shampoo-manufacturing
business, run under the brandname Velvette,
Ranganathan bought a shampoo packaging machine and
with an initial investment of Rs 15,000, launched Chik
Shampoo, named after his father. He sold 20,000 sachets
in the first month, making a modest profit. “The journey
was bumpy and banks refused loans as I could not offer a
collateral,” he says.
He started the Chik India Company in 1982 and
did the unthinkable by launching shampoos in
rural, instead of urban areas. If MNC-bottled
shampoos found shelf space in departmental
stores, Cavinkare peddled its Re-1 wonder
through roadside shops and grocery outlets in
rural areas. Corporations soon realised the power
of the sachet and launched their own products in
small, affordable packages.
As it turned out, Ranganathan had intuitively got the two Ps
of packaging and pricing right. Velvette was being marketed
by Godrej, but Ranganathan trumped it by offering schemes
that attracted villagers. He then renamed Chik India
Cavinkare (Cavin means beauty in Tamil) in 1998.
After capturing the Tamil Nadu market, Ranganathan
organised village tours and conducted live demonstrations
in movie halls on the use of shampoos. Soon enough,
villagers replaced body soap for hair wash with the Re-1
sachet. Cavinkare then launched Shikakai powder, talcum
powder, hair oil and fairness cream in sachets infusing
beauty consciousness among rural masses, also showing a
multi-crore possibility to other companies.
Chik Shampoo is now available in 50 paise
sachets in villages. The company is eyeing
the urban market and exporting its products
to Sri Lanka, Bangladesh, Nepal, Malaysia
and the US. Would-be entrepreneurs in
Tamil Nadu look upon Ranganathan as an
inspiration. Not bad for one who started out
executing his father’s wish and ended up as
a case study for IIM students.
Privatization
Privatization can mean different things including
moving something from the public sector into the
private sector. It is also sometimes used as a
synonym for deregulation when a heavily
regulated private company or industry becomes
less regulated. Government functions and services
may also be privatized; in this case, private entities
are tasked with the implementation of government
programs or performance of government services
that had previously been the purview of state-run
agencies. Some examples include revenue
collection, law enforcement, and prison
management.
Post-independence India had adopted a very
conservative economy that was practically
shut to the outside world. But as time went
by, Indian leaders and economists recognized
the need to merge with the global economy.
So in 1991, India went through some very
major economic reforms. Let us focus on
one such aspect of the reforms –
privatization in India.
Privatization in India
In 1991 India made some major policy changes in their
economic ideologies. There were stagnation and slow
growth in the economy. And to tackle these problems
the, then Finance Minister Dr. Manmohan Singh
introduced some major economic reforms. Now, we
call it the liberalization of the Indian Economy and
the LPG reforms.
Privatization has a very broad meaning in economics.
Everything that ranges from the introduction of
private capital to selling government-owned assets to
transitioning to a private economy. As the definition of
privatization is so very diverse let us take a look at the
three main features of privatization.
Ownership Measures: The ownership of all public
enterprises ultimately shifts to private owners. The
denationalization can be complete or partial.
Organizational Measures: This is where we limit
the control of the state in public companies. Some
methods include holding company structuring,
leasing. restructuring of the enterprises etc.
Operational Measures: Public organizations and
companies were running into huge losses. So the
efficiency of these companies was to be increased.
Conceptualization of Privatization in India
1] Delegation: Here via a contract or franchise or lease or grant etc.
the government keeps the ownership and the responsibility of an
enterprise. But the private company will handle the daily activities
and deliver the product or service. The state will remain an active
participant in this process.
2] Divestment: The government will sell a majority stake of the
enterprise to one or more private companies. It may keep some
ownership but will be a minority stakeholder in the enterprise.
3] Displacement: The first step here will be deregulation. This will
allow the private players to enter the market. And slowly and
gradually the private company will displace the public enterprise.
Here the private sector will compete with public companies and
ultimately outperform them, causing the public enterprise to be
displaced.
4] Disinvestment: Directly selling a portion or whole of a public
enterprise to private parties.
Advantages of Privatization
1 Private companies always have a better incentive than public
companies. The managers and officials of a private company have
skin in the game, i.e. their income is related to the performance of
the company. In public companies, such an incentive is not
present. So privatization usually leads to higher efficiency in the
company.
2 In a public company, there is a lot of political interference. This
may dissuade the company from taking economically beneficial
decisions. However, a private company will not let political factors
affect their performance.
3 In public companies, at times the government can only think
about the upcoming elections. So all their goals may be short-term
in the process of trying to gain favors of the voting public. But a
private company does not have such restrictions. They have long-
term goals and ambitions and steer the company in the right
direction.
4 Privatization will also increase competition in the market.
Consequently, this has proved to be very beneficial to
consumers. Healthy competitiveness in an economy will
push efficiency and performances.
What is Globalization?
Globalization is the free movement of people, goods, and
services across boundaries. This movement is managed in a
unified and integrated manner. Further, it can be seen as a
scheme to open the global economy as well as the
associated growth in trade (global). Hence, when the
countries that were previously shut to foreign investment
and trade have now burned down barriers.
Indian Economy Reacts to Globalization
When we talk about globalization and the Indian
economy, one name strikes our mind, that is, Dr.
Manmohan Singh. He was the finance minister in
the 1990s when globalization was fully
implemented and experienced in India. He was the
front man who framed the
economic liberalization proposal. Since then, the
nation has gradually moved ahead to become one
of the supreme economic leaders in the world.
Benefits of Globalization Impacting India
Rise in Employment: With the opening of SEZs or Special
Economic Zones, the availability of new jobs has been quite
effective. Furthermore, Export Processing Zones or EPZs are also
established employing thousands of people. Another factor is
cheap labour in India. This has motivated big firms in the west
to outsource work to companies present in this region. All these
factors are causing more employment.
Surge in Compensation: After the outburst of globalization, the
compensation levels have stayed higher. These figures are
impressive as compared to what domestic companies might have
presented. Why? The level of knowledge and skill brought by
foreign companies is obviously advanced. This has ultimately
resulted in modification of the management structure.
Improved Standard of Living and Better
Purchasing Power: Wealth generation across Indian
cities has enhanced since globalization has fully hit
the nation. You can notice an improvement in the
purchasing power for individuals, especially those
working under foreign organizations. Further,
domestic organizations are motivated to present
higher rewards to their employees. Therefore, a
number of cities are experiencing better standards
of living together with business development.
Introduction to LPG
LPG stands for Liberalization, Privatization, and
Globalization.
Liberalization
The basic aim of liberalization was to put an end to those
restrictions which became hindrances in the development and
growth of the nation. The loosening of government control in a
country and when private sector companies’ start working
without or with fewer restrictions and government allow private
players to expand for the growth of the country depicts
liberalization in a country.
Objectives of Liberalization Policy
1 To increase competition amongst domestic
industries.
2 To encourage foreign trade with other countries
with regulated imports and exports.
3 Enhancement of foreign capital and technology.
4 To expand global market frontiers of the country.
5 To diminish the debt burden of the country.
 EFFECTS OF LIBERALIZATION ON
INDIAN ECONOMY AND SOCIETY
Impact on Small Scale in India
This impact shall be studied right from the beginning of
colonization in 18th century. Colonization can be considered as
1st wave of globalization. In pre colonization era, India’s textiles and
handicraft was renowned worldwide and was backbone of Indian
economy. With coming of industrial revolution along with foreign
rule in India, Indian economy suffered a major setback and much
of its indigenous small scale cottage Industry was destroyed.
After independence, government attempted to revive small scale
sector by reserving items exclusively for it to manufacture. With
liberalization list of reserved items was substantially curtailed
and many new sectors were thrown open to big players.
Small scale industry however exists and still remains
backbone of Indian Economy. It contributes to major
portion of exports and private sector employment. Results
are mixed, many Small scale industries got bigger and
better. But overall value addition, product innovation and
technology adoption remains dismal and they exist only on
back of government support. Their products are contested
by cheaper imports from China. Policies of government
toward SSI were covered in previous article access here
and here
Impact on Agriculture
As already said, share of agriculture in domestic economy
has declined to about 15%. However, people dependent
upon agriculture are still around 55%. Cropping patterns
has undergone a huge change, but impact of liberalization
can’t be properly assessed. We saw under series relating to
agriculture that there are still all pervasive government
controls and interventions starting from production to
distribution .
 India’s largely self-sufficient and high value
distinguished products like Basmati Rice are in high
demand all over. Generally speaking, India is better
placed to take up challenge of globalization in this case. If
done in sustainable and inclusive manner, it will have a
huge multiplier impact on whole economy. Worldwide
implicit compulsion to develop Food processing Industry is
another landmark effect of globalization.
Apart from these, Farm Mechanization i.e. use of
electronic/solar pumps, Tractors, combines etc. all are
fruits of globalization. Now moving a step further,
Information technology is being incorporated into
agriculture to facilitate farming.
IT industry
Software, BPO, KPO, LPO industry boom in India has
helped India to absorb a big chunk of demographic
dividend, which otherwise could have wasted. Best part
is that export of services result in export of high value.
There is almost no material exported which consume
some natural resource. Only thing exported is labor of
Professionals, which doesn’t deplete, instead grows with
time. Now India is better placed to become a truly
Knowledge Economy.
Exports of these services constitute big part of India’s
foreign Exchange earnings. In fact, the only three years
India had Current Account surplus, I.e. 2000-2002, was
on back of this export only.
Banking
Further, in banking too India has been a gainer. Private
Banks such as ICICI, HDFC, Yes Bank and also foreign
banks, raised standards of Indian Banking Industry. Now
there is cut through competition in the banking industry,
and public sector banks are more responsive to customers.
Here too IT is on path of bringing banking revolution. New
government schemes like Pradhan Mantri Jan dhan Yojana
aims to achieve their targets by using Adhaar Card. Having
said this, Public Sector Banks still remain major lender in
the country.
Similarly Insurance Industry now offers variety of products
such as Unit Linked Insurance plans, Travel Insurance etc.
But, in India life Insurance business is still decisively in
hands of Life Insurance Corporation of India.
Telecom Sector

Conventionally, Telecom sector was a government owned

monopoly and consequently service was quite
substandard. After reforms, private telecom sector
reached pinnacle of success. And Indian telecom
companies went global.
Industrialisation
Industrialisation (or industrialization) is the period of social and
economic change that transforms a human group from an agrarian
society into an industrial society. This involves an extensive re-
organisation of an economy for the purpose of manufacturing.
As industrial workers' incomes rise, markets for consumer goods and
services of all kinds tend to expand and provide a further stimulus to
industrial investment and economic growth.
Industrialisation (or industrialization) is the period of social and
economic change that transforms a human group from an agrarian
society into an industrial society. This involves an extensive re-
organisation of an economy for the purpose of manufacturing.
As industrial workers' incomes rise, markets for consumer goods and
services of all kinds tend to expand and provide a further stimulus to
industrial investment and economic growth.
The first transformation from an agricultural to an industrial economy is
known as the Industrial Revolution and took place from the mid-18th to
early 19th century in certain areas in Europe and North America; starting
in Great Britain, followed by Belgium, Switzerland, Germany, and France.
Characteristics of this early industrialisation were technological progress, a
shift from rural work to industrial labor, financial investments in new
industrial structure, and early developments in class consciousness and
theories related to this. Later commentators have called this the First
Industrial Revolution.
The "Second Industrial Revolution" labels the later changes that came
about in the mid-19th century after the refinement of the steam engine,
the invention of the internal combustion engine, the harnessing
of electricity and the construction of canals, railways and electric-power
lines. The invention of the assembly line gave this phase a boost. Coal
mines, steelworks, and textile factories replaced homes as the place of
work.
Objectives
The main objectives of the Industrial Policy of the
Government in India are:
1 to maintain a sustained growth in productivity;
2 to enhance gainful employment;
3 to achieve optimal utilisation of human resources;
4 to attain international competitiveness; and
5 to transform India into a major partner and player in the
global arena
Positive Features of Industrial Growth during the Plan Period
1. Significant Growth Rate:
The trend in industrial production in India shows a compound growth
rate of 6 p.c. The growth rate for the period 1951-55 was 5.7 p.c., 7.2
p.c. in 1955-56 and 9 p.c. in 1960-65. Thus, from the 50s to the mid-
60s, there was a significant acceleration in the industrial growth. It
declined to a very low level around 3.7 p.c. in 1966-70. This period
was marked by recession in Indian industries.
However, industrial production started picking up after the mid-70s.
Still then, the recovery was not high enough. The growth rate of
industrial production was around 5-2 p.c. during 1975-83. The decade
of 1980s, however, showed a remarkable growth of the industrial
sector following liberalisation measures introduced in the mid-1980s,
But the decade of 1990s did not augur well.
The early years of reform yielded unsatisfactory dividends as far as
growth of the industrial sector was concerned. After responding to
economic reforms with vigour and registering a robust growth rate of
12.8 p.c. in 1995-96, there had been a slowdown in industrial
expansion since 1996-97 when growth rate decelerated to 5.6 p.c.
against a growth rate of 13 p.c. in 1995-96
2. Increase in the share of Industrial Sector in National Income:
The contribution of the industrial sector towards national income is
rising continuously. Its share was 16.1 p.c. in GDP in 1950-51. It rose
to 25.2 p.c. in 1990-91. This indicates industrialisation. Since then it is
on the declining trend. It has come down to 24.9 p.c. in 2007-08.
3. Expansion of Public Sector:
Over the planning period, public sector has registered a phenomenal
growth. The idea for giving emphasis to the public sector was to
provide a firm base for setting up core industries like power, coal,
steel, fertilisers, atomic energy and machine building in the public
and to leave the rest for the private sector
4. Strengthening of Industrial Base:
Besides these quantitative aspects of industrial growth, we also
find large progress in strengthening the base of future industrial
growth. From the very beginning of the planning period, basic and
capital goods industries received utmost attention. Consequently,
its performance in total industrial output and gross value added
become remarkable as compared to consumer goods industries.
5. Modernisation:
India has now a large variety of industries producing goods of
varied nature which shows the degree of modernisation. Some
modern industries have really come up and they are competing
effectively with the outside world. Modernisation is also evident in
the field of technological and managerial skills.
6. Self-Reliance:
Another positive aspect of industrial growth is the attainment of the
goal of self-reliance. We have achieved self-reliance in machinery,
plant and other equipment. Today, the bulk of the equipment
required for industrial and infrastructural development is produced
within the country.
Negative Aspects of Industrial Growth:
Industrial growth in India has been exposed to certain undesired
lines. These suggest the failure of industrial planning.
The most significant failure of industrial planning of India are:
(i) The structural retrogression in the industrial structure;
(ii) Expansion of large industrial houses and concentration of
economic power;
(iii) Miserable performance of the public sector;
(iv) Under-utilisation of capacity; and
(v) Industrial sickness.
The Industrial Revolution, which took place from the 18th to
19th centuries, was a period during which predominantly
agrarian, rural societies in Europe and America became
industrial and urban. Prior to the Industrial Revolution, which
began in Britain in the late 1700s, manufacturing was often
done in people’s homes, using hand tools or basic machines.
Industrialization marked a shift to powered, special-purpose
machinery, factories and mass production. The iron and textile
industries, along with the development of the steam engine,
played central roles in the Industrial Revolution, which also
saw improved systems of transportation, communication and
banking. While industrialization brought about an increased
volume and variety of manufactured goods and an improved
standard of living for some, it also resulted in often grim
employment and living conditions for the poor and working
classes.
INNOVATION AND INDUSTRIALIZATION
The textile industry, in particular, was transformed by
industrialization. Before mechanization and factories, textiles
were made mainly in people’s homes (giving rise to the term
cottage industry), with merchants often providing the raw
materials and basic equipment, and then picking up the finished
product. Workers set their own schedules under this system,
which proved difficult for merchants to regulate and resulted in
numerous inefficiencies. In the 1700s, a series of innovations
led to ever-increasing productivity, while requiring less human
energy. For example, around 1764, Englishman James
Hargreaves (1722-1778) invented the spinning jenny (“jenny”
was an early abbreviation of the word “engine”), a machine
that enabled an individual to produce multiple spools of
threads simultaneously.
By the time of Hargreaves’ death, there were over 20,000 spinning
jennys in use across Britain. The spinning jenny was improved upon
by British inventor Samuel Compton’s (1753-1827) spinning mule,
as well as later machines. Another key innovation in textiles, the
power loom, which mechanized the process of weaving cloth, was
developed in the 1780s by English inventor Edmund Cartwright
(1743-1823).
Developments in the iron industry also played a central role in the
Industrial Revolution. In the early 18th century, Englishman
Abraham Darby (1678-1717) discovered a cheaper, easier method
to produce cast iron, using a coke-fueled (as opposed to charcoal-
fired) furnace. In the 1850s, British engineer Henry Bessemer
(1813-1898) developed the first inexpensive process for mass-
producing steel. Both iron and steel became essential materials,
used to make everything from appliances, tools and machines, to
ships, buildings and infrastructure.
The steam engine was also integral to
industrialization. In 1712, Englishman
Thomas Newcomen (1664-1729) developed
the first practical steam engine (which was
used primarily to pump water out of mines).
By the 1770s, Scottish inventor James Watt
(1736-1819) had improved on Newcomen’s
work, and the steam engine went on to
power machinery, locomotives and ships
during the Industrial Revolution.
TRANSPORTATION AND THE INDUSTRIAL REVOLUTION
The transportation industry also underwent significant transformation
during the Industrial Revolution. Before the advent of the steam
engine, raw materials and finished goods were hauled and
distributed via horse-drawn wagons, and by boats along canals and
rivers. In the early 1800s, American Robert Fulton (1765-1815) built
the first commercially successful steamboat, and by the mid-19th
century, steamships were carrying freight across the Atlantic. As
steam-powered ships were making their debut, the steam locomotive
was also coming into use. In the early 1800s, British engineer Richard
Trevithick (1771-1833) constructed the first railway steam locomotive.
In 1830, England’s Liverpool and Manchester Railway became the first
to offer regular, timetabled passenger services. By 1850, Britain had
more than 6,000 miles of railroad track. Additionally, around 1820,
Scottish engineer John McAdam (1756-1836) developed a new
process for road construction. His technique, which became known as
macadam, resulted in roads that were smoother, more durable and
less muddy.
COMMUNICATION AND BANKING IN THE INDUSTRIAL REVOLUTION
Communication became easier during the Industrial Revolution
with such inventions as the telegraph. In 1837, two Brits, William
Cooke (1806-1879) and Charles Wheatstone (1802-1875), patented
the first commercial electrical telegraph. By 1840, railways were a
Cooke-Wheatstone system, and in 1866, a telegraph cable was
successfully laid across the Atlantic. The Industrial Revolution also
saw the rise of banks and industrial financiers, as well as a factory
system dependent on owners and managers. A stock exchange was
established in London in the 1770s; the New York Stock Exchange
was founded in the early 1790s. In 1776, Scottish social philosopher
Adam Smith (1723-1790), who is regarded as the founder of
modern economics, published “The Wealth of Nations.” In it, Smith
promoted an economic system based on free enterprise, the
private ownership of means of production, and lack of government
interference.
QUALITY OF LIFE DURING INDUSTRIALIZATION
The Industrial Revolution brought about a greater volume
and variety of factory-produced goods and raised the
standard of living for many people, particularly for the
middle and upper classes. However, life for the poor and
working classes continued to be filled with challenges.
Wages for those who labored in factories were low and
working conditions could be dangerous and monotonous.
Unskilled workers had little j ob security and were easily
replaceable. Children were part of the labor force and
often worked long hours and were used for such highly
hazardous tasks as cleaning the machinery. In the early
1860s, an estimated one-fifth of the workers in Britain’s
textile industry were younger than 15. Industrialization also
meant that some craftspeople were replaced by machines.
Additionally, urban, industrialized areas were
unable to keep pace with the flow of arriving
workers from the countryside, resulting in
inadequate, overcrowded housing and polluted,
unsanitary living conditions in which disease was
rampant. Conditions for Britain’s working-class
began to gradually improve by the later part of the
19th century, as the government instituted various
labor reforms and workers gained the right to form
trade unions.
What is Industry ?
The production side of business activity is referred as industry. It is a
business activity, which is related to the raising, producing,
processing or manufacturing of products.

The products are consumer's goods as well as producer's goods.

Consumer goods are goods, which are used finally by consumers. E.g.
Food grains, textiles, cosmetics, VCR, etc. Producer's goods are the
goods used by manufacturers for producing some other goods. E.g.
Machinery, tools, equipments, etc.
Expansion of trade and commerce depends on industrial growth. It
represents the supply side of market
Classification / Types of Industries ↓

There are various types of industries. These are mentioned as follows

:-
1. Primary Industry
Primary industry is concerned with production of goods with the help
of nature. It is a nature-oriented industry, which requires very little
human effort. E.g. Agriculture, farming, forestry, fishing, horticulture,
etc.
2. Genetic Industry
Genetic industries are engaged in re-production and multiplication of
certain spices of plants and animals with the object of sale. The main
aim is to earn profit from such sale. E.g. plant nurseries, cattle
rearing, poultry, cattle breeding, etc.
3. Extractive Industry
Extractive industry is concerned with extraction or drawing out goods
from the soil, air or water. Generally products of extractive industries
come in raw form and they are used by manufacturing and construction
industries for producing finished products. E.g. mining industry, coal
mineral, oil industry, iron ore, extraction of timber and rubber from
forests, etc.
4. Manufacturing Industry
Manufacturing industries are engaged in transforming raw material into
finished product with the help of machines and manpower. The finished
goods can be either consumer goods or producer goods. E.g. textiles,
chemicals, sugar industry, paper industry, etc.
5. Construction Industry
Construction industries take up the work of construction of buildings,
bridges, roads, dams, canals, etc. This industry is different from all other
types of industry because in case of other industries goods can be
produced at one place and sold at another place. But goods produced
and sold by constructive industry are erected at one place.
6. Service Industry
In modern times service sector plays an important role in
the development of the nation and therefore it is named as
service industry. The main industries, which fall under this
category, include hotel industry, tourism industry,
entertainment industry, etc.
Changes that have Taken Place in
the Indian Economy after 1951
1. Quantitative Changes:
i. Rising trend of National Income and per Capita Income:
Economic growth of any country is measured by the increase in
national and per capita output.
During the plan period, national income of the country has
certainly gone up. In 1950- 51, net national product at factor
cost or national income (at 1999-2000 prices) stood at Rs.
2,06,493 crore. It rose to Rs. 27,60,325 crore in 2007-08 (at
1999- 2000 prices).
This means that between 1950-51 and 2007-08 national
income grew at the compound rate of 4.7 percent per annum.
Compared to the pre-independence figure, this is really
remarkable. However, the performance of the Indian economy
in this direction in the 1980s, 1990s was certainly praiseworthy
since it recorded a growth rate of more than 6 p.c. p.a. GDP
growth rate in the 2000s is unprecedented
It rose from 5.8 p.c. in 2001-02 to 9.2 p.c. in 2006-07. If the
present trend continues, the country will be able to
achieve a double digit growth rate within one or two years.
However, the better measure of economic development is
the per capita income. Per capita NNP rose to Rs 24,256 in
2007- 08 (at 1999-2000 prices) as against Rs 6,122 of 1950-
51 at 1999-2000 prices. This means that during this period,
compound annual growth rate of net per capita income
rose by 2.5 p.c. p.a.
ii. Increase in Agricultural and Industrial Output:
Over the plan period, Indian economy experienced a
higher growth rate in agriculture as well as in industry. Pre-
plan period recorded an agricultural growth rate of 0.3 p.c.
while the plan period showed a growth rate of 2.66 p.a.
Performance of the industrial sector is certainly a better
one.
During the plan period, 1950-2007, the overall
achievement in this sector is more than 4.8 p.c. Trend
growth of India’s exports shows Indian agricultural and
industry on the move.
2. Qualitative Changes or Structural Changes:
During the plan period, not only economic growth picked up, but
also economic development i.e., ‘growth plus change’ occurred in
India. This amounts to saying that the Indian economy witnessed
structural changes.
By economic structure we mean interrelationship among the
different productive sectors i.e., agriculture and allied activities
(known as the primary sector), manufacturing and industries
(called the secondary sector), and trade and services (or the
tertiary sector).
At a low level of economic development, one finds predominance
of the primary sector. The predominance of any sector can be
viewed from the sectoral composition of national income and
occupational structure. When, in an economy, primary sector is
considered as the predominant one then it means that the
contribution of this sector towards national income is the largest.
We will see whether structural changes have taken place in India
during the Plan Period:
i. Sectoral Composition of National Income:
In 1950-51, the contribution of the primary sector towards India’s
gross domestic product or GDP was nearly 55.9 p.c., while it was
14.9 p.c. for the secondary sector-Since then there has been a
steady decline in the share of the primary sector in GDP and it
declined to 19.4 p.c. in 2007-08.
On the other hand, over the plan period, as the industrial sector
expanded, its contribution to GDP has been on the rise and it rose
to 25 p.c. in 2007-08.
Along with the growth of the secondary sector, the services sector
also registered a higher growth rate. In 2007-08, its contribution
was 55.7 p.c. Thus, it is clear that as economic development took
place during the last five decades of planning, the primary sector
lost its pre-eminence, as against 29.2 p.c. in 1950. This, of course, is
a sign of economic development.
The GDP growth rate between 1950-51 and 1979-80 came to
be known as ‘Hindu rate of Growth’ of 3.5 p.c. p.a. But this
long-term trend has been broken and in 2006-07 GDP growth
rate went past 9 p.c. p.a. along with the rising growth trend of
especially service sector and then industry sector. But primary
sector’s performance is rather unsatisfactory in the current
year.
It is clear that despite the green revolution in agriculture, the
share of the primary sector to GDP has been continuously
declining. However, between 1980-81 and 1991-92, primary
sector displayed a better growth rate. Variation in the
performance of agriculture is always worth noticing.
Another important aspect of sectoral composition of national income is
the contribution of the public sector towards GDP. As time progresses,
the contribution of this sector rises. In 1970-71, the public sector
contributed 14.9 p.c. towards GDP, but it rose to 24 p.c. in 2001-02.
However, following the introduction of new economic policy in 1991,
the contribution of public sector enterprises towards GDP is on the
decline. Their share in GDP at market prices declined from 11.68 p.c. in
2004-05 to 11.12 p.c. in 2005-06.
Finally, one can notice a structural change by studying the contribution
of the commodity sector and non-commodity or service sector in net
national product. Between 1950-51 and 1976- 77, the rate of growth of
the services sector (4.90 p.c.) was satisfactory as compared to the
growth of the commodity sector (2.90 p.c.).
Furthermore, between 1980-81 and 1995-96, growth rate of the
commodity sector came to 5.30 p.c., while that of the services sector
rose to 6.50 p.c. Same story has been repeated for the period 1991 -
2008.
Patterns of assets ownership in
agriculture
The agriculture sector is a prominent part of the Indian economy. It
supports about 50 per cent of India’s workforce, and occupies more
than one third of the country’s total geographical area.
The sector continues to be the single largest contributor to the
Indian economy even though its contribution to GDP has declined
since the country’s independence in 1947. Agriculture is an essential
link in the supply chain of the manufacturing sector, and plays an
important role in the rural development of the country. Some of the
major agricultural crops produced in India are rice, coarse cereals,
pulses, oilseeds, sugarcane, cotton, jute .
Given the importance of the sector, the Government of India has
focused on offering schemes and incentives to various stakeholders.
These schemes have helped the sector to improve food grain
production from 52 million tons in FY52 to 244.78 million tons in
FY11.
Over the past five years, the agriculture sector has seen significant
increase in production of food grains, oil seeds commercialised
crops, fruits, vegetables, poultry and dairy. Overall, agriculture and
agri based products have become the largest consumption category
in India. In addition, India is one of the major re exporters of
cashews and spices as well as one of the major producers of milk in
the world.
This report broadly analyses key policy initiatives taken by the Indian
Government over the course of the 11th Five Year Plan, while
simultaneously assessing the factors that are critical to agricultural
production. We then proceed to assess the key policy initiatives
from the Union Budget of 2012–13 that are expected to contribute to
agricultural development, and then provide a perspective on the
expected implementation of policies during the 12th Five Year Plan.
1. INDIA’S PAST AND CURRENT FOCUS ON THE AGRICULTURE
SECTOR
The agriculture sector continues to be the major source of
employment for more than 50 per cent of India’s population.
However, its share in GDP has declined from more than 30 per
cent in FY91 to nearly 14.5 per cent in FY11.1 This is primarily a
consequence of India’s progression from an agrarian economy
to an industry and service based economy. Further, there has
also been low public investment on agriculture (including
investment on irrigation), and lower crop diversification
practices (area under fruits and vegetables) adopted by
farmers.
In order to understand the government’s current focus on the
agriculture sector, it is essential to analyze the actionable initiatives
taken during the course of the 11th Five Year Plan that enhance the
pace of development.
Key developments in the 11th Five Year Plan
The 11th Five Year Plan (2007–12) emphasized ‘Inclusive growth’ to
achieve a target growth of 4 per cent per annum in GDP from
agriculture and allied services.
1 Globally, studies indicate that a higher GDP in agriculture is more
effective in alleviating poverty in comparison with higher GDP in
other sectors.
2 To achieve ‘Inclusive growth’, the 11th plan aimed at the following:
Improving accessibility of technology to farmers to increase
production and ensure optimum use of natural resources
3 Attracting higher public investments and ensuring efficacy of such
investments
4 Promoting diversification for higher value crops and livestock
5 Addressing issues pertaining to food security
6 Decentralising decision making to come up with customised
solutions to specific local problems and to improve the accessibility
of land, credit, skills and scale to the poor
Major programmes implemented in agriculture and its allied sectors
National Food Security Mission (NFSM)
In 2007, the Government of India launched the National Food
Security Mission (NFSM) initiative to improve the country’s overall
crop production, especially that of rice, wheat and pulses. The
primary objective of NFSM is to introduce technological
components that include farm machines/implements as well as
improved variants of seeds, soil ameliorants, plant nutrients and
plant protection measures. The government aims to increase
production of rice, wheat and pulses by 10 million tons, eight
million tons and two million tons, respectively, by end 2012. It
had allocated Rs 4,883 crore (US$ 915.7 million) to NFSM, of which
Rs 3,381 crore (US$ 634 million) was spent until 31 March 2011.
Through NFSM, 25 million tonnes of additional food grain was
produced in the 11th Five Year Plan.
The following are the major achievements of the
initiative:
1 Implemented in about 312 districts, spread across 17
states
2 Wheat production increased from 71.3 million tons in
FY07 (terminal year of 10th plan) to 80.3 million tons in
FY10
3 Rice production increased from 89.4 million tons in FY07
to 99.2 million tons in FY09; however, it declined to 87.6
million tons in FY10
4Pulse production increased from 13.6 million tons in FY07
to 14.7 million tons in FY10
5 Different districts were able to increase the food basket
of the country
Rashtriya Krishi Vikas Yojana (RKVY)
In FY08, the government introduced Rashtriya Krishi Vikas Yojana
(RKVY), with an outlay of Rs 25,000 crore (US$ 4.7 billion), to
encourage states to increase public investment in agriculture and
allied services. The programme enables adoption of national
priorities as sub schemes, thereby providing flexibility in project
selection and implementation to state governments. Various sub
schemes under RKVY are
as follows:
1 Green revolution in the Eastern region
2 Combining development of 60,000 pulses villages in rain fed areas
3 Encouraging the use of palm oil
4 Initiative on vegetable clusters
5 Nutri cereals
6 National Mission for Protein Supplements initiative
7 Accelerated Fodder Development Programme
8Rain fed Area Development Programme
As per the RKVY programme, the government has already
allocated Rs 14,598 crore (US$ 2.7 billion) over FY08–11. The
government intends to spend about Rs 7,811 crore (US$ 1.5
billion) on the programme during FY12.
Macro Management of Agriculture (MMA)
The Macro Management of Agriculture (MMA) scheme was initiated
during the10th Five Year Plan with an investment of Rs 4,154 crore
(US$ 777.4 million), and modified in 2008 to help states improve
agricultural production. The original scheme achieved the treatment
of vast amounts of degraded land, and the large scale distribution of
farm equipment. The revised scheme launched recently reduces the
overlaps between the NFSM and RKVY, and rationalises cost and
subsidy norms. As per the modified scheme, assistance to state
governments will be based on allocation criteria of 90:10, wherein 90
per cent of the total assistance will be a grant and 10 per cent will be
loans to states/union territories. However, in case of North Eastern
states, the central government’s entire share (100 per cent) is in the
form of a grant. In the 11th Five Year Plan, the government allocated
a total of Rs 5,500 crore (US$ 1 billion) for MMA, of which Rs 3,845
crore (US$ 721 million) was given to different states and union
territories over the first four years of the plan.
Integrated Scheme of Oilseeds, Pulses, Oil Palm, and Maize
(ISOPOM)
Integrated Scheme of Oilseeds, Pulses, Oil Palm, and Maize (ISOPOM)
programme is primarily targeted at small and marginal farmers who
raise oilseeds under rain fed conditions in the arid and semi arid
areas of the country. In the 11th plan period, the programme has
been implemented across 14 states for oilseeds and pulses, 15 states
for maize and nine states for palm oil.
National Mission for Sustainable Agriculture (NMSA)
NMSA programme was founded after the approval of The Prime
Minister’s Council on Climate Change in September 2010. The
primary objective of the programme is to ensure food security as
well as protect various resources such as land and water and
biodiversity and genetic resources. The programme is also
aimed at enabling theIndian agriculture to face challenges and
threats such as climate change.
The following factors are responsible for low penetration of technology in
agriculture:
Public sector dominance: Technologies developed by the public sector for
the agriculture often fail to cater to the needs and perceptions of the
average rural farmer.
Private sector: On the contrary, the private sector varieties and seeds such
as Bt Cotton, hybrids of maize, rice and sunflower have gained the
acceptance of farmers.
Extension systems: In the public sector, commercialisation of technology
depends on extension systems, which is the weakest link in the chain.
Moreover, extension systems do not have adequate workforce that could
cater to a vast range of farmer needs. As a result, input dealers operate as
extension workers and advice farmers on the use of technology. However,
they do not have requisite skill sets that may help them in addressing
technological issues.
Seeds
The Indian agriculture sector faces the challenges of timely
availability of seeds and lower seed replacement rate
(SRR). Moreover, insufficient supply of seeds, due to
shortages in production by certified agencies, continues to
be a problem.
While the sector has witnessed considerable progress in
the production of certified and breeder seeds, the supply
of breeder seeds is consistently higher than the varieties
released by the central and state governments. This
indicates that breeder seeds are not utilised as per their
potential in the production of certified seeds.
Irrigation
The area under irrigation grew by more than four million hectares
from 2004–05 until 2006–07. This increased the irrigated ‘Net Sown
Area’ from 40 per cent in 2003–04 to 43 per cent in 2006–07.
However, the increase in the area under irrigation is considerably
smaller in comparison to the increase in private and public
investments in agriculture. Moreover, about 80 per cent of the
public investments are directed towards improving the irrigation set
up in the country. According to ‘The Technical Committee on
Watershed Programmes’ report, irrigated agriculture has already
reached a peak in India, but agriculture in areas dependent on
rainfall (rain fed agriculture) has suffered. The report highlights the
importance of improving productivity in rain fed agriculture in order
to meet food security demands in 2020. In view of these issues, the
committee laid out some key reforms and guidelines to execute a
watershed programme.
As per the common guidelines, new watershed projects were
supposed to be implemented from 1 April 2008. For the same
purpose, the Desert Development Program (DDP), Drought Prone
Areas Program (DPAP), and the Integrated Watershed Development
Program (IWDP) were combined to form Integrated Watershed
Management Program (IWMP). A standard cost of Rs 12,000 (US$
225) per hectare was allocated under IWMP, while in case of hilly and
difficult terrains a standard cost of Rs 15,000 (US$ 281.3) per hectare
was allocated.
Fertilisers
Chemical fertilisers have played an important role in making India self
reliant in terms of production of food grains. However, the
imbalanced use of nutrients and micronutrients has destabilised the
optimum combination of fertiliser
Further, fertiliser subsidy has increased considerably, primarily due to
the growing fertiliser consumption and increasing per unit subsidy
element. Fertiliser subsidy, defined as a ratio to the value of crop
output, increased from 3.5 per cent in 2000–06 to 4.8 per cent in
2007–08, and to more than 10 per cent in 2008-09.
This increase is attributable to the rise in the price of imported
fertilisers. In 2010–11, the Government of India launched a nutrient
based subsidy system, according to which fertiliser subsidy, except
for urea, will be based on the composition of nutrients. Retail prices
of fertilisers will be fixed by manufacturers/importers.
Agricultural Credit
Credit is essential to ensure inclusive growth in agriculture.
Therefore, offering credit to farmers has become a priority for the
government. The government has focused on improving the flow of
credit through a system of Kisan Credit Cards (KCC), introduced in
1998–99. The banking system issued more than 87.8 crore KCCs,
resulting in the sanctioning of Rs 381,070 crore (US$ 71.5 billion)
until November 2009.
Under the 11th plan, consistent progress was witnessed in the
formation of Self Help Groups (SHGs). According to the SHG bank
linkage programme, 6,121,147 SHGs, with saving bank accounts, had
savings of Rs 5,546 crore (US$ 1 billion) on 31 March 2009, whereas,
5,009,794 SHGs accounted for savings of Rs 3,785 crore
(US$ 709.7 million) on 31 March 2008.
WAY FORWARD: THE 2012–13 UNION BUDGET AND AN
APPROACH FOR THE 12TH FIVE YEAR PLAN
The Union Budget 2012–13 has extensively focused on improving
agricultural credit through various initiatives such as interest
subvention scheme, setting up of short term Regional Rural Bank
(RRB) Credit Refinance Fund and extending the capitalisation of
weak RRBs. Such measures can certainly increase the
probability of improving agricultural output; however, they will need
synergistic support from related services. For example, reforms in
Agriculture Produce Marketing Committee (APMC) Act are essential
for ensuring high quality and quantity of farm output, along with
improved remuneration.The following are the key highlights of the
Union Budget, 2012-13:
Agricultural credit: Target increased by Rs 100,000 crore (US$ 18.7
billion), to Rs 575,000 crore (US$ 107.8 billion)
1 Interest subvention scheme: The scheme will continue to offer short
term loans to farmers at 7 per cent interest per annum
2 Establishment of short term RRB refinance fund: It helps improve the
capacity of RRBs in giving out short term loans to small farmers and
agricultural labourers.
3 Kisan Credit Card (KCC): The KCC scheme is modified to launch KCC
smart
cards, which can be used at ATMs.
4 Extension of capitalisation of weak RRBs: The budget granted
additional two years to all states to be able to contribute their share.
5 Bringing Green Revolution to Eastern India (BGREI): Budget allocation
increased from Rs 400 crore (US$ 75 million) in FY12 to Rs 1,000 crore
(US$ 187.5 million) in FY13.
Approach to the 12th Five Year Plan and other government
initiatives
The 11th plan initiated the process of reversing deceleration in
agricultural growth, which started in the 9th plan and continued until
the 10th plan. Various government schemes and programes under
the 11th plan had a positive effect on the sector and helped it to
register an annual average growth of about 3.3 per cent in
comparison to a lower average growth of 2.2 per cent in the 10th
plan. However, various challenges, such as inefficient extension lines,
poor availability of credit, lack of technological acceptance,
imbalanced use of fertilisers, and inadequate support in rain fed
areas continue to persist in the sector.
In the 12th plan, the Indian government intends to continue with the
introduction of new programmes, and the modification and
implementation of existing plans and programmes. The following
areas are expected to be the key focus areas in the agriculture sector:
Demand for food items
As India’s population continues to grow, the country will need
to produce more efficiently to meet the rising food demand.
Although the food consumption basket has gradually become
more diversified, cereals continue to dominate the food
consumption pattern. In addition, the components of food
baskets may change as consumers have started preferring other
food items such as fruit, vegetables, milk, eggs, meat and fish.
The demand for cereals will continue to rise due to its
widespread use in animal feed.
In the 12th plan, the government intends to identify and address
issues, which will eventually help in improving the overall farm
output. In addition, long term food security will be possible if
the government strives to increase the production of cereals at a
rate faster than the population growth rate.
Water management
Improvements in farm output can be achieved through an effective and
improved water management system. The following are the major
steps that the government intends to introduce in the 12th plan:
1 Improvement in the governance of water management by leveraging
the expertise of water user associations, such as Pani Panchayats
2 Comprehensive rainwater harvesting with the help of space based
maps
3 Extensive aquifer mapping and recharge of ground water
4 Increased focus on sprinkler and drip irrigation techniques
5 Increasing the land area under irrigation
Other major focus areas include micro irrigation schemes to improve
water accessibility and institutional changes through unification of
various agencies involved in watershed management and rain fed area
agriculture.
Soil nutrient management
The Indian agriculture sector is characterised by the uneven use of
chemical fertilisers across different states. In addition, overuse of
fertilisers has degraded soil quality.
In the 12th plan, the government intends to focus on soil renewal and
soil health restoration through the inclusion of solid organic matter
and micronutrients in bulk quantities. Although balanced nutrient
management is covered under different schemes, the government will
focus on greater clarity, along with improved assessment of soil
health and nutrient needs.
Technology
As per studies, nearly one third of the future growth in agriculture is
expected to be achieved through innovations in crop technologies. So
far, technology development in the public sector has not been able to
cater to farmers’ needs, perceptions and local crop conditions. This has
created significant gaps between the varieties offered by public sector
institutions and varieties actually used by the farmers. The private
sector offers varieties that have the probability of achieving higher
sales in the market. This may result in reduced focus on research for
other crops, which do not exhibit high sales potential. Climate change
is another critical factor that can be countered with the help of
technology. In the 12th Five Year Plan, the government intends to
increase the share of
expenditure on agricultural R&D and education in the total agri GDP.
The government will focus on strengthening the Agricultural
Technology Management Agencies (ATMA) concept through improved
integration with Krishi Vikas Kendras(KVKs).
Rain fed agriculture
Rain fed agriculture is a major obstacle to the overall agricultural
output, as 200 million hectares of India’s land, which is 62 per cent of
the total geographical area, is considered a part of rained areas. The
government has planned to focus on water management to address the
issues of rain fed agriculture. In addition, the National Rain fed Areas
Authority – an expert advisory body set up to interact with the
Ministries of Agriculture, Rural Development, Water Resources,
Environmentand Forests, Panchayati Raj systems is now attached
with the Planning Commission of India.
Seed systems
The government intends to focus on a programme that will help
establish seed banks in villages to ensure the availability of different
varieties of seed material. Community level seed banks with buffer
stock for a range of crops will also be set up. Initially, seed banks will
be integrated with the common infrastructure for rain fed farms. They
will gradually start operating in an autonomous manner.
Rain fed areas: Lower agricultural output can be attributed to lower
output in rain fed areas, which are still predominantly dependent on
monsoons for a good harvest. Therefore, focus on water management
systems, especially watershed development, will have a positive
impact on a farm’s output in rain fed areas.
Technologically advanced crops: Penetration of technologically
superior variants of crops will help farmers to improve the quality,
productivity, and the overall farm output.
Management of soil nutrients: Rebalancing soil usage through
optimum application of fertilisers in overused and underused regions
will help in improving the soil quality and overall agricultural output
of the country.
Agricultural credit: Extension of credit to farmers will help in
providing necessary financial support to small farmers and
agricultural labourers, which in turn will result in improved farm
output.
The government already has various programmes and
schemes that cater to the needs of the agriculture sector.
After launching the 12th Five Year Plan, the impact of
government policies and initiatives will become more
visible.
Agriculture in the Indian economy
Climatic conditions
India has great geographic diversity and a variety of climate regimes.
The agriculture sector spreads over six major climatic subtypes,
ranging from arid desert in the west, alpine tundra and glaciers in the
north, and humid tropical regions supporting rainforests in the south-
west and the island territories. The northern region of the country
possesses continental climate with alternating severe summers and
cold winters. Peninsular India has a more moderate but arid climate.
The coastal regions receive abundant rains and have unvarying
warmth. The north-east also receives abundant rainfall but has a
more contrasting seasonal temperature (Ministry of Environment,
Forest and Climate Change, 2015).
The Indian monsoon with its summer (south-west) and winter
(north-east) stages is the dominant climatic influence on the
subcontinent. The south-west monsoon is the most important
feature of India’s climate as nearly 75% of the annual rainfall of the
country is received during this season (June-September).
The north-east monsoon brings rain mainly to the south-east parts of
the country. Variation in the onset, withdrawal and amount of rainfall
during the monsoon season affects the water resources, agricultural
production, and ecosystems of the country (Ministry of Environment,
Forest and Climate Change, 2015).
Trends in agricultural output
The annual average growth in agricultural output13 has been of
approximately 3.6% since 2011 Driven by the technological
improvements of the green revolution in the 1960s-70s, the
agricultural sector was able to overcome productivity stagnation
and the production of cereals increased at a very fast rate until
the early 1990s, increasing the net availability of food grains. The
green revolution was followed by the white revolution, which
completely transformed milk production and marketing in India
Since 1995, output growth has nevertheless been highly volatile
reflecting periods of erratic climatic conditions, particularly as
regards monsoons . This performance contrasts sharply with that
of the agricultural sectors in China or Viet Nam, which has been
more dynamic. The sector follows nevertheless similar trends to
other countries in the region such as Indonesia, Malaysia and
Thailand
The green and white revolutions
The ‘green revolution’ began with the introduction of semi-
dwarfed, high-yielding varieties of wheat in 1967 and rice in 1968.
Favourable policies in the form of price and procurement support
as well as input subsidies encouraged farmers to adopt the new
varieties. The Green Revolution spread largely in areas with
favourable agro-climatic conditions, i.e. irrigated areas where
wheat and paddy were mainly grown. Another notable feature was
the adoption of double-cropping. Major irrigation facilities, such as
dams, were built while simple irrigation techniques, like the
digging of tube wells for extracting groundwater, were also
adopted on a massive scale. During the 1990s, there was a shift
from investments in capital assets, such as irrigation, power and
rural infrastructure, to subsidies on inputs like power, water and
fertiliser and to minimum support prices.
In the 1950s and 1960s, India relied heavily on milk imports, while
dairy farmers had only a few animals and were struggling to get this
highly perishable product to markets in urban centres.
Against this background, the Indian government set out to “flood
India with milk” and launched Operation Flood in 1970. This aimed to
increase milk production, connect milk producers and consumers, and
thus raise the income of dairy farmers. Operation Flood addressed
three different levels:
i) at the farm-level, dairy farmers were organised into co-operatives.
Co-operatives were provided with advanced technologies, such as
modern animal breeds that produced more milk;
ii) at the district level, co-operative unions were formed, which
owned and operated milk processing plants as well as storage and
transport equipment. The unions also provided animal health
services;
iii) at the state level, state federations conducted and co-ordinated the
nation-wide marketing of milk. Today, India is the largest producer of fresh
buffalo and goat milk and the second largest producer after the United
States of fresh cow milk.
Output trends in cereals and oilseeds
Beyond the green revolution, growth in rice and wheat output slowed, with
annual production increasing since 2000 by only 1.9% and 2.5% annually
Oilseeds production is dominated by soybeans, accounting in some years
for close to half of the total oilseeds produced. Groundnuts and rapeseed
make up most of the rest of India’s oilseed production. Soybeans
production expanded much faster than groundnuts and rapeseed, which
experienced significant year-to-year fluctuations. Production of pulses
remained stable until mid-2000s, but picked up slowly afterwards, largely in
response to focused efforts in the National Food Security Missions from
2007 and the Accelerated Pulse Production Program launched in 2010-11
Chickpeas, a rabi14 crop, constitutes over 40% of the total pulses output.
Pulses production remains insufficient to cater to domestic demand, making
India a major importer of pulses
Dynamic change in the composition of output: fruit and
vegetables…
Among crops, cotton and fruit and vegetables are by far the
outstanding performers in terms of output growth over the last two
decades. The cotton sector expansion was driven by the 2002
introduction and subsequent rapid adoption of Bt (Bacillus
thuringiensis) technology, with output almost tripling in 2001-15 (the
gene revolution). As a result, India today has the largest area under
Bt cotton (greater than that in China).
Fruit and vegetables production has also surged, growing at 4.3% per
year since 2001 and making India the second largest global producer
after China. These are primarily destined for the domestic market
and such output growth reflects the evolving pattern in domestic
consumer preferences. India is first in the production of fruits such as
mango, banana, papaya, or pomegranate.
The country is also second to China in the production of many
vegetables, including potato, tomato, onion, eggplant, cabbage, or
cauliflower. India currently grows 41% of world’s mangoes, 23% of
bananas, and 10% of onions. With the advantage of diverse agro-
climatic zones, some crops can be harvested in shorter durations
compared to food grains and have better access to irrigation.
Moreover, fruit and vegetables production overtook food grains
production in terms of both volume and value in 2014-15 and has
been much less volatile than other crops.
Milk production has almost tripled since 1995, continuing the
developments of the white revolution. India is unique among the
major milk producers because more than half of its production is
from buffalo, rather than cattle. India has one sixth of the world’s
cattle and about half of the world’s buffalo population. The bulk of
milk production is destined to domestic consumption. Moreover,
about half of the milk produced represents self-consumption, while
the rest is marketed through both formal and informal channels
Meat production has been gradually increasing at 2.5% per year
since 2000, driven by both bovine meat and poultry sectors
expansion. The bovine meat supply is primarily destined for exports
(section 2.6) and based on adult male buffalos as well as
unproductive and least milk productive female buffalos. Sale of
cattle for meat production is frequently used as an income
smoothing mechanism, especially among small farmers. Poultry is
also one of the fastest growing segments in Indian agriculture, with
the production of eggs and broilers rising at a rate of 6% to 10% per
year over the last two decades. The poultry sector was spearheaded
by developments in high yielding layer and broiler varieties, together
with improved practices of disease control. While relatively small-
scale producers account for the bulk of production, integrated large-
scale producers represent a growing share of the sector in some
regions
 Structure and features of the
agricultural market system in India
Rural primary markets
1 Include mainly the periodical markets known as haats, shandies,
painths, and fairs
2 Predominantly used by small and marginal farmers, including
landless labourers; village traders may be independent or work for
specific brokers in primary wholesale markets
3 Smallest villages (population less than 500) hold the fewest haats
(only 1.6%); majority of haats (47.9%) are in big villages, with a
population of over 5 000
4 Nearly two thirds of haats are at a distance of 16 km, 23% are at a
distance of 6 to 15 km and 9% within a distance of 1 to 5 km
Primary wholesale markets
1 Located in important towns near centres of production, they are the first
points of sale for farmers or aggregators or assemblers
2 Farmers with larger surpluses or smaller traders generally purchase
surpluses from other small farmers and carry along with their produce to
the assembling markets
3 Fees are paid for participating in these markets
4 Private exporters and bulk processors can meet their requirements from
these markets
Secondary wholesale markets
1 Known as mandis, generally located in district headquarters or important
production centres, attracting potential buyers and traders who assemble the
produce and consolidate a truck load for sale in terminal wholesale market
or arrange transportation to a consumption centre for sale there
2 Conducted according to traditional market practices or as per regulations
of APMC, where regulated
3 Many commodities are traded; a few specialised single commodity
markets trade cotton, jute, oilseeds, fruits and vegetables
4 Buyers and sellers pay a fee to the manager of the market; in
addition to the mandi tax (usually 2.5% of price but varying among
states), several other charges apply to products entering regulated
market yard (e.g. rural development cess 2%; infrastructure cess 2%;
education cess 0.5%)
5 Procurement by various government agencies can take place through
these markets
6 In major cities, these markets are transit market for supplies to the
hinterland and distant markets and also terminal market for supplies to
retailers for local consumption
7 Six states account for 53% of all regulated markets (Andhra Pradesh,
Bihar, Maharashtra, Madhya Pradesh, Uttar Pradesh, and West Bengal)
8 On average a regulated market serves an area of 435 km2; area
served by each regulated market varies greatly among states, from 115
km2 in Punjab to 11 215 km2 in Meghalaya
9 Cold storage exists in 9% of markets and grading facilities in less
than one third of markets
Terminal wholesale markets
1 Produce is finally sold to consumers or processors or is assembled
for dispatch to distant markets or exports
2 Sellers are usually traders, not producers, unlike in primary and
secondary markets.
The government organises purchase operations through public and co-
operative agencies, which intervene in the market through
procurement operations with the objective that market prices do not
fall below the Minimum Support Prices (MSPs) fixed by the
government. The Food Corporation of India (FCI), under the
authority of the Department of Food and Public Distribution (DFPD)
of the MCAFPD, is the main agency for executing the food grain
policies of the central government. The FCI, set up in 1965 under the
Food Corporations Act, 1964, is mandated to (a) procure food grains
from farmers at remunerative prices, (b) distribute food grains to
consumers through public distribution, particularly to vulnerable
sections of society at affordable prices; and (c) to maintain buffer
stock of food grains for food security and price stability. The
functions of the FCI mainly relate to purchasing, storing, moving,
distributing and selling food grains on behalf of the central
government. The FCI undertakes some of these functions along with
other central and state agencies.
A MSP was first announced for rice in 1965. The central government now
announces MSPs for the major crop commodities in each marketing season
for kharif crops, grown mainly in July-October, and rabi crops, grown
mainly in October-March. The Commission for Agricultural Costs and Prices
(CACP), which is attached to the Ministry of Agriculture and Farmers’
Welfare (MAFW), provides its recommendations on MSPs to the
Department of Agriculture, Cooperation and Farmers’ Welfare (DACFW) of
the MAFW. In recommending MSPs, the CACP must take into account the
cost of production, overall demand-supply, domestic and international prices,
inter-crop price parity, terms of trade between agricultural and non-
agricultural sectors, the likely impact of the price policy on the rest of the
economy, while ensuring rational utilisation of production resources like
land and water. No specific weights attach to any of these factors and the
Commission’s recommendations involve its judgement on some of these
issues.
Trends and evaluation of agricultural
policy in India
Agricultural policy objectives and basic stages of agricultural policy reform
From India’s early years, seeking to achieve food security has been an
important part of the objectives of both its agricultural and trade policy. The
phrase food security has been given different conceptual and practical
interpretations over time, whether emphasising national self-sufficiency in
food production, economic access to food for certain groups, or other
dimensions. The consequent policy approaches have therefore also evolved
over time. Before the year 2000 no explicit agricultural policy objectives
were published at the central government level, other than the priorities
outlined in the five-year plans. An implicit objective, to a large extent driven
by the experience of food shortages in the early 1960s, was to pursue self-
sufficiency in food production. By the 1990s India had not only become self-
sufficient in food grains but produced a surplus of food grains. Although the
early five-year plans thus focussed to a very large extent on agriculture, the
last one was seeking faster, more inclusive and sustainable growth more
broadly by bringing macroeconomic imbalances under control and reversing
the economic slowdown while also pushing for structural reform in many
areas.
1950s-1980s
In the first few years after India’s independence in 1947 growth of
agricultural output was achieved mainly by expanding the area under
cultivation. Food shortages in the early 1960s made it essential to increase
crop productivity and farm output so as to raise national food production.
While India in the 1950s met domestic demand for food grains to some
extent by imports financed by other countries, uncertainties linked to
international political developments brought about a change in such import
flows. Although the scope for further expanding the area under cultivation
was limited, the advent of the green revolution in the mid-1960s raised crop
productivity through improved crop technologies and seed varieties. The
government imported and distributed high-yielding varieties of wheat and
rice for use in irrigated areas, which was accompanied by an expansion of
the extension service and an increase in the use of fertilisers, pesticides, and
irrigation. The yields and production of especially wheat and rice increased
rapidly. Two institutions with key roles in affecting the prices and
distribution mainly of wheat and rice were set up already in 1965, namely
the Food Corporation of India (FCI) and the Agricultural Prices
Commission, later renamed the Commission for Agricultural Costs and
Prices (CACP).
1980s-1990s
In the 1980s and 1990s the yield-enhancing green revolution
technologies were expanded to additional crops and regions, and new
technologies were also adopted in the production of pulses, oilseeds
and coarse grain in drier areas. Farm production diversified into
higher value commodities, such as fish, poultry, vegetables and fruit.
Policy reforms were carried out in the rest of the economy, such as
delicensing and deregulation in the manufacturing sector, but they
largely bypassed agriculture, partly because of the prevalence of state
level regulations in agriculture. Following the 1991 crisis-driven
devaluation of the Indian rupee, India’s gradual liberalisation of
foreign trade basically left the rural sector untouched, including
agriculture. From 1980 to 1999 India’s GDP in agriculture at constant
prices increased by 80%. Over the same time span, gross fixed
capital formation by the public sector in agriculture dropped by about
one third whereas subsidies in agriculture increased more than
tenfold.
2000 to present
The National Agricultural Policy (NAP), formulated in 2000, aimed at
a yearly growth rate of more than 4% in agriculture based on efficient
use of resources and conservation of soil, water and biodiversity
(Government of India, 2003a).2 The tenth five-year plan of the
Planning Commission covered the years 2002-07 (Government of
India, 2002). While recognising the growth orientation of the 2000
NAP, the plan articulated a need for strategies to be differentiated
based on the agri-climatic conditions and the land and water resources
of different regions, with particular emphasis on developing the
eastern and north-eastern regions. It put a priority on raising the
cropping intensity on existing agricultural land, developing rural
infrastructure that supports not only agriculture but all rural activities,
developing and disseminating agricultural technologies, and
reconsidering the rules and regulations that govern agricultural trade.
The policies relating to public distribution of food would also be
considered for change.
The National Policy for Farmers (NPF), approved by the Government of
India in 2007, identified a need to focus more on the economic well-being
of farmers rather than just on production (Government of India, 2007). It
listed the accompanying policy actions under headings such as farmers’
assets and empowerment, farmers’ support services, and special categories
of farmers and farming.
The eleventh five-year plan, covering the period 2007-12, saw a need for
several actions to accelerate yearly agricultural growth to 4% (Government
of India, 2008). These actions would bring technology to farmers, improve
the efficiency of investments, increase systems support, rationalise
subsidies, diversify production while also protecting food security concerns,
and improve the access of the poor to land, credit and skills. In specifically
addressing water management and irrigation, the plan saw a need to reduce
time delays in constructing irrigation projects, increase irrigation efficiency
in both surface water and groundwater systems, adopt an integrated
approach to water resources development and conservation, and limit the
use of groundwater.
For agriculture in broad terms the twelfth five-year plan for 2012-17 would
accelerate the annual growth of agricultural GDP to 4% and allow for a shift
of employment out of agriculture, helped by a policy restructuring aimed at
supporting the diversification of agriculture and a greater involvement of the
private sector in marketing agricultural produce. More specifically, the 2012-
17 plan articulated the key drivers of growth in agriculture as comprising (1)
the viability of the farm enterprise and returns to investment that depend on
scale, market access, prices and risk, (2) the availability and dissemination of
appropriate technologies that depend on quality of research and extent of
skill development, (3) expenditure on agriculture and in infrastructure along
with a policy aim to improve the functioning of markets and more efficient
use of natural resources, and (4) governance in terms of institutions that
make it possible to better deliver services like credit and animal health and
quality inputs like seeds, fertilisers, pesticides and farm machinery. The plan
also held that certain regional imbalances must be addressed: a national
priority in terms of both food security and sustainability would be to fully
extend the green revolution to areas of low productivity in India’s eastern
region, where there is ample ground water, and thereby help to reduce water
stress elsewhere.
National Income: Definition,
Concepts
The Marshallian Definition:
According to Marshall: “The labour and capital of
a country acting on its natural resources produce
annually a certain net aggregate of commodities,
material and immaterial including services of all
kinds. This is the true net annual income or
revenue of the country or national dividend.” In
this definition, the word ‘net’ refers to deductions
from the gross national income in respect of
depreciation and wearing out of machines. And to
this, must be added income from abroad.
First, in the present day world, so varied and numerous are
the goods and services produced that it is very difficult to
have a correct estimation of them.Consequently, the national
income cannot be calculated correctly.
Second, there always exists the fear of the mistake of double
counting, and hence the national income cannot be correctly
estimated. Double counting means that a particular
commodity or service like raw material or labor, etc. might get
included in the national income twice or more than twice.
Third, it is again not possible to have a correct estimation of
national income because many of the commodities produced
are not marketed and the producer either keeps the produce
for self-consumption or exchanges it for other commodities. It
generally happens in an agriculture- oriented country like India.
Thus the volume of national income is underestimated.
The Pigouvian Definition:

A.C. Pigou has in his definition of national

income included that income which can be
measured in terms of money. In the words of
Pigou, “National income is that part of objective
income of the community, including of course
income derived from abroad which can be
measured in money.”
It’s Defect
First -The Pigovian definition is applicable only to
the developed countries where goods and
services are exchanged for money in the market.
Second -According to Pigou, a woman’s services
as a nurse would be included in national income
but excluded when she worked in the home to
look after her children because she did not
receive any salary for it. Similarly, Pigou is of the
view that if a man marries his lady secretary, the
national income diminishes as he has no longer to
pay for her services.
Fisher’s Definition:
Fisher adopted ‘consumption’ as the criterion of national income
whereas Marshall and Pigou regarded it to be production. According
to Fisher, “The National dividend or income consists solely of services
as received by ultimate consumers, whether from their material or
from the human environments. Thus, a piano, or an overcoat made
for me this year is not a part of this year’s income, but an addition to
the capital. Only the services rendered to me during this year by
these things are income.”

Fisher’s definition is considered to be better than that of Marshall

or Pigou, because Fisher’s definition provides an adequate concept
of economic welfare which is dependent on consumption and
consumption represents our standard of living.
It’s Defect
First, it is more difficult to estimate the money value of net
consumption than that of net production. In one country there are
several individuals who consume a particular good and that too at
different places and, therefore, it is very difficult to estimate their
total consumption in terms of money.
Second, certain consumption goods are durable and last for many
years.
Third, the durable goods generally keep changing hands leading to
a change in their ownership and value too. It, therefore, becomes
difficult to measure in money the service-value of these goods from
the point of view of consumption. For instance, the owner of a
Maruti car sells it at a price higher than its real price and the
purchaser after using it for a number of years further sells it at its
actual price
Modern Definitions:
From the modern point of view,
Simon Kuznets has defined national
income as “the net output of
commodities and services flowing
during the year from the country’s
productive system in the hands of
the ultimate consumers.”
2. Concepts of National Income:
(A) Gross Domestic Product (GDP):
GDP is the total value of goods and services produced
within the country during a year. This is calculated at
market prices and is known as GDP at market prices.
Dernberg defines GDP at market price as “the market value
of the output of final goods and services produced in the
domestic territory of a country during an accounting year.”
There are three different ways to measure GDP:
Product Method, Income Method and Expenditure
Method.
These three methods of calculating GDP yield the same
result because National Product = National Income =
National Expenditure.
1. The Product Method:
In this method, the value of all goods and services
produced in different industries during the year is added
up. This is also known as the value added method to GDP
or GDP at factor cost by industry of origin. The following
items are included in India in this: agriculture and allied
services; mining; manufacturing, construction, electricity,
gas and water supply; transport, communication and
trade; banking and insurance, real e states and ownership
of dwellings and business services; and public
administration and defense and other services (or
government services). In other words, it is the sum of
gross value added.
2. The Income Method:
The people of a country who produce GDP during a
year receive incomes from their work. Thus GDP by
income method is the sum of all factor incomes:
Wages and Salaries (compensation of employees) +
Rent + Interest + Profit.
3. Expenditure Method:
This method focuses on goods and services
produced within the country during one year.
GDP by expenditure method includes:
(1) Consumer expenditure on services and durable and non-
durable goods (C)
(2) Investment in fixed capital such as residential and non-
residential building, machinery, and inventories (I),
(3) Government expenditure on final goods and services (G),
(4) Export of goods and services produced by the people of
country (X),
(5) Less imports (M). That part of consumption, investment and
government expenditure which is spent on imports is subtracted
from GDP. Similarly, any imported component, such as raw
materials, which is used in the manufacture of export goods, is
also excluded. Thus GDP by expenditure method at market
prices = C+ I + G + (X – M), where (X-M) is net export which can
be positive or negative.
(B) GDP at Factor Cost:
GDP at factor cost is the sum of net value
added by all producers within the country.
Since the net value added gets distributed as
income to the owners of factors of
production, GDP is the sum of domestic factor
incomes and fixed capital consumption (or
depreciation).
Thus GDP at Factor Cost = Net value added +
Depreciation.
GDP at factor cost includes:
(i) Compensation of employees i.e., wages, salaries, etc.
(ii) Operating surplus which is the business profit of both
incorporated and unincorporated firms. [Operating Surplus
= Gross Value Added at Factor Cost—Compensation of
Employees—Depreciation]
(iii) Mixed Income of Self- employed.
Conceptually, GDP at factor cost and GDP at market price
must be identical/This is because the factor cost (payments
to factors) of producing goods must equal the final value of
goods and services at market prices. However, the market
value of goods and services is different from the earnings
of the factors of production.
In GDP at market price are included indirect taxes and are
excluded subsidies by the government. Therefore, in
order to arrive at GDP at factor cost, indirect taxes are
subtracted and subsidies are added to GDP at market
price.
Thus, GDP at Factor Cost = GDP at Market Price –
Indirect Taxes + Subsidies.
(C) Net Domestic Product (NDP):
NDP is the value of net output of the economy
during the year. Some of the country’s capital
equipment wears out or becomes obsolete each
year during the production process. The value of
this capital consumption is some percentage of
gross investment which is deducted from GDP.
Thus Net Domestic Product = GDP at Factor Cost –
Depreciation.
(D) Nominal and Real GDP:
When GDP is measured on the basis of
current price, it is called GDP at current
prices or nominal GDP. On the other
hand, when GDP is calculated on the
basis of fixed prices in some year, it is
called GDP at constant prices or real
GDP.
(E) GDP Deflator:
GDP deflator is an index of price changes of goods and
services included in GDP. It is a price index which is
calculated by dividing the nominal GDP in a given year by
the real GDP for the same year and multiplying it by 100.
Thus,
(F) Gross National Product (GNP):
GNP is the total measure of the flow of goods and services at
market value resulting from current production during a year
in a country, including net income from abroad.
GNP includes four types of final goods and services:
(1) Consumers’ goods and services to satisfy the immediate
wants of the people;
(2) Gross private dome stic investment in capital goods
consisting of fixed capital formation, residential construction
and inventories of finished and unfinished goods;
(3) Goods and services produced by the government; and
(4) Net exports of goods and services, i.e., the difference
between value of exports and imports of goods and services,
known as net income from abroad.
Three Approaches to GNP:
1. Income Method to GNP:
The income method to GNP consists of the remuneration paid in
terms of money to the factors of production annually in a country.
Thus GNP is the sum total of the following items:
(i) Wages and salaries:
Under this head are included all forms of wages and salaries earned
through productive activities by workers and entrepreneurs. It
includes all sums received or deposited during a year by way of all
types of contributions like overtime, commission, provident fund,
insurance, etc.
(ii) Rents:
Total rent includes the rents of land, shop, house, factory, etc. and
the estimated rents of all such assets as are used by the owners
themselves.
(iii) Interest:
Under interest comes the income by way of interest
received by the individual of a country from different
sources. To this is added, the estimated interest on that
private capital which is invested and not borrowed by the
businessman in his personal business.
(iv) Dividends:
Dividends earned by the shareholders from companies are
included in the GNP.
(v) Undistributed corporate profits:
Profits which are not distributed by companies and are
retained by them are included in the GNP.
(vi) Mixed incomes:
These include profits of unincorporated business, self-
employed persons and partnerships. They form part of
GNP.
(vii) Direct taxes:
Taxes levied on individuals, corporations and other
businesses are included in the GNP.
Net income earned from abroad:
This is the difference between the value of exports of
goods and services and the value of imports of goods and
services. If this difference is positive, it is added to the GNP
and if it is negative, it is deducted from the GNP.
Thus GNP according to the Income Method = Wages and
Salaries + Rents + Interest + Dividends + Undistributed
Corporate Profits + Mixed Income + Direct Taxes + Indirect
Taxes + Depreciation + Net Income from abroad.
2. Expenditure Method to GNP:
From the expenditure view point, GNP is the sum total of
expenditure incurred on goods and services during one year in a
country.
It includes the following items:
(i) Private consumption expenditure:
It includes all types of expenditure on personal consumption by
the individuals of a country. It comprises expenses on durable
goods like watch, bicycle, radio, etc., expenditure on single-used
consumers’ goods like milk, bread, ghee, clothes, etc., as also
the expenditure incurred on services of all kinds like fees for
school, doctor, lawyer and transport. All these are taken as final
goods.
(ii) Gross domestic private investment:
Under this comes the expenditure incurred by private
enterprise on new investment and on replacement of old
capital. It includes expenditure on house construction,
factory- buildings, and all types of machinery, plants and
capital equipment.
In particular, the increase or decrease in inventory is
added to or subtracted from it. The inventory includes
produced but unsold manufactured and semi-
manufactured goods during the year and the stocks of raw
materials, which have to be accounted for in GNP.
(iii) Net foreign investment:
It means the difference between exports and imports or export
surplus. Every country exports to or imports from certain foreign
countries. The imported goods are not produced within the country
and hence cannot be included in national income, but the exported
goods are manufactured within the country. Therefore, the difference
of value between exports (X) and imports (M), whether positive or
negative, is included in the GNP.
3. Methods of Measuring National Income:
1) Product Method:
According to this method, the total value of final goods and
services produced in a country during a year is calculated at
market prices. To find out the GNP, the data of all
productive activities, such as agricultural products, wood
received from forests, minerals received from mines,
commodities produced by industries, the contributions to
production made by transport, communications, insurance
companies, lawyers, doctors, teachers, etc. are collected
and assessed at market prices. Only the final goods and
services are included and the intermediary goods and
services are left out.
(2) Income Method:
According to this method, the net income payments received by
all citizens of a country in a particular year are added up, i.e., net
incomes that accrue to all factors of production by way of net
rents, net wages, net interest and net profits are all added
together but incomes received in the form of transfer payments
are not included in it. The data pertaining to income are obtained
from different sources, for instance, from income tax department
in respect of high income groups and in case of workers from their
wage bills.
(3) Expenditure Method:
According to this method, the total expenditure incurred by the
society in a particular year is added together and includes
personal consumption expenditure, net domestic investment,
government expenditure on goods and services, and net foreign
investment. This concept is based on the assumption that national
income equals national expenditure.
4. Difficulties or Limitations in Measuring National Income:
INCOME METHOD
Self-employed Persons:
Another problem arises with regard to the income of self-employed
persons. In their case, it is very difficult to find out the different inputs
provided by the owner himself. He might be contributing his capital, land,
labour and his abilities in the business. But it is not possible to estimate the
value of each factor input to production. So he gets a mixed income
consisting of interest, rent, wage and profits for his factor services. This is
included in national income.
Goods meant for Self-consumption:
In under-developed countries like India, farmers keep a large portion of food
and other goods produced on the farm for self-consumption. The problem is
whether that part of the produce which is not sold in the market can be
included in national income or not. If the farmer were to sell his entire
produce in the market, he will have to buy what he needs for self-
consumption out of his money income. If, instead he keeps some produce
for his self-consumption, it has money value which must be included in
national income.
3. Wages and Salaries paid in Kind:
Another problem arises with regard to wages and salaries
paid in kind to the employees in the form of free food,
lodging, dress and other amenities. Payments in kind by
employers are included in national income. This is because
the employees would have received money income equal
to the value of free food, lodging, etc. from the employer
and spent the same in paying for food, lodging, etc.
4 SELF OCCUPIED HOUSE
B) Problems in Product Method:
The following problems arise in the computation of national
income by product method:
1. Services of Housewives:
The estimation of the unpaid services of the housewife in the
national income presents a serious difficulty. A housewife renders a
number of useful services like preparation of meals, serving,
tailoring, mending, washing, cleaning, bringing up children, etc.
She is not paid for them and her services are not including in national
income. Such services performed by paid servants are included in
national income.
2. Intermediate and Final Goods:
The greatest difficulty in estimating national income by product
method is the failure to distinguish properly between
intermediate and final goods. There is always the possibility of
including a good or service more than once, whereas only final
goods are included in national income estimates. This leads to the
problem of double counting which leads to the overestimation of
national income.
3. Second-hand Goods and Assets:
Another problem arises with regard to the sale and purchase of
second-hand goods and assets. We find that old scooters, cars,
houses, machinery, etc. are transacted daily in the country. But
they are not included in national income because they were
counted in the national product in the year they were
manufactured.
4. Illegal Activities:
Income earned through illegal activities like gambling,
smuggling, illicit extraction of wine, etc. is not included in
national income. Such activities have value and satisfy the
wants of the people but they are not considered
productive from the point of view of society. But in
countries like Nepal where gambling is legalized, it is
included in national income. Similarly, horse-racing is a
legal activity in England and is included in national income.
Price Changes:
National income by product method is measured by the
value of final goods and services at current market prices.
But prices do not remain stable. They rise or fall. When the
price level rises, the national income also rises, though the
national production might have fallen.
On the contrary, with the fall in the price level, the national
income also falls, though the national production might
have increased. So price changes do not adequately
measure national income.
(C) Problems in Expenditure Method:
The following problems arise in the calculation of national
income by expenditure method:
(1) Government Services: One view is that if police,
military, legal and administrative services protect the lives,
property and liberty of the people, they are treated as final
goods and hence form part of national income. If they help
in the smooth functioning of the production process by
maintaining peace and security, then they are like
intermediate goods that do not enter into national income.
In reality, it is not possible to make a clear demarcation as
to which service protects the people and which protects
the productive process. Therefore, all such services are
regarded as final goods and are included in national
income.
(2) Transfer Payments:
There arises the problem of including transfer payments in
national income. Government makes payments in the form
of pensions, unemployment allowance, subsidies, interest
on national debt, etc. These are government expenditures
but they are not included in national income because they
are paid without adding anything to the production process
during the current year.
(3) Durable-use Consumers’ Goods:
Durable-use consumers’ goods also pose a problem. Such durable-
use consumers’ goods as scooters, cars, fans, TVs, furniture’s, etc.
are bought in one year but they are used for a number of years.
Should they be included under investment expenditure or
consumption expenditure in national income estimates? The
expenditure on them is regarded as final consumption expenditure
because it is not possible to measure their used up value for the
subsequent years.
But there is one exception. However, expenditureThe expenditure on
a new house is regarded as investment expenditure and not
consumption expenditure. This is because the rental income or the
imputed rent which the house-owner gets is for making investment
on the new house. on a car by a household is consumption
expenditure. But if he spends the amount for using it as a taxi, it is
investment expenditure.
 National Income: Definition,
Concepts and Methods of Measuring
National Income
Definition of National Income:
National income, in the words of Pigou, “is that part of the
objective income of the community, including of course
income derived from abroad, which can be measured in
money.”
According to Dr. V. K. R. V. Rao, an Indian authority on the
subject, “national income may be defined as the money
value of the flow of commodities and services, excluding
imports becoming available for sale (or capable of being
sold) within the period, the value at current prices minus
the sum of the following items:
(i) The money value of any reduction in size stocks
that may have taken place during the period;
(ii) The money value of the flow of goods and
services used up in the course of production;
(iii) The money value of the flow of goods and
services used to maintain capital equipment
(iv) Receipts of the State from indirect taxation
Gross National Product (G.N.P.):
1Gross National Product is defined as the total market value of
all final goods and services produced in a year.
Two things must be noted in regard to gross national product.
1It measures the market value of the annual output. In other
words, G.N.P. is a monetary measure.
There is no other way of adding up the different sorts of goods
and services produced in a year except with their money prices.
But in order to know accurately the changes in physical output,
the figure for gross national product is adjusted for price changes.
2 double counting has to be avoided. This means that for
calculating gross national product accurately, all goods and
services produced in any given year must be counted once, but
not more than once. Most of the goods go through a series of
production stages before reaching a market.
The “gross national product at market prices” may be
obtained by adding up:
(a) What private persons spend on consumption or what is
called personal consumption expenditure;
(b) What private business spends on replacement, renewal
and new investment? This is called gross domestic private
investment;
(c)What the government spends on the purchase of goods
and services, i.e., government purchases.
Net National Product (N.N.P.):
The second important concept of national income is that of net
national product. In the production of gross national product of a
year, we consume or use up some capital, i.e., equipment,
machinery, etc. The capital goods, like machinery, wear out or fall
in value as a result of their use in the production process.
National Income at Factor Cost:
National Income at factor cost means the sum of all
incomes earned by resource suppliers for their
contribution of land, labour, capital and entrepren-
eurial ability which go into the year’s net
production, or, in other words, national income (or
national income at factor cost) shows how much it
costs society in terms of economic resources, to
produce that net output. It is really the national
income at factor cost for which we use the term
National Income.
Personal Income (P.I.):
Personal Income is the sum of all incomes actually
received by all individuals or households during a
given year. National income, that is, total income
earned, and personal income, that is, income
received, must be different for the simple reason
that some income which is earned—social security
contributions, corporate income taxes and
undistributed corporate profits—is not actually
received by households and, conversely, -some
income which is received—transfer payments—is
not currently earned.
Personal Income =National Income
—Social Security Contributions —
Corporate Income Taxes—
Undistributed Corporate Profits +
Transfer Payments.
Disposal Income (D.I.):
After a good part of personal income is paid to government
in the form of personal taxes like income tax and personal
property taxes, what remains of personal income is called
disposable income.
Disposable Income = Personal Income—Personal Taxes.
Disposable Income can either be consumed or saved.
Therefore
Disposable Income = Consumption + Saving.
1. Definitions of National Income:
The definitions of national income can be
grouped into two classes: One, the traditional
definitions advanced by Marshall, Pigou and
Fisher; and two, modern definitions.
The Marshallian Definition:
According to Marshall: “The labour and capital of a
country acting on its natural resources produce
annually a certain net aggregate of commodities,
material and immaterial including services of all
kinds. This is the true net annual income or
revenue of the country or national dividend.” In
this definition, the word ‘net’ refers to deductions
from the gross national income in respect of
depreciation and wearing out of machines. And to
this, must be added income from abroad.
It’s Defects:
Though the definition advanced by Marshall is
simple and comprehensive, yet it suffers from a
number of limitations. First, in the present day
world, so varied and numerous are the goods and
services produced that it is very difficult to have a
correct estimation of them.
 Second, there always exists the fear of the mistake of
double counting, and hence the national income cannot
be correctly estimated. Double counting means that a
particular commodity or service like raw material or
labour, etc. might get included in the national income
twice or more than twice.
For example, a peasant sells wheat worth Rs.2000 to a
flour mill which sells wheat flour to the wholesaler and the
wholesaler sells it to the retailer who, in turn, sells it to the
customers. If each time, this wheat or its flour is taken into
consideration, it will work out to Rs.8000, whereas, in
actuality, there is only an increase of Rs.2000 in the
national income.
Third, it is again not possible to have a
correct estimation of national income
because many of the commodities produced
are not marketed and the producer either
keeps the produce for self-consumption or
exchanges it for other commodities. It
generally happens in an agriculture- oriented
country like India. Thus the volume of
national income is underestimated.
The Pigouvian Definition:
A.C. Pigou has in his definition of
national income included that income
which can be measured in terms of
money. In the words of Pigou, “National
income is that part of objective income
of the community, including of course
income derived from abroad which can
be measured in money.”
It’s Defects:
1 in the light of the definition put forth by Pigou, we have
to unnecessarily differentiate between commodities which
can and which cannot be exchanged for money.
2 According to Pigou, a woman’s services as a nurse would
be included in national income but excluded when she
worked in the home to look after her children because she
did not receive any salary for it. Similarly, Pigou is of the
view that if a man marries his lady secretary, the national
income diminishes as he has no longer to pay for her
services.
3 the Pigovian definition is applicable only to the
developed countries where goods and services are
exchanged for money in the market.
Fisher’s Definition:
Fisher adopted ‘consumption’ as the criterion of national
income whereas Marshall and Pigou regarded it to be
production. According to Fisher, “The National dividend
or income consists solely of services as received by
ultimate consumers, whether from their material or from
the human environments. Thus, a piano, or an overcoat
made for me this year is not a part of this year’s income,
but an addition to the capital. Only the services rendered
to me during this year by these things are income.”
Fisher’s definition is considered to be better than that of
Marshall or Pigou, because Fisher’s definition provides an
adequate concept of economic welfare which is
dependent on consumption and consumption represents
our standard of living.
It’s Defects:
First, it is more difficult to estimate the money
value of net consumption than that of net
production.
In one country there are several individuals who
consume a particular good and that too at different
places and, therefore, it is very difficult to estimate
their total consumption in terms of money.
The durable goods generally keep changing hands
leading to a change in their ownership and value
too.
Modern Definitions:
From the modern point of view, Simon
Kuznets has defined national income as “the
net output of commodities and services
flowing during the year from the country’s
productive system in the hands of the
ultimate consumers.”
(A) Gross Domestic Product (GDP):
GDP is the total value of goods and services produced
within the country during a year. This is calculated at
market prices and is known as GDP at market prices.
Dernberg defines GDP at market price as “the market
value of the output of final goods and services produced
in the domestic territory of a country during an
accounting year.”
Development: Meaning and
Concept of Development
Development means “improvement in country’s
economic and social conditions”. More specially, it
refers to improvements in way of managing an area’s
natural and human resources. In order to create wealth
and improve people’s lives . While elaborating on the
meaning of development suggests that while there can
be value judgements on what is development and what
is not, it should be a universally acceptable aim of
development to make for conditions that lead to a
realisation of the potentials of human personality.
Several conditions that can make for achievement of
this aim:
i. The capacity to obtain physical necessities, particularly food
ii. A job (not necessarily paid employment) but including
studying, working on a family farm or keeping house
iii. Equality, which should be considered an objective in its
own right
iv. Participation in government;
v. Belonging to a nation that is truly independent, both
economically and politically; and
vi. Adequate educational levels (especially literacy
Meaning of underdevelopment

The term underdevelopment refers to that state of an economy

where levels of living of masses are extremely low due to very low
levels of per capita income resulting from low levels of productivity
and high growth rates of population. Underdeveloped countries are
now known as ‘developing countries’ signifying that such nations are
capable of and are indeed making serious efforts to overcome their
problems of poverty and low income.
U.N. Classification
According to the United Nations definition, an underdeveloped
country is one which has a real per capita income that is lower in
relation to the real per capita income of the USA, Canada,
Australia and Western Europe. Emphasis here is on the low
income level relative to the advanced countries and lack of any
perceptible success in making substantial improvements in quality
of life of the masses. In simple words, underdeveloped country is
just another name by which a poor backward country is known.
Basic Characteristics of the Indian Economy as Developing Economy
India is a low income developing economy. There is no doubt that
one-fourth of its population lives in pathetic condition. It is important
to understand the basic characteristics of the Indian economy,
considering it as one of the poor but developing economics of the
world.
1. Low per capita income.
The level of income as measured by per capita real GNP is very low in
underdeveloped countries. The per capita income of India in 2005
was $ 720 except for few countries; the per capita income of the
Indian people is the lowest in the world. During 1990-2005, Indian
economy has grown at a faster rate than the developed economics.
Even then the difference in per capita income between India and the
developed economy is quite large.
India's GDP Per Capita reached 2,041.091 USD in Mar 2019,
compared with 2,015.228 USD in Mar 2018.
The data reached an all-time high of 2,041.091 USD in Mar 2019
and a record low of 70.396 in Mar 1958.
Low income results in lower living standards, poor diet, malnutrition,
inadequate housing and virtual absence of health facilities leading to
high incidence of disease, high infant mortality, poor health,
widespread illiteracy, and low expectancy of life. In brief, quality of
life is extremely poor in less developed countries as compared to the
developed nations.
2. Low level of living
Since about three-fourth of world population lives in
underdeveloped countries which have less than one-fifth share in
world income, it is obvious that a vast majority of people in these
countries must be living under conditions of poverty, malnutrition,
disease, illiteracy, etc. even basic necessities of subsistence such as
minimum food, clothing and shelter are not easily accessible to the
poor masses. In 1999 the average calorie intake of food is only 2,496
as compared to over 3,400 calories per day in most developed
countries. Nearly, 28 percent of the population of India lives below
the poverty line in 2004-2005.
The World Poverty Clock is a tool to monitor progress
against poverty globally,and regionally.It provides real-time poverty
data across countries.Created by the Vienna-based NGO, World Data
Lab, it was launched in Berlin.
India has been able to lift a significant percentage of its population
out of poverty, but many still live in it. India had 73 million people
living in extreme poverty which makes up 5.5% of its total
population, according to the Brookings report. In May 2012, the
World Bank reviewed and proposed revisions to their poverty
calculation methodology and purchasing power parity basis for
measuring poverty worldwide. It was a minimal 3.6% in terms of
percentage. As of 2016, the incidence of multidimensional poverty
has almost halved between 2005–06 and 2015–16, declining from
54.7 percent to 33.8 percent
Poverty is not having enough material possessions or
income for a person's needs. Poverty may include social,
economic, and political elements. Absolute poverty is the
complete lack of the means necessary to meet basic
personal needs, such as food, clothing and shelter.
Malnutrition is a condition that results from eating a diet
in which one or more nutrients are either not enough or
are too much such that the diet causes health
problems. Malnutrition is often used to specifically refer
to undernutrition where an individual is not getting enough
calories, protein, or micronutrients.
Malnutrition in India: States where malnutrition is prominent
i. Uttar Pradesh : Most children here, in India's densest state by
population, under the age of 5 are stunted due to malnutrition.
ii. Tamil Nadu: The state, despite high education, has a prominent
child malnutrition problem. A National Family Health Survey reveals
that 23% of children here are underweight, while 25% of Chennai
children show moderately stunted growth.
iii. Madhya Pradesh: 2015 data reveals that Madhya Pradesh has
India's highest number of malnourished children - 74.1% of them
under 6 suffer from anaemia, and 60% have to deal with malnutrition.
iv. Jharkhand and Bihar: At 56.5%, Jharkhand has India's second
highest number of malnourished children. This is followed by Bihar, at
55.9%.
Save the Children’s fight against malnutrition

i. Tamil Nadu
In the slums of Chennai, Save the Children launched ‘Aaharam’, an
extension of the Mission Nutrition) launched by its partner
GlaxoSmithKline. The project raised awareness about malnutrition
causes among mothers, families and communities. This project
was carried out across 20 notified slums of Chennai and 15 villages
in the Tiruvallur district. Activities included:
• Regular malnutrition screening of children (especially between
ages 3-6)
• Community Case Management of undernourished children
• Nutrition education – with regard to Young Child Feeding
Practices
• Following up on malnutrition afflicted children
• Improve community access to nutritious food through locally
available food items
iii. Nutrition Rehabilitation Centre (NRC) at Tonk, Rajasthan
Known as Malnutrition Treatment Centre, the Rajasthan Centre was among
the first that the NGO set up to fight malnutrition. Nutrition Rehabilitation
Centres (NRCs) are now live in Rajasthan and Jharkhand, which see high
rates of curing children with Severe Acute Malnutrition (SAM) through
medical and nutritional interventions.
iv. Stop Diarrhoea Initiative - WASH
Diarrhoea and malnutrition are linked to poor hygiene (infections trigger
mineral depletion and loss of appetite and can lead to malnutrition) and
are India’s two leading causes of under-5 deaths.
Improving Water, Sanitation and Hygiene (WASH) levels
NGO volunteers visit slums and backwards communities to improve the
Water, Sanitation and Hygiene (WASH) situation to mitigate diarrhoea and
diarrhoea-related deaths across five Indian states, reaching 2 million people
(with over two lakh children).
What is literacy?
Literacy is the ability to read, write and comprehend information in
order to communicate effectively. From reading the newspaper to
understanding road signs, literacy is the only tool that helps you
make sense of your surroundings. It is empowering and fuels social
and human development.
Literacy serves as the foundation of basic education for all. The
knowledge of social conventions combined with problem-solving
capacities of people is what determines them as being literate. In
India, while the adult literacy rate is measured for people aged above
15 years, the rate of youth literacy is measured for people aged
between 15-24 years.
According to Census 2011, India managed to
achieve a literacy rate of 74.04% as opposed to
64.80% in 2001. This notable shift also highlights an
increase in female literacy over the years. While the
female literacy rate in India as per Census 2001 was
53.7%, Census 2011 recorded it at 65.5%. Though
not radical but some progress has been made in
improving literacy in India especially after the
implementation of free education in rural areas for
both men and women.
1. The overall literacy rate in India is 69.1 per cent. The
number includes the literacy rate in both rural and urban
India. The number pertains to 2014.
2. The overall literacy rate in Rural India is 64.7 per cent. In
rural India, the literacy rate among females is 56.8 per cent
and among males is 72.3 per cent.
3. The overall literacy rate in Urban India is 79.5 per cent.
In Urban India, 74.8 per cent females are literate and 83.7
per cent males are literate.
4. There is wider disparity in literacy rates of males and
females in rural India than in urban India. In Urban India,
the difference in literacy rate between the two genders is
8.9 per cent whereas for rural India, it is 15.5 per cent.
5. As per the government data, in the year 2016-17,
19,283,075 persons (both male and female included) were
enrolled in 'Sakshar Bharat Abhiyaan', which is a centrally
sponsored scheme to improve literacy rates among adults
in India. More women are enrolled in the programme than
men.
3. High rate of population growth
Low productivity combined with high growth rates of population is
largely responsible for low income and poor living standards. High
growth rate of population means more people to be fed, clothed
and provided other necessary goods year after year. In India rate of
growth of population which was about 1.31 per cent per annum
during 1941-50 has risen to 1.93 per cent during 1991-2001. The
annual average rate of growth of population during 2000-05 has
further decline to 1.5 per cent. The chief cause of this change is due
to declined in birth rate from 49 per thousand during 1911-20 to
24.8 per thousand in 2005

India 2020 population is estimated at 1,380,004,385 people at mid year

according to UN data. India population is equivalent to 17.7% of the total
world population.
Lack of Capital Formation:
Developing or underdeveloped countries of the world are suffering
from poor rate of capital formation. As the level of per capita income
in these countries is very low thus their volume and rate of savings
are also very poor. This has resulted lack of capital formation and
which is again responsible for low rate of investment in these
countries.
India’s Gross Fixed Capital Formation was reported at 196.266 USD
bn in Sep 2019. This records a decrease from the previous number of
209.230 USD bn for Jun 2019. India’s Gross Fixed Capital Formation
data is updated quarterly, averaging 93.973 USD bn from Jun 1996 to
Sep 2019, with 94 observations. The data reached an all-time high of
209.230 USD bn in Jun 2019 and a record low of 20.971 USD bn in
Jun 1996. India’s Gross Fixed Capital Formation data remains active
status in CEIC and is reported by CEIC Data
Agricultural Backwardness:
The underdeveloped countries are also suffering from agricultural
backwardness. Although being the most important sector,
agricultural sector in these countries remains totally
underdeveloped. But what is more peculiar is that these countries
are depending too much on this agricultural sector.
Unemployment Problem:
Excessive population pressure and lack of alternative occupations
have resulted in huge unemployment and underemployment
problem in these underdeveloped countries. In the absence of
growth of alternative occupations both in the secondary and tertiary
sector of these countries, this increasing number of population is
being thrown on land to eke out their living from agricultural sector.
Unexploited Natural Resources:
For maintaining a rapid pace of economic growth in these
underdeveloped countries, possession of different types of natural
resources in sufficient quantity and its utilisation are very important.
But under-developed countries are either suffering from scarcity of
raw materials or from un-exploited natural resources of its own.
 Shortage of Technology and Skills:
Underdeveloped countries are facing low level of technology and
acute shortage of skilled manpower’s. Poor technology and lower
skills are responsible for inefficient and insufficient production which
leads to poverty of masses. The pace of economic growth in these
countries is very slow due to application of poor technologies.