MEC

MASTER OF ARTS
(ECONOMICS)

ASSIGNMENTS 2019-20
First Year Courses
(For July 2019 and January 2020 Sessions)

School of Social Sciences

Indira Gandhi National Open University
Maidan Garhi, New Delhi-110 068
 Master of Arts (Economics)
(TMA)

(2019-20)

Dear Student,

As explained in the programme guide for MEC, assignments carry 30 per cent weightage
in a course and it is mandatory that you have to secure at least 40 per cent marks in
assignments to complete a course successfully. Note that you have to submit the
assignments before appearing in Term End Examination of a course.

Before attempting the assignments please read the instructions provided in the
programme guide sent to you separately. In this booklet we have included the
assignments for all the courses pertaining to the second year. In each course there is a
Tutor Marked Assignment (TMA). You have to do the assignment for those courses for
which you have registered. Do remember that you have to prepare and submit the
assignments separately for each course. Make sure that you submit the assignments well
in time for those courses in which you plan to appear in the Term End Examination.

Submission

For July 2019 session, you need to submit the assignments by March 31, 2020, and for
January 2020 session by September 30, 2020 for being eligible to appear in the term-
end examination. Assignments should be submitted to the Coordinator of your Study
Centre. Obtain a receipt from the Study Centre towards submission.

2
 MEC-005/105: INDIAN ECONOMIC POLICY
Assignment (TMA)
Course Code: MEC-005/105
Assignment Code: MEC-105/AST/2019-20
Maximum Marks: 100

Note: Answer all the questions. While questions in Section A carry 20 marks each (to be
answered in about 700 words each) those in Section B carry 12 marks each (to be answered
in about 500 words each).

Section-A
1. What do you understand by the term ‘quality of employment’? State the various dimensions
of deterioration in the quality of employment in India. Also examine the implications of
slow-down in women’s work force participation.
2. What is the distinction between Human Resource Development and Human Development?
Have the economic reforms initiated since 1991 been successful in improving human
development and standard of living? Give reasons. Which policy measures would you like to
suggest in this regard?

Section B
3. Do you think that major institutional obstacles come in the way of improving the conditions
of Indian agriculture? What kind of technology and institutional alternatives would you like
to suggest in this regard?
4. State the various targets of monetary policy. State the various criterions used to define a good
target variable. How monetary policy can be useful to achieve sustainable high economic
growth.
5. Explain the important issues which are crucial and hence need to be addressed in India’s
trade policy.
6. Critically examine the various steps taken by the Government of India towards removal of
regional disparities. Which suggestions would you like to make to overcome the problem of
regional imbalances?
7. How far India is from the welfare state it wished to become? To what extent the
implementation of development policies adopted so far are responsible for this state of
affairs?

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M.E.C.-105
Indian Economic Policy
Disclaimer/Special Note: These are just the sample of the Answers/Solutions to some of the Questions given in the
Assignments. These Sample Answers/Solutions are prepared by Private Teacher/Tutors/Authors for the help and guidance
of the student to get an idea of how he/she can answer the Questions given the Assignments. We do not claim 100%
accuracy of these sample answers as these are based on the knowledge and capability of Private Teacher/Tutor. Sample
answers may be seen as the Guide/Help for the reference to prepare the answers of the Questions given in the assignment.
As these solutions and answers are prepared by the private Teacher/Tutor so the chances of error or mistake cannot be
denied. Any Omission or Error is highly regretted though every care has been taken while preparing these Sample Answers/
Solutions. Please consult your own Teacher/Tutor before you prepare a Particular Answer and for up-to-date and exact
information, data and solution. Student should must read and refer the official study material provided by the university.

Note: Answer all the questions. While questions in Section A carry 20 marks each (to be answered in
about 700 words each) those in Section B carry 12 marks each (to be answered in about 500 words each).
Section-A
Q. 1. What do you understand by the term ‘quality of employment’? State the various dimensions of
deterioration in the quality of employment in India. Also examine the implications of slow-down in women’s
work force participation.
Ans. Quality of Employment: There are certain criteria on the basis of which we can check quality of employment
such as productivity of employment proportion of workers engaged in regular and casual labour and proportion of
workers in organized and unorganized workers.
Productivity of Employment: only the status of being employed does not by itself necessarily ensure a decent
level of living in India. In 1999-2000, of the total employment persons about 23.87% are the working poor this
means that the major problem relates to that of the working poor as the productivity of employment is very low. Low
educational and skill levels of the workers are main causes of the low productivity of employment.
Proportion of workers in organized and unorganized workers: If the share of unorganized employment
increases it means an overall deterioration in the quality of employment. The quality of employment can be considered
low if the size of unorganized sector is larger than the organized sector was only about 7% of the total employment
in 1999-2000 and over the years the share of the organized sector employment has been shrinking. We may note that
manufacturing construction, trade and transport are sectors where there is large concentration of unorganized workers.
The share of the unorganized sector employment which was estimated to be around 93% before 1997 should have
gone up and may further increase over the coming years as there was an increase in the absolute numbers. Many
studies at micro level show that flexibility in the labour market increased after the introduction of economic reforms
in the country. Despite the existence of restrictive labour laws, the firms have been able to retrench a large number
of permanent workers while many units were closed leading to unemployment of thousands of workers during the
reform period.

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Proportion of Workers Engaged in Regular and Causal Labour: At present, low earning, poor condition of
work and lack of social protection and vulnerability to the risks and hazards and irregularity and uncertainty of work
availability such problems in the economy has been felt due to the increase in the casualization of the workforce.
This is also a dimension of deterioration in the quality of employment. those in regular wage paid or salaried jobs
continue to constitute around 14% of all workers for over two decades from 1977-78 to 1999-2000, the category of
casual employment has steadily increased from 27% in 1977-78 to 32% in 1993-1994 and rose further to 33% in
1999-2000.
The quality of employment which is reflected from increasing size of unorganized sector in employment, rising
number of casual and contract workers and lower productivity of employment has deteriorated over a period.
However, the employment conditions have improved in terms of employment structure (substantial movement
of workers from unorganized to the organized sector) and increase in the real wages of the workers. Further increasing
importance of non-farm sector in offering employment to rural work force across major states of India reflect the
positive aspect of employment situation. labour force participation (LFPR) of females in India lags considerably
behind the “norm”. It is the urban component that is very low, the rural LFPR being high because of poverty and the
necessity of work. The determinants of LFPR, primarily urban LFPR, are explored in this section. The data on
female education suggest that the LFPR “should be” a lot higher in India than it is. Not only has the LFPR for women
been low, and constant, but it is also possible that the jobs that the women are obtaining are marginal jobs and or
unpaid family jobs. This dircussion explores an alternate explanation for low LFPR–the possibility that women are
unable to obtain paid jobs.
The percent of the female work force that works as unpaid labour is a matter of some debate. The NSSO data do
not collect any wage information for the self-employed – whether cultivators in rural areas, or doctors in the urban
areas.
Q. 2. What is the distinction between Human Resource Development and Human Development? Have the
economic reforms initiated since 1991 been successful in improving human development and standard of
living? Give reasons. Which policy measures would you like to suggest in this regard?
Ans. Human Development: The term ‘human development’ may be defined as an expansion of human capabilities,
a widening of choices, ‘an enhancement of freedom, and a fulfilment of human rights.
At the beginning, the notion of human development incorporates the need for income expansion. However,
income growth should consider expansion of human capabilities. Hence development cannot be equated solely to
income expansion. Income is not the sum-total of human life. As income growth is essential, so are health, education,
physical environment, and freedom. Human development should embrace human rights, socio-eco-politico freedoms.
Based on the notion of human development. Human Development Index (HDI) is constructed. It serves as a more
humane measure of development than a strictly .income-based benchmark of per capita GNP. The first UNDP
Human Development Report published in 1990 stated that: ”The basic objective of development is to create an
enabling environment for people to enjoy long, healthy and creative lives.” It also defined human development
as “a process of enlarging people’s choices”, and strengthen human capabilities” in a way which enables them to
lead longer, healthier and fuller lives.
From this broad definition of human deve-lopment, one gets an idea of three critical issues involved in human
development interpretation. These are: to lead a long and healthy life, to be educated, and to enjoy a decent standard
of living. Barring these three crucial parameters of human development as a process enlarging people’s choices,
there are additional choices that include political freedoms, other guaranteed human rights, and various ingredients
of self-respect.

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One may conclude that the absence of these essential choices debars or blocks many other opportunities that
people should have in widening their choices. Human development is thus a process of widening people’s choices
as well as raising the level of well-being achieved.
Human Resource Development: By the term human resources we mean the size of population of a country
along-with its efficiency, educational qualities, productivity, organisational abilities and farsightedness. By human
resource we mean human capital. Human capital implies the abilities, skills and technical knowledge among the
population of the country. A country should introduce manpower planning for the development of its human resources.
Human resource development may be identified as the process through which a society augments the skills, education,
and productive abilities of its people. In essence, it means increases in human capital. Human capital is accumulated
and improved upon in several ways: through programs of education and formal training, training on the job, and
through individual initiative. It is generally agreed that this process, if carefully designed and implemented, promotes
economic growth in any country. Human resources are playing an important role in attaining economic development
of a country. Economic development of country involves proper utilisation of its physical resources by its labour
force and other forms of manpower for the proper utilisation of production potential of the country.
Economic reforms have reduced poverty ratios but not uniformly throughout. Although there was a marked
decline in both rural and urban poverty rates in 1983-84, yet the decline in the post-reform period has not been
impressive and thus can't be attributed to economic reforms alone. During the period of 1993-2000, poverty has
come down by nearly 10% in both rural and urban areas posing a satisfactory picture. However, thereafter, there has
been an increase in the % of population living below poverty line in 2004-05 indicating ineffective poverty reduction
strategies.
If growth is a jobless growth enhanced via mechanization, it will increase unemployment and will be a major
factor behind poverty. Acceleration in Growth and Qualitative Employment decreases Poverty and Unemployment
and underemployment.
The key aspects of employment and quality of employment trends were:
1. In 1994-2000, the growth of employment also declined from 2.39% in 1999-2005 to 1.71% in 2004-2010. It
indicates jobless growth.
2. Till 2005, employment growth in the organized sector was much slower than the overall growth of employment
or labour force. But since 2005, there was very substantial movement of workers from the unorganized to the
organized sector so that the number of workers in employment in the unorganized sector grew at a substantially
slower rate than did the labour force.
3. Formal Employment in the organized sector has increased from 1.73 % to 4.02 % during 2005-10.
4. Labour force growth has been increasing. It is affected by population growth rate, those seeking work, women
who may rejoin the labour force after a ‘break’ in their careers and teenagers who do part-time work or
summer jobs and quit later.
There has happened informalisation of the vast labour force of India. Female employment constitutes about 96%
in the informal sector itself as against 91% for males. In urban areas, the % of organized sector employees is around
65-70%.
Impact of Economic Reforms on Labour
We can judge quality of labour by productivity of labour, trends in self-employment and casual workers, proportion
of workers in organized and unorganized workers, etc. There has been an increase in self-employed and a decrease
in casual labour during the period 1999-00 to 2004-05, adding a total of 83.7% of additional workers numbering

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49.75 million to the ranks of self-employed, 27.10 million were self-employed in agriculture and 25.06 million in
rural areas.
Impact on Productivity and Real Wage
Earnings Productivity of Employment: In 1999-2000, 26.1% people were BPL but only 2.23% were unemployed
implying 23.87% of working people were under the category of working poor. The low productivity of employment
was mainly a result of low educational and skill levels of the workers which could not be matched with the requisite
jobs which emphasizes the need to bring about professionalization in education sector.
On an average, casual workers have received a lower wage rate than the regular ones in both urban and rural
areas. Amongst them female workers in rural areas got less than 1/3rd of the female workers in urban areas. Gender
bias in the wage rates of females was higher in urban areas as compared to rural areas in regular employment.
Impact of growth and economic reforms on human development is important as it reflects if actual benefits are
reaching the grass-root level. Human development can be assessed through data on key social indicators relating to
education and health. We use literacy rates to assess education and life expectancy, infant mortality, birth and death
rates, sex ratio etc. for health.
Statistics reveal that there has been an encouraging improvement on all these counts over the last two decades.
(a) Some states have been able to achieve higher levels of human development even with relatively lower levels
of economic development as has been demonstrated by Kerala and Tamil Nadu. Bihar has shown a considerable
improvement in literacy rates and has improved from 47.5 as total literacy rate in 2001 to 63.82 in 2011. The
other backwards states, have also marginally improved literacy by 5-6 per cent in the past decade. In Haryana,
Andhra Pradesh and Karnataka, the female literacy rate also is relatively poor.
(b) Kerala represents a case where a relatively lower level of economic development has accompanied a high
level of human development. Sex ratio in Kerala (1,084) is highly appreciable. Even Orissa’s sex ratio is 978
better than national average.
But overall, economic policies have not done as good in HDI idices as was expected from it.
Following measures can help to bring stability in population.
(a) Rising the age of marriage 21 for girls and 24 for boys.
(b) To raise the level of education.
(c) To introduce in the education the virtues of small family.
(d) To offer a monetary incentive for voluntary sterilization.
(e) To make family planning a mass movement with the help of various groups.
(f) To vigorously accelerate the drive for family planning through mass communication and media.
Section-B
Q. 3. Do you think that major institutional obstacles come in the way of improving the conditions of
Indian agriculture? What kind of technology and institutional alternatives would you like to suggest in this
regard?
Ans. Creating new institutional arrangements with the hope that it will deliver results is quite common in the
context of Indian agriculture. But as we have seen such arrangements often fail to create any tangible impact. Even
though these arrangements are good conceptually, making them work is a big challenge for the Indian government.
ATMA as an initiative is yet to show any productive result. It has not been able to demonstrate a success story even
though it is conceptually very sound. However, there has been some success with respect to the transfer of technology
using the Krishi Vigyana Kendra (KVK). It has been observed that such schemes are more successful when they are run
by NGOs.

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The problem lies primarily in our culture. It is said that ten Indians are equal to one Japanese when it comes to
executing plans. We have a democratic setup which allows a lot of bureaucracy creeping into the system. Moreover,
it has been observed that we are inefficient especially when it comes to collective effort. We do not work well in
teams and this is a major problem not just in agricultural initiatives but in other areas as well. The way our parliament
is run and the problems with the SMEs are a few examples. It is a general perception that cooperatives do not work
well in capitalist nations, but we have seen a number of cooperatives work efficiently in America. In contrast,
Anand's milk cooperative is the only successful cooperative in our country. The solution probably lies in education.
The benefits of working collectively should be taught to Indians right from their childhood.
Institutional Weaknesses
We need to involve the small and marginal farmers and the landless labour in deriving benefits of increased
agricultural exports through integrated cooperatives like the mother dairy, and other service cooperatives;
contract farming, etc.
Present system of credit does not ensure timely availability of credit. In many states land reform remains
woefully unfinished and tenancy regimes need urgent reform.
Indian agricultural credit system is suffering from the problems of subsidized interest rates, poor recovery of
loans, high intermediation costs of cooperatives and commercial banks and debt write-offs.
We also need to make efforts to develop new technologies for the farming sector and making it available for
small farmers so that they may diversify their production towards high value commercial and export
commodities.
We need to create institutions like trading houses, market intelligence services and creation of network of
information on national and international prices.
We also need infrastructure for processing, marketing and grading of produce, investment in information etc.
The only remedy to the crisis is to do all that is possible to make agriculture a profitable enterprise and attract the
farmers to continue the crop production activities. As an effort towards this direction, the government should augment
its investment and expenditure in the farm sector. Investment in agriculture and its allied sectors, including irrigation,
transport, communication, rural market, rural infrastructure and farm research, should be drastically increased, and
the government should aim at integrated development of the rural areas. The solution of the problem is not in a few
“packages” but in drastic changes in the present economic policies related to agriculture. No other sector’s growth
and development must be at the cost of agriculture. All farmers, agricultural labourers, societies, Government and
People's Organizations should work collectively to revive agriculture and “Save India from Agriculture Crisis”.
Technology and Sustainability
Technology and sustainability has several dimensions for agricultural growth.
(a) Take up dissemination of dry land technology on a priority basis.
(b) Priority to development of infrastructure
(c) Research and extension services, and
(d) Dissemination of dry land technology.
Agro-Climatic Regional Planning (ACRP) provides a suitable framework for technology and sustainability. We
also need to concentrate on the sustainability of irrigation system. We also need to be concerned for drought prone
areas.

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Institutional Arrangements
A renewed thrust on land reforms is the best solution for structural adjustment process.
There is bias in state-intervention and inter-regional differences in agrarian reforms.
We need to provide institutional credit to enhance lending for both production and long-term investment purposes.
The crop insurance scheme coverage should be encouraged and include more remunerative cash crops. We also need
to improve marketing network for coarse cereals on a regional basis for distribution operations. Therefore, we need
to treat NAFED at par with FCI for all practical purposes. We also need to ensure that agriculture labour is not
exploited. Hence, we need to take institutional measures for an effective monitoring of minimum wage legislation
and for distributing surplus land among these labourers.
Q. 4. State the various targets of monetary policy. State the various criterions used to define a good target
variable. How monetary policy can be useful to achieve sustainable high economic growth.
Ans. Price Stability: Price stability implies promoting economic development with considerable emphasis on
price stability. The centre of focus is to facilitate the environment which is favourable to the architecture that enables
the developmental projects to run swiftly while also maintaining reasonable price stability.
Controlled Expansion of Bank Credit: One of the important functions of RBI is the controlled expansion of
bank credit and money supply with special attention to seasonal requirement for credit without affecting the output.
Restriction of Inventories: Overfilling of stocks and products becoming outdated due to excess of stock often
results is sickness of the unit. To avoid this problem the central monetary authority carries out this essential function
of restricting the inventories. The main objective of this policy is to avoid over-stocking and idle money in the
organization.
Promotion of Exports and Food Procurement Operations: Monetary policy pays special attention in order to
boost exports and facilitate the trade. It is an independent objective of monetary policy.
Desired Distribution of Credit: Monetary authority has control over the decisions regarding the allocation of
credit to priority sector and small borrowers. This policy decides over the specified percentage of credit that is to be
allocated to priority sector and small borrowers.
Equitable Distribution of Credit: The policy of Reserve Bank aims equitable distribution to all sectors of the
economy and all social and economic class of people.
To Promote Efficiency: It is another essential aspect where the central banks pay a lot of attention. It tries to
increase the efficiency in the financial system and tries to incorporate structural changes such as deregulating interest
rates, ease operational constraints in the credit delivery system, to introduce new money market instruments etc.
Targets of Monetary Policy
There is unanimity that monetary policy is a powerful instrument for stabilizing output and prices in the short
run, while long run output neutrality of money is beyond doubt.
There are two reasons for the use of target variable.
(a) As the structure is unknown, the exact of a policy cannot be obtained from the structure. But the policy
maker may be reasonably certain of the relationship between some observable endogenous variables and the
goal variables, even if he is very uncertain about the exact effect of his instruments on goal variables.
(b) As the goal variables are observable only after considerable lag, the effect of policy will only be seen after
the policy has been pursued for some time.
The target variables are endogenous variables, which the monetary authority tries to control or influence so as to
influence the goal variable in the observed manner.

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To serve the target function well, a chosen target variable has to qualify for four things:
1. It should be closely related to goal variables.
2. Policy instruments should rapidly affect it.
3. Non policy influence on it should be relatively small.
4. It should be readily observable with no time lag.
Traditionally, three variables have served as candidates for monetary policy targets: “Money Supply”, “Bank
Credit” and “Interest Rate” in securities market.
On a macro level, the target of monetary policy in Indian conditions has been the “control of reserve money”.
Reserve money in India is the sum total of currency with Reserve Bank, public, banker’s deposit with RBI, which are
liabilities of the RBI to the non bank sector and hence equivalent to currency with public.
Reserve Money = Net RBI Credit to Government + RBI Credit to Banks + RBI Credit to Commercial Sector +
Net Foreign Exchange Assets of RBI + Government’s Currency Liabilities to the Public (–) less Net Non-Monetary
Liabilities of RBI.
When monetary policy is targeted towards interest rates, it has following objectives:
1. As the money demand function for India has remained stable, it continues to predict price movements with
reasonably accuracy at least over a period of time.
2. With the money supply target, the stance of monetary policy is defined definitely and gives a clear signal to
market participants.
For broad money, the overacting target is reserve money, particularly the bank’s reserves, while the supplementary
operating target is short term interest rates used in place of “overnight call money rates”.
There are four key priorities for achieving sustainable economic growth: education, social stability, incentives
for taking risks and global economic integration. As efforts are undertaken to improve or revamp the IMF and other
financial sentinels, they must be given the authority and tools to influence harmful economic policies, even in the
most powerful nations. Monetary policy can help in all of these.
(a) Education: By providing more funds for education sector by using qualitative measures; providing more of
educational loans etc.
(b) Social Stability: Monetary policy helps in price stability and employment generation which are big factors
in social stability.
(c) Incentives for taking risks: By stabilizing economies, monetary-policy reduces risk factor from investments.
(d) Global Economic Integration: by allowing FDI in financial markets, financial sector and making rules for
their sustenance, monetary policy helps in global market integration.
Q. 5. Explain the important issues which are crucial and hence need to be addressed in India’s trade
policy.
Ans. Trade Policy Prior to 1991: Control on trade has been the important feature of India's trade policy prior to
1991. Controls on trade are divided into: tariff and nontariff measures. Tariff measures relate to duties or taxes
imposed on imports and exports. Non-tariff measures are those that relate to quotas or other quantitative restrictions
on trade. For example, setting up of standards in the import of foods, need to secure a license are non-tariff barriers
to trade.
Till the mid-1980s India’s trade policy was based on goal of self-reliance. It aimed at achieving the end of
developing a self-reliant production structure. There were high tariffs on imports. Many licenses and permissions
were required. Import substitution also meant discouraging exports because the profits from investing in import

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substituting production more than investment in production for export. It was based on the theory of “Export
Pessimism”.
Export Pessimism
During 1950s, export earnings of UDCs were subject to many constraints. World manufacturing was concentrated
in developed countries, while UDCs were largely agrarian in nature. Accordingly UDCs exported raw materials and
primary goods, and developed countries exported manufactured products. Manufactured goods had monopolistic
market positions; hence they could determine the prices of their outputs. Agricultural commodities are produced by
large numbers of small producers. These small producers were price-takers. Moreover, there are fewer buyers of
agricultural commodities from the developed countries. It creates monopsony market for the exporting countries and
gives buyer large control over price. They become price-makers. Another drawback faced by developing countries is
that the MNCs have operations in more than one country for example; crude oil was mainly produced in West Asia,
but controlled by the Anglo-American oil majors. Therefore UDCs are left with an option of exporting agrarian
goods only which have inelastic demand. Even if supply increases, demand is not going to increase rather prices will
fall bringing exporters into losses.
The premium for increased productivity would then go to the buyers from the developed countries due to
monopsony market situations. It clarifies the worse situation of UDCs. Indian trade policy before 1991 was
characterized by export pessimism and import controls.
TRADE POLICY 1991 ONWARDS:
FEATURES AND ISSUES
In 1991, the Indian government did not have sufficient foreign exchange to pay external debt payments that were
due. It forced us to approach the International Monetary Fund (IMF) for a loan.
The IMF attached conditions on loans relating to reforms that the borrowing government is required to undertake.
Mainly they asked Indian economy to remove all tariff and non-tariff barriers from foreign trade.
In the early 1960s, South Korea and Taiwan were largely agrarian economies but in the late 1960s and 1970s,
they along with Hong Kong and Singapore, began to change the composition of their exports. They were called
‘New Industrializing Economies’ or NIEs, and later on South-east Asian countries. They began exporting light
manufactures, such as garments, footwear, soft toys and plastic goods which were labour intensive. Wages being
low, these countries were able to establish themselves as manufacturers and exporters of labour-intensive commodities.
China also joined the team in 1970s.
NIEs, esp. China began to run up huge trade surpluses with their main trading partners, Europe and North
America. So these countries refuted ‘export pessimism’ approach. This put an end to export pessimism and called for
a new international trade policy and gave birth to new approach: a trade policy based on the comparative advantage
of developing countries.
Conditions that brought these changes:
Improvement in manufacturing and management capabilities of many developing countries.
Improvement in skills and abilities of human capital.
In 2012, India has emerged as the largest exporter of rice. But there is no guarantee that it will continue to be able
to export rice the next year too. There is a ‘flip-flop’ type of trade policy in India which is not conducive for growth
of trade.
India and the Changing Nature of World Trade
It is important to understand the process through which developing economies’ firms manage to get entry into
developed economy markets. These countries did not enter through sale on the market, as in the case of say, rice or

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sugar. MNCs like Gap, Nike or Adidas, sub-contracted the manufacturing work to developing country firms and
entered into contracts with buyers from the developed countries. Hence, the developing country firms need not
independently search for markets. In present times trade is not of complete commodities but some parts or processes.
It is called Cut-Make-Trim (or CMT), i.e. using cheap labour for non technical tasks while using inputs imported
from numerous countries.
Many a times, export figures may be misleading. For example, India exports a high volume of diamonds and
gems. But raw materials are imported by India, cut and polished in India, using Indian labour and then exported. So,
India gets only the wage of cutting and polishing and the profit on that operation.
If we ask why has the opening of trade not led to India making the same advances in garments or leather
products? Answer lies in historical policy of reservation for small-scale units, poor infrastructure and inflexible
labour regulations can be held responsible for it.
Trade in Services
Services that can only be provided on the spot to the consumer are non-traded services. But a number of services
can be provided at a distance, such services are traded. The WTO under the General Agreement on Trade in Services
(GATS) has divided services into three modes. Mode 1 is by foreign companies investing in the country where the
services are to be provided, like banking. Mode 2 is by setting of the service to a foreign location, like the call
centers. Mode 3 is the movement of labour or migration.
Indian current account shows a surplus in export and import of services. India carries out many services called
Business Process Outsourcing (BPO) also called IT Enabled Services (ITES).
It is mainly due to educated, skilled cheap labour availability in India. Indian firms, as mentioned above, account
for a substantial share of world trade India’s IT services that have India on the world map as a rising power.
How much did trade policy contribute to India’s success in trade in IT services? Till 1991, trade policy was a
hurdle in the growth of service export but since NEP 1991, trade policy has promoted trade in services.
India’s trade in services includes IT and ITES services as well as Migration of two streams:
(a) professionals to the developed countries, and (b) skilled or relatively low-skilled workers, chiefly to West Asia.
Tourism is another sector that has been growing very rapidly. India has emerged as a destination for medical tourism.
Trade and Intellectual Property
In the WTO regime, trade issues include matters of Intellectual Property Rights (TRIPS- or Trade Related
Intellectual Property Rights). TRIPS require all member countries to have a similar IP protection law. It states that
Patent rights to be allowed for products and not only processes. Earlier Indian IT law protected only processes and
not products which were used by Indian companies by introducing different processes to ‘reverse engineer’ products
initially made in the industrialized countries. Using such methods, Indian companies developed generic forms of
patented drugs. These generic versions reduced the prices of drugs in the international market. However it has cost
benefits. Drugs for treatment of HIV-AIDS cost more than a $1,000 for one month per patient. But Indian companies
supplied the generic versions for less than $100 per person per month. Bearing this, WTO allowed export of cheap
generic versions in the interest of public health.
Now when India also provides patent protection to products and not just processes, the profitable trade niche for
Indian companies has reduced. Some of the Indian companies are forced to join international pharma majors like
Ranbaxy with the Japanese Daiichi.
Production in the developed economies concentrates on design, branding and marketing while outsourcing
manufacturing, mainly to firms in Asia. The surplus profits go to design and marketing segments and manufacturing

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segments get only normal profits because of monopoly position given by intellectual property law. Since design,
branding etc, is done by developed country firms and manufacturing by developing country firms, developed countries
insist on the protection of IPRs.
Agriculture and Livelihoods
Agreements in agriculture have been stalled by the collapse of the Doha Round of WTO negotiations. The USA
and European Union (EU) both provide large subsidies to their farmers. WTO divided subsidies into two categories:
Red is a trade distorting subsidy like export subsidies and Green is for general support to the sector that helps the
subsidy receiving farmers to export at lower prices increasing competition for farmers of developing countries.
Developing countries call such terms as unfair. Similarly, India has not allowed free exports of agricultural
commodities. Higher quality basmati rice can be freely exported, but general rice or wheat exports are allowed only
when domestic needs are fulfilled. This leads to a stop-go food grains trade.
Regional Trade
Regional trade is very limited in South Asia. It is around 3 per cent for a long time however, regional trade is 30
per cent for East Asia and SE Asia.
Recently the Government announced the removal of all restrictions on imports of garments from Bangladesh
and Investment Protection Treaty with Nepal to stimulate regional trade. It is opposed by local producers many
times. For example, when the India- Sri Lanka Free Trade Agreement (ISLFTA) resulted in spice imports from Sri
Lanka displacing local spice production, Kerala spice producers demanded protection against Sri Lankan imports.
This is not unusual in India. We need to increase competitiveness not subsidies. India-Pakistan trade is goes on via
Dubai, which increase the cost of trade and still, Indo-Pak trade via Dubai is about $2 billion per year. However,
many times these issues become political in nature and opposes of the policies have apolitical influence.
What should be the basis of regional trade policy?
It is a debatable issue. Most Regional Free Trade Agreements (RFTAs) are based on the principle of equal access
to each other’s markets. Equal access, however, is likely to lead very unequal trade outcomes, when countries are at
different levels of development because it is competition among unequal. Secondly, Non-reciprocal access exist i.e. the
more developed economies grant unilateral concessions to the less developed economies. Thus, India has opened up its
garments sector to Bangladesh, without demanding that Bangladesh do the same in return. It is expected that it would
help overcome the fears of the small South Asian countries, which fear domination by India. It will force Indian firms
to move up the value chain.
Trade – Labour and Environmental Standards
International trade has a relation with difference in labour standards at the level of wages. Labour surplus
countries have lower wages levels therefore; they specialize in the production and export of labour-intensive products
and tasks. Sometimes these countries use child labour or forced/bonded labour.
There is a debate: Should commodities produced by such forms of forced labour be allowed in international
trade?
The developing countries, including India, insisted that issues of labour standards should be taken up by the
International Labour Organization (ILO). It has been internationally agreed that trade action, such as banning imports
made with child labour or forced labour, should not be used as an instrument for improving labour standards. But
many private brands like Nike, Marks and Spencer, or any other big buyer – the labour codes that they expect their
suppliers to adhere to include matters such as the non-employment of child labour. They go beyond Indian law and
insist on 18 years as the cut-off age.

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Even in contracted selling of garments and other such products, the issue of child labour comes into the picture.
But such non-employment is really only enforced and monitored at the factory level. In tasks, such as hand embroidery,
which are often out-sourced to the household level, it is difficult to monitor the employment of child labour.
Trade also depends on differences in environmental standards. Environmental standards are weaker and poorly
enforced in developing countries. So, can we expect a tendency for polluting industries to be exported to the ‘pollution
havens’ of developing countries?
Yes, it contributes to an export of polluting tasks to developing countries. Meeting environmental standards has
a cost that can be avoided by exporting polluting industries to developing countries, where such monetary costs may
not be incurred by the firm concerned.
But we must remember that waste does not mean it has no utility. Waste is what goes back as inputs into
production of different types. Treatment of waste is relatively cheaper in developing countries. Consequently, the
treatment of waste creates many jobs and yields many useful inputs into new production. The international Basle
Convention on the handling of waste requires that asbestos and mercury need to be properly handled and removed
before the ship is sent for breaking up to a developing country. It is often violated. But it can be checked. the French
aircraft carrier, Clemenceau was not allowed to be brought to India until all hazardous materials were removed by
the Indian Supreme Court.
Q. 6. Critically examine the various steps taken by the Government of India towards removal of regional
disparities. Which suggestions would you like to make to overcome the problem of regional imbalances?
Ans. Regional disparity is a situation in which various indicators like per capita income, consumption level,
food availability, infrastructural development, agricultural and industrial development are not similar among regions.
It is a situation of difference in various socio-economic indicators amongst different regions.
Measures to Remove Regional Disparities
The various programmes undertaken to remove/reduce regional disparities are as follows:
1. Resource Transfers from the Centre to the States, Weighed in Favour of Backward States: Government
transfers more resources in favour of Backward State. It happens via (a) the Planning Commission, and (b) the
Finance Commission It has been reported that the poorer states have been receiving proportionately larger amount of
funds for developmental purpose relative to their rich counterparts.
2. Priority given to Programmes which spread over the entire Area within the Shortest Possible Time:
Programmes of agriculture, community development, irrigation and power, transport and communications and social
services spread over a large area fast and aim at providing basic facilities. These programmes have been given
importance by the government.
3. Provision of Facilities in Areas which Lag Behind Industrially: River valley projects, agricultural production
and community development programmes, and of education and health schemes also carries the benefits of
development to the remotest areas.
4. Programmes for the Expansion of Village and Small Industries: Village and small industries are given
assistance by the Central and State Governments. Industrial estates have been set up in all States esp. in smaller
towns and rural areas.
5. Diffusion of Industrial Activity: In the location of public sector projects, the location of several important
projects has been determined on the basis of expert study and on economic considerations. The development of new
processes and new uses of raw materials have assisted in the spread of industry.

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6. Schemes for Development of Backward Areas: Many special schemes have been launched by the government
for development of backward areas which can be grouped as under:
Schemes focusing on areas with special features: It includes programmes like the Desert Development
Programme, the Drought-Prone Area Programme, the Command Area Development Programme etc.
Schemes focusing on target group: It includes programmes like Small farmers’ development agencies and the
special component plan for Scheduled Castes.
Schemes providing incentives and concessions for particular activities in backward areas: It includes
concessional finance from financial institutions, tax relief, investment subsidy, transport subsidy etc.
Rashtriya Sam Vikas Yojana: It was launched in 150 districts wherein a 25,000 crore Backward States Grant
Fund has been set up.
Major Limitations:
1. A major limitation s that we do make plans but do not bother if they are being effectively implemented or not.
Moreover, many funds get distorted in bureaucracy and red-tapism.
2. Since under developed regions are generally over populated, per capita expenditure becomes low in spite of
high absolute expenditure.
3. Subsidies have an inducement effect only if basic infrastructure is accessible.
4. There was no uniformity and consistency of norms for identification of backward areas from different States
and Union Territories.
SUGGESTIONS FOR BALANCED REGIONAL DEVELOPMENT
A recent study has given following measures for eradicating regional disparities.
1. We need to emphasize on the backward and forward linkages of agriculture in poorer region, investment in
water harvesting, soil conservation, rural roads, warehouses, processing activities and promotion of high
value crops etc.
2. The banking and insurance sector and infrastructure need to be promoted, on priority, in backward regions.
3. We need to assure basic infrastructure facilities like power, transport, telecommunication and irrigation in
backward states.
4. Devolution of financial Resources: While allocating resources, we give importance to
(a) population, (b) tax collection, (c) some index of backwardness, and (d) outlays required for large irrigation
and power projects or, for the upgrading of particular service. These criterion need to be modified.
Tax collection and project formulation capabilities are systematically higher in rich states. Therefore, these
formulae should be omitted altogether from all allocation formulae. Allocations need be made only in proportion
to population and an appropriate index of backwardness.
5. It is advisable that unit of resource allocation ought to be district rather than States, with highest priority to be
given to the most backward districts. It will prove better.
6. We must concentrate on the quality of governance. A better administered state is more efficient in raising
revenues and using them properly.
7. Present circumstances are creating demand for a coherent set of policies related to the environment, particularly
for the extractive industries such as oil and metals.
The states need to pay more attention to this aspect.

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Q. 7. How far India is from the welfare state it wished to become? To what extent the implementation of
development policies adopted so far are responsible for this state of affairs?
Ans. Governance in India: In this section we shall examine the position of India regarding quality of governance.
India’s legal framework has been created on the basis of the fundamental rights and the Directive Principles of
State Policy in the Constitution. The Constitution ensures many rights to Indian citizens like the Right to Life, the
Right to Freedom of Association and Speech and the Right to Education, social and economic equality, equality
before the law and equal protection under law. RTI Act, 2005 and Citizens’ Charters put up in a number of Government
Organizations facilitate transparency in Government processes. There are also institutions like the Comptroller &
Auditor General (CAG), the Election Commission, the Central Vigilance Commission (CVC), the Securities and
Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) etc. to check malpractices in areas coming
under their respective jurisdictions. If we just name the agencies responsible for regulation, a book can get ready.
In many government operations, e-Governance has been gradually introduced over the years to reduce delays in
the delivery of services and reduce the scope for mal-practices and corruption. A Computerized Public Grievance
Redress and Monitoring System (CPGRAMS) and a National e-Governance Programme were launched in 2001-02
and 2006 respectively. Many NGOs promote the participation of civil society in the governing process. Parivartan,
a Delhi based NGO, exposed corruption in the Public Distribution System (PDS) by using the RTI Act to gain access
to stock registers of fair price shops and detecting diversion of large quantities of rice, wheat and oil, intended for the
public, to the open market. IAC and Team Anna successfully mobilized public opinion against corruption in public
life and in favour of an independent institution to investigate cases of corruption to punish the guilty.
Media has exposed several unethical or irregular practices in public life.
An independent Judiciary is there to interpret the Constitution, upholds the Constitutional Rights of Indian
citizens etc. many such provisions are there that makes judiciary equally assessable and affordable for the poor. But
the poor are unaware of their rights.
There is a trend of the loss of Parliament’s time by disruption of its proceedings: the time devoted to legislative
business has come down; only about half of the members of Parliamentary committees attend the meetings and
another problem is the issue of potential conflict of interest: the last ten years has seen an exponential growth of
industrialists, businessmen and those from allied groups getting elected to the Lok Sabha and Rajya Sabha. Corruption
is there everywhere in India. Every one of four persons in Chennai, one in eight in Bangalore and one in 17 in Pune
ends up paying a bribe in dealing with agencies such as the urban development authority, electricity boards, municipal
corporations and telephones. Bribes paid to income tax officials by purpose of payment showed that 43 per cent
were for filing income tax returns, 21 per cent for ensuring income tax refunds, 13 per cent for under-assessment of
tax, 12 per cent for the issue of PAN card and 10 per cent to reduce penalty.
The judiciary is over-burdened – the number of cases pending in the courts exceed 4 crore. According to a
research out of 24,666 letters/post cards/petitions received by the Supreme Court asking for its intervention in cases
that might qualify as PIL, only 226 were placed before judges on admission days.
For a long time, we are waiting for a high level, independent, strong, effective and credible anti-corruption
agency. Only the Karnataka institution appeared to function effectively, aided by its investigating agency.
Institutional mechanisms for corporate governance in India: Companies Act, 1956 was enacted to ensure
proper governance in the corporate.

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Sick companies did not go in for options like take-over, merger or liquidation/exit but chose the BIFR (Bureau
of Industrial and Financial Reconstruction) route. This route was a long and tortuous one for the creditors and the
employees’ (Provident Fund savings) but a win-win situation for the promoters.
The Unit Trust of India (UTI) had mobilized small savings on a large scale (its corpus grew from Rs. 5 crores in
1964 to Rs. 21,378 crores in 1998), became sick in 1998 when the NAV of the US-1964 unit fell below its face value.
It was all due to UTI’s reckless and dubious involvement in equity issues after 1994, picking up securities for
investment without professional skill and often against the advice of its Equity Research Cell.
The cost of mis-governance in companies was borne by retail investors and the taxpayer and the provisions of
the Companies Act, 1956 regarding investor protection were not invoked to bring any relief to investors. Stock
market scams and corporate financial frauds are witness of limitations of a fragmented approach to investigation.
Only a multidisciplinary Serious Frauds Investigation Office (SFIO) was set up to carry out investigations under
section 235 to 247 of the Companies Act.
Many initiatives have been taken in the last 15 years by CII, SEBI and DCA, corporate governance structures
have been strengthened. The Companies Act was amended to incorporate governance provisions. Still another fraud
was committed recently. The Chairman, Satyam Computer Services confessed in 2009 to his personal involvement
in it.
Clearly, the structures necessary for good governance that exist in India have not led to good governance outcomes.
We need to make these structures function effectively in a manner befitting a system of good governance. Only a
strong political will on the part of the nation’s leadership and concerted pressure from civil society will bring
desirable efficacy in the system.
It is much far from the welfare state it wished to become. We had an expectation to make India 100% literate
within 10 years of independence but even at present only around 65% of the population is literate. Similar statistics
can be given for health, GDP growth, Industrial growth or any field to show the gap between its goals and reality. In
my opinion, it is only lack of governance that is responsible for such state of affairs. But I don’t believe in adding
another agency or law. If lakhs of agencies could not ensure good governance, another one will also not do so. In my
opinion, it will be advisable to spend on value education and making our next generation more value centric. We
need to make our generation less materialistic and more humanitarian.

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