INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

Pre- Colonial Era

 Reversal of growth process under British raj
 Cultivators enjoyed ownership rights
 Paid reasonable amount of land revenue directly to the king
 Industry was dominated by handicrafts, which enjoyed worldwide reputation for variety and
quality, like Dacca Muslin
 Exports of finished products
 Imports were largely of Bullion (gold, silver)
 Colonial policies reversed composition of output, and of imports and exports
 Pace of growth was severely hit
 Rural India was described as a system of self-contained communities, including farmers and
functionaries
 Farmers were engaged in crop farming or cattle farming, while functionaries render essential
services

Colonial Exploitation under British Rule

 Agricultural sector
Principal source of employment. Contri. To 57% of GDP. Exploited through land tenure systems
(zamindari, mahalwari and ryotwari systems). Little or no investment was made for dvpt of agri
 Industrial sector
India was well known for handicrafts; destroyed by British government. Foreign demand was
destroyed by way of heavy duty on exports and domestic demand was destroyed by duty free
import of cheap British goods. Led to downfall of cottage and SSIs
 Foreign Trade
Discriminatory tariff policy made India an exporter of finished goods from Britain and exporter
of raw material to Britain

Features
 Stagnant economy
Showed little or no growth in income. Between 1860- 1945, growth rate of PCI was 0.5 % pa,
and between 1925- 1950, it was 0.1 % pa (VKRV Rao). Bulk of population left in poverty. Std. of
living was low and epidemics and starvation were common
 Backward economy
PCI was very low in 1947-48; just Rs 230. Unemployment and poverty were rampant
 Agri backwardness
72% engaged in agri, but contri. to GDP was only 50%. Productivity was extremely low; per
hectare output of wheat was 660 kg (now 3216 kg) and that of rice was 710 kg. Food grain
production was barely enough for subsistence. Production was very low; 508 L tons in 1947-48,
against 275.68 M tons in 2017-18
 Industrial backwardness
Virtual lack of basic and heavy industries. Production of machines was negligible. SSIs and
cottage industries were ruined. Bulk of capital goods requirement was met by imports from
Britain
 Poor infrastructural dvpt
 Heavy dependence on imports for machinery and other production equipment, defense
equipment, oil, kerosene and medicines
 Limited urbanization
86% lived in rural areas, which lacked opportunities outside agri
 Semi-feudal economy
Neither wholly feudal nor capitalist. Mixed economy. Mix of feudalistic and capitalist modes of
production, leading to low productivity
 Colonial economy
Exploitation of Indian economy for benefit of British economy. Curbed domestic industry by
imposing heavy taxes. Exports of raw material were almost duty free

Causes of Low Level of Economic Dvpt

 Treated as a colony
 Market for British goods
 Destructive approach towards local industry
 Exploitative land revenue system
 Deliberate neglect of infra
 Large scale remittances

State of Agricultural Sector

 Low production and productivity
Production refers to total output, while productivity refers to output per hectare land
 High degree of uncertainty
Excessively dependent upon rainfall. Poor rainfall implied poor output. No effort was made to
develop permanent means of irrigation
 Dominance of subsistence farming
Means of subsistence (crops produced to provide for basic needs of family). Little surplus left for
sale in the market. Lack of commercial outlook
 Gulf between owners of soil and tillers of soil
Owners shared the output, but hardly shared the cost of production
 Small and fragmented holdings
Majority of Indian farmers were small and marginal landholders. This was not conducive to
adoption of innovative techniques of farming. It was uneconomical, yielding low output at high
costs
 Land revenue system
a) Zamindars were recognized as permanent owners
b) They paid a fixed sum to the government and were free to extract as much as they wanted
from the farmers (nearly ½ to ⅓)
c) Led to unlimited exploitation
d) Rates of land revenue were frequently raised
e) Farmers were reduced to status of landless laborers
f) They merely got subsistence wage in kind
 Forced commercialization of agri
Shift from cultivation for self-consumption to cultivation for market. Shifted to commercial crops
from conventional subsistence crops, which were req. by the textile industry in Britain. Farmers
were either lured or forced to accept advance payment for cultivation of indigo. They were
 exposed to uncertainties of market. Needed cash to buy grain from the market. They would
seldom have cash owing to mounting indebtedness, caused perpetual stagnation of farming

 Features
 Main source of livelihood: extensive, but productivity remained low due to system of
land settlements, low level of tech and irrigation, partition, etc.
 Absence of org market: As main motive was subsistence. Also discouraged by existence
of village economy
 Labor intensive techniques: Old, backward, limited mechanization

State of Industrial Sector

 Systematic deindustrialization
Reduce India’s status to exporter of raw materials and as market for finished goods
Decay of world famous traditional handicrafts industry, due to discriminatory policies
Bleak growth of modern industries, due to lack of investment opportunities
 Contributed to only 17% (1/6) of GDP

 Indian handicrafts enjoyed worldwide reputation. But, it decayed under colonial rule
i. Discriminatory tariff policy
British rule in India coincided with Industrial Revolution. India became a source of raw
material and a market for industrial products. Discriminatory tariff policy allowed tariff-
free export of raw material from India and tariff-free import of British industrial products
into India. Heavy duty was placed on exports of Indian products
ii. Disappearance of princely courts
Earlier, nawabs, rajas and princes used to patronize handicrafts because of which Indian
handicraft industry acquired international reputation. Beginning of British rule implied
end of princely courts
iii. Competition from machine made products
Low cost products offered stiff competition to handicrafts. They out-excelled them in
precision and quality
iv. New patterns of demand
Due to impact of British culture, a new class emerged which was keen to adopt Western
lifestyle. This changed pattern of demand in favor of British products
v. Introduction of railways
Size of market for low cost British products expanded, while it started shrinking for high
cost Indian products
vi. Infant growth of tertiary sector
Services like transport, comm., banking, etc. weren’t adequately developed

 Bleak growth of modern industry

i. Some industries were established by pvt entrepreneurs like iron and steel (TISCO- 1907),
sugar, cement, paper, etc. Est. due to worldwide scarcity of industrial goods during the
world wars
ii. Some industries were set up with the help of British, but their profits were remitted to
Britain, rather than being reinvested
iii. State participation in the process of modern industrialization was limited. Only confined
to areas which would enlarge the size of market for British products in India, like
railways, power generation, mining, development of ports, and means of communication
 iv. No capital goods industries, used to produce goods like machines and industrial plants
and are used for further industrialization, were set up, as British wanted India to be
dependent on her for supply of heavy equipment and capital goods
v. Managing Agency System was intro. for est. industries in India. Joint stock companies
were controlled by agents who rcvd a large profit for their services, despite having a
small shareholding. By end of WW1, they controlled ¾ of industries

State of Foreign Trade

 India was a well-known exporter of finished goods
 But British converted India to a net exporter of raw material and importer of finished goods
 Pursued a discriminatory policy of trade and tariff

 Exporter and Importer

Owing to colonial exploitation, cotton, raw silk, wool, jute, etc. were exported and consumer
goods were imported
 Monopoly control of India's foreign trade
Exports- imports came under control of British government. More than 50% of trade was directed
towards Britain. Exports from India supplied inputs to the industry and imports were provided a
huge market
 Surplus Trade
Only benefitted the British. During British regime, exports exceeded imports, implying surplus
BoT. This was not used for growth and development, but to meet administrative expenses of the
government (by making foreign exchange payments to England for their services- Home
Charges- nearly 40 Cr. p.a.) and expenses of wars fought by the British in pursuit of their policy
of imperialism. Led to a huge drain of wealth from India

*Suez Canal was opened in 1869. Reduced cost of transportation and promoted monopoly control of
India's foreign trade by the British

Demographic Profile
 Birth and death rates were both high- 48 and 40 per thousand respectively
 IMR- Death rate of children below the age of one year. Very high- 218 per thousand. Presently, it
is 34 per thousand
 Life expectancy- Avg life of a person. Low- 32 years. Presently, it is 68 years
 Literacy rate- Those who can read and write. Nearly 16%. Female literacy rate- 7%
 Reasons for high mortality rate and low life expectancy-
 Frequent famines and droughts
 Recurring epidemics due to neglect of public health services

 Demographic Transition
 1921- Year of Great Divide
 Before, population growth in India was never consistent. Size kept fluctuating
 After, population recorded a consistent rise. Led to excessive burden of maintenance
investment (expenditure which country incurs on maintenance of existing population).
When maintenance investment is high, growth-oriented investment remains low
 From 1951, rise became explosive in nature and India started facing a serious challenge
in terms of population explosion.
*Population Census in India is a detailed estimation of population along with complete demographic
profile. First conducted in 1881

Occupational Structure
 Refers to distri. of working population across primary, secondary and tertiary sectors
 Agri was principal source of occupation- 72.7 %. Greater dependence on agri. implied lesser
availability of land per head of farming population. It was viewed as means of subsistence and
less as an occupation for profit
 Agri dependence was low in TN, AP, WB, Maharashtra, Kerala and Karnataka, and high in
Punjab, Rajasthan and Odisha
 Industry- 9% engaged in manufacturing industries, mining, etc.
 Service sector- 15-20%
 Unbalanced growth- Growth is said to be balanced when all sectors of economy are equally
developed. However, in this case, secondary and tertiary sectors were in infant stage of growth

State of Infrastructure
 Infra. refers to elements of economic change (transport, communication, banking) and social
change (edu., health, housing), which serve as foundation for growth and development of a
country
 Modest infrastructural change took place. Motive was not growth and development of India, but
growth and development of British economy through colonial exploitation

 Railways intro. in 1853 (Bombay to Thane). Developed to transport finished goods from Britain
to interiors of India. Led to widening of market size
 Ports were developed to handle exports of raw material to Britain and imports of finished goods
 Post and telegraphs were developed to enhance administrative efficiency
 Roads were developed to facilitate transport of raw material from different parts of the country to
the ports. Also helped mobilize the army
 Health facilities were inadequate and limited to big cities and few sections of society. Reflected
by high death rate, IMR and maternal mortality rate, and low life expectancy

Impact of Railways in India

 Positive Impacts
a. Facilitated commercialization of agriculture. Implied modest change in farmers’ outlook,
who started viewing it as a business. Resulted in improved productivity
b. Expansion of domestic market facilitated exports and imports
c. Enabled people to break barriers of distance and undertake journeys to far of places,
which promoted cultural affinity
d. Fast movement of food grains across different parts of the country helped control spread
of famines

 Negative Impacts
a. Contributed to colonial exploitation of the economy as raw material could easily be
exported
b. Finished goods coming as imports could be easily transported to interiors of the country
for sale
c. Affected self- sufficiency of villages
 Positive Impact of British Rule
 Commercial outlook of farmers
 New opportunities of employment
Spread of railways and roadways opened up new opportunities of economic and social change
 Control of famines
Rapid means of transport facilitated rapid movement of food grains
 Monetary system of exchange
Transition from barter system to monetary system
Facilitated division of labor, specialization and large scale production
 Efficient system of administration
 Helped in political unification. A judicial set-up helped ensure peace, stability and order in the
economy

* Reasons why SSIs cannot compete with MNCs today

1) Do not get enough funds at low interest rates
2) Fail to upgrade technology
3) Fail to spend on advertisement
 INDIAN ECONOMY (1950- 1990)

Economic Planning
 System under which central authority sets a set of targets and specifies programs and policies to
achieve these targets within a specified period of time
 Principal focus:
Rational management of scarce resources
Maximization of social welfare with GDP growth

 Planning Commission was set up in 1950 by Prof. PC Mahalanobis

 Replaced by NITI- Aayog in 2015
 Constitution refers to economic and social planning under 7th Schedule

 Comprehensive Planning
 Economic spheres- Agri, industry, transport
 Social spheres- Edu, health, housing
Focused on direct participation of state, a leading role of PSEs and allowing private enterprises to
play secondary role. They were not allowed to enter certain areas of production activity and free
play inhibited by controls and quotas. But it regulated free play of market forces in a manner such
that scarce resources were most optimally utilized, promoting growth with social justice

Need For Planning

 Level of output and productivity were low
 Stagnant GDP growth
 Need for big push of investment, supported by the gov.

Free Play of Market Forces

 Gov. doesn't interfere with market forces of supply and demand
 Producers are free to allocate resources to production of different goods and services with view of
maximizing profit
 Social welfare given notional priority
 Model of capitalist economy

Directive Planning Comprehensive Planning

Social gains are fostered through direct
Direct market forces
participation of state

Gov. itself participates in process of growth and

No direct participation of state
dvpt

Direct pvt sector to a set of do’s and don’ts to Both pvt and public sectors coexist as agents of
ensure ntnl interests don’t suffer growth
Capitalist economy Socialist and mixed economies
 Need for Planning Commission
 Assessing economic resources
 Making plans to balance utilization of resources by public and pvt sectors
 Resource allocation
 Effective implementation of plans
 Identify and suggest methods to remedy weak points of economy

NITI- Aayog
 Ntnl Institute for Transforming India
 January 1st, 2015
 Ex-officio chairman is PM

 Designs developmental policy keeping in mind needs of nation, states and panchayats
 All stakeholders have a say in finalization of plans
 Promote idea of cooperative federalism, enabling states to have active participation in
formulation of ntnl policies

 Reasons for est.:

a) Population growth: Increased three-fold to 121 Cr
b) Economic growth: Expanded tremendously. Hence, priorities and strategies dating back
to 1950s have to change
c) Growth and expansion of pvt sector: Play a dynamic role
d) Globalization: Need for change in policy- making
e) Role of states: No longer completely dependent on Center. All at different stages of dvpt.
Earlier, role was limited to annual interaction when Annual Plan was to be approved.
Now play a more significant role in planning and implementation of policies. Decision-
making process changed from ‘top-down approach’ to ‘bottom-up approach’

*Full employment does not mean zero unemployment

Some natural (minimum) rate of unemployment caused by structural changes in system of production
always exists. Related to intro of new technology in production system. Ppl tend to remain unemployed
for some time till they adapt themselves to these changes

*Equal distribution and equitable distribution

Equal distribution: Every individual and society get same share in country’s national income
Equitable distribution: Differences in income are allowed but only within certain limits. These differences
are socially unwarranted and proportionate to differences in qualification and skills. Implies that
economic growth is related to social justice

* Universal intermediaries
Supplied essential ingredients for almost all heavy industries. No industry could run without power, plant
and machinery, and iron and steel

*Interventionist State- State intervenes to regulate and control market forces

 Types of Economies

Basis Capitalist Socialist Mixed

Means of production
owned by individual, who
are free to take economic
Means of production
decisions guided by
principle of profit
maximization
Pvt and public
Social ownership of ownership of means of
means of production, production. Decisions
where economic are governed largely by
decisions are taken by a principle of profit
central authority to maximization, but with
maximize social welfare checks and balances of
social justice

Both pvt and public

To maintain law and Direct participation in sector play a significant
Role of gov.
order and defense production role in production
process

Promotes self-interest,
profits are maximized
Merits
and GDP growth is
accelerated
Combines merits of
capitalist and socialist
economy. GDP growth is
Achieves equality in encouraged, pvt
distribution of income entrepreneurs are free
and growth is inclusive to focus on profit
maximization while
social justice is
prioritized gov. sector

Ignores collective interest

of society; only those
goods are produced
which yield high profits.
Demerits
Production is directed to
satisfy needs of rich
(growth without social
justice)
Gov. sector is often
GDP growth is slow (not
inflicted with
directed by principle of
corruption, leading to
profit maximization)
low efficiency

Long Period Goals (Objectives of Planning)

I. GDP growth
 Increase level of output of economy
 Increase flow of goods and services
 Increase is consistent over a long period of time (economic growth)
 2 ways of increasing GDP:
Discovery of more resources
Innovative tech that enhances productivity

II. Full employment

 Ppl who are able to and willing to work at market wages are getting work
 Social objective- Inclusive growth
 More ppl should participate in process of growth
 Benefits of growth must be shared across all sections of society
 Along with this, level of wages and productivity should also be increased
 III. Equitable distribution/ Equity
 Benefits of growth shouldn’t accrue to only a handful of people in society
 Benefits spread across all sections of society so that distribution becomes equitable
 Implies social equality (one of the principal objective of planning)

IV. Modernization
 Refers to updating and adoption of modern tech in growth process
 Productivity increases exponentially. E.g. - Green Revolution, IT Revolution, concept of
domestic production through BOPs
 Modernization of social outlook, including issues like women empowerment
 Contribute to process of social and economic prosperity
 Planning, practicing and pursuing modernization, mechanization and specialization in
production process
 Implies increase in productivity. Level of production activity and income tend to rise,
leading to rising demand for goods and services. Higher levels of output lead to rise in
demand for inputs, including labor

V. Self-sufficiency
 Dependence on domestically produced goods, particularly food grains
 High priority during first seven plans (especially 3rd)
 To prevent exposure of Indian economy to political pressure from rest of the world
 E.g.- In 1965, USA threatened to stop exports of food grains to India if war with Pakistan
was not ended

Short Period Goals (Objectives of Plans) - Inclusive Growth

1st Higher agri production

2nd Increased industrial production
3rd Self-sufficiency in food grains
4th Price stability; fuller utilization of manpower
5th
Alleviation of poverty
6th
7th Greater employment opportunities
th
8 Full employment; universalization of edu
th
9 Growth; price stability; environment sustainability
10th Better quality of life
Poverty reduction; job creation; protection of
11th
environment
12th Sustainable, inclusive growth
 Features of Economic Policy (1950-1990)
1) Heavy reliance on public sector
Industrial Policy Resolution, 1956: 17 industries reserved for public sector, 12 industries for pvt
sector
Objective of socialistic pattern of society achieved through comprehensive development of public
sector enterprises

2) Regulated dvpt of pvt sector

Industrial (Dvpt and Regulation) Act, 1948: No industries and pvt sector could be est. w/o license
and registration
Monopolistic and Restrictive Trade Practices Act, 1969: Several restrictions on expansion of
existing industries
Ensured there was no conc. of economic power in private hands

3) Protection of SSIs and regulation of large scale industries

SSIs offered protection from competition by reserving certain areas of production; dvpt of
financial institutions to cater to their needs; Boards est. to promote products in global market

4) Dvpt of heavy industry of strategic significance

Electricity generation, engineering goods and iron and steel industry developed on priority basis

5) Focus on saving and investment

Determinants of growth
High interest rates were offered to promote savings
Investment induced through subsidies and grants

6) Protection from foreign competition: Import duties and tariffs

7) Focus on import substitution

Domestic production of goods which were imported from abroad
Save foreign exchange and become self-sufficient

8) Restriction on foreign capital

FDI controlled and regulated through Foreign Exchange Regulation Act
Loans from abroad accorded higher priority than FDI to minimize economic control of market
Foreign aid declined from 28.1% in 2nd Plan to 8.9% in 5th Plan

9) Centralized planning
State level programs aligned to centralized planning
Growth specified at state level did not contradict overall growth strategy of five year plans

Success of Planning
 Increase in national income
Indicates economic growth. Prior to planning economy was stagnant (0.5%); changed to 6.7%
during 12th Plan. Base year for estimating GDP changed to 2011-12 from 2004-5
 Increase in PCI
Implies greater availability of goods and services per head of population. Avg rise does not
promise rise in quality of life of each and every individual in economy. Does not account for
distribution of income. Increasing at rate of 1.8% pa
 Rise in savings and investment
 Led to increase in rate of capital formation, from 10.2% in 1950-51 to 26.7% in 1989-90
 Institutional and technical change in agri
Land reforms: Abolition of intermediaries, moderation and regularization of rents, land hold
ceilings, redistribution of land, and consolidation of land holdings
Improvement in tech
 Growth and diversification of industry
Big push to basic and capital goods industries
Consumer goods industries are self-sufficient
Overall industrial growth at 6% pa
Number of PSUs increased from 5 in 1951 to 246 in 1991
Now 10th largest industrial economy in the world
 Economic infrastructure
Means of transport and comm., edu, power generation, banking and insurance facilities developed
Indian railways is the largest railway network in the world
 Social infrastructure
Health and educational facilities developed
Number of school going students increased three-fold and that of collegiate five-fold since 1951
Number of edu institutions increased 4 times
 Employment
 Intnl trade
Volume and value of India's foreign trade increased. Prior to planning, raw material was
primarily exported and finished goods imported. This was gradually reversing

Failures of Planning
 Abject poverty: 21.9% still live BPL
 High rate of inflation
Real income of people tended to erode. Economic divide tended to rise. 1 st plan is the only
exception when price level slid down
 Unemployment crisis
Increased from 53 L during 1st Plan to 230 L in 1991
 Inadequate infrastructure: Shortage of power
 Skewed distribution
Widening economic and social inequality compelled gov. to offer reservations in jobs to
economically and socially weaker sections of the society. Acc. to UNO, implementation and
enforcement were principal shortcomings. Inefficient administration, dishonesty, red-tapism, etc.
 Dependence on other countries for imports of tech and heavy machinery. Widening BoP deficit

*Growth- Sustained rise in GDP over a long period of time

Dvpt- Growth with equity

*Paradox of savings and investment

Capital output ratio is high in India (4:1). Increase in investment is followed by relatively less increase in
production (considerable part of investment in form of buffer stocks of food grains, not fixed capital
formation). Large proportion of investment made in traditional sector with backward tech
 STATE OF AGRICULTURE (1950- 1990)

Importance in Economy
 Contri to GDP- Decline in percentage contribution to GDP does not indicate decline in imp. It
only indicates relatively faster growth of secondary, tertiary sectors
 Supply of wage goods- They are necessities of life.
 Source of employment- Principal source of subsistence for more than 50%
 Supply of raw material for industries
 Source of demand for industrial goods
 Contribution to intnl trade- India's exports are a major source of forex, which is needed for import
of defense goods and crude oil
 Contribution to domestic trade
 Support to transport industries

Features
 Low productivity- Backwardness of agri implies slow growth of industry
 Disguised unemployment- Number of persons engaged in piece of land is higher than actually
needed
 Dependence on rainfall
 Subsistence farming- Primary objective is not to earn profits. Thus, fail to generate surplus for
investment
 Lack of modern inputs, tech
 Small holdings- Mechanization becomes difficult, farming still viewed as source of subsistence
 Landlord-tenant conflict- Bulk of revenue appropriated by owners

Problems
1) Lack of permanent means of irrigation
2) Deficiency of finance- Non-institutional sources charge high i R
3) Conventional outlook
4) Small scattered holdings- Acc. to NSSO, in 1960-61, 52% landholdings were smaller than 2 ha.
This increased to 80% in 1995-96 (inheritance laws)
5) Exploitative agrarian relations (relation between landlord and tenant)
6) Lack of organized marketing system- Vast majority forced to sell output to local markets at
reduced rates, or are obliged to sell produce to mahajans and money lenders in return for loans
7) Outdated agri tech used

Agrarian Reforms
I. Technical Reforms- New Agri Strategy
 HYV seeds- Substantial rise in productivity. National Seeds Corp. set up in 1963 to promote
distribution. State Farm Corp. of India, 1969 set up to develop HYV seeds
 Chemical fertilizers
 Insecticides and pesticides- Protect crops against diseases and insects. 14 Central Plant Protection
Centers set up and the Integrated Pest Management Program adopted for plant protection
  Scientific farm management practices- Adopted for crop selection, preparation of soil, crop
rotation, use of fertilizers, etc. Intensive Agri Area Program introduced, Integrated Rural
Development Program launched and 23 agri universities set up to speed up process of growth in
agri
 Mechanized means of cultivation- Cheap credit facilities provided to buy agricultural machines
by coop societies, small and marginal farmers agencies, RRBs, commercial banks, and Agro-
industries Corp.

II. Institutional/ Land Reforms

[Basic objectives- End exploitation, promote equality]
 Abolition of intermediaries
 Rent regulation- To prevent excessive, illegal extortions. Rent shouldn’t exceed 1/3 value of crop
 Consolidation of land holdings- Reduce fragmentation, reduce cost of cultivation
 Ceiling on land holding- Surplus land (above ceiling limit) redistributed among landless laborers
and small holders
 Cooperative farming- Encouraged to enhance bargaining power of small holders, buy inputs at
lower price and sell produce at higher price

III. General Reforms

 Expansion of irrigation facilities- Land under permanent irrigation has now increased from 17%
in 1951 to 45% in 2017
 Provision of credit- Cooperative Credit Societies, RRBs, and Rural Dvpt Banks set up to enhance
credit facilities in rural areas. In 1982, National Bank for Agri and Rural Dvpt set up to
institutionalize credit facilities to farmers at national level
 Regulated markets and cooperative marketing societies- Offer remunerative price to farmers to
protect against exploitation. Governed by mkt committees appointed by govt. to ensure timely
payment to farmers, ensure that only specified weights and measures are used. Coop Marketing
Society is est. to enhance bargaining power, ensure that produce is graded and sold only when
remunerative price is available, and provide storage facilities for crops. Agri Costs and Prices
Commission set up in 1965 to advise on appropriate prices
 Price support policy- MSP announced to protect against market uncertainties. Govt. is committed
to buy surplus produce at MSP when market price is lower. Bought by FCI (set up by 1965)
 Ntnl Coop. Dvpt Corp. set up in 1963 to promote schemes for production, processing, distribution
and marketing of agri produce through coop.

Green Revolution
 Crop production increased by 25% in 1967-68 and India became self-sufficient
 Name implies well- marked improvement in agri production in short pd and sustenance in long
pd

 Phase 1 (mid-60s to mid-70s- Phase of Centralization): Scope restricted largely to wheat and rice
growing regions, namely Punjab, AP, TN
 Phase 2 (mid-70s to mid-80s- Phase of Decentralization): Impact became widespread

 Features
 Spurt in crop productivity
 Substantial rise in acreage (area under cultivation) and reduced time lag between sowing
and harvesting- Use of chemical fertilizers eliminated need for fallowing, double
cropping became possible
  Shift from subsistence farming to commercial farming- Rise in output led to marketable
surplus (surplus of farmer’s output above his ‘on-farm’ consumption)
 Change in farmers’ outlook
 Self-sufficiency in food production- India even started maintaining buffer stock used
during periods of low supply
 Concentrate all resources in potential regions

 Limitations
 Limited crops- Confined mainly to production of food grains (wheat, rice)
 Uneven spread- In Punjab, Haryana, Maharashtra, TN, there was remarkable impact. But
in eastern UP, Bihar, MP, Odisha, it was relatively insignificant
 Limited farming population- As HYV tech required expensive inputs, it was beyond
reach of marginal and small farmers
 Economic divide- Gulf between rich and poor farmers substantially rose. Loan waivers
frequently offered, farmer suicides common
 Poor impact on environment
 Undesirable social effects- Led to increased incidence of unemployment and
landlessness (evicting tenants)

 Efforts by Govt. to ensure success

 MPRVPs to ensure timely irrigation
 Banking, marketing facilities
 Est. research institutes

 Need for another revolution- Gains have started shrinking

(i) Productivity standards are extremely low compared to other nations
(ii) Food grain stocks are at point of uncertainty
(iii) Farmers continue to face uncertainties of weather and market forces
(iv) Loan waivers are becoming a recurring compulsion

#Subsidies to farmers- Supply of essential inputs to farmers at lower rate than market price. Initially
restricted to chemical fertilizers, scope now enlarged to include electricity

 Against:
a. Objective was to enable farmers to achieve economic viability of new technology. Since
it has now been widely adopted by farmers, subsidy no longer req.
b. Meant to help farmers, but also helps fertilizer industry by indirectly offering benefit of
a market without competition
c. Rich farmers enjoy benefit
d. Burden on govt. finances
e. Encourage wasteful use of resources- Supply of free electricity to farmers in Punjab led
to use for non-productive purposes. In such cases, it becomes a political issue

 In favor:
a. Farming population in India is poor. Withdrawal will expose them to market
uncertainties for purchase of essential inputs
b. Enlarge gulf between rich and poor farmers, defeating objective of equity
c. Incentive to adopt new (and hence, risky) tech
 STATE OF INDUSTRY (1950-1990)

Importance of industry
 Epicenter of economic growth- As GDP rises, there is structural transformation in the economy.
Industry replaces agri. Leads to production of wide range of goods, which consumers would like
to consume as income rises. Rise in demand for agri goods is consequent upon rise in income and
is always very modest (necessity of life- low income elasticity of demand)
 Source of employment for large supply of labor force released from farm sector
 Source of mechanized means of farming- Resulted in exponential rise in productivity and self-
sufficiency in food-grains
 Imparts dynamism to growth process- Added new dimensions to human life and generated wave
of consumerism
 Utilization of all types of resources
 Growth of civilization
 Industrialization: A sine-qua-non of Growth- Growth occurs as industrialization spreads

Need for Public Sector in Industrial Dvpt

 Lack of capital- Large amount of capital exp was needed. Tata and Birla were the only est.
industrial houses in India. Req. of capital for country’s industrial growth was far beyond capacity
of these industrial houses. It became essential for state to achieve industrial growth through PSUs
 Low inducement to invest- Owing to limited size of market and low level of demand and income,
pvt investors refrained from investing. Only a big force of public investment could break this
vicious cycle
 Growth with social justice- Investment that generates employment rather than maximize profit
 Decision to develop economy along socialist lines

*Commanding heights of economy- It refers to industries of strategic significance like transport, defense
production and communication. They provide infrastructural base for the overall spread of
industrialization. The govt. decided to develop these industries as PSUs

Industrial Policy Resolution, 1956

 Three-fold classification of industries-
a) Est. and developed exclusively as PSUs
b) Est. both as pvt and public sector enterprises. Pvt sector played only secondary role
c) All industries other than in Categories (A) and (B) were left to pvt sector

 Industrial licensing- Industries in pvt sector could be est. only through a license from govt. the
basic idea was to encourage industry in backward regions and promote regional equality (licenses
were liberally issued for backward regions). They were also req. for expanding production
capacity of existing ones (to regulate allocation of resources to different uses). The focus was to
promote social welfare rather than private profits

 Industrial concessions were given for est. industries in backward regions, like tax holiday
(freedom from payment of tax for some time) and subsidized power supply
*Process of industrialization has 2 broad dimensions-
(i) Growth of large scale industry to generate infrastructural facilities
(ii) Growth of small scale industry to generate employment opportunities and social justice

Development of SSI
 Defined as industry whose investment does not exceed Rs. 5 Cr. In 1951, it was Rs. 5 L
 Set up Karve Committee/ Village and Small Scale Industries Committee in 1955
 Govt. reserved a number of products which only they could produce
 Lower excise duties were levied and loans were provided at cheaper rate
 Characteristics-
a. Labor intensive and employment friendly- India adopted a capital- deficient and labor-
surplus economy from the British
b. Locational flexibility, therefore equality oriented- Large scale industries are often est.
close to source of raw material as transportation costs are minimized
c. Small investment, therefore, equity oriented- Doesn’t lead to concentration of economic
power, and thus, promotes equality across different sections of society

Good Effects of Strategy of Industrial Growth

 Economic growth got big push
 Marked diversification in industrial sector
 Growth of large scale industry projected an infrastructural shift
 Growth of SSI contributed to social justice

Bad Effects of Strategy of Industrial Growth

 Public sector monopolies promoted inefficiency and corruption. Incurred huge losses, therefore
inefficient use of scarce national resources
 Protection of domestic industry prevented it from achieving intnl standards of product quality.
Lack of competition prompted entrepreneurs to focus on monopoly control of market
 Saving forex through import substitution rather than export promotion was an inefficient policy
instrument. Thus reserves started shrinking and by the end of 1990, stocks reached their bottom

Problems of Industrial Growth

 Failure to achieve targets of production- Due to poor and ambitious planning, indifferent
execution, delay in supply of inputs, technical and financial complications, etc.
 Under-utilization of capacity- Magnitude ranges between 20% - 60%, mainly due to labor
problems, over-projection of demand and deliberate under-utilization to earn profits
 Regional disparities
 Industrial sickness- A sick unit is one which is unable to perform its normal functions of
production and is incapable of generating internal surplus on a continuous basis. There is periodic
depletion of working capital, infusion of funds from outside, inability to honor commitments and
piling up of losses
 STATE OF FOREIGN TRADE (1950-1990)

 International Trade- Domestic production may exceed their domestic consumption. This surplus
output is exported to earn money. The export and import of goods and services across different
countries is called international trade
 A country specializes in production of that good which it can produce at a cost lower than other
countries. International trade, thus, facilities export of goods to rest of the world at price higher
than in domestic market and facilitates import of goods at price lower than domestic market
 It offers a wider size of market and enhances opportunities of investment for trading partners

 Volume of trade- Quantum/ Value of export and import of a country

 Composition of trade- Types of goods and services exported and imported

India's Foreign Trade after Independence

 Volume- Percentage rise in exports and imports was high due to ‘base effect’. It means that
initially volume of exports and imports was very low. So even a small increase in total volume
showed significant increase in terms of percentage rise

 Composition-
a. Decline in percentage share of agri exports: India started using farm products as raw
material for domestic industry. A substantial rise in population also raised domestic
consumption of farm products
b. Decline in percentage share of conventional items: Included jute, food grains and
minerals, which constituted bulk of India's exports. With planned development
programs, domestic demand for conventional items increased
c. Increase in percentage share of manufactured goods: Tended to rise. Gems and jewellery
is India's highest exporting category of goods

 Direction- Major trading partners are UAE, China, USA, Switzerland, Singapore, Australia, Iran,
Hong Kong and Belgium. UAE is leading trading partner

Inward Looking Trade Strategy: Import Substitution

 Implies domestic production of goods which economy has been importing from rest of the world
 Aim is to save forex by restricting volume of imports. It is utilized for developmental imports
(like plant machinery) which cannot be produced domestically (due to lack of technology/
investment funds)
 Govt. preferred to economize use of forex rather than maximize generation through export
promotion
 Also provides protection to domestic industry from international competition through
a) Tariffs- Duty on imported commodity. Directly increases price of imported commodity
b) Quotas- Govt. fixes quota of import of different goods from different countries

 Good impacts
i. High rate of industrial growth with structural transformation- Percentage contribution of
industrial sector to GDP increased from 12 % in 1951 to 25% in 1991
 ii. Diversification of industrial growth- No longer confined to textiles and jute. It started
spreading across to engineering goods, automobile industry and wide range of consumer
goods. Growth of the then sunrise industry of electronics was attributed to protection in
initial phase of growth (by imposing heavy import duty on import of electronic goods-
around 400%)
iii. Opportunities of investment- Protection to SSIs opened new opportunities of investment
for those who did not have much capital. Also implied use of latent resources in the
country and new opportunities of self-employment

 Bad impacts
i. Growth of inefficient public monopolies- Telecomm was a govt. monopoly till 1990.
People had to wait for years for just a telephone connection
ii. Lack of competition implied lack of modernization- Prolonged protection failed to
prompt domestic producers to upgrade products
iii. Indiscriminate spread of PSEs- Started swallowing up opportunities of investment for
pvt entrepreneurs. Also led to indiscriminate, irrational use of public resources
iv. Economically unviable state enterprises- There was political compulsion to bear losses
and continue operating them. Trade unions and politicians opposed shutting them down
on the pretext of social injustice to workers
 ECONOMIC REFORMS SINCE 1991

 Meaning of economic reforms

 Liberalization in place of licensing
 Privatization in place of quotas
 Globalization in place of permits for imports and exports

 Need for economic reforms

1. High FD- Indicates poor financial health of economy, triggers inflation and lowers faith
of international institutions in the govt. FD was 8.4 % of GDP in 1990-91
2. BoP Crisis- Related to BoP deficit. Current account deficit was Rs. 17367 Cr. in 1990-91
while borrowings from rest of the world was 23% of GDP
3. Fall in forex reserves- In 1990-91, India's forex reserves fell to such a low level that they
were not enough to pay for import bill of even 10 days. Govt. had to mortgage gold
reserves with the WB to discharge debt obligation
4. Inflationary spiral- Triggered by rapid increase in money supply due to borrowings by
government to cope with FD
5. Gulf Crisis- Iraq War affected exports to Gulf countries and import of crude oil (83%
imported)
6. Poor performance of PSUs- After investing Rs. 1100 Cr., only a 3% profit was made

 Objectives
(i) Abandoning priority dvpt. of public sector
(ii) Open door policy to foreign pvt investment
(iii) Liberalization
(iv) Globalization

 Arguments in favor of NEP

 Increase in rate of economic growth
 Decrease in BoP
 Price control
 Improve efficiency of public sector

 Arguments against NEP

 Reduction in public exp leads to unemployment
 Effect on agri sector
 Due to competition, slowdown in domestic manufacturing sector
 Proceeds from disinvestment used to cover FD rather than on improving infra. Also,
PSEs were undervalued leading to losses
 Decreased tax revenue due to low tariffs and import duties, and incentives for foreign
investors

#India adopted NEP in exchange for a bailout of $ 7B from WB and IMF

 Liberalization
 Freedom of production from direct/ physical controls imposed by govt.
 Prior to 1991, controls placed included industrial licensing system, price control on goods, import
license, forex control, restrictions on investment by big business houses, etc.
 Gave rise to corruption, undue delays and inefficiencies
 Controls were imposed by govt. with a view to check growth of pvt monopolies and minimize
hold of large industrial houses on financial resources of the country

 Industrial sector reforms

a. Abolition of industrial licensing in July 1991- Abolished req. of licensing except for 5
industries: liquor, cigarettes, electronic, aerospace and defense equipment, industrial
explosives and dangerous chemicals
b. Contraction of public sector- No of industries reserved for public sector reduced from 17
to 8. In 2010-11, further reduced to 2 (atomic energy and railways)
c. De-reservation of production areas- Areas reserved for SSIs were de-reserved. Market
forces were allowed to determine allocation of resources
d. New Companies Act, 2013- 2% profit be spent on CSR if net profit > Rs. 5 Cr.
e. Investment limit for SSIs increased to Rs. 5 Cr.
f. Expansion of production capacity- Earlier linked with licensing
g. Freedom to import capital goods- Done with a view to upgrade tech. Permission was no
longer req. from govt. to enter into international agreements to import tech
h. Make in India, Sept 25, 2014- Make India a global manufacturing hub
i. Start-up India, Jan 2016- Promote entrepreneurship and innovation amongst youth

 Financial sector reforms

a. As regulator, RBI before liberalization would itself fix interest rate structure for
commercial banks. But as a facilitator after liberalization, RBI only facilitated free play
of market forces and left to commercial banks to decide interest rate structure
b. Led to emergence of pvt bankers in Indian banking industry- 9 pvt and 44 foreign
c. Allowed foreign institutional investment in Indian financial markets (max. 50%)
d. PM Jan Dhan Yojana- Provide financial services to low- income sections
e. Mudra Banks- Provide financial facilities to small businesses in organized sector

 Fiscal reforms
a. Prior to liberalization, tax structure was complex and evasive
b. But now, it has been simplified and moderated. This has raised tax compliance

 External sector reforms

a. Foreign capital reforms
 Initiated in 1991 with devaluation of Indian rupee
 Increased supply of foreign currency in Indian economy by way of higher
exports
 This was followed by shifting to flexible exchange rate system
b. Foreign trade policy
 Tariff restrictions were moderated or withdrawn
 Policy of ‘survival of the fittest’
 Market competition replaced policy of quotas and tariffs
 Import licensing abolished, except in cases of goods which are not eco-friendly
or are hazardous
*Laissez- faire System- No intervention by state in functioning of economy. All decisions related to
allocation of resources and goods and services to be produced are taken by producers on the basis of
market forces. On the other hand, liberalization only implies a situation where govt. allows greater degree
of freedom and flexibility to pvt entrepreneurs in matters relating to allocation of resources. It doesn't
exclude govt. intervention in the economy

Privatization
 Process of involving pvt sector in ownership of state-owned enterprises
 Gradual withdrawal of govt. ownership from PSEs, and from ownership and management from
mixed enterprises
 Disinvestment- Policy instrument to promote privatization. Occurs when govt. sells of share
capital of PSUs. Taken as remedial measure to improve production and managerial efficiency,
and facilitate modernization. Used to manage FD
 MoUs- Promoted to reduce govt. control and make industry more responsible. Used to induce
enterprise and attain deadlines for production

 Need for privatization- Initially, PSUs were req. to diversify industrial base. But once the
economy underwent a structural transformation, they turned into liabilities. Mounting losses
became unsustainable. Thus, in 1991, govt. decided to sell equity to pvt firms

 Arguments in favor
a) Poor performance of PSUs
b) Rising budgetary deficit
c) High capital- output ratio

 Arguments against
a) Unbalanced growth
b) Adverse effect on standard of living
c) Pvt monopoly
d) Less scope for dvpt of infra

 Gains
i. High productivity- Due to self-interest, entrepreneurs work with 100% commitment
ii. Competitive environment induced upgradation and modernization
iii. Promoted diversification of production
iv. Generated high profits which was used for expansion and diversification
v. Promoted consumer sovereignty. This implied wider choice and better quality of life

 Losses
i. Socialistic pattern of society becomes only a theoretical possibility
ii. Encourages free play of market forces, but in the process, goods were produced only for
those who had the means to buy them
 Basis Maharatna Navratna Miniratna I Miniratna II

A score of 60 out of Have made profits

3 years with avg. Have made
100 based on 6 continuously for
annual net profit of profits
parameters (net profit, last 3 years
over Rs. 2500 Cr continuously for
net worth, total
last 3 years
production cost, etc.) OR
Eligibility OR
AND
AND
A company must first Earned net profit of
Avg. annual net
be a miniratna and at least Rs. 30 Cr in
worth of Rs. 10000 Has a positive net
have 4 independent one of the past 3
Cr for 3 years worth
directors on its board years

Up to Rs. 1000 Cr. or Up to Rs. 300 Cr

Free to decide on Up to Rs. 500 Cr or
Benefits on 30% of net worth in or 50% of net
investments up to equal to net worth
Investment whole year (< Rs. worth (whichever
15% of net worth (whichever is lower)
1000 Cr) is lower)

Maharatna CPSEs
 Bharat Heavy Electricals Limited (BHEL)
 Bharat Petroleum Corporation Limited (BPCL)
 Coal India Limited (CIL)
 GAIL (India) Limited
 Hindustan Petroleum Corporation Limited (HPCL)
 Indian Oil Corporation Limited (IOC)
 NTPC Limited
 Oil & Natural Gas Corporation Limited (ONGC)
 Power Grid Corporation of India Limited
 Steel Authority of India Limited (SAIL)

Navratna CPSEs
 Bharat Electronics Limited
 Container Corporation of India Limited
 Engineers India Limited
 Hindustan Aeronautics Limited
 Mahanagar Telephone Nigam Limited
 National Aluminum Company Limited
 NBCC (India) Limited
 NMDC Limited
 NLC India Limited
 Oil India Limited
 Power Finance Corporation Limited
 Rashtriya Ispat Nigam Limited/ Vizag Steel
 Rural Electrification Corporation Limited
 Shipping Corporation of India Limited
#Sircilla Tragedy- Sircilla was known for its power-loom industry. Privatization of power supply led to a
substantial hike in power tariff. There was a cut in wages and 50 workers committed suicide

Globalization
 Process associated with increasing openness, growing economic interdependence and deepening
economic integration in world economy
 Unrestricted flow of goods and services, tech and expertise

 Outsourcing- Outcome of globalization. System of hiring business services from outside world.
Include call centers, teaching/ coaching, clinical advice, transcription, etc. Availability of cheap
labor in India and revolutionary growth of IT industry are reasons for India emerging as imp
destination for business process outsourcing

 Policies promoting globalization

a) Increase in equity limit of foreign investment- Raised from initial 40% to 100% in
service sector, up to 51% in high priority industries and 49% in core industries and media
sector
b) FEMA replaced FERA in June, 2000
c) Partial convertibility of INR- It refers to sale and purchase of foreign currency at market
price. Allowed for import and export of goods, payment of interest or dividends and
remittances to meet family expenses
d) Long-term trade policy- Enforced for longer duration (5 years). All restrictions and
controls on foreign trade have been removed
e) Reduction in tariffs
f) Withdrawal of quantitative restrictions

 Parameters of Economic Reform

Macroeconomic Stabilization Microeconomic Structural Adjustments

Set of measures which affect entire economy
Includes review of monetary policy, fiscal policy
and exchange rate policy
Focus on coping with crises of confidence relating
to ability of government to manage country’s
dwindling BoP and repay loans by maintaining
sufficient forex reserves and controlling inflation
Short-term measures
Measures by govt. focused on structural changes in
the economy. There is specific bearing on different
sectors
Includes review of industrial policy, trade policy,
public sector policy, price policy and tariff policy
Aims at improving productivity levels in different
sectors of economy by removing rigidities in
economy
Long-term measures

First Generation Reforms Second Generation Reforms

Don't require legislative action Require legislative action
Carried out simply through executive and
Often delayed
administrative machinery
 Merits of LPG
 Vibrant economy- GDP growth rate increased to 8% p.a.
 Stimulant to industrial production
 Check on FD- Brought down to around 3.5% of GDP
 Check on inflation- Due to greater flow of goods and services in economy, inflation in 2017-18
was estimated to be 2.9%
 Consumer’s sovereignty- Overall level of exp of households has tended to rise, implying overall
rise in welfare
 Substantial increase in forex reserves
 Flow of pvt foreign investment- Domestic economy was not generating enough surplus for
reinvestment and indigenous tech was getting obsolete
 Recognition of India as emerging economic power
 Shift from monopoly market to competitive market

Demerits of LPG
 Neglect of agri- Growth rate depleted to 2-3 % p.a.
 Urban conc. of growth process- Resulted in gulf between rural and urban areas, which leads to
economic and social dualism
 Economic colonialism- Domestic producers get marginalized due to poor competitive strength
 Spread of consumerism
 Lopsided growth process
 Cultural erosion

Precautions
 Don't surrender to big players in international market
 Don't compromise with economic interest of domestic producers while allowing free access to
foreign investors
 Don't become economically subservient to MNCs
 Need to be in a position to channelize FDI more into areas of infra
 DEMONETIZATION

Concept
Demonetization is a situation where the Central Bank of the country (Reserve Bank in India) withdraws
the old currency notes of certain denomination as an official mode of payment.

Demonetization has been done in various countries of the world in context of hyperinflation, wars or
political upheavals. Countries like Nigeria, Zimbabwe, Australia, Myanmar etc. have initiated the move
in order to curb excess money supply with respect to black money.

After demonetizing bank notes on two previous occasions i.e. in the year 1946 and 1978 the Government
of India decided to do so again on November 8, 2016, wherein, higher denomination currency notes of
Rs. 500 and Rs. 1,000 (together comprising nearly 86% of the currency in circulation) ceased to be legal
tender except for a few specified purposes. This currency was to be deposited in the banks by December
30, 2016, while restrictions were placed on cash withdrawals.

Aim
India’s economy is relatively cash-dependent and where cash holdings are used for majority of
transactions, the chances of cash not being used for legitimate transactions, but perhaps for other activities
such as corruption are high. The recent move of demonetization by the GoI aimed at achieving the
following objectives:

 To curb corruption and penalize illicit activities and wealth acquired from it.

 To pave way for digitalization by shifting transactions out of the cash economy and into the
formal payments system.

 To curtail circulation of counterfeit currency (fake currency).

 To tax unaccounted private wealth maintained in the form of cash. Ensure greater transparency
and reduction in tax evasion by restricting cash transactions and giving a boost to digital
transactions.

 To reduce informal savings and channelize them through formal banking system.

The money deposited in banks could provide a base for giving more loans, at lower interest rates.

Impact
Some of the notable short term impacts of demonetization are discussed below.

 A slowdown in the growth process was witnessed as Demonetization reduced both, demand and
supply in the market due to lack of liquidity, reduced working capital availability and increased
uncertainty with a major impact on cash-intensive sectors like agriculture, real estate, jewellery
etc.

 A decline in the stock of black money could be seen as some holders came into the tax net.

 There was a sharp rise in the bank deposits and financial system savings.

 Government’s revenue from taxes increased because of increased disclosure.

  Payments to local bodies increased as demonetized notes remained legal tender for tax
payments/clearance of arrears.

 There has been a decline in the indirect and corporate taxes, to the extent of slowdown in the
growth process. However, in the long run, taxes are expected to increase as formalization expands
and compliance improves.

Demonetization is an effective tax administration measure as black money holders are not left with any
choice but to declare their wealth and pay taxes as penalty. Through this measure the government seeks to
communicate that tax evasion shall not be accepted and allowed any further. However, it involves huge
cost in the process of withdrawal of old currency circulating in the economy and printing of new currency
notes. The long term benefits of demonetization can be reaped only if it is followed with fast, demand-
driven re-monetization, digitalization and growth oriented tax reforms.
 GOODS AND SERVICES TAX (GST)

Concept
The Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services. GST
Act was passed in the Parliament on 24th March, 2017 and it came into effect from 1st July 2017.

Goods & Services Tax is a comprehensive, multi-stage, destination-based tax (place where consumption
of the goods or services takes place) that is levied on every value addition (monetary worth added at each
stage) by the Central and State governments. Before the implementation of Goods and Services Tax
(GST), various central, state and local area taxes were levied in India. These indirect taxes have now been
subsumed under GST which is based on the principle of ‘One Nation One Tax’.

Features

 GST is a comprehensive tax as various indirect taxes have been merged in this single tax except.
Customs duty, taxes on petroleum products, alcoholic drinks and taxes levied by local bodies.

 GST is a multi-stage tax because it is proposed to be levied at all stages starting from production
up to final consumption with a provision of set off of taxes paid at previous stages.

 GST is a Value Added tax because it is levied on value addition at each stage of the supply chain
(from manufacturer to wholesaler to retailer and to the final consumer).

 GST is a destination-based tax as the tax would accrue to the taxing authority which has
jurisdiction over the place of consumption. For example, if goods are manufactured in State A
and sold to final consumer in State B, the tax revenue from GST will be collected by the State B
and not State A.

 Taxes that have been subsumed under the GST are summarized in the following table:

Taxes Subsumed

Central Level Taxes State Level Taxes

• Central excise duty • Entertainment tax • Purchase tax
• Service tax • VAT • Tax on lotteries
• Central sales tax • Entry tax • Octroi

GST Structure in India

India has adopted dual GST structure wherein taxes are levied and collected both by the Union and the
States. There are three taxes applicable under GST:

 Central GST (CGST): Where the tax revenue will be collected by the central government.

 State GST (SGST) or Union Territory GST (UTGST): Where the tax revenue will be collected by
the state governments for intra-state sales i.e. within the same state.

 IGST: Where the tax revenue will be collected by the central government for inter-state sales i.e.
sale from one state to another.
The tax rates, rules and regulations are governed by the GST Council which consists of the finance
ministers of the center and the states. Goods and services are divided into following tax slabs for
collection of tax namely, 0% (on essential items including food), 5%, 12%, 18% and 28% (on luxury
items and tobacco).

Advantages of GST
The GST has been widely heralded for many things, especially its potential to create one Indian market.
Various benefits that shall accrue with the introduction of GST are discussed below:

 Foster Economic Growth: The subsuming of major Central and State taxes in GST will reduce the
cost of locally manufactured goods and services and increase their competitiveness in the
international market thereby giving boost to Indian exports. An increase in economic activities
will also help in increasing the country’s GDP and generating employment.

 Ease of doing business: In pre GST regime there were multiple indirect taxes and the firm was
required to register itself separately under each such Act. Introduction of a single tax and
automated procedures for registration etc. has led to ease of doing business for the enterprises.

 Attracting Foreign Investment: Introduction of GST has given a boost to foreign investment and
“Make in India” campaign by harmonizing the tax base and administration procedures across the
nation.

 Ensure better tax compliance: The transparent and complete chain of set-offs will result in
widening of tax base and better tax compliance.

 Reduction in the cost of goods: Implementation of GST will prevent cascading of taxes (i.e. tax
on tax) which resulted due to multiplicity of taxes on goods and services. This will make products
cheaper and would benefit the consumers and increase aggregate demand in the economy.
 POVERTY

 Socioeconomic phenomenon
 Inability to fulfill minimum req. of life like food, clothing, housing. If these are not fulfilled, man
undergoes pain and suffering, there is loss of health and efficiency; sickness and disabilities
render him helpless

Poverty Line
 Cut off point in terms of per capita expenditure that divides people as poor and non-poor
 In India, poverty line in rural areas is Rs. 816 on consumption per month and in urban areas is
Rs. 1000 per month
 Acc. to NSSO, in 2011-12, (absolute) poverty rate in India was 21.9 %
 Chronic poor- People who never move above poverty line
 Headcount/ Poverty Count Ratio- Percentage of population below poverty line

 Consumption better parameter than income:

(i) Reflects actual use of goods and services by individual as well as type of goods actually
used, while income only shows capacity to purchase
(ii) Data is not available on income distribution

 Procedure of fixing Poverty Line

(i) Est. of consumption cutoff - Only pvt consumption exp. is considered, and booth food
and non-food items are included
(ii) For consumption of food items, per capita consumption of calories is worked out.
Frequency distribution is formed with different class intervals
(iii) Frequencies are recorded against each class interval and each frequency counts number of
heads belonging to particular consumption class
(iv) Finally, headcount ratio is worked out

 Acc. to Planning Commission, minimum nutritional standard set at 2400 cal/ person/ day in rural
areas and 2100 cal/ person/ day in urban areas
 Acc. to World Bank, poverty line is set at $1/ person/ day

Basis Relative Poverty Absolute Poverty

Poverty when level of income is so low
Poverty across different classes,
Meaning that one can’t meet basic minimum
regions or countries
basic consumption req.
Comparative study between 2
Number No. of ppl. BPL
societies
Measured on 2 bases: Measured on 2 bases:
Measurement Monthly consumption exp. Comparison of standard of living
Income PCI
Trends
 In 1960-61, 17 crore people (34%) lived BPL. In 1993-94, 32 crore people (36%) lived BPL. In
1999-2000, 26 crore people (26%) lived BPL. In 2009-10, 29.8% lived BPL
 Upward trend in poverty ratio in 2004-05 and 2009-10 is due to application of new poverty line
 Total number of BPL population has increased despite fall in percentage due to rise in population

 Poor highest in Bihar, Odisha, MP and UP

 In Punjab, only 8.3% live BPL
 Lowest in HP

Urban Poverty- A Spillover of Rural Poverty

 People tend to migrate from rural areas to urban areas in search of jobs. But, not finding jobs
beyond subsistence, they add to percentage of BPL in urban areas
 Rural poverty declined from 54% in 1972-73 to 25.7% in 2011-12
 Urban poverty declined from 42 % to 13.7%
Causes
 Underdevelopment of economy
(i) Low level of NNP compared to population. Hence, PCI is low
(ii) Low growth rate during five year plans in India- 5%. But, due to 2% population growth
rate, PCI group by 3% only
(iii) Inflationary spiral- Due to low GDP growth and high growth rate of population, India is
vulnerable to inflationary spiral. Means a situation of persistent rise in prices. Real
income of households decreases

 Chronic unemployment and underemployment

(i) Rural poor mostly seasonally/ disguised unemployed
(ii) No assets, skills, job security and no savings. Leads to indebtedness
(iii) Capital deficiency- Capital stock and capital formation continue to be highly deficient,
leading to lower production capacity, which in turn this leads to low level of
employment
(iv) In December 2014, 4.83 crore unemployed

 Unequal distribution of income

(i) Major gains of GDP growth enjoyed by rich. Hence, rich become richer
(ii) Efforts have been made by govt. to moderate inequality in distribution of income
through system of progressive taxation and other measures
(iii) Acc. to NCAER report, in 2009-10, top 20% of population received 53.2% of total
income, while bottom 40% got only 15.3%
(iv) Acc. to NSSO, 39% rural population own only 5% rural assets, while top 8% own 46%
assets

 Fast population growth of poor

(i) Rise is mainly due to rapid fall in death rate
(ii) Poor procreate to increase earning members

 Illiteracy
(i) Farmers fail to implement new methods and tools
(ii) Work as unskilled laborers, earn less

 Social Causes
(i) Lack of able and efficient entrepreneurs- Production activity has failed to gather
momentum
(ii) Outdated social institutions- Social structure is full of outdated traditions and institutions
like caste system (occupation mobility) and joint family system which obstruct changes
in the economy
(iii) Poor consider poor to be god- willed
(iv) Lack of infrastructure- Vital components of economic and social infrastructure, which
serve as foundations of growth and development, are grossly deficient
Suggestions to Remove Poverty
 Combating through GDP growth
When pace of GDP growth is accelerated, employment opportunities are generated, leading to
more inclusive growth process. Jobless growth occurs when GDP growth is technology driven.
Hence, govt. must ensure that the production process is labor intensive

 Combating by improving distribution of income through financial and legislative measures

Financial measures:
a) Govt. places greater reliance on a progressive tax structure (higher tax on rich, exemption
for poor)
b) Tax rcpt. of govt. used to subsidize purchases by poor
c) Subsidy offered on basic needs of poor
d) Capital grants offered to poor for self-employment

Legislative measures:
a) Minimum Wages Act making it mandatory for employers to offer a stipulated minimum
wage to employees
b) Policies like ‘price floor’ and MSP for purchase of farm outputs
c) RTE

 Combating through population control

PCI continues to be low due to rising population. It can be removed if growth rate of population
is moderated so that increase in GDP is translated into increase in per capita GDP. Control would
also mean reduction in size of labor force, which will correct structural imbalance between labor
supply and capital stock. Rate of participation (% of labor force gainfully employed) increases.
Done by intensifying ‘Family Planning Campaign’

 Dvpt. of agri.
a) Mechanization and modernization
b) Better seeds, irrigation, chemical fertilizers should be used
c) Small farmers given financial assistance, landless farmers given land (land reforms)

 Stability in price level

If prices continue to rise, standard of living of poor will continue to deteriorate. Prices can be
stabilized when production of food grains and other goods of mass consumption are increased.
These are distributed to poor through fair price shops (under govt. supervision).

 Eradication of unemployment
a) Cottage industries and construction activities encouraged in rural areas
b) Vocational education given priority
c) Provision of income- generating assets
d) Labor intensive techniques of production adopted
e) Setting up industrial training institutes
f) Offering loans at low interest rates and encourage ‘Start-Ups’

 Special focus on backward regions

Govt. should offer special concessions and facilities for extremely backward regions to encourage
private investment
Measures Adopted by Government to Remove Poverty
I. Promoting Economic Growth
Growth- oriented approach to alleviate poverty through trickle-down effect. It is believed that rise
in GDP would offer greater economic opportunities to poor

II. Provision of Minimum Basic Needs

Govt. spends on social consumption needs, which is expected to supplement consumption of
poor, create employment, and improve standard of living. E.g. - PDS ensures food security. This
is enhanced through Integrated Child Development Scheme (mothers, children below 6 yr.
provided food), Mid-day Meal Scheme and Annapurna Scheme (10 kg. free food grains provided
to poor senior citizens above 65 yr. not covered under Ntnl. Social Assistance Program)

III. Poverty Alleviation Programs

Specific programs launched with a view to offer greater economic opportunities to poor. Initiated
in 5th Five Year Plan. 2 types- one for generation of self- employment and other for wage-
employment

1. Ntnl Social Assistance Program

Initiated by Central Government offering social assistance to elderly people, destitute women and
widows in the form of monthly pension

2. Swarnajayanti Gram Swarozgar Yojana (April 1999)

Replaced Integrated Rural Dvpt. Program and Training for Rural Youth for Self- Employment
Large number of small enterprises est. in rural areas, which were organized as individual
enterprises as well as on a collective basis as SHGs
In 2011-12, restructured into the Ntnl Rural Livelihood Mission

3. Ntnl Rural Livelihood Mission/ Aajeevika/ Deen Dayal Upadhyay Yojana (June 2011)
Implemented in 150 districts in 2012-13
Expanded to another 150 by 2014-15
Expanded to whole of India by 2016-17 (3.5 crore households in 31 lakh SHGs)
Provides self- employment to 90 lakh people

4. Ntnl Urban Livelihood Mission

Impart skill training for self and wage- employment

5. Swarnajayanti Shahri Rozgar Yojana (December 1, 1997)

Integrated Nehru Rozgar Yojana and Prime Minister’s Integrated Urban Poverty Eradication
Program
Objective is to provide self-employment or wage-employment to urban unemployed or under-
employed people
Replaced by Ntnl Urban Livelihood Mission in 2013
Includes the Urban Self- Employment Program and the Urban Wage- Employment Program
Of total expenditure, 75% borne by Central Government and 25% by State Government

6. Micro Units Development and Refinance Agency Bank (April 2015)

Meet credit needs of micro enterprises and self-employed persons
Entitled to a loan of Rs. 10 lakh per unit

7. Pradhan Mantri Gramodaya Yojana (2001)

Aims at improving standard of living of rural people by developing five important areas-
 (i) Health
(ii) Primary edu.
(iii) Drinking water
(iv) Housing
(v) Roads
Incorporated 3 projects: Pradhan Mantri Gram Sadak Yojana (focus on building all weather roads
by 2007 in all villages having population of more than 500 people), Pradhan Mantri Gramin
Awas Yojana, and Pradhan Mantri Gramin Drinking Water Yojana

8. Jai Prakash Rozgar Guarantee Yojana

Seeks to provide guaranteed employment in the most backward districts of the country

9. Prime Minister's Rozgar Yojana

Provide employment to educated unemployed
Provide loans up to Rs. 1 lakh for opening their own enterprise, and Rs. 2 lakh for other activities

10. Minimum Needs Program

Launched during 5th Plan
Covers primary edu, adult edu, rural health, rural water supply, rural growth, rural electrification
rural housing, and ecological improvement of urban slums

11. 20 Point Program (14th January 1982)

(i) Increase irrigation capacity
(ii) Increase production of pulses and oilseeds
(iii) Extension of Integrated Rural Dvpt Program and Ntnl Rural Employment Program
(iv) Fixation of land holding ceilings
(v) Minimum wage to agricultural workers
(vi) Rehabilitation of bonded labor
(vii) Expansion of SC/ST program
(viii) Drinking water in villages
(ix) Provision of houses in rural areas
(x) Improvement of slum areas
(xi) Dvpt power capacity
(xii) Dvpt of forests and gobar gas
(xiii) Family planning
(xiv) Setting up of primary health centers
(xv) Welfare program for women and children
(xvi) Primary edu for children between 6 to 14 years
(xvii) Expansion of PDS and fair price shops
(xviii) Simple industrial policy
(xix) Checking generation of black money
(xx) Efficient management of public sector industrial units

12. Ntnl Food for Work Program (November 2004)

Initiated in 150 most backward districts
Intensify generation of supplementary wage employment

13. Sampoorna Gramin Rozgar Yojana (1st September 2001)

Integrated Jawahar Gram Samridhi Yojana and Employment Assurance Scheme
Set target of creating hundred crore man days for labor
Now, subsumed in MGNREGS in February 2006
 Objectives-
(i) Provide addl. wage employment opportunity to surplus workers
(ii) Focus on dvpt. of regional, economic and social conditions, and of infrastructure

14. Mahatma Gandhi National Rural Employment Guarantee Scheme (February 2006)
(N) Act to (MG) Scheme- 2005
Subsumed Sampoorna Gramin Rozgar Yojana and Ntnl Food for Work Program
Initially, 200 districts
Now, expanded to 625 districts
Poor households in rural areas willing to work at minimum wage offered work for a minimum
period of 100, now 150 days

3 Major Deficiencies of PAPs

 Poor delivery mechanism
 Deficient resources allocated
 Ill-motivated officials lead to wastage and inefficient use of resources

Descending Into Poverty

NEP and PAPs may have accelerated pace of growth and reduced BPL percentage, but there are millions
living under a constant threat of slipping below the poverty line
There are small, marginalized farmers particularly in AP and Maharashtra. NEP exposed them to
uncertainties of market forces and driven them to commercial farming. They find themselves helpless and
unable to cope with high cost of inputs. Consequently, they are driven deep into the vicious cycle of
poverty and commit suicide due to indebtedness
Poverty Alleviation Programs- A Critical Assessment
 % of BPL population declined from 65.5% in 1973-74 to 21.9% 2011-12
 Wage rate tended to rise over time
 Nutrition levels among poor have increased

 Admn. and concerned staff were inefficient, could not work effectively due to complex SOPs
 No one to monitor follow-up action
 Those in charge of programs favored edu, rich, resourceful persons against the poor
 Remote areas were neglected due to constraints of accessibility
 Institutions that were needed to provide facilities like credit and marketing were not supportive
 Def. of poor not clear. Hence, non-poor took advantage of programs
 Power groups in villages started exercising control over delivery mechanism. As a result, large-
scale leakage in delivery packages
 PAPs were largely govt.- sponsored and lacked people's participation
 Strategy of PAPs not linked to overall development strategy. Did nothing to modify overall
functioning of economy (root cause of poverty)
 Did not consider the fact that poor would not be able to take advantage due to lack of awareness
and initiative
 Rajiv Gandhi once remarked that of the total help earmarked for the poor, only 15% actually
reached them
 HUMAN CAPITAL FORMATION

Human Capital
 Stock of skill and expertise of a nation at a point of time
 HCF- Process of acquiring and increasing no. of persons who have skill, edu and experience
essential for economic, political dvpt. of country
 Difference between benefit and cost is approximate market value of HCF
 Measurement is difficult because it is difficult to identify a suitable scale of measurement and a
large no of factors that impact productivity are non-quantifiable

#Physical capital- Refers to produced means of production. It measures production capacity of nation.
Tangible, easily sold in market, can be separated from owner, completely mobile, depreciates due to wear
and tear and continuous use, and creates only pvt benefit
#Financial capital- Paper claims against physical capital
#Human capital- Skills and expertise acquired by man. Cause behind physical capital

Determinants/ Sources of HCF

 Exp on edu- Most effective way of raising productive workforce. Most families incur huge exp
on edu because returns are substantially large. Without edu, humans are only physical labor
 Exp on health- It makes man more efficient and more productive. His contribution to production
process tends to rise. Also makes people better able to learn and spares resources which would
otherwise have been used to treat illness
 On-the-job training- Helps workers sharpen their specialized skills. Enables them to raise level of
efficiency
 Study programs for adults- Govt. and NGOs organize study programs to make adults proficient in
their work areas and enhance productivity
 Migration- Facilitates utilization of otherwise inactive skills (or better utilization). Involves cost
of transportation and cost of living in different social environment. Yet people migrate due to
higher gains
 Exp on info- Info relating to job markets and edu institutions offering specialized skills is an
important determinant. It enables people to actualize productive potential

Human Capital Human Dvpt.

A means to an end Is an end in itself

Refers to dvpt of individuals as valuable
It consists of abilities, skills and expertise used as
personalities by acquiring good edu and attaining
inputs in production
good health
Occurs when more individuals in society are edu,
Results in higher productivity
healthy and skill-oriented

Role of HCF in Economic Growth (Importance)

 Change in emotional and material environment of growth- Emotional environment becomes
conducive to growth as people tend to acquire growth-oriented attitude, while material
 environment becomes helpful as society now possesses high no of skilled, trained workers to
implement plans of economic growth
 Increase in output- Edu people are able to produce more as compared to the uneducated
 Higher productivity of physical capital- Enhances productivity of physical capital (output per unit
capital) and accelerates growth
 Innovative skills- Facilitates innovations (under-current of growth, dvpt). Larger the no of skilled
and trained personnel, greater the possibilities of innovations
 Higher rate of participation and equality- Higher the rate of participation, greater is the degree of
economic and social equality in society
 Instruments of social change
 Reduction in population growth rate

HCF stimulates growth process and vice- versa. Growth implies increase in PCI, which facilitates higher
investment on edu and skills (implying HCF)

Problems Facing HCF in India

 Rising population- Reduces per head availability of existing facilities, leading to fall in quality of
life
 Brain drain- Migration of persons born, edu and trained in India to developed countries is a
serious threat to process of HCF (slows down)
 Deficient manpower planning- Not enough efforts have been made to maintain demand-supply
balance of rising labor force
 Insufficient on-the-job training in primary sector- Primary sector is backbone of Indian economy
but it has not received due attention in area of professional skills. This is because traditional
knowledge predominates
 Inadequate resources allocated to HCF, which is imbalanced (more resources for higher edu than
primary, secondary edu)
 Low academic standards- We have a large no of graduates and postgraduates whose deficient
skills lower level of efficiency

#Skill India, July 16, 2015- Aim is to train 40 Cr in different skills by 2022. Main goal is to create
opportunities for dvpt. of talent among youth and identify new sectors for skill dvpt.
#Digital India, July 1, 2015- Extend reach of mobile coverage all over the nation to convert India to a
digital economy
#PM Grameen Digital Saksharta Abhiyan- Spread digital literacy in rural India

Measures to Improve HCF

 More emphasis on technical edu
 Increased govt. intervention in such sectors
 Regulation in fee structures of pvt and govt. edu, health institutions
 Improvement in edu system
 Compulsory secondary edu
 Proper motivation
 Education
 Literacy refers to ability to read and write, while education encompasses three parameters-
primary, secondary and tertiary/ higher edu
 Literacy rate (2011)- 74.04%
 Highest for Kerala- 94%
 Lowest in Bihar- 64%
 Female literacy rate- 65.4%
 Male literacy rate- 82.15%
 Literacy rate in rural areas- 68.9%
 Literacy rate in urban areas- 85%

 Need for govt. intervention in edu and health

a) Require huge investment with high fixed exp
b) Difficult to expect pvt investors to invest unless they are allowed to recover their huge
costs through high prices of these services
c) Pvt institutions need to be regulated to ensure they follow a fixed standard
d) Large BPL population

 Growth of edu sector in India

i. No of edu institutions providing elementary education increased 5 times (12.7 L in
2015-16)
ii. No of students increased 10 times
iii. No of secondary and senior secondary schools increased from 7.4k in 195051 to 2.5 L
in 2015-16
iv. 10+2 pattern adopted
v. In 1987-88, Navodaya Vidyalaya est. to impart modern edu of good standard to students
of rural areas. Currently, there are 565 NVs
vi. Central govt. est. KVs for benefit of children of transferable employees. Also opened at
Kathmandu, Moscow and Tehran
vii. Currently, there are 799 universities (44 central, 40 deemed) providing higher edu in
India
viii. No of students in all universities is 346 L in 2015-16
ix. Vocationalization of secondary edu launched in Feb, 1988. Financial assistance given to
those schools who start vocational course at higher secondary level
x. Technical, medical and agri edu- No of diploma level polytechnic institutions rose from
143 in 1950 to present 1914. Research centers have also been set up
xi. National Rural Higher Edu Council set up to promote edu in rural areas. 14 rural edu
institutions have been functioning. Children of SC/ST get free edu in all states
xii. IGNOU set up in 1985 to provide edu opportunities to school drop-outs, housewives
and unemployed

 Regulatory Authorities in edu

 NCERT- Engaged in designing text material up to senior secondary level. Apex org. to
provide academic, technical recommendations for qualitative improvement of school edu
  UGC, 1956- Primary funding authority for university edu. Also enforces rules and
regulations regarding higher edu
 All India Council of Tech Edu- Enforces rules and regulations regarding technical edu
 Indian Council for Medical Research- Enforces rules and regulations regarding edu and
research in health sector

 Paradoxical truth about elementary education in India- Gross enrolment ratio is ratio between
total number of students enrolled and total number of individuals belonging to relevant age
group. Age grp for elementary edu is 6- 14 years. GER is more than 100% because many
students even beyond the age group of 6- 14 years enroll themselves for elementary edu. GER is
52% for secondary classes and 28% for senior secondary classes

 Areas of concern in higher edu

a. Total enrolment is nearly 80% for general edu and 20% for professional edu
b. Growing gulf between supply of job seekers with higher edu and their demand

 Right to Edu Act, 2009- Free and compulsory edu for all children between 6- 14. Made
fundamental right in Dec 2002
 National Literacy Mission, 1988 recast as Sakshar Bharat with special focus on female edu.
Covers everyone in age group of 15 years and above
 Formal Edu Program, 1976- Provide meaningful edu to those between 15- 25 years of age
 Women Edu Council- Promote edu among women
 Sarva Shiksha Abhiyan, 2001- Universalization of elementary edu, ensure retention and that there
is significant enhancement in learning achievement of children at primary, upper primary levels
 Mid-day Meal Scheme, Aug 15, 1995- Increase enrolment, attendance and retention. Initially for
primary level in 2048 blocks. Extended to all blocks in 1997-98 and upper-primary level in Oct
2007
 ‘Beti Bachao, Beti Padhao’ Andolan, Jan 22, 2015- Initially for 116 districts, now extended to
640 districts

 Educational finance
 State govt.- 10- 30%
 Central govt.- Rs. 45000 Cr. annually (3% of total annual budget)
 Parents- 4-5%
 Pvt trusts- 7%
 Endowments- 3%

 Current challenges
1. Large no of illiterates- 36 Cr
2. Inadequate vocationalization- Edu continues to be largely degree-oriented
3. Gender bias- Enrolment ratio is relatively low for female candidates and drop out ratio is
high
4. Low rural access level
5. Privatization
6. Poor academic standards due to poor infra, high pupil- teacher ratio and teacher
qualifications
7. Low govt. exp
 RURAL DEVELOPMENT

 Process whereby std. of living of rural people, especially poor, rises continuously
 2 specific concepts-
a. Concept is much broader than agri. dvpt. and includes all areas and activities in rural
areas
b. Dvpt. of agri. sector needs special attention as it is main source of livelihood

Key Issues
 Dvpt of human resources- Quality needs to be improved by improving edu, health
 Dvpt of infra
 Land reforms- Abolishing intermediaries, land redistribution, increase agri. productivity
 Alleviation of poverty
 Dvpt of productive resources- To increase employment opportunities other than agriculture

 Lingering challenges: Rural credit, rural marketing

 Principal challenges: Organic farming, agricultural diversification

Rural Credit
 Most farmers are small and marginal holders producing just enough for subsistence. They seldom
generate surplus for further investment
 Gestation lag between sowing and harvesting is quite long

 Short term credit- Purchase of inputs (seeds, fertilizers) and payment of bills. 6 to 12 months
 Medium term credit- Purchase of machinery, construction of fences & wells. 12 months - 5 years
 Long term credit- Purchase of additional land, carrying out permanent improvements on existing
land. 5- 20 years

 Productive requirement- For production activity

 Unproductive requirement- For consumption activity

 Sources of rural credit-

a) Non-institutional:
Conventional/ traditional sources like landlords, village traders and money lenders
93% of total borrowing by farmers in the beginning of 1st plan, presently 40%

Money lenders are most popular. Professional moneylenders are those who act only as
moneylenders. Lend without collateral. Disadvantages- High r i, insufficient resources for
long-term credit, don’t maintain proper records, cheating

Traders force farmers to sell harvest to them and give low price. Charge high
commissions. Imp source for cash crop cultivators.

b) Institutional:
Modern/ emerging sources like govt., cooperatives, commercial and regional rural banks
 Advantages- Protect poor from exploitation, develop banking habits, lower ri, expand
employment opportunities (as SHGs are funded by PSBs), boost avg. income of farmers

Cooperative credit societies contribute nearly 15%. Provide adequate credit to farmers at
reasonable ri, provide guidance in diverse agri operations with a view of raising crop
productivity, ensure timely and rapid flow of credit to farmers, eliminate money lenders
as credit agencies, spread credit facilities across all regions of the country, and provide
adequate credit in areas covered by special programs of dvpt.

State Banks (est. 1955) and commercial banks contribute 75%. In 1969, commercial
banks were nationalized. Rural credit needs could not be made by cooperative credit
societies alone. Nationalized commercial banks were directed to offer credit directly to
farmers as well as indirectly through cooperative societies (through branch expansion
programs). Have been directed to advance 40% loans for agri. Share in institutional credit
rose from 38% in 1980-81 to 75% in 2016-17

Regional rural banks (56- 11.6%) and land development banks were set up to promote
credit supplies, particularly in remote rural and backward areas. These banks operate at
district level and are under obligation to focus on credit needs of weaker sections of rural
population

National Bank for Agricultural and Rural Development (July, 1982) is apex institution
handling policy, planning and operations in the field of rural credit and related economic
activities. Functions- Serve as apex funding agency for institutions providing credit in
rural areas, take appropriate measures to improve delivery system, restructuring of credit
institutions, training of personnel, coordinate rural financing activities of all credit
institutions, maintain liaison with GoI, State Governments, RBI and other national
institutions concerned with policy formulation, to undertake monitoring and evaluation of
projects refinanced by it

*Institutional structure of rural banking is called multi-agency system

*As of June, 2016, 34.2% of all bank branches are in rural areas

Institutional Non- Institutional

Regulated by RBI Unregulated
Productive purposes Both
Lengthy process No formal agreement
Low ri High ri
Welfare consideration Profit consideration

 Kisan Credit Card Scheme

Aims at adequate and timely support to farmers for short term credit needs. Banks may issue KCC to
farmers who are otherwise eligible for short term credit. Farmers are issued a credit card- cum- passbook,
incorporating name, address, particulars of landholding, borrowing limit, etc.

 Self-help Groups
Promote saving among rural households. Small savings are mobilized and offered as credit to its different
members, without any security and at a moderate r i

 Micro-credit Program
Popular among small borrowers, owing to informal credit delivery mechanism involving minimum legal
formalities

 Deficiencies
1. Institutional credit has invariably been tied to collateral
2. Corruption, banking, tedious paperwork
3. Unequal distribution- Small and marginal farmers receive only a small part of credit
4. Lack of institutional finance sources
5. Lack of coordination
6. Due to political populism, govt. has often shown laxity in loan recovery, resulting in a
large default rate and over-dues
7. Most financial institutions have failed to develop a culture of saving among farming
families

 Suggestions for improvement

1. Expansion of credit facilities
2. Credit on easy terms
3. Coordination amongst institutions
4. Timely, adequate availability of credit
5. Supervision on actual usage of credit

Agricultural Marketing
 Includes all processes between harvesting and final sale of produce by farmers (assembly,
assessing, grading, packaging and storage)

 Advantages of well-organized system-

a. Induces farmers to adopt more productive agri. techniques- raise productivity
b. Ensure smooth supply of raw material to industries
c. Smooth supply of food-grain to non-farm population
d. Better prices
e. Surplus available for exports

 Essential features-
a. Minimal intermediaries between farmer and consumer
b. Adequate, proper storage facilities
c. Grading and standardization facilities made available to maintain quality
d. Availability of cheap transport facility- Produce sold at markets instead of at village level
e. Information dissemination of market conditions and prevailing prices through mass
media coverage

 Defects-
a. Lack of storage facilities: Forced to store produce in pits and mud storehouses, leading to
wastage of 15- 30% produce annually

b. Forced sales: In order to pay off debts, farmers often make distress sales of produce.
Their holding capacity is almost zero. Since they take loans from money lenders, they are
obliged to sell their crops to them only. This implies low prices and substantial loss on
account of under-weighing and customary commissions
 c. Lack of transport facilities: Lack of all-weather roads

d. Intermediaries: All claim a good margin. Indian farmers on avg. receive only 60% price
paid by consumers

e. Lack of market information: Accept whatever price is quoted to them

f. Lack of institutional finance: High ri

 Measures initiated by govt. to improve marketing system

i. Regulated markets- Sale and purchase of produce monitored by market committee
(representatives of govt., farmers and traders). Transparent, strict vigil on use of proper
scales and weights. Regulated market yards built on outskirts of most towns for fair sale
of produce and provision of storage facility. 21 major wholesale markets have been
electronically integrated in 2016 to form National Agri. Market. Aim to eliminate price
differences in country and control food inflation

ii. Coop. agri. marketing societies- Members bargain and get better price for produce
through collective sale. Have independent storage facilities, provide credit and inputs,
anticipate prices and may sell produce in future. Milk cooperatives in Gujarat played key
role in bringing about White Revolution. Limitations: Poor coordination between
marketing co-ops and processing co-ops, shortcomings in financial management

iii. Provision of warehousing facilities- Govt. is offering warehousing facilities to farmers

via Central (1957) and State Warehousing Corp. to prevent distress sales. FCI is building
its own network of godowns throughout the nation

iv. Subsidized transport- Railways offer subsidized transport facility to farmers to bring
produce to urban markets

v. Grading and standardization- Agricultural Produce (Grading and Marking) Act, 1937
legally enforced Agmark as certification mark employed by Directorate of Marketing
and Inspection. Such products are sold at higher price

vi. Dissemination of information- Electronic and print media are actively engaged in
offering market related info. to farmers, particularly related to price and market
behavior. E.g.- AIR, DD- Kisan, Krishi Darshan (longest running TV series in India- 53
years)

vii. MSP policy- Assurance to farmers that produce will be purchased by govt. at specified
price (24 agri. commodities). Farmers are free to sell produce at higher price in open
market. MSP purchases are kept as buffer stocks and distributed through PDS, and to
meet needs during periods of low output and scarcity

 Alternative marketing channels- Offer advance payments, sell directly to consumer

a. Apni Mandi- Punjab, Haryana, Rajasthan
b. Big Bazaar
c. Rythu Bazaar- Andhra Pradesh (vegetable and food market)
 d. Uzhavar Sandies- TN
e. Hadapsar Mandi- Pune
f. Direct sales contract with farmers by national, multinational companies (Reliance Retail)

Agricultural Diversification
 Re-allocation of farm’s productive resources to new activities or crops, which reduces market risk
 Diversification of crop production- Production of diverse variety of crops, shift to multi-
cropping system
 Diversification of production activity/ employment- Shift from farming to other activities

 Imp.
i. Increase income- Shift to production of high-value products
ii. Stable income- Risk from prices fluctuation decreased
iii. Beneficial for small, marginal farmers
iv. Meet demand for products other than food-grain

 Suggestions to make diversification more profitable

i. Provision of proper tech
ii. Facilities for food processing
iii. Finance for investment, technical skills
iv. Women participation

 Animal husbandry/ Livestock farming

i. Poultry- 42%
ii. Cattle- 25%
iii. Goats and sheep- 20%
iv. Combined with crop farming by rural families to supplement income
v. Significant in semi-arid and arid areas
vi. Provides employment to 70M rural people
vii. 30% of agri. output, 4% of total output
viii. Problems- Low productivity due to poor knowledge, deficient veterinary care

 Fisheries
i. 2nd largest producer in the world (10.8 MT in 2018)
ii. Kerala, Maharashtra, Gujarat, TN
iii. 5% of agri. output, 1% total output
iv. Provides employment to 14M
v. Widespread indebtedness among fishing community
vi. Suggestions- Provision of credit facilities, micro-financing through SHGs, availability of
upgraded tech

 Horticulture
i. 2nd largest producer of fruits and vegetables (Golden revolution- 1991 to 2003- N. Tutej)
ii. 33% of agri. output
iii. Employs 19% of total labor force
iv. Advantages- Grow on small farms, high value, multiple crops
v. Disadvantages- Higher input cost, limited market info, inadequate cold storage
*Bulk of acreage under horticulture has expanded at the cost of acreage under pulses, causing a severe
shortfall in supply of pulses. Resulted in decreased consumption (high prices). Pulses are an imp. source
of protein for bulk of households in India (veg. diet)

*Tamil Nadu Women in Agri- Project launched to train women in diverse farming techniques. Form
Farm Women's Groups and promote cottage and household production activities using their own funds

*Jamshedji Tata National Virtual Academy for Rural Prosperity- Impart operational training to nearly
10L rural people to run info kiosks (equipped with computers, scanners, printers and photo-copiers).
Provide services like emailing and video conferencing. By selling these services, operators of kiosks can
make a reasonable living

Organic Farming
 System of farming that relies upon use of organic inputs for cultivation
 Discards use of chemical inputs
 Focuses on maintaining soil health so that farming becomes a long period sustainable process,
along with an ecofriendly environment
 Advantages-
 Discards use of non-renewable resources
 Environment friendly
 Higher prices and exports
 Sustains soil fertility
 Healthier and tastier food
 Inexpensive tech for small and marginal farmers
 Involves labor-intensive process, so particularly advantageous to India (employment)
 Disadvantages-
 Lesser yield
 Shorter shelf life
 Lack of infra, marketing facilities
 Limited choice
 Less popular
 Need-
 Use of chemical inputs leads to soil degradation
 Import of fertilizers leads to huge burden on BoT
 Effectiveness of fertilizers decreases with constant use
 Features-
 Sustainable
 Indication of purity and careful handling
 Based on ecological principles of crop production
 Animal dung, crop residue, bio-fertilizers, bio-solids from agro-industries are major
sources of nutrients

Rural Development Programs

1. Pradhan Mantri Phasal Beema Yojana (Jan, 2016)
Provide insurance cover in case of failure of notified crops due to natural calamities, pests, etc.
Stabilize farmers’ income to ensure continuance of farming
2. Pradhan Mantri Gram Sinchai Yojana (July, 2015)
Attract investment in irrigation system, develop and expand cultivable land, minimize wastage of
water

3. Bharat Nirman Program (2005)

Targeted irrigation, rural water supply, rural roads, rural housing, rural electrification, and rural
telephones

4. Mission for Integrated Dvpt of Horticulture (2014-15)

Dvpt. of horticulture, fruits, vegetables, flowers, spices, bamboo, cashews, coconuts

5. National Mission for Sustainable Agri (2014-15)

Make agri more productive, sustainable, remunerative and climate- flexible

6. Soil Health-card Scheme (Feb, 2015)

Provided to all farmers in interval of 3 years, which would enable them to apply apt doses of
nutrients to improve soil health and fertility
 EMPLOYMENT

 Unemployment- People are able and willing to work at existing wage rate, but are not getting
work
 Worker- Individual engaged in some production activity. He contributes to GDP by rendering his
services
 Self-employed: Engaged in own business/ profession
 Hired worker: Render their services to others and get wages in return
 Casual workers: Daily wagers. They are not hired by employees on regular basis, not
given social security benefits and are generally unskilled
 Regular workers: They are on permanent payroll of employer, entitled to all social
security benefits and are usually skilled

 Labor supply- Amt. of labor that workers are willing to offer corresponding to a particular wage
rate. Measured in terms of man hours of work
 Labor force- No of workers (between 15 and 59 years) actually willing to work or actually
working, Measured in terms of no of persons
 Workforce- No of persons actually working. Doesn’t account for unemployed
Workforce = Labor force - No of Unemployed persons

 Participation rate- Percentage of population actually working

Total workforce
Participation rate= ×100
Total population

 Casualization- Percentage of casually hired workers in total work force tends to rise over time
 Informalization- Percentage of work force in formal sector declines and in informal sector rises
 Formal/ Organized sector- Includes all govt. dept., PSEs and pvt enterprises which hire 10+
workers. Workers are entitled to social security benefits, their economic interest is protected
through labor laws and they can form trade unions. They also have job security
 Informal/ Unorganized sector- Includes all farming and self- employment ventures and pvt
enterprises with < 10 workers

 Why study employment?

(i) Offers insight into quality and quantity of human capital (imp determinant of economic
growth)
(ii) Helps analyze significance of different sectors in growth process
(iii) Helps analyze social issues like social security of workers, exploitation, work
environment, etc.
(iv) Offers input for manpower planning. Understanding nature and extent of existing
employment can help plan future requirement of manpower across different sectors

Employment in India
 Work force- 46 Cr
 Male- 70%
  Female- 70%
 In rural areas, it is 70% and 30% in urban areas
 Female work force in urban areas is 14% compared to 26% in rural areas
 Low percentage of female workers-
a. Low female edu
b. In urban areas, job work for women is governed by family decisions rather than
individual’s own decision
c. Higher employment among women in rural areas is due to widespread rural poverty

 Participation rate in India- 50.3%

a. Urban areas- 43.5%
 Men- 69%
 Women- 16.2%
b. Rural areas- 53%
 Men- 77.3%
 Women- 26.7%
c. Conclusion-
 High dependency ratio
 High rate of participation but low level of productivity in rural areas
 High rate of participation for women in rural areas

 In India, self-employment is a significant source of livelihood

 Low literacy rate implying low acquisition of skill for wage jobs
 Diverse social environment across different regions leading to low workers mobility
 Underdeveloped economy, generating less jobs due to low investment level

 Occupational structure
 Primary sector- 46.9 %
 Tertiary sector- 31.1%
 Secondary sector- 22%

#Females are engaged more in primary sector than men because they are unwilling to migrate
#Tripura and Kerala have highest unemployment rate while Meghalaya and Chhattisgarh have lowest

 Casualization
 Risen from 23% in 197273 to 33% in 2015-16
 Occurred because bulk of self-employed workforce found in rural areas are disguised
employed. These marginal workers tend to migrate to urban areas where they are
employed only as casual workers. Also due to slow growth of formal sector and high
demand for casual workers in construction sector

 It was because of LPG policies that informalization rose in India. There was transformation from
controlled economy to market economy. Presently, only 10% of work force is employed in
formal sector. Also caused by relaxation of labor laws, allowing retrenchment
 Rural Unemployment
 Disguised unemployment- Occurs when no. of workers engaged in a job is much more than
actually required to accomplish it. It is rampant in Indian agri due to joint family system and lack
of job opportunities outside agri. Also, per person holding size continues to shrink with expansion
of family size
 Seasonal unemployment- Occurs simply because agri is a seasonal occupation. It depends on
conditions and methods of cultivation in different states

Urban Unemployment
 Industrial unemployment- Includes illiterate people who are willing to work in industries like
mining, transport, trade and construction activities. Principle causes are rapid rise in population,
conc. of industry in urban areas and tech intensive production methods
 Educated unemployment- Edu system is not job-oriented, it is degree-oriented. Increase in
employment opportunities has lagged behind increasing size of educated labor force

Common Types of Unemployment

 Open unemployment- Occurs when a worker is willing to work and has necessary ability, yet he
does not get work. He remains unemployed for full time
 Structural unemployment- Occurs due to structural changes in the economy, like change in tech
or in pattern of demand
 Underemployment- Situation where worker doesn’t get a full time job. Acc. to National Sample
Survey, a person is categorized as extremely underemployed if he works only up to 28 hours a
week. If a person works between 29- 42 hours a week, he is placed in the category of limited
underemployment
 Visible underemployment- People work less than standard hours of work in a day
 Invisible underemployment- People work full time but income is not proportional to their
abilities
 Frictional unemployment- Occurs due to imperfections in mobility of labor across different
occupations
 Cyclic unemployment- Occurs due to cyclic fluctuations in the economy

Causes of Unemployment
 Slow economic growth
 Rapid growth of population
 Dependence on agri- Seasonal occupation
 Lack of irrigation facilities
 Joint family system
 Decay of cottage and SSIs
 Low savings and investment- Bulk of capital has been invested in large scale industries where
there is high capital per unit of labor
 Limited mobility of labor

Consequences of Unemployment
 Economic-
a) Non-utilization of man power
b) Loss of output
 c) Low capital formation
d) Low productivity

 Social-
a) Low quality of life
b) Greater inequality
c) Social unrest
d) Class struggle

Suggestions
 Increase in production- Dvpt. of SSIs, encouragement of foreign trade
 Increase in productivity
 High rate of capital formation and decrease in capital output ratio
 Help to self-employed persons
 Edu reforms
 Labor- intensive technique of production
 Cooperative industries

Govt. Plans
1) Skill India, Make in India, Start-up India
2) Integrated Rural Dvpt Program, 1978-79- Agri, animal husbandry, cottage industries, fisheries
and sericulture developed
3) Training Rural Youth for Self- employment, 1979- Merged with Swarnajayanti Gram Swarozgar
Yojana in 1999
4) Rural Landless Employment Guarantee Program, Aug 1983- 100 days employment for at least
one member of rural landless household
5) Ntnl Rural Employment Program, 1980
6) Jawahar Rozgar Yojana, April 1989- Merged NREP and RLEGP. 30% employment reserved for
women. Renamed ‘Jawahar Gram Samridhi Yojana’ in 1999
7) Employment Assurance Scheme, 1993- Provide 100 days of unskilled annual labor to 2 members
of rural household in age group 18- 60. Merged with Jawahar Gram Samridhi Yojana and
Sampoorna Gram Rozgar Yojana in 2011
8) Nehru Rozgar Yojana, 1989- Provide wage employment, est. micro-industries and improve
housing in urban areas
9) Swarnajayanti Gram Swarozgar Yojana, 1999- Merged with NRLM in 2011
10) Swarnajayanti Shehari Rozgar Yojana, 1997- Comprises of 2 plans: Urban Self-employment
Program and Urban Wage-employment Program

Indicators of Quality of Employment

 Wages received
 Distribution of workers across different sectors and various types
 No of days casual workers are employed
 Productivity based on skill and edu

Variation in Employment across States

 Ratio of agri workers in work force
 Pressure of population on land
 Rate of urbanization and urban dvpt.
 Edu
 Participation rate for women
 INFRASTRUCTURE

 Support system of economic and social dvpt of a country

 Economic infra- Elements of support system which serve as driving force for production and
distri. activities in the economy
 Social infra- Elements of support system which serve as driving force for social dvpt of country.
It refers to human resource development
 Elements of economic change are an essential pre-requisite of growth. However, they wouldn’t
be of any use if bulk of population of country continues to be illiterate and suffers from disease
and sickness. This points to significance of social infra. Only when elements of social infra. join
elements of economic infra will process of growth and dvpt become a dynamic process

Economic Infra Social Infra

Directly supports economy and helps from within
Improves quality of economic resources, and raises
production, decreases cost
Exp. on this leads to increase in stock of physical
capital
Indirectly supports economy and helps from
outside
Improves quality of human resources, and raises
efficiency of manpower
Exp. on this increases stock of human capital

 Importance-
a. Promotes productivity: In primary sector, without permanent means of irrigation, actual
output in agriculture would remain lower than attainable output. Increases productivity in
secondary sector by relying on variety of sources of energy. In tertiary sector, transport
and comm. are vital
b. Induces investment: A developed network of highways would definitely induce
investment across all sectors of economy as it facilitates efficient movement of goods and
services across different regions of the country
c. Generates linkages in production: Developed means of transport and comm., ample
sources of energy and good banking and insurance facilities generate inter-industrial
linkages. It refers to a situation when expansion of an industry facilitates expansion of
another
d. Enhances size of market: Large-scale production possible. E.g. – Intro. of railways by
British
e. Enhances quality of life: Social institutions promote education, skill formation and
healthcare, which are essential parameters to enhance ability to work and living std. This
implies increasing efficiency and productivity
f. Facilitates outsourcing: A country having good infra emerges as a destination for
outsourcing. E.g. – India is an emerging global destination for call centers, study centers
and medical tourism
g. Induces FDI: It is instrumental in growth process in less developed countries as domestic
investment is low
h. Provides employment

*Smart cities provides core infra, possess a sustainable environment and provide decent quality of life

Energy
 Commercial sources- Coal, petroleum products, natural gas, electricity. Largely used for
commercial purposes. Have an established market of sale and purchase. Exhaustible. Command a
price in the market, domestic and international
 Non-commercial sources- Firewood, agri. and animal waste. Generally used in rural households
as consumer goods. Renewable. Do not command a price in the market; at best, there will be a
local market

 Conventional sources- Have a long history of knowledge and use. Limited and non-renewable
 Non-conventional sources- Have been discovered or explored only in recent past. Yet to gain
popularity. They are eco-friendly and abundant

 Coal
In 1950-51, production was 328 lakh tons, which increased to 6380 lakh tons in 2015-16
67% of total energy produced in India
Principle consumers- Thermal power stations, steel plants, cement factories, railways, fertilizer
factories, brick kilns
Indian coal contains large quantity of ash and generates less heat. This hampers efficiency

 Petroleum
Domestic annual production of crude oil has been stagnant at around 36- 38 million tons in the
last 7 years

 Natural gas
Used as raw material in fertilizer and petroleum products
Reserves found in Mumbai, Gujarat, Tripura, Andhra Pradesh, TN and Rajasthan
Liquefied and used as fuel in households
Commercial use by steel fabricators, fuel for cars and other light vehicles
Produced 32 billion cubic meters in 2016-17
Less capital intensive than thermal plants and shorter gestation time

 Electricity
Main sources- Thermal power stations (51% in 1950-51, 81% in 2016-17), hydroelectricity
stations (20%, against Brazil’s 93% and New Zealand’s 74%), atomic power stations (at
Kalpakkam, Narora and Tarapur)
Determines level of economic dvpt of country. Estimated that for GDP growth rate of 8% pa,
power supply must grow at 12% pa
Shift from hydrothermal has occurred because large reserves of coal have been found, and
installation of hydroelectric stations involves huge investment and long gestation lag

 Biogas
Obtained from gobar gas plants by using cow dung. Also converts gobar into manure. Till 2004,
365 lakh plants have been est., which produce biogas equivalent to 39 lakh tons of fuel wood
every year

 Solar energy

 Biomass
 Produces energy through plants and trees. Objective is to encourage afforestation for energy, so
that fuel for energy generation based on gas technique could be obtained. 643 MW capacity has
been installed

 Wind energy
8.6% of total energy
India ranks 4th after Germany, China, USA
TN has highest potential, followed by Maharashtra and Karnataka

 Small hydel power

Financial incentives announced to promote setting up of small hydel projects on waterfalls,
canals, small rivers and streams

Primary Sources of Energy Final Sources of Energy

Free gifts of nature, like coal and petroleum
Directly used as energy inputs for production of
goods and services
Can be converted into other forms of energy, like
coal to electricity
Not available as free gifts of nature. Obtained by
converting input into output, like electricity
Have to be transformed before being used
Used only as final sources of energy input. Cannot
be converted into other forms of energy

 Pattern of energy consumption in India

Different sources of energy are converted into a common unit known as million ton of oil
equivalent (MTOE)
Primary sources of energy (coal, lignite, petroleum and natural gas) have witnessed significant
reversal in their use pattern. Non-commercial use of these resources was more than was 36% in
1953-54, and increased to nearly 75% in 2015-16
Coal is principal source of primary energy in India, with its consumption amounting to 824 MT in
2014-15, from 95 MT in 1980-81
Consumption of electricity in agri sector has increased 500 times in 65 years

 Sectoral share of energy consumption

Ind. Sector- 37.8%
Transport- 22%
Agri- 21.9%
Households- 24.3%
Consumption of commercial energy is very low in agricultural sector, suggesting the dependence
on manual labor and use of hand operated tools and implements

 Challenges
Per capita consumption of power in India is 1/3 of world avg., 1/11 of USA’s
 Inadequate generation of electricity: Despite total installed power generation capacity of
346,619 MW, India is still struggling due to excessive load on distribution, low voltage,
voltage fluctuation, and power cuts. India needs to add 1 lakh MW against present
annual addition of 20,000 MW

 Slow dvpt of nuclear energy: Despite availability of infra, dvpt is slow due to absence of
Uranium and Thorium reserves. Only 3.6% presently
  Less production of hydroelectricity: Only 12.6%, due to erratic rainfall and poor
implementation, execution of existing hydroelectric projects

 Low capacity utilization: Under-utilization of production capacity of thermal power

stations. Capacity utilization indicated by plant load factor. In India, PLF = 75% in 2004
PLF = Electricity generated / Production capacity

 Transmission and distribution losses: In Delhi, 50%, while it is 20% in most states.
Arises due to backward tech and pilferage involving official staff

 Losses of electricity boards: They don’t have funds to make payment for electricity
purchased by them. In 2016-17, these boards suffered overall commercial loss of Rs.
40,295 Cr. Factors involved are theft of electricity, loss during transmission and
incorrect pricing

 Suggestions
 Increase production capacity
 Improve PLF
 Minimize transmission and distribution losses
 Improve supply of inputs to power plants
 Encourage privatization and FDI in power generation
 Dvpt of nuclear and renewable energy

 Govt.’s 3-dimensional strategy-

a. Accelerated exploitation of domestic conventional sources
b. High priority for conservation of petroleum products
c. Promote renewable sources of energy
 Health
 Good health implies increase in overall efficiency to handle difficult tasks, increase in mental
ability and increase in productivity of labor

 Dvpt of health services after independence

a) Decline in death rate- Down to 6.4 per thousand in 2016 from 27.5 per thousand in 1951
b) Reduction in IMR- From 146 per thousand in 1951 to 34 per thousand in 2016
c) Rise in life expectancy- Risen from 32 years in 1951 to 68.3 years in 2016
d) Control over deadly diseases- Malaria, TB, cholera, smallpox
e) Decline in under-5 mortality rate- Down from 248 per thousand in 1962 to 45 per
thousand in 2014

* Medical tourism to grow at rate of 30% 

*Female life expectancy is 70 years, for males it is 66.9 years

 Healthcare system in India

 Tier 1: Primary Healthcare Centers, Community Health Centers, Sub-centers
Small hospitals setup mostly in small towns and rural areas, managed by a single doctor
and auxiliary nursing midwife. Focus is on educating people on issues related to
healthcare and provides immunization facilities against infectious diseases. Preliminary
treatment is offered within manageable limits
 Tier 2: Secondary Healthcare Institutions
Have facilities for surgery, ECG, X-rays, etc. Located in big towns and district
headquarters
 Tier 3: Tertiary Healthcare Centers
High-end, fully-equipped medical centers of specialized medical facilities. Also include
educational and research centers, like AIIMS

*Global Burden of Disease- Indicator used to assess no. of premature deaths due to a particular disease
and duration of disability of persons suffering from it
* Health exp. is 15% of GDP in US and 5% in India
*Govt.’s share in health care exp. is 20% in India against 50% in USA

 Pvt sector health infrastructure

Accounts for more than 80% of total healthcare spending in India, 70% hospitals, 37% beds
78% rural and 81% of urban patients seek pvt OPDs
58% rural and 62% urban patients go to pvt hospitals
Prominent role after LPG, 1991 in diagnostics, pharmaceuticals, medical edu, super-specialty
hospitals

 Challenges
 Unequal distribution of healthcare services
 Communicable diseases
 Poor management- Health personnel are grossly inadequate, particularly in rural areas
 Privatization- No. of pvt hospitals is surging. Consequently, healthcare is becoming
expensive
 Poor nutrition- 15.2% of world’s undernourished
  Poor upkeep and maintenance
 Poor sanitation level- Sanitation infra has two functions: to make clean surroundings and
to arouse awareness of sanitation among masses and encourage their participation in
awareness programs. 30% of houses have no toilet facilities in urban areas. Thus, slum
dwellers are highly prone to disease and disasters

 Indian Systems of Medicine

Systems of medicine which are considered to be Indian in origin, or which have come to India
from outside and got assimilated into Indian culture, namely Ayurveda, yoga, Unani, Siddha,
naturopathy and homeopathy

*Rural-urban and Rich-poor divide

 70% of country’s population lives in rural areas, while 80% of hospitals are located in urban areas
 Access to proper medical care is about 25%
 Access to specialized medical care is insignificant
 Rich spend only 2% of income on healthcare, while poor spend around 12%

*Poor levels of health in India due to high birth rate (20.4 per thousand in 2016), malnutrition, lack of
safe drinking water and sanitation facilities, and lack of adequate housing facilities and clean fuel

 Government Programs
a. Ayushman Bharat, 2018-19
1.5 lakh health and wellness centers set up. Ntnl Health Protection Scheme to cover 10
lakh poor and vulnerable families, providing coverage up to Rs. 25 lakh/ family pa.
Objective- Increase productivity, employment, well-being; decrease wage loss,
impoverishment

b. Swacch Bharat Abhiyan, Oct. 2, 2014

Fulfil Gandhi’s dream of hygienic, clean India. Aimed at universal sanitation coverage
and ODF tag by Oct. 2, 2019. Thus, 8 states and 2 UTs have been declared ODF (Sikkim,
HP, Kerala, Haryana, Uttarakhand, Chhattisgarh, Arunachal, Gujarat, Chandigarh,
Daman an Diu)

c. PM Ujjwala Yojana, May, 2016

Objective- Distribute free LPG connections to women belonging to 5 Cr. BPL families.
EMI facilities also provided for stoves and refill costs. Under ‘Give It Up’ Campaign, 75
lakh middle class households voluntarily gave up cooking gas subsidy

d. Mission Indradhanusha, Dec. 25, 2014

Immunize all children, expecting women against 7 vaccine-preventable diseases
(diphtheria, whooping cough, tetanus, polio, TB, measles, hepatitis-B) by 2020

e. Ntnl Health Mission

Subsumed Ntnl Rural Health Mission, 2005 and Ntnl Urban Health Mission, 2013
(population > 30k) for providing free healthcare though nationwide network of public
health facilities. Has enabled significant improvement in creation of new facilities, infra
and improved availability of drugs. Has facilitated comprehensive healthcare and
improved quality of life of children through early detection
 SUSTAINABLE ECONOMIC DEVELOPMENT

 Environment includes water, air and land and interrelationship which exists among and between
water, air, land and human beings and other creatures and property
 It has 2 parts-
 Physical (abiotic) element [land, water, climate, mountain]
 Living (biotic) elements

Significance/ Functions of Environment

 Supplies resources for production
 Sustains life
 Assimilates waste
 Enhances quality of life

*Carrying capacity- Situation when resource exploitation doesn’t exceed regeneration and generation of
waste does not exceed absorption capacity. If this is challenged, environment is said to undergo crisis

Basic Problems Related to Environment

I. Pollution- Activities of production and consumption which challenge purity of air and water, and
thereby pollute the environment
 Air pollution- Caused by smoke emitted by industries (particularly those using coal),
poisonous gases emitted during chemical treatment of materials, and vehicular emissions

 Water pollution- Caused by domestic and industrial wastes flowing into streams and
rivers, agricultural run-off mixed with pesticides and insecticides, and ash discharged by
thermal power plants

 Noise pollution- Unwarranted and unwanted sounds generate noise pollution and are
treated as a social evil. Caused by sound produced by vehicles, industrial machines and
household appliances

 Soil pollution- Adverse changes in physical, chemical and biological and properties of
soil

II. Excessive exploitation of natural resources- In order to achieve economic growth, humans need
natural and physical capital. As a result of increasing production, there is depreciation of both.
While provisions are made for replacement of physical capital, degradation of natural capital is
often ignored
 Deforestation- Trees are felled to meet growing demand for wood and other forest
products by industries. Multipurpose river valley projects, industrialization (leading to
urbanization, which induces deforestation for development of townships) and explosive
population size also contribute to demand for firewood and timber
  Degradation of land- Loss of fertility/ productivity of land caused by soil erosion (strong
winds or floods result in loss of upper layer of soil which contains major nutrients),
alkalinity and salinity of soil, and water logging. Also caused by desertification
(overgrazing)

Social Forestry
Aims at:
 Restoring/ rehabilitating forests (reversing deforestation)
 Spreading vegetation cover on land
 Encouraging commercial production of raw material for paper and match industry so that
existing forests are not invaded
 Encouraging growth of fast growing trees to meet requirements for wood
 Generating employment opportunities through afforestation

Causes of Environmental Degradation

 Population explosion
 Widespread poverty
 Increasing urbanization
 Increasing use of insecticide, pesticides and chemical fertilizers
 Rapid industrialization
 Multiplicity of vehicles
 Disregard for civic norms

State of Environment in India

 Dichotomy of environmental degradation-
a. Poverty is principle cause in rural areas. It leads to tree felling as it is an economic
compulsion for millions of poor
b. Expanding production activities is the principle cause in urban areas. Industrial waste
pollutes air and water, while increasing number of vehicles is generating noise pollution

 How to save the environment?

a. Social awareness
b. Population control
c. Enforcement of the Environment Conservation Act- The Environment (Protection) Act
was passed in 1986. Its objective is to check deterioration in quality of environment
d. Afforestation campaign
e. Control over industrial and agricultural pollution
f. Water and waste management
g. Improvement in housing

Pollution Control Boards

CPCB was est. in Sept. 1974. Similar boards were set up at state level to address major environmental
concerns in India. They specify benchmarks of tolerable range of effluent and emissions, spread
awareness among people about extent and possible dangers of environmental pollution, and offer
technical assistance relating to improvement of environment
 Sustainable Development
 Process of economic development which aims at raising quality of life of both present and future
generations without threatening natural endowment and environment
 Features
a) Sustained rise in real per capita income and economic welfare
b) Rational use of natural resources
c) Ability of future generations to fulfill their needs not impaired
d) Check on pollution

 Strategies for sustainable development

a) Input-efficient technology- Output is maximized to moderate stress on resource
endowment per unit of input
b) Use of environment-friendly sources of energy
c) Integrated rural development- Restricting migration leads to lower transportation needs
and reduces stress on social infrastructure
d) Shift to organic farming
e) Manage wastes
f) Stringent laws on disposal of chemical effluents
g) Awareness to conserve natural assets for inter-generational equity- This refers to equal
opportunities for present and future generations
h) Use of public transport

Economic Growth Economic Development Sustainable Development

Long term increase in real per
capita income
Generally used in reference to
developed economies
Ignores distribution of wealth
Ignores protection of
environment
Doesn’t account for exploitation
of natural capital
Long term increase in real per
capita income and economic
welfare
Generally used in reference to
underdeveloped economies
Doesn’t
No special emphasis on
environmental protection
Doesn’t account for exploitation
of natural capital
Increase in real per capita
income and economic welfare of
present and future generations
Used in reference to both
Doesn’t
Special emphasis on
environmental protection
Emphasizes rational utilization of
natural capital to safeguard
interests of future generations

Stress on social awareness and

Doesn’t account for structural,
technical and institutional
changes in economy
Special stress on structural,
responsibilities as crucial inputs
technical and institutional
of development over longer
changes in economy
periods of time

 Biodiversity- Different forms of plants, animals and microorganisms. Imp.- Create ecological
system, natural beauty, production of medicines, increase agricultural productivity
 Forest (Conservation) Act, 1980- Check diversion of forest land for any other purpose. National
Afforestation and Eco-development Board set up in 1992
 Environment Impact Assessment
 Clean Dvpt. Mechanism- Defined in Kyoto Protocol for emission reduction
 Green NI= NI – Depreciation of natural capital [Rise implies sustainable dvpt]
 DEVELOPMENT EXPERIENCE OF INDIA, PAKISTAN AND CHINA

Strategy of Growth

India (1947) Pakistan (1947) China (1949)

Relied on Public sector as core sector of economy

‘Inward- looking’ strategy- Protection of domestic industries

Greater imp now accorded to FDI rather than domestic investment

Mixed economy Adopted ‘Statism’ as model of growth-

a. Ownership of all resources
Public sector was assigned key role of kick-starting growth vested with the state
process. This was because Partition had rendered both b. State decided what to
economies as laggard. Both required a big push of investment, produce, how to produce and
which only govt. could afford for whom to produce

Brought all critical areas of production

Pvt sector was assigned secondary role
activity under govt. control

Limited integration with other global economies Closed economy

Now an open economy. It is largely

Now assign greater imp on pvt sector dependent on external demand
(export-oriented)

Economic reforms started in Economic reforms started in

Economic reforms started in 1978
1991 1988

GDP Growth
I. China
 Great Leap Forward, 1958
a. Mao Tse-tung (Zedong)
b. Largest man-made famine
c. Aim- To accomplish economic and industrial dvpt at faster rate
d. Focus on widespread industrialization of economy by encouraging people to set
up household industries
e. Induce domestic investment
f. No checks and restrictions
 Great Proletarian Cultural Revolution
a. 1965- 75
b. Students, intellectuals sent to rural areas and forced to do manual work
c. Quell dissent against Mao
d. Destruction of economy, culture
 2017- $ 12.4 trillion
 2nd largest economy in the world
  PCI- $ 8690
 From 1979 to 2015, avg. annual GDP growth rate- 9%
 Shift from centrally planned to market economy
 Focus on export- related domestic production
 Availability of cheap labor
 Influx of  FDI by est. of SEZs, 100% equity for foreign investors and free flow of FDI in
retail sector
 2010- Largest exporter in the global market
 Recent slowdown-
a. Slowdown in global economies
b. Slow growth of domestic demand due to rise in propensity to save
c. Increase in corruption and economic crime
d. Massive migration of skilled labor to rest of the world
e. Domestic investors looking for opportunities of investment in economies where
govt. intervention is minimum and political, social liberty is maximum
f. Environmental degradation

II. India
 In 2017,GD- $ 2.5 trillion
 PCI- $ 1800
 From 1951 to 2017, avg. annual growth rate of economy- 5.9%
 GDP growth showed substantial rise after 1991 NEP
 Focus on greater integration of domestic economy with global economy on the basis of
free play of market forces
 Recent slowdown in GDP growth
a) High rate of inflation, leading to high iR and therefore low investment
b) Policy paralysis due to political instability
c) Frequent scams and scandals, leading to market pessimism
d) Low FDI due to poor credit rating of Indian economy
e) Inefficient infrastructural facilities

III. Pakistan
 In 2017, GDP- $ 271.1 billion
 PCI- $ 1580
 Between 1962 to 2017, avg. annual growth rate- 4.15%
 Breakthrough in GDP growth in mid-1980s due to economic reforms focusing on FDI
and greater participation of pvt sector
 Slowdown in 2008
i. War of terror- Erosion of business confidence of domestic and foreign investors
ii. Corruption and political instability

#Relative success of China is credited to political stability. The country has shown strong political will to
use natural resources in best interest of the nation

Structure of Growth
 Primary sector is no longer principal contributor to GDP in any of them
 In terms of sectoral contribution to GDP, economies of India and Pakistan rely more on tertiary
sector while China relies on secondary sector
 Lesser emphasis given to industrial expansion in India and  Pakistan, compared to China
 Expansion of services sector in India and Pakistan is due to fast integration of economies with
global economy
 In terms of employment, people in India have stuck to primary activities despite substantial
reduction in percentage contribution to GDP. This suggests that while there has been substantial
increase in output outside agri, there has not been proportionate increase in employment
opportunities (leads to ‘jobless growth’ process)

Demographic Profile
1. Population
 India- 1.2 billion people, 18% of world population
 China- 1.34 billion people, 20% of world population
 Pakistan- 0.1 billion people
 Large population is hindrance to growth process due to huge amount of maintenance
investment. This implies low development investment
 2 demographic parameters are distinctly in favor of China- moderate population growth
rate and low density. It adopted the ‘One Child Policy’ in 1979

2. Population growth rate

 India- 1.76% p.a.
 Pakistan- 1.8% p.a.
 China- 0.47% p.a.

3. Population density
 India- 382 persons/ km2
 China- 143 persons/ km2
 Pakistan- 225 persons/ km2
 Lower density implies lesser stress on country’s natural resources, raising its ability for
sustainable development

4. Urbanization
 India- 31.2%
 China- 51.3%
 Pakistan- 37.2%

5. Sex ratio
 India- 940
 China- 950
 Pakistan- 952

6. Life expectancy at birth

 India- 67.7 (male), 70.1 (female)
 China- 74.8 (male), 77.8 (female)
 Pakistan- 65.5 (male), 67.5 (female)

7. Age dependency ratio

  India- 42% (young), 9% (old)
 China- 24.6% (young), 15% (old)
 Pakistan- 57% (young), 7.4% (old)

Human Development
 2017 HDI
a. China- 0.752
b. India- 0.640
c. Pakistan- 0.562
d. Higher HDI ranking for China is mainly due to large GDP per capita. It doesn’t take into
account liberties of life like political/ social liberty

 Percentage of undernourished population

a. China- 11%
b. India, Pakistan- 20%

 IMR
a. India- 37.8%
b. Pakistan- 50.4%
c. China- 11.8%
 MMR
a. China- 27/ lakh
b. India- 174/ lakh
c. Pakistan- 178/ lakh

 Access to improved sanitation

a. China- 76.5%
b. India- 39.6%
c. Pakistan- 63.5%

 Access to improved sources of water

a. Pakistan- 91.4%
b. India- 94.1%
c. China- 95.5%

Common Success Story of India and Pakistan

 Succeeded in doubling their per capita incomes
 Reduced absolute poverty
 Food production successfully kept pace with rise in population
 Improved nutritional status- Daily caloric and protein intake per capita has risen by 1/3

Common Failures of India and Pakistan

 Relatively inward-looking economic policies and high protection did not allow India and Pakistan
to take advantage of globalization
 Controls continue to be preferred option rather than freedom of choice to producers, consumers
 Tax evasion
 Poor fiscal management- Fiscal deficit persists around 7- 8% of GDP
  Large proportion of tax revenue spent to meet defense exp and internal debt servicing
 Deficient urban services
 Wide lag between policy formulation and implementation

India's Edge over Pakistan

 Skilled manpower and R&D institutions
 Export of software
 HCF, accompanied by market- friendly economic policies
 Indian scientists excel in areas of defense technology, space research, electronics and avionics,
genetics, etc.
 Investment in education- Adult literacy rate, female literacy rate, gross enrolment ratio at all
levels and education index

Pakistan’s Edge over India

 Migration of workforce from agriculture to industry and from rural to urban areas is greater
 BPL population is 29.5%
 External trade has expanded. Trade- GDP ratio in Pakistan is 20%, while that of India is 10%
 Efficiency of investment in Pakistan has been higher

Re-Emergence of Poverty in Pakistan

 Unstable institutional reforms in agri resulted in its volatile performance, and high vulnerability
to climatic conditions
 For forex requirements, Pakistan relied largely on remittances from abroad and volatile agri
exports
 Lack of political stability led to huge public exp on law and order
 Funds allocated to build a strong defense system resulted in cut in developmental exp

China's Edge over India

 Chinese reform process become more comprehensively during 1980s
 India focused more on GDP growth while China's initiative of focused on poverty alleviation.
Thus, poverty declined by 85% from 1978 to 1989 while it was only 50% in India
 Restructuring of Chinese agri- Commune system of farming (collectivized agri implemented in
1950s- households organized into teams, which formed bridges, which further formed
communes- peasants pooled land to create larger fields) was abolished. Instead, households were
allotted land for individual cultivation. In India, however, land reforms have been far less
effective
 Global exposure to the economy- China allowed foreign investors 100% equity investment,
freedom to hire and fire workers and lucrative infrastructure

*Essential components of Human Development-

(i) Equity (iii) Productivity
(ii) Sustainability (iv) Empowerment