Economic and

Social Issues
 ESI Notes 1 – Growth and Development Intro
Economic Growth is a narrower concept than economic development. It is an increase in a countrys real level of
national output which can be caused by an increase in the quality of resources (by education etc.), increase in
the quantity of resources & improvements in technology or in another way an increase in the value of goods and
services produced by every sector of the economy.
Economic Growth can be measured by an increase in a country’s GDP (gross domestic product). Economic
development is a normative concept i.e. it applies in the context of people’s sense of morality (right and wrong,
good and bad). The definition of economic development given by Michael Todaro is an increase in living
standards, improvement in self-esteem needs and freedom from oppression as well as a greater choice.
The most accurate method of measuring development is the Human Development Index which takes into
account the literacy rates & life expectancy which affects productivity and could lead to Economic Growth. It
also leads to the creation of more opportunities in the sectors of education, healthcare, employment and the
conservation of the environment. It implies an increase in the per capita income of every citizen.
ECONOMIC GROWTH
The modern conception of economic growth began with the critique of Mercantilism, especially by the
physiocrats and with the Scottish Enlightenment thinkers such as David Hume and Adam Smith, and the
foundation of the discipline of modern political economy. It is an increase in the value of goods and services
produced by an economy. It is conventionally measured as the percent rate of increase in real gross domestic
product, or GDP.
Growth is usually calculated in real terms, i.e. inflation-adjusted terms, in order to net out the effect of inflation
on the price of the goods and services produced. In economics, “economic growth” or “economic growth
theory” typically refers to growth of potential output, i.e. production at “full employment” rather than growth of
aggregate demand. Economic growth is the increase of per capita gross domestic product (GDP) or other
measure of aggregate income. It is often measured as the rate of change in real GDP.
Economic growth refers only to the quantity of goods and services produced. Economic growth can be either
positive or negative. Negative growth can be referred to by saying that the economy is shrinking. Negative
growth is associated with economic recession and economic depression. In order to compare per capita income
across multiple countries, the statistics may be quoted in a single currency, based on either prevailing exchange
rates or purchasing power parity.
To compensate for changes in the value of money (inflation or deflation) the GDP or GNP is usually given in
“real” or inflation adjusted, terms rather than the actual money figure compiled in a given year, which is called
the nominal or current figure.
Economists draw a distinction between short-term economic stabilization and long- term economic growth. The
topic of economic growth is primarily concerned with the long run. The short-run variation of economic growth
is termed the business cycle.
The long-run path of economic growth is one of the central questions of economics; despite some problems of
measurement, an increase in GDP of a country is generally taken as an increase in the standard of living of its
inhabitants.
Over long periods of time, even small rates of annual growth can have large effects through compounding (see
exponential growth). A growth rate of 2.5% per annum will lead to a doubling of GDP within 29 years, whilst a

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growth rate of 8% per annum (experienced by some Four Asian Tigers) will lead to a doubling of GDP within
10 years. This exponential characteristic can exacerbate differences across nations.
India’s Growth Strategy:
India’s Growth strategy has evolved over successive five year plans. It reflected the growing strength of our
economy, structural transformation taking place in the domestic economy and also developments in the world
economy. In the early stages of planning, government was viewed as the principal actor in development
exercising strict control over private investment, ensuring a dominant role for the public sector in all important
industries.
Trade policy was inward oriented and it focussed on industrial development through import substitution. The
limitations of this policy became evident by the end of the 1970s and early 1980s. It was realized that these
policies reduced efficiency and competitiveness and economic growth was much lower than targeted. Some
efforts were made to reform the system in the second half of the 1980s by trying to remove the shortcomings in
our development strategy. In 1991 a wide ranging programmes of economic reforms aimed at decontrolling and
de-bureaucratizing the economy was initiated.
The Indian economy has responded well to change in policy direction. GDP growth in the post reform period
has increased from an average of about 5.7 percent in the 1980s to an average of about 6.1 percent in the Eighth
and Ninth Plan periods, making India one of the ten fastest growing countries in the world.
Economic Growth is the basic aim:
The basic aim of economic planning in India is to bring about rapid economic growth through the development
of agriculture, industry, power, transport and communication and other sectors of the economy. Increase in real
national income is taken as the basic measure of economic growth. Accelerating the growth rate of the economy
with stable prices is central to the attainment of a number of objectives such as poverty reduction, employment
generation and so on.
Rapid growth has strong poverty reducing effects especially when it is complimented by a public policy which
is sensitive to the needs of the poor. Accelerated growth will 6 also help to increase employment and through
that, spread of income generation and poverty eradication. However, the linkage between growth, employment
and poverty reduction depends crucially upon the sectorial pattern of growth and oh the degree to which the
poor sections of the population and the backward regions of the country are integrated into the growth process.
The growth objective also subsumes a number of subsidiary objectives which have, at one time or another, been
explicably identified as objectives in the Five Year Plans.
Agricultural development, industrialisation, productivity growth and infrastructural development are examples
of such subsidiary objectives.
The objective of economic growth demands that most of these subsidiary objectives are met in order to achieve
the primary objective of accelerating the overall economic growth. However, it must be recognised that the
growth rate of the economy is probably the most important summary measure of the degree of success of the
development strategy and macroeconomic management.
Economic growth is the outcome of numerous factors interacting with each other. In a developing economy like
India, which is constrained by lack of resources, capital accumulation or investment is the most important factor
for increasing the productive capacity of the economy as well as for improving the productivity of the other
factors of production. Thus, the Indian Five Year Plans have emphasized on investments as well as on the
allocation of investible resources among different sectors.

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Growth Performance in the Five Year Plans:
The growth performance of the Indian economy, relative to the targets in the various plans, is given in Table. It
can be seen from the table that except for the Third and Fourth Plans, the economy has performed better than
the target in five of the nine plans, and even in the Second Plan, the gap was not large.
During the Third and Fourth Plans, the shortfalls were largely due to exogenous shocks that could not possibly
be predicted. The Third Plan witnessed the drought years of 1965 and 1966, and the Indo-Pakistan war of 1965.
The Fourth Plan experienced three consecutive years of drought (1971-1973) and the first oil-price stock of
1973. It may be noted that since the Fourth Plan, the growth rate of the economy had improved steadily until the
Ninth Plan. The growth rate has increased to 6.02 per cent in the Seventh Plan and further to 6.68 per cent in the
Eighth Plan. However, in the Ninth Plan the growth rate has come down to 5.35 per cent. This shows that the
Indian Economy has responded well to the changes in policy direction introduced since 1991.

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 ESI Notes 2 – National Income Accounting
National Income accounting or NIA refers to methods or techniques used to measure the economic activity in
the national economy as a whole. As one can calculate income for a single person or an entity the same can be
done for a country also.
Significance of National Income Accounting:
International Comparison: The National Income Accounting measures growth rate and development of nations
which can be used to compare standard of living of different countries.
Business Decision: It reflects the relative contribution and potential of each various of the sectors of the
economy which guides the business class to plan for future production.
Policy Formulation: It throws light on the distribution of income and resources in the economy which helps
government in proper allocation of resources to bring equality and development in nation.
Policy Evaluation: The income accounting identifies specific economic achievements and failures which helps
people of nation in evaluating the policies of governments. National statistics gives clear picture of how the
national expenditure is divided into investment and consumption.
Annual Budget: It shapes the budgetary policy of the Government makes the borrowing and tax policy in order
to neutralize the fluctuations of income and employment. Government takes to deficit or surplus budget to arrest
depression or inflation in an economy.
Concepts of National Income-:
Over a period of time four ways to calculate the income of a nation have been developed by the economists.
These four ways to calculate the national income of a nation are GDP, GNP, NDP and NNP.
GDP or Gross Domestic Product
GDP or Gross domestic product refers to total market value of all final goods and services produced in an
economy in a one year period. For India, this calendar year is from 1st April to 31st March. This means it
measures the value of final goods and services produced within a geographic boundary regardless of the
nationality of the individual or firm.
It refers to only final output of such goods and services. The rule that only finished or final goods must be
counted is necessary to avoid double or triple counting of raw materials, intermediate products, and final
products. For example, the value of automobiles already includes the value of the steel, glass, rubber, and other
components that have been used to make them. To be precise, we define the following:
a. Final Output: Goods and Services purchased for final use.
b. Intermediate Goods/Factors of Production/Raw Materials: Products used as input in the production of
some other product. There are two ways to take in account double counting:
1. Calculate only the value of the final product.
2. Calculating the value added at each stage of production, from the beginning of the process to the end.
Specifically, it is derived by subtracting the value of the intermediate good from the value of the sale.

Real GDP and Nominal GDP

Nominal GDP refers to current year production of final goods and services valued at current year prices.

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Real GDP on the other hand refers to the current year production of goods and services valued at base year
prices. Such base year prices are constant prices.
Real GDP is a much better way to calculate the GDP because in a particular year GDP may be bloated up
because of high rate of inflation in the economy. Real GDP therefore allows us to determine if production
increased or decreased, regardless of changes in the inflation and purchasing power of the currency.
The concept of base year has been covered in detail in subsequent sections.
GNP or Gross National Product
The concepts of GNP or Gross National Product and GDP are closely related. As mentioned before, GDP
reflects the production of goods and services produced within the boundaries of the country by both the citizens
and the foreigners. The focus of GDP is on where the output is produced rather than who produced it. On the
other hand GNP is a measure of the value of output produced by the nationals of a country irrespective of the
geographical boundaries of a nation. It refers to the output of Indian citizens both within India and in all the
countries of world.
To make it simpler, a few examples have been considered here. The Microsoft is a US based firm. When it
opens up a production utility in India, value of output from that utility is added to India’s GDP, but it is not
added while calculating GNP of India.
Similarly, when Indian companies such as Infosys or TCS produce services in the US, the value of those
services are not added in the Indian GDP but they are utilized while calculating the Indian GNP. GDP is about
where production takes place. GNP, on the other hand, is about who produces them.
GNP = GDP + Net Factor Income from Abroad. In case of an economy with great levels of inflows of FDI
and very less outgoing FDL the GDP would generally be more than the GNP. On the other hand if in an
economy, more of its nationals move abroad and generate economic activity when compared to foreigners those
who come in and perform any economic activity its GNP would be larger than its GDP. In India’s case, GNP is
lower than its GDP as net income from abroad has always been negative in India.
Even though GDP is a figure which is prominently used by economists across the world, some economists
criticize it for not reflecting the true state of a nation’s economy. GDP takes into account the profits earned in a
nation by overseas companies that are remitted back to foreign investors. If these remitted profits are very large
compared with earnings from the nation’s overseas citizens and assets, the GNP will be significantly below
GDP. The difference between GDP and GNP of a nation also reflects how much the outside world is dependent
on its products and how much it depends on the world for the same.
Net Factor Income from Abroad
Net Factor Income from Abroad (NFIA) is the difference between the aggregate amount that a country’s
citizens and companies earn abroad, and the aggregate amount that foreign citizens and overseas companies
earn in that country.
In short, Net Factor Income from Abroad = GNP - GDP. Net foreign factor income in most of the countries is
very small since factor payments earned by citizens and those paid to foreigners more or less offset each other.
Why GDP is most acceptable indicator worldwide?
GDP growth (as a measure of economic growth) is a major contributor to welfare and GDP tends to be
correlated with several other measures of ‘development, such as literacy and healthcare provision.

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As currently defined, it has a clear methodology and is relatively easy to calculate.
Since it is a monetary/mathematical/accounting calculation with an established methodology, it is objective (in
contrast, such things as ‘happiness’ and ‘political freedom’ are subjective and difficult to measure).
It is widely used and all GDP calculations are made using broadly the same methodology. This facilitates cross-
country and over-time comparisons. Given its long history and standard methodology it is reasonably well-
understood by policy-makers.

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 ESI Notes 3 – Concept of Depreciation and Factor Cost

In the process of production, all machines and equipment used to produce other goods, are subject to some wear
and tear. In economic parlance, this loss of capital which every economy has to suffer is called as Depreciation.
The part of capital goods production in economy must be devoted to replace this wear and tear. Otherwise, the
productive capacity of a nation would be depleted. This replacement of the capital used is capital consumption
allowance.
In this scenario, the investment expenditure of the firms is made up of two parts. One part is to buy new capital
goods and machinery for production. It is called Net Investment because the production capacity of the firms
can be expanded. Another part is spent on replacing the used-up capital goods or the maintenance of existing
capital goods. The expenses incurred for this are called depreciation expenditure.
The total investment by firms comprising these two amounts is called Gross Investment.
Gross Investment = Net investment + Depreciation or, Net Investment = Gross Investment - Depreciation.
The Net investment increases the production capacity and output of a nation. This can easily be verified at the
level of a single plant: the number of new machines installed in any given year must be greater than the
machines that have been used up during that year.
The governments of the economies decide and announce the rates by which assets depreciate and a list is
published, which is used by the different sections of the economy to determine the real levels of depreciations in
different assets.
NDP or Net Domestic Product
Net Domestic Product (NDP) is the GDP calculated after adjusting the value of the value of ‘depreciation’. This
is, basically, net form of the GDP, i.e. GDP minus the total value of the ‘wear and tear’ (depreciation) that
happened in the assets while the goods and services were being produced.
NDP = GDP - Depreciation
NDP of an economy is always less than it’s GDP, because the Depreciation can never be reduced to zero and
will always be positive.
NNP or Net National Product
The Net national product (NNP) is equal to gross national product (GNP) minus Depreciation.
NNP = GNP - Depreciation
The concept of NDP and NNP are not used to compare different economies because the method of calculating
depreciation varies from nation to nation.
The concept of Market Price and Factor Cost
Market price refers to the actual transacted price of goods and services. It includes the indirect taxes which raise
the prices and subsidies which lower the price
Factor cost refers to cost of all factors of production used or consumed in producing goods and services. It
includes rent for land interest for capital, wages for labour and profit for entrepreneurship. It is actual

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production cost at which the goods and services are produced by firm. Thus, the indirect taxes are excluded and
subsidies by government are included while calculating factor cost.
In other words, Factor Cost (FC) = market price - Net Indirect Taxes.
Where Net Indirect Taxes (NIT) = Indirect Taxes - Subsidies
Therefore, Factor Cost = Market Price - Indirect Taxes + Subsidies
Using this concept, the GDP at factor cost can be calculated by subtracting Net
Indirect Tax from GDP at Market Price.
Or, GDP at Factor Cost = GDP at Market Price - Net Indirect Tax
Or, GDP at Factor Cost = GDP at Market Price - Indirect Tax + Subsidies
Similarly, GNP at Factor Cost = GNP at Market Price - Net Indirect Tax
NDP at Factor Cost = NDP at Market Price - Net Indirect Tax
NNP at Factor Cost = NNP at Market Price - Net Indirect Tax
National Income (NI)
The National income is a measure of the sum of all factor incomes earned by the citizens of a country for their
land, labour, capital, and entrepreneurial talent, whether within the country or abroad. It is equal to the Net
National Product (NNP) at Factor Cost. It is obtained, as explained above, by deducting Net Indirect Tax from
NNP at Market Price.
National Income at Factor Cost = NNP at Market Price - Indirect Taxes + Subsidies
The reasons for choosing NNP at factor cost as National Income are:
NNP shows the income earned by all citizens of country. This makes sense, since the earnings of foreigners
should not be included in the India’s national income. Thus NNP is preferred over NDP.
Factor Cost is used because Net Indirect taxes like sales taxes, excise taxes are not the payments for factors of
production.
There is lack of uniformity in taxes among the countries. The goods are not printed with their prices in
developing countries like India.
Transfer Payments
Transfer payments refer to the payments made by the government to individuals for which there is no economic
activity produced in return by these individuals. A few examples of transfer payments include old age pensions,
scholarships etc.

ESI Notes 4 – Personal Income and National Income

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Personal income includes all income, which is received by all the individuals in a year. It also includes transfer
payments such as LPG subsidy. The welfare payments are received by households, but they are not elements of
national income because they are transfer payments.
Similarly, in national income accounting, some income is attributed to individuals, which they do not actually
receive, such as undistributed profits, employee’s contribution for social security, corporate income taxes etc.
These are part of national income but are not received by individuals. Therefore, they are to be deducted from
national income to estimate the personal income. The Personal income thus is:
PI = NI + transfer payments - Corporate retained earnings, income taxes, social security taxes.
Disposable Income (DPI)
Disposable personal income refers to the amount which in actual is at the disposal of individuals to spend as
they like. It is the amount which is left with the individuals after paying personal taxes such as income tax,
property tax, professional tax etc.
Therefore, Disposable personal income = Personal income - personal taxes.
DPI = PI - Personal Taxes.
This concept is very useful for studying and understanding the consumption and saving behaviour of the
individuals. It is the amount which households can spend and save.
Disposable income = Consumption + Savings
Factors affecting National Income
Several factors affect the national income of a country. Some of them have been listed below:
Factors of Production: Normally, the more efficient and richer the resources, higher will be the level of
National Income or GNP Land: Resources like coal, iron and timber are essential for heavy industries so that
they must be available and accessible.
In other words, the geographical location of these natural resources affects the level of GNP.
Capital: Capital is generally determined by investment. Investment in turn depends on other factors like
profitability, political stability etc.
Labour and Entrepreneur: The quality or productivity of human resources is more important than quantity.
Manpower planning and education affect the productivity and production capacity of an economy.
Technology: This factor is more important for Nations with fewer natural resources.
The development in technology is affected by the level of invention and innovation in production.
Government: Government can help to provide a favourable business environment for investment. It provides
law and order, regulations.
Political Stability: A stable economy and political system helps in appropriate allocation of resources. Wars,
strikes and social unrests will discourage investment and business activities.
Comparing National Income across Countries

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To compare GDP between two countries having different currencies in use, GDP figures must first be converted
into a common currency. The conversion of currency can be done using exchange rates. These exchange rates
express the national currencys quotation in respect to foreign ones. For example, if exchange rate of dollar is 60
Rupees then the Indian GDP of 120 trillion Rupees would be worth 2 trillion Dollars.
Types of Exchange Rates
Economists distinguish between two exchange rates: the nominal exchange rate and the real exchange rate.
Let’s discuss each in turn and see how they are related.
The nominal exchange rate is the relative price of the currencies of two countries. For example, if the exchange
rate between the U.S. dollar and the Indian Rupee is 60 ₹ per dollar, then you can exchange one dollar for 60
Rupees in world markets for foreign currency. When people refer to “the exchange rate” between two
countries, they usually mean the nominal exchange rate.
Nominal exchange rates are established on currency financial markets called “forex markets”, which are similar
to stock exchange markets.
The real exchange rate is the relative price of the goods of two countries. That is, the real exchange rate tells us
the rate at which we can trade the goods of one country for the goods of another. The real exchange rate is
sometimes called the terms of trade.
Till now we have discussed the bilateral exchange rates which facilitate conversion of one’s currency into other.
There is a concept of Effective Exchange Rate which describes the relative strength of a currency relative to
basket of other currencies.
Thus, the Nominal Effective Exchange Rate (NEER) is the weighted average value of nominal exchange rate of
the rupee against the currencies of major trading partners of India. On the other hand, the Real Effective
Exchange Rate (REER) is the weighted average of Real Exchange Rates of Rupee against the currencies of
major trading partners of India.
The weights are determined by the importance a home country places on all other currencies traded within the
pool, as measured by the balance of trade. Unlike NER and RER, NEER and REER are not determined for each
foreign currency separately.
Rather, each is a single number that expresses what is happening to the value of the domestic currency against a
whole basket of currencies. It gives some reference or benchmark about how the currency is performing in
relation to the rest of the world as a whole, rather than just individual countries.
Even though Indian GDP calculated in rupees can be converted to dollars using market determined exchange
rate but such an exercise has its own flaws limitations.
Such a market determined exchange rate only takes into account exports and imports and neglects non-traded
GDP, which produced and consumed domestically. In such a situation the concept of Purchasing Power Parity
(PPP) is used.
The Purchasing Power Parity tells us how much of a basket of internationally traded goods and services can be
bought with India n rupee in India vis-à-vis how much of the same basket can be bought in the US with the help
of a dollar. Therefore, whereas the market determined exchange rate might be Rs 60 for a US dollar, the PPP
exchange rate may show this parity at Rs 30 for a US dollar. This ultimately results in a greater GDP at PPP
rates when compared to GDP at market rates for India.

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 ESI Notes 5 – Measurement Methods

In India, GDP is estimated by Central Statistical Office (CSO). There are three different ways of estimating the
national income of a country, these three methods are:
a. Value Added Method (or the Product Method)
b. Income Method
c. Expenditure Method
Which method is to be employed depends on the availability of data and purpose.
Value Added Method
Under the value added or production method, the GDP is calculated at market prices, which is the total value of
outputs produced at different stages of production. It needs to be mentioned that caution should be taken to take
Final Goods and not Intermediate goods, as it will result in Double Counting.
Some of the goods and services included in production are:
a. Goods and services sold in the market.
b. Goods and services not sold but supplied free of cost.
c. Services provided by the agents.
Some of the goods and services not included in production are:
a. Second hand items and purchase and sale of the same. Sale and purchase of second cars, for example, are
not a part of GDP calculation as no new production takes place in the economy.
b. Production due to illegal activities.
c. Non-economic goods such as air and water.
d. Transfer Payments such as scholarships, pensions etc. are excluded as there is income received, but no
good or service is produced in return.
e. Imputed rental for owner-occupied housing is also excluded.
Income Method
This approach focuses on aggregating the payments made by firms to households, called factor payments. This
gives the National Income, defined as total income earned by citizens and businesses of a country.
There are four types of factors of production and four types of factor incomes accordingly i.e. Land, Labour,
Capital and Organization as Factors of Production and Rent, Wages, Interest and Profit as Factor Incomes
correspondingly.
We need to add indirect taxes, less subsidies and add depreciation to get GDP.
GDP = Wages+ Interest Income + Rental Income +*Profit +Indirect Taxes – Subsidies + D
The term *profit can be further sub-divided into: profit tax; dividend to all those shareholders; and retained
profit (or retained earnings). Such an approach is adopted in India to calculate the contribution of services sector
to the economy.
Any income corresponding to which there is no flow of goods and services or value added, it should not be
included in calculation by Income method.
Expenditure Method

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The expenditure method measures the final expenditure on GDP. Amount of Expenditure refers to all spending
on currently-produced final goods and services only in an economy. In an economy, there are three main
agencies, which buy goods and services. These are: Households, Firms and the Government
This final expenditure is made up of the sum of 4 expenditure items, namely:
a. Consumption (C): Personal Consumption made by households, the payment of which is paid by
households directly to the firms which produced the goods and services desired by the households.
b. Investment Expenditure (I): Investment is an addition to capital stock of an economy in a given time
period. This includes investments by firms as well as governments sectors.
c. Government Expenditure (G): This category includes the value of goods and service purchased by
Government. Government expenditure on pension schemes, scholarships, unemployment allowances etc.
are not included in this as all of them come under transfer payments.
d. Net Exports (X-IM): Expenditure on foreign made products (Imports) are expenditure that escapes the
system, and must be subtracted from total expenditures. In turn, goods produced by domestic firms which
are demanded by foreign economies involve expenditure by other economies on our production (Exports),
and are included in total expenditure. The combination of the two gives us Net Exports.
GDP= C+I÷G+X-IM
Application of Various Methods
Each approach gives a different perspective on the economy. However, the fundamental principle underlying
national income accounting is that, all three approaches give identical measurements of the amount of current
economic activity.
We can illustrate why these three approaches are equivalent by an example. Imagine an economy with only two
businesses, called Khanna Fruits and Sharma Juices. Khanna Fruits owns and operates orange groves. It sells
some of its oranges directly to the public. Rest of these oranges are sold to Sharma Juices which is involved in
the production and sale of orange juice. The following table shows the transactions of each business during a
year.
Product Method
Khanna Fruits produces output worth ₹ 35,000 and Sharma Juices produces output worth ₹ 40, 000. However,
measuring overall economic activity by simply adding ₹ 35,000 and ₹ 40,000 would “double count” the ₹
25,000 of oranges that Sharma Juices purchased from Khanna Fruits and processed into juice. To avoid this
double counting, we sum value added rather than output: Because Sharma Juices processed oranges worth ₹
25,000 into a product worth ₹ 40,000, Sharma Juices value added is ₹ 15,000 (40,000 - 25,000). Khanna Fruits
doesn’t use any inputs purchased from other businesses, sot its value added equals its revenue of ₹ 35,000. Thus
total value added in the economy is ₹ 35,000 + ₹ 15,000 = ₹ 50,000
Income Approach
As seen before, the (before-tax) profits of Khanna Fruits equal its revenues of 35,000 minus its wage costs of ₹
15,000. The profits of Sharma Juices equal its revenues of ₹ 40,000 minus the ₹ 25,000 the company paid to
buy oranges and the ₹ 10,000 in wages to its employees. Adding the ₹ 20,000 profit of Khanna Fruits, the ₹
5,000 profit of Sharma Juices, and the ₹ 25,000 in wage income received by the employees of the two
companies, we get a total of ₹ 50,000, the same amount determined by the product approach.
Expenditure Approach

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In this example, households are ultimate users of oranges. Sharma Juices is not an ultimate user of oranges
because it sells the oranges (in processed, liquid form) to households. Thus ultimate users purchase ₹ 10,000 of
oranges from Khanna Fruits and ₹ 40,000 of orange juice from Sharma Juices for a total of ₹ 50,000, the same
amount computed in both the product and income approaches.
Output or Value added method is primarily used in the registered manufacturing units and primary sector in
India. Income method is used in services sector. Whereas, the expenditure method is adopted to calculate the
contribution of Real Estate Sector.
The product method is the principal method used in underdeveloped economies, whereas income method is
generally used in developed economics for the estimation of national income.

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 ESI Notes 6 – Revision in GDP Estimation
GDP Deflator: It is a tool to measure the inflation comprehensively. It represents the ratio of GDP at current
prices to GDP at constant prices. GDP deflator is published on a quarterly basis since 1996 with a lag of two
months. It is because of this very reason that economists prefer the use of WPI or CPI for deflating nominal
price estimates to derive real price estimates.

Essentially GDP deflator = (Nominal GDP/Real GDP)*100.

Unlike the WPI and the CPI, GDP deflator is not based on a fixed basket of goods and services, it covers the
whole economy. One of the other advantages of GDP deflator is that changes in consumption patterns or the
introduction of new goods and services are automatically reflected in the deflator, such a feature is missing in
WPI/CPI.

Base Year: To make the calculation of GNP/GDP easier, economists use a price index to find the real
GNP/GDP. A Price index is a number showing the changes in the overall level of prices. It shows a change in
the general price level of an economy.

Base year is the year used as the beginning or the reference year for constructing an index, and which is usually
assigned an arbitrary value of 100. Recently the Indian Government changed the base year for calculating
national accounts to 2011-12 from 2004-05. The basis for selection of the base year are:
a. Stability of macroeconomic parameters. It has to be a normal year without large fluctuations in production,
trade and prices of goods and services.
b. Data availability: Data available for the year should be reliable.
c. Comparability- so that same parameters should be in use in both the years.
d. Therefore it should be a recent year and not go long back into history.

Difficulty of Measurement (with special reference to India)

Economists face a number of problems while calculating the National Income some of them are:
a. Non-Monetization of transactions: When National Income is calculated it is generally assumed that any
products or services would be exchanged for money. But in India especially in rural areas, a large number
of economic transactions occur in the form of barter. Such activities are difficult to account for in the GDP
estimates therefore resulting in lower levels of GDP than actual.
b. Unreported Illegal Income: A major part of Indian Economy operates as hidden or parallel economy and
the income generated in this goes unreported. As per a study, black economy accounts for about 40% of
total income generated in the country. This poses a great problem to calculate accurate GDP estimates.
c. Non-availability of data about households, small producers etc.: A large number of producers carry out
production at a family level or run household enterprises. Data about these enterprises is very difficult to
find. NIA does not include care economy such domestic work and housekeeping. Even the valuable work
done by housewives in India is not accounted as a part of GDP estimates.
d. Absence of data on growing service sector: In India, service sector has witnessed an exponential growth
rate. However, value addition in several parts of service sector industry are not based on accurate reporting
and hence underestimated in national income measures.

Recent development in GDP measurement

16
The growth rate will now be measured by GDP at constant market prices, which will henceforth be referred to
as ‘GDP’. This is the international practice. Earlier, growth was measured in terms of growth rate in GDP at
factor cost at constant prices.
The sector-wise estimates of gross value added (GVA) will now be given at basic prices instead of factor cost.
Use of MCA21 database which is the annual accounts of companies filed with Ministry of Corporate Affairs. It
will expand the coverage of corporate sector both in manufacturing and services. Also, the database for
manufacturing companies will help account for activities other than manufacturing undertaken by these
companies
Comprehensive coverage of the financial sector by inclusion of information from the accounts of stock brokers,
stock exchanges, asset management companies, mutual funds and pension funds, and the regulatory bodies -
SEBI, PFRDA and IRDA.
Improved coverage of activities of local bodies and autonomous institutions, covering around 60 per cent of the
grants/transfers provided to these institutions.

Gross Value Added

Gross value added (GVA) is defined as the value of output less the value of intermediate consumption. Value
added represents the contribution of labour and capital to the production process. The GVA at basic prices will
include production taxes and exclude production subsidies available on the commodity.

On the other hand, GVA at factor cost includes no taxes and excludes no subsidies and GDP at market prices
include both production and product taxes and excludes both production and product subsidies. When the value
of taxes on products (less subsidies on products) is added, the sum of value added for all resident units gives the
value of gross domestic product (GDP).

GVA at basic prices = GVA at factor cost + Production taxes - Production subsidies

GDP = ∑ GVA at basic prices + product taxes - product subsidies

The Production taxes or production subsidies are paid or received with relation to production. They are
independent of the volume of actual production. Some examples of production taxes are land revenues, stamps
and tax on profession. Some production subsidies are subsidies to Railways, input subsidies to farmers.

The Product taxes or subsidies are paid or received on per unit of product. Some examples of product taxes are
excise tax, sales tax, service tax and import and export duties. Product subsidies include food, petroleum and
fertilizer subsidies.

ESI Notes 7 – Debates and Other Indices

Traditionally, economic growth is treated as a measure of improvement in quality of lives of the citizens of a
country. Economic growth per se is calculated in the form of growth in GDP year over year. However, the
achievement of high growth - even high levels of sustainable growth - must ultimately be judged in terms of the

17
impact of that economic growth on the lives and freedoms of the people. However, as has been the experience it
must be noted that the economic growth in several countries has not transformed into better quality of lives for
the people.

Let us take the example of India. India has witnessed rapid economic growth in last two decades. Over this
period of rapid growth, while some people, particularly among the privileged classes, have done very well,
many more continue to lead unnecessarily deprived and precarious lives. It is not that their living conditions
have not improved at all, but the pace of improvement has been very slow for the bulk of the people, and for
some there has been remarkably little change. While India has climbed rapidly up the ladder of economic
growth rates, it has fallen relatively behind in the scale of social indicators of living standards, even compared
with many countries India has been overtaking in terms of economic growth.

For example, over the last two decades India has expanded its lead over Bangladesh in terms of average income
(it is now about twice as rich in income per capita as Bangladesh), and yet in terms of many typical indicators of
living standards (other than income per head), Bangladesh not only does better than India, it has a considerable
lead over it (just as India had, two decades ago, a substantial lead over Bangladesh in the same indicators).

Another typical example is that of the Gulf Countries which have witnessed rapid economic growth but they
have done rather poorly on development indicators. Therefore, several economists today define economic
development differently from what the world meant by economic growth. For economists, development
indicates the quality of life in the economy which might be seen in accordance with the availability of so many
variables such as:
a. The level of nutrition.
b. The expansion and the reach of healthcare facilities—hospitals, medicines, safe drinking water,
vaccination, sanitation, etc.
c. Education levels

From the above discussion it is clear that today, economists believe that higher economic growth may not
necessarily transform into higher economic development.
But at the same time economic growth and development go hand in hand and one cannot survive without the
other.
When we use the term growth we mean numerical increase in some parameters and when we use the term
development we mean numerical as well as qualitative progress. If economic growth is properly used for
development, it results in accelerating the growth and ultimately in greater population coming under the arena
of development. Similarly, high growth with low development and ill-cared development finally results into fall
in growth. Thus, there is a circular relationship between growth and development.

Other Arguments against GDP as a Parameter to Judge Progress

Gender disparities not indicated: For this a Gil or Gender Inequality Index has been devised in recent years.
Does not measure sustainability of growth: Growth in a country may be also at the cost of hefty exploitation of
natural resources.
Condition of poor is not indicated: As an example even though Indian economy grew at a rate of over 7-8% in
last decade the food inflation was at the highest levels adversely affecting the poorest strata of the society.

18
Economic inequality not revealed by GDP: GDP does not reveal the economic inequality which is created as a
side effect of economic growth. Inequality in earnings has doubled in India over the last two decades which
were incidentally the years of highest GDP growth also.
Other intangibles not measured: Does not value intangibles like leisure, quality of life etc. since quality of life is
measured by many other intangibles except the materialistic things provided by economic growth.

For the reasons mentioned above, several economists have tried to create replacements for GDP which try to
address the above criticisms regarding GDP. Some of these indices include HDI, HPI (human poverty Index),
GNH (Gross National Happiness Index), Green GDP etc.

Other indices to calculate the development

HDI or Human Development Index

United Nations Development Programme (UNDP) published its first Human Development Report (HDR) in
1990. The report had a human development index (HDI) which was the first attempt to define and measure the
levels of development.
The index focuses on longevity, knowledge and decent living standards.
a. Standard of living: to be indicated by the real per capita income adjusted for the differing purchasing
power parity (PPP).
b. Knowledge: To be measured by indicators related to the level of education:
- Educational attainment among the adults (given 2/3rd weightage).
- School enrolment (given 1/3rd weightage).
c. Longevity: Life expectancy to be calculated at the time of birth. Initially reported for 14 countries, the
UN’s 20153 report presented HDI results for 1885 countries. The India ranked 130th in 2015 Human
Development Report with HDI score of 0.609 in the medium human development category. This was an
improvement from 135 rank in 2014 report.

Green GDP
Green GDP is an index of economic growth with the environmental consequences of that growth factored in.
From the final value of goods and services produced, the cost of ecological degradation is deducted to arrive at
Green GDP.
Green GDP calculations have been developed for countries as diverse as Australia, Canada, China, Costa Rica,
Indonesia, Mexico, Papua New Guinea, and the US, although none of these efforts have resulted in regular
reporting of the results.
In 2009, the government of India declared unilaterally that India aims to factor the use of natural resources in its
economic growth estimates by 2015. Under this, the country seek to make “green accounting” part of
government policy on economic growth.

Gross National Happiness

With many of the world’s countries about as unhappy as they can get because of their dwindling GDP figures,
the tiny nation of Bhutan has gone in the opposite direction. Officials in Bhutan came up with a different
indicator, called gross national happiness (GNH). The country’s beloved former king, Jigme Singye
Wangchuck, envisaged the concept of gross national happiness since 1972, and the country adopted it as a
formal economic indicator in 2008.
Beginning in November 2008, all the economic factors started measuring gross domestic product analyzed for
their impact on Bhutan’s residents’ happiness. The factors of production are still there such as unemployment,
agriculture, retail sales but GNH represents a paradigm shift in what’s most valued by Bhutanese society

19
compared to the rest of the world. In short, happiness matters, not money. Following parameters are used in the
GNH:
a. Higher real per capita income.
b. Good Governance.
c. Environmental Protection.
d. Cultural Promotion
Genuine Progress Indicator
While GDP is a measure of current income, GPI is designed to measure the sustainability of that income GPI
uses the same personal consumption data as GDP but make deductions to account for income inequality and
costs of crime, environmental degradation, and loss of leisure and additions to account for the services from
consumer durables and public infrastructure as well as the benefits of volunteering and housework. By
differentiating between economic activity that diminishes both natural and social capital and activity that
enhances such capital, the

GPI and its variants are designed to measure sustainable economic welfare rather than economic activity alone.
Proponents of the GPI see it as a better measure of the sustainability of an economy when compared to the GDP
measure. Since 1995 the GPI indicator has grown in stature and is used in Canada and the United States.

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 ESI Notes 8 – Theories of Development

Development, as we have seen, is a multi-faceted process involving reorganization of the economic and social
system. There are different theories of development and they advocate and stress different sets of economic and
social factors that lead to development. In this section we will highlight some of the important theories of
development.
Rostow’s Stages of Growth
The transition from underdevelopment to development must proceed along a series of steps according to
Rostow, an American development theorist. The four stages of growth are:
a. Traditional society
b. Pre-conditions for take-off
c. Take-off
d. Age of mass consumption
The developing countries, it was argued, were still at a stage in which the “preconditions” for “take-off” were
not present. The industrialized countries developed because they had fulfilled the conditions necessary for the
“take-off” towards self-sustaining economic growth. Rostow implied that the developing countries had only to
replicate similar conditions to attain development. They had only to mobilize enough domestic and foreign
savings to finance investment in order to attain the objectives of development. Rostow even went as far as to
suggest that once a country was able to save 15-20 per cent of its Gross National Product
(GNP), it would automatically reach the “take-off” stage. Events, since the theory was first presented, have
clearly proved its inadequacies. For instance, India has consistently managed a high rate of saving without being
able to solve many of its developmental objectives. Clearly, this mechanical approach towards development has
proved to be insufficient.
The Lewis Theory of Development
During the 1950s Arthur Lewis put forward a different theory of development. According to Lewis,
underdeveloped countries are characterized by the presence of two sectors:
a. The traditional rural sector, which is of the nature of a subsistence economy, providing for self-
consumption within this sector. This sector also has a surplus of labour.
b. The modern urban industrial sector where productivity is higher.
Arthur Lewis argued that labour can be transferred from the rural to the urban sector without adversely affecting
productivity in the rural sector. He thus envisioned a dynamic role for the industrial sector, which would lead to
sustained economic development. This theory, though correct in its description of situations prevailing in large
parts of the developing world, is found lacking in terms of its ability to suggest measures leading to
development. It, for instance, ignores the fact that unemployment is also fairly rampant in urban areas as well as
rural areas. This means that surplus rural labour cannot be meaningfully absorbed by the urban industrial sector.

International Dependence Theories

International Dependence Theories gained ground during the 1970s, particularly among the economists in the
developing countries. Essentially, these theories view the problem of underdevelopment as one arising out of

21
the domination of the poorer countries by the richer ones. They argue that in an unequal power structure, poor
countries lose out to the richer and more powerful countries. They also note that large multinational companies
are involved in the process by which wealth is transferred from developing countries to developed ones.
Further, it is argued that institutions such as the World Bank and the International Monetary Fund (IMF) have
aligned with the rich countries.
This, according to them, has accentuated the problem of inequality, poverty and other aspects of
underdevelopment in these countries. For instance, long-term trends in the distribution of income in the global
economy show that the income gap distance between the richest and the poorest country in 1820 was 1:3; in
1950 it stood at 1: 35 and by 2003 it had zoomed to 1: 82. To take another indicator, at the beginning of the 20th
century, world’s population was approximately 1.5 billion, which quadrupled by the end of the century and the
absolute number of population trapped in a narrowly defined notion of poverty was about 1.2 billion, and
almost all of them were in developing countries. Sure enough, such numbers lend credence to the unsavoury
outcomes suggested by the dependency theorists. These theories, however, are too simplistic and often the
mechanisms and processes underlying are either not fleshed out with adequate care or are not quite robust.
Marxian Concept of Development
The Marxist view of development, on the other hand, emphasizes the role of classes and class antagonisms in
society. In this system, vested class interests can inhibit overall development of society. The question of poverty
in society is seen as a result of exploitation of the poor. Property relations in the society create and accentuate
the problem of poverty and development. Since land and other productive assets are privately owned and
concentrated in the hands of a few, the problem of inequalities remains unsolved. The Marxist view of
development is a complex one, allowing for the possibility of progress, or otherwise, depending on the class
structure and conflicts, the nature and activity of the state, etc. any society, divided into class, is necessarily an
exploitative one as the dominant classes appropriate the surplus produced by the working class.
Gandhian View of Development
Unlike the western concept of development, the Gandhian concept of development attaches more importance to
the question of relationships between individuals and economic micro-groups. According to this theory of
development, micro-groups such as village communities in turn interact with the society at large. The Gandhian
view of development also visualizes a smaller role for the state in the development process.
The village at the local level would be the focal point of economic development in the Gandhian scheme. In this
situation, it was visualized that the role of the individual would be brought into play thereby leading to overall
development of the individual as well as the society at large. Decision making at the local level through
institutions such as panchayats also plays a key role in the Gandhian scheme.

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 ESI Notes 9 – Task Force on Elimination of Poverty

In the first meeting of the Governing Council of NITI Aayog held under the Chairmanship of Prime Minister on
8th February, 2015 it was decided to constitute a Task Force in NITI Aayog on Elimination of Poverty in India
under the Chairmanship of Dr. Arvind Panagariya, Vice Chairman, NITI Aayog.
It was also decided that parallel Task Forces on Poverty Elimination will be constituted by each State.
Accordingly, a Task Force on Elimination of Poverty in India was constituted by Nm Aayog on 16th March,
2015.
The states were required to submit their respective Task Force report to NITI Aayog as an input for preparing
the Task Force Report on Elimination of Poverty in India.
Based on the work of the NITI Aayog’s Task Force on Elimination of Poverty in India and inputs provided in
the States’ Task Force reports, an occasional paper on ‘Eliminating Poverty: Creating Jobs and Strengthening
Social Programs’ has been posted on official website of NITI Aayog (www.niti.gov.in) on 21st March 2016.
This paper forms the basis of regional consultation meetings to prepare a roadmap for elimination of poverty in
the country.
The regional consultation meeting for Western and Northern States/UTS was held in Jaipur today. The
States/UTs that participated in this meeting include- Gujarat, Maharashtra, Rajasthan, Punjab, Haryana, Daman
& Diu and Dadra & Nagar Haveli.
In the meeting, the discussions were held on broadly four issues:
a. Measurement of poverty and identification of beneficiary households Issues relating to tracking progress in
poverty reduction
b. Use of SECC-2011 data for identification of beneficiary households
c. Strategies for employment-intensive sustainable rapid growth of the economy, primarily focus was on
generation of increased employment opportunities in industrial and services sector.
d. Ways to make anti-poverty programs more effective, possible modifications, use of technology and JAM
trinity
e. Innovative poverty reduction program of the State/UT that has been developed.
The States agreed with the view of NITI Aayog on poverty line that it should be used for tracking progress in
poverty reduction and not for identification of poor to provide benefit under welfare schemes.
Gujarat opined that poverty is a multidimensional concept and shared its life cycle and area based approach to
be followed to combat poverty. It briefed about some of its best practices which have been successful in
addressing the poverty in the state such as Vanbandhu Kalyan Yojana, Sagarkhedu Sarvangi Vikas Yojana,
Krishi Mahotsava and Garib Kalyan Mela.
One of the innovative model worth consideration for rephcating in other states was that of rehabilitation of slum
dwellers. This has reduced slum population drastically from 2001 to 2011 in Gujarat. However it raised concern
that more and more children are going for private schools but they are not covered under Mid-Day Meal
Scheme to provide nutritional support to children.
Maharashtra flagged that managerial issues of MGNREGS should be looked into. They opined that there should
be common MIS for all rural development schemes addressing poverty to leverage optimal resource utilization.

23
Rajasthan highlighted that its communitization has brought paradigm shift in poverty alleviation wherein all
interventions in Rajeevika are led by women resource persons from the community. It stressed that capacity
development at least to block level functionaries need urgent attention as large amount of resources are being
dealt at this level.
Haryana is adopting Poly house model to boosting the productivity of exotic flowers and vegetables in view of
small land holdings. This is helping farmers to move away from water intensive paddy crop in the state.
The participating states particularly Maharashtra and Rajasthan wanted the issue of watershed development to
be looked into and some remedial measures on availability of drinking water may be taken up by NITI Aayog.
All the states raised concern over quality of education in government schools.

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 ESI Notes 10 – Poverty

Poverty is a social phenomenon wherein a section of society is unable to fulfil even its basic necessities of life.
The UN Human Rights Council has defined poverty as “a human condition characterized by the sustained or
chronic deprivation of the resources, capabilities, choices, security and power necessary for the enjoyment of an
adequate standard of living and other civil, cultural, economic, political and social rights’.
The determination of a poverty line cannot be based on an arbitrary selection of a low level of income. Only
scientific criteria independent of income can justify where the poverty line should be drawn. The multiplicity
and severity of different types of deprivation can constitute those criteria. The key is therefore to define a
threshold of income below which people are found to be thus deprived.
Types of Poverty
The poverty has two aspects:
a. Absolute poverty
b. Relative poverty.
1. Absolute Poverty: It is a situation in which the consumption or income level of people is less than some
minimum level necessary to meet basic needs as per the national standards. It is expressed in terms of a poverty
line,
2. Relative Poverty: It is expressed in the form of comparisons of the levels of income, nutrition or
consumption expenditure of the poor strata vis-à-vis rich strata of the society. It shows the extent of inequality.
Dimensions of Poverty
Although household expenditure levels remain the main measure of living standard by which incidence of
poverty is measured, and the Human Consumption Rate has become the main indicator of poverty.
But the UN Human Development Index (HDI) captures the multidimensional nature of deprivation in living
standards. Income should be regarded as a means to improve human welfare, not as an end in itself. Further
Human and gender development indicators have been used successfully for advocacy, for ranking of
geographical spaces and to capture improvements in human well-being more reliably than per capita income.
The HDI is a simple average of three dimension indices, which measure average achievements in a country with
regard to ‘a long and healthy life’, knowledge and a decent standard of living. Related to this only the Ministry
of Women and Child Development uses the infant mortality rate (IMR) and life expectancy at age 1 to estimate
a long and healthy life; the 7+ literacy rate and mean years of education for the 15+ age group to estimate
knowledge; and estimated earned income per capita per year to capture a decent standard of living.
Multidimensional Poverty Index (MPI) reflects the deprivations that a poor person faces simultaneously with
respect to education, health and living standards. This reflects the same three dimensions of welfare as the HDI
but the indicators are different in each case and are linked to the MDGs.
The components of MPI are:
1. Education (each indicator is weighted equally at 1/6) Years of Schooling: deprived if no household
member has completed five years of schooling
Child Enrolment: deprived if any school- aged child is not attending school in years 1 to 8

25
2. Health (each indicator is weighted equally at 1/6)
Child Mortality: deprived if any child has died in the family.
Nutrition: deprived if any adult or child for whom there is nutritional information, is malnourished.
3. Standard of Living (each indicator is weighted equally at 1/18).
Electricity: deprived if the household has no electricity.
Drinking water: deprived if the household does not have access to clean drinking water or clean water is more
than 30 minutes’ walk from home.
Sanitation: deprived if they do not have an improved toilet or if their toilet is shared.
Flooring: deprived if the household has dirt, sand or dung floor.
Cooking Fuel: deprived if they cook with wood, charcoal or dung.
Assets: deprived if the household does not own more than one of radio, TV, telephone, bike, or motorbike, and
do not own a car or tractor.
Hence, poverty is determined with regard to not only income or expenditure but also access to a number of
other necessities.
How Poverty Line is estimated in India?
The Planning Commission (Now NITI Aayog) is the nodal agency in the Government of India for estimation of
poverty. It estimates the incidence of poverty at the national and state level separately in rural and urban areas.
The incidence of poverty is measured by the poverty ratio, which is the ratio of number of poor to the total
population expressed as percentage.
It is also known as head-count ratio. The poverty ratio is measured from an exogenously determined poverty
line quantified in terms of per capita consumption expenditure over a month and the class distribution of
persons obtained from the large sample survey of consumer expenditure data of the National Sample Survey
Office (NSSO)
The history of counting the poor in India can be dated back to the 19th century. The earliest effort to estimate
the poor was Dadabhai Naoroji’s Poverty and Un-British Rule in India.
After independence the Planning Commission has been estimating the number of people below the poverty line
(BPL) at both the state and national level based on consumer expenditure information collected as part of the
National Sample Survey Organization (NSSO) since the Sixth Five Year Plan.

Various committees for estimation of poverty:

1. Lakdawala Committee
The Lakdawala Committee defined the poverty line based on per capita consumption expenditure as the
criterion to determine the persons living below poverty line. The per capita consumption norm was fixed at
₹49.09 per month in the rural areas and ₹56.64 per month in the urban areas at 1973-74 prices at national level,

26
corresponding to a basket of goods and services anchored in a norm of per capita daily calorie intake of 2400
kcal in the rural areas and 2100 kcal in the urban areas.
2. Tendulkar Committee Report
The Planning Commission constituted an Expert Group in December 2005 under the Chairmanship of Professor
Suresh D. Tendulkar to review the methodology for estimation of poverty. The Expert Group submitted its
report in December 2009.
While acknowledging the multidimensional nature of poverty, the Expert Group recommended moving away
from anchoring poverty lines to the calorie – intake norm to adopting MRP based estimates of consumption
expenditure as the basis for future poverty lines and MRP equivalent of the urban poverty line basket (PLB)
corresponding to 25.7per cent urban headcount ratio as the new reference PLB for rural areas.
3. Saxena Committee Report
An Expert Group headed by Dr N.C. Saxena was constituted by the Ministry of Rural Development to
recommend a suitable methodology for identification of BPL families in rural areas. The Expert Group
submitted its report in August 2009 and recommended doing away with score-based ranking of rural households
followed for the BPL census 2002.
The Committee recommended automatic exclusion of some privileged sections and automatic inclusion of
certain deprived and vulnerable sections of society, and a survey for the remaining population to rank them on a
scale of 10.
Automatic Inclusion
The following would be compulsorily included in the BPL list:
1. Designated primitive tribal groups.
2. Households headed by a minor.
3. Single women-headed households.
4. Households with a disabled person as breadwinner.
5. Designated most discriminated against SC groups, called Maha Dalit groups.
6. Destitute households which are dependent predominantly on alms for survival.
7. Homeless households.
8. Households that have a bonded labourer as member.

Automatic Exclusion
Households that fulfil any of the following conditions will not be surveyed for BPL census:
1. Families who own double the land of the district average of agricultural land per agricultural household if
partially or wholly irrigated (three times if completely unirrigated).
2. Families that have at least one mechanized farm equipment, such as, tractors, power tillers, threshers, and
harvesters.

27
3. Families that have three or four wheeled motorized vehicles, such as, jeeps and SUVs.
4. Families that have any person who is drawing a salary of over ₹10,000 per month in a non-government/
private organization or is employed in government on a regular basis with pensioner or equivalent benefits.
5. Income tax payers.
World Bank Approach for Calculating Poverty
The World Bank uses the money metric approach. Whereby it converts the one dollar per day international
poverty line into local currencies using purchasing power parity conversion factors. It then uses national
household surveys to identify the number of persons whose local income is lower than the national poverty
lines.
Both the dollar a day and $1.25 measures indicate that India has made steady progress against poverty since the
1980s, with the poverty rate declining at a little under one percentage point per year.
Causes of Poverty in India
All types of poverty and deprivation in India are caused by the following factors.
1. Colonial Exploitation
2. Lack of Investment for the Poor
3. High Unemployment
4. Over-reliance on Agriculture
5. Heavy Population Pressures
6. Social System in India
7. Lack of appropriate policy measures
Linkage between Poverty and Development
Economic growth is the most powerful instrument for reducing poverty and improving the quality of life in
developing countries. Thus Poverty is inter-related to problems of underdevelopment. In rural and urban
communities, poverty can be very different. In urban areas people often have access to health and education but
many of the problems caused by poverty are made worse by things like overcrowding, unhygienic conditions,
pollution, unsafe houses, etc.
In rural areas there is often poor access to education, health and many other services but people usually live in
healthier and safer environments.
Growth can generate virtuous circles of prosperity and opportunity. Strong growth and employment
opportunities improve incentives for parents to invest in their children’s education by sending them to school.
This may lead to the emergence of a strong and growing group of entrepreneurs, which should generate pressure
for improved governance. Strong economic growth therefore advances human development, which, in turn,
promotes economic growth. A typical estimate from cross-country studies reveal that a 10 per cent increase in a
country’s average.
Note: Poverty Alleviation Programs will be covered in ESI Test No.1 and Comprehensive ESI Tests.

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29
 FM Notes 11 – Sustainable Development

Definitions
The Brundtland Commission’s brief definition of sustainable development as the “ability to make development
sustainable - to ensure that it meets the needs of the present without compromising the ability of future
generations to meet their own needs” is surely the standard definition when judged by its widespread use and
frequency of citation. The use of this definition has led many to see sustainable development as having a major
focus on intergenerational equity.
Although the brief definition does not explicitly mention the environment or development the subsequent
paragraphs, while rarely quoted, are clear. On development the report states that human needs are basic and
essential; that economic growth - but also equity to share resources with the poor—is required to sustain them;
and that equity is encouraged by effective citizen participation.
On the environment the text is also clear: The concept of sustainable development does imply limits—not
absolute limits but limitations imposed by the present state of technology and social organization on
environmental resources and by the ability of the biosphere to absorb the effects of human activities.
The Millennium Development Goals (MDGs) have produced the most successful anti-poverty movement in
history and will serve as the jumping-off point for the new sustainable development agenda to be adopted this
year.
The MDG Report 2015 found that the 15-year effort to achieve the eight aspirational goals set out in the
Millennium Declaration in 2000 was largely successful across the globe, while acknowledging shortfalls that
remain. The data and analysis presented in the report show that with targeted interventions, sound strategies,
adequate resources and political will, even the poorest can make progress.
The final MDG report confirms that goal-setting can lift millions of people out of poverty, empower women and
girls, improve health and well-being, and provide vast new opportunities for better lives.
Highlights
The number of people now living in extreme poverty has declined by more than half, falling from 1.9 billion in
1990 to 836 million in 2015.
The number of people in the working middle class—living on more than $4 a day - nearly tripled between 1991
and 2015.
The proportion of undernourished people in the developing regions dropped by almost half since 1990.
The number of out-of-school children of primary school age worldwide fell by almost half, to an estimated 57
million in 2015, down from 100 million in 2000. Gender parity in primary school has been achieved in the
majority of countries.
The mortality rate of children under-five was cut by more than half since 1990. Since 1990, maternal mortality
fell by 45 percent worldwide. Over 6.2 million malaria deaths have been averted between 2000 and 2015. New
HIV infections fell by approximately 40 percent between 2000 and 2013.
By June 2014, 13.6 million people living with HIV were receiving antiretroviral therapy (ART) globally, an
immense increase from just 800,000 in 2003. Between 2000 and 2013, tuberculosis prevention, diagnosis and

30
treatment interventions saved an estimated 37 million lives. Worldwide 2.1 billion people have gained access to
improved sanitation.
Globally, 147 countries have met the MDG drinking water target, 95 countries have met the MDG sanitation
target and 77 countries have met both. Official development assistance from developed countries increased 66
percent in real terms from 2000 and 2014, reaching $135.2 billion.
Sustainable Development Goals (SDGs)
“World leaders have an unprecedented opportunity this year to shift the world onto a path of inclusive,
sustainable and resilient development” - Helen Clark, UNDP Administrator.
At the United Nations Sustainable Development Summit on 25 September 2015, world leaders adopted the
2030 Agenda for Sustainable Development, which includes a set of 17 Sustainable Development Goals (SDGs)
to end poverty, fight inequality and injustice, and tackle climate change by 2030.
What are the Sustainable Development Goals?
The Sustainable Development Goals, otherwise known as the Global Goals, build on the Millennium
Development Goals (MDGs), eight anti-poverty targets that the world committed to achieving by 2015. The
MDGs, adopted in 2000, aimed at an array of issues that included slashing poverty, hunger, disease, gender
inequality, and access to water and sanitation.
Enormous progress has been made on the MDGs, showing the value of a unifying agenda underpinned by goals
and targets. Despite this success, the indignity of poverty has not been ended for all.
The new SDGs, and the broader sustainability agenda, go much further than the MDGs, addressing the root
causes of poverty and the universal need for development that works for all people.
UNDP Administrator Helen Clark noted: “This agreement marks an important milestone in putting our world
on an inclusive and sustainable course. If we all work together, we have a chance of meeting citizens aspirations
for peace, prosperity, and wellbeing, and to preserve our planet.”
What is UNDPs role with the Sustainable Development Goals?
All 17 Sustainable Development Goals are connected to UNDP’s Strategic Plan focus areas: sustainable
development, democratic governance and peacebuilding, and climate and disaster resilience. SDGs Number 1
on poverty, Number 10 on inequality and Number 16 on governance are particularly central to UNDP’s current
work and long-term plans.
Having an integrated approach to supporting progress across the multiple goals is crucial to achieving the
Sustainable Development Goals, and UNDP is uniquely placed to support that process.
UNDP supports countries in three different ways, through the MAPS approach: mainstreaming,
acceleration and policy support.
1. Providing support to governments to reflect the new global agenda in national development plans and
policies. This work is already underway in many countries at national request;
2. Supporting countries to accelerate progress on SDG targets. In this, we will make use of our extensive
experience over the past five years with the MDG Acceleration Framework; and
3. Making the UN’s policy expertise on sustainable development and governance available to governments at
all stages of implementation.

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Collectively, all partners can support communication of the new agenda, strengthening partnerships for
implementation, and filling in the gaps in available data for monitoring and review.
As Co-Chair of the UNDG Sustainable Development Working Group, UNDP will lead the preparation of
Guidelines for National SDG Reports which are relevant and appropriate for the countries in which we work.
UNDP is deeply involved in all processes around the Sustainable Development Goal roll out. We are bringing
our extensive programming experience to bear in supporting countries to develop their national SDG efforts.

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33
VALUES UNDERLYING THE MILLENNIUM DECLARATION
The Millennium Declaration - which outlines 60 goals for peace; development; the environment; human rights;
the vulnerable, hungry and poor; Africa; and the United Nations - is founded on a core set of values described
as follows:
We consider certain fundamental values to be essential to international relations in the twenty-first century.
These include:
Freedom: Men and women have the right to live their lives and raise their children in dignity, free from hunger
and from the fear of violence, oppression or injustice. Democratic and participatory governance based on the
will of the people best assures these rights.
Equality: No individual and no nation must be denied the opportunity to benefit from development. The equal
rights and opportunities of women and men must be assured.

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Solidarity: Global challenges must be managed in a way that distributes the costs and burdens fairly in
accordance with basic principles of equity and social justice. Those who suffer or who benefit least deserve help
from those who benefit most.
Tolerance: Human beings must respect one other, in all their diversity of belief, culture and language.
Differences within and between societies should be neither feared nor repressed, but cherished as a precious
asset of humanity. A culture of peace and dialogue among all civilizations should be actively promoted.
Respect for nature: Prudence must be shown in the management of all living species and natural resources, in
accordance with the precepts of sustainable development. Only in this way can the immeasurable riches
provided to us by nature be preserved and passed on to our descendants. The current unsustainable patterns of
production and consumption must be changed in the interest of our future welfare and that of our descendants.
Shared responsibility: Responsibility for managing worldwide economic and social development, as well as
threats to international peace and security, must be shared among the nations of the world and should be
exercised multi-laterally. As the most universal and most representative organization in the world, the United
Nations must play the central role.”

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 FM Notes 12 – Sustainable Development Goals

SDG Goal 1: Poverty Reduction

Poverty is multidimensional and is not simply a lack of adequate income. For instance, earning US$1.90 PPP
(purchasing power parity) per day is unlikely to mean the end of the many overlapping deprivations faced by
poor people, including malnutrition, poor sanitation and a lack of electricity or inadequate schools. Time
poverty adds another dimension. Rural women in developing countries, for instance, spend most of their time
on unpaid household and subsistence activities.
Little time is left for market-related and remunerated activities, thereby exacerbating poverty. According to the
Global Multidimensional Poverty Index (MPI) 1.6 billion people in 108 countries, home to 78 percent of the
world’s population, are identified as multidimensionally poor.
MPI reflects the combined simultaneous disadvantages poor people experience across different areas of their
lives, including education, health and living standards.
End poverty in all its forms everywhere
Eradicating poverty in all its forms remains one of the greatest challenges facing humanity. While the number
of people living in extreme poverty has dropped by more than half - from 1.9 billion in 1990, to 836 million in
2015 - too many are still struggling for the most basic human needs.
Globally, more than 800 million people are still living on less than $1.25 a day; many lacking access to
adequate food, clean drinking water and sanitation. Rapid economic growth in countries like China and India
has lifted millions out of poverty, but progress has also been uneven. Women are disproportionately more likely
to live in poverty than men due to unequal access to paid work, education and property.
Progress has also been limited in other regions, such as South Asia and Sub - Saharan Africa, which account for
80 percent of the global total of those living in extreme poverty. This rate is expected to rise due to new threats
brought on by climate change, conflict and food insecurity.
The Sustainable Development Goals (SDGs) are a bold commitment to finish what we started, and end poverty
in all forms and dimensions by 2030. This involves targeting those living in vulnerable situations, increasing
access to basic resources and services, and supporting communities affected by conflict and climate-related
disasters.
Ending poverty is one of 17 Global Goals that make up the 2030 Agenda for Sustainable Development. An
integrated approach is crucial for progress across the multiple goals.
SDG Goal 2: Zero hunger
End hunger, achieve food security and improved nutrition and promote sustainable agriculture
Rapid economic growth and increased agricultural productivity over the past two decades has seen the
proportion of undernourished people drop by almost half.
Many developing countries that used to suffer from famine and hunger can now meet the nutritional needs of
the most vulnerable. Central and East Asia, Latin America and the Caribbean have all made huge progress in
eradicating extreme hunger.

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These are all significant achievements in reaching the targets set out by the first Millennium Development
Goals. Unfortunately, extreme hunger and malnutrition remain a huge barrier to development in many
countries.
795 million people are estimated to be chronically undernourished as of 2014, often as a direct consequence of
environmental degradation, drought and loss of biodiversity. Over 90 million children under the age of five are
dangerously underweight. And one person in every four still goes hungry in Africa.
The Sustainable Development Goals (SDGs) aim to end all forms of hunger and malnutrition by 2030, making
sure all people - especially children and the more vulnerable - have access to sufficient and nutritious food all
year round. This involves promoting sustainable agricultural practices: improving the livelihoods and capacities
of small scale famers, allowing equal access to land, technology and markets.
It also requires international cooperation to ensure investment in infrastructure and technology to improve
agricultural productivity. Together with the other goals set out here, we can end hunger by 2030.
Goal 3: Good health and well-being
Ensure healthy lives and promote well-being for all
Since the creation of the Millennium Development Goals there have been historic achievements in reducing
child mortality, improving maternal health and tackling HIV/AIDS, tuberculosis, malaria and other diseases.
In 15 years, the number of people newly infected by HIV each year has dropped from 3.1 million to 2 million
and over 6.2 million lives were saved from malaria. Since 1990, maternal mortality fell by 45 percent, and
worldwide there has been an over 50 percent decline in preventable child deaths globally.
Despite this incredible progress, AIDS is the leading cause of death among adolescents in sub-Saharan Africa,
and 22 million people living with HJV are not accessing life-saving antiretroviral therapy. New HIV infections
continue to rise in some locations and in populations that are typically excluded or marginalized.
Chronic and catastrophic disease remains one of the main factors that push households from poverty into
deprivation. Non-communicable diseases (NCDs) impose a large burden on human health worldwide.
Currently, 63% of all deaths worldwide stem from NCDs - chiefly cardiovascular diseases, cancers, chronic
respiratory diseases and diabetes. The cumulative economic losses to low- and middle-income countries from
the four diseases are estimated to surpass US$ 7 trillion by 2025. Additionally, there continues to be
underinvestment in the social circumstances and environmental factors affecting health. The job on HIV and
health is far from done.
Recognizing the interdependence of health and development, the Sustainable Development Goals (SDGs)
provide an ambitious, comprehensive plan of action for people, planet and prosperity and for ending the
injustices that underpin poor health and development outcomes.
SDG 3 aspires to ensure health and well-being for all, including a bold commitment to end the epidemics of
AIDS, tuberculosis, malaria and other communicable diseases by 2030. It also aims to achieve universal health
coverage, and provide access to safe and effective medicines and vaccines for all. Supporting research and
development for vaccines is an essential part of this process as well as expanding access to affordable
medicines.

Goal 4: Quality education

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Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
Since 2000, there has been enormous progress in achieving the target of universal primary education. The total
enrolment rate in developing regions reached 91 percent in 2015, and the worldwide number of children out of
school has dropped by almost half.
There has also been a dramatic increase in literacy rates, and many more girls are in school than ever before.
These are all remarkable successes.
Progress has also faced tough challenges in developing regions due to high levels of poverty, armed conflicts
and other emergencies. In Western Asia and North Africa, ongoing armed conflict has seen an increase in the
proportion of children out of school. This is a worrying trend.
While Sub-Saharan Africa made the greatest progress in primary school enrolment among all developing
regions - from 52 percent in 1990, up to 78 percent in 2012 - large disparities still remain. Children from the
poorest households are four times more likely to be out of school than those of the richest households.
Disparities between rural and urban areas also remain high.
Achieving inclusive and quality education for all reaffirms the belief that education is one of the most powerful
and proven vehicles for sustainable development. This goal ensures that all girls and boys complete free
primary and secondary schooling by 2030. It also aims to provide equal access to affordable vocational training,
and to eliminate gender and wealth disparities with the aim of achieving universal access to a quality higher
education.
Goal 5: Gender equality
Achieve gender equality and empower all women and girls Empowering women and promoting gender equality
is crucial to accelerating sustainable development. Ending all forms of discrimination against women and girls
is not only a basic human right, but it also has a multiplier effect across all other development areas.
Since 2000, UNDP together with our UN partners and the rest of the global community has made gender
equality central to our work, and we have seen some remarkable successes. More girls are now in school
compared to 15 years ago, and most regions have reached gender parity in primary education. Women now
make up to 41 percent of paid workers outside of agriculture, compared to 35 percent in 1990.
The Sustainable Development Goals (SDGs) aim to build on these achievements to ensure that there is an end to
discrimination against women and girls everywhere.
There are still gross inequalities in access to paid employment in some regions, and significant gaps between
men and women in the labour market. Sexual violence and exploitation, the unequal division of unpaid care and
domestic work, and discrimination in public decision making, all remain huge barriers.
Ensuring universal access to sexual and reproductive health, and affording women equal rights to economic
resources such as land and property, are vital targets to realizing this goal. There are now more women in public
office than ever before, but encouraging more women leaders across all regions will help strengthen policies
and legislation for greater gender equality.

Goal 6: Clean water and sanitation

Ensure access to water and sanitation for all water scarcity affects more than 40 percent of people around the
world, an alarming figure that is projected to increase with the rise of global temperatures as a consequence of

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climate change. Although 2.1 billion people have gained access to improved water sanitation since 1990,
dwindling supplies of safe drinking water is a major problem impacting every continent.
In 2011, 41 countries experienced water stress; ten of them are close to depleting their supply of renewable
freshwater and must now rely on non-conventional sources. Increasing drought and desertification is already
exacerbating these trends. By 2050, it is projected that at least one in four people are likely to be affected by
recurring water shortages.
Ensuring universal access to safe and affordable drinking water by 2030 requires we invest in adequate
infrastructure, provide sanitation facilities and encourage hygiene at every level. Protecting and restoring water-
related ecosystems such as forests, mountains, wetlands and rivers is essential if we are to mitigate water
scarcity. More international cooperation is also needed to encourage water efficiency and support treatment
technologies in developing countries.
Goal 7: Affordable and clean energy
Ensure access to affordable, reliable, sustainable and modern energy for all between 1990 and 2010, the number
of people with access to electricity has increased by 1.7 billion, and as the global population continues to rise so
will the demand for cheap energy. A global economy reliant on fossil fuels and the increase of greenhouse gas
emissions is creating drastic changes to our climate system. This is having a visible impact on every continent.
However, there has been a new drive to encourage alternative energy sources, and in 2011 renewable energy
accounted for more than 20 percent of global power generated. Still one in five people lack access to electricity,
and as the demand continues to rise there needs to be a substantial increase in the production of renewable
energy across the world.
Ensuring universal access to affordable electricity by 2030 means investing in clean energy sources such as
solar, wind and thermal. Adopting cost-effective standards for a wider range of technologies could also reduce
the global electricity consumption by buildings and industry by 14 percent. This means avoiding roughly 1,300
mid-size power plants. Expanding infrastructure and upgrading technology to provide clean energy sources in
all developing countries is a crucial goal that can both encourage growth and help the environment.
Goal 8: Decent work and economic growth
Promote inclusive and sustainable economic growth, employment and decent work for all
Over the past 25 years the number of workers living in extreme poverty has declined dramatically, despite the
long-lasting impact of the economic crisis of 2008/2009. In developing countries, the middle class now makes
up more than 34 percent of total employment - a number that has almost tripled between 1991 and 2015.
However, as the global economy continues to recover we are seeing slower growth, widening inequalities and
employment that is not expanding fast enough to keep up with the growing labour force. According to the
International Labour Organization, more than 204 million people are unemployed in 2015.
The Sustainable Development Goals (SDGs) aim to encourage sustained economic growth by achieving higher
levels of productivity and through technological innovation. Promoting policies that encourage entrepreneurship
and job creation are key to this, as are effective measures to eradicate forced labour, slavery and human
trafficking. With these targets in mind, the goal is to achieve full and productive employment, and decent work,
for all women and men by 2030.
Goal 9: Industry, innovation, infrastructure
Build resilient infrastructure, promote sustainable industrialization and foster innovation

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Sustained investment in infrastructure and innovation are crucial drivers of economic growth and development.
With over half the world population now living in cities, mass transport and renewable energy are becoming
ever more important, as are the growth of new industries and information and communication technologies.
Technological progress is also key to finding lasting solutions to both economic and environmental challenges,
such as providing new jobs and promoting energy efficiency. Promoting sustainable industries, and investing in
scientific research and innovation, are all important ways to facilitate sustainable development.
More than 4 billion people still do not have access to the Internet, and 90 percent are from the developing
world. Bridging this digital divide is crucial to ensure equal access to information and knowledge, and as a
consequence foster innovation and entrepreneurship.
Goal 10: Reduced inequalities
Reduce inequality within and among countries
It is well documented that income inequality is on the rise, with the richest 10 percent earning up to 40 percent
of total global income. The poorest 10 percent earn only between 2 and 7 percent of total global income. In
developing countries, inequality has increased by 11 percent if we take into account the growth of population.
These widening disparities are a call for action that require the adoption of sound policies to empower the
bottom percentile of income earners and promote economic inclusion of all regardless of sex, race or ethnicity.
Income inequality is a global problem that requires global solutions. This involves improving the regulation and
monitoring of financial markets and institutions, encouraging development assistance and foreign direct
investment to regions where the need is greatest. Facilitating the safe migration and mobility of people is also
key to bridging the widening divide.
Goal 11: Sustainable cities and communities
Make cities inclusive, safe, resilient and sustainable
More than half of the world’s population now live in urban areas. By 2050, that figure will have risen to 6.5
billion people - two-thirds of humanity. Sustainable development cannot be achieved without significantly
transforming the way we build and manage our urban spaces.
The rapid growth of cities in the developing world, coupled with increasing rural to urban migration, has led to
a boom in mega-cities. In 1990, there were ten mega cities with 10 million inhabitants or more. In 2014, there
are 28 mega-cities, home to a total 453 million people.
Extreme poverty is often concentrated in urban spaces, and national and city governments struggle to
accommodate the rising population in these areas. Making cities safe and sustainable means ensuring access to
safe and affordable housing, and upgrading slum settlements. It also involves investment in public transport,
creating green public spaces, and improving urban planning and management in a way that is both participatory
and inclusive.
Goal 12: Responsible consumption, production
Ensure sustainable consumption and production patterns
Achieving economic growth and sustainable development requires that we urgently reduce our ecological
footprint by changing the way we produce and consume goods and resources. Agriculture is the biggest user of
water worldwide, and irrigation now claims close to 70 percent of all freshwater appropriated for human use.

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The efficient management of our shared natural resources, and the way we dispose of toxic waste and
pollutants, are important targets to achieve this goal. Encouraging industries, businesses and consumers to
recycle and reduce waste is equally important, as is supporting developing countries to move towards more
sustainable patterns of consumption by 2030.
A large share of the world population is still consuming far too little to meet even their basic needs. Halving per
capita global food waste at the retailer and consumer levels is also important for creating more efficient
production and supply chains. This can help with food security and shift us towards a more resource efficient
economy.
Goal 13: Climate action
Take urgent action to combat climate change and its impacts
There is no country in the world that is not seeing first-hand the drastic effects of climate change. Greenhouse
gas emissions continue to rise, and are now more than 50 percent higher than their 1990 level. Further, global
warming is causing long lasting changes to our climate system, which threatens irreversible consequences if we
do not take action now.
The annual average losses from just earthquakes, tsunamis, tropical cyclones and flooding count in the hundreds
of billions of dollars, requiring an investment of US$ 6 billion annually in disaster risk management alone. The
goal aims to mobilize $100 billion annually by 2020 to address the needs of developing countries and help
mitigate climate-related disasters.
Strengthening the resilience and adaptive capacity of more vulnerable regions, such as land locked countries
and island states, must go hand in hand with efforts to raise awareness and integrate measures into national
policies and strategies. It is still possible, with the political will and a wide array of technological measures, to
limit the increase in global mean temperature to two degrees Celsius above pre-industrial levels. This requires
urgent collective action.

Goal 14: Life below water

Conserve and sustainably use the oceans, seas and marine resources
The world’s oceans - their temperature, chemistry, currents and life - drive global systems that make the Earth
habitable for humankind. How we manage this vital resource is essential for humanity as a whole, and to
counter balance the effects of climate change.
Over three billion people depend on marine and coastal biodiversity for their livelihoods. However, today we
are seeing 30 percent of the world’s fish stocks overexploited, well below a level at which they can produce
sustainable yields.
Oceans also absorb about 30 percent of the carbon dioxide produced by humans, and we are seeing a 26 percent
rise in ocean acidification since the beginning of the industrial revolution. Marine pollution, an overwhelming
majority of which comes from land-based sources, is reaching alarming levels, with an average of 13,000 pieces
of plastic litter to be found on every square kilometre of ocean.
The Sustainable Development Goals (SDG5) create a framework to sustainably manage and protect marine and
coastal ecosystems from land-based pollution, as well as address the impacts of ocean acidification. Enhancing

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conservation and the sustainable use of ocean-based resources through international law will also help mitigate
some of the challenges facing our oceans.
Goal 15: Life on land
Sustainably manage forests, combat desertification, halt and reverse land degradation, halt biodiversity
loss
Human life depends on the earth as much as the ocean for our sustenance and livelihood. Plant life provides 80
percent of our human diet, and we rely on agriculture as an important economic resource and means of
development. Forests account for 30 percent of the Earth’s surface, providing vital habitats for millions of
species and important sources for clean air and water; as well as being crucial for combating climate change.
Today we are seeing unprecedented land degradation, and the loss of arable land at 30 to 35 times the historical
rate. Drought and desertification is also on the rise each year, amounting to the loss of 12 million hectares and
affects poor communities globally. Of the 8,300 animal breeds known, 8 percent are extinct and 22 percent are
at risk of extinction.
The Sustainable Development Goals (SDG5) aim to conserve and restore the use of terrestrial ecosystems such
as forests, wetlands, drylands and mountains by 2020. Promoting the sustainable management of forests and
halting deforestations is also vital to mitigating the impact of climate change. Urgent action must be taken to
reduce the loss of natural habitats and biodiversity which are part of our common heritage.
Goal 16: Peace, justice and strong institutions
Promote just, peaceful and inclusive societies
Peace, stability, human rights and effective governance based on the rule of law are important conduits for
sustainable development. We are living in a world that is increasingly divided. Some regions enjoy sustained
levels of peace, security and prosperity while others fall into seemingly endless cycles of conflict and violence.
This is by no means inevitable and must be addressed.
High levels of armed violence and insecurity have a destructive impact on a country’s development, affecting
economic growth and often resulting in long standing grievances among communities that can last for
generations. Sexual violence, crime, exploitation and torture are also prevalent where there is conflict or no rule
of law, and countries must take measures to protect those who are most at risk.
The Sustainable Development Goals (SDG5) aim to significantly reduce all forms of violence, and work with
governments and communities to find lasting solutions to conflict and insecurity. Strengthening the rule of law
and promoting human rights is key to this process, as is reducing the flow of illicit arms and strengthening the
participation of developing countries in the institutions of global governance.
Goal 17: Partnerships for the goals
Revitalize the global partnership for sustainable development
The Sustainable Development Goals (SDGs) can only be realized with a strong commitment to global
partnership and cooperation. While official development assistance from developed countries increased by 66
percent between 2000 and 2014, humanitarian crises brought on by conflict or natural disasters continue to
demand financial resources and aid. Many countries also require Official Development Assistance to encourage
growth and trade.

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The world today is more interconnected than ever before. Improving access to technology and knowledge is an
important way to share ideas and foster innovation.
Coordinating policies to help developing countries manage their debt, as well as promoting investment for the
least developed, is vital to achieve sustainable growth and development.
The goals aim to enhance North-South and South-South cooperation by supporting national plans to achieve all
the targets. Promoting international trade, and helping developing countries increase their exports, is all part of
achieving a universal rules-based and equitable trading system that is fair and open, and benefits all.

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 FM Notes 13 – Economic Reforms

The economy of India is one of the fastest growing economies in the world. Since its independence in the year
1947, a number of economic policies have been taken which have led to the gradual economic development of
the country. On a broader scale, India economic reform has been a blend of both social democratic and
liberalization policies.
Economic reforms during the post-independence period-:
The post-independence period of India was marked by economic policies which tried to make the country self-
sufficient. Under the economic reform, stress was given more to development of defense, infrastructure and
agricultural sectors.
Government companies were set up and investment was done more on the public sector. This was made to
make the base of the country stronger. To strengthen the infrastructure, new roads, rail lines, bridges, dams and
lots more were constructed.
During the Five Years Plans initiated in the 1950s, the economic reforms of India somewhat followed the
democratic socialist principle with more emphasis on the growth of the public and rural sector.
Most of the policies were meant towards the increase of exports compared to imports, central planning, business
regulation and also intervention of the state in the finance and labor markets.
In the mid 50’s huge scale nationalization was done to industries like mining, telecommunications, electricity
and so on.
Economic Reforms during 1960s and 1980s-:
During the mid-1960’s effort was made to make India self-sufficient and also increase the production and
export of the food grains. To make the plan a success, huge scale agricultural development was undertaken.
The government initiated the ‘Green Revolution’ movement and stressed on better agricultural yield through the
use of fertilizers, improved seed and lots more. New irrigation projects were undertaken and the rural banks
were also set up to provide financial support to the farmers.
The first step towards liberalization of the economy was taken up by Rajiv Gandhi. After he became the Prime
Minister, a number of restrictions on various sectors were eased, control on pricing was removed, and stress was
given on increased growth rate and so on.
Economic Reforms during 1990s to the present times
Due to the fall of the Soviet Union and the problems in balance of payment accounts, the country faced
economic crisis and the IMF asked for the bailout loan.
To get out of the situation, the then Finance Minister, Manmohan Singh initiated the economic liberation reform
in the year 1991. This is considered to be one of the milestones in India economic reform as it changed the
market and financial scenario of the country. Under the liberalization program, foreign direct investment was
encouraged, public monopolies were stopped, and service and tertiary sectors were developed.
The reform process in India was initiated with the aim of accelerating the pace of economic growth and
eradication of poverty. The process of economic liberalization in India can be traced back to the late 1970s.

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It was only in 1991 that the Government signalled a systemic shift to a more open economy with greater
reliance upon market forces, a larger role for the private sector including foreign investment, and a restructuring
of the role of Government.
The reforms of the last decade and a half have gone a long way in freeing the domestic economy from the
control regime.
An important feature of India’s reform programme is that it has emphasized gradualism and evolutionary
transition rather than rapid restructuring or ‘shock therapy’. This approach was adopted since the reforms were
introduced in June 1991 in the wake a balance of payments crisis that was certainly severe. However, it was not
a prolonged crisis with a long period of non-performance.
The economic reforms initiated in 1991 introduced far-reaching measures, which changed the working and
machinery of the economy. These changes were pertinent to the following:
- Dominance of the public sector in the industrial activity
- Discretionary controls on industrial investment and capacity expansion
- Trade and exchange controls
- Limited access to foreign investment
- Public ownership and regulation of the financial sector
The reforms have unlocked India’s enormous growth potential and unleashed powerful entrepreneurial forces.
Since 1991, successive governments, across political parties, have successfully carried forward the country’s
economic reform agenda.
Reforms in Industrial Policy-:
Industrial policy was restructured to a great extent and most of the central government industrial controls were
dismantled. Massive deregulation of the industrial sector was done in order to bring in the element of
competition and increase efficiency.
Industrial licensing by the central government was almost abolished except for a few hazardous and
environmentally sensitive industries.
The list of industries reserved solely for the public sector - which used to cover 18 industries, including iron and
steel, heavy plant and machinery, telecommunications and telecom equipment, minerals, oil, mining, air
transport services and electricity generation and distribution was drastically reduced to three: defense aircrafts
and warships, atomic energy generation, and railway transport. Further, restrictions that existed on the import of
foreign technology were withdrawn.
Reforms in Trade Policy
It was realized that the import substituting inward looking development policy was no longer suitable in the
modern globalising world.
Before the reforms, trade policy was characterized by high tariffs and pervasive import restrictions. Imports of
manufactured consumer goods were completely banned. For capital goods, raw materials and intermediates,
certain lists of goods were freely importable, but for most items where domestic substitutes were being
produced, imports were only possible with import licenses. The criteria for issue of licenses were non-
transparent, delays were endemic and corruption unavoidable.
The economic reforms sought to phase out import licensing and also to reduce import duties.

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Import licensing was abolished relatively early for capital goods and intermediates which became freely
importable in 1993, simultaneously with the switch to a flexible exchange rate regime. Quantitative restrictions
on imports of manufactured consumer goods and agricultural products were finally removed on April 1, 2001,
almost exactly ten years after the reforms began, and that in part because of a ruling by a World Trade
Organization dispute panel on a complaint brought by the United States.
Financial sector reforms
Financial sector reforms have long been regarded as an integral part of the overall policy reforms in India. India
has recognized that these reforms are imperative for increasing the efficiency of resource mobilization and
allocation in the real economy and for the overall macroeconomic stability.
The reforms have been driven by a thrust towards liberalization and several initiatives such as liberalization in
the interest rate and reserve requirements have been taken on this front. At the same time, the government has
emphasized on stronger regulation aimed at strengthening prudential norms, transparency and supervision to
mitigate the prospects of systemic risks.
Today the Indian financial structure is inherently strong, functionally diverse, efficient and globally
competitive.
During the last fifteen years, the Indian financial system has been incrementally deregulated and exposed to
international financial markets along with the introduction of new instruments and products.
The salient features of new economic policy are Liberlisation, Privatisation and Globalisation of the
economy (LPG policy).
(1) Liberalisation: Simply speaking liberalisation means to free to economy from the controls imposed by the
Govt. Before 1991, Govt. had put many types of controls on Indian economy. These were as follows:
a. Industrial Licensing System
b. Foreign exchange control
c. Price control on goods
d. Import License.
Due to all these controls, the economy became defective. The entrepreneurs were unwilling to establish new
industries. Corruption, undue delays and inefficiency rose due to these controls. Rate of economic growth of the
economy came down.
Economic reforms were introduced to reduce the restrictions imposed on the economy.
Steps taken for Liberalization: The following steps have been taken for liberalization:
Independent determination of interest rate: Under the policy of liberalisation interest rate of the banking system
will not be determined by RBI rather all Banks are independent to determine the rate of interest.
Increase in the investment limit of the Small Scale Industries: Investment limit of the small scale industries has
been raised to ₹ 1 crore. So that they can modernize their industry.
Freedom to import capital goods: Indian industries will be free to buy machines and raw materials from foreign
countries to expand their business.
Freedom to import Technical know-how: Under new economic policy the entrepreneurs are free to import
technical know-how and develop modernisations.

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The main aim of the policy is to develop computers and electronics.
Freedom for expansion and production to Industries: Industries are free to expand and produce under the policy
of liberalisation. Previously, the govt. used to fix the maximum limit of production capacity. No industry could
produce beyond that limit.
Now the industry can produce freely. Also they can produce anything depending on the demand.
Freedom from Monopolies Act: According to Monopolies and Restrictive Trade Practices (MRTP) Act all those
companies having assets worth ₹ 100 crore or more were called MRTP firms and were subjected to several
restrictions. Now these firms have not to obtain prior approval of the Govt. for taking investment decision.
Removal of Industrial Licensing and Registration: Previously private sector had to obtain license from Govt. for
starting a new venture. In this policy private sector has been freed from licensing and other restrictions.
Industries licensing is necessary for following industries:
a. Liquor
b. Cigarette
c. Defence equipment
d. Industrial explosives
e. Drugs
f. Hazardous chemicals.
(2) Privatisation:
Simply speaking, privatisation means permitting the private sector to set up industries which were previously
reserved for the public sector. Under this policy many PSU’s were sold to private sector. In privatisation, the
Govt.s role is only reduced it does not disappear. Literally speaking, privatisation is the process of involving the
private sector-in the ownership of Public Sector Units (PSU’s).
The main reason for privatisation was in currency of PSU’s are running in losses due to political interference.
The managers cannot work independently. Production capacity remained under-utilized. To increase
competition and efficiency need of privatisation was felt.
Step taken for Privatisation:
Sale of shares: Indian Govt. has been selling shares of PSU’s to public and financial institution e.g. Govt. sold
shares of Maruti Udyog Ltd. This was the private sector will acquire ownership of these PSU’s. The share of
private sector has increased from 45% to 55%.
Disinvestment in PSU’s: The Govt. has started the process of disinvestment in those PSU’s which had been
running into loss. It means that Govt. has been selling out these industries to private sector. Govt. has sold
enterprises worth ₹ 30,000 crores to the private sector.
Minimisation of Public Sector: Previously Public sector was given the importance with a view to help in
industralisation and removal of poverty. But these PSU’s could not able to achieve this objective and policy of
contraction of PSU’s was followed under new economic reforms. Number of industries reserved for public
sector was reduces from 17 to 4.
a. Transport and railway
b. Mining of atomic minerals
c. Atomic energy
d. Defence equipment

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(3) Globalization: Literally speaking Globalisation means to make Global or worldwide, otherwise taking into
consideration the whole world. Broadly speaking, Globalisation means the establishment of relations of the
economy with world economy in regard to foreign investment, trade, production and financial matters.
Globalisation may be defined as integrating the economy of a country with the economies of other countries
under conditions of free-flow of trade and capital and movement of persons across the borders, Economic
reforms aim at close association of India economy with world economy. There will be an increased co-
operation of
India economy with world economies across the world. Capital and technology will flow from the developed
countries of the world towards India.
Steps taken for Globalisation:
Reduction in tariffs: Custom duties and tariffs imposed on imports and exports are reduced gradually just to
make India economy internationally beneficial.
Long term Trade Policy: Forcing trade policy was enforced for longer duration. Main features of the policy
are:
a. Liberal policy
b. All controls on foreign trade have been removed
c. Open competition has been encouraged.
d. Partial Convertibility: Partial convertibility can be defined as to sell foreign currency like dollar ($) or
pound, for foreign transaction at a price determined by the market.
e. Partial convertibility of Indian rupee was allowed to achieve the objectives of globalisation.
f. Increase in Equity Limit of Foreign Investment: Equity limit of foreign capital investment has been raised
from 40% to 100% percent. In 47 high priority industries foreign direct investment (FDI) to the extent of
100% will be allowed without any restriction. In this regard Foreign Exchange Management Act (FEMA)
will be enforced.
Due to the global meltdown, the economy of India suffered as well. However, unlike other countries, India
sustained the shock as an important part of its financial and banking sector is still under government regulation.
Nevertheless, to cope with the present situation, the Indian government has taken a number of decisions like
strengthening the banking and tertiary sectors, increasing the quantity of exports and lots more.

FM Notes 14 – Labour Policy and Reforms

Reforms in labour laws are an ongoing process to update legislative system to address the need of the hour and
to make them more effective and contemporary to the emerging economic and industrial scenario. The Second
National Commission on Labour has recommended that the existing Labour Laws should be broadly grouped
into four or five Labour Codes on functional basis. Accordingly, the Ministry has taken steps for drafting four
Labour Codes on Wages; Industrial Relations; Social Security & Welfare; and Safety and Working Conditions
respectively, by simplifying, amalgamating and rationalizing the relevant provisions of the existing Central
Labour Laws.

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Similarly, the Ministry has taken steps to draft Small Factories Bill, a special legislation for the small
manufacturing units, based on the recommendations of 2 nd National Commission of Labour. Ministry has also
taken steps for amendment of individual Labour Acts. The process of Legislative reforms includes consultation
with stakeholders including Central Trade Unions, Employers’ Association and State Governments in the form
of tripartite consultation.
During recent months, several such tripartite meetings have been held for considering suggestions on various
legislative reform proposals where the representatives of Central Trade Unions participated and gave their
suggestions on the legislative proposals which are considered by the Government appropriately.
Future of Work in India and Young People’s Aspirations
The Ministry of Labour and Employment V.V. Gin National Labour Institute and International Labour
Organization are organizing an event on “The Future of Work in India and Young People’s Aspiration”. This
event will focus on India’s youth and their aspirations in the world of work. It will seek to highlight both
challenges in the labour market and how youth can be an agent of change them to address them.
The Minister of Labour and Employment Shni Bandaru Dattatreya, will be speaking at the event along with the
United Nations Resident Coordinator for India, Shri Yuri Afanasiev, and Secretary, Labour and Employment
Shri Shankar Aggarwal. Young people from different backgrounds will be sharing their views and aspirations.
The world of work is undergoing a major process of change. There are several forces transforming it, from the
onward march of technology and the impact of climate change to the changing character of production and
employment, and demographics to name a few.
At the same time, the youth of India are facing an exciting period of change and new opportunities. With higher
levels of education, access to information and awareness of the world around them, young people across the
country are seeking to make the transition from school to work and contribute to the country’s development
through employment and entrepreneurship.
It is necessary to understand and to respond effectively to new challenges in the world of work in order to be
able to advance social justice. For this reason, the International Labour Organization’s Director-General Guy
Ryder has launched the “Future of Work initiative”. The initiative seeks to involve ILOs member-states fully
and universally, but also to reach beyond them to all relevant and interested stakeholders, including youth.
Labour policies are devised to maintain economic development, social justice, industrial harmony and welfare
of labour in the country. To promote these activities, various reforms and initiatives have been brought upon by
the government. This section covers employment oriented programmes, activities, schemes, recruitment,
notifications, labour welfare acts, rules, laws, online services, grievance cells, etc. Details of organised and
unorganised sector workers are also available.
Labor Market-: Current Scenario
- India’s growth story has remained incomplete as it did not match with the required employment growth.
During the period, 2000 to 2009 the Indian economy grew at an average rate of 8 per cent but employment
growth was rather sluggish. Table provides ample evidence.
- At present, overwhelmingly large percentage of workers (about 92 per cent) is engaged in informal
employment that has low earnings with limited or no social protection.
- The labour-force participation rate is comparatively low in India largely because lower female participation.

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What Reforms are needed?
Eighty per cent of Indian manufacturing output comes from enterprises in the formal sector while a similar
proportion of manufacturing employment is generated by enterprises in the informal sector.
This is a fundamental disconnect: one set of enterprises accounts for most of the output while another set of
enterprises accounts for most of the employment. It has also created a labour aristocracy that seeks to protect its
privileges but in effect keeps the majority of industrial workers trapped in informal enterprises.
Following reforms are essential for the efficient labour markets in India-:
 Labour to be shifted to ‘State List’-: Labour being in the concurrent list of the constitution, both central and
state government legislate on it. But the State Governments have limited space to enact labour laws to
address their own requirements - promoting investment and employment generation. It is in best interest of
all to shift labour in State list.
 Simplification of archaic laws-: We must create single window system under the common headlines/sets.
Initially we can start with reducing these to four sets of labour laws as following-
- Laws governing terms and conditions of employment.
- Laws governing wages.
- Laws governing welfare.
- Laws governing social security.
 A uniform definition of terms like ‘industry’ and ‘worker’ is necessary across statutes. For better
interpretation and understanding, industry should be termed as ‘enterprise’ and workman should be termed
as ‘employee’.
 A separate set of simple labour laws should apply to enterprises employing less than 50 employees to
promote micro and small enterprises with a self-contained code covering laws on employment relations,
wages and social security. These enterprises termed as ‘smaller enterprises’ should be exempted from the
application of the Industrial Disputes Act, 1947 and the Industrial Employment (Standing Orders) Act, 1946
as recommended by the 2nd National Commission on Labour.

 The penal provisions in all labour laws need to be revisited and the penalty of imprisonment, wherever it
appears, should be converted into pecuniary fines. It will reduce the compliance cost and fear in the
employers.
 Separate independent judicial system: Due to already overburdening of judicial system, a separate
independent judicial system for labor issues may be created. It should be entrusted with interpretation of all
the labor laws and regulations.
 Inter State Council: Many labors migrate from one State to another but no record is maintained anywhere.
An Inter State Council should be setup to look into their issues.
Improving Enforcement of Labor Laws:
- Strengthening of enforcement machinery: Increased manpower, improved infrastructure is essential for
effective implementation of labor laws.
- All India Service for labor administration must be formed that will provide professional experts in the field
of labor administration.
- Dispute resolution: Regular Lok Adalats could enable faster disposal of cases.
- Digitization of the Employment Exchanges, digital sharing of data on registered job seekers should be made
mandatory for all Employment Exchanges.

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- Insurance mechanism: An insurance scheme should be started for the retrenched workers from the time the
industry commenced operations, so that workers were not put to hardship later.
Benefits limited to Organised Sector only
These labour laws apply to organised sector which employs only 8 to 9 percent of workforce leaving vast
majority of Indian workforce remain unregulated. The workers under unorganised sector have limited rights and
are faced deplorable working conditions.
Multiplicity, Complexity and Rigidities
The multiplicity of labour laws and difficulty in coping with them are the impediment to industrial development
in India. Many of the laws are obsolete and are required to be reviewed to align them with current economic
situation. Some of such laws and provisions are discussed below:
a. Industrial Disputes Act (IDA). This Act requires firms employing more than loo workers to seek permission
from their respective state governments to retrench or lay off workers. This permission is seldom granted.
b. Industrial Employment (Standing Orders) Act makes job description modifications and interplant transfers
within a firm (with more than 100 workers in some states and more than 50 in others) very difficult and
virtually impossible.
c. The Trade Union Act allows formation of trade union in firms having more than any seven workers provide
right to strike. The multiplicity of unions becomes a potentially difficult situation for employers to manage.
d. Contract Labour Act regulates and restricts the use of contract labour. It is argued that it limits the
substitutability between permanent and contract workers, and thereby restricts an important channel through
which, the firms can reduce costs. For certain tasks, the use of contract labour is prohibited.

Regulation of Labor Market

 Currently, there are 44 labour laws under the purview of Central Government and more than loo under State
Governments, which deal with a host of labour issues.
 Unfortunately, these labour laws protect only 7-8 percent of the organised sector workers employed at the
cost of 93 per cent unorganised sector workers.
 Following are some of the Central legislations passed under different articles of the Constitution-:
- Minimum Wages Act, 1948.
- Industries (Regulation and Development) Act of 1951.
- Industrial Disputes Act, 1947.
- Factories Act of 1948.
- Contract labour Act 1970.
- Trade Unions Act 1926.
 In addition multiplicity of statutes, there are concerns around the protection of the workforce and effective
implementation of statutes.
Ease of Doing Business is affected
 Employers contend that labour laws in India are excessively pro-worker in the organized sector. There is too
much of inspection, and industries are looked upon with suspicion when comes to enforcing labour laws.
 The legal provisions of job security and institutional factors like the pressure of trade unions make
adjustment of the workforce of enterprises difficult and discourage organised sector enterprises from

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 expansion. The small size of labour- intensive firms prevents them from reaping economies of scale, thereby
lowering India’s comparative advantage in labour-intensive manufacturing.
 Studies show states with relatively easier labour regulations have experienced higher growth of labour
intensive industries and their overall employment than have other states.
Jobless Growth
Several economists, industry associations believe deceleration in employment growth in India is due to
inflexibility in the labour market. The existing labour laws designed to protect employment and do not
encourage employability. They are a major cause for greater acceptance of capital-intensive methods in the
organized sector and affect the sector’s long run demand for labour.
Skill Development
The industries play crucial role in skill development. However, these laws discourage firms from employing a
large number of permanent workers and steer them towards employing more casual or contract workers. In such
temporary workers, firms show no inclination to invest for skill development and training. To encourage
apprenticeship in India, labour market need to be reformed legally and institutionally both.
Global Competitiveness
The Restrictive labour regulations prevent firms from making the required adjustments to their inputs in
response to shocks to demand and technology. It makes them difficult to compete with firms in countries where
labour market rigidity is not a problem.
These regulations constrain the firms by curtailing their size and depriving them of significant potential
economies of scale. Thus, Indian manufacturing firms, especially in labour-intensive industries such as textiles
and apparel, are seriously disadvantaged relative to their counterparts in China, Bangladesh, and Vietnam etc.
where labour markets are much more flexible.
Recent Steps taken by Government
Central Government
 Dedicated Shram Suvidha Portal: That would allot Labour Identification Number (LIN) to units and allow
them to file online compliance for 16 out of 44 labour laws.
 Random Inspection Scheme: To eliminate human discretion in selection of units for inspection, and
uploading of Inspection Reports within 72 hours of inspection mandatory.
 Universal Account Number: Enables 4.17 crore employees to have their Provident Fund account portable,
hassle-free and universally accessible.
 Apprentice Protsahan Yojana: Government will support manufacturing units mainly and other
establishments by reimbursing 50% of the stipend paid to apprentices during first two years of their training.
 Revamped Rashtriya Swasthya Bima Yojana: Introducing a Smart Card for the workers in the
unorganized sector seeded with details of two more social security schemes.
 The National Career Service is being implemented as a mission mode project to provide various job-related
services information on skills development courses, internships etc.
State Government
 Madhya Pradesh, Gujarat, Maharashtra and Rajasthan have taken positive steps towards reforming labour
laws.

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 For instance, Madhya Pradesh has expedited the process for registration and grant of licences under several
legislations by introducing a maximum time period of 30 days within which, if an application is not rejected,
it will be deemed to be registered.
 Rajasthan Government initiated reforms in labour statutes. Companies can retrench up to 300 employees, up
from 100 without seeking government permission. Now, it requires membership of 30 percent of the total
workforce for a union to obtain recognition in Rajasthan.

HRD (Human Resources Development) has been defined by various scholars in various ways. Some of the
important definitions of HRD (Human Resources Development) are as follows:
1. According to Leonard Nadler, ‘Human resource development is a series of organized activities, conducted
within a specialized time and designed to produce behavioural changes.”
2. In the words of Prof. T.V. Rao, “HRD is a process by which the employees of an organization are helped in a
continuous and planned way to (i) acquire or sharpen capabilities required to perform various functions
associated with their present or expected future roles; (ii) develop their journal capabilities as individual and
discover and exploit their own inner potential for their own and /or organizational development purposes;
(iii) develop an organizational culture in which superior- subordinate relationship, team work and
collaboration among sub-units are strong and contribute to the professional well-being, motivation and pride
of employees.” .
3. According to M.M. Khan, “Human resource development is the across of increasing knowledge, capabilities
and positive work attitudes of all people working at all levels in a business undertaking.”
Human resource development is an integral part of Human resource function of an organization that deals with
development of the human resource through trainings and experiential learning. HRD develops the key
competencies of a person through performance analysis, identifying the gap and providing training to fill the
gaps.
The efficiency of the system can be measured by comparing the performance of employees before and after the
various trainings, counselling etc. Human Resource development has a dual objective of growth of the
employee and the growth of organization. As this provides learning and growth for employees, it also leads to
higher levels of employee satisfaction. HRD is the integrated use of: training and development, organizational
development, and career development to improve individual, group and organizational effectiveness.”
Features of Human Resource Development HRD
The nature / scope / characteristics or features of HRD are as follows:

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1. Training and Development
HRD involves training and developing the employees and managers. It improves their qualities, qualifications
and skills. It makes them more efficient in their present jobs. It also prepares them for future higher jobs.
2. Organizational Development (OD)
HRD also involves Organizational Development. CD tries to maintain good relations throughout the
organization. It also solves problems of absenteeism, internal conflicts, low productivity and resistance to
change.
3. Career Development
HRD also involves career planning and development of employees. It helps the employees to plan and develop
their careers. It informs them about future promotions and how to get these promotions. So HRD helps the
employee to grow and develop in the organization.
4. Performance Appraisal
HRD conducts Performance Appraisal, Potential Appraisal, etc. It informs the employees about their strengths
and weaknesses. It also advises them about how to increase their strengths and how to remove their weaknesses.
5. Multidisciplinary
HRD is multidisciplinary. That is, it uses many different subjects. It uses education, management, psychology,
communication, and economics. HRD uses all these subjects for training and developing the employees.
6. Key Element for solving problems
Now-a-days an organization faces many different problems. These problems are caused due to the economic,
technological and social changes. These problems can be solved only by knowledge, skill and creative efforts.
This knowledge, skill, etc. is achieved from HRD. Therefore, HRD is a key element for solving problems in the
organization.
7. Continuous in Nature
HRD is not a onetime affair. It is a continuous process. Development of human resources never stops. This is
because continuous changes happen in the organization and environment.
8. Integrated use of sub-systems
HRD system involves the integrated use of sub-systems such as performance appraisal, potential appraisal,
career planning, training, etc.
9. Placement
HRD places the right man in the right job. Placement is based on performance appraisal, potential appraisal,
training, etc. Proper placement gives satisfaction to the employee, and it increases the efficiency.
10. Promotions and Transfer
HRD also gives promotions and transfers to the employees based on performance appraisals, etc.
11. Motivation by Rewards
HRD also motivates the employees by giving those rewards for performing and behaving better, suggesting new
ideas, etc. Financial and non-financial rewards are given.
12. Human resource development is a process in which employees of the organizations are recognized as its
human resource. It believes that human resource is most valuable asset of the organization.
13. It stresses on development of human resources of the organization. It helps the employees of the
organization to develop their general capabilities in relation to their present jobs and expected future role.

54
14. It emphasize on the development and best utilization of the capabilities of individuals in the interest of the
employees and organization.
15. It helps is establishing/developing better inter-personal relations. It stresses on developing relationship
based on help, trust and confidence.
16. It promotes team spirit among employees.
17. It tries to develop corn petencies at the organization level. It stresses on providing healthy climate for
development in the organization.
18. HRD is a system. It has several sub-systems. All these sub-systems are inter related and interwoven. It
stresses on collaboration among all the sub-systems.
19. It aims to develop an organizational culture in which there are good senior- subordinate relations,
motivation, quality and sense of belonging.
20. It tries to develop competence at individual, inter-personal, group and organizational level to meet
organizational goal.
21. It is an inter-disciplinary concept. It is based on the concepts, ideas and principles of sociology, psychology,
economics etc.
22. It forms on employee welfare and quality of work life. It tries to examine/identify employee needs and
meeting them to the best possible extent.
23. It is a continuous and systematic learning process. Development is a lifelong process, which never ends.
Difference between HRD and HRM
Both are very important concepts of management specifically related with human resources of organization.
Human resource management and human resource development can be differentiated on the following grounds:
1. The human resource management is mainly maintenance oriented whereas human resource development is
development oriented.
2. Organization structure in case of human resources management is independent whereas human resource
development creates a structure, which is inter-dependent and inter-related.
3. Human resource management mainly aims to improve the efficiency of the employees whereas aims at the
development of the employees as well as organization as a whole.
4. Responsibility of human resource development is given to the personnel/human resource management
department and specifically to personnel manager whereas responsibility of HRD is given to all managers
at various levels of the organization.
5. HRM motivates the employees by giving them monetary incentives or rewards whereas human resource
development stresses on motivating people by satisfying higher-order needs.

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 ESI Notes 15 – Very Important Terms

Assets: Anything owned by a person, family or institution is called asset. It is broadly classified into three
categories: (1) physical assets like land, building machinery etc.; (2) Financial assets like cash, bank deposits,
share, debentures, bonds etc.; and (3) Non-physical assets like brand name, patent, trade mark, technical
knowledge etc.
Absolute poverty: Low level of income which is not sufficient to fulfil required basic minimum needs is called
absolute poverty.
Allocative efficiency: Allocation of scare resources in most efficient and optimal manner is called all locative
efficiency. It may be in production as well as consumption.
Administered Price: If the price is decided by the government or an agency specified by the government in
place of market forces of demand and supply. It is called administered price.
AEZ: Agriculture Export Zones announced in export- import policy 2001 with the objective of promoting
export of specified agricultural products from specified areas.
Agricultural inputs: Inputs such as high yielding varieties of seeds, chemical fertilizers, pesticides and
irrigation are called agricultural inputs.
Amortization: When industrial dispute is settled. With the help of some neutral person (s) or some government
authority. It is called amortization.
Authorized capital: it is the maximum permitted share capital that can be raised by a company by selling
equity shares.
Advance-decline: It is an indicator of share market trends. It is calculated as a ratio of number of shares with
rising prices with number of share with falling prices.
Annuity: A contract by which a financial institution agrees to provide a regular income for life. The name
annuity arises from annual payment but the payment can be on any agreed frequency.
Anticipated inflation: Expected rate of inflation in the near future is called anticipated are often taken taking
into consideration anticipated inflation.
Arbitrage: Buying a good or asset in one market where price is low, and simultaneously selling in another
market where price is higher. Interest arbitrage is borrowing in a market with lower arbitrage is borrowing in a
market with lower interest rates and simultaneously lending in a market with higher interest rates.
Ability to pay principle: This principle is based on the Principle of equity’ According to this principle; tax
should be levied according to the paying capacity of the tax payers.
Accrued income: If the income has been earned but not received during the accounting year, it is called
accrued income. For example: Interest earned on term deposit during the year on a five year term deposit.
Ad valorem: Tax imposed on goods according to value it is termed as Ad valorem tax. In Ad valorem tax, the
tax amount changes with the change in the value of the product.
Anti-dumping duty: A duty imposed to protect domestic producers of goods from dumping by exporting
country. It is additional import duty imposed by the importing country only after investigation.

56
Appreciation of currency: A rise in the price of domestic currency against foreign currency. It makes imported
goods cheaper and exports dearer. Due to this, there is tendency of more imports and less exports. It is generally
considered bad for the country’s balance of trade but it is good for inflation as imported goods are cheaper.
Arbitrage: Buying an asset in one market where it is cheap and simultaneously selling it in another market
where it is costlier. (Interest arbitrage is borrowing in a market where rate of interest is low and lending in
another market where rate of interest is high.
Boom: Faster expansion of economic activities in country / countries is called boom. This is just opposite of
recession when economic activities slowdown in the economy.
Buffer cost: The expenses between purchase and sale point of food grains is called buffer cost, it includes
expenses like storage, transport, and other miscellaneous expenses.
Buffer Stock: If some quantity of good is stored to overcome the likely shortage in future it is known as buffer
stock. In India, there is provision of buffer stock for wheat and rice.
Balance Sheet: It is the detail of assets and liabilities of any business organization on the last day of the
financial year.
Basic goods industry: The industry producing goods which are very basic for the development of the economy.
For example: petroleum, electricity, steel and cement.
Bearer bond: These bonds don’t bear name of the holder and on maturity any person/ institution holding the
bond is entitled to get the payment on maturity.
Bears: Investors who expect the prices of securities to fall in the near future are called bears. These investors
sell securities in the expectation that in the near future, after the price falls. They will get the opportunity to buy
at lower prices and make profits.
Blue Chip: The term is used for the shares of the companies which are financially strong their management is
efficient and future prospect is good. Investors are always ready to buy these shares in the market
Bond or debenture: These are debt Instruments issued by governments, semi government organizations or
companies to borrow from the market at a fixed rate of interest.
Bonus shares: The shares allotted by a company free to its existing shareholders, is called bonus shares. Shares
are issued in proportion to the shares already held by the shareholders.
Breakeven: The level of production and sale at which the producer/ Seller is able to recover the cost only. At
this level of production/sale, there is not profit or loss but the costs are recovered.
Bridge loan: The short term loans given by banks and financial institutions to companies to bridge short term
gap/ imbalance in their income and expenditure.
Bulls: Investors who expect the prices of securities in the expectation that in the near future, after the price rise,
they will get the opportunity to sell at higher prices and make profits.
Bad debt: Debt whose repayment is known to be impossible or unlikely. A debt can become bad even before
the due date if the debtor is known or believed to be insolvent.
Bad debt provision: A statement in the account that a specified amount of bad debt may be required to be
written off. This amount will not be part of the assets in the accounts.

57
Bankruptcy: A legal arrangement for dealing with the situation where the debtor is unable to repay the debts.
Bank rate: The rate at which the central bank rediscounts permitted securities. It is used to affect the cost of
funds of banks and thus the lending rates. It is one of the many monetary tools in the hands of central banks.
Base Rate: The rate of interest which is used by banks, as the basis for deciding other rates are higher than this
base rate depending on the extent of risk involved.
Branch banking: The banking system in which banks are allowed to have branches over specified region or the
country as a whole.
Broad Money: A relatively broader definition of money is called broad money. For example, in India, M3 is
called broad money as it includes more items as compared to M1.
Balanced budget: Equality between total government receipts and total government expenditure is called
balanced budget.
Black money: The income that is not reported to the tax authorities and due tax is not paid on this income, is
called black money.
Budget: Estimated income and expenditure is called balanced budget.
Budget deficit: The difference between total expenditure and total receipts of the government is called budget
deficit.
Balance of payment (BOP): An overall statement of a country’s economic transaction with rest of the world
over a period of time generally a year. It is divided into two parts current account and capital account.
Balance of trade: An excess of visible exports over visible imports. This is a part of the current account.
Bretton Woods: The venue of a conference held in 1944 to discuss the new international monetary
arrangement after the Second World War. This led to the creation of International Monetary Fund (TM F) and
International Bank for Reconstruction and Development (IBRD).
Capital formation: Increases/ creation of resources which can be used for production is called capital
formation.
Capital Output Ratio (COR): Amount of capital used per unit of production in the economy is called COR.
Core Sector Important sectors for the development of economy is called core sector. For example: Steel,
petroleum, cement etc.
Conspicuous consumption: In under developed and developing countries, with growth in income there is a
rising tendency of consuming more luxury goods which in turn, reduces the availability of saving and
investment in the economy. This type of consumption is called conspicuous consumption.
Cyclical unemployment: Unemployment due to downturn in the economic cycle is called cyclical
unemployment. It is short term unemployment. It is short term unemployment and it automatically disappears
when the economy starts moving in the upward direction.
Cooperative sector: When some people or small industrial groups organize their economic activities through
cooperative societies. It called cooperative sector.
CACP: Commission for Agricultural Costs and prices established in 1965 and renamed in 1985 which is
responsible for recommending MSP for crops known as CACP.

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Ceiling on landholding: A limit for land holding notified by the government beyond which no one can hold the
land.
Command area: The area which can be irrigated with the help of one irrigation project is called command area
of that project.
Consolidation of landholding: To convert fragmented landholding into one single piece of land is called
consolidation of landholding.
Consumer subsidy: The difference between procurement price and issue price of food grains is known as
consumer subsidy because the benefit accrues to the consumers.
Call money market: It is a sub-market of call money market where money is transacted between borrower and
lender for a very short period of time, even for one day.
Capital good industry: The industry which produces producer goods (Plant and machinery) is called capital
goods industry.
Capital Market: Transaction of money for medium and long term is called capital market. Important
instruments of this market are - shares, debentures, bank loan etc.
CDSL: The Central Depository Services (India) Limited. It is the second securities depository in India setup by
BSE and others in 1998.
Core Industries: Core industries are those which are important for the development of a country. In India,
eight core industries included in lIP are- Cement, Fertilizers, Natural gas Refinery products, coal crude oil, steel
and electricity.
Current account: It is a type of demand deposit account where money is payable on demand. In this account
interest is not paid but some facilities are provided.
Cash credit account: It is a loan account in which the account holder is eligible for overdraft up to specified
amount. It is used for business purposes for short term to overcome short term imbalances in income and
expenditure flow.
Cash reserve Ratio (CRR): A fixed percentage of demand and time liabilities of bank are to be kept with the
central bank (RBI). This percentage (ratio) is called cash reserve ratio. Its objective is to reduce the lending
capacity of the banks.
Cheque: It is a type of bill of exchange which is drawn on some bank and payable on demand.
Cheap money policy: When the rates and rations are kept at low levels, lending rate is also low and loan is
available at low rates. This causes increase in credit in the economy.
Clearing house: An institution where claims by various banks against each other are settled.
Collateral Security: For additional protection of the loan given by financial institutions, additional security is
demanded other than the primary security. It is called collateral security.
Cost-push inflation: It is a type of inflation when prices of goods and services increase due to increase in input
costs.
Credit squeeze: In conditions of inflation and excess liquidity in the economy. Monetary policy tries to reduce
credit availability; this is known as credit squeeze.

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Creeping inflation: When prices of goods and services increase at a very slow rate over a long period, it is
called creeping inflation.
Corporation tax: The tax levied on the net profit of the corporate is called corporation tax. It is a direct tax.
Countervailing duty: Additional import duty imposed equivalent to domestic taxes and duties is called
countervailing duty, its objective is to neutralize the effect of tax rebates in the country of origin on imported
items.
Crowding - out: The possibility that an increase in one form of spending may cause another form to fall. Due
to excess borrowing by the government, there may be a deficiency of funds for the private sector. This situation
is called crowding out.
Custom duty: The duty levied when goods and services cross the boundary of the country is called custom
duty. It has two parts: import duty on import of goods and services and export duty on export of goods and
services.
Cairn group: A group of countries formed in 1986 to negotiate on liberalization of agricultural trade in the
‘Uruguay Round’ of trade talks. Its members are - Argentina, Australia, Brazil, Canada, Chile, Colombia, Fiji,
Hungary, Indonesia, Malaysia, the Philippines, New Zealand, Thailand and Uruguay.
Copyright: The exclusive right to reproduce artistic, dramatic, Itinerary or musical work or to authorize its
reproduction by others.
Capital account: The transaction which does not involve income or expenditure is called capital account. In
balance of payment the capital account is the record of increase/ decrease in assets and liabilities of a country
through international exchanges.
Capital flight: Large scale movement of capital from a country by residents or foreigners due to fear of loss
due to sudden changes in taxation, inflation, market conditions, state of the economy, change in the value of
currency etc.
Counter trade: It is a form of international trade where money is not used in transactions. It is conducted by
barter.
Crawling peg exchange rate: In this form, intervention of the central bank in the foreign exchange market is to
limit the rate of change rather than setting any particular level of exchange rate. This helps in checking sudden
change in exchange rate and discourages speculation in the market.
Creeping inflation: When inflation rate is moderate but it continues for a long time, it is called creeping
inflation.
Current account: A country’s current account in balance of payment includes trade in goods and services,
payment for factors of production and other transfers.
Current account balance: It is excess of a country’s exports of visible and invisibles over imports of visible
and invisibles.
C.I.F.: The term is used to calculate the value of imports of goods. It is the short form of cost insurance and
freight.

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Demonstration effect: When people try to follow the consumption pattern of higher income groups considering
it ideal. The tendency is called demonstration effect. In underdeveloped and developing countries sometimes
this contributes to higher consumption and adverse effect on saving and investment in the economy.
But it also provides impetus to the growth of nonessential items because demand of these items increase due to
demonstration effect.
Disguised unemployment: Due to excess labour force in any sector of the economy. More than required labour
force is employed. This excess labour force is example of disguised unemployment.
Division of labour: When a work is divided into different stages and performed by different people, it is called
division of labour.
Demutualization: It is separation of management from ownership. It was introduced in the Indian Stock
exchanges by SEBI to make stock exchanges more transparent in their working.
Depository System: A system where there is no physical transfer of securities. Change is ownership is through
electronic ledge entry transfer.
Dividend: It is a part of net profit of a company that is distributed among the shareholders on the basis of their
shareholding in the company.
Dear money policy: when rates in the economy are kept at higher rates with the objective of credit control, it is
called dear money policy, it increases the cost of capital.
Debt burden: Total cost of loan including principal amount and interest is called debt burden.
Debt deflation: It is a situation when expenditure by individuals and firms decrease because of burden of
payment of debt.
Debt recovery tribunals: Special courts for the recovery of bank loans set up on the basis of an act passed in
1993 in India.
Deflation: Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the
inflation rate becomes negative (below zero) and stays there of a longer period.
Deflationary spiral: During deflation the price of goods and services is falling and consumers will tend to
delay their purchases until prices fall further. This will cause for a lower production, lower wages and demand
which will lead to further decrease in prices. This is known as deflationary spiral.
Demand deposit: The deposit in the bank that can be withdrawn any time by the depositor is called demand
deposit. Saving bank deposit and current account are demand deposits.
Demand pull inflation: When demand of goods and services increase at faster rate as compared to its supply,
there is increase in prices of goods and services. This is called demonetization.
Direct action: If the commercial banks disobey the instructions of the central bank, it may use some direct
measures like withdrawing some facilities to the bank. It is known as direct action.
Deficit financing: When the government receipts are less than expenditures required, it borrows from the
banking system. It is called deficit financing.
Debt conversion: When the government does not pay the debt on due date but issues fresh securities to convert
it into a new loan, it is called debt conversion.

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Death duty: On the death of the person a tax is levied on the transfer of assets to the heirs. It is called death
duty. It is also known as estate duty.
Direct tax: The tax, in which the impact and incidence of the tax is on the same entity and it cannot be shifted,
is called direct tax, in India, income tax and corporate tax are examples of direct tax.
Double taxation: When the same income is subjected to taxation two times, it is called double taxation. For
example. A company may be paying tax in the country of origin as well as in the country where it is operating
on the same income.
Debt-service ratio: The ratio of a country’s debt service payments to its total export earnings, represented in
percentage is called debt-service ratio. High debt-service ratio is a sign of weakening in a country’s ability to
repay debt out of export earnings.
Debt Service: Payment of principal amount along with interest during a period is called debt service. In the
short term loans, principal part is more but in long term loans, interest part is more in debt service.
Depreciation of currency: Decrease in the value of a currency in terms of other currencies is called
depreciation of currency. After depreciation of currency imported goods are costlier and exports are cheaper.
Devaluation of currency: It is similar to depreciation. The only difference is that depreciation is cause by
market forces whereas devolution is a matter of policy.
Discrimination in trade: It is just opposite to the principle of ‘MFN” If a country treats imports on a different
basis according to the country of origin, it called discrimination of trade. In MFN, there is no discrimination and
all countries are granted most favourable terms in trade.
Dumping: Exporting goods at a price which is lower than the price in home markets or selling it cheap which
producers in the importing country cannot compete.
Economic Growth: Growth in real per capital income in a country is called economic growth.
Economic Development: Improvement is technology, institutional systems and distribution systems
accompanied by growth is called economic development. It is a wider concept as compared to economic
growth. Growth is a quantitative concept while development is a qualitative concept. Economic development is
also about structural change in the economy and reduction of poverty, unemployment and inequalities.
Engel’s Law: According to this law, as income of the poor families increase, they increase their share of
spending on non-food items. In other worlds, at low level of income, families tend to spend more on food items.
When the income starts rising. They try to spend on other items and the process continues and share of food
expenditure in total expenditure declines over time.
Economic federalism: When there is coordination between small, medium and large units or industries are
established in backward areas for balanced regional development, it is called economic federalism.
Economic Planning: assessment of the availability of resources and their allocation on the basis of priorities to
achieve predicated economic targets in a specified time frame is called economic planning.
Export - led growth: When export becomes leading sector of the economy and its contribution in GDP
increase over time, it is called export-led growth.
Ex ante: Expected outcome of a decision taken by a business firm is called ex ante.

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Ex post: Actual outcome of a decision taken by a business firm is called ex post. Ex post may be equal to ex
ante or may be different from ex ante.
East Asian tigers: Since 1950s, income and trade has grown fairly rapidly in four Asian countries. These are
known as Asian tigers. These countries are Hong Kong Singapore, South Korea and Taiwan.
Effective exchange rate: A country’s exchange rate based on a weighted average of its bilateral exchange rates
against other currencies. Weights are decided on the basis of share of different trading partners in total trade of
the country.
Embargo: It is a type of trade restriction by one or few countries against any country. It is one of the extreme
steps in international trade.
Enter port trade: When the good is exported in the same form in which it was imported it is called. In other
words, import of goods for export purpose, is called inter port trade.
Exchange control: A system under which holders of a currency require official permission to convert it into
other currencies. Exchange control may be of applied with varying degree of strictness.
Exchange rate: It is the price of one currency in terms of another currency.
Easy fiscal policy: A policy of cutting taxes, increasing government spending which increases government
debt, is called easy fiscal Policy.
Financial Inclusion: To provide financial services to all sections of the population, especially those which are
outside the formal banking system.
Fixed capital: Capital invested in capital assets like land, plant, machinery etc. which cannot be changed in the
short term is called fixed capital.
Frictional unemployment: Unemployment due to short term reasons like change in technology.
Full employment: in India, employment for a period of six months or more in a year is called full employment.
Financial planning: Financial planning is related with assessment of financial requirements and their
management in a planned manner.
Food Subsidy: The difference between economic cost and issue price of food grains is called food subsidy. It
includes consumer subsidy and buffer cost.
Fiduciary issue: The money issued by the central bank which is not backed by holding of precious metals like
good and silver.
Fiat money: The money which is in circulation because of government order. The intrinsic value of this money
(currency note) is less than the face value.
Fiscal drag: Due to inflation, despite increase in monetary income, purchasing power decreases. At the same
time, in a progressive tax structure, burden of direct tax further reduces the purchasing power. It is known as
fiscal drag.
Financial intermediary: Institutions engaged in intermediation between borrowers and lenders are called
financial intermediary.

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Financial Security: The securities issued by companies, government or any other organization for arranging
capital or for borrowing are called financial security. For example, shares, debentures, treasury bills, bonds etc
are financial securities.
Fringe benefit: The benefits provided by the employer to the employees other than the normal wages and
allowances, is called fringe benefit.
Fully convertible debenture: On maturity of debenture, if all the money borrowed is converted into shares of
the company, it is called fully convertible debenture.
Floating capital: The capital that is used for purchase of raw materials, payment of wages and salaries,
transportation, energy etc and not on creation of fixed assets like plant and machinery, is called floating capital .
It is also known as working capital
Forward market: The market in which there is an agreement between buyer and seller about sale of goods or
securities at some future date and at pre-decided price.
Fixed exchange rate: A system in which, exchange rate of a currency remains constant or fluctuates within a
very narrow band against other currencies. This can be done by following a fixed exchange rate system or by
market intervention using forex reserves by the central bank.
Floating exchange rate: An exchange rate without any intervention by the government or the central bank to
keep the exchange rate stable. In ‘clean float’ there in no intervention at all but in ‘managed or dirty’ float there
may be some intervention.
Foreign exchange market: The market where foreign exchange is traded or one currency is converted into
another currency is called foreign exchange market. There are two types: spot market and futures Market.
Foreign exchange reserves: The liquid assets held by the government of central bank that can be used to
intervene in the foreign exchange market is called foreign exchange reserves. It includes gold, foreign currency
assets and special Drawing Rights.
F.O.B.: This is short form of ‘free on board’ it is the value of goods at the point of delivery, like port, from
where it will leave the country.
Free port: Any airport or sea port where goods can be imported for export and domestic duties are not levied
.If the goods enter the domestic territory of the country. Then duties are levied.
Free Trade: A policy of unrestricted trade without any tariff, non-tariff or quota barriers is called policy of free
trade.
Free Trade area: An agreement between two countries or groups for free trade between them but independent
trade and tariff policies for other countries.
Free trade Zone: An area within the country where domestic tariffs are not levied. Its objective is to promote
production especially of those goods in which large amount of imported inputs are used.
Fiscal deficit: The difference between total expenditure and total receipts except loans and other liabilities is
called fiscal deficit.
Fiscal drag: The tendency in taxes to rise under inflation under the progressive tax system.
Fiscal neutrality: A system which does not cause distortions in the economy.

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Fiscal policy: The use of taxation and government spending to influence the economic activities in the
economy is called fiscal policy.
Gender Inequality Index (GIl): Gil measures inequalities existing between men and women across three
dimensions:
Dimensions and Indicators
Reproductive health
Maternal Mortality Rate
Adolescent Fertility Rate
Empowerment
Parliamentary Representation
Attainment at secondary and Tertiary education
Labor market
Market Participation
Green GNP: The net value after deducting consumption of natural resources and degradation of environment
from GNP is called Green GNP.
Gini Coefficient: This coefficient is calculated with the help of Lorenz Curve. It provides Quantitative
information about inequality of income. Its value ranges from 0 to 1.
Gestation period: The period between beginning of the project and its completion and start of production is
called gestation period.
Green Revolution: Increase in production and productivity through new agricultural techniques is known as
Green Revolution.
Gilt edged securities: The term gilt edged is used for government or government. Guaranteed securities as
there is no risk involved in such type of investments.
Gilt Funds: Gilt funds are those mutual fund schemes that dedicatedly invest in government securities. These
government securities include dated central government securities, state government securities and treasury
bills.
Green Investment Bank: It is like any other investment bank, but is focused on deals in environment-friendly
projects. The concept has come into vogue very recently with environment consciousness gaining popularity.
Such banks are mostly set up by the governments in the UK and other parts of Europe.
Gilt edged security: Security issued by the government. In this security risk is negligible but returns are also
low.
Gold Standard: A system of fixing the exchange rate by the central bank of the government making its
currency freely convertible into gold is called gold standard.
Gresham’s Law: According to this law, Bad money drives out good money.

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Gift tax: The tax on exchange of gifts is called gifts is called gift tax. It may be levied from the donor or the
done.
GATT: General Agreement on Tariff on Trade established in 1948 with the objective of reducing tariff barriers
in international trade.
GATS: General Agreement on Trade in Services, an international agreement in the Uruguay Round of GATT
and is being negotiated in the Doha Round of WTO for liberalization in services exports.
G-7: informal group of leading industrial countries. It includes-Canada, France, Germany, Italy, Japan, the UK
and the US. Its first meeting was held in 1975 in Paris. After the inclusion of Russian Federation (in 1997.) It is
known as G-8
High cost economy: Due to high lending rates, cost of capital and cost of production is also high in the
economy. Economies facing this situation are called high cost economy. Often, this is the result of over-
protection of the economy from outside competition.
Hire-Purchase: It is a type of consumer credit where the consumer pays only a part of the price and the rest is
paid in installments with interest over a period of time.Consumer gets the ownership right on the good only
after the payment of last installment.
Holding company: When a company holds majority shares in one or more other companies, it is called holding
company.
Hard Currency: A currency which it is stable and is convertible in other currencies is known as hard currency.
It is used by countries to maintain their foreign exchange reserves because it is acceptable in the international
market for payments.
Hot money: The money with a tendency to escape in adverse circumstances or more favourable conditions in
other competitive markets. It is short term in nature.
Though it helps in balancing the BOP in the short term, more dependence on it is considered dangerous. For
example: foreign institutional investments.
Inequality Adjusted HDI (IHDI): IHDI adjusts the IHDI for inequality in distribution of the dimensions
Life expectancy
Years of schooling
Household income or consumption that exists across the age (life expectancy) and individual (Schooling and
income/ Consumption). Adjust means the inequality in each dimension is discounted from the average level of
achievement in each dimension. If HDI and IHDI are equal. It means there is no equality.
Incremental Capita Output Ratio (ICOR): Amount of additional capital used per unit of additional
production in the economy is called ICOR.
Induced investment: Investment to take advantage of the autonomous investment is called induced investment.
1st primary objective is profit.
Informal Sector: People engaged in small, labour intensive self-employment constitute informal sector in the
economy. People engaged in various activities in villages and small towns are part of this sector.
Innovation: Improvement in existing practices and technologies in the economy is called innovation.

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Involuntary unemployment: When the labour force fails to get employment at the prevailing wage rates, it is
called involuntary unemployment. According to J.M.Keynes, the cause of involuntary unemployment is lack of
effective demand in the economy.
Issue Price: Issue Prices are the Prices at Which the Government supplies food grains through fair price shops.
ICRA: Investment Information and Credit Rating Agency of India. It is a credit rating institution set up by
some financial institutions in 1991.
IIP: The Index of Industrial Production (lIP) conveys the status of production in the industrial sector of an
economy in a given period of time, in comparison with a fixed reference point in the past. The lIP numbers are
released every month in India. The HP figures are released every month in India. The TIP figures are generally
seen as an important but short-term indicator of whether industrial activity in a country has risen or dipped.
Import substitution: Production of goods in a country, on which there was dependence on imports due to
shortage or non-production, is called import substitution.
Insider trading: Trading in the securities market on the basis of information provided by the insiders of a
company is called insider trading. This is illegal in the securities market.
Intangible assets: No - physical assets are known as non-tangible assets. For example patent copy right,
reputation of a company or product, location of a firm etc.
Islamic finance: Islamic finance refers to a financial system that is consistent with the principles of Sharia, the
sacred law of Islam. It is different from regular banking in that it prohibits earning of interest (or riba ) through
the business of lending. It also prohibits direct or indirect association with businesses involving alcohol, park
products, firearms and tobacco. It also does not allow speculation, betting and gambling.
Import quota: Setting a quantitative limits to import of certain specified goods in terms of value or quantity
with the objective of balancing trade or protecting the domestic industry.
International money: The money (currency) which is freely convertible into other currencies and is acceptable
in international payment is called international money.
Inward oriented policy: The strategy in which trade and incentives are biased in favour of production of
domestic market over export market.
Intensity of deprivation of multidimensional poverty: Average percentage of deprivation experienced by
people in multidimensional poverty.
Indicative planning: Indicative planning is a flexible planning system in which the government decides about
targets in those areas also on which there is no direct control of the government. In these areas the government
tries to achieve targets through incentives and inducements.
Incidence of tax: It is the ultimate burden in indirect tax, the liability to pay tax is on the seller or the service
provider.
Indirect tax: The tax, in which the impact and incidence of tax is on different entities. It is paid by one entity
but the burden is shifted on the other entity. In India, central excise, custom duty, service tax and sales tax are
important indirect taxes.
Joint sector: A sector in which management, ownership and control on production and distribution activities
are jointly done by the government and the private sector.

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Laissez faire: When the government does not interfere in any way in economic activities and it is left on
market forces to decide about what to produce, when to produce and how to produce, it is called the policy of
laissez faire.
Lay off: Due to decline in demand if the production is to be reduced and in the process some labourers lose
their jobs it is called lay off.
Letter of credit: It is an instrument issued by a bank or financial institution in the name of a person (s) /
institution, guaranteeing the payment of cheques or bills issued by the concerned person (s)/ institution.
Lorenz curve: It is used for the measurement of inequality in a given distribution.
For example: inequality of income.
Laffer curve: The curve shows the relationship between tax rate and tax revenue. According to this curve, if
tax rates are increased, tax revenue increases up to a point and beyond that tax revenues start to decline.
Lump sum tax: A tax whose amount is not affected by tax payers’ action or his ability to pay tax. For example,
tax on having a car without the consideration of the type of car and its model and make.
Lease: An agreement under which a person or organization gets the right to use some capital good for a
specified period of time on the payment of rent, is called lease agreement.
Limited company: In a company where liability of the shareholders is limited to their contribution in the share
capital, it is called Limited Liability Company’.
Listing: Registration of a company in any stock exchange for permission of sale and purchase of securities of
the company from that platform is called listing.
Lock out: If the management of a unit locks the unit and stops production, it is called lock out. It is often used
by the labourers.
Legal tender money: Forms of money which a creditor is obliged to accept in settlement of a debt.
Misery index: An index of overall economic performance, taking account of unemployment and inflation. A
simple form of misery index is the sum of inflation and unemployment rates, but equal weights are not
necessarily the best.
Moratorium: Postponement of repayment of a loan for some time is knows as moratorium. The period of
postponement is called moratorium period.
Monetary Policy: The use of interest rates or controls on the money supply by the central bank to influence the
economy is called monetary policy.
Money laundering: Use of long and complex chain of transactions to conceal the ultimate source of money
holdings.
Margin: It is a part of the total value that is paid by the buyer to the seller to make him confident that the he
will fulfill the liabilities. The term is also used for difference in value of securities pledged with some lending
institution and the amount of loan given by it.
Merchant banking: This is financial intermediation where merchant banks provide financial services to their
client institutions like management of new issues, arrangement of loan and financial advice.

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Money market: Transaction of money for short period (normally less than one year) is called money market. In
this market bills of exchange and other short term securities are used for transaction of money.
MTN: It is an instrument through which companies can get long term from abroad.
Multinational Organizations: Organization involved in production, trade and services in a number of
countries outside their country of origin are called multinationals. The policy decisions of these organizations
are taken on the basis of global scenario and not only the country of origin.
Mutual Funds: Institutions engaged in collecting small savings for investment in the financial market and in
the process providing investment opportunities to the small investors and funds to the market, are called mutual
funds.
MAT: Normally, a company is liable to pay tax on income computed in accordance with the provisions of the
income tax Act, but the profit and loss account of the company is prepared as per provisions of the Companies
Act. There were large number of companies who had book profits as per their profit and loss account but were
not paying any tax because income computed as per provisions of the income tax act was either nil or negative
or insignificant. In such case, although the companies were showing book profits and declaring dividends to the
shareholders, they were not paying any income tax. These companies are popularly known as Zero Tax
companies. In order to bring such companies under the income tax act net, MAT was introduced in India with
effect from 1996-97.
Monetized deficit: Net increase in the Reserve Bank credit to the Government of India is called monetized
deficit.
Marketable surplus of agriculture: Agricultural produce brought in the market for sale by the farmers, which
is surplus after taking care of their personal consumption.
Multidimensional poverty Index: Percentage of the population that is multidimensionality poor, adjusted by
the intensity of the deprivations.
Multidimensional poverty headcount: Percentage of the population with a weighted deprivation score of at least
33 percent.
Marginal holding: Land holdings between zero and one hectare (less than one hectare) is called marginal
holding.
Minor irrigation Project: Projects with culturable command area of less than 2000 hectares is classified as
minor irrigation project in India.
Micro irrigation: Sprinkle irrigation and drip irrigation is known as micro irrigation. It is used in areas with
less water availability to ensure efficient use of water.
Minimum Support Price (MSP): Minimum prices are in nature of a guarantee to the producers so that in the
event of over production, prices are not allowed to fall below the announced minimum prices.
Maastricht treaty: The treaty between members of European Community in 1993 to change the name of the
European Community to European Union and setting up of the European Central Bank. It paved the way for a
common currency now known as ‘Euro’
Monetary Union: When two or more countries use a single currency or use different currencies but a stable
exchange rate, it is called monetary union.

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Non-convertible debentures: If the debenture holders get back their money on maturity and are not allowed
converting their money into equity shares, these debentures are called non-convertible debentures.
NSDL: The National Securities Depository Limited, it is the first securities depository in India set up by NSE
and other in 1996.
NASDAQ: National Association of Securities Dealers Automated Quotation System-it is the second important
securities exchange of the second important securities exchange of the United States after NYSE (New York
Stock Exchange).
Non-tariff barriers: These are barriers in international trade other than trade barriers in international trade
other than trade barriers on various grounds such as technical standards or harmful for humans and
environment.
Occupational structure: Share of different sector in total employment in the total employment in the economy
is called occupational structure. Similar to structural change, occupational structure also changes with
development in the economy. Share of agriculture declines and share of other sectors like industry and services
increase over time.
Outward oriented policy: The Strategy in which trade and industrial policies do not discriminate between
production from domestic consumption and exports.
Operational deficit: Fiscal deficit adjusted for inflation is called operational deficit.
Primary deposits: The cash deposit by the public in the banks is called primary deposit. It is not created by the
banking system.
Pump Priming: A temporary injection of purchasing power by the government through borrowing on the
assumption that increase in purchasing power will recover the economy from the slump.
Paid up capital: The capital collected by companies, through sale of equity shares, is called paid up capital.
Authorized capital is the upper limit of paid up capital.
Penetration price: It is low level of price often fixed by the seller with the objective of increasing their share in
the market or for establishing their control in the market.
Preference shares: The holders of the preference shares get dividend at a fixed rate and are not affected by any
fall in profitability but they don’t have voting rights.
Primary market: When companies issue new shares or debentures and are purchased by the investors, it is
called primary market.
Proxy: On the absence, when a person, he is called proxy. Like on absence, a shareholder can be represented by
his proxy.
Perspective planning: Perspective planning means planning with long term perspective. In this type planning.
There is a long term target which is divided into short term targets to be achieved in the short but overall
objective is to achieve long term targets.
Physical Planning: Physical planning is related with assessment and planning about physical resources. The
plan is prepared on the basis of availability and efficient use of physical resources.
Plan holiday: In some years, five year plans could not be implemented in the country. These years are called
plan holiday. For example: 1966-69

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Planning by inducement: In this type of planning there is no compulsion for production. Distribution and
consumption. The government tries to influence the decisions of economic agents in the economy through in
special situations, the government may use the tool of regulation and control
Public sector: The sectors in which ownership management and control of production and distribution in the
hands of the government is called public sector.
Pump Priming: During deflationary or recessionary conditions in the economy, there is deceleration
investment. To arrest decline in investment and put the economy back on the growth path, the government may
invest to boost income, demand and investment. This investment by the government is called pump priming.
Partial employment: In India, employment for a period of less than six months in a year is called partial
employment.
Philips curve: The curve provides the relationship between unemployment and inflation. The curve shows a
negative correlation between the two.
Poverty gap: Poverty gap measures the transfer that would bring the income of every poor person exactly upon
the poverty line.
Poverty Line: The level of income below which the person or family will not be able to achieve minimum
required level of nutrition is called poverty line.
Poverty Trap: If unemployment allowance provided by the government is more than the possible income
through employment there will be a tendency to continue receiving unemployment allowance than trying for.
This situation is referred to as poverty trap.
Portfolio investment: Investment in financial securities such as equity, bonds and debentures.
Poll tax: If tax is per person in place of income earned by the person, it is called poll tax.
Primary deficit: The difference between fiscal deficit and interest payments is called primary deficit. It was
introduced in Indian budgetary system in 1996-97.
Progressive tax: A tax system, in which tax rates increase with increase in the tax base, is called progressive
tax system. In India, income tax is progressive in nature.
Proportional tax: A tax system, in which there is no change in the tax rate with the change in the tax base, is
called proportional tax system.
Public goods: Those goods in the economy on which all the citizens have equal right to use, is called public
goods. These goods are produced for welfare and not for profit normally by government or government
agencies.
Population vulnerable to poverty: Percentage of the population at risk of suffering multiple deprivations - that
is, those with a deprivation score of 20-33 percent.
Prices Stabilization Fund: The Fund was established in 2003 with the objective of controlling fluctuations in
prices, Tea, coffee, rubber and tobaccos are included in this scheme.
Procurement prices: Procurement prices are fixed at a higher level as compared to the minimum support prices
and are meant essentially for the purchase of quantities need by the government for maintaining the public
distribution system and for maintaining buffer stocks.

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Real interest rate: Interest rate adjusted for inflation is called real interest rate. In other words, it is the
difference between nominal interest rate and inflation rate.
Recession: A Situation when demand is sluggish, real output is not rising and unemployment is increasing.
Regional Trade Agreement (RTA): Agreement between groups of countries for movement of goods freely
between them with reduced tariffs and other favours as compared to other countries.
Regressive tax: A tax system, in which tax rates decrease with increase in the tax base, is called regressive tax
system.
Revenue deficit: The difference between revenue expenditure and revenue receipts of the government is called
revenue deficit.
Reserve currency: A currency used as foreign exchange reserves by the other countries. To be used as reserve
currency. It should be convertible and should belong to a large country with low inflation rate.
Rule of origin: This rule applies in free trade agreements to determine whether the goods qualify for the tariff
concession. This rule specifies a minimum value addition in the country of origin to qualify for the concession.
Refinancing: The loan given by the apex financial institution to lending institutions on the basis of their
lending operations is called refinancing. For example, loan by NABARD to credit cooperative bank is
refinancing.
Relative poverty: It measures inequality of income between two groups or persons on the basis of income
levels.
Reverse takeover: If a small but progressive company take over any large unit. It is called reverse takeover.
RTGS: Real Time Gross Settlement. The System was introduced by the RBI in 2004 for speedy transfer of
funds from one bank to the other. In this system, the fund gets transferred almost instantaneously
Stagflation: A Situation where a country suffers simultaneously from high inflation and high unemployment
rate.
Self-financing: When an entrepreneur arranges initial capital from own sources and gradually expands the
business by reinvesting the profits, it is called self-financing.
SENSEX: It is the short of sensitive index. This term is used for 30 share price index of BSE and in is
considered to be the most sensitive of all the indices in India.
Secondary market: When shares debentures and other securities are bought and sold, after being issued. In the
open market through some platform like stock exchange, this is called secondary market.
Share capital: Under the Companies Act. Companies are authorized to sell equity shares of the company. The
capital received by selling shares is known as share capital.
STCI: Securities Trading Corporation of India. It was promoted by Reserve Bank of India in 1994 for
transaction of government securities.
Structural retrogression: When growth rate of basic and capital good industry slows down, it is called
structural retrogression.

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Sweat Equity: Equity share issued by the company to its employees, directors or strategic partners free of cost
in consideration of their services rendered to the company, it is called sweat equity.
Structural Change: With the growth of the economy. Share of agriculture sector in the economy decreases and
share of industrial and services sector increases. This is known as structural change in the economy.
Structural retrogression: when the growth rate of basic and infrastructure sector lags behind other sector of
the economy and there is infrastructural deficiency. It is called structural retrogression.
Sun rise industry: Refers to new industry that is expanding rapidly and is accepted to gain prominence in
future. e-g: In 1990s, it was Telecom and IT industry Now Hydrogen Fuel production, Space tourism, social
media, cloud computing online encyclopaedia are being called sunrise industries.
Sinking fund: With the objective of repayment of a loan if a fund is created through regular credit of money
into this fund, it is called sinking fund.
Soft loan: Loans for a long term period and at low rate of interest are termed as soft loan.
Seasonal Unemployment: Unemployment during a certain period of the year is called seasonal unemployment.
For example, unemployment in agriculture sector in India is of seasonal type.
Seed Replacement Rate: It is the percentage of area sown out of total area of crop planted in the reason using
certified quality seeds other than the farm saved seed.
Small holding: Land holding between one and two hectares is called small holding.
Structural change in the economy: In the growth process, there is a tendency of falling share of agriculture
sector and rising share of non-agriculture sectors (industry and services) in the GDP. This is known as structural
change in the economy. It is considered positive development for any economy.
Soft Currency: A currency which is not convertible in other currencies and the value is expected to fall in
terms of other currencies. There are no takers of this currency in the international transactions.
Secured advances: Loan against some physical or financial security are known as secured advances.
Transgenic Crop: A transgenic crop plant contains a gene or genes which have been artificially inserted
instead of the plant acquiring them through pollination. The inserted gene sequence (Known as the trans - gene)
may come from another unrelated plant or from a completely different species.
Terms of foreign trade: Ratio between per unit export price and per unit import price is called terms of foreign
trade.
Terms of trade: The ratio of an index of a country’s export prices to an index of its import prices is called
terms of trade. If this ratio increases, ‘terms of trade’ is positive and vice versa.
Trading currency: The currency used to invoice international trade transactions is called trading currency. For
example, if exporters are quoting export price in dollar terms, it will be called trading currency.
Tangible assets: Physical assets are known as tangible assets. For example land, plant machinery furniture or
any other physical thing is tangible asset.
Tax- allowance: A deduction from gross income allowed under the tax laws to reduce the taxable income of the
individual or the firm.

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Tax- avoidance: Planning one’s activities in such a way that tax allowances and other tax rebates are availed to
the level possible and thus, paying less tax to the government.
Tax evasion: The failure to pay tax using illegal means is called tax evasion knowingly or unknowingly.
Tax holiday: As an incentive, the government may exempt companies from paying certain taxes for some time.
This exemption is called tax holiday.
Tight fiscal policy: The fiscal policy which tends to restrict effective demand. This may be through higher tax
rates or less government spending.
Tobin tax: A tax suggested by James Tobin on international transaction or capital flows between nations.
Turnover tax: A tax proportional to the turnover of the firm is called turnover tax. In this inputs are subjected
to double taxation. It is different from VAT where credit is allowed for tax paid on inputs.
Take over: Transfer of management of a company to another company is called take over. Shareholders of the
company being merged will get their investment back in the form of money, shares in the new entity or any
other form agreed upon by the two companies.
Unit banking: When a bank has only one unit or some units in a limited area, it is called unit banking.
Under employment: When someone fails to get employment according to his/her ability or it not a full time
job, it is called under employment.
Ultimate Irrigation Potential (UIP): The area which can be covered through all the possible means of
irrigation is called UIP.
Under-valued currency: The currency with the exchange rate which is lower than is necessary for maintaining
external balance.
Value addition: In the process of manufacturing addition in the value of the product is called value of the
product is called value addition. For example converting steel into some steel product.
VAT: Value added tax, an indirect tax levied on goods and services as a percentage of the value addition in the
product or service.
Ways and Means advances: It is a short term loan to the government by the central bank in situations of short
term imbalances between receipts and expenditure.
Working capital: Money required for expenditure in the production process such as raw material, energy,
wages, and transport and similar other expense is called working capital. It is different from fixed capital
because it can be changes as per the requirement even in the short period.
Wealth tax: A tax based on personal wealth of the individual is called wealth tax.
Withholding tax: A tax levied at a standard rate on all receipts of income without consideration of individual’s
tax liability. It is also called retention tax and tax deducted at source. It is a government requirement for the
payer of an item of income to withhold or deduct tax from the payment and pay that tax to the government. In
many countries, withholding tax applies to employment income, interest dividend, royalties, rent etc.
Governments use withholding tax as a means to combat tax evasion.
Zero base budgeting: To prepare the budget without considering the provisions of receipts and expenditure in
the previous year’s budget. Zero base budgets is prepared from scratch or it is entirely a new budget.

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Zero - rated VAT: If the good and services included in the value added tax system with the VAT rate of zero,
it is called zero-rated VAT.

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 ESI Notes 16 – Namami Gange Project

Union Budget 2014-15 has taken cognizance of the substantial amount of money spent in the conservation and
improvement of the Ganga, which has a very special place in a collective consciousness of this country.
However, the efforts are not yielded desired results because of the lack of concerted efforts by all the
stakeholders Namami Gange Project or Namami Ganga Yojana is an ambitious Union Government Project
which integrates the efforts to clean and protect the Ganga river in a comprehensive manner.
Accordingly, an Integrated Ganga Conservation Mission called “Namami Gange” has been proposed to be set
up and a sum of ₹ 2,037 crores has been set aside for this purpose. In addition a sum of ₹ 100 crores has been
allocated for developments of Ghats and beautification of River Fronts at
1. Kedarnath,
2. Haridwar,
3. Kanpur,
4. Varanasi,
5. Allahabad,
6. Patna and
7. Delhi in the current financial year.
This project aims at Ganga Rejuvenation by combining the existing ongoing efforts and planning under it to
create a concrete action plan for future.
About Ganga Basin
Ganga Basin is the largest river basin in India in terms of catchment area which is spread over 11 states that
constitutes 26% of the country’s land mass and supports about 43% of its population.
Salient Project features
1. Over ₹ 20,000 crore has been sanctioned in 2014-2015 budget for the next 5 years.
2. Will cover 8 states, 47 towns & 12 rivers under the project.
3. Over 1,632 gram panchayats on the banks of Ganga to be made open defecation includes - Environment,
Urban Development, Shipping, Tourism & Rural Development Ministries.
5. Prime focus will be on involving people living on the river’s banks in this project.
6. Under the aegis of National Mission for Clean Ganga (NMCG) & State Programme Management Groups
(SPMGs) States and Urban Local Bodies and Panchayati Raj institutions will be involved in this project.
7. Setting river centric urban planning process to facilitate better citizen connects, through interventions at
Ghats and River fronts.
8. Expansion of coverage of sewerage infrastructure in 118 urban habitations on banks of Ganga.
9. Enforcement of Ganga specific River Regulatory Zones.
10. Development of rational agricultural practices & efficient irrigation methods.
11. Setting Ganga Knowledge Centre.

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Pollution will be checked
The Ganga Action Plan or GAP was a program launched in January 1985 by the Prime Minister Rajeev Gandhi,
to reduce the pollution load on the river.
1. Introduction of 4-battalion of Territorial Army Ganga Eco-Task Force.
2. Treatment of waste water in drains by applying bio-remediation method.
3. Treatment of waste water through in-situ treatment.
4. Introducing immediate measures to arrest inflow of sewage.
5. Introducing PPP approach for pollution control.
6. Treatment of waste water by the use of innovative technologies.
7. Treatment of waste water through municipal sewage & effluent treatment plants.
Earlier approaches for Ganga cleaning Ganga Action Plan
The Ganga action plan was, launched by Shri Rajeev Gandhi, the then Prime Minister of India on 14 Jan.
1986 with the main objective of pollution abatement, to improve the water quality by Interception, Diversion
and treatment of domestic sewage and present toxic and industrial chemical wastes from identified grossly
polluting units entering in to the river.
Phase I 1985: Covered 25 Ganga towns in three states over Rs 862.59 crore were spent.
Phase II: Covered 59 towns in five states over Rs 505.31 cr were spent.
Separate action plans for rivers- Yamuna, Damodar, Gomti & Mahananda. This Action plan was failure.
National Ganga River Basin Authority (NGRBA)
The need for revamping the river conservation programme was widely recognised in view of the shortcomings
in the approach followed in GAP. It was felt necessary that a new holistic approach based on river basin as the
unit of planning and institutional redesign may be adopted.
Facts at a glance
Length: 2,525 sq. km
Source: Gaumukh (Gangotri Glacier) at 4,000 km above MSL
Ganga Basin: More than one million sq. km
Drainage area: 861,404 sq. km
States: 11 states viz U.P., H.P., Uttrakhand, Rajasthan, Haryana, Himachal Pradesh, Chhattisgarh, Jharkhand,
Bihar, West Bangal and Delhi.
Rivers: 14 rivers viz Batwa, Chambal, Damodar, Gandak, Ganga, Ghagra, Gomti, Hindon, Kali, Khan, Kosi,
Kshipra, Ramganga and Yamuna.
Population Support: 43% of its population (448.3 million as per 2001 census).
Average Rainfall: varies between 39 cm to 200 cm, with an average of 110 cm.

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Position: East longitudes 7330 and 890, North longitudes 2230 and 3130.

Morale can be defined as the total satisfaction derived by an individual from his job, his work-group, his
superior, the organization he works for and the environment. It generally relates to the feeling of individual’s
comfort, happiness and satisfaction.
According to Davis, “Morale is a mental condition of groups and individuals which determines their attitude.”
In short, morale is a fusion of employees’ attitudes, behaviours, manifestation of views and opinions - all taken
together in their work scenarios, exhibiting the employees’ feelings towards work, working terms and relation
with their employers.
Morale includes employees’ attitudes on and specific reaction to their job.
There are two states of morale:
High morale
High morale implies determination at work- an essential in achievement of management objectives. High
morale results in:
1. A keen teamwork on part of the employees.
2. Organizational Commitment and a sense of belongingness in the employees mind.
3. Immediate conflict identification and resolution.
4. Healthy and safe work environment.
5. Effective communication in the organization.
6. Increase in productivity.
7. Greater motivation.
Low morale
Low morale has following features:
1. Greater grievances and conflicts in organization.
2. High rate of employee absenteeism and turnover.
3. Dissatisfaction with the superiors and employers.
4. Poor working conditions.
5. Employee’s frustration.
6. Decrease in productivity
7. Lack of motivation
Though motivation and morale are closely related concepts, they are different in following ways:
1) While motivation is an internal-psychological drive of an individual which urges him to behave in a specific
manner, morale is more of a group scenario.

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2) Higher motivation often leads to higher morale of employees, but high morale does not essentially result in
greatly motivated employees as to have a positive attitude towards all factors of work situation may not
essentially force the employees to work more efficiently.
3) While motivation is an individual concept, morale is a group concept. Thus, motivation takes into
consideration the individual differences among the employees, and morale of the employees can be increased by
taking those factors into consideration which influence group scenario or total work settings.
4) Motivation acquires primary concern in every organization, while morale is a secondary phenomenon
because high motivation essentially leads to higher productivity while high morale may not necessarily lead to
higher productivity.
5) Things tied to morale are usually things that are just part of the work environment, and things tied to
motivation are tied to the performance of the individual.
Human behaviour is difficult to explain. A clerk working under an authoritarian boss might be quite happy with
himself, the boss and the organization. Yet an officer with a five figure salary can experience moral problems.
What affects the status of morale? Let’s explain these factors in greater detail.
1. The organization:
The goals of the organization influence the attitudes of employees greatly if the goals set by the management
are worthwhile, useful and acceptable, then workers develop positive feelings towards the job and the
organization. Likewise a clear structure with well-defined duties and responsibilities encourages people to work
with confidence. The reputation of the company is another important factor worth mentioning here. Persons
working in reputed organizations experience feelings of pride and a spirit of loyalty.
2. Leadership:
The actions of managers exert a strong influence over the morale of the workforce Fair treatment; equitable
rewards and recognition for good work affect morale greatly. Workers feel comfortable when they work under a
sympathetic caring leader in place of one who is authoritarian, dictatorial and dominating. Negativism,
inconsiderateness and apathy are not conducive to development of a good work climate.
3. Co-worker:
Poor attitude of co-workers influence others. Imagine working with a person who talks about the negative
points of an organization all day long. Such a person can make each workday an unpleasant experience for
others. He can cause co-workers to think negatively and even if they don’t such an attitude is certainly not a
morale booster.
4. The nature of work:
Dull, monotonous repetitive work affects employees’ morale adversely. On the other hand if an employee is
asked to do something interesting and challenging his morale may be high.
5. Work environment:
Morale is a direct function of the conditions in the workplace. Clean, safe, comfortable and pleasant work
conditions are morale boosters.
6. The employees:
How the employees look at him (the self-concept) also influences morale greatly. For example, individuals who
lack self-confidence or who suffer from poor physical or mental health frequently develop morale problems.

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Further, how the employees’ personal needs are satisfied can significantly influence their morale. Salary fringe
benefits, DA rates, allowances may affect employees morale in a positive or negative manner, when they
compare themselves with others doing similar jobs. Employees can become disgruntled when they feel that their
pay and benefits are not in line with current industry rates or are not in keeping with rising prices.
Morale and productivity:
Generally it is believed that high morale will lead to high productivity. However, Prof Keith Davis points out
that there is not always a positive correlation between the two. A manager can push for high productivity by
using scientific management time studies and close supervision. High production and low morale may result but
it is doubtful whether this combination can last. The opposite can also occur - there can be low production with
high morale. In this case the manager works so hard to please his subordinates that they are too happy to work
hard for themselves.
Research carried out by Rensis Likert indicated the fact that there can be different combinations of morale and
productivity: high morale and low productivity; high morale and high productivity; low morale and high
productivity; and low morale and low productivity as shown below:
In the final analysis the manager has to work for improving the morale of his employees. High morale makes
the work more pleasant and will go a long way in improving the work climate.
It helps the work group to attain goals easily, smoothly and more importantly in a higher cooperative manner.

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 ESI Notes 17 – Nature and Planning of Indian Economy

Early on at the outset itself, independent India chose to adopt a mixed approach instead of veering either
towards an economy wholly determined by market forces or an economy wholly and only controlled by the
state. The Indian Constitution itself expresses the hope that India will function as a welfare state, and to do so
would require state intervention. However, India did not wish to build a monopolistic economy either with no
private players, and hence, a mixed approach was followed.
Types of Economies
Every economy is a system in which the production of goods and services is organized to satisfy the wants of
people. Based on the organization of production process, the economies are classified into 3 types: Capitalist
economy, State economy (or socialist economy) and Mixed economy.
CAPITALIST ECONOMY
Capitalism is a system of economic organization characterized by the private ownership and use of capital with
profit motive. Everyone has the freedom to form any firm anywhere he likes, provided he has the requisite
capital and ability.
The decisions of what to produce, how much to produce and at what price to sell are taken by the market by
private enterprises in this system, with the state having no economic role.
It is based on the doctrine of laissez faire which would mean that the state interference in economic activity
should be kept down to the minimum. It proposed that the ‘invisible hand’ of the ‘market forces’ (price
mechanism) will bring a state of equilibrium to the economy and a general well-being to the countrymen.
Advantages of Capitalistic economy are: increase in productivity, maximizes the welfare, flexible system, non-
interference of the state and technological improvement.
Disadvantages of Capitalistic economy are; extreme inequalities in income and wealth, leads to monopoly,
over-production leads to glut in the market and hence depression, mechanization and automation lead to
unemployment welfare ignored and exploitation of labour
STATE ECONOMY OR SOCIALIST ECONOMY
In state economy, the decisions related to production, supply and prices were all suggested to be taken by the
state only. Such economies were also known as centralized economy, Centrally Planned economy, Non-market
economy.
The Socialistic economy of erstwhile USSR emphasized the collective ownership of the means of production
(property and assets) and it also described a large role to the state in running the economy.
Communist economy of China advocated state ownership of all properties including even labour and absolute
power to state in running the economy.
Advantages of State economy are : efficient use of resources, economic stability, maximization of social
welfare, absence of monopoly, basic needs are met and no extreme inequality.
Disadvantages of state economy are: bureaucratic expansion, no freedom of occupation, absence of technology
and absence of competition makes the system inefficient.

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MIXED ECONOMY
In the system, we find the characteristics of both capitalism and socialism. Both private and public enterprises
operate mixed economy. The government intervenes to regulate private enterprises in several ways.
The capitalistic economies faced a serious setback during the Great Depression of 1929. The ideas of self-
correcting quality of the market and the ‘invisible hand’ of Adam Smith failed to check the slowdown of market
and the depression.
John Maynard Keynes suggested Strong government intervention in the economy. To get the economy out of
the depression, he suggested an increase in the government expenditures, discretionary fiscal policy to boost the
demand of goods and services as this was the reason behind the depression. He suggested the capitalistic order
to assimilate the goals of the socialistic economy.
Advantages of Mixed economies are: sovereignty to choose what to produce and what to consume under the
government’s regulation, less income inequality, monopolies may be existing, but under close supervision of
the government.
Disadvantages of Mixed economies are: heavy taxes reduce incentives to work hard, less efficient than private
sector, excessive control over business activity can add costs.
ECONOMIC PLANNING
The main objective of Indian planning is to achieve the goal of economic development economic development
is necessary for under developed countries because they can solve the problems of general poverty,
unemployment and backwardness through it.
Planned economy is one in which the state at least partially owns and directs the economy. In this economic
system, investment and production decisions are embodied in a plan formulated by a central public authority.
The state decides the priorities and objectives for the economy for long and short- term.
TYPES 0F ECONOMIC PLANNING
Every state needs some sort of planning to guide its economy towards some desirable ends. However, different
states use different models of planning to pursue their goals. Based on the nature of such planning, there are
three broad models of economic planning.
1. States where a relatively rigid form of economic planning takes are referred to as command economies.
Command economies, almost invariably, follow a centralized mode of planning. In command economies, state
can control all major sectors of the economy, legislate on their use and control the income distribution patterns,
state could even decide on what needs to be produced and how much and sold at what price. Private ownership
of property could be partially or wholly restricted. This kind of model was exemplified by the USSR and China.
2. On the other hand, in market economies states play a minimal role in economic management. That is
decisions related to production, consumption, distribution etc. are mostly market based. State plays a certain
role in distribution. Such a state is called ‘Laissez Faire’ which is French for ‘let do’. This kind of model is
exemplified by the US and other market economies.
3. The third type of model of economic planning emerged partly as a reaction and partly as a synthesis of the
command and market economies. In the Mixed Economy Model, the government performs the role of both the
producer and the distributor.

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Such economic model introduced a new category of functions of the government, called public goods, which
aimed at the good of the masses. By late 1990s, the world saw a sea change and most of the countries embraced
the Mixed Economic Model, to such an extent that it is hard to find a true capitalist or socialist economy today.
It was in this background that India too, adopted the mixed economic model. By late 1990s, most of the
countries of the world had neither the pure capitalist model, nor the pure socialist model. Thus, the
contemporary economies of the world became mixed economies. Under this model, the state owns the
responsibility of maintaining the basic infrastructure of the society, while the private sector is given the freedom
to explore the markets. Thus, state gives a sufficient degree of freedom to the private sector and ensures that the
economy grows in a right direction.
DIFFERENT MODELS OF PLANNING
Five-Year Plans (FYPs) are centralized and integrated national economic programs. Joseph Stalin implemented
the first FYP in the Soviet Union in the late 1920s. Most communist states and several capitalist countries
subsequently have adopted them.
China and India both continue to use FYPs, although China renamed its Eleventh FYP, from 2006 to 2010, a
guideline (Guihua), rather than a plan (Jihua), to signify the central government’s more hands-off approach to
development. India launched its First FYP in 1951, immediately after independence under socialist influence of
first Prime Minister Jawaharlal Nehru.
IMPERATIVE PLANNING
This kind of planning was followed by the command economies. Such planning model sets very specific goals
for each sector of the economy. It is also known as Directive or Target Planning. Under Socialist systems like
USSR, all economic decisions were centralized in the hands of the state with collective ownership of resources,
except labour. However, under the communist systems, like china, all resources, including labour, were to be
owned and utilized by the state. Features of such planning model are as follows.
a. Quantitative targets of growth and development;
b. State control of resources;
c. Negligent role of market, no independent price mechanism and
d. No/ Negligent private participation in the economy.
Such economies were also known as Centrally Planned Economy. E.g. USSR, China, Poland, Hungary, Austria
and Romania.
INDICATIVE PLANNING
This model of planning was used by the democratic, liberal states. The main idea behind this model is that -
planning required only to provide a framework to the economy. Thus, this kind of planning model gives a wide
degree of autonomy and freedom to the private sector. Most of these countries were mixed economies.
The early use such model was done by France, with its 1st Six Year Plan in 1947, which came to be known as
Monnet Plan. Indicative planning is also called Basic Structure Planning, as the government select a few
sectors/industries, as the core of development, for which planning is necessary.
In India, the Indicative model was used in the 8th Five year Plan (1992-97), to free trade and industry from the
government control and boosts the process of economic growth and development. This model is oriented to
assist the private sector with information and logistic supports essential for the realization of goals. The
government and corporate sector are the equal partners and both are together responsible for the
accomplishment of goals.

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NORMATIVE PLANNING
This type of planning gives less emphasis upon the social and institutional dimensions of the society. Here,
planner merely search for the best possible results in relation to the established goals, giving less importance to
the issues like - caste, creed, ethnicity, religion, region, language etc. thus, this is not a very popular model of
economic planning among the modern states.
SYSTEMS PLANNING
This model gives due importance to the socio-institutional factors. It is planning from social - technical point of
view, but only suitable for a country which has lesser degree of social diversity. The economic survey 2012-13
advocated a need for the systems approach to planning in India, as there is a need to connect the policies with
the customs and traditions of the people, to enhance their acceptability.
HISTORY OF ECONOMIC PLANNING IN INDIA
A number of efforts were made to formulate a plan of Socio-Economic Development in the Pre-Independence
era of 2O Century.
VISVESVARAYA PLAN (1934)
The first blueprint of Indian planning was given by a popular civil engineer and Ex-Dewan of Mysore Sir M
Visvesvaraya in his books — The Planned Economy of India (1934).
His idea of state planning emphasized on industrialization, as he proposed a shift from agriculture to industries
and targeted to double the national income in one decade.
He argued that industries and trade do not grow of themselves, but have to be willed, planned and
systematically developed.
FICCI PROPOSAL (1934)
FICCI, the leading organization of Indian capitalists, recognized a serious need for national planning. It
emphasized that the days of Lassiz faire were over and for a backward country like India; a comprehensive plan
for economic development was a necessity.

THE CONGRESS PLAN (1938, 1949)

Subhash Chandra Bose, took the initiative and made the National Planning Committee (NPC) in October 1938,
under the chairmanship of Jawaharlal Nehru, to work out concrete programmes for development, encompassing
all major areas of the economy.
Despite the opposition from a number of businessmen and Gandians, the 15 members NPC, along with the total
of 350 members working in 29 sub - committees, produced 29 volumes of recommendations.
The work of the committee was interrupted by the outbreak of the Second World War and later by the Quite
India Movement Tus, the final report of the NPC was published only in 1949.
THE BOMBAY PLAN (1944-45)

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Also known as A Plan of Economic Development of India, it was prepared by India’s leading capitalists, like-
Purshotamdas Thakurdas, JRD Tata, GD Birla, Lala Sri Ram, Kasturbhai lalbhai, AD shroff, Avdeshir Dalai
and John matahi. Many of the points of this plan overlapped with those of the NPC proposals.
The Bombay plan agreed over the issue of agrarian restructuring, abolition of intermediaries, guarantee of
minimum wages, credit and marketing support, rapid industrialization with emphasis on heavy capital goods
and basic industries, simultaneous development of consumer goods industries, promotion of medium, small -
scale and cottage industries.
It was also agreed that state was to play an important role through planning, controlling and overseeing the
different areas of the economy; large - scale measures for social welfare; planning to reduce the gross
inequalities through measures like - progressive taxation and prevention of concentration of wealth.
GANDHIAN PLAN (1944)
This plan was made by Sriman Narayan Agarwar
Unlike the Bombay Plan, it laid more emphasis on agriculture and cottage and village industries.
This plan visualized a decentralized economic structure for India with self - contained villages.
Though not made by Gandhi himself, the plan was based on Gandhian principles and ideas.
Gandhi himself was not in agreement with the proposals of the NPC and the Bombay plan and differed on the
issues of centralized planning, dominant role of state and industrialization. He viewed industrialism as the root
cause of Indian poverty.
THE PEOPLE’ S PLAN (1945)
It was Radical Plan, made by MN Roy, Chairman of the Post-War Reconstruction Committee of India n Trade
Union.
The plan was based on the principles of Marxist socialism and advocated the need for providing the people with
the basic necessities of life.
The plan gave agriculture and industry and equal importance.

ADVISORY PLANNING BOARD (1946)

In October 1946, the Government of India appointed this board to review the planning that had already been
done by the British Government, the work of the NPC and other plans and proposals for planning. The board
recommended the creation of a single, compact, authoritarian organization, responsible directly to the Cabinet.
Later, this body came to be known as the National Planning Commission.
THE SARVODAYA PLAN (1950)
This plan was made by the famous socialist leader- Jayaprakash Narayan - in January 1950 and drew inspiration
from the Gandhian techniques of constructive work by the community and trusteeship and the concept of
Sarvodaya, given by Acharya Vinoa Bhave. The main ideas of this plan were very similar to the Gandhian plan.
NUI AAYOG

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The Government has replaced Planning commission with a new institution NUI Aayog (National Institution for
Transforming India). The institution will serve as “Think Tank’ of the Government- a directional and policy
dynamo. The decision came after extensive consultation across the spectrum of stakeholders, including state
government’s domain experts and relevant institutions.
Role of NITI AAYOG
The centre - to - state one way flow of policy, that was the hallmark of the Planning Commission era, is now
sought to be replaced by a genuine and continuing partnership of states, NITI Aayog will seek to provide a
critical directional and strategic input into the development process.
NITI Aayog will emerge as a ‘think-tank’ that will provide Governments at the central and state levels with
relevant strategic advice across the spectrum of key elements of policy.
The NITI Aayog will also seek to put an end to slow and tardy implementation of policy, by fostering better-
inter - Ministry coordination and better centre – state coordination. It will help evolve a shared vision of
national development priorities, and foster cooperative federalism, recognizing that strong states make a strong
nation.
The NITI Aayog will develop mechanisms to formulate credible plans to the village level and aggregate these
progressively at higher levels of government. It will ensure special attention to the sections of society that may
be at risk of not benefitting adequately from economic progress.
The NITI Aayog will create a knowledge, innovation and entrepreneurial support system through a
collaborative community of national and international experts, practitioners and partners. It will offer a platform
for resolution of inter-sect oral and inter- departmental issues in order to accelerate the implementation of the
development agenda.
In addition, the NITI Aayog will monitor and evaluate the implementation of programmes, and focus on
technology up gradation and capacity building.

The Niti Aayog will comprise the following:

Prime Minister of India as the Chairperson.
Governing Council comprising the Chief Ministers of all States and Lt. Governors of Union Territories.
Regional councils will be formed to address specific issues and contingencies impacting more than one state or
a region. These will be formed for a specified tenure. The regional councils will be convened by the Prime
Minister and will comprise of the Chief Ministers of States and Lt. Governors of Union Territories in the
region. These will be chaired by the Chairperson of the NITI Aayog or his nominee.
Experts, specialists and practitioners with relevant domain knowledge as special invitees nominated by the
Prime Minister.
The full-time organizational framework will comprise of, in addition to the Prime Minister as the Chairperson.
Vice - Chairperson: To be appointed by the Prime Minister.
Members: Full - time.

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Part-time members: Maximum of 2 from leading universities research organizations and other relevant
institutions in an - ex-officio capacity. Part time members will be on a rotational basis.
Ex Officio members: Maximum of 4 members of the Union Minister for a fixed tenure, in the rank of
Secretary to the Government of India.
Secretariat as deemed necessary.
Comparison of Planning Commission with NITI Aayog

Parameter NITI Aayog Planning Commission

To be advisory body, or a think tank. The powers Enjoyed the power to allocate
Financial The powers to allocate funds might be vested in funds to ministries and state
the finance ministry governments
Full-time The number of full-time members could be fewer The last Commission had eights
members than Planning Commission Full-time members
State’s role was limited to the
State Government are expected to play a more
National Developmental Council
State Role Significant role than they did in the Planning
and annual international during
Commission
Plan meetings.
Secretaries or members
Member To be known as the CEO and to be appointed by
Secretaries we appointed
secretary the Prime Minister
through the usual process
Par-time To have a number of part-time members Full Planning Commission had no
members depending on the need from time – to -time Provision for part-time members

ESI Notes 18 – 11th and 12th Five Year Plans

The Indian economy on the eve of the 11th Plan is in a much stronger position than it was a few years ago.
After slowing down to an average growth rate of about 5.5% in the Ninth Plan period (1997-98 to 2001-02), it
has accelerated in recent years and the average growth rate in the Tenth Plan period (2002-03 to 2006-07) is
likely to be about 7%. This is below the Tenth Plan target of 8%, but it is the highest growth rate achieved in
any plan period.
This plan set a faster, more broad - based and inclusive GDP growth rate target of 9% per annum, with a
growth rate target of 10% in the terminal year of the plan (2011-12). The main objective of the plan was to
bring an inclusive growth.
The plan had to be implemented in the troubling context of a higher inflation rate, of above 6%, which led to
a tightening of the Credit Policy, forcing lower investment in the economy and a stronger rupee which made
exports earnings shrink faster. Further, high prices of oil became a burden for the national exchequer.
The plan envisaged creation of about 7 crore job opportunities and doubling the per capita income in 10 years.
It also wanted to revive the agriculture, by making a growth of 4% per annum in the plan. Similarly, the
growth targets for industry and service sectors were revised to 9-11%.

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 The Plan also seeked to reduce the drop-out rates of children from elementary schools from 52.2% (2003-04)
to 20% in 2011-12, while seeking to increase the literacy rate for persons of age 7 years or more, to 85% .
In the field of health, the plan aimed - to reduce the infant mortality rate to 28 per 1000 births and maternal
mortality rate to 1 per 1000 births. The target for total fertility rate was set at 2.1 It also seeked to reduce the
occurrence of anemia in girls and women.
Plan seeked to ensure that at least 33% of the direct and indirect beneficiaries of all government schemes are
women and girls. The government proposed to spend atleast 2% of the GDP on health (presently it is 1%
only).
In infrastructure, it seeked to ensure all weather roads to all habitations will population 1000 and above (500
and above in case hilly and tribal areas) by 2009, connect every village by telephone by November 2007 and
broadband connectivity to all villages by 2012.
In Fiscal scenario, the expansionary fiscal measures taken by the government to counter the global slowdown,
were continued in 2009-10, which led to further increase in deficit indicators. The fiscal deficit stood at 2.5%
for 2007-08 and reached a level of 6% in 2008-09 and 6.4% in 2009-10. However, it improved to 5.1% in
2010-11 and 4.6% in 2011-12. Similarly, the revenue deficit after increasing from a level of 1.1% in 2007-08
to 5.2% in 2009-10, declined to a level of 3.4% in 2010-11. The Average annual growth rate of GDP during
11th Plan was 8%.
TWELTH PLAN (2012-2017)
This plan was titled faster, sustainable and more inclusive growth. The Indian economy on the eve of the
Twelfth Plan was characterized by strong macro fundamentals due to good performance over the Eleventh
Plan period. However, it was also clouded by some slowdown in growth in the current year with continuing
concern about inflation and sudden increase in uncertainty about the global economy.
The objective of the Eleventh Plan was faster and inclusive growth and the initiatives taken in the Eleventh
Plan period resulted in substantial progress towards both objectives. To address some weaknesses that needed
addressing and new challenges in light of the economy’s transition to a higher and more inclusive growth
path, the structural changes that came with it and the expectations it generated a more focused approach was
desired.
The strategy challenges associated with the Twelfth Plan refer to some core areas that require new approaches
to produces the desired results. These challenges called for renewed efforts on multiple fronts.
Focus Areas of Twelfth Plan

Enhancing the capacity Enhancing Skills and Managing the Market for
For Growth Faster Generation of Environment Efficiency
Employment
Decentralization Inclusion, Securing the Accelerated
Empowerment Energy Future Development of
For India Transport
Infrastructure
Rural Transformation Managing Improved Access to Better Preventive and
and Sustained Growth Urbanization Quality Education Curative Health Care
of Agriculture

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 HIGHLIGHTS OF TWELFTH PLAN (2012-17)
 Average growth target has been lowered to 8.2% from the 9.0% projected earlier in view adverse domestic
and global situation. Areas of main thrust are infrastructure, health and education.
 Agriculture in the current plan period grew at 3.3%, compared to 2.4% during the Tenth Plan period. The
growth target for manufacturing sector has been pegged at 10%.
 The Twelfth Plan seeks to achieve 4% agriculture sector growth during the Five Year Period.
 A full Planning Commission chaired by Prime Minister has endorsed the document which has fixed the
total plan size at ₹ 47.7 lakh crore.
 On poverty alleviation, the commission plans to bring down the poverty ratio by 10% at present, the
poverty is around 30% of the population.
 The outlay on health would include increased spending in related areas of drinking water and sanitation.
ALTERNATIVE SCENARIOS DURING TWELFTH PLAN
To illustrate the consequences of inaction of key growth promoting policies, the Planning Commission has
undertaken a systematic process of ‘scenario planning’ based on diverse views and disciplines to understand
the interplay of the principal forces, internal and external, shaping India’s progress. This analysis suggests
three alternative scenarios of how India’s economy might develop titled ‘Strong Inclusive Growth’
‘Insufficient Action’ and ‘Policy Logjam’.
Strong Inclusive Growth describes the conditions that will emerge, if a well - designed strategy is
implemented, intervening at the key leverage points in the system. This in effect in the scenario under
planning the Twelfth Plan growth projects of 8.2% starting from 6.7% in the first year to reach 9% in the last
year.
Policy Logjam projects the consequences of policy inaction persisting too long. The growth rate in this
scenario can drift down to 5% to 5.5%
Insufficient action describes the consequences of halfhearted actions, in which the direction of policy is
endorsers, but sufficient action is not taken. The growth in this scenario declines to 6% to 6.5%
The scenarios are not to be understood as alternatives, from which one can choose.
The only scenario that can meet the aspirations of the citizens is that of ‘strong inclusive growth’. The other
scenarios merely present the consequences of inaction.
MONITORABLE TARGETS OF THE TWELTH PLAN
ECONOMIC GROWTH
- Real GDP Growth Rate of 8.0%
- Agriculture Growth Rate of 4.0%
- Manufacturing Growth Rate of 10.0%
- Every State must have an average growth rate in the Twelfth Plan preferably higher than that achieved in the
Eleventh Plan.
POVERTY AND EMPLOYMENT
Head - count ratio of consumption poverty to be reduced by 10 percentage points over the preceding estimate
by end Twelfth Five Year Plan.

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 Generate 50 million new work opportunities in the non-farm sector and provide skill certification to
equivalent numbers during the Twelfth Five Year Plan.
EDUCATION
Mean years of Schooling to increase 7 years by the end of Twelfth Five Year Plan.
Enhance access to higher education by creating two million additional seats for each age cohort aligned to the
skill needs of the economy.
Eliminate gender and social gap in school enrolment (i.e. between girls and boys and between SCs, STs,
Muslims and the rest of the population) by the end of Twelfth Five Year plan.
HEALTH
Reduce IMR to 25 and MMR to 1 per 1000 live births and improve Child Sex Ratio (0-6 years) to 950 by the
end of the Twelfth Five Year Plan.
Reduce total Fertility Rate to 2.1 by the end of Twelfth Five Year Plan.
Reduce under-nutrition among children aged 0.3 years to half of the NFHS-3 levels by the end of Twelfth
Five Year Plan.
INFRASTRUCTURE, INCLUDING RURLA INFRASTRUCTURE
Increasing investment in infrastructure as a percentage of GDP to 9% by the end of Twelfth Five Year Plan.
Increase the Gross Irrigated Area from 90 million hectare to 103 million hectare by the end of Twelfth Five
Year Plan.
Provide electricity to all villages and reduce AT & C losses to 20% by the end of Twelfth Five Year Plan.
Connect all villages with all-weather roads by the end of Twelfth five Year Plan.
Upgrade National and state highways to the minimum two - lane standard by the end of Twelfth Five Year
Plan.
Complete Eastern and Western Dedicated Freight Corridors by the end of Twelfth five Year Plan.
Increase rural tele - density to 70% by the end of Twelfth Five Year Plan.
Ensure 50% of rural population has access to 40 Ipcd piped drinking water supply and 50% Gram Panchayats
achieve Nirmal Gram Status by the end of Twelfth Five Year Plan.
ENVIRONMENT AND SUSTAINABILITY
Increase green cover (as measure by satellite imagery) by 1 million hectare every year during the Twelfth
Five Year Plan.
Add 30000 MW of renewable energy capacity in the Twelfth Plan.
Reduce emission intensity of GDP in line with the target of 20% to 25% reduction over 2005 levels by 2020.
SERVICE DELIVERY
Provide access to banking services to 90% Indian households by the end of Twelfth Five Year Plan.

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 Major subsidies and welfare related beneficiary payments to be shifted to a direct cash transfer by the end of
the Twelfth Plan, using the Aadhar Platform with linked bank accounts.
PLANNED ECONOMY AND SOCIO- ECONOMIC TRANSFORMATION IN INDIA
Since, the inception of First Five year Plan (1951-1956) to the present or twelfth on (2012-17), we can trace
the socio-economic transformation of India society: planning has reasonably ensured high per capita income,
development of secondary and tertiary sector and moderately good infrastructural development.
The increased level of means of traditional and communication, health, technology etc. are the consequences
of planning. These are largely associated with the corresponding change in social values problems, beliefs etc.
The traditional caste and feudal based social order is losing its ground Social equality, welfare, inclusiveness,
social justice etc. have remained the principal ethos of planning in India.
The formulation of planning in India is largely guided by the socialist ethos and values, India is emerging a
big economically powerful state, which is largely credited to the planning. In different annual and Five Years
Plans, in an orderly and phased manner, the different social problems like poverty and unemployment have
been addressed. In terms of housing, child and women development planning is playing constructive roles.

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 ESI Notes 19 – Regulators of Banks and Financial Institutions

INTRODUCTION
With economic liberalization in the 1990s, the private sector’s participation in providing infrastructure and
services grew. Functions that were previously performed by the government were now also performed by
private operators.
The shift in the approach necessitated the regulation of sectors where private operators were permitted.
Regulators were established through statutes to ensure their independence from the government departments
and to provide a level playing field for public and private agencies. In this regard, India followed the broad
model adopted by several other democracies. According to the OECD, the key benefits sought from the
independent regulatory model are to shield markets from interference by politicians and bureaucrats.
The financial system in India is regulated by independent regulators in the field of banking, insurance, capital
market, commodities market, and pension funds.
However, Government of India plays a significant role in controlling the financial system in India and
influences the roles of such regulators at least to some extent.
REGULATORS IN INDIA
Reserve Bank of India-:
The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve
Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was
permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are
formulated. Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully
owned by the Government of India.
Preamble-: The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as:
“...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in
India and generally to operate the currency and credit system of the country to its advantage.”
Securities and Exchanges Board of India-:
Securities and Exchange Board of India (SEBI) was first established in the year 1988 as a non-statutory body
for regulating the securities market. It became an autonomous body in 1992 and more powers were given
through an ordinance. Since then it regulates the market through its independent powers.
The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities
and Exchange Board of India as “...to protect the interests of investors in securities and to promote the
development of, and to regulate the securities market and for matters connected therewith or incidental
thereto’.

Insurance regulatory and development authority (IRDA)

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 IRDA is also an important regulatory body in India for the insurance sector. Any company who want to come
in the field of insurance in India will need the approval of the IRDA to star its business. It makes the
guidelines for the Insurance sector to work.
Headquarter - Hyderabad
The Insurance Regulatory and Development Authority (IRDA) is a national agency of the Government of
India and is based in Hyderabad (Andhra Pradesh). It was formed by an Act of Indian Parliament known as
IRDA Act 1999, which was amended in 2002 to incorporate some emerging requirements. Mission of IRDA
as stated in the act is “to protect the interests of the policyholders, to regulate, promote and ensure orderly
growth of the insurance industry and for matters connected therewith or incidental thereto.”
Insurance regulatory and development authority of India is the regulator of all Private sector insurance
business and public sector insurance business in India. IRDA issues guidelines for various insurance
companies and also decides the type of policy which can be issued by these insurance companies. It keeps an
eye on the functioning of insurance companies to direct them to work in the public interest.
IRDA chairman is appointed for a period of 5 years.
Pension Fund Regulatory & Development Authority (PFRDA)-:
Pension fund regulatory and development authority of India is the organization which decides what funds
have to be invested in what securities and based on the interest paid on these funds it decides the rate for
public provident fund and also it provides old age securities to the people. It is the regulator of all the pension
related
PFRDA was established by Government of India on 23rd August, 2003. The Government has, through an
executive order dated 10th October 2003, mandated PFRDA to act as a regulator for the pension sector. The
mandate of PFRDA is development and regulation of pension sector in India.
Term of PFRDA chairman is for five years and appointed by GOT.
Present Chairman of PFRDA - Hemant Contractor
Headquarter - New Delhi.
Financial Sector Legislative Reforms Commission-:
The Financial Sector Legislative Reforms Commission (FSLRC) was asked to comprehensively review and
redraw the legislations governing India’s financial system. The Commission submitted its report containing
an analysis of the current regulatory architecture and a draft Indian Financial Code to replace the bulk of the
existing financial laws. We present the snapshot of the Report.
The Financial Sector Legislative Reforms Commission (FSLRC), constituted by the Ministry of Finance in
March 2011, was asked to comprehensively review and redraw the legislations governing India’s financial
system.
According to the FSLRC, the current regulatory architecture is fragmented and is fraught with regulatory
gaps, overlaps, inconsistencies and arbitrage. To address this, the FSLRC submitted its report to the Ministry
of Finance on March 22, 2013, containing an analysis of the current regulatory architecture and a draft Indian
Financial Code to replace the bulk of the existing financial laws.
The Draft Indian Financial Code

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 The draft Code is a non-sectoral, principles-based law bringing together laws governing different sectors of
the financial system. It addresses nine components, which the FSLRC believes any financial legal framework
should address:
Consumer protection: Regulators should ensure that financial firms are doing enough for consumer
protection. The draft Code establishes certain basic rights for all financial consumers and creates a single
unified Financial Redressal Agency (FRA) to serve any aggrieved consumer across sectors. In addition, the
FSLRC considers competition an important aspect of consumer protection and envisages a detailed
mechanism for cooperation between regulators and the Competition Commission.
Micro-prudential regulation: Regulators should monitor and reduce the failure probability of a financial
firm. The draft Code specifies five powers for micro - prudential regulation: regulation of entry, regulation of
risk-taking, regulation of loss absorption, regulation of governance and management, and
monitoring/supervision.
Resolution: In cases of financial failure, firms should be swiftly and sufficiently wound up with the interests
of small customers. A unified resolution corporation, dealing with various financial firms, should be created
to intervene when a firm is close to failure. The resolution corporation would charge a fee to all firms based
on the probability of failure.
Capital controls: While the FSLRC does not hold a view on the sequencing and timing of capital account
liberalisation, any capital controls should be implemented on sound footing with regards to public
administration and law. The FSLRC sees the Ministry of Finance creating the ‘rules’ for inbound capital
flows and the RBI creating the ‘regulations’ for outbound capital flows. All capital controls would be
implemented by the RBI.
Systemic risk: Regulators should undertake interventions to reduce the systemic risk for the entire financial
system. The FSLRC envisages establishing the Financial Stability and Development Council (FSDC) as a
statutory agency taking a leadership role in minimizing systemic risk.
Development and redistribution: Developing market infrastructure and process would be the responsibility
of the regulator while redistribution policies would be under the purview of the Ministry of Finance.
Monetary policy: The law should establish accountability mechanisms for monetary policy. The Ministry of
Finance would define a quantitative target that can be monitored while the RBI will be empowered with
various tools to pursue this target. An executive Monetary Policy Committee (MPC) would be established to
decide on how to exercise the RBI’s powers.
Public debt management: The draft Code establishes a specialised framework for public debt management
with a strategy for long run low-cost financing. The FSLRC proposes a single agency to manage government
debt.
Contracts, trading and market abuse: The draft Code establishes the legal foundations for contracts,
property and securities markets.
Regulators: With respect to regulators, the FSLRC stresses the need for both independence and
accountability. The draft Code adopts ownership neutrality whereby the regulatory and supervisory treatment
of a financial firm is the same whether it is a private or public company.
The draft Code seeks to move away from the current sector-wise regulation to a system where the RBI
regulates the banking and payments system and a Unified Financial Agency subsumes existing regulators like
SEBI, IRDA, PFRDA and FMC, to regulate the rest of the financial markets.

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 Regulators will have an empowered board with a precise selection-cum-search process for appointment of
members.
The members of a regulatory board can be divided into four categories: the chairperson, executive members,
non-executive members and Government nominees. In addition, there is a general framework for establishing
advisory council to support the board.
All regulatory agencies will be funded completely by fees charged to the financial system. Finally, the
FSLRC envisages a unified Financial Sector Appellate Tribunal (FSAT), subsuming the existing Securities
Appellate Tribunal (SAT), to hear all appeal in finance.
Financial Stability & Development Council-:
In pursuance of the announcement made in the Union Budget 2010 -11 and with a view to strengthen and
institutionalize the mechanism for maintaining financial stability and enhancing inter-regulatory coordination,
Indian Government has setup an apex-level Financial Stability and Development Council (FSDC), vide its
notification dated 30th December, 2010. The first meeting of the Council was held on 31st December, 2010.
FSDC has replaced the High Level Coordination Committee on Financial Markets (HLCCFM), which was
facilitating regulatory coordination, though informally, prior to the setting up of FSDC.
Composition: The Chairman of the FSDC is the Finance Minister of India and its members include the heads
of the financial sector regulatory authorities (i.e. SEBI, IRDA, RBI, PFRDA and FMC), Finance Secretary
and/or Secretary, Department of Economic Affairs (Ministry of Finance), Secretary, (Department of Financial
Services, Ministry of Finance) and the Chief Economic Adviser. The commodities markets regulator, Forward
Markets Commission (FMC) was added to the FSDC in December 2013 subsequent to shifting of
administrative jurisdiction of commodities market regulation from Ministry of consumer Affairs to Ministry
of Finance. The Joint Secretary (Capital Markets Division, Department of Economic Affairs, and Ministry of
Finance) was the Secretary of the Council till August 2013. Now this post is being held by the Additional
Secretary in the Ministry of Finance.
A sub-committee of FSDC has also been set up under the chairmanship of Governor RBI. The Sub-
Committee discusses and decides on a range of issues relating to financial sector development and stability
including substantive issues relating to inter-regulatory coordination.
As a result of the deliberations of the Sub-Committee of the FSDC held on August 16, 2011, two Technical
Groups were set up a Technical Group on Financial Inclusion and Financial Literacy and an Inter Regulatory
Technical Group.
The Inter Regulatory Technical Group is chaired by an Executive Director of RBI and corn prices of ED level
representatives from the SEBI, IRDA and PFRDA. The Group will meet once every two months. It will
discuss issues related to risks to systemic financial stability and inter regulatory coordination and will provide
essential inputs for the meetings of the Sub-Committee.
The Technical Group on Financial Inclusion and Financial Literacy is headed by the Deputy Governor of RBI
and comprises of representatives of all Regulators and Ministry of Finance.
In addition, an Inter-Regulatory Forum for Monitoring of Financial Conglomerates has also been set up under
the aegies of FSDC.
FSDC also functions through working group and a macro financial monitoring group. More may be seen here.

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 Mandate-:
Without prejudice to the autonomy of regulators, this Council would monitor macro prudential supervision of
the economy, including the functioning of large financial conglomerates. It will address inter-regulatory
coordination issues and thus spur financial sector development. It will also focus on financial literacy and
financial inclusion. What distinguishes FSDC from other such similarly situated organizations across the
globe is the additional mandate given for development of financial sector.

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