; SPECTRUM

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SECTORS OF INDIAN ECONOMY

B.Com (OU) III-Year Vl-Semester (Generic Elective-2)

As Per the Latest 2016-17 Syllabus of B.Com (OU) (CBCS)J

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 ABOUT THE SUBJECT
The subject ‘Sectors to Indian Economy’ is introduced to enable the students about the various concepts
- involved in the Indian economy. It explains the growth and importance of agricultural and industrial sector
of India. Under this, subject major industries of Indian economy has been discussed like, Iron and Steel
Industry, Cement Industry, Jute Industry etc.

The important topics discussed in this subject are as follows,

❖ Agriculture in India.

❖ Green Revolution.

❖ Agricultural Marketing and Labour.

❖ Regional Rural Banks (RRBs) and NABARD.

❖ Industrialization and Social Security.

❖ Trade Union Movement and Industrial Disputes.

❖ Balance of Payment and Special Economic Zones (SEZs).

❖ Banking Sector and Money Market.

❖ Financial Relations between Centre and States.

The main objective behind introducing the subject ‘Sectors to Indian Economy’ in B.Com course is to make
students acquire both theoretical and practical knowledge of the above mentioned topics.

ABOUT THE BOOK

The book entitled ‘Sectors to Indian Economy’ is designed for B.Com III-Year Vl-Semester students.
The content provided in this book is strictly as per the latest (2016-17) syllabus prescribed by Osmania
University.

Every concept is explained in a simple manner with sufficient number of examples so as to facilitate better
understanding and easy learning in a shorter span of time. Keeping in view the examination pattern of
B.Com students, this book provides the following features,

❖ Important Questions are included to help students prepare for Internal and External Assessment.

❖ Every unit is structured into two main sections viz., Short Questions (Part-A) and Essay Questions
(Part-B) with solutions.

❖ List of Important Definitions are given.

❖ Three Model Papers are provided in order to help students understand the paper pattern in the end
examination.

An attempt has been made through this book to present theoretical and practical knowledge of
“Sectors to Indian Economy”. This book is especially prepared for undergraduate students.
The table below illustrates the complete idea about the subject, which will be helpful to plan and score
good marks in the end examinations.

Unit No. Unit Name Unit Description

1. Agriculture in India This unit covers the topics like: Place of agriculture: Progress-Green
revolution-Present state-New thrust areas-Food security: Legislation-
Schemes-Public distribution system-Agrieultural Marketing: Types-
warehousing- Agricultural Labour-Minimum wages-Rural credit-RRBs-
NABARD.

2. Industries and Tertiary This unit covers the topics like: Role and pattern of industrialization-Large-
Sector of India scale industry- Small-scale industry-information Technology Industry-
Labour problems-Labour Policy-Social Security-Trade Union Movement-
Industrial Disputes-Unorganized Sector-Foreign Trade - Balance of
Payments - SEZs- Foreign Exchange- Convertibility-Banking Sector-
Money Market- Public Finance-Financial relations between Centre and
States.

It is sincerely hoped that this book will satisfy the expectations of students and at the same time helps
them to score maximum marks in exams.

Suggestions for improvement of the book from our esteemed readers will be highly appreciated and
incorporated in our forthcoming editions.
 ______________________________

Sectors of Indian Economy

B.Com 111-Year Vl-Semester (OU)

CONTENTS -------
Syllabus (As per (2016-17) Curriculum)

List of Important Definitions L.1 - L.1

UNIT-WISE SHORT & ESSAY TYPE QUESTIONS WITH SOLUTIONS

Unit No. Unit Name Question Nos. Page Nos.

Topic No. Topic Name

UNIT-I AGRICULTURE IN INDIA 1 -38

Part-A SHORT QUESTIONS WITH SOLUTIONS Q1 Q9 2-5

Part-B ESSAY QUESTIONS WITH SOLUTIONS Q10 - Q39 6-34

1.1 Agriculture in India: Place and Progress Q10 - Q14 6

1.2 Green Revolution Q15 - Q16 10

1.3 Present State - New Thrust Areas Q17 - Q18 12

1.4 Food Security: Legislation and Schemes Q19 - Q20 14

1.5 Public Distribution System Q21 15

1.6 Agricultural Marketing : Types Q22 - Q24 16

1.7 Warehousing Q25 - Q27 18

1-8 Agricultural Labour - Minimum Wages Q28 - Q30 20

1.8.1 Minimum Wages Act, 1948 Q31 23

1.9 Rural Credit Q32 - Q35 25

1.10 RRBs Q36 - Q37 31

1.11 NABARD Q38 - Q39 33

INTERNAL ASSESSMENT 35-38

UNIT-II INDUSTRIES AND TERTIARY SECTOR OF INDIA 39-130

Part-A SHORT QUESTIONS WITH SOLUTIONS Q1 - Q10 40-43

Part-B ESSAY QUESTIONS WITH SOLUTIONS Q11 - Q107 44-126

9
2.1 Introduction to Industry Q11 - Q12 44

2.2 Role and Pattern of Industrialization Q13 - Q16 45

 2.3 Large - Scale Industry Q17 - Q25 48

2.4 Small-Scale Industry Q26 - Q28 54

2.5 Information Technology Industry Q29 - Q33 57

2.6 Labour Problems Q34 - Q36 61

2.7 Labour Policy Q37 - Q38 63

2.7.1 Industrial Policies Q39 - Q42 65

2.8 Social Security Q43 - Q46 67

2.9 Trade Union Movement Q47 - Q52 71

1" C..'
2.10 Industrial Disputes Q53 - Q59 77

2.11 Un-organized Sector Q60 - Q61 82

2.12 Foreign Trade Q62 - Q65 83

2.13 Balance of Payment Q66 - Q70 86

2.13.1 Foreign Trade Policies of India Q71 - Q74 89

2.14 Special Economic Zones (SEZs) Q75 - Q76 93

2.15 Foreign Exchange Q77 - Q81 94

2.15.1 FEMA Q82 98

2.15.2 Convertibility Q83 - Q84 99

2.16 Banking Sector Q85 - Q91 102

2.17 Money Market Q92 - Q95 111

2.18 Public Finance Q96 114

2.18.1 Tax Structure of India Q97 - Q100 115

Q101 - Q102 119

z 2.18.2 GST

2.18.3 Budgets and Economic Survey ' Q103 - Q105 121

2.19 Financial Relations Between Centre and States Q106 - Q107 125

INTERNAL ASSESSMENT 127 -130

. ..... ..
IMPORTANT QUESTIONS IQ.1 - IQ.3

. .. ■ ■
MODEL QUESTION PAPERS WITH SOLUTIONS

Model Paper-I MP.1 - MP.1

Model Paper-ll MP.2 - MP.2

Model Paper-Ill MP.3 - MP.3

 Syllabus

UNIT-I

AGRICULTURE IN INDIA

Place of agriculture: Progress-Green revolution-Present state-New thrust areas-Food security:

Legislation-Schemes-Public distribution system-Agricultural Marketing: Types-warehousing-Agricultural

Labour-Minimum wages-Rural credit-RRBs-NABARD.

UNIT-II

INDUSTRIES AND TERTIARY SECTOR IN INDIA

Role and pattern of industrialization-Large-scale industry- Small-scale industry-information Technology

Industry-Labour problems-Labour Policy-Social Security-Trade Union Movement- Industrial Disputes-

Unorganized Sector-Foreign Trade - Balance of Payments - SEZs- Foreign Exchange- Convertibility-

Banking Sector-Money Market- Public Finance-Financial relations between Centre and States.
 LIST OF IMPORTANT DEFINITIONS

UNIT-I
1. Warehousing can be defined as the process of storing goods in a warehouse by preserving and protecting them
against pests, insects, rodents and other uncertainties like dampness and moisture due to climatic changes.

2. Minimum wages can be defined as the minimum amount which the employer assumes to be essential to preserve
the worker’s efficiency and for his/her sustenance.
*
3. Agricultural Labour can be defined as the individuals who obtain a major part of their total income by performance
agricultural activities on the farms of others. Agricultural labourers are also called as agricultural workers.

4. Regional Rural Banks (RRB’s) refers to the public banks which are established in rural areas of India. The main
aim of these banks is to fulfil/meet the credit needs of the rural customers.

5. National Bank for Agriculture and Rural Development (NABARD) is introduced for promoting credit facilities to
agriculture, small scale industries, cotton and village industries, handicrafts and other rural craft industries,

UNIT - II
1. The industry which require high level of manpower, infrastructure and capitafassets is referred as large-scale Industry.
2. The industry which runs on small-scale production or which produces the products at small-scale are known as
small-scale industries.
3. “Industrial dispute means any dispute or difference between employers and employees, or between employers and
workmen, (or) between workemen and workemen which is connected wit the employment or non-employment, or
the terms of employment or with the conditions of labour of any person.”
— Industrial Disputes Act, 1947

4. Information Technology (IT) Industry is one of the major and growing industry of India. This is the industry which
is undergoing rapid evolution and changing the shape of Indian business organizations It includes business like,
software development, Consultancies, Software management, Online services, Business Process Outsourcing (BPO)
etc. jf -

5. Late President Mr. V.V.Giri stated that “social security is the security that the state furnishes against the risks which
an individual of small means cannot stand the risks, which an individual of small means cannot stand up by himself
or even in private combination with his fellows”.

6. A foreign exchange market can be defined as “a market where one currency is traded for another”. It creates a
mechanism of exchanging different monetary units for circulation in different countries and thus facilitates transfer
of purchasing power from one country to another.

— SIIA PUBLISHERS AND DISTRIBUTORS PVT. LTD.

UNIT /------------- —~\

AGRICULTURE IN INDIA
5IIA GR©UP
x_____ >

LEARNING OBJECTIVES J
After studying this unit, one would be able to understand,
❖ Place and Progress of Agriculture in India Economy.
❖ Concept of Green Revolution.
❖ Present Status and New Thrust Areas of Indian Agricultural Sector.
❖ Concept of Food Security with Legislation and Schemes.
❖ Concept of Public Distribution System and Agricultural Marketing.
• ❖ Concept of Warehousing and Agricultural Labour.
❖ Concept of Rural Credit.
❖ Regional Rural Banks (RRBs).
❖ National Bank for Agriculture and Rural Development (NABARD).
( INTRODUCTION ~~ )

The agricultural sector of India plays a important role in the growth of Indian economy. As such the development
made in agricultural sector will leads to the economic growth of India. In simple terms, the importance or
essentiality can be stated as rapid economic development required rapid agricultural development. A simple
chance in the agricultural sector whether it may be positive or negative will put major impact on economy.
In the tenth five year plan of India, it was stated that agricultural development is central to rapid economic
development of the country. However, due to so many reasons, the economic plans are getting failed in India
for achieving agricultural targets. Addition to this, the development of agricultural sector always received
low priority from the government of India at the expense of industries and services sectors.
Minimum wages can be defined as the minimum amount which the employer assumes to be essential to
preserve the worker’s efficiency and for his/her sustenance. Fair Wage Committee suggested that minimum
wages should also include some measure of amenities, medical requirements and education.
The term agricultural marketing consists of two words agriculture and marketing. The word agriculture refers
to raising or growing of crops and livestock, using natural resources for welfare of humanity. Whereas the
word marketing refer to the various activities involved in movement of goods or commodities from producers
to consumers. Hence, Agricultural Marketing can be defined as the various policies, agencies and activities
involved in the acquisition of farm inputs by the peasants and the movement of agricultural commodities
from the farms to the consumers.

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2 SECTORS OF INDIAN ECONOMY

PART-A
SHORT QUESTIONS WITH SOLUTIONS
............. - - - - ................................................... - ............. — ............................... ........ - ■ ■ ............................................................

Q1. Write briefly about the role or place of agriculture in some areas of Indian economy.

Answer :

The importance of agriculture in the national economy can be explained well by taking into account the role of
agriculture under various heads,
1. Share and Role of Agriculture in the National Income
According to figures provided by the Central Statistical Organization, the share of agriculture in GDP in the year
1950-51 was 55%. But due to rapid growth in the manufacturing and service sectors because of the five year plans, the
GDP of agriculture declined to 13.9% in the year 2013-14.
2. Role of Agriculture in Pattern of Employment in India

In India, agriculture is the most dominant sector with the highest proportion of working population engaged in
agricultural activities. According to the census of India, in 1951, the number of people engaged in agriculture were 98
million which increased to 263 million in 2011. Though, the percentage of people working on land declined from 70% to
54.6% from 1951 to 2011.
3. Role of Agriculture in Industrial Development
Many industries like cotton and jute textile industries, sugar, plantations, flour mills vanaspati etc directly depend on
agriculture for raw materials. Other small scale industries and cottage industries such as rice husking, handloom weaving,
oil crushing etc indirectly depend on agriculture for their raw materials and account for 50% of income generation in the
Indian manufacturing sector. But the 5 year plans have come up with industries which are not dependent on agriculture,
like machine tools, iron and steel industry, chemicals, automobiles, engineering industries, information technology etc.
Still, the significance of food processing industries is being acknowledged for employment and income generation.
4. Role of Agriculture Sector in International Trade

Indian agriculture plays a significant role in the international trade as most of the major exports are agricultural
products, such as sugar, tea, tobacco, oil seeds, spices etc, contribute to 50% of the Indian exports and goods manufactured
with agricultural content like cloth, jute contribute 20% to the Indian exports.
5. Role of Agriculture Sector in Economic Planning

The role of agriculture sector in economic planning can be explained with the help of the following,
(i) Agriculture supports transport business by transporting agricultural products to various places.
(ii) Prosperity of farmers leads to prosperity of industries. Similarly, failure in the agricultural front leads to failure of
economic planning in specific periods of time. For example, when good crops are produced by farmers the demand
for them increases among manufacturers which leads to better prices. In the same way, bad prices lead to depression.
(iii) Growth in the agricultural sector has a direct effect on eradication of poverty. It also plays a vital role in employment
generation, containing inflation and raising agricultural wages.
Q2. What are the objectives of economic planning for agricultural sector?
Answer : Model Paper-I, Q1

Following are the objectives of economic planning for agriculture sector,

1. Increasing Production of Agriculture Sector

Economic planning commission aims to bring more and more land for cultivation as such production of agriculture
section will increases.
2. Increasing Employment Opportunities

Economic planning commission aims to generate employment opportunities for improving the poorer section of
rural areas or villages.
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UNIT-1 : Agriculture in India 3
3. Decreasing Population Working on Agricultural Land

Economic planning commission aims to reduce the population working on agricultural land with a assumption that
too many people are working in agricultural sector. As such, surplus labour working on agricultural land can be shifted to
secondary and territory sectors i.e rural or semi-urban areas.
4. Decreasing Inequalities of Income

Economic planning commission aims to convince government for providing surplus land among small and marginal
farmers without rents. As such equality can be maintain in the income of farmers in rural areas.
Q3. Why agriculture development is essential for economic growth?

Answer : . • Model Paper-Ill, Q2

The agricultural sector of India plays a important role in the growth of Indian economy. As such the development
made in agricultural sector will leads to the economic growth of India. In simple terms, the importance or essentiality can
be stated as rapid economic development required rapid agricultural development. A simple chance in the agricultural
sector whether it may be positive or negative will put major impact on economy. In the tenth five year plan of India, it was
stated that agricultural development is central to rapid economic development of the country. However, due to so many
reasons, the economic plans are getting failed in India for achieving agricultural targets. Addition to this, the development
of agricultural sector always received low priority from the government of India at the expense of industries and services
sectors.

According to Ragnar Nurkse, the development in Indian agricultural sector can be made when following changes
are implemented,

The surplus labour of agricultural sector should be shifted to industrial sector which will enable to improve the skills,
efficiency and technical knowledge of labours. However, this should be done with specified motives and values.
Thus, a change in agricultural sector will effect the growth of economy.
Marketable agricultural surplus should be increased to feed the growing population of urban areas and also to provide
raw materials to industries which uses agricultural products in their production.
In agricultural sector new techniques have been introduced for food grains and agricultural crops. As fossil oil is
becoming expensive, ethanol can be used as an alternative fuel.
04. What do you understand by productive and unproductive loans or credit taken by farmers?

Answer :

Productive Loans or Credit

The loan or credit which is taken by a farmer for productive purposes is known as productive loan or credit. These
pes of loan or credit help the farmers in effectively managing agricultural operations and improving productivity. Some
f the common purposes of taking productivity loans or credit are as follows,
i a) For buying seeds, fertilizers etc.
For paying debts or taxes to the government.
For making any permanent improvement in land.
Unproductive Loans or Credit

The loan or credit taken by a farmer for unproductive purposes is known as unproductive loan or credit. These types
: f loan or credit involve improper and unjustified interest rates. Some of the reasons for which farmers take these loan or
credit are tested below,
a) For marriages
For birth or deaths in family
For litigations.
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4 SECTORS OF INDIAN ECONOMY
Q5. What are wages and minimum wages?
Answer : Model Paper-I, Q2

Wages
According to Benham, “Wages means the amount paid to the labour for his services by the employer”. According
to Yoder and Heneman, “wages are the compensation of wage earners, the numerous employees who use the tools and
equipments for their employers to produce goods and services that are sold by their employers”.
Minimum Wages
Minimum wages can be defined as the minimum amount which the employer assumes to be essential to preserve the
worker’s efficiency and for his/her sustenance. Fair Wage Committee suggested that minimum wages should also include
some measure of amenities, medical requirements and education.
There has always been the necessity to fix minimum wages for agricultural labourers. But, due to several difficulties
such as small size of holdings of many farmers, low productivity of agricultural labour, inability of farmers to pay higher
wages, opposition of any changes from the landlords, determination of wages by traditional methods excessive labour
supply in several areas, absence of organization between rural workers etc.
During the planning period, the agricultural product in most of the states increased leading to the prosperity of
farmers, which made the workers to demand higher wages. Also, the changes occurred after the land reforms encouraged
the agricultural labourers to ask for more wages. For these reasons, the government df India took an initiative to fix minimum
wages for agricultural labourers through an act called The Minimum Wages Act, 1948. Currently, legislations regarding
minimum wages fixation have been passed in all the states of India except Sikkim, Nagaland and Jammu and Kashmir.
Q6. Write about agricultural marketing.
Answer : Model Paper-Ill, Q3

The term agricultural marketing consists of two words agriculture and marketing. The word agriculture, refers to
raising or growing of crops and livestock, using natural resources for welfare of humanity. Whereas the word marketing refer
to the various activities involved in movement of goods or commodities from producers to consumers. Hence, Agricultural
Marketing can be defined as the various policies, agencies and activities involved in the acquisition of farm inputs by the
peasants and the movement of agricultural commodities from the farms to the consumers.
Agricultural marketing is also defined as “a process which starts with a decision to produce a saleable farm commodity
and it involves all the aspects of market structure or system, both functional and institutional, based on technical and
economic considerations and includes pre and post harvest operations, assembling, grading, storage, transportation and
distribution.
_____________ _____________ ■______________ ■ __________ - National Commission on Agriculture (XII Report)
Oil. What do you mean by warehousing and agricultural labour?
Answer : Model Paper-ll, Q2

Warehousing
Warehousing can be defined as the process of storing goods in a warehouse by preserving and protecting them against
pests, insects, rodents and other uncertainties like dampness and moisture due to climatic changes. In the macroeconomic
sense, warehousing performs a vital function. It creates time utility for various types of kinds. The proximity of market-
oriented warehousing to the customer allows a farmer to provide goods to the customer with shorter-lead times.
Warehousing helps in stabilizing the prices of agricultural commodities by adjusting supply and demand. It prevents
the quality of semi-perishable and perishable goods from deterioration. It also keep the farmer well aware of the market
conditions.
Agricultural Labour
Agricultural Labour can be defined as the individuals who obtain a major part of their total income by performance
agricultural activities on the farms of others. Agricultural labourers are also called as agricultural workers. They should
work on the farms belonging to others for a major part of the year to be called as agricultural labourers.
The Agricultural Labour Enquiry Committee also Agricultural Households defined as the households in which the
head or 50% or more of earners of the household derive their income as payment for performing agricultural activities on
other’s farm and report their main occupation as agricultural labour. These agricultural activities also include other allied
activities like poultry, fishery, pisciculture, dairy, animals husbandary etc.
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ECONOMY UNIT-1 : Agriculture in India 5
Q8. Write a short note'on RRBs.

I Paper-I, Q2 Answer :

Regional Rural Banks (RRB’s) refers to the public banks which are established in rural areas of India. The main aim
According of these banks is to fulfil/meet the credit needs of the rural customers. The origin of RRB’s was look place during 1970’s
; tools and when the Indian Government announced the 20 point economic program. A working committee under the chairmanship
of M.Narasimham recommended the establishment of R.R.Bs. Thus 5 RRB’s were established on 2nd October 1975.
There were only 84 Regional Rural Banks in India by the end of March 2009. The main purpose of regional rural
banks was to at deliver the rural credit facilities to the backward areas. Thereby, ensuring their financial soundness. Central
reserve the
government respective state government and sponsors (Commercial banks) are responsible for the contribution of initial
Iso include
capital base of RRBs. The regulatory framework of regional rural banks (RRB’s) has been proposed by the Reserve Banks
of India (RBI) and NABARD which helps in supervising their operations with some supervisory powers.
difficulties
Q9. What is NABARD?
pay higher
sive labour Answer : Model Paper-ll, 04

National Bank for Agriculture and Rural Development (NABARD) is introduced for promoting credit facilities to
osperity of agriculture, small scale industries, cotton and village industries, handicrafts and other rural craft industries, NABARD
encouraged came into existence after passing a bill in the parliament in July 12, 1982.
x minimum
s regarding With the establishment of NABARD on July 12, 1982, the department of RBI engaged in providing the agricultural
Kashmir. finance, agricultural refinance and development corporation were controlled and managed by NABARD. As it is undertaking
the agricultural related activities of RBI, the assets and liabilities of the agricultural credit funds were transferred to NABARD.
It is also responsible for managing the planning and development activities of RBI, refinance and development functions
I Paper-Ill, Q3 f the regional rural banks and so on. In March 1985, RBI disbursed ? 275 crores and ? 1200 on the long term operation
ire. refers to and the national agricultural credit respectively.
keting refer
Agricultural
lputs by the

commodity
chnical and
ortation and

'XII Report)

tel Paper-ll, Q2

them against
rroeconomic
y of market-
les.
J. It prevents
if the market

performance
They should

in which the
. activities on
e other allied

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6 SECTORS OF INDIAN ECONOMY
ur
4.

1.1 AGRICULTURE IN INDIA: PLACE AND PROGRESS

Q10. Discuss briefly the place or role of agriculture in Indian economy.
5.
Answer : Model Paper-I, Q5(a)

Agricultural Sector in India

Agriculture has been the backbone of India since the Indus Valley Civilization Era and even before that in few regions
of southern India. Despite the progress made in the Industrial sector in the past few decades, agriculture still occupies a
position of pride by offering employment to about 60% of the complete workforce in India. Demographically, it is the
widest economic sector and plays a major role in the total socio-economic fabric of the country.
India ranks second in the farm outputs worldwide and it is the seventh largest agricultural exporter across the globe,
and sixth largest net exporter.
Role/lmportance/ Place of Agriculture in Indian Economy
The importance of agriculture in the national economy can be explained well by taking into account the role of
agriculture under various heads,
1. Share and Role of Agriculture in the National Income
According to figures provided by the Central Statistical Organization, the share of agriculture in GDP in the year
1950-51 was 55%. But due to rapid growth in the manufacturing and service sectors because of the five year plans, the
GDP of agriculture declined to 13.9% in the year 2013 -14. The share of agriculture in employment is more in India when
compared with other western countries like US and UK, whose percentage of working population engaged in agriculture is
only 2% to 3% only, while in India it is about 60%. In other less developed and backward countries, the working population
engaged in agriculture is higher like in China it is 68% and in Bangladesh it is 59%
2. Role of Agriculture in Pattern of Employment in India
In India, agriculture is the most dominant sector with the highest proportion of working population engaged in
agricultural activities. According to the census of India, in 1951, the number of people engaged in agriculture were 98
million which increased to 263 million in 2011. Though, the percentage of people working on land declined from 70% to
54.6% from 1951 to 2011.
Table showing Population and Agricultural Workers in India in 5 years (in million)

1951 2011
Total Population in India 361 1210
Total Working Population 140(100) 481.7 (100)
Population employed on land 98 (70%) 263 (54.6%)
Cultivators among them 70 (50%) 118.7(24.6%)
Agricultural Labourers 28 (20%) 144.3 (30.0%)
The above information is provided by Agricultural statistics at a glance (2012). According to which 54.6% of total
workforce of India and the number of cultivators decreased from 50% to 24.6% while the number of agricultural labourers
increased from 20% to 30% in 5 years.
3, Role of Agriculture in Industrial Development
Many industries like cotton and jute textile industries, sugar, plantations, flour mills vanaspati etc directly depend on
agriculture for raw materials. Other small scale industries and cottage industries such as rice husking, handloom weaving,
oil crushing etc indirectly depend on agriculture for their raw materials and account for 50% of income generation in the
Indian manufacturing sector. But the 5 year plans have come up with industries which are not dependent on agriculture,
like machine tools, iron and steel industry, chemicals, automobiles, engineering industries, information technology etc.
Still, the significance of food processing industries is being acknowledged for employment and income generation.
SIA PUBLISHERS AND DISTRIBUTORS PVT. LTD. ■ ■ ■'...... . -................
UNIT-1 : Agriculture in India 7
4. Role of Agriculture Sector in International Trade
Indian agriculture plays a significant role in the international trade as most of the major exports are agricultural
products, such as sugar, tea, tobacco, oil seeds, spices etc, contribute to 50% of the Indian exports and goods manufactured
with agricultural content like cloth, jute contribute 20% to the Indian exports. Due to diversification of exports their percentage
increased from 18.5% to 20.3% in 1996 -97 and declined later from being 12.9% in 2011-12 to 14.2% in 2013-14.
5. Role of Agriculture Sector in Economic Planning

The role of agriculture sector in economic planning can be explained with the help of the following,
(i) Agriculture supports transport business by transporting agricultural products to various places.
(ii) Prosperity of farmers leads to prosperity of industries. Similarly, failure in the agricultural front leads to failure of
economic planning in specific periods of time. For example, when good crops are produced by farmers the demand
for them increases among manufacturers which leads to better prices. In the same way, bad prices lead to depression.
(iii) Growth in the agricultural sector has a direct effect on eradication of poverty. It also plays a vital role in employment
generation, containing inflation and raising agricultural wages.
Q11. Explain the nature of agriculture in India.

Answer:
In India, agriculture is the primary source of livelihood. Around 50% of Indian population is involved in agricultural
activities. The nature of agriculture in India is discussed in the following points,
1 Traditional Technique of Production

Agriculture in India is the traditional form of producing goods. Traditionally, Indian agricultural sector uses the
equipments which are handmade and it also uses animals for cultivation. The main reason behind such usage is lack of
technology, education and high level of poverty. However, after independence and in current scenario, most Indian farmers
.ses latest technologies for producing agricultural products. For example, use of tractors, water borewells etc.
2. Unemployment

Indian agricultural sectors always suffers from unemployment due to inadequate irrigation facilities and uncertain
-ainfall. In a year, farmers find work only few months not complete year. As a result, production of agriculture sector is
not upto the satisfaction level.
3. Dominance of Food Crop

In India, 75% of cultivated area is covered under food crops such as wheat, rice, jawar, bajra etc on the other hand,
-emaining 25% is cultivated under commercial crops.
Dependence for Families

y Agriculture is one of the dependable source of income of most families in India. Specially in villages, farmer owns
- small piece of land, grows any crop with the help of family members and sell such crop in the market. This is a common
rrocess followed by most Indian farmers.
5 Role of Animals

Most Indian agricultural farmers uses animals for cultivations. As such, animals play a important role in agricultural
rerations like ploughing irrigation, threshing and transporting agricultural products from one area to other.
5 Variety of Crops

The nature of Indian agriculture is to produce variety of crops because of good climate and soil conditions. India
able to produce large variety of crops compare to other countries across the world. Indian land can produce tropical as
as temperate crops.
Monsoon Dependency

Indian agriculture is dependent on monsoon in most cases. As monsoon is uncertain, unrealiable and irregular farmers
i. s heavy losses if rainfalls are not on time. In India */3rd cropped area is provided by perennial irrigation facilities, whereas
cropped area is dependent on monsoon.

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8 SECTORS OF INDIAN ECONOMY
8. Small Size of Holdings
In India, because of large scale sub-division and
fragmentation of holdings, the size of land holding is very
small. The average size of land holding in India is around
2.3 hectares, whereas in Australia it is 1993 hectares and
158 hectares in USA.
9. Low Production
Indian agricultural sector produces 27 quintals of
wheat per hectare and annual productivity of an Indian
agricultural labourer is $ 162. On the other hand, France
produce 712 quintals of wheat per hectare and Britain
produces 80 quintals.
10. Labour Intensive
Indian agriculture system is labour intensive by
nature. It uses more manpower and less machinery or other
equipments of farming.
Q12. Write about the current progress of agriculture
in India.
Answer:
The economic survey 2017-18 released in parliament
with the union budget 2018 provided some implications
for agriculture sector which stated that, more than 50% of
total workforce in India is in agricultural and contributes
17-18% to Gross Domestic Product (GDP). According to
Chief Economic Advisor ‘Arvind Subramanian’, “At present,
Indian farmers are adapting farm mechanization at a faster
rate in comparison to recent survey. Although, the sale of
tractors in India cannot be taken as the only measure of
farm mechanization but to great extent it reflects the level
of mechanization”.
Addition to this, the survey also stated that, the
percentage of agricultural workers of total workforce of India
would be dropped to 25.7% from 58.2% by 2050. According
to a report of survey, the actual expenditure of Agricultural
Research afid Education Department of India is increased
from ? 5.393 crore to ? 6800 crore during financial year
2017 18. However, the compound annual growth rate of
expenditure was 4.2% and now in recent years it has been
higher than that.
During the previous financial year 2017-18, the
production of food grain in India was at a record of 284.83
million tonnes. Now, Indian government targetting food
grain production more than that for the financial year
2018-19. Moreover, as per survey report, India is at second
position is producing horticulture crops with a record
production of 307.16 million tonnes and became one of the
largest produce, consumer and exporter of spices and spice
products. Currently India exporting spice products around
3.1 billions and tea products around 240.68 million kgs.
Indian government has taken various initiative to boost the
agricultural sector. Some of them are listed below,
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UNIT-
J. In September 2018, Indian government announced
? 15,053 crore procurement policy and named it as
‘Pradhan Mantri Annadata Aay Sanrakshan Abhiyan’
(PM-AASHA), under this policy government will
decide the compensation scheme and can also partner
with private agencies to ensure fair prices for farmers
in the country.
2. In September 2018, the Cabinet Committee on
Economic Affairs (CCEA) approved a ? 5,500 crore
(USS 820.41 million) assistance package for the sugar
industry in India.
3. Since March 2018, the Government is working
on a plan to provide air cargo support to promote
agriculture exports from India.
4. The implementation of Pradhan Mantri Fasal Bima
Yojana (PMFBY) will be made faster and the
government is aiming to increase the coverage under
the scheme to 50 percent of gross cropped area in
2018-19.
5. The Government of India is going to provide ? 2,000
crore (USS 306.29 million ) for computerisation
of Primary Agricultural Credit Society (PACS) to
ensure cooperatives are benefitted through digital
technology.
6. The government of India targets to increase the
average income of a farmer household at current
prices to ? 219,724 in (USS 3,420.21) by 2022-23
form ? 96,703 (USS 1,505.27 ) in 2015-16.
Thus, Indian government showing much interest
towards the growth of agricultural sector.
Q13. Explain Progress of Indian agriculture in Five
Year Plans (FYP).
Answer :
Following points shows the progress of agriculture
sector in Five Year Plans of India,
1. In the first five FYP’s (I, II, III, IV & VI) agriculture I
was given top preference because of a food crisis I
situation. Reasonable targets of production were set I
for food grains and these were attained as compared I
to other crops which were not. For the success of a I
five year plan it is essential that targets of production I
be achieved.
In the third plan targets- of production set for crops
were not attained except for sugarcane, this was due I
to severe drought conditions. As a result food grains
were imported and there was no planning for the
coming three years.
UNIT-1 : Agriculture in India
After the failure of the third FYP, agriculture was
given more importance because of its dominant role
in the economic development. The fourth and fifth
FYP targets were also not achieved in spite of being
set after great deliberation because of inflation. First
green revolution was between the third and fourth
FYP where high yielding varieties were introduced.
In the sixth FYP (1980-85), the growth rate was
much more significant about 4.3%. This was the
second green revolution. The seventh and eighth FYP
performed averagely. Some targets were achieved and
other were not. Food grain production target was not
achieved even in the ninth FYP.
In the tenth plan there was an annual average growth
of 3% in the first 5 years from 2001-02. While in
2006-07 it was 2.7% on a base of 6% growth in the
previous year. This was due to low investments,
imbalance in the utilization of fertilizers, low seeds
replacement rate, distorted incentive system and
low post harvest value addition (Economic survey
2006-07).
In the eleventh FYP, the planning commission set
the target rate at 4% and also appointed a special
agricultural commission to evaluate the results
of agriculture sector performance during the plan
period. This plan emphasize more on enhancing the
participation of private sector in farming commercial
crops and establishment of Special Economic Zones
(SEZ). As the agriculture sector is highly monsoon
dependent, the planning does not work effectively and
there was a drastic failure in obtaining the planned
results.
Government during early years of twelth plan
(2012-2014) implemented different programmes
through which the production quantity increased to
? a significant level of 265 million tonnes of which
major contribution was from rice crops. Though
the production was increased in most of the crops,
the failure in the other crops adversely affected the
success of entire sector. The agriculture sector further
require several encouraging programmes in order to
reinforce the performance in later periods.
Z - Discuss the 21st century trends in agriculture
sector of India. What are the reasons for
reduced growth rate in Indian agriculture
sector?
‘ : - ds in the Agriculture Sector
Following are the trends in Agriculture Sector,
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1. Food Grains Production
Food grains production estimates as per the economic
survey 2007-08 is placed at, 219.3 million tones, higher
than the 2006-07 estimate. The production of Kharif Food
grain is expected to be 4.8% higher than that of 2006-07.
Rabi production is expected to be lower by 3.3 MT (million
tonnes). The production of cereals is estimated to be 205
MT an increase of 2 MT when compared to previous year
oil seed production is also expected to increase to 27.2 MT
in 2007-08 from 24.3 MT of 2006-07.
2. Plantation Gaps
Production of tea, after stagnating between 1997-98
and 2004-05 at around 830-850 million kgs increased by
12% in 2005-06 and since then tea positive growth has been
maintained. India is the largest producer and consumer of
tea in the world. The consumption of tea in terms ofquantity
is growing more or less steadily at about 3% per year, net
exports have declined over the years. A special purpose tea
fund for funding replantation and rejuvenation activities has
been set up.
Coffee output which after growing rapidly between
1997-98 and 2000-01 to over 3 lakh tonnes had stagnated
in 2001-02 fell in the next 4 years. The production of coffee
has not yet come out even though there has been a marginal
increase from 2005-07 in the production. Even though India
contributes only 4% of the total world produce, Indian coffee
has created a niche for itself in the international market
particularly Indian robusters which are very highly preferred
for their blending quality and also Arabica coffee of India
which is also well received.
India is the fourth largest produce of natural rubber
with a share of 8.8% in the world in 2006.
3. Live Stock, Poultry and Fisheries
The live stock sector contributes over 4% to the total
GDP and about a quarter of the GDP from agriculture and
allied activities. This sector is the main source of family
income in the arid and semiarid regions. India ranks first in
milk production.
The poultry sector undeterred by an isolated
occurrence of bird flue in 2007 is sustaining the level
of production (1.9 MT of ducken-meat). The present
consumption is 42 eggs and 1.6 kg of chicken meat per
person per year. Poultry products exports were around Rs
316 crore. Avian influenza in poultry started in Hongkong
in 1997. It spread to many countries including India though
it had been contained. There have been specific outbreaks
which have been successfully contained.
Fish production increased by 4.4% and reached 6.9
MT in 2006-07. Fishing aquaculture and allied activities
provide livelihood to about 14 million people in 2005-06
apart from being a major earner of foreign exchange.
10
4. Agricultural Credit
The farm credit package announced in June
2004 stipulated doubling the flow of institution credit
for agriculture in the coming 3 years. The target was
surpassed. To provide adequate and timely support from the
banking system to the farmers for their cultivation needs a
model kisan credit card scheme was introduced in 1998.
NABARD and Self-Help-Groups provide finance. States
sign a memorandum of understanding with NABARD to
implement legal, institutional and other reforms as envisaged
in the package for revival of short term rural co-operative
credit structure.
5. Irrigation
Many projects and schemes have been launched
and loan assistance provided for irrigation needs. The total
irrigated area is more than 85 million hectares.
Reasons for Reduced Growth Rate in Agricultural
Sector
The reasons for the growth rate being slow are as
follows,
1. Agriculture is Mostly Dependent on Rainfall
If the monsoons are good and on time the production
of crops is abundant but there is still an important aspect-
some parts of the country may receive good rainfall and other
may not. There would be drought in one area while another
region may have flooding.
2. Technology used in Agriculture
Even now outdated techniques are used, There is
minimal usage of seed-fertilizer-water-technology. The use
has been limited to rice, wheat but not in dry land cultivation.
3. Investment in Agriculture Decreasing
Investment in agriculture is steadily declining over
the years more particularly in the public sector along with
a decreaib in the agriculture’s share in the GDP private
investment is localised in some areas of the country.
4. Land Reforms not Implemented
Land reforms have not been successfully implemented
particularly in Bihar and Andhra Pradesh to the disadvantage
of sandless labourers and marginal farmers.
5. Exploitation of Tenants and Growth of
Population Not Stopped or Controlled
Even with the inclusion of new technology production
has not yet increased substantially and exploitation of tenants
still continues by the rich farmers.
Failure of the government to control population in
rural areas puts pressure on land and government should
also set up industries which emphasize on labour intensive
technology.
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1.2 GREEN REVOLUTION ____
Q15. What do you mean by Green Revolution ? What
are its achievements and weaknesses?
Answer:
Green Revolution
w
Green Revolution refers to an agricultural strategy
which gradually replaced the traditional agricultural
practices in India by modem technology. In the mid -1960’s.
the agriculture sector of India adopted modem methods and
technology like fertilizers, High Yielding Variety (HYV)
seeds, tractors, pesticides, irrigation facilities etc. It was tried
as a pilot project in 7 districts and was called as Intensive!
Agricultural District Programme (IADP). Further, it was
spread to cover the whole country and was called by several >•
names such as seed-fertiliser-water technology, modem
agricultural technology and Green Revolution.
Green Revolution resulted in higher-yielding varieties I'M
and rust resistant strains of wheat. The new and improved
variety of seeds were of short-term duration and instead of
growing a single crop, two or even three crops were grown!
in an year. In Punjab, Western U.P., Haryana, Rajasthan and <k<u jra
Delhi, there was an unprecedented demand for Mexicar * E
varieties of wheat such as P.V.18, Sonara -64, Kalyan and!
I
Lerma Rojo which even exceeded the supply.
Achievements of Green Revolution
The following are the achievements of Greenl ■Ct
Revolution, pr.Ma
1. Boosted Cereal Production ■» *
**k
The Green Revolution boosted the production oi
cereals such as rice and wheat. According to an Economic & I
survey 2014-15, conducted by the Ministry of Agriculture,;
the production of rice increased from being 35 million tonnes j
in 1960-61 to 107 million tonnes in 2013-14, making it the
major crop of India. They yield per hectare also increase*
from being 11 quintals in 1960-61 to about 24 quintals ii
2014-15. Wheat production boosted from being 11 millioi
tonnes in 1960-61 to 96’million tonnes in 2013-14. Its yieli
per hectare improved from 8.5 quintals to 30.8 quintals pe
hectare. Green revolution was mostly confined to Higl
Yielding Varieties (HYV) cereals, mostly wheat, rice, jowa
and maize. It did not cover coarse cereals such as ragi, barlej
and minor-millets. Amongst all the varieties of crops, whea
showed a significant improvement.
2. Increased Commercial Crop Production
Green revolution mainly concentrated on increasin i
the production of food grains. It did not have much impac I
on the production of commercial crops or cash crops lik “
sugarcane, jute, cotton, potatoes and oilseeds. Though, then
was an increase in the sugarcane production from being 111 I
million tonnes in 1960-61 to 350 million tonnes in 2013-14
 UNIT-1 : Agriculture in India 11
AN ECONOMY
Production of oilseeds increased from 7 million tonnes to 33 3. Regional disparities have increased due to the growth
million tonnes, cotton production increased from 6 million of capitalistic farming in Indian agriculture. Because
tonnes to 37 million tonnes, jute production increased from IADP and HYVP requires heavy investment in
ution ? What
4 million tonnes to 12 million tonnes and production of pesticides, seeds, fertilizers and water which is not
sses?
potatoes increased from 3 million tonnes in 1960-61 to 42 easily accessible to small and middle farmers.
million tonnes in 2013-14.
4. It does not recognize the need for institutional reforms
Significant Alterations in the Pattern of the in agriculture. Use of fertilizer is necessary for profit
Itural strategy Crops maximization but most of the farmers are deprived
agricultural of it due to tenancy cultivation.
Green revolution has brought several changes in the
emid-1960’s, . - ?p pattern. At first, the output of cereals rose at the rate of 5. It has shown adverse effects on the income distribution
i methods and T to 4% p.a., but the output of pulses stayed constant and in rural areas.
ariety (HYV) men declined, which led to a decline in the significance of
6. The biological and mechanical innovations introduced
itc. It was tried pulses in food grain output from being at 16% in 1960-61 to
d as Intensive under green revolution caused the problems of labour
‘ in 2013-14. The importance of cereal rose from 84% to
urther, it was displacement.
- 5 o in 2013-14. Due to stagnant production of pulses there
lied by several »is a rise in their prices which deprived the poor people 7. According to a study by Francine Franknel: a
logy, modem ~;m consuming it. Secondly, the proportion of rice in total USAID expert, the following are the effects of green
n. .meal output declined from 48% to 44% between 1950-51 revolution on the socio-economic relations of the
■lding varieties ird 2014-15. The proportion of coarse grains declined from peasantry,
and improved : to 17% of the total cereals. Meanwhile, the importance (a) Most of the cultivators have 2-3 acres of
and instead of :> heat doubled from being only 15% to 38%. It indicates uneconomic holdings and have improved
is were grown atoe substitution of coarse grains with wheat in consumption their per acre yield by applying small doses of
Rajasthan and md production. fertilizers, but aggregate gains in output were
I for Mexican Boost to Agricultural Employment and not enough for creating surplus capital to invest
4. Kalyan and Production in land development.

The areal under crops continuously expanded after (b) Increased rentals and tendency of landowner to
®e adoption of the latest agricultural technology, which tale back the land for personal cultivation has
nts of Green n«meased the agricultural employment, productivity and resulted in degradation of economic condition
ftr .-faction. The creation of diverse job opportunities due of the small owner -cum-tenant cultivator class.
i.: mft towards hired workers and multiple cropping gave (c) Small minority of cultivators having holdings
a r« st to agricultural employment. of ten acres or more can only mobilize surplus
production of
i an Economic Strengthened Forward and Backward capital to invest in development of land.
)f Agriculture, Linkages (d) Peasants who have twenty acres or more made
million tonnes Under traditional agriculture, the forward linkage of higher gains, partially by diversifying their
. making it the ag- .Jture to industry was strong because must of the inputs cropping pattern for including more profitable
also increased w applied to industries by agriculture. But modernization commercial crops and partially by mechanizing
24 quintals in an . £d option of new technology strengthened the linkage farm operations for taking up double or multiple
ing 11 million it -een them. The inputs demanded for agriculture are cropping.
13-14. Its yield jpcv _ced and supplied by industries. Hence, the backward Q16. Write briefly about the impact of green
'.8 quintals per ■rh ige also strengthened. revolution on Indian economy.
fined to High
eat, rice, jowar Weaknesses of Green Revolution Answer : Model Paper-I, Q5(b)
t as ragi, barley The following points highlight the weaknesses of Green revolution has influenced (Impact) the Indian
>f crops, wheat if m revolution, economy in various ways. Since its introduction, phenomenal
It made the farmers of India market oriented. They changes has been made in Indian agriculture sector. The
iduction main objective of the green revolution in India is to bring
have become highly dependent on the market for the
I on increasing ; demand of their output and the supply of inputs. ‘Grain Revolution’. The impact of green revolution on
e much impact Indian economy is classified into two categories. They are
Indian agriculture still relys on weather conditions. If as follows,
:ash crops like;
suitable weather conditions are not there, the output
Though, there I. Economic Impact
of agriculture declines leading to sharp fluctuations
rom being 110
of output of cereals and other food grains. II. Sociological Impact.
les in 2013-14.
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12 _ —
I. Economic Impact
The economic impact or effect of green revolution
on Indian economy is as follows,
1. Impact on Agricultural Production
The introduction of green revolution directly effected
the agricultural production of India. It increases the product
of agricultural products substantially. For example, the
production of wheat increase from 11.1 million tons to 63
million tons.
2. Impact on Employment Opportunities
Green revolution increases the employment
opportunities in Indian agricultural sector by way of new
technologies. The new technologies enabling farmers to
use water, fertilizers, insecticides, double cropping etc
on required time. As a result, it increasing the income of
agricultural labourers and small farmers.
3. Impact on Industrial Requirements
Green revolution effected the agricultural inputs
requirement in such a way that, agriculture is now dependent
on industrial products. Traditionally, the agriculture sector
of India was independent and self -sufficient in the matter
of inputs requirements. But the new strategies of green
revolution made industrial products as agricultural inputs.
4. Impact on Landless Labour
The introduction of green revolution effected the
growth of landless labourers. Today, these has been a great
demand for wage-labour specially at the time of peak periods.
As a result of increasing demand of labourers, their positions
are also improving.
II. Sociological Impact
The sociological effect or impact of green revolution
on Indifn economy is as follows,
1. Impact on Regional Inequalities
The impact of green revolution is getting restricted
to particular regions only. Due to this reason, inequalities
are arising between the regions of same state or. country.
According to a survey, it is stated that 2/3rd of total cultivable
area have been kept outside the impact of green revolution.
2. Impact on Attitudes
Green revolution has influenced the attitudes of
farmers to great extent in those areas where new agricultural
strategies has been implemented. The productivity from
those farmers has been increased and they are now shifting
from low-level subsistence activities to money making
activities.
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3. Impact on Poor Farmers
Green revolution created inequalities between rich
farmers and poor farmers. Because the new strategies of
green revolution are quite expensive as such poor farmers are
not able to afford that. As a result they are forced to use old
strategies for cultivation. Thus, green revolution impacted
on poor farmers.
1.3 PRESENT STATE - NEW THRUST
AREAS ___
Q17. Describe the present state of the Indiar
Agriculture.
Answer: Model Paper-ll, Q5(a
Since Independence, India remained a food deficit
country for almost 20 years. Because of green revolution.
India became self-sufficient in food grains and also made
large food surplus of about 58 million tonnes by 2002. The
agricultural sector started improving after the introduction o
High Yielding Varieties (HYV) of crops and improvements
in the infrastructure for storage, input supply, irrigation,
marketing and credit. The progress of agricultural sector is
three phased,
1. Phase (i) (1947-65)
In the first phase, the net area sown was increased €
and the irrigation facilities provided to the farmers was
expanded. Land reformation was done and land holdins
were consolidated.
2. Phase (ii) (1965-85)
In the second phase of agricultural development, hig
yielding seeds were introduced and developed, chemi ci
based fertilizers and pesticides were used extensively an
improved crop production technologies were adopted..
3. Phase (iii) (1985-2013)
In the third phase of Indian agricultural development
the government introduced a Minimum Support Price
(MSP) policy and procured agricultural commodities. Unde
this phase only infrastructure for storage was develope
e., cold storage facility was provided. Addition to thi
i.
investment in agriculture increased and distribution an
marketing improved at national level.
Factors that Restrict the Growth of Agriculture
Sector
Despite the improvement and development brougi
by the green revolution, various factors continued to restri
the growth of the agricultural sector,
-
1. Agriculture in India has always been a gamble t
monsoon. Some regions suffer deficit of rainfa
while some regions experience abundant rain an
consequent floods. In the first decade of plannin
emphasis was given to extend irrigation and expai
area under irrigation, but none of the plans we
fulfilled.
IAN ECONOMY UNIT-1 : Agriculture in India 13
---- ———
2. The new technology or the seed-fertilizer water 2. Stagnant Output of Pulses
. between rich technology was successfully applied to major crops
like wheat and rice, but other food and non-food terops In the years 1970-71, the production of pulses
v strategies of
did not show much improvement. It completely left was around 12 million tonnes. It inclined over years to
tx>r farmers are
out the dry land cultivation. 13 to 14 million tonnes and remained stagnant till now.
reed to use old
New researches helped in increasing the productivity of
ition impacted
According to an Economic Survey conducted by pigeon-pea (Arhar) and Chick pea (Bengal gram) which are
the government, public investment in agricultural dominant pulse crops. There’s still scope for improvement
THRUST sector decreased from being 35% in 1960-61 to 15% in their productivity in the future.
in 2012-13. While private investment inclined from
being 65% in 1960-61 to 85% in 2012-13. But the 3. Boosting the Productivity of Edible Oils
f the Indian
private investment is almost completely concentrated The productivity of edible oils in India has been
in the North Indian regions like Western Uttar negligible even when compared to other developing
tel Paper-ll, Q5(a Pradesh, Haryana and Punjab. countries like China. Groundnut, mustard, grape-seed,
a food deficit j sunflower, sesamum, safflower, soyabean and sunflower
During the mid- 1970’s the Government intended to
;en revolution, are some of the major oil seeds grown in India. To increase
implement land reforms but failed. It led to scarce
and also made their productivity, the government has set up the technology
land distribution in favour of landless labourers and
s by 2002. The marginal farmers. It also caused conflicts between the mission on oilseeds which proposed a target to increase
introduction ofI the productivity of oilseeds to 16-18 million tonnes by
landless and landlords in Andhra Pradesh and Bihar
improvement' 1989-90 and increase it to 26 million tonnes by 2000-01 by
and Naxalite movement also expanded rapidly.
ply, irrigation.; bringing more oil seed areas under irrigation, improved dry
iltural sector is The technological progress in the agricultural sector farming, crop substitutions, modem crop technology, and by
has caused inequality and increased the exploitation promoting oil palm cultivation in 6,00,000 hectares. Their
of the tenants. first target was fulfilled timely (in 1989-90), but the second
was increased The failure of Government to create non-agricultural target of 26 million tonnes was fulfilled in 2004-05.
e farmers was employment and control the rapid population growth 4. New Strategies of Water and Irrigation
! land holdings in the rural sector. Management
The growth of agricultural sector is unbalanced. While The total water reserves available for the coming
some of the regions excessively produced food grains 12-15 years is 100 million hectare metres (mhm). The major
elopment, high but lacked proper storage and some of the regions irrigation projects mostly include over-irrigation which has
>ped, chemical continued to be poor and backward. The government adverse effects on production. For example, paddy crop
■xtensively anc faced problems with storage of surplus and its. requires only 800 mm of water but farmers over water it with
e adopted. distribution and cost of storage and distribution. 1,500-3,000 mm of water which sometimes ruin the crop.
About 90% of the total water is allocated for irrigation. It
Z* 3 What are the new thrust areas in agricultural
il development, must be reduced to 77% and the remaining must be allocated
sector?
support Prices to meet the needs of municipal and industrial sectors. It can
nodities. Under teswer : be done by using proper method of irrigation, maintaining
was developed and repairing the traditional system of water harvesting,
ddition to this, The new agricultural technology has made India using drip irrigation or bi-wall irrigation, and training farmer
istribution and tat sufficient in terms of food production, mostly wheat and extensive officers about water management. The first 5
■sc rice production and the imports of food grains have year plans laid much emphasis on the medium and major
: me negligible. Yet, there are many thrust areas in which irrigation works which requires more irrigation costs per
Agricultura lhe c ? vernment must formulate agricultural policies with an
hectare, while the new thrust emphasizes minor irrigation
I be: to to enhance the agricultural growth in those areas with
works and is cost-effective.
)pment brought as:sis on equity and sustainability. Some of the major
inued to restrict ■f ~• ai
■Er_st areas are as follows, 5. Expansion of Usage of Bio-Fertilizers

Negligible Progress in the Output and Area According to a research in Genetic engineering and
m a gamble a bio-technology, some micro-organisms like blue-green algae
Under Coarse Cereals
icit of rainfall and bacteria can act as nitrogen fixers and offer nutrients to
mdant rain ant HYV strains of coarse cereals were not developed as crop-plants. Rhizobium is the most commonly used bio­
de of planning zajor inputs were directed towards rice and wheat. The fertilizer, which can fix 100-300 kg of nitrogen per hectare in
ion and expand Itat ind area under coarse cereals showed no improvement a single crop season and leave a good amount of nitrogen for
the plans were ■ u -emained neglected. At present, improving their output the next season as well. Bio-fertilizers are both cost-friendly
■ . raj or thrust area. and eco-friendly. But lack of appreciation and trained
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14
personnel is hampering its use. The ministry of agriculture
of the government of India is sponsoring national projects
regarding this, which will give a major thrust in agricultural
sector growth in the future.
6. importance Must be Given to Dry Farming
Dry farming is carried out on about 60% of the
total cultivated area in India. But their contribution to
agricultural production is less than 30%. This is due to
lack of appropriate dry-fanning technology and inequality
among the rich and poor farmers. For this, the problems
of various dry land areas must be thoroughly studied and
a region-specific technology must be developed. By using
fertilizers moderately, conservating rain water properly and
using improved seeds can increase the yields upto 40% to
50% in the tain-fed areas.
1.4 FOOD SECURITY: LEGISLATION AND
SCHEMES
Q19. Define food security. Write about food security
legislation.
Answer :
Food Security
According to the World Development Report (1986),
food security can be defined as “access by all people at all
times to enough food for an active, healthy life.”
Staatz (1990) stated that food security is “the ability to
assure, on a long term basis, that the food system provides the
total population access to a timely, reliable and nutritionally
adequate supply of food .”
Food and Agriculture Organization (FAO, 1983) also
defined food security as “ensuring that all people at all times
have both physical and economic access to basic food they
need.”
Food security means sufficient physical availability
of food to the complete population of the nation. People of
the country must be able to acquire quality food in adequate
quantity to meet the nutritional needs. The food security must
be reliable, nutritionally sufficient, and must be available on
a long-term basis.
Food Security Legislation or National Food
Security Act, 2013
The National Food Security Act, 2013 isanActofthe
Parliament of India which intends to offer subsidized food
grains to the poor and the needy people which are about two
thirds of India’s 1.2 billion population. It was signed into law
on September 10,2013 but was retroactive to July 5, 2013.
It ensures the access to sufficient quantity of quality food
distributed at affordable prices to the people. It also converts
into legal entitlements for current food security programmes
introduced by the government. It is also called as Right to
Food Act.
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UNTT
The NFSA, 2013 consists of the Public Distribution
System (PDS) Integrated Child Development Services
r
Schsme and Midday Meal Scheme. It also recognizes
maternity entitlements. The PDS covers about 820 million
people (50% in urban and 75% in rural areas), while
the Integrated Child Development Services Scheme and
the Midday Meal Scheme are universal in nature. The
beneficiaries of the Public Distribution System (PDS), under ■Msd
the provisions of the law are entitle to 5 kilograms of cereals I
per month at subsidized prices(rice at ? 3 per kg, wheat at i.
? 2 per kg and coarse grains or millets at ? 1 per kg). Some
categories of children, lactating mothers and pregnant
women are entitle to everyday free cereals.
■ur m
Salient Features <ar*-s<3
The following are the salient features of the National!
Food Security Act, 2013 (NFSA 2013),
1. Household Identification
I JW'
The households which are entitled to the PDS scheme „ g
within the coverage under Targeted Public Distribution" ”
System (TPDS) which is determined for every state are! GM
identified by the states/UTS themselves.
2. Entitlement and Coverage
The TPDS cover extends to about 50% of the urban!
population and 75% of the rural population and a uniform T XF1
entitlement of 5kg per individual for each month. But the. I
households under the Antyodaya Anna Yojana (AAYk
which constitutes poorest of the poor are entitled to 35ka
per household for each month. The state-wise coverage _
determined by the central government by using the NSS P
Household Consumption Survey data.
3. Subsidized Prices and their Revision UndetW1C
TPDS I
The subsidized prices for rice, wheat and coarse grai
were ? 3, ? 2, ? 1 respectively under TPDS for a period of
years from the date of commencement of the Act. Then t
prices were linked to Minimum Support Price (MSP). If t
allocation by the state is lesser than the current allocati
then it will be protected till the average offtake under no
TPDS during the last 3 years, at the prices which are to
determined by the central government.
4. Food Security Allowance
The entitled beneficiars have provision for f
security allowance if the entitled meals or foodgrains
not provided.
5. Grievance Redressal Mechanism
Grievance redressal mechanism is present at the st
and district levels. An existing machinery can be used
separate mechanism can be set up by the state.
IN ECONOMY
UNIT-1 : Agriculture in India __________ ____________ ___ _________ ___ 15
Distribution
6. Maternity Benefit implemented for the universalization of primary education.
ent Services
) recognizes The programme extended its cover to about 10.6 crore
Lactating mothers and pregnant women are entitled
children by 2003-04. It has been a successful programme in
t 820 million > receive ? 6,000 as maternity benefit.
the southern regions of India like Tamil Nadu and Karnataka
reas), while
7. Women Empowerment but it proved to be a failure in the northern regions of the
Scheme and
nature. The Ration cards are issued to the eldest woman of the country.
(PDS), under • ?usehold who is above 18 years of age or above and is 3. Public Distribution System (PDS)
ims of cereals regarded as the head of the household. Public Distribution System (PDS) is a scheme
• kg, wheat at 3 Intra-State Transportation and Handling Cost launched by the government of India under Ministry >f
ter kg). Some of Food Grains and FPS Dealer’s Margin Consumer Affairs, Food and Public Distribution to provide
ad pregnant essential commodities like wheat, rice, edible oil, sugar,
The expenditure incurred for intra-state transportation kerosene, soft cake and other non-food items to the poor
md handling cost of foodgrains and FPS dealer’s margin is people and the needy at subsidized prices during the perk - Is
: r. ised as per norms and the states are provided assistance of shortage of food in the 1960’s. It acted as a price support
f the National ~ the central government. programme and an instrument of price stabilisation, it
• Accountability and Transparency became a counteractive force against private traders who
intended to exploit the situation and gain more profits
Accountability and transparency is ensured by through it.
provisions for disclosure of records related to social audits,
! PDS scheme -DS and setting up of vigilance committees etc. 1.5 PUBLIC DISTRIBUTION SYSTEM
Distribution
'ery state are | 120. What are the various schemes included in the Q21. Explain in detail Public Distribution System
National Food Security Act, 2013 (NFSA, 2013)? (PDS). What is the impact of PDS on poverty?
Answer : Model Paper-ll, Q5(b)
Answer:
Public Distribution System (PDS)
o of the urban The following are the various schemes included in
Public Distribution System (PDS) is a scheme
md a uniform r e NFSA, 2013,
launched by the government of India under Ministry of
onth. But the Integrated Child Development Services
ojana (AAY)I Consumer Affairs, Food and Public Distribution to provide
Scheme (ICDS) essential commodities like wheat, rice, edible oil, sugar,
titled to 35kg
ICDS was started in the year 1975 with an aim to kerosene, soft cake and other non-food items to the poor
,e coverage is
■rer food supplementation to pregnant or nursing women people and the needy at subsidized prices during the periods
sing the NSS
re children. The Ninth plan reviewed ICDS stating that the of shortage of food in the 1960’s. It acted as a price support t
rest needy people might not be able to access the facility and programme and an instrument of price stabilisation. It
ision Under -• en if they did access, the food only acted as a substitute became a counteractive force against private traders who
* r.er than a supplement. intended to exploit the situation and gain more profits
through it.
1 coarse grains In the year 1996, the ICDS .scheme extended to cover
Initially, during the mid-1980s, the PDS was extended
r a period of 3 <290 blocks with 5.92 lakh anganwadis across the nation.
to rural areas of few states and gained the status of a welfare
Act. Then the■Pte {Programme encouraged the introduction of semi-solid
programme. In the year 1985, the PDS was extended to cover
;(MSP). If theIsirrclements to the breast-fed infants. But the review of
tribal blocks consisting of about 57 million people. It became
ent allocation r: programme revealed that in the ICDS areas, 25% of
the largest distribution network of its kind in the world with
■ under normal| tr_~mg mothers introduced semi-solid supplements to their
a network of more than 4.62 lakh Fair Price Shops (FPS),
hich are to be
llrtist-fed infants at the age of 6 months while in non-ICDS
which distribute goods worth ? 30,000 crores per annum to
I .art is. only 19% of the nursing mothers introduced semi­
about 160 million families in India.
Im 5 supplements. It indicates that the gains obtained in
I t = programme have not been great in terms of enhancing In the year 1980-81, the central government
sion for fooi ~ tional status. expenditure on food subsidy was 650 crores (at current
'oodgrains ai prices) and it kept increasing over the years and reached to
Mid-Day Meal Programme 1,22,675 crores in 2014-15 and remained low continuously
Mid-day Meal Programme was started to provide a in terms of total government expenditure.
n L to the children attending balwadis (schools) between According to data about commodity wise compositio 1
.ent at the stat, ■ 2 to 14 years at the expense of 0.44 to 0.90 for each of market dependent population, most of the PDS purchases
eficiary. However, it did not cover poor children who benefitted the non-poor ofthe rural and urban areas. Vari: us
n be used or;
■:: attend school. It has been renamed as Nutritional commodities share specific purchase percentage in the to, 1
e.
•? ?rt to Primary Education. In the year 1975, it was PDS purchase.
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16 SECTORS OF INDIAN ECONOMY

The following table shows the relative share of various 1J6 AGRICULTURAL MARKETING : TYPES
commodities in total PDS purchase,
* Q22. Define marketing and agricultural marketing
Rural and Urban Share in and explain its significance.
Commodity
Total PDS Purchase (%) Answer :
Food Grains:
Marketing
Rice _ 26.7% Marketing is a significant afid crucial aspect of af
Wheat 10.1% businesses. It plays an important role in attracting large!
consumers towards company’s products of a business. Thud
Minor cereals 0.8%
marketing both begins and ends with the consumer.
Pulses 0.2%
“The marketing concept is a philosophy applied tel
Total 37.8 the operation of a business of which customer and consumer!
Sugar 35.0 needs will be uppermost in importance. These needs will
govern the separate planning of each function ofthe business!
Kerosene 14.6 as well as overall plan aimed at achieving its pre-determined
Edible oils 8.6 profit objectives.

Others 4.0 - Arther P Feltay

Total 100.0 Agricultural Marketing

Impact of PDS on Poverty The term agricultural marketing consists of tw■

According to a study by Radhakrishna et al, the impact
of PDS on poverty can be explained with the help of the
following,
1. Most of the backward states like Uttar Pradesh, Bihar
were excluded from the PDS network.
2. it proved to be regressive in states like Andhra Pradesh
and Kerala where PDS purchases were higher among
all expenditure groups but relatively lower among the
poor people.
3. The PDS coverage was low in all over India with a
monthly per capital purchase of 1.3 Kg in urban areas
^nd 0.9 Kg in rural areas.
4. A decline in the poverty due to PDS subsidies was
also observed.
5. Poverty has been reduced by 1.7% points in urban
areas and 1.6% points in rural areas.
6. Due to income transfers from PDS, about 12 million
persons (3 million in urban areas and -9 million in
rural areas) have been removed out of poverty in
' 1986-87.
7. The impact of PDS in poor states has been
insignificant, indicating the need to strengthen PDS
in such states.
8. Backward-states such as Orissa, Bihar, Madhya
Pradesh, Rajasthan and Uttar Pradesh must be
focussed to reduce poverty through PDS.
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words agriculture and marketing. The word agriculture
refers to raising or growing of crops and livestock, usinj
natural resources for welfare of humanity. Whereas th*
word marketing refer to the various activities involved w
movement of goods or commodities from producers w
consumers. Hence, Agricultural Marketing can be defined af
the various policies, agencies and activities involved in thj
acquisition of farm inputs by the peasants and the movemew
of agricultural commodities from the farms to the consumeJ*
*
Agricultural marketing is also defined as “a process
which starts with a decision to produce a saleable fanrf
commodity and it involves all the aspects of mark:
structure or system, both functional and institutional, bas:
on technical and economic considerations and includes pfl
and post harvest operations, assembling, grading, storagO
transportation and distribution.
- National Commission on Agriculture (XII Repc
Importance/Significance of Agricultural Marketing
J
The following points highlight the importance ■
agricultural marketing,
1. It leads to proper management of output ar *
optimization of resource use by cutting down X
losses incurred due to inefficient storage, process^
and transportation.
2. It enhances the farm income levels by eliminatfl
malpractices adopted by the middlemen, reducing fl
number of brokers and restricting the commission ■
marketing activities.
 » UNIT-1 : Agriculture in India 17
IAN ECONOMY
fcr • - -—1 5. It leads to widening of markets by transporting goods 5. Lesser Intermediaries
iG: TYPES to distant places and thereby increasing the demand The lesser the number of intermediaries, the higher the
for them. returns to the farmer will be. The number of intermediaries
al marketing 4 An efficient agricultural marketing can improve the must be reduced so that the middlemen’s profits will be
growth of Agro-based industries. decreased and the farmers are benefitted.
It helps the farms to plan their production according Defects of Agricultural Marketing
to the economical needs of the country through price
signals. The following are the defects of agricultural
il aspect of all - marketing,
It encourages the farmers to adopt new technology
ittracting large by assuring them of market clearance. 1. There is no proper storage facility available for the
business. Thus. - It offers employment to millions of persons involved farmers in India. Most of them are so poor that 10%
isumer. in various marketing activities like transporting, to 20% of the harvest is eaten away by rats.
phy applied to packaging, storing anc. processing in the form of 2. An average farmer is indebted and poor and is forced
r and consumer brokers, traders, commission agents, retailers, weigh­ to sell off his produce to the money-lender in order
tese needs will men, regulating staff and packagers etc. to clear his indebtedness. This further worsens the
of the business, It increases the net national product and gross national position of the poor farmer.
jre-determined product ofthe country by adding value to the products 3. Most of the villages lack proper transport facilities
through marketing activities. and have un-metalled (kachcha) roads which become
irther PFelton It adds cost and utility to the product by ensuring that unstable during monsoon. Due to this even the rich
the product is in proper form and makes sure that the farmers who have large amount of surplus hesitate to
product reaches the consumers in time. sell their goods in a mandi.
insists of twc N It improves the standard of living of people by 4. The selling process in a mandi- is a time-consuming
>rd agriculture decreasing the poverty of the agricultural population, - one. Sometimes the farmer is made to wait for a while
ivestock, using reducing economic wastes, earning more foreign before he is able to sell the goods. During this time
■. Whereas the i exchange and by reducing food prices of consumers. the goods are to be stored in a warehouse. Also the
ies involved ii 223 What are the basic facilities needed for selling process requires a broker (dalal) to sell the
1 producers to agricultural marketing? Write about the defects goods to arhatiya. Often, the broker and the arhatiya
m be defined as of agricultural marketing. are in collusion and the price is settled in their favour.
involved in the 5. The margin going to the intermediars is high because
Answer :
I the movement more number of intermediaries are involved in
the consumers Basic Facilities Needed for Agricultural Marketing
transfer of goods from farmer to final consumer.
The following are the basic facilities needed for
d as “a proces 6. The farmers lack knowledge of the ruling prices in
it - . _ itural marketing,
saleable fanr the top markets and are forced to believe the prices
cts of marke T Storage Facility
recommended by the traders.
itutional, basei The agricultural goods or commodities must be stored
nd includes pn ■nrerly so that the goods are not harmed and stay in good Q24. Briefly discuss the different types of agricultural
ading, storage, il crrfon. It is also needed to store surpluses. marketing.
Z. Holding Capacity Answer :
re (XII Repot The farmers must have holding capacity to hold goods Agricultural marketing deals with the purchase and
•.here is rise in their prices and not dispose the good for sale of agricultural products. In India, the marketing of
■al Marketing k . prices immediately,
agricultural products is carried out in various agricultural
importance c F Transport Facility markets which are discussed as follows,
The farmers must have cheap and sufficient transport Different Types of Markets for Agricultural
~ es which would help him to transport his surplus goods
k Marketing
>f output an
Ee mandi instead of selling them off to a village money-
tting down th * The agricultural markets in India are divided on the
cer-cum-merchant at a lower price.
ige, processin i basis of various types such as location, coverage area, size,
Information Regarding Market Conditions
time, government regulation and so on.
The farmers must be well aware of the market
by eliminating 1. Basis of Location
: : ons and must have information regarding ruling
m. reducing th On the basis of location of the agricultural m arkets it
Regulated and organized markets must be present
commission a could be of the following five types,
~u: arhatiyas and dalals do not betray the farmers.

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18 SECTORS OF INDIAN ECONOMY
(a) Village Markets (b) Long Period Markets

The village market is located in the center of the These markets are held for a longer period of time,
v tlage, where exchange of agricultural products takes place. when compared to short period markets. Products such as oil
Generally in case of a village market, villagers themselves seeds, dry edible items, onion etc are sold in these markets.
a major purchasers and sellers.
(c) Permanent Markets
(b) Primary Wholesale Markets
These markets are permanent in nature and sell
These markets are located in major towns, which are
products wnich are durable in nature.
near to the sites where the agricultural products are produced.
A common feature of the primary wholesale market is that 4. Basis of Volume
th : farmers directly sell their agricultural produce in their
(a) Wholesale Market
type of market.
(c) Secondary Wholesale Market In this markets huge volume (quantity) of goods are
purchased and sold.
These markets are located in the main district
headquarters. The exchange transactions in these markets (b) Retail Market
take place between the producer (farmer) and wholesale
In this market small quantities of agricultural product
businessmen.
are purchased by the consumers for consumption purpose
(d) Terminal Market
5. Basis of Nature
It refers to the market wherein the products are sold
to the end user (consumer) or the products are assembled (a) Spot/Cash Market
for being exported. In this market goods are exchanged for cas
(e) Seaport Markets immediately (on the spot).
These markets are located near the harbour and sea (b) Forward Market
port. I he bulk of the agricultural products which arrive in
tbss market are for import/export. In this market the exchange transactions takes plat
on a specific time ‘t’ and the actual exchange of the goo<
2 Basis of Area Covered may take place on any other time (t + 1).
(a) Local Markets 6. Basis of Government Regulation
Agricultural marketing in the local markets takes
(a) Regulated Market
place between local customers. For example, a local market
located in a village wherein customers and sellers belonging This market is highly regulated and the exchans
the nearby villages gather to transact. transactions are carried out strictly in accordance with tl
(b) Regional Markets predetermined rules and regulations.

T hese markets are very popular in India amongst the (b) Un-regulated Markets
fi. mers who gather in these regional markets to purchase or These markets do not operate on the basis of ar
sell food grains. A regional agricultural markets are generally specific set of rules and regulations.
larger than the local markets.
(c) National Markets
1.7 WAREHOUSING
These agricultural markets cater to the needs of buyers Q25. What do you mean by warehouse an
and sellers at the national level. In India, products such as warehousing? State the objectives
jute, tea, coffee etc are popularly sold in national markets. warehousing.

3. Basis of Time Answer : Model Paper-Ill, QI

On the basis of time, agricultural markets can be Warehouse

classified as,
A warehouse is a scientific storage structure, whi
(a) Short Period Markets is specifically constructed for holding goods, raw materii
These markets are held for a few hours. Generally finished goods and semi-finished goods for varying peric
perishable goods such as fish, vegetables, fruits etc are sold of time and for protecting the quality and quantity of stoi
in these markets. goods. A warehouse is also referred to as a godown.

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kN ECONOMY
UNIT-1 : Agriculture in India
Warehousing Q26. Briefly discuss the concept of warehousing in
iriod of time, Warehousing can be defined as the process of storing India with respect to agricultural sector.
cts such as oil goods in a warehouse by preserving and protecting them Answer :
hese markets. sgainst pests, insects, rodents and other uncertainities
Warehousing in India
like dampness and moisture due to climatic changes. In
’he macroeconomic sense, warehousing performs a vital Warehousing facilities are required to prevent the
ture and sell anction. It creates time utility for various types of kinds. losses incurred due to defective storage and to provide a
The proximity of market-oriented warehousing to the convenient source of credit to the farmers. In the year 1954,
. astomer allows a farmer to provide goods to the customer the All India Rural Credit Survey Committee proposed a
- ith shorter-lead times. detailed recommendation to initiate a three tier warehousing
Warehousing helps in stabilizing the prices of system in India with national level, state and district level
agricultural commodities by adjusting supply and demand. It and village and rural level. According to it, centre of all India
) of goods are importance were to be created by the central warehousing
rve vents the quality of semi-perishable and perishable goods
r m deterioration. It also keep the fanner well aware of the corporation and the Food Corporation of India for providing
rarket conditions. storage facilities, centres of district/state level importance
were to be created by the state warehousing corporation
Itural products Objectives of Warehousing and state governments and co-operatives were supposed
tion purpose. to look after the storage needs of the rural areas. The
The following are some of the objectives of
warehousing, recommendations were accepted and the government set up
the National Co-operative Development and Warehousing
To provide state of art international standard Corporation in 1956. In the year 1957, the Central
warehouses. Warehousing Corporation was set up, which was followed
zed for cash by the setting up of State Warehousing Corporations in all
To offer round the clock security with gates and
boundary wall and protection all types of rodents, states.
insects and pests. Warehousing is considered as an integral part of the
ns takes place To ensure that electronic weigh bridges are available supply chain where various processes are implemented to
e of the goods at each location. minimize cost and wastage and to preserve safely. 15% of
the warehousing market in India which is ? 8,500 crore is
To offer road on all four sides with a connectivity
contributed by agricultural warehousing. It comprises of state
to SH, NH and Rail connectivity in all weather
h enterprises like SWCs, CWC and FCI which contribute about
conditions.
40% of the warehousing capacity and unorganized small
To use ridge ventilators as per post harvest handling godown payers contribute about 30% of the warehousing
the exchange norms and food safety standards to help in quality capacity.
dance with the retention of the produce.
Currently there are 3 major agencies in the public
To include unlbading and loading docks with canopy sector which are engaged in creating large scale warehousing
on top and be well equipped with fire fighting or storage capacity. They are,
equipments.
1. Food Corporation of India (FCI)
e basis of am
To be operated by technically trained and competent
In the year 1965, Food Corporation of India was
professional.
formed to ensure an uninterrupted and prompt supply of food
To provide the facility of quality control lab for grains to the needy and vulnerable sections of the society.
»house anc checking the quality of the agricultural produce. It has a total capacity of about 16 million tonnes, and an
jectives o' To offer modem and updated grading, sorting and
annual turnover of more than ? 25,400 crores which makes
it one of the largest public sector undertakings. It has its
cleaning machines for segregating the commodities
into various grades as per standards. own warehouses and also hires godowns from various other
lei Paper-Ill, Q5(i sources such as private parties, S)VCs and CWCs. Hence,
To maintain the complete database for rake its reach is extended even to the remotest comers of India.
movement, for carrying forward stocks and sowing
2. Central Warehousing Corporation (CWC)
tructure, whici and production status of maj or food crops.
, raw materials, ■L Initially, Central Warehousing Corporation (CWC)
To offer warehouse receipt based pledge finance
varying periods was formed as a statutory body in New Delhi in the year
facility to the peasants.
antity of store 1957. After the enactment of the new Act, it was formally
godown. K. To have tie-ups with the private and the government re-established in 1963. It started with a capacity of 7,000
agencies to meet the storage needs. tonnes and 458 warehouses spread over various regions
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20 _ _ _ _™_
of India and inclined to a total storage capacity of 78.87
lakh tonnes at the end of March 2001. At present, CWC is
providing its 85 percent of the total available storage facilities
to about 120 agricultural and industrial commodities. It has
also introduced a scheme called Farmers Extension Service
at some specified centres to teach and educate the farmers
about the uses of scientific storage and public warehouses.
3. State Warehousing Corporations (SWC)
SWCs were set up in various states of India. In 1956,
the first state warehouse was set up in Bihar. By the end of
March 2001, the SWCs were operating 1440 warehouses
having a total capacity of more than 131.38 lake tonnes.
The SWCs are controlled by both the CWC and the state
government and they contribute to the total share capital of
the SWCs. At present, the SWCs are managing about 2,000
warehouses with a total storage capital of 10 million tonnes.
Apart from warehouses, there are cold storages to
store perishable commodities such as potatoes, onions,
vegetables, fruits, meat, fish and dairy products etc to
prevent distress sales. Currently, there are about 2,970 cold
storages with a total storage capacity of 8 million tonnes.
A'warehousing capacity of 35 million MT is required to
be created during the 12th plan period for ensuring that the
demand for agricultural goods is taken care of. About 80%
of the warehousing and handling facilities lack good storage
infrastructure and quality warehousing.
Q27. Write about warehousing during five year plans.
Answer :
At the time of 6th and 7th Plans, the central government
has been promoting a national programme of storage
intending to create a widely spread out storage grid from the
farm to the national level. It envisaged to build rural godowns
of 100 tonnes capacity each, which was supplemented by a
P.ural Godown scheme, that was sponsored centrally but the
SWQS and Market Committees implemented it. The aim was
to create warehouses of a higher capacity of 200 to 1,000
tonnes to facilitate storage of the commodities of marginal
and small farmers.
The FCI, CWCs and SWCs also aimed at increasing
the storage capacity at national and regional level by adding
1 million tonnes capacity in the private sector under a
scheme assisted by the NABARD on guaranteed utilization
by FCI. There was a dire need to increase the capacity of
cold storage and the NCpC aided the co-operatives to set
up cold storages which can be used by marginal and small
farmers.
At the time of the Ninth Plan, it was aimed to
contribute 34.2 lakh tonnes of storage capacity by allocating
718 crores. But, based on the actual capacity anticipated and
created, about 32.4 lakh tonnes which is 95% of additional
capacity was aimed to be achieved by the Working Group on
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SECTORS OF INDIAN ECONOMY •jut-
Agricultural Infrastructure. By the end of2000, a cumulative
storage capacity of 702 lakh tonnes was built by several □e
organizations. The major contributor among them was FCI
with a contribution of 150 lakh tonnes, which is about 21.4% re j
of the total, co-operatives contributed through NCDC of
about 137.4 lakh tonnes of storage capacity, which is about
Z
19.6% of the total, and various other agencies contributed
135 lakh tonnes through NABARD which is 19.2% of the
total. Apart from them, the Central Warehousing Corporation
and the State Warehousing Corporations account for 64
lakh tonnes and 111.4 lakh tonnes respectively, and the
Department of Rural Development contributed to about 21.3 l»
lakh tonnes. In the overall view, it can be said that there is no
shortage of storage capacity at macro level. Though, there
is a mismatch among remote, hilly, inaccessible areas and
rural public distribution system at the micro level. There i
need to direct required effort to achieve balance at the micr
level as well.
1.8 AGRICULTURAL LABOUR-MINIMU
WAGES
Q28. Define Agricultural Labour. Briefly describe the
classification of agricultural labourers. Wha-
«
are the various causes of growth in the numbed
of agricultural labourers?
Answer:
Agricultural Labour
Agricultural Labour can be defined as the individual
who obtain a maj or part of their total income by performano •
agricultural activities on the farms of others. Agricultun
labourers are also called as agricultural workers. They shoui
work on the farms belonging to others for a major part
the year to be called as agricultural labourers.
The Agricultural Labour Enquiry Committee a
Agricultural Households defined as the households
which the head or 50% or more of earners of the househ
derive their income as payment for performing agricul
activities on other’s farm and report their main occupation
agricultural labour. These agricultural activities also incl
other allied activities like poultry, fishery, pisciculture, dai
animals husbandary etc.
Classification of Agricultural Labourers
In the Indian context, the basic classification
agricultural labourers classifies them into two categori
They are as follows,
1. Attached Labourers
Attached labourers are the labourers who are attach
to a specific cultivator household through an oral or wri
agreement. Generally, they are not allowed to work at
other place and their employment is regular and perm
N ECONOMY UNIT-1 : Agriculture in India 21
a cumulative For example, the attached labourer must be ready to work 4. Enviction of Tenants and Small Farmers from
It by several whenever the master wishes. Their working hours are Land
lem was FCI lengthy and sometimes they work from dawn to dusk. Most
about 21.4% : f the attached labourers also perform the tasks of domestic In some regions of India such as Ryotwari areas in
sh NCDC of servants in the houses of their employers. south India, the number of intermediaries increased du< to
hich is about which the small farmers lost their lands and were forced co
2. Casual Labourers adopt the status oftenants and work as agricultural labourers.
5 contributed
19.2% of the Casual Labourers are the labourers who are not Also, the government initiated “Land reforms” under which
; Corporation •cached to some cultivator through an oral or written the big landlords and zamindars evicted several tenants for
:ount for 64 igreement. Generally, They are free to work on any personal cultivation due to which these people had to work
ely, and the : -Tivator’s farm and are paid on daily basis. There are 3 as agricultural workers.
to about 21.3 “•pes of casual labourers. They are,
5. Increase in Indebtedness
tat there is no Share-croppers who work as labourers apart from
hough, there sharing the produce of their cultivated land. The increase in the indebtedness of the farmers
jle areas and also made them to engage in agricultural labour. Various
ivel. There is Tenants whose primary source of income is moneylenders in rural areas lend money by mortgaging the
; at the micro agricultural labour besides working on leased land. farmers lands. They often grab the land by adopting various
Small farmers who are forced to work on farms of malpractices like manipulating accounts, charging high rates
others as they have very small holdings. of interest etc. In these conditions, the farmer is reduced to
MINIMUM Causes of Growth in the number of Agricultural the status of an agricultural labourer.
Labourers 6. Development of Exchange System and Use
(escribe the The population working as agricultural labourers of Money
rrers. What ■nbstantially increased from being at 27.5 million in 1951
At present, agricultural labourers are employed to
the number ■ 144.3 million in 2011. It indicates that 30% of the total
cultivate the land and are paid wages, instead of tenants
• rkers are employed as agricultural labourers, which
whom landlords derived rent in the form of a part of the
that morp than one out of every 4 individual force is
produce. Workers are now being treated as wage-labourers
r'.oyed as an agricultural labourer.
and are detached from the land.
The following are the major causes/factors contributing
■ e growth in the number of agricultural labourers in India, 7. Capitalist Agriculture
le individuals
performance Increase in Population Capitalist agriculture has developed in India due to
Agricultural The population of India has been increasing abolition of intermediaries, expansion of marketing facilities,
. They should ously after 1921. It is not possible to increase technological development in agriculture, pricing policy of
major part of oyment opportunities in tertiary and transport industry, government and cheap co-operative credit especially in the
r_- .fracturing industries. But in Agricultural sector, the states like western Uttar Pradesh, Haryana and Punjab In
hnc-labour ratio and the capital labour ratio, both are these areas, the farmers who have become entrepreneurs
mmittee also
rable. Therefore, people opt for agricultural activities to adopted capitalist farming on large scale and encouraged
Duseholds in
jheir livelihood whenever there is an increase in the tenants to leave their land and opt for becoming agricultural
he household
■filiation. labourer.
g agricultural
occupation as Decline of Village Handicrafts and Cottage Q29. What are the various conditions and problems
s also include Industries of Agricultural Labourers?
culture, dairy. During the British rule, there was a great decline of Answer:
■ handicrafts and cottage industries but there were no
s . ".es to take their place. There were no employment The Agricultural labourers have always been
: runities for the unskilled and skilled workers who oppressed and exploited. Their condition was worse before
isification o tiged in such activities. Hence, they were forced to work independence. They were forced to work as domestic
o categories. tgr. cultural labourers. servants and agricultural labourers from down to dusk and
Uneconomic Holdings were beaten up and tortured when they failed to do a task.
They are poor, oppressed, resourceless, and have very low
The fragmentation and subdivision of holdings due consumption standards. Their supply is more when compared
o are attached ■- of inheritance, a large number of holdings have with their demand, so they have to settle for very low wages.
>ral or wri ~ e uneconomic. Therefore farmers working on these
) work at an) • ding are forced to work as agricultural labourers on The following are the various conditions and problems
id permanent arms of big landlords and zamindars. of agricultural labourers in India over years,

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22 ___ ___________________
1. Marginalization of Agricultural Workers
The agricultural labour population has increased
by three times from 1951-1991 and their proportion in
workforce of agriculture has increased from 28% to 40%
from 1951 to 1991, indicating the growing casualization of
workforce in Indian agriculture. The GDP at factor cost of
share of agricultural activities has also declined from being
53.1% in J950-51 to 14% in 2011-12. This indicates the
process of marginalization operating in agriculture.
2. Lower Wages and Income
According to various studies, the real wages of
agricultural labourers have declined and have been stagnant
over years. The differences between the earnings of male
and female agricultural labourers have increased. In most of
the states the daily real wage earnings have declined except
in Uttar Pradesh, Punjab and Karnataka. The average daily
earnings increased faster from being 74% between the years
1983 to 2004-05 at an annualised rate of 3.33%. But this rate
slowed down to 1.1% for weekly earnings and 0.6% for daily
earnings in 1999 to 2004.
3. Employment and Working Conditions
Unemployment and underemployment are the
problems faced by agricultural labourers because they
remain unemployed for a major part of the year as there are
no alternative sources of employment and no work on the
farms. And, there are still about 3.5 lakh bonded labourers
according to NSS (32nd round) while this practise is abolished
by the government. The labourers are in no place to demand
for minimum wages and they are forced to work from dawn
to dusk on a daily basis.
4. Indebtedness
Agricultural labourers are not paid well and seek
debts off and on to meet the both ends. As they do not have
much to provide security, institutional agencies hesitate to
advance loans to them and they borrow money from rural
moneylenders who exploit them in various other ways.
5. Feminization of Agricultural Labour by
Paying Lesser Wages
In most of the regions like dryland areas, women
are made to work hard and are paid lesser than the male
labourers. Sometimes, their wages are lesser than the
minimum wages.
6. Higher Incidence of Child Labour
Child labour is highly prevalent in India and r
estimated number ranges between 17.5 million <.u 44
million. India accounts for one third of child labourers in
Asi*i and the highest of them are from agricultural sector.
The employer is benefitted but the children employed as
workers are deprived of education, thereby decreasing the
future potential income. Eventhough the household of child
is benefitted through the income, the wage levels are brought
down by the employment of children.
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SECTORS OF INDIAN ECONOMY
7.. Increased Migrant Labour
Employment opportunities increased in the assured
irrigation areas due to green revolution. But employment
opportunities remained stagnant in semi-arid areas and vast
rain fed areas. The rural workers of such regions started to
migrate to the assured irrigation areas.
8. The Landlord-Labourer Relationship
• i
The relationships of the landlord and labourer are ol
two types,
(i) Free or casual labourers are free to leave their villaga
and work in other regions and refuse to work for a
particular landlord at a specific wage rate.
(ii) Attached labourers are deprived of freedom and ara
oppressed by their masters (landlords). They arJ
forced to work for longer hours and have to accepi
_____ whatever wages are offered to them._____ ______I
Q30. Explain the measures adopted by thl
Government to improve the condition al
agricultural labourers.
Answer :
The following are some of the important measure
adopted by the government to improve the conditions fl
agricultural labourers,
1. Minimum Wages Act
For answer refer Unit-I, Page No. 23, Q. No. 31.1
2. The Bonded Labour System (Abolition )
1976
The Bonded Labour System Act, 1976 was pas®
by the government to completely abolish bonded lab®
because it is inhuman, violative of all norms of social jus®
and exploitative. It was stated in the chapter on fundame^B
rights in the constitution that forcing humans to do be^H
and their trading is prohibited and doing so is punishab®
law. Only after the enforcement of the Act, 2,82,368 bon®
labourers were freed. Yet, many agricultural labou®
enter into these bonds due to lack of knowledge abo®
or are forced into these bonds by moneylenders or du®
indebtedness.
3. Land Distribution to Landless Labourers
The government has provided land to landl
labourers through various schemes with the intentioJ
improve their economic status. The first plan had creaa
provision of 1.5 crore for resettlement of landless labo J
on culturable wasteland and newly reclaimed lard
---------- . ■
 -NIT-1 : Agriculture in India
kN ECONOMY
———— September 1957, the National Development Council
proposed that the lands acquired during the schemes like
n the assured Bhoodan and Gramdan and due to enforcement of ceiling
employment a a s must be distributed among landless labourers by giving
ireas and vast ortance to the scheduled tribes and scheduled castes.
ons started to
Provision of Housing Sites
In the second plan, several steps were undertaken to
ship -- ■ ide free or subsidized house sites. At the time of fourth
-r-an. a scheme was introduced to provide financial assistance
ibourer are of
p the states for the provision of house sites with a 91 square
■netres area. At the time of seventh plan, a scheme to provide
e their village I instruction assistance and provision of free house sites
to work for a r* is included in the state sector along with Minimum Needs
h gramme (MNP). This scheme also continued in the eight
ate.
~ js. to provide construction assistance, loan and beneficiary
edom and are It rtribution to self help and promotion of innovative housing
is). They are ■nance system and low-cost housing.
tave to accept
Special Schemes to Provide Employment
The Government has initiated many schemes to
ted by the
r ide employment to the rural poor like Crash Scheme
ondition o
- Rural Employment (CSRE), Rural Works Programme
; * ?), Employment Guarantee Scheme (EGS), National
«. Employment Programme (NREP), Food for Work
gramme (FWP) and Rural Landless Employment
tant measur _-intee Programme (RLEGP). The NREP (launched in
" ve year plan) and RLEGP merged in 1989-90 to form
conditions
awahar Rozgar Yojana (JRY), which was stremlined
: -estructured to form Jawahar Gram Samridhi Yojana
1SY). An Employment Assurance Scheme (EAS) was
■. ted in 1993 and was restructured as a single wage
Q.No. 31.
-- ?vment programme which covered about 5,488
if Nocks and provided additional wage employment
olition) A
".unities. Sampooma Grameen Rozgar Yojana (SGRY)
us Punched in 2001 for providing wage employment and
76 was pas ■: security in rural areas. In 2002, the JGSY and EAS
bonded labo : "-ted with SGRY. National Food for Work Programme
>f social justi ifP) was launched in 2004 in 150 backward districts
>n fundamen f e nation for generating food security and employment
is to do beg' k "unities. The NFFWP and SGRY subsumed under
s punishable a Gandhi National Rural Employment Guarantee
82,368 bond e (MGNREGS), which was launched in 2006 to
ural labour ■ :e 100 days of unskilled wage employment guaranteed
. ledge about . - rural household opting for it.
iders or due Special Agencies
The Special Agencies were created in 1970-71 with
.abourers -t lay of 115 crore for the development of Agricultural
urers. They were : Marginal Farmers and Agricultural
id to landl
- ers Development Agency (MFAL) and Small Farmers
he intention
: : rment Agency (SFDA). The MFAL scheme referred
n had creat lers with less than 2.5 acres of land holdings as
idless labou cttal farmers and the households which obtain 50% of
timed land.
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their income from agriculture were called as agricultural
labourers. It included various schemes like irrigation,
soil conservation, land levelling, poultry breeding, dairy
development etc. In the Fourth five year plan, MFAL adopted
about 41 projects in various districts. A special programme
called Drought Prone Areas Programme (DPAP) was also
launched in the Fourth plan for providing employment to
agricultural workers. The SFDA and MFAL were merged
into a single programme in the fifth five year plan.
7. Other Measures
The Government has been adopting various other
measures which directly or indirectly contribute in
improving the condition of agricultural labourers. For an
instance, the government of India has been promoting
village handicrafts and small, cottage industries to create
employment opportunities for agricultural labourers and to
develop industrial estates in rural areas.
1.8.1 Minimum Wages Act, 1948
Q31. Write a note on Minimum Wage Act, 1948.
Discuss the provisions concerning Minimum
Wages Act, 1948.
Answer :
Minimum Wages Act, 1948
The main aim of the Minimum Wages Act, 1948 is
to protect labour from the expansion by the payment of
minimum wages. This act generally outlines the methods for
fixing the minimum rates of wages for specific employments
which are described in the schedule. The national commission
on labour has suggested the expansion of the principle of
minimum wages to non-scheduled employments. It was
observed that wage determination cannot rely completely
on market forces such as supply and demand of labour.
The minimum rates of wages in the Minimum Wages
Act are not fixed with respect to all the employments. They are
only fixed for some employments which are mentioned in the
schedules of the act. But, the government can make additions
to the list of employments which are included in the schedule.
Hence, the number of employments present in the schedule
may differ from one state to other state. Presently, this rate
is almost 40 with regard to the central government, while in
case of state government it is about 1200. This act does not
define minimum wages and even does not provide guidelines
about the elements which must be considered while deciding
a minimum wage. Hence, due to these reasons, different wage
fixing authorities have used different principles for fixing or
revising the minimum wages.
Provisions of Minimum Wages Act, 1948
The important provisions ofthe Minimum Wages Act,
1948 are as follows,
24 SECTORS OF INDIAN ECONOMY
1. Fixing of Minimum Wages
The fixation of minimum wages for an employment basically requires that it must be considered in the schedule of
the act. The minimum rates of wages payable to the employees employed in the industries as mentioned in the schedule
is fixed by the appropriate government and revisions are done once in five years. The minimum wage is fixed at time rate,
piece rate, guaranteed time rate and overtime rate. The minimum rate of wages includes basic wages and an allowance
related to the cost of living index, basic wages and supply of important commodities or consolidated wages.
2. Minimum Rate of Wages
The government fixes the following rates,
(i) A minimum time rate
(ii) A minimum price rate
(iii) A guaranteed time rate
(iv) An overtime rate, suitable to various occupations, localities, or work classes and for adults, adolescents, children!
and apprentices.
Eventhough, the appropriate government may entitle the payment of minimum wages, such wages will be paid
cash either wholly or partly as per the specifications.
3. Procedure for Fixing and Revising Minimum Wages
In case of any scheduled employment, the act specifies the fixing and revision of minimum rates of wages. ThiB
act recommends the appointment of committees and sub-committees for doing enquires and advising the appropriao
government in fixing and revising the minimum rates of wages, for appointing the advisory board for coordinating fl
work of committees and sub-committees and for advising the appropriate government on the matters related to the fixial
and revising of minimum rates of wages. For guiding the central and state governments and for coordinating the work
the advisory board, a central advisory board must be appointed. This board act as tripartite in composition which include
the individuals who are nominated by the appropriate government representing the respective employers and employee an|
dependent persons who must not be more than one third of the total number of members. From the independent persons I
one person will be appointed as the chairman of the appropriate government.
4. Working Hours
The number of working hours is also fixed by the government, the government should give a weekly day off re>
pay remuneration for the days of rest and payment for work on a day of rest at rate not less than the overtime rate.
5. Overtime
If an employee works on any day more than the number of working hours constituting a normal working day thB
the employer must pay him at the overtime rate fixed as per this act or any other law of the appropriate government wh J
ever js higher.
6. Employer’s Obligation
It is the legal obligation of the employers to pay the rates after the fixation or revision of minimum rates of wasB
as per the procedure specified under the act. They cannot claim for the incompetency of the industry to pay.
7. Exemptions
The appropriate government specifies that the provisions of this act is not applicable to the wages payable to 11
disabled employees. For certain reasons, the government may recommend that the provisions of this act or any other act I
not applicable to all or any class of employees or to any locality where employment is conducted. No provision of this! I
applies to the wages payable by an employer to a member of his/her family who is living with him/her and is depend I
on him/her.
d. Content of Minimum Wages
The fair wages committee observed that the minimum wages should not only be given for fulfilling the bi I
requirements of life but also for sustaining the efficiency of the workers by giving few measures of education, medical
and amenities. For analyzing the value of such wages, the authorities prepared few family budgets and finally arrived!
figure displaying the needed minimum wage.

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,N ECONOMY UNIT-1 : Agriculture in India 25
9. Different Categories
e schedule of
This act allows fixation of various minimum rates of wages for various work classes in the similar scheduled
the schedule
employment.
1 at time rate,
an allowance 1.9 RURAL CREDIT
Q32. What do you understand by rural credit?

Answer : Model Paper-Ill, Q5(b)

Rural Credit

Rural Credit refers to the credit or finance provided to farmers (small or medium) in rural and agricultural areas.
Credit plays very important role in agricultural sector. According to Meumark “the significance of agricultural credit is a
highly discussed subject. It would be hyperbolic if a farm economist says that it is the back-bone of the agrarian sector of
a developing economy”. As in India, majority of farmers and agricultural labourers are poor, they need credit every time
:ents, children
either for productivity or for their livelihood. Addition to this, farmers also requires credit at the time of losses which may
occur due to uncertain weather (floods etc) of India. Such credit will be helpfull for them to overcome from such losses.
vill be paid in
Thus, rural credit plays crucial role in increasing agricultural productivity and improving the standard of living of
mrmers in India.
Objectives of Rural Credit
>f wages. This
te appropriate Traditionally, the agricultural sector was not much considered in the credit plans of Indian Government. However,
ordinating the in recent years, Indian Government trying to provide efficient credit facilities to farmers and offering so many options or
d to the fixing - aurces to take credit for cultivation. Some of the objectives of Indian Government for providing rural credit to farmers
ig the work of are as follows,
vhich includes
Aims to make agriculture as a business rather than a factor of livelihood.
I employee anc
ndent persons. 2 Aims to improve standard of living of farmers and agriculturist by increasing their income.
Aims to provide credit at low interest rate as per the repaying capacity of fanners.
Aims to provide credit whenever required by the fanners.
ly day off res
me rate. Aims to provide credit for production as well as for consumption.
=eriod of Rural Credit

irking day th< The period or tenure of credit is depends upon the requirement of farmers. The period of credit can be for short,
eminent whii -edium and long periods. They are as follows,
Short Period Credit

Short period credit is provided for less than 15 months. Farmers requires short period credit for reasons like, cultivation
rates of wag< and, meeting domestic expenses etc. For example, for buying seeds, fertilizers, etc for cultivation or for satisfying the
■ xxis needs of their families.
2. Medium Period Credit
> payable to ti
Medium period credit is provided for a period of 15 months to 5 years. Farmers requires medium period credit for
any other act
•masons like, making improvement in agricultural land, buying cattle etc.
ision of this a
nd is depende Long Period Credit

Long period credit is provided for a period of more than 5 years. Farmers requires long period credit for reasons
ike. buying additional land, to pay old debts, buying advanced or latest machinery etc.
filling the ba 233. Discuss the different sources of rural credit in India.
ion, medical
tally arrived Answer:

The sources of rural credit in India is classified into two categories which are as follows,
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26 SECTORS OF INDIAN ECONOMY

[Sources of Rural Credit|

____ ______ I__________

Institutional Sources | Non-lnstitutional Sources

—► Co-operative Societies or Banks

—► SCARDB __ >. Money Lenders
—DCCB
—► PACS —► Landlords and others

—* RRB
—* NABARD —► Relatives

Figure: Sources of Rural Credit in India

Institutional Sources
The institutional sources of rural credit includes various banks and institutes which are established for providing
credit to agriculture sector. They are as follows,
1. Co-operative Societies or Banks
In India, co-operative credit societies were established in the year 1904. Their development was quite slow during
the period of pre-independence the Indian cooperative banking can be divided into three levels or it has three-tier system
as follows,
(i) At village level: The Primary Co-operative Credit Societies. (PCS’s)
(ii) At district level: The Central Co-operative Credit Banks (CCB’s)
(iii) At state level: The State Co-operative Credit Banks (SCB’s)
In India, the co-operative banks basically operate in the rural and agricultural sectors. In areas like urban, semiurb:
and metropolitan Urban Co-operative Banks (UCB’s), State Co-operative Banks (SCB’s) and Central Co-operative Banl
(CCB’s) function. The commercial banks have shifted their business from urban to rural areas and the co-operative ban!
have shifted from rural to urban areas. The cooperative banks are the first financial agency of India which are sponsore
supported and subsidised by the Indian government. The Reserve Bank of India (RBI), NABARD, central and Sta
Government provides financial help to the cooperative banks. Usually the RBI is considered as the lender of last help b
in case of co-operative banks it is considered as the first resort. It provides financial support to these banks in the form i
refinance, starting capital and working capital.
2. State Co-operative Agricultural and Rural Development Banks (SCARDB)
SCARDBs stands for State Co-operative Agriculture and Rural Development Banks. It is a national or central lex
scheme of India which aims to raise resource for long term lending to cultivators. It have the following objectives,
(i) To receive deposits and float debentures.
(ii) to assist and coordinate the work of affiliated Primary Co-operative Agriculture Rural Development Bai
(PCARDBs).
(iii) To grant loans to PCARDBs for those purposes which are approved by NABARD.
3. District Central Co-operative Bank (DCCB)
District Central co-operative Bank (DCCB) refers to a network of co-operative banking established by the govemn
of India for the purpose of providing banking facilities in the rural and semi-rural areas of India. The main objective of
bank is providing agricultural loans, consumer banking, co-operate banking, mortgage loans etc in rural and semi r
areas in every district of India. The district co-operative central bank is popularly called as DCC bank.

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CONOMY UNIT-1 : Agriculture in India 27
As the DCC bank is located in every district in every state of India these fore, it is formed on the name of the district
where.it is located. For example, the DCC bank located in Hyderabad district would be named as “Hyderabad DCC Bank”.
The directors and members consist of rural workforce including rural co-operatives, milk unions, agricultural and non-
agricultural co-operatives and so on. All the DDC banks located in a particular state are headed by the state apex central
co-operative bank, which is generally located in the capital of every state. Thus, the hierarchy of the DCC Banks is made
to ensure that rural consumers get easy access to these banks.
4. Primary Agricultural Credit Society (PACS)

The ideas of starting PACS is initiated at village level for providing better credit facilities to Indian farmers and
rural people. It can be simply started with 10 or more person who belongs to same village or rural areas. PACS provide
short- term credit to farmers or other poor persons of a village. It directly deals with farmers or borrowers and provide short
or medium term loans. PACS playing crucial role in India as it is able to reach farmers easily or farmers can reach PACS
at any required time. Indian government has taken so many initiatives to popularize PACS and various programmes has
been successfully completed in Rajasthan, Orissa , Kerala, Tamilnadu, Gujarat, and Madhya Pradesh. Currently, overall
India there are more than 1,50,000 PACS.
5. Regional Rural Banks (RRBs)

Regional Rural Banks (RRB’s) refers to the public banks which are established in rural areas of India. The main aim
of these banks is to fulfil/meet the credit needs of the rural customers. The origin of RRB’s was look place during 1970’s
when the Indian Government announced the 20 point economic program. A working committee under the chairmanship
■ providing
of M.Narasimham recommended the establishment of R.R.Bs. Thus 5 RRB’s were established on 2nd October 1975.
There were only 84 Regional Rural Banks in India by the end of March 2009. The main purpose of regional rural
banks was to at deliver the rural credit facilities to the backward areas. Thereby, ensuring their financial soundness. Central
low during government respective state government and sponsors (Commercial banks) are responsible for the contribution of initial
tier system capital base of RRBs. The regulatory framework of regional rural banks (RRB’s) has been proposed by the Reserve Banks
:f India (RBI) and NABARD which helps in supervising their operations with some supervisory powers.
6. NABARD

National Bank for Agriculture and Rural Development (NABARD) is introduced for promoting credit facilities to
agriculture, small scale industries, cotton and village industries, handicrafts and other rural craft industries, NABARD
, semiurban .ime into existence after passing a bill in the parliament in July 12, 1982.
ative Banks With the establishment of NABARD on July 12, 1982, the department of RBI engaged in providing the agricultural
■ative banks nance, agricultural refinance and development corporation were controlled and managed by NABARD. As it is undertaking
: sponsored, the agricultural related activities of RBI, the assets and liabilities ofthe agricultural credit funds were transferred to NABARD.
d and State it is also responsible for managing the planning and development activities of RBI, refinance and development functions
last help but •'the regional rural banks and so on. In March 1985, RBI disbursed ? 275 crores and ? 1200 on the long term operation
the form of the national agricultural credit respectively.
Net accretion to the resources of the NABARD in 2005-06 was, 6826 crores.
Capital was 500 crores initially
central level
lives, Subscribed and paid up capital 100 crores
dii) It was raised to 2000 crores by 1999 - 2000.
ment Banks Son-Institutional Sources

The non-institutional sources of rural credit includes the following parties,

Money Lenders

! government Money lenders are the persons who privately runs a money lending business in rural areas. They charge high rate of
ective of this merest for lending money. In rural areas, they mortgage the property of farmers, agriculturist or cultivators and sometime
id semi rural ■ kept the family members of borrower as collateral. Money lenders are very popular in villages or rural areas for
-rplying credit for productive and non-productive purpose of farmers.

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28 SECTORS OF INDIAN ECONOMY
2. Landlords and Others
Landlords are the rich and land holding persons of villages. They own acres of property and act as dominant persons
in villages. They provide credit to farmers at high rate of interest. They may force farmers to sell their produce agricultural
products or crops at low prices.
Landlords can also be the traders, commission agents etc. All such persons provide credit to farmers but on influencing
conditions. As the credit facility is not available to rural areas farmers are forced to borrow loans from such persons.
3. Relatives
Farmers also borrow credit from their relatives who are capable of providing it. They usually charge low or zero
interest on borrowed amount. But, such persons are in less numbers in rural areas.
Q34. What are Co-operative Banks? Explain their features, merits and demerits.

Answer :

Co-operative
Cooperation refers to the voluntary association of people to attain a common goal. According to H. Calvert, “Co­
operation then is a form of organization wherein persons voluntarily associate together as human beings on the basis of
equality for the promotion of their economic interest”.
Co-operative Bank
Co-operative bank may be defined as “a financial institution which is established on co-operative principles and
which carries-out ordinary banking business”.
Co-operative Banks in India
In India, co-operative credit societies were established in the year 1904. Their development was quite slow during
the period of pre-independence the Indian cooperative banking can be divided into three levels or it has three-tier system
as follows,
1. At village level: The Primary Co-operative Credit Societies. (PCS’s)
2. At district level: The Central Co-operative Credit Banks (CCB’s)
3. At state level: The State Co-operative Credit Banks (SCB’s)
In India, the co-operative banks basically operate in the rural and agricultural sectors. In areas like urban, semiurban
and metropolitan Urban Co-operative Banks (UCB’s), State Co-operative Banks (SCB’s) and Central Co-operative Banks
(CCB’s) function. The commercial banks have shifted their business from urban to rural areas and the co-operative banks
have shifted from rural to urban areas. The cooperative banks are the first financial agency of India which are sponsored,
supported and subsidised by the Indian government. The Reserve Bank of India (RBI), NABARD, central and State
Government provides financial help to the cooperative banks. Usually the RBI is considered as the lender of last help bu:
in case of co-operative banks it is considered as the first resort. It provides financial support to these banks in the form of
refinance, starting capital and working capital.
Features
Indian co-operative banks have the following features,
1. Principle of co-operation
The most important feature of co-operative banks is that they follow the principle of co-operation. The basic principles!
of co-operative banks are co-operation, self help and mutual help.
2. Equality Principle
These banks perform their functions on the basis of principles stating “one member, one vote” and functions on “N>
profit, no loss” basis.
3. Normal Banking Functions
The co-operative banks carry on all the common banking functions such as mobilising deposits, supplying cred
and providing remittance facility and so on.

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UNIT-1 : Agriculture in India 29
4. Less Number of Products
Some of the co-operative banks provide housing loans also but mostly co-operative banks deal with agricultural
loans, grants etc.
5. Primary Credit Society

The co-operative banks play a crucial role in Indian money and capital market. They provide the short and longterm
loans through the primary co-operative/agricultural credit societies (PCS’s). Central and state co-operative credit societies •
provide short-term as well as term-loans. Longterm loans are provided by LDB’s i.e., land development banks.
Merits of Co-operative Banks
Following are the merits of Co-operative bank,
1. Low Rate of Interest
Co-operative banks provide loans to the farmers and artisans at low rate of interest and thereby they are protected
from the oppression of the Mahajans. Co-operative banks prevent unnecessary expenditure by providing loans only for
the productive purposes.
2. Increase in Agricultural Production
Farmers are granted loans by the co-operative banks for purchasing good seeds, fertilizers and cattle. These banks
facilitates in consolidating the land-holdings and exadicating the hindrances in irrigation and transport. Ultimately the
agricultural production increases. The role played by cooperatives in Green Revolution such as Wheat revolution in Punjab
and Haryana. Sugarcane revolution in Maharashtra and cotton revolution in Gujrat is commendable.
3. Rural Upliftment

Farmer’s income and their standard of living is being developed and improved due to co-operative banking. According
? the norms in India, Co-operative banks are required to spend 10% of their profits on rural development. Therefore, the
■ ?le of co-operatives in the development of rural areas is quite significant.
- Encouragement to Thrift

Co-operative banking inspires to utilize the funds carefully. Even the small savings of the people are utilized in a
~ore advantageous manner.
Moral Advantages

Co-operative banks foster moral values by encouraging brotherhood, mutual support and confidence and by
rscouraging unnecessary legal disputes, misuse of money, gambling and so on.
demerits of Co-operative Bank
Some of the drawbacks of co-operative banks are,
^.Dependency on External Funds

Most co-operative banks greatly depend upon the external sources for supplying funds. They fail to mobilise the
- • mgs of rural areas. This external dependency acts as one of the major challenges for the co-operative banks.
2. Greater Over due’s Level

The process of credit recycling is being blocked due to the greater level of over dues in co-operative banks. This
ready effects the overall operations of the bank.
Suitable for Big Farmers

The co-operative banks are being criticised stating that they are beneficial only for the big farmers and landlords.
Government’s Interference

The co-operative banks have faced issues like redtapism and inefficiency due to the interference of the government
- ts administrative affairs. They are also being effected by the political interference.
Lack of Efficiency

Lack of efficient and motivated staff have adversely effected the productivity of co-operative banks.

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30 SECTORS OF INDIAN ECONOMY

Q35. Write in detail about micro finance.

Answer :

The term ‘micro’ means ‘small’. Thus, micro finance refers to all types of small financial services which are being
provided to the poor people of a country.
Micro Finance

Micro finance is defined as “the provision of thrift, credit and other financial services and products of very small I
amounts to the poor for enabling them to raise their income levels and improve their living standards” by Indian taskforce
on micro finance. Professor Mohammed Younus, the founder of Grameena Bank of Bangladesh is the initiator of micro I
finance, for which he was being awarded the Nobel peace prize.
Before the micro-credit/finance facility was introduced, people used to take small credits from the money lenders I
because formal financial institutions and nationalised banks did not provide such type of small credit to the people. Thus, I
in order to solve this problem, micro-credit/finance was introduced in the market.
Individuals like small farmers, food processors, petty traders etc needed microcredit in rural areas and individuals I
like shopkeepers, service providers, artisans etc required this facility in urban areas.
Features

The unique features of micro-credit/finance are as follows,

1. Helps the Poor People

The main aim of micro-credit is to provide loans to poor people in order to cope up with poverty. For example, under
micro credit, a person can get a loan of? 50,100,150 and so on.
2. Challenging to Formal Institution
Micro-credit acts as a challenge to the formal institutions or conventional banking which refused to provide finance!
(credit) to poor families, considering them as “not credit worthy”.
3. Purpose of Establishment

Micro finance system was basically established to raise the income levels of poor people and also to improve thi
standard of living by providing housing facility.
4. No Collateral Security

Micro-credit is provided on the basis of trust and not on any legal enforceable contract.
5. Door-step Service

unique feature of micro finance is that, people receive micro-credit services at their door-step as the bank follow
the principle stating that “Bank should go to the people and people should not go to the bank”.
6. Self Help Groups (SHGs)

The micro-credit loans are usually provided by the self-help groups i.e the non-profit organisations or by a
institution basically owned by the borrowers.
7. Self Help Group Membership

If a borrower wants micro-credit loan, then he is supposed to join a group of borrowers, that is, he needs tc i
member of Self Help Group (SHG).
8. Repayment of Loans

The borrower is required to payback the loan in installments. Only after the complete repayment of old loans, na
loan would be sanctioned to the borrower.
9. Interest Rate
The rate of interest is usually very low which helps in maintaining sustainability rather than gaining attractive retJ
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UNIT-1 : Agriculture in India 31
Micro Finance in India
The two models of micro financing in India are as follows,
(a) Self Help Group-Bank Linkage Program [SHG - BLP] and
(b) Micro Finance Institutions (MFI’s).
Usually, the MFI’s are NGO’s or co-operatives which have taken up the work of micro-financing the poor and needy
customers.
Self Help Group (SHG)
A SHG consists of 15 - 20 members. Such group may be registered or unregistered. SHG members consist of people
from weak social and economical background. They have a common aim of saving small amounts, mutually agreed for
common fund contribution and mutual help. The members of SHG takes combined and peer decisions with respect to the
uses of credit and repayment. Such peer pressure decisions work as a substitute of collaterals or enforceable contracts.
The group members usually pool their savings and deposit them into a bank, in the name of the SHG. Based upon the
group’s credibility, banks too provide loans to the SHG’s. The money is lent to the member as per the common agreement
among the group members.
Merits of SHGs Financing
It empowers the poor and weaker sections of the society and makes them financially independent and sound. Being
a part of a group it helps in boosting the confidence and morale of the members.
2 It reduces the transaction cost of borrowing and lending small amount of money.
The lender (SHG) needs to open only one account for making transactions.
- The travel and other expenses of borrower are reduced as they became the member of any SHG.
_ nkage Programme of SHG with NABARD
To facilitate micro financing, NABARD launched a linkage programme between SHGs and Banks during 1991-92.
~be purpose of this programme was to facilitate the smooth flow of micro-credit to the poor people. Further, the Reserve
Snk of India (RBI) suggested other commercial banks to take part in this linkage programme. Thus, RRBs and cooperative
-r±s have actively participated in this scheme. All this had brought a positive result.

1.10 RRBs ___

-3-6. Explain in detail about Regional Rural Banks (RRBs).
•jsu er :

:e-gional Rural Banks (RRBs)

Regional Rural Banks (RRB’s) refers to the public banks which are established in rural areas of India. The main aim
ese banks is to fulfil/meet the credit needs of the rural customers. The origin of RRB’s was look place during 1970’s
• hen the Indian Government announced the 20 point economic program. A working committee under the chairmanship
af'' Narasimham recommended the establishment of R.R.Bs. Thus 5 RRB’s were established on 2nd October 1975.
There were only 84 Regional Rural Banks in India by the end of March 2009. The main purpose of regional rural
l-.v was to at deliver the rural credit facilities to the backward areas. Thereby, ensuring their financial soundness. Central
fr*-jnent respective state government and sponsors (Commercial banks) are responsible for the contribution of initial
■ar-'X base of RRBs. The regulatory framework of regional rural banks (RRB’s) has been proposed by the Reserve Banks
«■ ’ (RBI) and NABARD which helps in supervising their operations with some supervisory powers.
Examples
Andhra Pradesh Grameena Vikas Bank
Arunachal Pradesh Rural Bank
Baroda Gujrat Bank
Himachal Gramin Bank
.'ammu Rural Bank.

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32 __ SECTORS OF INDIAN ECONOMY

-Ifi
Features of RRBs

The main features of RRBs are as follows,

1. Provide Loans to Weaker Sections
The aim of RRB’s is to provide loans to weaker sections ofthe society, such as to small farmers, agricultural labourers
I
and rural artisans. RRB’s also focus upon the development of rural areas by providing banking facilities through savings.
2. Area of Operations

The RRB’s are scheduled banks which were added in the second schedule of RBI Act. They enjoy same privileges
like that of any other commercial scheduled banks. However, RRB’s area of operation is limited to a particular region. As
per the regulations of RBI, RRB’s have to maintain cash and liquidity ratio of 3% and 25% respectively.
3. Relationship with Commercial Bank
RRB’s are established as subsidiary of a public sector commercial bank. Thus RRB’s and commercial banks have a I
parental tie-up. The commercial bank sets up RRB’s in consultation with the central and state government. For the starting I
five years of establishment, the commercial bank would supply capital to RRB’s for running the daily operations.
4. Structure of Capital
The commercial bank, central and state government contributes towards the capital of Regional Rural bank (RRBs) I
in the ratio of 50 : 15 : 35 respectively. A RRB’s would be established with an authorised capital of? 25 lakhs.________ I

Q37. Discuss Functions and Problems of RRBs.

Answer :

Function of RRBs

Regional Rural Bank’s (RRBs) carry out the following functions,

1. Provide Rural Loans

RRB’s provide loans to individual or group of farmers and agricultural labourers for the agricultural purposes.
2. Loans to Co-operative Societies
RRB’s also provide loans to rural co-operative societies, such as rural cooperatives, agricultural and cooperative■
farming societies etc.
3. Loans to Rural Entrepreneurs
RRB’s provide loans for productive purposes to the persons such as small entrepreneurs, artisans and persons whJ
are involved in other types of commerce or trade. Thus they encourage rural entrepreneurship and self employment.
4. General Banking Functions
RRB’s also accept deposits from the general public and carry out banking activities in rural areas. ,
5. Expanding Role and Functions
In India, RRB’s have grown impressively in rural areas and have built a strong retail network. In December 1975, thefl
were 6 RRBs covering 12 districts through 17 branches in different locations. By the year 2004 RRB’s increased upto 196 RRfifl
with 14,446 branches in 518 districts across India.
6. Future Rule ■
The Vyas committee recommended that RRBs need to be amalgamated for providing better services to the ruifl
citizens. Based on these recommendations Government of India tries to initiate the process of structural consolidation
RRBs. Through RRBs amalgamation with the same bank within each state, the expected services of amalgamated RRBfl
is to provide better infrastructure, computerisation, appointing expertise, putting marketing efforts, and covering operarfl
of large areas. The amalgamation of RRB has reduced the number of RRBs from 196 to 96 as on April 2007.
Problems of RRB’s

The major problems faced by RRBs are as follows,

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UNIT-1 : Agriculture in India 33
1. Administrative Problem
The RRB’s suffer from administrative problems, redtapism etc, due to the control of multiagencies as its capital is
contributed by the central government, state government and commercial banks. Thus, multi agency control usually leads
to administrative problems.
2. Defective Recovery System
RRB’s faces the problem of defective loan recovery due to its internal and external factors.
Internal factors includes - Defective loaning policy, weak supervision and monitoring, in differences for recovery.
❖ External factors includes - Political disturbance, floods, wilful default, droughts, and lack of support from legal and
administrative departments.
3. Lack of Rural Staff
Most RRB’s have urban staff. Therefore, these is no local involvement in the banks.
4. Complex Procedures
The loan approval procedure of RRB’s is rigid, complex and time consuming in nature. Thus it discourages poor
irmers from approaching RRB’s for loans.
5. Other Challenges of RRB’s
There are certain reasons behind the failure of RRB’s as follows,
a Banks receive low interest rate after providing loans to weaker sections.
High cost of servicing and low profit margin.
< c) Lack of expertise staff.

1.11 NABARD
□38. Define NABARD and explain the silent features NABARD.
Answer :

National Bank for Agriculture and Rural Development (NABARD)

For promoting credit facilities to agriculture, small scale industries, cotton and village industries, handicrafts and
.her rural craft industries, NABARD came into existence after passing a bill in the parliament in July 12, 1982.
With the establishment of NAB ARD on July 12, 1982, the department of RBI engaged in providing the agricultural
finance, agricultural refinance and development corporation were controlled and managed by NABARD. As it is undertaking
■_'e agricultural related activities of RBI, the assets and liabilities of the agricultural credit funds were transferred to
•ABARD. It is also responsible for managing the planning and development activities of RBI, refinance and development
■motions of the regional rural banks and so on. In March 1985, RBI disbursed ? 275 crores and ? 1200 on the long term
deration and the national agricultural credit respectively. Net accretion to the resources of the NABARD in 2005-06 was,
- 826 crores.
Capital was 500 crores initially
Subscribed and paid up capital 100 crores
It was raised to 2000 crores by 1999 - 2000.
=eatures of NABARD
The salient features of NABARD include,
Objectives
Its main purpose is to provide credit facilities to agricultural and small scale sectors.
2. Capital Fund

NABARD was holding a share capital of ? 100 crores which was deposited with RBI and the Indian government
n equal proportions. It borrows fund from the RBI for the realization of its short term obligations. However, it looks at
.*.= government of India for the attainment of long-term loan operations.

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34 SECTORS OF INDIAN ECONOMY
3. Loan Operations
It issues short term loans whose maturity period will not exceed 18 months from the date of issue to the state —
cooperative banks, regional rural banks and also to other financial institutions. It is also authorized to extend its loans and
advances to state government for a period of upto 20 years.
4. Coordination
It is held responsible for maintaining coordination among the activities of the central government, planning
commission, state governments and also other institutions dealing with the growth and development of SSIs, cottage
industries and rural crafts and artisans.
5. Research *
It also issues research and development funds to the staff, consultants and academicians who are indulged to carry
out research in the promotion and development of rural and agricultural sectors.
6. Monitoring and Evaluation
For the development of quality projects, NABARD monitors and evaluates the implementation of several projects.
Through evaluation, it becomes aware of the areas of excellence and also the areas which require improvement.
7. Inspection
NABARD is authorized to assess the financial statements of regional rural banks and cooperative banks in addition
to the primary cooperative banks.
Q39. State the functions and achievements of NABARD.

Answer :

Functions of NABARD
The main functions’of NAB ARD include,
1. To provide credit facilities to the rural institutions.
2. Acts as an agent by undertaking the numerous activities of government and reserve bank.
3. Provides foreign assistance by mediating FDI in agricultural and rural developmental activities.
4. Refinances the credit amount issued to agricultural department, SSIs, village industries, handicrafts and so on.
5. It also provide assistance in bringing improvement and development in the production and marketing operations.
Achievements of NABARD
The various achievements of NABARD includes the following,
1. Promoted the Kisan Credit Card scheme for the development of farmers, especially rural farmers.
2. Sanctioned the Rural Infrastructure Development Fund (RIDF) for establishing and providing the infrastructure
facilities in the rural areas.
3. Assistance to research and development project.
4. Assistance to less developed sector.
5. Assistance non-farm sector.
6. Schematic lending
7. Short term, medium term and long term pending.

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UNIT-1 : Agriculture in India 35

INTERNAL ASSESSMENT
I. Multiple Choice

1. _________ is the backbone of Indian economy. [ ]

(a) Industrial sector

(b) Agricultural sector

(c) National Income

(d) GDP

2. India ranks_______ in the farm outputs worldwide. [ 1

(a) One

(b) Second

(c) Third

(d) Fourth

3. India is the seventh largest agricultural_________ across the globe. [ ]

(a) Exporter

(b) Importer

(c) Exporter and importer

(d) None of the above

4. More than_________ percent population of India is engaged in agricultural sector. [ 1

(a) 60

(b) 70

(c) 50

(d) 40

5. __________ _ replaces the traditional practices of Indian agricultural sector. [ ]

(a) World war

(b) British rule

(c) Industrialization

(d) Green Revolution

6. The impact of green revolution on Indian economy is classified into _____ categories. [ ]
(a) Two

(b) Three

(d) Four

(d) Five

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36 SECTORS OF INDIAN ECONOMY
7. “Access by all people at all times to enough food for an active, healthy life” is the definition of
_________ . [ 1
(a) Company security

(b) Social security

(c) Customer security

(d) Food security

8. Public Distribution System (PDS) is launched under ministry of__ __________ . [ ]

(a) President

(b) Prime Minister

(c) Consumer Affairs

(d) Industrial Affairs

9. _____ deals with the purchase and sale of agricultural products. [ ]

(a) Social marketing

(b) Agricultural marketing

(c) Product marketing

(d) Industrial marketing

10. Food Corporation of India is formed in the____________ year to ensure safety of foods. [ ]

(a) 1950

(b) 1960

(c) 1955

(d) 1965

II. Fill in the Blanks

1. Agriculture is the primary source of____________ .
2. ^ ____________ refers to the agricultural strategy which gradually replaced the traditional agricultural practices
in India by modem technology.

3. PDS stands for __________.

4. RRB stands for_2__________ .

5. NAB ARD stands for____________ .
6. ____________ is the process of storing goods in warehouse by preserving and protecting them against pests,
insects etc.
7. ____________ is defined as the individuals who obtain a major part of their total income by performance
agricultural activities on the farms of others.

8. The Minimum Wages Act was established in the year____________ .

9. ______ is the credit or finance provided to farmers.

10. DCCB stands for____________ .

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UNIT-1 : Agriculture in India 37

KEY
I. Multiple Choice

1- (b)
2. (b)

3- (a)
4. (c)

5- (d)
6. (a)

7. (d)

8- (c)

9- (b)
10. (d)

II. Fill in the Blanks

1. Livelihood

2. Green Revolution

3. Public Distribution System

4. Regional Rural Bank

5. National Bank for Agriculture and Rural Development

6. Warehousing

7. Agriculture labour

8. 1948

9. Rural Credit

10. District Central Co-operative Bank.

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38 SECTORS OF INDIAN ECONOMY

III. Very Short Questions and Answers

Q1. What is Warehousing?

Answer :

Warehousing can be defined as the process of storing goods in a warehouse by preserving and protecting them against
pests, insects, rodents and other uncertainties like dampness and moisture due to climatic changes. In the macroeconomic
sense, warehousing performs a vital function. It creates time utility for various types of kinds. The proximity of market-
oriented warehousing to the customer allows a farmer to provide goods to the customer with shorter-lead times.

Q2. What do you mean by Minimum Wages?

Answer :

Minimum wages can be defined as the minimum amount which the employer assumes to be essential to preserve the
worker’s efficiency and for his/her sustenance. Fair Wage Committee suggested that minimum wages should also include
some measure of amenities, medical requirements and education.

Q3. Who is a Agricultural Labour?

Answer :

Agricultural Labour can be defined as the individuals who obtain a major part of their total income by performance
agricultural activities on the farms of others. Agricultural labourers are also called as agricultural workers. They should
work on the farms belonging to others for a major part of the year to be called as agricultural labourers.

Q4. What are RRBs?

Answer :

Regional Rural Banks (RRB’s) refers to the public banks which are established in rural areas of India. The main aim
of these banks is to fulfil/meet the credit needs of the rural customers. The origin of RRB’s was look place during 1970’s
when the Indian Government announced the 20 point economic program. A working committee under the chairmanship
of M.Narasimham recommended the establishment of R.R.Bs. Thus 5 RRB’s were established on 2nd October 1975.

Q5. What is NABARD?

Answer :

National Bank for Agriculture and Rural Development (NABARD) is introduced for promoting credit facilities to
agriculture, small scale industries, cotton and village industries, handicrafts and other rural craft industries, NABARD
came into existence after passing a bill in the parliament in July 12, 1982.

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 UNIT /------------------------- \

2 INDUSTRIES AND TERTIARY

SECTOR OF INDIA
v
sia @R©yp
J

( LEARNING OBJECTIVES ]

After studying this unit, one would be able to understand,

❖ Role and Pattern of Industrialization.
❖ Large and Small Scale Industries.
❖ Labour Problems and Labour Policy.
❖ Social Security and Trade Union Movement.
❖ Industrial Disputes and Unorganized Sector.
❖ Foreign Trade and Balance of Payment (BOP).
❖ Special Economic Zones (SEZs) and Foreign Exchange.
❖ Banking Sector and Money Market.
❖ Public Finance and Financial Relation between Centre and States.

C INTRODUCTION )

Industry consists of all activities which deals with the manufacturing of goods, from the raw materials to
finished products. All the production activities are usually being dealt in an industry. There are three types
of materials which are produced in the industry. They are producer’s or capital goods, consumer’s goods and
intermediate goods.
Information Technology (IT) Industry is one of the major and growing industry of India. This is the industry
which is undergoing rapid evolution and changing the shape of Indian business organizations It includes
business like, software development, Consultancies, Software management, Online services, Business Process
Outsourcing (BPO) etc. During 1990, Indian IT industry started exporting its software products and at that
time it exported around $ 100 million. Currently, it is working on global level and its exports are around $
billion with 2.8 million employees who are working in it.
Late President Mr. V.V.Giri stated that “social security is the security that the state furnishes against the risks
which an individual of small means cannot stand the risks, which an individual of small means cannot stand
up by himself or even in private combination with his fellows”.
Frid Lander defined social security as “a program of protection provided by society against the contingencies
of modem life like-sickness, unemployment, old age, industrial accident against which the individual cannot
be expected to product himself and his family by his own ability and foresightedness.
A foreign exchange market can be defined as “a market where one currency is traded for another”. It creates
a mechanism of exchanging different monetary units for circulation in different countries and thus facilitates
transfer of purchasing power from one country to another.

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40 SECTORS OF INDIAN ECONOMY
■ -: " ■
PART-A
SHORT QUESTIONS WITH SOLUTIONS
Q1. Define Industry. What is the Role of Industry?
Answer :
Industry
Industry consists of all activities which deals with the manufacturing of goods, from the raw materials to finished
products. All the production activities are usually being dealt in an industry. There are three types of materials which are
produced in the industry. They are producer’s or capital goods, consumer’s goods and intermediate goods.
Role of Industry
The role of these industries can be understood from the following heads,
1. Improved Capital Formation
Development of industrialization increases individual’s income level and saving capacity. This there by results in
increase in the rate of capital formation.
2. Utilization of Natural Resources
Proper utilization of natural resources (such as forests, minerals and agro-based resources) has become possible
with the growing industrialization.
3. Increase in National Income
The national income increase due to the high level contribution of both organised and unorganised industries.
Q2. Write about Industrialization.
Answer : Model Paper-I, Q3

Industrialization can be defined as the process of manufacturing capital good' and consumer goods and creating
infrastructure to offer goods and services to various business and individuals. It occurs when industry is established on a
large scale in a country or an area. It play an important role in developing the economy of underdeveloped nations which
posses several resources and huge manpower like India. Industrialization is necessary along with agricultural development
as they dependent on each other. It also promotes the growth per capita income and national income of a country.
The following points highlight the role of industrialization in Indian economy:
1. Higher Income
Industrialization provides a basis for growth of per capital income and national income of a country. The empirical
evidence revealed that a strong relationship exists between industrialization and higher level of income. The contribution of
the industrial sector in capitalist countries towards national income is highest when compared to underdeveloped countries
Hence, countries like India must encourage rapid industrialization.
2. Modifying the Economy Structure
There is need for structural change in the economy of underdeveloped countries through industrialization. It is
proven in the History that the share of industrial sector must increase and the share of agricultural sector must decrease
for economic development. Deliberate industrialization helps in economic development and indirectly contributes to the
growth of service and agricultural sector leading to increase in the income, output and employment opportunities.
Q3. What do you mean by large and small scale industries.
Answer : Model Paper-ll, Q1

Large Scale Industry

The industry which require high level of manpower, infrastructure and capital assets is referred as large-scale Industry.
This type of industry includes other industries like iron and steed industry, cement industry, textile industry, automobile
industry, Information Technology (IT) industry, telecom industry etc. The Indian economy is largely dependent on these
large industries for the purpose of economic growths generation of foreign currency, providing job opportunities etc.
The various large-scale industries includes, iron and steel industry, cotton and textile industry, jute industry, sugar
industry, cement industry, paper industry, petrochemical industry, automobile industry.
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ONOMY . NIT-2 : Industries and Tertiary Sector of India 41

;-lall Scale Industry
The industry which runs on small-scale production or which produces the products at small-scale are known as
"-11-scale industries. It usually employ less than 50 employees and work out on small contracts of production.
Small-scale industries are basically of five types i.e., manufacturing industries, feeder industries, serving industries,
xc diary industries, mining or quarrying industries.
1- Write a short note on social security.
tiswer :
finished
hich are Social security can be defined as the security provided by the state to its citizens against various contingencies of
: like illness, diseases, old age, unemployment, industrial accident etc, from which an individual cannot protect himself
any means. Its basic principle implies collective action by the society to offer protection to an individual member
grnst various misfortunes and needs which cannot be met even by utilizing his resources. It is based upon social justice
: human dignity. The agenda behind social security is that the state must make itself the responsible authority to ensure
- nimum standard of welfare to protect its fellow citizens from various contingencies of life.
results in Late President Mr. V.V.Giri stated that “social security is the security that the state furnishes against the risks which
-dividual of small means cannot stand the risks, which an individual of small means cannot stand up by himself or
in private combination with his fellows”.

possible Frid Lander defined social security as “a program of protection provided by society against the contingencies of
cem life like-sickness, unemployment, old age, industrial accident against which the individual cannot be expected to
c act himself and his family by his own ability and foresightedness.
The ILO defined social security as “the protection which society provides for its members through a series of public
tries. : ares against the economic and social distress resulting from sickness, maternity, employment injury, unemployment,
dity, old age and death These measures are also of a great importance to a country which is on the way of large scale
Paper-I, Q3 .-’xialization as they improve employee’s morale by providing sense of security to them against various industrial
1 creating
ished on a Explain briefly about trade or labour union movement.
mis which er : Model Paper-Ill, Q1
relopment
The labour union movement is considered as essential concept for every country. In United States, more than 17.7
ry-
n workers form a part of unions. Nearly 12.4% population is working population out of which majority ofthe workers
und to be blue-collar workers. Among nearly 40% of US’s 20 million federal, state and municipal public employees
from the unions. Eventhough, in few industries like transportation and public utilities 26% of employees are union
empirical bers, it is still difficult to get the job without joining a union.
ibution of In case of India, unions were basically limited to employees who were working in formal sector of the economy
1 countries
■ sting of public sector/govemment undertakings and private sector companies like production, mining and so on.
ority of the workers from the informal sector were exempted from getting unionized. As per the report of the ministry
--■our, GOI (Government of India) in the year 2002, the number of registered unions in India were 68,544 and the
ation. It is ■ .ted average membership in each union was 893. Presently even the informal sector workers are getting unionized
st decrease •re adding members to the base of large National level unions.
iutes to the A survey revealed that there would be a good inverse relationship between the union membership and employee’s
ies. on to leave the job. Unionization might enhance the performance levels of employees where professionalizing
s or organized practices are available in the company.
I Paper-ll, Q1 St What do you understand by industrial dispute and industrial dispute Act?
Model Paper-I, Q4
le Industry, -:.atrial Disputes
automobile
nt on these "Industrial dispute means any dispute or difference between employers and employees, or between employers and
ies etc. ■<* rcnen, (or) between workemen and workemen which is connected wit the employment or non-employment, or the
Marr - of employment or with the conditions of labour of any person.”
ustry, sugar
- Industrial Disputes Act, 1947
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42 SECTORS OF INDIAN ECONO
The various forms of industrial disputes are as follows,
(a) Demonstration
(b) Gherao
(c) Picketing and Boycott
(d) Strike
(e) Lockouts
Industrial Disputes Act, 1947

The Industrial Disputes Act, 1947 is one of the laws governing Industrial Relations in India. The Act came into for
on 1st April, 1947 and has been amended several times since then.
Q7. Discuss briefly about the SEZ Act 2005.

Answer :

1. The Special Economic Zone Act 2005 was a major milestone towards the formal development of SEZ in Ind:
After the liberalization of the Indian economy, SEZ act was a major contributer towards the development of expc
oriented industries.
2. The SEZ policy was initiated on 1st April 2000 with the focus upon manufacturing and other services which wou
facilitate earning of valuable foreign exchange for the country.
3. After detailed deliberation, the Special Economic Zone Bill 2005 was passed in May 2005 and after the approv
of the president of India, it become an act on June 23rd 2005.
4. The Act aimed to increase the flow of foreign exchange in India and foreign direct investment which become
reality.
5. Establishment of SEZ led to increase in exports, earning of foreign currency, development of excellent industn
infrastructure across multiple locations across the country, within a very short period of time.
6. The SEZ Act 2005 helped in the creation of many job opportunities for the skills, semi skilled and non-skilled Indi;
workforce.
Q8. Explain briefly the concept of convertibility.

Answer :

Convertibility

Convertibility refers to the process of converting one currency into other i.e, from Indian Rupee into US Dollar.
Types, of Convertibility

There are two types of convertibility. They are as follows,

(i) Current Account Convertibility

Current account convertibility can be defined as, freedom to buy or sell foreign exchange for global transactic
compiling of the payments due related with the foreign trade, other current business covering services and normal shor
term banking and audit facilities, payments due as interest on loans and as net income from other investments, paymen
of moderate amount of amortization of loans for depreciation of direct investments and moderate remittances for fami
living expenses.
(ii) Capital Account Convertibility

The tarapore committee was established By the Reserve Bank of India (RBI) in February 1997 gave the followir
definitions of capital account convertibility (CAC),
“Capital account convertibility can be defined as the freedom to convert local financial assets into Foreign finance
assets and vice-versa at market determined rates of exchange for any purpose what so ever, without needing any permissic
from the government”.
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JNIT-2 : Industries and Tertiary Sector of India 43
Q9. What do you mean by money market? Explain briefly.

tnswer : Model Paper-ll, Q3

Money market is an important constituent of Indian financial system. Reserve Bank of India defined money market
is “a centre for dealings, mainly of a short-term character in monetary assets, it meets the short-term requirements of the
- >rrowers and provides liquidity or cash to lenders. It is the place where short-term surplus investable funds at the disposal
: : the financial and other institutions and individuals are bid by borrowers, again comprising institutions and individuals
.nd also by the government”.
The following are the objectives of money market,
To help firms in executing the monetary policy of the country’s central bank effectively.
1) To provide a path to the commercial banks to invest for the short-term needs.
ii) To fulfill the statutory requirements of statutory liquidity ratio and cash reserve ratio.
□10. Critically analyze the SEZ policy in brief.

Answer : Model Paper-Ill, Q4

The SEZ policy formulated by the government of India had been criticized based upon the following points,
A research study conducted by the National Institute of Public Finance and Policy (N1PFP) estimated that the tax
holidays provided to SEZ would lead to tax loss of around 98,000 crore for the government.
A study carried out by the International Monetary Fund (IMF) found that the total tax income lose to the public
exchequer would be around 1,75,000 crore as a result of tax concessions provided to the SEZ for 5 year period.
Critics of SEZ point out that foreign exchange earned through SEW during 2015-2016 was around 20,500 crore,
whereas during the same period foreign exchange earned through exports from small scale industries was around
1,50,000 crore. They questioned, is the SEZ policy fielding the desired results?
»
Huge tracks of agricultural land is being diverted for SEZ, which is not a good idea. For example the Uttar Pradesh
Government had given away 2500 acres of prime agricultural land at Dadir for setting up a power plant. The actual
land requirement for setting up the power plant is only 50 acres.
Thus, the critical analysis of SEZ policy in India demonstrates that the SEZ policy should be reformulated to make
it more beneficial.

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44 SECTORS OF INDIAN ECONOMY

2.1 INTRODUCTION TOJNDUSTRY _____________

Q11. What is a Industry? Explain the classification of industries.
Answer :

Industry
Industry consists of all activities which deals with the manufacturing of goods, from the raw materials to finished
products. All the production activities are usually being dealt in an industry. There are three types of materials which are
produced in the industry. They are producer’s or capital goods, consumer’s goods and intermediate goods.
Classification or Types of Industry
Types of Industries

T
Secondary Industry Tertiary or Service
Industry

Manufacturing Constructive ♦> Transport

❖ Animal husbandry Industry Industry ❖ Banking
<• Mining
<♦ Poultry farming ♦J» Insurance
♦♦♦ Quarrying ❖ Sugar Building
FI'.nt. > I ion «$♦ Advertising
❖ Agriculture ❖ Cement Road . ♦> Warehousing
❖ Textile ❖ Bridge

(I) Primary Industry

«
Primary industry consists of those activities with the help of which the natural resources are being utilized to offe
raw materials to the other industries. There are two types of primary industries,
(a) Genetic industry
Genetic industry refers to industries engaged in reproducing and multiplying of certain species of animals an
plants for profjt from their sale.
Example: Nurseries, Poultry Forms etc.,
(b) Extractive Industry
Extractive industry refers to industries which extract wealth from beneath the surface of earth, climate, air etc
f Example: Mining, hunting, fishing, etc.,
(ii) Secondary Industry
Secondary industry involves the production of new products by utilizing the products that are already being produc.
Example : Production of cloth (secondary industry') out of cotton (primary industry).
There are two types of secondary industry namely,
(a) Manufacturing Industry
Manufacturing industry refers to those industries which deals with the activities of the production of a prodi
by making use of raw material and semi-finished material along with men and machines.
Example: Steel from iron-ore, sugar from sugar-cane, cloth from cotton, cement from stone, paper from bamb
and so on.
(b) Constructive Industry
Constructive industry is engaged in the construction works by making use of the things manufactured by othj
industries.
Example: Buildings, bridges, roads, dams, etc., are constructed by utilizing cement, bricks, iron, wood, etc!
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JNIT-2 : Industries and Tertiary Sector of India
iii) Tertiary or Service Industry
Tertiary industries are also known as service
industries. These industries usually offers the services
that facilitates the businesses to grow smoothly
without any obstacles/problems.
Example : Bank, insurance, transport, advertisement,
storage, etc,
212. What is the role of an industry in a developing
economy?
Answer :
The Indian industries are classified as, Organised
dustries (fertilizer, petroleum, cement, steel, textiles, jute,
engineering, sugar, plywood etc.,) and Unorganised
- dustries (khadi and village industries, small and cottage
-dustries etc.,).
These industries play an important role in the
:?nomy of a large country. Specifically, organised sector has
. great contribution to the country’s economic development
srocess.
The role of these industries can be understood from
re following heads,
Improved Capital Formation
Development of industrialization increases
-dividual’s income level and saving capacity. This there
• results in increase in the rate of capital formation.
Utilization of Natural Resources
Proper utilization of natural resources (such as forests,
- nerals and agro-based resources) has become possible
• .h the growing industrialization.
1 * increase in National Income
The national income increase due to the high level
-tribution of both organised and unorganised industries.
Achievement of Economic Stability
Majority of Indian population depend on agriculture
• -.ch is unstable as it prone to natural calamities such
. drought and flood. Industrial development irn the
..: _ntry reduces the dependence on agricultural sector and
-edirect the population to industrial sector which is stable.
: dustrialization ensures economic stability.
Providing Job Opportunities
The growing - industrial sector minimize the problem
•1
unemployment in the country. It provide job opportunities
nuge number of unemployed persons. More than 19.4
- ion Indian people working in organized public sector
_- d around 8.4 million people are working in the organized
- ■ ate sector industries.
Development of Markets
There is a development in markets for finished
- ducts and raw materials due to the development ofvarious
-: rstries in the country.
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7. Assistance to Agriculture
Industries plays a crucial role in supporting the
agricultural sector of the country. The agro-based industries
acquire raw material from agriculture and provide them a
ready market for agricultural inputs such as equipments,
pesticides, tools and chemical fertilizers.
8. Wealth Accumulation
Industrial development assist the country to earn huge
volume of wealth for the country’s welfare as industry’s per
capita income is more than agriculture.
9. Support to National Defence
There has been a development in strategic industries
such as steel, aircraft, iron, chemical, ship building etc.,
due to the growth of industrialization. This development
strengthens the defence system of a nation.
10. Support to Government Exchequer
Growing industrialization in the economy of
the country has increase the government revenue. The
government is receiving increased sales taxes, corporate
taxes and excise duties from the industries.
Therefore, the development of industries in the
country not only help the country to improve its economy,
but also promote foreign trade
2,2 ROLE AND PATTERN OF INDUSTRIALIZAT8ON
Q13. What do you mean by Industrialization? What
role it played in Indian economy?
Answer :
Industrialization
Industrialization can be defined as the process of
manufacturing capital good and consumer goods and creating
infrastructure to offer goods and services to various business
and individuals. It occurs when industry is established on
a large scale in a country or an area. It play an important
role in developing the economy of underdeveloped nations
which posses several resources and huge manpower like
India. Industrialization is necessary along with, agricultural
development as they dependent on each other. It also
promotes the growth per capita income and national income
of a country'.*
Role of Industrialization in Indian Economy
The following points highlight the role of
industrialization in Indian economy.
1. Higher Income
Industrialization provides a basis for growth of per
capital income and national income of a country. The
empirical evidence revealed that a strong relationship exists
between industrialization and higher level of income. The
contribution of the industrial sector in capitalist countries
towards national income is highest when compared to
underdeveloped countries Hence, countries like India must
encourage rapid industrialization.
46
2. Modifying the Economy Structure
There is need for structural change in the economy
of underdeveloped countries through industrialization. It is
proven in the History that the share of industrial sector must
increase and the share of agricultural sector must decrease
for economic development. Deliberate industrialization helps
in economic development and indirectly contributes to the
growth of service and agricultural sector leading to increase
in the income, output and employment opportunities.
3. Overcoming Deterioration in the Terms of
Trade
Industrialization is needed to protect the country
from the adverse effects of price fluctuations of primary
commodities and deterioration in trading. The underdeveloped
countries mainly import manufactured goods and exports
primary goods. The rising of the manufactured goods
and the falling of primary goods led to deterioration in
trading of LDCs. Export oriented and import substituting
industrialization must be adopted to overcome this problem.
4. Meeting High-income demands
The income-elasticity of demand for manufactured
products is higher than that of agricultural goods due to
higher demand for industrial products. Industrialization is
needed in order to meet the demands and to increase output
of the economy.
5. Bringing Technological Progress
Development and research depend on industrialization.
The development of industries which manufacture capital
goods such as equipment, machinery etc., encourages the
production of various goods in bulk quantities, at lower
costs, promotes technological growth and modifies people’s
outlook. It helps to bring an industrial civilization or
environment for a swift development needed for a healthy
economy.
6. Employment Generation
Rapidly growing population and surplus labour are
the characteristics ofunderdeveloped countries such as India.
Rapid industrialization can encourage speedy generation of
employment opportunities.
7. Strengthening the Economy
Industrialization strengthens the economy by
encouraging the production of goods, which cannot be
imported and economic infrastructures like dams, railways
etc, imparting elasticity to the system, improving transport
facilities, farm- implements, storage and chemical fertilizers
for agricultural development, diversifying the economic
structure and by making the country secure and self- reliant
by encouraging the production of defence materials.
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Q14. Explain the pattern of Industrialization in India.
Answer : Model Paper-I, Q6(al
Historically, the pattern of industrialization in India
has proceeded in three stages. They are as follows,
(i) First Stage
In this stage, the processing of various primary
products such as oil extraction, leather tanning, grain milling,
smelting of ores, spinning vegetable fibres and preparing
timber is performed.
(ii) Second Stage
In this stage, the transformation of materials occurs
for materials like making confectionery,and bread, cloth,
paper, metallic goods, furniture and footwear.
(iii) Third Stage
This stage comprises the manufacturing of machines
and various other capital equipments which facilitate the
future production process and not produced for immediate
use or consumption.
According to Hoffman, industrial output can be
classified into two categories, they are capital goods and
consumer goods output. Based on the ratio of consumer■
goods output to that of capital goods output, industrialization
is divided into various stages. In the first stage, the consumed
goods industries play a vital role and their net output was
5 times greater than that of capital goods industries (5: l U
In the second stage the ratio decreased to 1:1 and declined
further in the third and fourth stages. Both classifications
signify the increasing importance of capital goods industries
in the economy. There are variations in these two patterns I
terms of relative importance of each stage and time taken |
reach later stages. In the soviet pattern the industrializatioa
process jumps directly from first to third stage. In the Britisal
pattern, this evolution is a gradual process.
In underdeveloped countries, the pattern 1
industrialization is based upon the considerations arisinJ
from the relative scarcity of capital. As there is plenty n
labour force, the development of labour-intensive consumal
goods must be emphasized. In India, the imported consume!
goods are mostly a marginal element in the total consumption
and hence, there is no scope for further reduction. Eithrl
the export-oriented industries or the import substitution
industries must be expanded. But the scope for impel
substitution is reduced due to limited allocation of funJ
for an export project. If the export-oriented industri J
successfully stimulate the exports, then there will be jj
increase in the supply of foreign exchange but if imponl
substitution is successful, the foreign exchange reserve ■
reduced. Therefore, their effect on the foreign exchan J
supply is same. The export-oriented industrialization mak J
the country dependent on the price fluctuations and volurJ
of trade in international markets, whereas the import
substitution industry makes the economic independent
of the country stronger. Hence import-substitution must it
encouraged in the process of industrialization.
ECONOMY UNIT-2 : Industries and Tertiary Sector of India 47

t in India. In August 2018, the industrial production in India increased by 4.3% from 2017. It slowed down to revised 6.5%

put can be The industrial production in India reached to 19-90% from 1994 to November 2006 and was 72% in the month
goods and I ' February in 2009. From 1994, it increased with an average of 6.38% tall 2018. Thus, from the above details it can be
' consumer -served that the concept of Industrialization is growing at a faster rate in India.
rtrialization
315. Discuss the pattern of Industrialization on the Eve of Planning.
e consumer
output was Answer :
stries (5:1). Pattern of Industrialization on the Eve of Planning
id declined Indian manufactures were in great demand in the international market for calicoes and muslin. Finished goods were
issifications I =-ported to various countries after supplying to the local demand. The exports primarily consisted of manufactures such
Is industries as silk and cotton fabrics, wollen and silk cloth, artistic ware and calicoes. But, Industrial revolution and British rule had
) patterns in . great impact on the downfall of Indian handicrafts, and machine-made goods started to import in Indian market. The
me taken to 3ritish encouraged the policy of exporting raw materials from India and importing manufactured goods, In 1923, the British
strialization . wemment offered a discriminating protection to few selected industries. Industries like matches, sugar, cotton textiles,
i the British - iper and steel and iron to some extent prospered well even in such conditions. But there were no attempts to enhance the
or. elopment of capital goods industries. e
pattern of Matures of Industrial Pattern
ions arising
The following are the main features of the industrial pattern in India on the eve of planning (1950),
is plenty of
e consumer Lop- Sided Industrial Pattern
id consumer f The structure of Indian industry is similar to a lop-sided size- pattern. In mid- 1956 the total number of employed
onsumption 11 viduals in manufacturing sector were 15 million, out of which 3.9 million were in factories, 11.1 million in household
lion. Either |<=*erprises, and less than 10 people were in workshops. The employed population was highly concentrated with 43% of
substitution -: :otal population on large factories, 26% in the medium factories and 31% were in small factories. The medium sized
for import I|-3l:ones couldn’t develop well which contributed to the lopsidedness of the industrial pattern of India.
on of funds I Manufacturing Output Composition
1 industries In 1953, the ratio of consumer goods to producer goods, was 62:38 It implies the need for growth in the capital
; will be an I jccds sector to make the economy independent and enhance the growth of industrialization The industrial pattern had a structural
it if import- I n Balance where the domestic supply of consumer goods was greater than their demand and the domestic supply of producer
;e reserve is I i <ds was lesser than their demand. Therefore, India had to rely on foreign imports to satisfy the demand for producer goods.
pi exchange
I - Low Capital intensity
nation makes
and volume In Indian, industrial pattern, low capital intensity prevailed due to lower general level of wages, the home market size
the import- ■ * -g smaller than low per capita income and limited utilization of mass production on methods leading to lesser capital
idependence ■jet worker employed. According to Industrialization and Productivity bulletin of United Nations, the capital per worker
tion must be ■arcloyed in India was much lower when compared to that of USA. Low capital intensity was observed in capital goods
■Biustrial such as iron and steel as well as consumer goods industries like sugar, bakery, cloth etc.
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Q16. Discuss industrial pattern with reference to five
year plans of India.
Answer :
Following points highlights the industrial pattern in
five years plans of India,
1. In the first five year plan industries were mainly
limited to the consumer goods sector. The production
of all industries was below the requirements. A
number of industries were set up.
2. The Industrial Policy Resolution 1956 serves as a basis
for determining a plan for industrialisation during
second FYP. In this period, the investments in the
industry were very high. This plan emphasize more
on the increased production of iron, steel industries,
modernizing and re-equipment of national industries,
diversification of industry and establishment of
factories-in rural areas. This resulted in increasing
capacity of production from 25% - 50%.
3. The third FYP emphasize more on increasing the
investments in order to reinforce the industry, power,
trade and to speed-up the technologic and industrial
change. The target in third FYP is set at 7% whereas
the plan achieved a rate of 7.6% per year. Though
the growth rate is low, this plan established a base
for industrial growth in the later plans.
4. During fourth five year plan, the target is set at
8% whereas the actual industrial performance was
observed is 5%.
5. Fifth FYP focussed more on improving the
perform ance of core sector (steel, coal, oil, fertilizers)
increasing the production capacity, restricting the
production of unnecessary goods and development
of small scale industries.
Z job opportunities etc.
6. The sixth plan lay emphasis on improving the present
capacity and capabilities of industries. There was
liberalisation of industrial trade policies whereby
some industry’s quickly developed like chemicals,
petrochemicals and allied industries.
7. The growth rate during the seventh plan was about
8.7% per annum.
8. In the eight plan expenditure on the industries was
decreased in line with the liberalisation policy
adopted by the government, so that different sectors
are equally developed. The growth rate target was
achieved in the manufacturing sector.
9. ■ The growth rate target in the ninth plan was not
attained. It was 5% as against the expected 8.2% p.a.
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10. With a drastic decline in the industrial growth rate,
the former plans emphasize more on reinforcing the
performance of industry. The rise in the industri;
growth has been observed during the tenth FYP whic
is highly increased to 8.9% from a very low rate <
4.3% during ninth plan. During the first 6 months <
2006-07, the growth was 10.6% though the actu
target was set at 10% per year. This was the highe
growth rate since 1995-96.
11. During eleventh plan (2007-2012), the target was s
at 10-11 % per year. The industrial performance in t
plan was not consistently increasing during the 5 yes
of the plan. There was a decline in the performan
during 2007-08 to 2008-09. A slight increase has be>
observed in 2009-10 and 2010-11, whereas a sha
decline found in the year of 2011-2012 i.e., 2.8
which was recorded as the least growth since fij
FYP.
12. In the first year of twelth plan, the industri
performance was again declined to a least rate
1.1%.
2.3 LARGE - SCALE INDUSTRY _______
Q17. Explain briefly about the large-scale industry
India. What are the different types of large-set
industries?
Answer :
Large Scale Industry
The industry which require high level of manpow
infrastructure and capital assets is referred as large-sc:
Industry. This type of industry7 includes other industri
like iron<and steed industry, cement industry, text,
industry, automobile industry, Information Technolo
(IT) industry, telecom industry etc. The Indian economy
largely dependent on these large industries for the purpose
economic growths generation of foreign currency, providi
The large-scale industries plays a important role
following areas of Indian economy,
1. In reducing the problem of unemployment.
2. In utilizing the resources properly.
3. In providing the source for government revenue.
4. In developing basic infrastructure.
5. In modernizing the agriculture sector.
6. In improving productivity of labourers.
7. In exporting the products to other countries.
8. In producing those products imported which are
other countries.
UNIT-2 : Industries and Tertiary Sector of India
Types of Large-Scale Industries
The various large-scale industries includes the
following,
Iron and Steel Industry
2. Cotton and Textile Industry
3. Jute Industry
4. Sugar Industry
5. Cement Industry
6. Paper Industry
• Petrochemical Industry
8. Automobile Industry.
Q18. Discuss about the growth and development of
the Iron and Steel industry in India.
Answer :
The Iron and steel industry acts as the backbone of any
nation’s economy and helps in the rapid industrializations of
±e country. Jawahar Lal Nehru believed that steel industry is
a symbol of strength of the Indian economy. India possesses
abundant iron ore mines with good quality iron.
At the time of independence, the total iron and steel
: apacity was 1.3 million tons which has presently increased
: ? 104.98 million tons( 2017-2018). This large scale industry
provides employment to more than five lakh workers.
However the per capita consumption of steel in India is low
11 kgs), when compared to U.S.A (625 KGS).
The growth of steel industries in India after
ndependence was rapid. Public sector industries flourished
m India. An agreement was signed with German Krupp-
Demag to set up steel plant in Rourkela. A second agreement
■• as signed along with Russia to set up new steel plant at
Bhilai, again in 1956 a new steel plant was set up at Durgapur
•ith the help of British steel firm
The Government of India set up the SAIL (Steel
Authority of India Limited) in the year 1974. Its objective
• as to coordinate and develop the iron and steel sector in
India. Many minor of iron and steel firms were brough under
ie control of SAIL.
The growth and development of Indian Iron and Steel
-.dustry is summarized in the following points,
The production Capacity has increased from 1.3
million tons (1947) upto 104.98 million tons (2018).
Export of raw iron ore and finished steel had increased
substantially.
The World Steel Association had included India as the
4th largest producer and processor of iron and steel
globally.
India has become self reliant in terms of raw iron ore
production and finished steel.
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India had become self reliant and financially
independent. The steel plant at Bokaro was set up by
India without the collaboration or financial assistance
of foreign steel corporations.
6. The Government of India had become proactive and
issqed licences to set up electric are furnace units,
which are also know as mini steel plants.
7. Liberal rules related to the export and import of
iron and steel had made the iron and steel. Industry
dynamic and progressive.
8. To make the Indian steel industry globally competitive,
the central government had approved the NSP 2017
(National steel policy) with the target of 300 million
tons production capacity and to boast the per capital
steel consumption capacity to 160 kgs by the year
2017.
9. The ministry of finance is working towards setting
up of S.R.T.M.I [Steel Research and Technology
mission of India] , forming a collaboration between
public and private iron and steel manufacture. The
central government is funding this project with an
initial investment capital of? 200 core.
Thus it may be stated that the iron and steel industry in
India is growing and developing at a good pace. In the near
future, India is expected to overtake Japan as the world’s
second largest producer of iron and steel.
Q19. Write about the growth of the Cotton and textile
industry in India.
Answer :
Growth of Cotton and Textile Industry in India
The cotton textile industry is one of the oldest and
most important large scale industry in India. It provider
employment opportunities to more than 45 million people
in India (2018). The cotton and textile exports of India for
the financial year 2017-18 stood at around $ 40 Billion
This makes this industry one of the most significant industry
which contributes towards the economic growth of the
country.
The following points highlights the growth and
development of the cotton textile industry in India.
1. The textile industry in Indians complex and varied
consisting of hand spin, hand woven, power loom
knitting sector and so on.
2. The Indian textile industry caters to-a huge number of
customer segment both nationally and internationally.:
3. This sector is estimated to grow at an aggressive pace
and is expected to reach financial turnover of U.S. $
250 billion dollars by the year 2019.
50
4. The cotton textile industry is witnessing major growth
and development. The production of raw cotton in
India has reached up to 35 million bales in the year
2018.
5. The dyed and printed textile market in India has
attracted foreign direct investment of more than $3
billion* in recent years.
6. The government of India had formulated major policy
reforms for boosting the exports of cotton and textile
sector. The major initiatives taken up by the central
government include the following.
(a) The Government has announced a special
package for textile export promotion with a
target to exports upto US-$ 31 Billion and
increase create employment for one crore
Indians.
(b) The ministry of textile had set aside a capital
amount of 700 crore for setting up 21 ready
made garments manufacturing units in seven
states.
(c) To discourage import of textile products, the
government of India has increased the import
duty on 501 textile products from 10 % to 20%.
(d) The director general of foreign trade has reserved
the rate of incentive upon textile products from
2% to 4%
(e) The amended Technology up gradation fund
scheme (A-TUFS) ensures to create employment
for 35 lakh. People in the textile sector by the
. year 2022.
Problems of Cotton Textile Industry
The cotton and textile industry in India is suffering
from the following problems.
1. The sector had suffered in the post due to excessive
government control over control of price, distribution
of price, pattern of production, fluctuations in the
excise duty etc.
2. The cotton textile industry had suffered from shortage
of raw material in the form of raw cotton.
3. More than 80% of textile mills in India use absolute
and outdated technology for production. This has led
to less production and higher production costs.
4. The Indian cotton textile industry is facing increased
competition in foreign markets from China, Pakistan,
Bagladesh, etc.
5. Sickness of cotton textile mills us another maps
challenge faced by the Indian cotton textile sector.
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Q20. Discuss about the Indian Jute Industry in detail
Answer :
Growth of Indian Jute Industry
The Jute industry occupies an important place is
the Indian economy. The jute cultivation takes place in th:
eastern region of India, mostly in the state of West Bengal
The Jute industry is a major foreign exchange earner fcr
the Indian government. Further it provides employmen:
opportunity to 43 lakh families in India. Jute is a very useful
textile used primarily for packaging around the world
Following points highlights the Growth of Jute Industry ■
India,
1. The Jute industry was started in the year 1885 in InduJ
primarily in the state of West Bengal (including tha
present day Bangladesh)
2. After partition 70% of the jute producing area wed
to Bangladesh. Thus initially the jute industry faced
shortage of raw material For example in the yer]
1951, the jute production in India was 3.3 millias
bales against a demand for 7.2 million bales.
*■'
3. The Proactive steps taken by the government of Indai
helped to increase the yield of jute per hectare fro~I
1040 kgs to 2700 kgs.
4. West Bengal is the major cultivate or ofjute in Ind_|
The government is encouraging other states liul
Bihar, U.P. Assam, Orissa also to take cultivation a?l
of Jute plant.
5. The Jute industry in India has modernized its pos-l
spinning equipment by employing latest technologl
high speed hand loom machines.
6. The Jute industry is contributing good foreign!
exchange to the economy by exporting jute for car;
manufacturing to the limited state.
7. Speciality products being manufactured using jie
include jute bagging, jute tarpaulins, jute carpets, jus
webbangs, paper lined jute Hessians and so on. Thus
the demand for jute is growing at a very good pac-. I
8. The demand for jute for domestic consumptiJ
had increased gradually. To encourage exports, J
government of India had removed excise duty J
all the three major varieties of Jute (i.e.,) Hessiae
sacking and carpet backing.
9. Jute is known as the ‘golden fiber’ eco friend’■
durable and multipurpose.
10. The government of India had allocated a roue
700 crore for various programs for the growth as
promotion ofjute At present, Jute export contribute
more than 1000 crore rupee’s worth foreign exchar.,
to the Indian economy.
ONOMY UNIT-2 : Industries and Tertiary Sector of India 51

i detail. Problems of Jute Industry in India Problems of Sugar Industry in India

1. Scarcity of law material is the most major problem Following points highlights the problems of sugar
faced by the Indian jute industry Although the jute industry in India,
output has increased, it keeps fluctuating, leading to
1. Unlike previously, bumper product of sugar in
place in raw material (Jute), supply shortage.
recent years has led to the crashing of sugar prices
ce in the 2. The Jute processing plant and machinery are outdated in the country leading to huge losses the sugar cane
Bengal, and slow, Thus having an adverse impact upon producers.
imer for production and processing ofjute products.
iloyment 2. The production areas of sugarcane are shifting within
3. The Indian Jute industry is facing serious competition the country. For example, during 1960s 70% of
ry useful
from other Jute producing countries such as
e world, sugarcane was cultivated in the states of Uttar Pradesh
Bangladesh, china, Japan, Brazil etc. Further symthetic
dustry in and Bihar however in recent years the majority of
substitutes for jute are also posing a challenge.
sugar cane is being produced in Maharashtra, Andhra
Q21. Comment upon the growth of Sugar industry Pradesh etc. This had led to may logistic problems.
> in India, in India. What are the problems involved in it?
tiding the 3. Other major problems faced by the sugar industry
Answer : include low yield of sugarcane low crushing season,
Growth of Sugar industry in India uneven location of sugar mills in thin U.P and Bihar
irea went
>try faced India is the largest producer of sugar in the world, and so on.
i the year leaving behind Russia, Brazil and Cuba. The production Q22. Discuss the growth and development of the
3 million of sugar in India (2018) was -32 million tons, which is a cement industry in India. What are the problems
:s. significant growth compared to only 1 million tons of sugar involved in it.
production of the time of independence.
at of India Answer :
:tare from The following points highlights the growth and
development of the sugar industry in India. Growth and Development of Cement Industry in
India
e in India, Presently, India produces 22% of the total global sugar
production. In the year 2018, it produced 32 million The cement industry in India was established with the
states like
tones of sugar. opening of the Indian cement company in the year 1914 at
ivation up
probounder (Gujrath). India is the second largest producer of
2. It is the second largest agro based industry in India
and provides employment to 45 million farmers in the cement in the world, producing more than 455 million tons
i its post- of cement (2017-18). This industry provides employment
country 3% ofthe total cultivated area is occupied for
echnology to more than one million Indians It also contributes to the
sugarcane cultivation.
foreign exchange reserves of the country through exports of
The central government had played a major role cement of other countries.
>d foreign toward encouraging the exports and production
; for carpet of sugar. The government controls, decontrols 1. India is the second largest produced of cement in the
and recontrols the sugar industry to ensure that all world (lsl being China). It is a key industry for the
using jute stakeholders make a handsome project. overall economic growth of the country.
arpets,jute The production of sugar is more than 31 million tons 2. India has 139 large and 365 small cement plants with
;o on. Thus in India, against annual domestic consumption of 25 an installed capacity of 230 million tons production
rood pace million tons. capacity.
nsumption : The government introduced dual price mechanism 3. Many foreign firms such as Lafarge Holcum, Vicat,
xports, the with partial control, under which a fixed ratio of sugar Heidelberg cement etc had invested in the Indian
se duty on must be sold at Government determined price whereas cement sector investing around $6 billion in India.
.,) Hessian. the remaining ratio of sugar can be sold in the open
market at a more profitable price. 4. The top 20 Indian cement companies produce 70%
of the total cement in India.
:o friendly The government provides various financial incentives
to the sugar industry to keep the sugar price in the 5. There are 210 large cement companies and 350
country af an optimum level and also increase exports. small cement plants in India. A majority of these
ted arounc firms are located in Andhra Pradesh Tamil Nadu and
growth anc Buffer stocks of sugar upto the tune of 11 million tons
Rajasthan.
contributes along with a bumper crop this year had made sugar
m exchange millers request the government to increase the export 6. The demand for cement in the country is growing at
Quota of sugar to eight million tons a good pace in the recent years.
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52
7. India is blessed with best quality time stone
throughout the country and also India is the largest
producer of coal. (Both key raw material for
producing cement). Thus the growth and export
potential of the cement industry is huge.
8. The government of India had played a vital role
towards the growth of the cement industry by
providing incentives, price subsidies etc.
Problems Faced by the Cement Industry in India
Following points highlights the problems faced by
the cement industry in India,
1. A major challenge of the cement industry in India is
the centralization of ownership of cement industry.
Few companies such as ACC, Dalnia Jan and Birla’s
control bulk of the cement produced in the country.
2. Frequent Power cuts, no proper infrastructure to
transport the finished cement to the market, limited
availability of furnace oil etc had resulted in partial
or full closure of many small cement plants in India.
3. Cost and price increase of cement is another major
problem being faced by the cement industry.
Government policies towards coal, fright, taxes etc
are a major reason for the price and cost of cement
in India.
4. The government has initiated price control policy
to ensure that the prices of cement do not rise
exponentially. However increase in the cost of
production, along with price control has led to losses
being suffered by the cement producers. _______
Q23. Discuss the growth and development of the
paper industry in India. What are the problems
involved in it?
Answer :
Growth and Development of the Paper Industry
The first machine made paper was manufactured
in India ^n the year 1812, producing one million tones of
paper through fifteen paper mills. Since then, the growth
and development of the paper industry in India had been
phenomenal. It provides direct and indirect employment to
many Indian, especially in the rural areas.
The following points highlight the growth and
development of the paper industry in India,
1. India produces one of the finest of softwood paper in
substantial quantities.
2. The India states of west Bengal and Maharashtra are
the leading product of softwood paper in the country.
The Total production of paper in India had exceeded
more than 400,000 tonns.
3. The India paper industry is spread out across the
country, directly employing more than 10,000 people.
There are more than 200 paper mills in India.
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4. India produces 3% of the total paper production
globally, worth more than 25,000 crore.
5. The Government of India had delicenced the paper
industry in July 1997 and granted foreign firms to
invest in the Indian paper industry.
6. The major raw materials used for paper production
include hardwood and bamboo fiber agro waste and
recycled fibre.
7. The demand for paper had been increasing at
around 10% per annum, for various purpose such
as newspaper prints, writing and printing, container
boards and so on.
8. India also exports fine quality soft wood paper to other
countries.
9. The government of India had encouraged the setting
up of small scale paper mills in the country. Because
of shorter gestation period requirement of less
capital easy availability of chef second hand foreign
machinery and the flexibility with which these units
can be set up in any part of the country.
10. To encourage and protect the small scale paper
mills, the government of India had provided various
financial and tax incent ones to these small scale units.
Problems Faced by the Paper Industry in India
Following points highlights the problems faced by
the paper industry in India,
1. Uncontrolled deforestation for manufacturing ofpaper
products had led to severe shortage of raw material
used for manufacturing of papers the total forest cover
in India had reduced to around 11% only.
2. The cost of production of paper had increased man}
folds in the past few years. The cost of raw wood pulp,
electricity, water and coal had increased substantially.
3. Many small scale paper mills had become sick and
need urgent government help to revive them.
Q24. Discuss the growth and development of
Petrochemical industry in India. What are the
problems involved in it? •
Answer :
»
Growth and Importance of Petrochemical industry
in India
The petro chemical industry plays a significant role]
in the growth and development of a country’s economy.
Petrochemical products have a direct impact upon all other!
major industries such as clothing, engineering, agriculture]
automobiles, furniture, horticulture, etc.
UNIT-2 : Industries and Tertiary Sector of India
1. The petrochemical industry can be divided into
three kinds. Primarily it consists of base chemical
manufactures secondarily comes the petrochemical
processing units which convert them into finished
products the third type are the plastic goods
manufactures.
2. Plastic is a major product of the petrochemical
industry. Its annual growth rate in India is 15 to 20
percent.
3. The very first petrochemical industries set up in
India include NOCIL [National Organic Chemical
Industries Limited], Union Carbide of India, 1PCL (
Indian Petrochemicals Corporation Limited) etc.
4. This industry has a direct impact upon all other
industries and sectors such as agriculture, engineering
construction clothing, transportation etc;
5. Plastic polymers are significantly used in
manufacturing of foot ware and other household
articles.
: Rubber, which is a major petro synthetic chemical
product is being increasingly used in the construction
industry.
There is a high growth potential for plastic and LDPE
sheets and pipes as a cheap and durable substitute to
metal and RCC pipes.
Plastic packaging items form an excellent alternative
to jute, paper, and wooden packaging.
Petrochemical products are being used as building
material for doors, windows, etc, in the construction
industry.
The development of the petrochemical industry
has a direct and powerful impact upon the growth
and development of chemical engineering industry,
organic polymer industry' etc.
The petrochemical industry is capital intensive,
however its related industries are labour intensive.
Thus it help generate employment opportunities in
our country.
2 Its development provides a major boost to many
small scale industries. Thus, creating employment
opportunities in rural areas of the country.
='oblems of the Petrochemical Industry in India
Following points highlights the problems of problems
m r the petrochemical industry in India,
The net exports of petrochemical industry is very low.
It is only around 80 crore per annum in recent years.
The price for some petrochemical such as Naphtha
is around T 4,000 per tonn, where as its price in the
international market around ? 1,000.
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53
Q25. Comment upon the growth and development
of the automobile industry in India.
Answer s
The Indian automobile industry is the fourth lar est
globally and is expanding at an impressive rate of 15% to
20% annually. It provides direct and indirect employment to
more than 15 million people. Availability ofcheap labour,
abundant raw material, low cost steel and encouragement
of the govemmenthad made the Indian automobile industry
a dynamic and growth potential industry. Following points
highlights the growth and development of automobiles
industry in India,
1. The automobile industry in India is one of the
largest in the world. It has attracted a foreign direct
investment of mpre than $ 20 bdlion in the past few
years.
2. This industry manufactures different kinds of
automobiles such as multi utility vehicles, two
wheelers, three wheelers, four wheelers, commercial
heavy vehicles etc.
3. After the liberalization of the Indian economy, there
had been tremendous growth in this industry. There
is an average growth of 14% in this industry.
4. Export of automobile products had increased from
3.5% in the year 2001 to 13% in 2011 and has further
increased to 17% (2017): High end top quality cars
are a major automobile export from India to U.S.A
and European markets.
5. Sales of two' wheeler vehicles had been registering
double digit growth since the past few years. Sales of
high end luxury cars such as BMW and Mercedies
Benz had been main fold in the year 2017-18
6. Many national and international investors are
investing heavily in the Indian automobile industry,
as per the data provided by the DIPP [Department of
Industrial Policy and Promotion],
7. The central government had provided encouragement
through good policies for the development of this
industry. Recently, government had allowed 100%
FDI in the automobile sector.
8. Mercedes Benz car had increased its manufacturing
capacity in India to around 20,000 units per annum.
9. Mahindra and Mahindra (M & M) would be investing
around 1,000 crores into its Chakan manufacturing
plant.
10. Heavy truck manufacturing firm, Ashok Ley land
plans to invest around 1000 crore towards the
development of 20-25 new commercial vehicle
models in the year 2018-19.
54 SECTORS OF INDIAN ECONOMY

2.4 SMALL-SCALE INDUSTRY 4. Confined Scope of Operation

Q26. Define small-scale industry. What are its types Small-scale industries usually operate in local regional
and characteristics? areas and they meet the demand of these local and regional
people. Thus, the scope is very limited.
Answer : Model Paper-ll, Q6(a)

Small Scale Industry 5. Use of Indigenous Resources

The industry which runs on small-scale production
or which produces the products at small-scale are known
as small-scale industries. It usually employ less than 50
employees and work out on small contracts of production.
Types of Small-scale Industry
Small-scale industries are basically of five types.
They are,
1. Manufacturing Industries
The industries manufacturing complete articles for
direct consumption and also processing industries.
2. Feeder Industries
Feeder industries produces certain different kinds
of products and services, such as casting, electro-plating,
welding etc.
3. Serving Industries
They include light, repair shops required to maintain
mechanical equipment.
Small-scale industries make use of indigenous
resources i.e., natural resources, so they can start their
industry where the natural resources are easily available.
6. Labour Intensive
Small-scale industries are labour intensive in
nature they require less capital for their establishment
when compared to large-scale industries. They carry out
their functions with very meagre capital. P.C. Mahalnobis
concluded that the SSIs need very little capital. According
to 2009 budget the minimum investment required for the
establishment of SSIs was found to be only 4 lakhs.
7. Balanced Regional Development
Small-scale industries make use of local resources,
which is resulting in decentralizing and dispersing of
small-scale industries to the rural areas, thereby promoting
balanced regional development.
8. Highly Flexible

4. Ancillary Industries Small-scale industries are highly flexible in nature

as they are highly reactive and receptive to socio-economic
They act as ancillary to large industries by
conditions. They are capable of introducing new products
manufacturing parts and components and rendering services.
new technique or methods, new raw-materials and new
5. Mining or quarrying industries markets, new forms of organisation depending on the
Characteristics of Small Scale Industries diversified requirements of the market.
“Small-scale industry is beautiful” because of the Thus, it can be concluded that the small-scali
following characteristics. industries holds a unique role to play in the industrial
1. One-man Show development of the country._________________________J

Small-scale units are mostly managed and controlled Q27. Discuss the objectives and scope of SSI. Explai"
by a single-person. If a small-scale unit is managed by either the opportunities available for an entrepreneurial]
a partnership or a joint stock company its activites are mainly career.
performed by a director or a partner (partnership firm). The
Answer :
other partners act as sleeping partners or directors, who
basically provide funds to the industry. Thus, the functions Objectives of SSI
of a small-scale industry are carried out by a single person. The main objectives of small-scale industries are, I
2. Owner Acts as a Manager
1. To provide large-scale employment opportunities w: I
The owner of the business herself/himself ac'. as low investment.
a manager. Therefore, she/he manages the business in
2. To remove the problem of unemployment from oal
a personalized manner. The owner holds the first hand
information with him, which helps her/him in making country.
effective business decisions. 3. To promote dispersion of industries from urban are J
3. Lower Gestation Period to rural areas covering all the towns, villages al
backward areas.
Small-scale industries have lower gestation period
e., the period after which the return on investment starts.
i. 4. To ensure effective utilization of latent resources. I
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JNOMY UNIT-2 : Industries and Tertiary Sector of India 55
5. To foster the national development by developing the The Government of India has assigned a significant
economically poor regions. place to small-scale industries in the Indian economic planning
egional
6. To enhance the standard of living of the people. due to several ideological and economic reasons. Due to this
egional
factor, there has been a tremendous increase in the number
To assure the equal distribution of national income.
of small-scale units. It increased from 2.96 lakhs in 1977-78
8. To promote balanced regional development in the to 25.71 lakhs in 1994-95. In simple words, more number of
country. emerging small-scale industries means more number ofpeople
genous
irt their Scope of SSI seeking or pursuing career in entrepreneurship.
Jable. According to the Government of India’s small-
The scope of SSI is vast in nature, comprising of wide
range of activities requiring less sophisticated technology. In scale enterprise policy, policy measures for promoting and
compatibility with its unique features, the activities which strengthening small, tiny and village enterprises, which was
isive in
contributes towards the SSIs success are many but only few make on 6th August, 1991 and passed later on assured the
ishment
of them are enlisted. The most important are, small-scale sector’s development in the future years. Thus,
arry out
1. Manufacturing activities small-scale industries served as a seed-bed for the emergence
halnobis •
of entrepreneurship in India. Therefore, it can be concluded,
wording 2. Servicing/repairing activities
i for the j that where there are more number of small enterprises,
3. Retailing activities there will be more opportunities for entrepreneurial career
4. Financial activities and vice versa. Punjab serves as the best example in this
context, wherein the number of increasing opportunities are
5. Whole-sale business proportionate to the growing number of small enterprises.
sources,
rsing of 6. Construction activities
Q28. State problems of small enterprises.
■omoting 7. Infrastructural activities like transportation,
Answer :
communication and other public utilities.
After analyzing the significant role played by SSIs in
For the purpose of widening the scope of small-
rdustry development in the country, GOI (Government the national economy, the central and the state government
in nature
f India) along with other developmental programmes, have initiated various programmes for promoting and
economic
declared the reservation policy for small sector in the fostering the SSIs growth. Inspite of the several measures
products,
. ountry. The reservation policy was established in the year, and programmes taken up by the authorities, still there exists
and new
767, wherein merely 47 items where exclusively reserved production, distribution and finance problems, which greatly
g on the
■’or manufacturing activities in the small-scale sector. By affects the SSIs.
783, the number of items increased from 47 to 836 for
The following are the most common problems of SSIs,
all-scale -anufacturing activities.
industrial 1. Raw Material Problem
Recently, the Abid Hussain Committee has removed
2 reserved items and the reserved items have fallen to 824 The major problem of SSIs is the scarcity or shortage
I. Explair I "stead of 836. The main objective of the reservation policy of raw material. There is raw material problem mainly
reneuria I - to protect the SSI from the inequitable competition of because of,
I urge-scale industries, so that there would be growth in the
I -—all-scale sector via expanding the existing units and new (i) An absolute scarcity
I inn entry. (ii) A poor quality of raw-materials and
I mportunities for an Entrepreneurial Career (iii) A high cost.
ries are, Small-scale enterprises function with low capital
Initially, most of the small-scale industries
nities with r vestment, more labour, less technology, exploits the local
manufactured only those products, whose raw-material was
-sources and fulfills/satisfies the regional demand. Basically,
obtained from the local resources. As a result, they did not
f —.all-scale industries are called as ‘one-man show’, wherein
t from our r. individual performs various roles of an owner, capitalist, face any scarcity of raw materials. But, the shortage of raw­
manager, organiser, labourer and many others. A person materials became common and prevalent with the emergence
• ? organizes, manages and takes risk is often termed of modem small-scale industries producing ‘n’ number of
rban area,
k an ‘entrepreneur’. This implies that there are as many sophisticated items. The SSIs which produce products using
llages an;
-epreneurs as the small enterprises are. Therefore, SSIs and the imported raw materials often suffers from the problem
- .-epreneurs are associated with each other. In other words, of raw materials mainly due to foreign exchange crises or
sources. S is proceed entrepreneur and vice versa. other factors.
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56
Not only the SSIs using imported goods/raw materials
face the problem of raw materials but also those SSIs which
use local raw materials also faces this difficulty. For instance,
the handloom industries that are dependant upon the local
traders for the supply of cotton are often subjected to double
exploitation by the cotton traders. These traders supply the
cotton to the industries on the obligation that these industries
would sell the finished product to the suppliers/traders.
Ultimately, traders sell at higher prices and buys at lower
prices resulting in double exploitation of the weavers.
The Government of India has made several provisions
to solve the problem of raw materials. But the government’s
endeavors are going in vain due to non-availability of
special staff to communicate with the official agencies,
leading them to buy at higher prices. This would result in
higher cost of production and the SSIs would be facing an
unfavourable circumstance in relation to large and better
rivals/competitors.
2. Finance Problem
Finance is regarded as the ‘life-blood’ of an
organization. Small-scale industries face the problems of
finance, basically due to two reasons,
(i) Firstly, due to scarcity of capital in the economy as a
whole and
(ii) Secondly, due to SSIs weak creditworthiness.
SSIs face difficulties due to their weak creditworthiness
in taking financial assistance from the commercial banks and
financial institutions. Consequently, they lend money from
money lenders who offer them credit at a very high rate of
interest. It is being noted that after nationalization of banks
in 1969, the credit situation has enhanced greatly. This is
evident from the fact, that credit outstanding to small-scale
industries from the public sectors banks increased from
T251 crores in June 1969 to T 15,105 crores in March 1990.
Thus, it is clear that there has been a great hike
in the availability of credit institutions. But, still the
creditworthiness remains with the commercialized national
banks. This is justified by the fact, that out of the total units
supported by the commercial banks upto June 1976, nearly
69 percent of the total credit was availed by 11 percent of
the bigger units in the SSIs sector, which accounted for 55
percent of the total production. This needs to be corrected
by liberalizing banking rules and regulations in the country.
3. Marketing Problem
Marketing is one of the major hurdle for the SSIs. This
is mainly because of absence of marketing organization. As a
result, the SSI products are of lower quality when compared
to the large-scale industry products.
The Government of India has taken a preventive
measure to protect SSIs from the competitive disadvantage.
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At present, there are 824 items in the reserved list for SSIs
Apart from the Trade Fair Authority of India, STC (State
Trading Corporation) has aided the SSIs in managing then-
sales. National Small-scale Industries Corporation (NSIC) is
also providing support to the SSIs by procuring govemmem
orders and locating export markets.
Ancillary units face the difficulties, such as delayed
payment by their parent companies, outdated or not updates
technology, non-adherence to quality and delivery schedules,
therefore, disturbing the parent companies’ programmes and
lack of well-defined pricing system and regulatory laws.
4. Under-utilization of Capacity Problem
Several studies have been conducted to find out the gross
under-utilization of installed capacities in SSIs. According
Arun Ghosh, on the basis of All India Census of Small-scale
Industries, 1972, the percentage of utilization of capacity wad
only 47 in mechanical engineering industries, 50 in electrical
equipment, 58 in automobile ancillary industries, 55 in leathr
products and merely 29 in plastic products. Thus, 40 percerr.
to 50 percent capacity remained unutilized in SSIs.
In addition to the problem of under-utilization ofl
capacity, power shortage is another problem faced by SSIs. kl
short, power problem has two aspects, firstly, adequate powJ
supply is not always available to the SSIs. On constant demanJ
it is made available, and it is rationed out, limited to only few
hours a day. Secondly, unlike large-scale industries, SSIs can in
afford the other alternatives such as installation of own thermalI
units, because this incurs heavy cost. As SSIs hold poor/wew
economic base, they need to organize everything with the I
available sources.
5. Other Problems
Besides the above mentioned problems, SSIs al.w
face some other problems like,
(i) Technological obsolescence
(ii) Scarcity of raw-materials
(iii) Lack of organized market channels
(iv) Inadequate market knowledge
(v) Unorganized nature of operations
(vi) Credit crunch, i.e., shortage of credit
(vii) Improper infrastructural facilities
(viii) Deficient managerial skills
(ix) Deficient technical skills.
There has been several organizations set-up I
promoting and developing the SSIs performance, but it w
found that these organizations lacked the coordination aw
cooperation among them, which acted as the hindrance to w
SSIs development.
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UNIT-2 : Industries and Tertiary Sector of India
2.5 INFORMATION TECHNOLOGY INDUSTRY
Q29. What do you mean by the term ‘Technology’?
State its components and features.
Answer :
Technology
The term technology is derived from two Greek
words ‘Techne’ which means skills or crafts required for
creating something and ‘Loges’ which means discussions
or knowledge about something. Technology generally
refers to the knowledge about the way in which something
is created. For gaining competitive advantage and long­
term profitability, many enterprises in various sectors have
identified a need for having an inventive and successful
management of technology. Even at governmental level,
technology is regarded as the significant resource required
for attaining economic development and social progress.
According to Tarek Khalic “Technology can be
defined as all the knowledge, products, processes, tools,
methods and systems employed in the creation of goods
or in providing services. In simple terms, technology is the
way we do things. It is the means by which we accomplish
objectives. Technology is the practical implementation of
knowledge, a means of aiding human endeavor.”
Components of Technology
Technology is a broad term which includes many
technological entities such as software, creative skills and
knowledge. According to Zeleny, technology includes
three interdependent codetermining and equally significant
components which are hardware, software and brainware.
1. Hardware
Any physical product, component or means like
pulleys, machines, computers or rockets are known as
‘hardware’. Hardware technology is further classified in two
typ£s i.e., end-use product type and production tool type.
(a) End-use Product Type
The end-use product type includes the consumer
products like pressure cookers, mobile phones,
• automobiles, computers and televisions.
(b) Production Tool Type
The production tool type includes industrial products
like machinery and equipment, tools, instruments,
accessories and processed raw materials.
2. Software
Software is the knowledge about the way in which the
hardware can be used for performing the tasks. Basically, the
know-how technology indicates the processes, techniques
and methods.
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3. Brainware
Brainware is popularly known as know-why. The
reasons for adopting the technology in a specific manner is
known as brainware.
Features of Technology
The salient features of technology are as follows,
1. Change
The technology imposes change on the individuals
whether they are ready for it or not. It brings rapid changes
and approaches the limits of human tolerance.
2. Extensive Impact
The impact of technology is extensive and is beyond
the immediate level of technological impact. It generally stirs
the society till every community is influenced by it and the
individuals cannot avoid it.
3. Self-reinforcing
The process of technology is considered as self­
reinforcing. This principle of self-reinforcing states that
the technology plays the role of multiplier for promoting
its own faster development. It makes inventions in the parts
of society. So that, it results a series of inventions in other
regions.
4. Complicated
Technology is an outcome ofboth external and internal
activity. It is a series of complicated ideas, knowledge and
methods.
5. Amoral
Generally, technology provides artifacts to society,
which enhances the social-welfare and quality of life. But
powerful technology can even damage the society, it is
wrongly used. Technology is not unethical, but technology
users make it immoral/unethical.
Q30. Discuss in detail the classification of technology.
Answer :
Technology can be classified into different types,
which are as follows,
1. New technology and emerging technology
2. High, medium and low technology
3. Codified and tacit technology.
1. New Technology
Any newly launched or implemented technology leads
to the development of new products or processes is usually
termed as “new technology”. It basically influences the
mode of operations of the business enterprises and also the
life style of its consumers. With the help of new technology
a competitive advantage could be maintained and improved
by a business enterprise.
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Examples
The introduction of computer aided design technology
has replaced the manual drafting. Similarly, the manual
payroll sheet replaced with salary software.
2. Emerging Technology
Any technology, which has developed from its
initial stage to experimentation stage is termed as emerging
technology. Such technologies may develop new industries
leading to the obsoleteness of the existing technologies.
Such technologies have limited scope but have the ability to
grow significantly. Such technologies are capable of bringing
changes in institutions and in society.
Examples
Genetic engineering
Nanotechnology
Superconductivity
3. High Technology
An advanced or sophisticated technologies are
termed as high technology. These technologies are also
known as ‘Superhigh Technologies’. Few high technology
companies like Wipro, Satyam and Infosys are performing
their operations by adopting such technologies.
High-tech companies are generally characterised by
the following features,
(a) Such companies appoint well-qualified individuals
for performing their tasks.
Example
Scientists and engineers.
(b) It employs the automated and semi automated
processes.
(c) High^.levels of expenditures have to be made on
research and development activities.
(d) The technological growth of such companies are very
high and changes occur at faster rate than any other
industry.
(e) Its products mostly act as triggers effecting the life
styles and work modes.
4. Low Technology
The technologies which are widely used in several or
majority of the industries are termed as “low technology”.
Low technological companies are characterised by,
(a) Appoints people with low levels of education or skills.
(b) Facilitates manual or semiautomated operations.
(c) Associated with low levels of research expenditure.
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(d) Technological base employed is usually stable
subjected to lower levels of changes.
(e) The manufactured products of such companies are
capable of satisfying the basic human needs like food,
shelter, clothing and other basic human services.
5. Medium Technology
The technologies whose characteristics lie between
the high and low categories of technologies are usually
referred to as “medium technology”. Such technologies are
highly developed, allowing the users to carryout easy transfer
of technology.
Example
Industries which are engaged in the production of
consumer products.
6. Codified Technology
Any technology that is available in a coded form
such as verbal or nonverbal model is termed as ‘codified
technology. Such technologies can be easily stored as well
as effectively transferred among the users.
7. Tacit Technology
Tacit technology is a type of conceptual technology
which emerges as a result of knowledge and experiences
of its developers. It is usually based on “non-articulated,
knowledge”. As, it is based on knowledge and experience,
this technology is subjected to variations in the manner in
which it is presented or expressed. Such technology can be
transferred only through the live demos and observations
and also through the apprenticeship programs.
Q31. Write in detail about the emergence of
Information Technology (IT) in India.
Answer :
Information Technology (IT) Industry is one of the
major and growing industry of India. This is the industry
which is undergoing rapid evolution and changing the
shape of Indian business organizations It includes business
like, software development, Consultancies, Software
management, Online services, Business Process Outsourcing
(BPO) etc. During 1990, Indian IT industry started exporting
its software products and at that time it exported around $
100 million. Currently, it is working on global level and its
exports are around $ billion with 2.8 million employees who
are working in it.
According to the survey report submitted by
National Association of Software and Services Companies'
(NASSCOM) India’s IT industry is expected to grow at a
rate of 12-14% during the financial year 2016-17. Addition
to this, the position Indian IT industry in the report was
started based on the factors like, abundant talent, operational
excellence, creation of urban infrastructure, conductive
environment and continued growth in domestic sector.
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At present, India is one of the leading source of IT
services cross the world which grab around 55% market
share of US dollar ($) 185-190 billion. Indian leading IT
companies had set-up more than 1000 delivery centres in
80 countries of the world. Moreover, India has become the
digital capabilities hub of the world with around 75% of
digital talent. The recent development made in the Indian
IT sector are summarized below,
1. India become the major destination for IT outsourcing.
2. India is going to overtake United states for developing
most number of software developers in 2018.
3. Currently, India had ? 52.lakhs developers, where as
US had 42 lakhs.
4. As per the report of 2017-18 Financial Year (FY) IT
industry contributed 7.7% to the Gap of India.
5. Indian IT market is competitive in nature and only
the top 5 competitors are contributing over 25% to
the total IT revenue.
6. In 2017-18 the domestics revenue of IT industry is
estimated to be 167 billion, where as the exports of
IT industry are estimated as $126 billion.
7. Investment on Information Technology in India is
expected to grow more than 9% to reach $ 87.1 billion
in 2018.
8. From digital segment of IT industry, the revenue is
expected to 38% by 2025.
Therefore, in coming year India will definitely be
the topmost IT industry of the world as it is able to deliver
and develop on- share and off-shore services to the global
clients.
Q32. Discuss the benefit and limitations of Indian IT
Industry.
OR
What are the major advantages and issues of
Indian Information Technology Industry?
Answer :
Benefits or Advantages of IT Industry
The benefits or advantages offered by the Information
Technology (IT) industry are as follows,
1. Lowering Cost/Cutting Down the Cost
Information technology helps in changing the costs
of a company at different levels of the value chain. The
historical effect of technology on cost was restricted to
the activities in which continuous information played a
crucial role. But presently such limitations do not exists.
Traditionally, the activities such as assembly basically deals
with physical processing, but now it has a huge information
processing component. Information technology changes the
cost drivers of activities in the ways, which can enhance cost
position of a company.
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Example
Canon developed a low-cost copier assembly process,
particularly for an automated parts-selection and material­
handling system. Assembly workers have bins consisting of
all the parts required for the specific copier. The success of
Canon with such system originated from the software which
regulates parts in inventory selection.
2. Enhancing Differentiation
The information technology significantly affects
the products differentiation strategies. The company and
its product plays an important role in the value chain of a
buyer and are regarded as the significant components of
differentiation. New technology influences the ability of a
company to differentiate itself by grouping more information
with the physical product package which is sold to the buyer.
Example
A magazine distributor provides retailers processing
credits effectively, for items which are unsold when
compared to the competitors.
3. Changing Competitive Scope
The relationship between competitive scope and
competitive advantage can be changed through information
technology. The use of technology enhances the potentiality
of a company to harmonize or coordinate the activities
regionally nationally and globally. The information
revolution is developing interrelationships between the
industries which were different earlier. In fact information
technology is also trying to buildup interrelationships in
financial services.
Example
Merger of computer and telecommunication
technologies.
4. Improve Communication
IT industry plays a crucial role in improving the
communication between person to person, company to
company and industry to industry. This is the only industry
which introduces communication technologies like, mobiles,
electronic mails, instant messages, social networking
application and other softwares. With the help of these
technologies employers, employees, customers, suppliers
etc are able to do their transactions easily.
5. Economic Development
IT sector is said to be emerging industry in India and
is contributing more to the national economy by creating
international identity. Modem researches carried out by
the Indian scientists and technologists had resulted in
the developments in respective fields at global standards.
Development of S&T accelerates the national economy.
Thus the Indian government had established a council of
scientific and industrial research in 1942 and Board of
Scientific and Industrial Research in 1940 to encourage
the growth of S&T. Government also established number
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of national research laboratories CSIR, Defence Research
and Development Organisation (DR DO), Department of
Atomic Energy (DAE), ISRO, ICAR (Indian Council of
Agriculture Research). Indian Institute of Sciences (IISC),
Department of Biotechnology (DBT), in different regions
for the development of S&T.
Limitations or Issues of IT Industry
The major issues of Indian Information Technology
(IT) industry are as follows,
1. Employment Opportunities
Indian IT industry is always be the provider of
employment opportunities in India. But in recent years hiring
in IT companies has been dropped by 40% compared to
2015-16. Even, major players of this industry has fired some
employees at the time of annual performance appraisal. For.
Example, Wipro fixed its 600 employees during 2016-17
2. Gap in Demand and Supply
The gap between the demand and supply of
information technology or software is always be the major
issue for Indian IT industry. The reason behind such gap is
the un-skfiled or less potential staff in IT industry. In India,
every year around 400,000 students are graduating every
year and only 20% of such students are employable As such
majority population getting Un- employed, as a result, the
gap in arising between the demand and supply of skilled
employees and further decreasing the supply of more number
of software on time.
3. Automation
Automation is one of the major issue of IT industry
across the world. Not only India, other countries are also
facing problems due to automation in companies. Because
of automation, the demand for human workforce is getting
reduced for some functions. As a result of this, people loosing
their jobs. However, in India automation is expanded only in
some companies, but by 2021 it is estimated but automation
in India will be successfully achieved.
4. Competition Among Employees
As some companies of IT industry firing their
employees due to automation or other reasons, competition
among employees is increasing day by day. Employees are
working hard to prove themself and to stay in the companies.
As a result of this, for a single position, number of candidates
are waiting and even they are ready to work for minimum
salaries.
5. Education
Educating and training a candidate about the
technologies prevailing in IT industry is a very challenging
task. As IT industry consist of hardware as well as software
products, the training for both products would be completely
different.
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Q33. Discuss the role and uses of technology in
education system in India.
Answer :
Role of Technology in Education System
The Indian education system is robust and has a
strong foundation. India has instituted the best universities
and colleges with high education standards to grab bright
talents across the globe. India stands at a good position in
the global education system. According to Indian Brand
Equity Foundation, out of the $100 billion market of
Indian education 59.7% has been contributed from higher
education, 38.1% from school education, 1.6% from pre­
school and 0.6% from education based on multimedia and
technology.
The utilisation of technology in Indian education
system has been started with the availability of high speed
internet, computer and mobiles at low cost. This leads to
rapid growth in e-learning based marketing in the education
system. Government of India also reinforced it’s policies to
encourage the digital literacy. The Indian education system
has been strengthened with the usage of technology in
many ways, thereby contributing the social and economic
development. The growth in the markets for e-learning
based products/services opened doors for entrepreneurs to
exploit the opportunity.
Uses of Technology in Education Sector
Technology play a key role in education sector and
provide following benefits,
1. Distance Education
In developing countries like India, the aspiration
for higher education to the people living in remote area
and villages does not come true. But with the advanced
technology in education sector, distance education created
a way for those students for the completion of their studies.
Distance education provides learning facilities for the
students and working men/women through online medium
and without their physical presence in the classroom.
Through this students can interact with their teachers or
mentors directly through e-mail, chat, phonecall etc.
2. Classroom Based Learning
Technology has been integrated with the classroom
teachings. Most of the schools, colleges and universities
replaced their black board with the projector screens for
teaching. Powerpoint Presentations (PPTS) are being
used to display the content. The students are allowed to
use gadgets such as tablets and laptops to take the content
instead of notebooks. Number of animations have been
created on different subjects in different languages through
which students can understand the subject easy and better.
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3. Online Learning Management System (LMS)
Online LMS has been. integrated in most of the
colleges and universities to provide easy learning to
students. LMS facilitate the students to attend online
classes and can easily download the course material from
their college website. It also provide prerecorded videos
and lecturers for students review. The access of LMS is
weak in some of the areas of our country which does not
have proper internet access.
4. Learning through Mobile Apps
According to Counter point research, India stands
second position in the smart phone market (i.e., 220 million
active users) after China. Smart Phone provides number of
e-learning applications to the students based on the Android
and ios platform. Learning applications have been created
on different subjects in different languages and provide
easiest way to understand the complex subjects such as
physics, mathematics, chemistry etc. As the price of smart
phones has been reducing day-by-day, the learning apps
became available to students in remote areas. Example:
Byju’s app, which is the most popular learning app provides
easiest way of illustrations for even more complex subjects.
A huge number of internet based channels are
uploading recorded videos/tutorials by the scholars and
professionals. Though the intervention of technology in
the education sector has been successfully running in
most of the parts of India, the utmost use of technology is
still restricted due to increased costs of education. Thus,
government should initiate measures to stimulate the usage
of sophisticated technology in the education institutions for
better teaching to all categories of the students.
<
2.6 LABOUR PROBLEMS___ ______________
Q34. Who is a Labourer? What are the features of a
, Indian Labour?
f accumulated by labour.
Answer :
Labourer
The term labour and labourer is similar but they are
very different. Usually, people use the word labour for a
worker or employee but, the fact is that, the labourer is the
exact term for a person who is working to earn wages. A
labour can be defined as any physical and mental work done
for earning money,, income or reward. There are various
definition of labour given by economist. Some of them are
as follows,
1. According to Jevons, “ labour is any exertion of mind
or body undergone partly or wholly with a view to
some good other than the pleasure derived directly
from the work.”
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2. According to S.E Thomas” Labour consists of all
human efforts of body or mind, which are undertaken
in the expectation of reward”.
Characteristics or Features of Labourer
A Indian Labourer consist of the following
characteristics or features,
1. Living Thing
A Labour is a living thing or human being. It is not
an commodity or any thing which can be sold or bargained.
2. Perishable *.
Labour is one of the most perishable factor of
production. It cannot be stored at one place. The wage or
income of a unemployed worker will always be zero. It
cannot be postponed or accumulated for the next day. Thus,
it will pesish once time is lost.
3. Sells the service
A worker sells his service or labour. Usually, skilled
worker receive better price for his labour, therefore, labourers
must be given enough opportunities by the government to get
trained and improve their efficiency. Moreover, labourers
sells their services not them self.
4. Differences in Labourers
The efficiency and working pattern, of labourers
differs between one labourer and other. Some may be more
efficient and some may less efficient based on their ability,
training, skills etc.
5. Labour Creates Capital
As capital is the portion of wealth which is used to
earn income. It is obvious that labour is more important than
capital in the process of production because capital is the
result of working of labour. Thus, capital is formulated and
6. Active Factor of Production
Labour is one ofthe factor ofproduction just like other
factors which includes land, capital and organization. It plays
a important role in the production process. The production
from land and capital starts only when a workers render its
labour or services.
7. Low Mobility
Labour having low level of mobility by nature
compare to capital. Because capital can be easily transported
from one place to other but labour cannot be transported. As
labour is the service of human beings (workers), and they
doesn’t like to work at far place by leaving, their native
places. Thus, labour has low mobility.
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Q35. What do you mean by Labour Problems? Write
briefly about the emergence of labour problems
in India.
Answer :
Labour Problems
Labour problems are the various problems faced by
labourers or workers while working, either on personal or
professional level. They affect the efficiency of the labourer
and lag their schedule. Sometimes, it also affects the overall
productivity. They are ver)' common, frequent and must be
solved quickly to prevent them from hindering the worker’s
performance. • Labour problems were also more concentrated in these
According to O.W. Phelps,,there are three major
areas of labour problems, they are organization, income and
security. These areas are also considered as areas of concern
for the whole society. For this reason, labour problems
are also regarded, as a special class of social problem’s.
Labour problems and problems of labour economics widely
differ from each other. Labour economics analyzes labour
problems in a generalized manner. Problems of labour
economics are universal in nature while labour problems
are location-specific and time specific which means that
they keep changing from time to time and from country to
country.
Emergence of Labour Problems in India
During the Agricultural stage, poverty, exploitation of
labourers of lower social level, lack of organization among
manual workers, higher income disparities and irregular
conditions were the primary labour problems in India. In
the Handicrafts stage, various social- economics changes
occurred which led to the beginning of the modem labour
problems. During the workshop stage, workshops were set up
where traders and craftsmen assembled to work. At the time
of Mughal rule, these workshops were called as Karkhanas.
Variou^ labour problems arised during this stage relating
to rates and models of payment of wages, working hours,
recruitment of workers, productivity norms etc.
In developing countries like India, China and other
third world countries, the income was unevenly distributed,
higher growth rate of population, lack of health and
educational facilities, predominance of primary production
and poverty have contributed to their stunted growth. The
British rule and their imperialistic policies de- industrialized
and ruralized India because they wanted India to serve as
a market for their finished goods and remain as a supplier
of raw materials. Due to de-industrialization, the skilled
workers had to take refuge in rural areas and work as
agricultural labourers to make a living. Despite this, Indigo
and tea plantations were set up by Europeans which emerged
as a modem organized industry in India. Industrialization
increased at a pace at the time of first world ware, by setting
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up of jute and textile industries. During the First Five year
plan, several new industries such as iron and steel, cement,
sugar, paper etc., were set up. In the Factory stage, Industrial
Revolution encouraged large scale and cost- effective
production. It led to setting up of new industries which
attracted labourers from rural areas. They were unskilled and
only had labour power and weak bargaining power. Even
the consumers had to purchase cheap standardized products
which brought large profit margins. In the total industrial
output, capital goods production contributed to about 6%
only. And, 67% of the industrial capital of India was invested
in Kolkata and Mumbai which created a regional imbalance.
regions. Increasing industrialization led to an increase in
the labour problems. -- *
Q36. What are the various labour problems arised in
India?
Answer :
In India, Labour problems have been increasing along
with increased industrialization. Some of the major labour
problems are as follows,
1. General Labour Problems
The problems of an industrial society which go further
than the personnel management level in a firm or factory are
called as general labour problems. According to Lester, they
arise out of the sale, purchase and performance of labour
services. Hence, they relate to the process of handling the
conditions of employment.
2. Individual Labour Problems
The problems which are faced by individual
Labourers or workers at a personal level are called individual
labour problems. These problems relate to interpersonal
relationships of an individual like employer- employee
relationship.
3. Other Problems
(i) Unemployment
A large part of Indian population remains unemployed
throughout the year or for a season either completely or
partially. Various problems such as seasonal unemployment,
educated unemployment, disguised unemployment and
general unemployment have risen due to inadequate growth
of employment avenues, policy of downsizing followed by
private, public and service sectors as well as the government.
(ii) Illiteracy
The literacy percentage in India is very low when
compared to other developing countries. Most of the workers
are illiterate and are unaware of the problems of industry and
the country. They are not in a position to obtain any sort of
advanced training to upgrade their skills.
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UNIT-2 : Industries and Tertiary Sector of India 63
(iii) Unskilled Labour

Absence of skilled labour is another problem which has to increase in unemployment. Lack of proper vocational
institutes and skill formation among the labourers has increased the number of unskilled labours who are having a hard
time to find a job.
(iv) Migration and Absenteeism

Labours are more prone to migration and are restless due to insufficient level of wages and inability to settle in
different atmosphere. It also leads to absenteeism of labours. Measures must be taken to provide sufficient facilities and
suitable conditions to the workers to prevent migration and absenteeism.
(v) Surplus Labour Force

The supply for labour force is huge while the demand for them is relatively low in tertiary, secondary and primary
sectors. As the population in India is increasing enormously, more and more labours are being added to the labour force.
(vi) Heath issues and Poverty

Indian labours are unhealthy and are prone to diseases due to lack of proper food facilities and lack of awareness
about the welfare programmes. They are deprived of nutritious and healthy food due to poverty and cannot even cure
themselves by obtaining proper treatment at hospitals due to poverty. In India, the percentage of individuals under poverty
line are higher when compared to other countries and their standard of living is extremely low.
(vii) Lack of Labour Reforms

The Economic reforms which were introduced in the 1990s were effective during that period only and are not well
suited to the current period. The Government must formulate proper policies to bring necessary land reforms for solving
various serious problems among the labours. Adopting the required land reforms will improve the socio-economic conditions
of the labour force as well as the country.
(viii) Industrial Backwardness of India

The industrial growth is intended to the attained through five year plans. It highly relies on the efficiency of the
labour force. The welfare programmes initiated by the government encourage and motivate the works to maintain their
productivity. These welfare programmes have played a significant role in improving the condition of the labour force.

2.7 LABOUR POLICY

Q37. Define labour policy. Explain in detail about it.
Answer :

Labour Policy

Labour policy refers different meaning to different people. It is a informal document which is put together by the state
agency. The expression “Labour policy” consists of the treatment of labour in constitutional, legislative and administrative
Adts, rules and practices and even in different precepts which are highlighted/or are listed down in the successive five year
plans. This policy basically obtains its philosophy and content from the directive principles of state policy as represented
in the constitution. In fact it has been evolving developing according to certain needs of the situation and also to meet the
needs of planned economic development and social justice.
The labour policy in India derives its inspiration and strength partially from the views and declarations of certain
significant national leaders during the freedom struggle, partially from the debates in the constituent assembly, partially
from the provisions of the constitution and also partially from international conventions and recommendations. It has been
greatly affected by the considerations of the different sessions of the Indian labour conference and the recommendations
of different national committees and commissions like the royal commission on labour, the national commission on labour
1969, the national commission on rural labour 1991 and so on.
Constitution List in Labour Policy in India

Constitution of Indian states that the enforcement and administration of labour laws is the main responsibility of both
the union and state governments i.e., with respect to labour even the central government can legislate. The important issues
concerning labour are dispersed between three lists included in one of the schedules to the constitution. The distribution
of subjects under the three lists is as follows,
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64 SECTORS OF INDIAN ECONOMY
1. Union List 4. The revision of the workmen’s compensation Act.
' (a) Taking part in international meetings, groups 5. Development of medical and health insurance
and other bodies and following the decisions schemes for the working class.
made by them.
6. A central law for maternity benefits to protect the
(b) Port quarantine, involving related hospitals, benefits of women.
seamen’s and marine hospitals.
7. Development of training and apprenticeship schemes
(c) Regulating the labour and safety in mines and. for increasing productivity and also for earning
oilfields. capacity and promotional avenues.
(d) Industrial disputes relating to union employees.
8. Enhancement in the working conditions in factory by
(e) Union agencies and institutions for, focusing on health and safety.
(i) Professional, vocational or technical 9. Monitoring the working hours, weekly rest periods,
training and holidays and privileged leave or earned leave for
(i i) Development of special studies or research. workers in almost all the sections.
2. Concurrent List 10. Providing suitable housing for workers in accordance
with the availability of resources.
(a) Economic and social planning.
11. Providing leave allowance for the workers during the
(b) Trade unions, industrial and labour disputes.
periods of sickness.
(c) Social security and social insurance, employment
12. The provision of creches qnd canteens for workers.
and unemployment
13. Welfare of both coal-mining and mica-mining labour.
(d) Welfare of labour, consisting of the work
conditions, provident fund, employers liability, Elements of Labour Policy
compensation of worker, invalidity and old-age
The different elements of labour policy of India are
pensions and maternity benefits.
as follows,
(e) Vocational and technical training of labour.
1. Identification of the state as the catalyst of change
(f) Factories. and welfare programmes.
(g) Carrying out inquiries and statistics for the 2. The identification of the right of workers to peaceful,
matters included in the concurrent and state list. direct action (at the time of injustice). •
3. State List 3. To promote mutual settlement, collective bargaining
(a) Public order. and voluntary arbitration.

(b) Public health and sanitation, hospitals and 4. The intervention made by the state for the weaker
dispensaries. party to assure fair treatment.

(c) Relief of the disabled and unemployable. 5. The maintenance of industrial peace.
Q38. What are the issues and elements of labour 6. Building effective partnership between the employer
policy? and employees for promoting the satisfaction of
economic needs of the community.
Answer :
7. Assuring fair wage standards and provisions of social
Issues in Labour Policy
security.
In 1946, the interim government clearly explained the 8. The cooperation required for increasing production
first comprehensive approach to.a labour policy, when many
and productivity.
issues on which the reforms were to be made by legislations
and other measures emerged. Some of these issues are as 9. Appropriate/suitable enactment of legislation.
follows, 10. Improving the status of the worker in industry.
1. Providing minimum wages in industry, plantations 11. The tripartite consultation
and agriculture.
Thus, the main purpose of recent labour policy is to
2. The commitment and agreements on fair wages. develop an environment of healthy industrial relations and
3. Reinforcing the inspection staff and inspectorate of encourage an industrial culture which helps in enhancing
mines. the efficiency, productivity and real wages.
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UNIT-2 : Industries and Tertiary Sector of India
2.7.1 Industrial Policies
Q39. What are the various industrial policies of the
government? Discuss the industrial policy of
1948 and 1956.
Answer :
Industrial Polices of the Government
The various industrial policies of the government are
as follows,
1. Industrial Policy Resolution (IPR) of 1948
2. Industrial Policy Resolution (IPR) of 1956
3. Industrial Policy Resolution (IPR) of 1973 and 1977
4. Industrial Policy Resolution (IPR) 1980.
5. Industrial Policy Resolution (IPR) 1991.
Industrial Policy Resolution (IPR) of 1948
Industrial policy of 1948 constitutes the first industrial
policy of a country which was declared by the Indian
government on April 6, 1948.
Features of the Industrial Policy Resolution of 1948
Following are the features of IPR 1948,
1. Acceptance of the Importance of Both Private
and Public Sectors
The industrial policy resolution of 1948 has given
equal importance to both the sectors of an economy [private
and public sector). It has broadened the scope of operation
of the state.
2. Division of the Industrial Sector
The resolution of 1948 classified industries into four
categories which includes:
(i) Industries that are managed and controlled by a state.
(ii) Mixed sector
(ni) Industries that are under the government control and
(iv) The private enterprises.
3. Role of Small and Cottage Industries
The 1948 policy accepted the role of small and
cottage industries for the development of industrial sector.
These industries were, established for the exploitation of
employment opportunities and for using local resources.
industrial Policy Resolution (IPR) of 1956
Industrial policy of 1948 brought so many changes
in the Indian economy. Some of the them include the
transformation of India into a Republic Nation, the emergence
of the First Five Year Plan, significant importance was laid
down on the public sector, establishment of the socialistic
pattern of the society and the existence of both private and
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65
public sector etc. All such changes led to the development
of a new resolution which is called as the Industrial Policy
Resolution of 1956. This policy was declared on 30 April,
1956.
The following are the objectives of Industrial Policy
Resolution (IPR) of 1956,
(a) To make the process of industrialisation faster in India.
(b) To broaden the base of public sector.
(c) To take the effective measures for the development
of heavy and capital goods industries.
(d) To strive for the achievement of the economic growth
of the country.
(e) To build, grow and to expand the co-operative sector.
(f) Promote the role of private sector industries.
(g) To prevent the economy from the concentration of
economic power, monopolies to only few hands.
(h) To improve small-scale, medium and cottage
industries and to achieve balanced economic
development.
(i) This policy aims at industrial development through the
active participation of labours in management affairs
and also in promoting and maintaining the culture of
industrial peace.
The Industrial Policy of 1956 acts as an important
policy to bring drastic improvements in industrial sectors.
This policy is considered as, ‘Magna Carta’ for Indian
industry till the emergence of industrial policy of 1991.
Q40. Discuss Industrial Policy of 1973 and 1977.
Answer :
Industrial Policy Resolution (IPR) of 1973
This policy was publicly announced on February 2,
1973 and was considered as an extension of the industrial
policy resolution of 1956.
The following are the main features of industrial
policy of 1973,
1. Future development of industries would be totally
dependent on the state.
2. Both private and public sectors worked under the
guidance of the government for the development of
joint sector units.
3. Foreign investment was not possible in all the
industrial sectors and government must check all the
proposals by considering the technological expertise,
export possibilities, its affect on balance of payment
position. Even, the foreign investment need to be in
accordance with FERA and MRTP restrictions.
A
66
4. Small, medium and co-operative sectors were given
due importance and roles to function properly.
5. Co-operative sectors were promoted to bring
development in agricultural sector.
Industrial Policy Resolution (IPR) of 1977
The industrial policy of 1977 was announced on
December 23, 1977 by the government of Janta Party. This
new policy was introduced to overcome the limitations of
the previous industrial policies. This policy aimed at the
identification of ideal and scarce resources for improving
the standard of living.
Objectives of Industrial Policy Resolution (IPR) 1977
The following are the objectives of industrial policy
of 1977,
(a) To prevent the concentration of economic power and
monopoly.
(b) To maximise the production rate of consumer goods.
(c) To become socially responsible towards the fulfillment
of social needs.
(d) Efficient use of resources (manpower) which benefits
the society.
(e) To create rural employment opportunities.
(f) It was considered as the “consumption-oriented and
labour intensive industrial policy”.
(g) To promote agricultural and industrial sector.
Basic Elements of Industrial Policy Resolution
(IPR) 1977
The basic elements announced in the industrial policy
of 1977 were as follows,
1. The main element of this policy was to develop and
improve the quality and operating mechanisms of
small-sectors, cottage industries, tiny sector units,
village and household industries.
2. Promotion and development of the large-scale
industrial units for meeting the basic needs of the
country.
3. It aimed for the improvement and growth of large-
industries not only from public financial institutions
but also from other sources.
4. The rights of supplying and producing essential
consumer goods were restricted only to the public
sector.
5. Accession of technology only in the high-priority
areas.
6. The ownership and control of industries were
restricted only to the state but not with the foreign
investor.
7. Licences were issued promptly for the timely
implementation of the approved projects.
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Q41. Discuss briefly about the Industrial Policy of
1980.
Answer :
Industrial Policy Resolution (IPR)of 1980
In 1980, when congress had come to power by
succeeding over the government of the Janta Party, the
industrial policy of 1980 was declared by Union Minister
of state on July 23, 1980. This policy aimed towards the
achievement of the balanced industrialisation, technological
upgradation, promotion of competition in the domestic
market and modernisation. It also aimed at increasing export
business so as to promote foreign investment in priority
areas.
Objectives of Industrial Policy Resolution (IPR) of
1980
The following were the significant objectives of this
policy,
1. To effectively utilize the resources.
2. To Provide employment opportunities.
3. To Maximize productivity and production.
4. To Uplift of the agro-based industries.
5. To promote export and import-oriented industries.
6. To protect consumers against high prices and bad
quality products.
7. To Spread the notion of economic federalism in both
rural and urban areas.
8. To remove the barriers which were the causes of
infrastructural gaps and to improve the economic
condition of the nation.
Measures of Industrial Policy Resolution (IPR) of 1980
The following measures were taken for the
achievement of the above stated objectives,
1. Efforts to make the operational mechanism of public
sector an efficient affair.
2. To focus on industrial development related to private
sector.
3. Promoting the merger and acquisition of the sick
public sector units.
4. Conducted programmes for the promotion of rural
industrialisation.
5. Eradication of regional imbalances
6. Increased level of investment for the development of
small-scale industries by way of investment.
7. Providing automatic expansion for large-scale
industries.
8. Adoption of effective mechanisms to transform
industrial sickness.
The policy considered several factors relating to the
industrial sector. Some of them include the export-import,
.... . ................
UNIT-2 : Industries and Tertiary Sector of India
Q42. Explain in detail about 1991 industrial policy.
What are its objectives?
Answer :
Industrial Policy Resolution (IPR) of 1991
Though the last policy’s performance was good,
certain drawbacks of the government led India to a difficult
economic and financial condition. The country was almost
in a position of defaulting on international payments. After
this ,there was only one option to introduce a new liberal
industrial policy.
Therefore, the Indian government announced a new
Industrial policy in two parts, on July 24,1991 and August
6, 1991, respectively. Following are the main features of
the industrial policy 1991.
1. Abolition of industrial licensing except for 18
industries (licensing is now necessary only for 6
industries).
2. Permitting direct foreign investment upto 51 percent
of equity in specific (important) industries.
3. To remove the restriction on the assets of MRTP
companies and dominant enterprises prevent
monopoly, restrictive and unfair trade practices,
4. Free entry for imported goods on condition that
foreign exchange requirement for such import should
meet through foreign equity.
5. Mandatory approval for foreign technology
agreements in high-priority industries upto a sum of
? 1 crore permitted.
6. Foreign equity plans are not required to be
accompanied by foreign technology agreements.
7. Broadbanding facility is provided to prevailing and
new industrial units to produce any product where
additional investment in plant and machinery is not
required. Exemption of licensing is applied to all for
considerable expansion of prevailing industries.
8Z The prominent role of public sector in eight important
sectors including arms and ammunitions, mineral oils,
rail transport and mining of coal and mineral.
9. Government’s share in public sectors is disinvested,
which will be offered to mutual funds, financial
institutions, general public and employees.
Objectives of Industrial Policy Resolution (IPR) of
1991
The Objectives of 1991 Industrial policy are as
follows,
(i) To Minimize the control of government on Indian
Industrial Economy.
(ii) To integrate the Indian economy with world economy
and the economic and industrial activities are to be
liberalised.
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(iii) To remove restrictions on Foreign Direct Invest-ment
(FDI).
(iv) To Give freedom to domestic entrepreneur from
MRTP restrictions.
Some important aspects of this policy are as follows,
1. Industrial licensing
2. Foreign investment
3. Foreign technology
4. Public sector policy
5. Policy relating to MRTP Act
6. An effective small sector policy.
2.8 SOCIAL SECURITY=
Q43. What is Social Security? Write about the need
and features of social security in India.
Answer :
Social Security
Social security can be defined as the security provided
by the state to its citizens against various contingencies
of life like illness, diseases, old age, unemployment,
industrial accident etc, from which an individual cannot
protect himself by any means. Its basic principle implies
collective action by the society to offer protection to an
individual member against various misfortunes and needs
which cannot be met even by utilizing his resources. It is
based upon social justice and human dignity. The agenda
behind social security is that the state must make itself
the responsible authority to ensure a minimum standard
of welfare to protect its fellow citizens from various
contingencies of life.
Late President Mr. V.V.Giri stated that “social
security is the security that the state furnishes against the
risks which an individual of small means cannot stand the
risks, which an individual of small means cannot stand up
by himsel f or even in private combination with his fellows”.
Frid Lander defined social security as “a program
of protection provided by society against the contingencies
of modern life like-sickness, unemployment, old age,
industrial accident against which the individual cannot
be expected to product himself and his family by his own
ability and foresightedness.
The ILO defined social security as “the protection
which society provides for its members through a series
of public measures against the economic and social
distress resulting from sickness, maternity, employment
injury, unemployment, invalidity, old age and death These
measures are also of a great importance to a country which
is on the way of large scale industrialization as they improve
employee’s morale by providing sense of security to them
against various industrial hazards.”
68
Social security consists of a components which
configure its scope based on the information provided by
the social security (Minimum standards) convention (102)
adopted by the ILO in the year 1952. They are, sickness
benefit, medical care, unemployment benefit, employment
injury benefit, oldage benefit, maternity benefit, family
benefit, survivor’s benefit and invalidity benefit.
Need for Social Security
The following points highlight the need for social
security,
1. Social security' is required to ensure a minimum level
of material living to the poor and helpless people of
the community by the state.
2. Due to various adversities in life like old age,
industrial accidents, cyclical fluctuations in the
business and sickness workers are left with suspended
earning capacity, temporary or permanent disability
due to industrial accidents, inability to earn due to
oldage etc. which hinder their income. They do not
posses sufficient resources or any alternative sources
of livelihood like other capitalist. In this situation,
social security is needed to help them overcome
such adversities.
3. It is needed to provide protection to the workers and
for overall growth of the state.
4. The farmer veteran trade union leader and the
president of India stated that, “State security
measures have two-fold significance for every
developing country”, which expresses the need for
social security in India.
5. It provides improved working and living conditions
and protects the needy from future uncertainties,
which contributes in achieving the goal of a welfare
state.
6. It plays a significant role in the industrialization
programme as it improves the efficiency of the
workers and helps in reduction of wastage incurred
due to industrial disputes.
7. Absence of social security hinders the production
and obstructs the formation of an efficient and stable
labour force.
Therefore, social security is a productive investment
in the long run.
Features of Social Security
The following are the features of social security,
1. In few countries, social security is applied to social
Insurance programme only, while in some other
countries it is applied to all government programmes.
2. “Social Insurance and social assistance” are the
main components of a comprehensive social security
scheme.
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3. Its coverage changes according to the political,
economic and social system prevalent at a specific
time in a country.
4. It offers a wide range of welfare and health schemes.
Its coverage extends to provide protection against
various contingencies of an individual employee.
5. The modem social security scheme is the combination
of two major elements of social assistance and social
insurance which covers all social risks.
6. It offers security to all individual workers who
completely rely on their earnings for their living
hood.
7. It not only provides protection against ordinary risk
but also protects the individual wokers from special
risks of employment.
8. It offers financial aid in the time of adversities
like industrial accident, unemployment, industrial
diseases, widowhood, maternity, orphanhood and
oldage etc.
9. Medical benefits are provided to the injured,
financial aid is provided to widows and orphans are
provided with educational assistance in the form of
scholarships.
10. Though social security programmes vary from
country to country, their primary goal to offer cash
payments to needy individuals to compensate a part
of the lost income due to the occurrence of any such
adversities remains the same.
Q44. Explain the scope and objectives of Social
Security.
Answer :
Scope of Social Security
The international labour organization configured
the scope of social security into 9 components. They are as
follows,
1. Sickness Benefits
It includes the inability to work due to sickness
which leads to loss of income. The worker is eligible for
this benefit if he/she has not been paid for 3 days and the
benefits are limited to 26 weeks per years.
2. Medical Care
It includes pregnancy confinement, its consequences
and fatal diseases. It also includes provision of required
pharmaceuticals and hospitalization and specialist
practitioner care.
3. Employment Injury Benefit
It provides proper medical care and periodical
payment to the injured employ according to the legal
provisions of worker’s compensation Act.
UNiT-2 : Industries and Tertiary Sector of India
4. Unemployment Benefit
It includes benefit in the form of payments to the
unemployed worker who is capable and available for job
but is unemployed due to absence of proper employment.
This benefit is limited to 13 week payment per year.
5. Maternity Benefit
The complex maternity benefit Act, 1961 includes
benefit to pregnant women because ofsuspension ofearnings
due to pregnancy confinement and its consequences. A
fixed periodical payment is provided three month prior and
post child birth.
6. Oldage Benefit
The benefits for old age are provided based upon
the working capacity of the worker before retirement or
oldage. It includes a specific amount which extends beyond
a particular age and extends till the death of the individual.
7. Survivor’s Benefit
Its benefits cover the entire family of the dead
person, who was the bread-earner. These benefits are
provided in the form of payments for the companies period
of contingency.
8. Family Benefits
It extends cover to the maintenance of children in
case of death of an individual workers who was the bread
earner. It is continued for the complete period of children.
9. Invalidism benefit
According to ILO convention “a periodical payment
should cover the needs of workers who suffer from any
disability arising out of sickness or accident and who are
unable to engage into any gainful activity”. The worker is
benefitted with old age benefits after invalidism benefit is
finished.
Objectives of Social Security
The various objectives of social security are
discussed below,
1. It is the fundamental human right of each individual
who is a member of the society of access social
security,
2. To instill confidence among the people that mishaps
and other adversities won’t affect the quality and
level of their living.
3. To encourage the employees and strengthen their
morale which enhances the production.
4. To provide a broad coverage by including every
aspect of entire quality of working and living life.
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5. To serve as a just (fair) economic and social
instrument in the society.
6. To encourage the adoption of various insurance
and employment schemes, and creation of new
employment opportunities through industrial
development and rational planning.
7. To establish a scheme for providing unemployment
and oldage pensions.
8. To ensure that the ideas of social justice and human
dignity are emphasized.
9. To extend its coverage to various kinds of risks such
as maturity, sickness, and employment injuries. .
10. To provide protection to an individual who has
contributed or is likely to contribute to the welfare
of the country.
11. To offer cash benefits or periodical payments to the
workers who suffer permanent partial incapacity and
employment injuries.
Q45. Briefly explain the various approaches of social
security. Describe the various labour laws
related to social security.
Answer :
Approaches of Social Security
The following are the various approaches of social
security,
1. Prevention
Prevention means preventing various industrial
accidents from occurring and avoiding any losses incurred
due to it. Social security intends to prevent the occurrence
of occupational diseases, accidents, and industrial injuries.
It aims to restore and compensate the social and financial
status of the injured worker. It also aims to avoid loss of
productive capacity due to unemployment or sickness or
any injury. Various Acts such as workers compensation Act,
Industrial safety Act and Factory Act help in preventing
industrial accidents.
2. Restoration
Restoration means re-employment of injured or sick
workers and providing self-confidence to them by curing
their diseases. It implies to ensure that the workers and their
families are confident that their quality of life and level of
living will remain unaffected by any sort of economic or
social loss. It intends to restore their former economic and
social status by offering social and financial help under
various provisions of social security Acts. Restoration
helps in maintaining self- esteem and self-confidence of the
workers.
70 SECTORS OF HBUUI tiunum ■ ■
Compensation The following five important centra; Ac: provides
social security to the workers.
Compensation means providing income security in
the times of adversities to the workers and their families 1. The Employees’ State Insurance Act 1948
to decrease the impact of the adversity on health and work The employee’s state insurance Act 1948 is considerec
life of the worker. The workers are compensated if there as an introductory measure in the social insurance field it
is a permanent disability which has reduced the earning our country. For creating a comprehensive scheme ofhealth
capacity of the worker either temporarily or permanently. It insurance for the industrial workers, the responsibility was
provides financial support to the workers who suffered due given in March 1943 to professor B.P Adarkar who submitted
to unexpected accidents and adversities. his report in December 1944. This report was examinee
Labour Laws Related to Social Security by the Indian Government, state government and other
interested parties. The Adarkar plan and other suggestions
In India, there are several legislative act which offer
led to workmen’s state insurance bill 1946 which afterwards
social security to workers suffering from adversities like
was known as ‘select committee’ on 12 November 1947
accidents and risks. They are as follows,
The select committee slowly extended and included all
1. Employee’s Provident fund and Miscellaneous the employees in the factories and changed its name from
Provision 1952 workmen’s sate insurance bill to employee state insurance
2. Payment of Gratuity Act, 1972 bill. Employee’s state insurance Act was enforced from 19:
April 1948. The main purpose of the Act was to provide
3. Workmen’s Compensation Act, 1923 some cash benefits to employees during sickness, maternity
4. Employee’s State Insurance Act employment injury and medical facilities.
5. The Factories Act, 1948, 2. Employees’ Provident Funds and
Miscellaneous Provisions Act 1952
6. Payment of Wages Act, 1936
The employees provident funds and Miscellaneous
7. The Minimum Wages Act, 1948 provisions Act, 1952 was enforced for giving social security
8. Group Insurance to the industrial workers. It acts as a social measure which
encourages the employees to save a part from their present
9. Maternity Benefit Act, 1961.
earning for future.
In addition to these, there are various other act which
The employees provident funds and miscellaneous
provide social security to a specific segment of workers.
provisions Act offers retirement or old-age benefits like
They are as follows,
provident fund, superannuation, pension, invalidation,
1. The plantation Labour Act, 1951 pension, family pension and deposit linked insurance.
2. Personnel Injuries (Compensation Insurance) Act, In industrial disputes Act, 1947 a provision for
1963 terminal benefit of restricted nature was created in the form
of payment of retrenchment compensation. However, this
3. Coal Mines Provident and Bonus Scheme Act, 1948
benefit is not offered to a worker on retirement or on reaching
4. Agfeam Tea Plantation Provident Act, 1955 the age of superannuation or voluntary retirement.
5. Seamen’s Provident Act, 1968. The employee’s provident funds and miscellaneous
Q46. Explain briefly about the kinds of security provisions act aims to offer wider terminal benefits to
schemes. the industrial workers. In nations which are industrially
advanced the provisions for old age and survivors pension
Answer :
was created because of the conditions which were existing
Under the Ministry of Labour and Employment a in India at the time of enactment, the institution of a pension
social security division has been formed. This division is scheme found it infeasible. Normal superannuation is not
basically concerned with the formulation of social securiting covered in workmens compensation and ESI Acts. Any
policy for the workers, administering all the legislations gratuity scheme which completely depends on employer
with respect to social security and also the execution of the will generate only small amount for any long-term relief. In
different social security and the execution of the different this situation the EPF and MP Act (1952) was found to be
social security schemes. In the labour context, the main most suitable as it initiates both compulsory and contributory
purpose of social security is to mitigate risks against loss in fund in which both the employer and the employee would
earnings (or) earning capability because of the age, illness contribute. The fund also encouraged the habit of savings
(or) work related injuries. among the employees.
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Z£__ „ __
Compensation The following five important central Act provides
social security to the workers.
Compensation means providing income security in
the times of adversities to the workers and their families 1. The Employees’ State Insurance Act 1948
to decrease the impact of the adversity on health and work The employee’s state insurance Act 1948 is considered
life of the worker. The workers are compensated if there as an introductory measure in the social insurance field in
is a permanent disability which has reduced the earning our country. For creating a comprehensive scheme of health
capacity of the worker either temporarily or permanently. It insurance for the industrial workers, the responsibility was
provides financial support to the workers who suffered due given in March 1943 to professor B.PAdarkar who submitted
to unexpected accidents and adversities. his report in December 1944. This report was examined
Labour Laws Related to Social Security by the Indian Government, state government and other
interested parties. The Adarkar plan and other suggestions
In India, there are several legislative act which offer
led to workmen’s state insurance bill 1946 which afterwards
social security to workers suffering from adversities like
was known as ‘select committee’ on 12 November 1947.
accidents and risks. They are as follows,
The select committee slowly extended and included all
1. Employee’s Provident fund and Miscellaneous the employees in the factories and changed its name from
Provision 1952 workmen’s sate insurance bill to employee state insurance
2. Payment of Gratuity Act, 1972 bill. Employee’s state insurance Act was enforced from 19th
April 1948. The main purpose of the Act was to provide
3. Workmen's Compensation Act, 1923 some cash benefits to employees during sickness, maternity,
4. Employee’s State Insurance Act employment injury and medical facilities.
5. The Factories Act, 1948, 2. Employees’ Provident Funds and
Miscellaneous Provisions Act 1952
6. Payment of Wages Act, 19.36
The employees provident funds and Miscellaneous
7. The Minimum Wages Act, 1948 provisions Act, 1952 was enforced for giving social security
8. Group Insurance to the industrial workers. It acts as a social measure which
encourages the employees to save a part from their present
9. Maternity Benefit Act, 1961.
earning for future.
In addition to these, there are various other act which
The employees provident funds and miscellaneous
provide social security to a specific segment of workers.
provisions Act offers retirement or old-age benefits like
They are as follows,
provident fund, superannuation, pension, invalidation,
1. The plantation Labour Act, 1951 pension, family pension and deposit linked insurance.
2. Personnel Injuries (Compensation Insurance) Act, In industrial disputes Act, 1947 a provision for
1963 terminal benefit of restricted nature was created in the form
of payment of retrenchment compensation. However, this
3. Coal Mines Provident and Bonus Scheme Act, 1948
benefit is not offered to a worker on retirement or on reaching
4. Assam Tea Plantation Provident Act, 1955 the age of superannuation or voluntary retirement.
5. Seamen’s Provident Act, 1968. The employee’s provident funds and miscellaneous
Q46. Explain briefly about the kinds of security provisions act aims to offer wider terminal benefits to
schemes. the industrial workers. In nations which are industrially
advanced the provisions for old age and survivors pension
Answer :
was created because of the conditions which were existing
Under the Ministry of Labour and Employment a in India at the time of enactment, the institution of a pension
social security division has been formed. This division is scheme found it infeasible. Normal superannuation is not
basically concerned with the formulation of social securiting covered in workmens compensation and ESI Acts. Any
policy for the workers, administering all the legislations gratuity scheme which completely depends on employer
with respect to social security and also the execution of the will generate only small amount for any long-term relief. In
different social security and the execution of the different this situation the EPF and MP Act (1952) was found to be
social security schemes. In the labour context, the main most suitable as it initiates both compulsory and contributory
purpose of social security is to mitigate risks against loss in fund in which both the employer and the employee would
earnings (or) earning capability because of the age, illness contribute. The fund also encouraged the habit of savings
(or) work related injuries. among the employees.
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UNIT-2 : Industries and Tertiary Sector of India
3. The Workmen’s Compensation Act
The workmen’s compensation Act is considered as
the oldest and the most significant part of the social security
legislation. The main aim of this Act is to develop provisions
for paying the compensation to a workman. The most
important benefit of this legislation is that by maximising
the significance of suitable safety devices, it decreases the
number of accidents to the workmen with the help of this Act,
the benefit of workmen and the liability has been improved
on the employer. But such liability has to be as per the date
when the amount becomes due.
This Act is basically concern about the workers and
ensures that the weaker section of the community particularly
the working class is not exploited. The part IV of the
Indian constitution is taken into account while framing the
workmen’s compensation Act. The Article 42 instructs or
forces the state to develop provisions for ensuring fair and
humanitarian working conditions and Article 43 forces the
state to make attempts to protect all the workers and provide
them a good life style and better work conditions through
appropriate legislations.
4. The Maternity Benefit Act 1961
, Before the implementation of the maternity benefit
Act of 1961 several central and state maternity benefit Act
were implemented but it did not have same provisions for all
women workers in the country. Its objectives were achieved
by the enforcement of the employees state insurance Act,
1948 which replaced the provisions of several maternity
benefit Acts. But the ESI does not include all women workers
in the country; Hence, the maternity benefit Act of 1961
was passed to offer uniform maternity benefit for women
workers in those industries which were not covered by the
ESI (Employees State Insurance) Act, 1948. The Act was
changed by the Amendment Act No. 29 of 1995 and the
amendment Act was implemented from 1 February, 1996.
5. The Payment of Gratuity Act
The payment of Gratuity Act, 1972 is an important act
of social security legislation whose objective is to provide
a scheme for offering gratuity to the employees who are
engaged in factories, mines, oil fields, plantations, ports,
railways, shops and other establishments. The gratuity is usually
paid at the time of superannuation, retirement, resignation, death
or total disablement because of accident or disease.
Apart from these there are many other welfare funds
for particular segments of workers like beedi workers, cine
workers and construction workers.
The important thrust of social security with respect
to the labour is, two pronged as follows,
(a) The thrust concerned with the medical facilities,
compensation benefits and insurance coverage to the
employees especially in case of accidents, incapacity
and illness.
(b) The thrust concerning to the provident fund and
gratuity provisions.
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2.9TRADE UNION MOVEMENT
Q47. Define trade union. State the objectives of trade
union. Explain growth and development of trade
union.
Answer : Model Paper-lit, Q6(a)
Trade Union
A Trade Union, is a combination, with the main
objective of regulating the relations between workmen and
masters, or between workmen and workmen, or between
masters and masters, for imposing of restrictive conditions
on the conduct of any trade or business and also provisions
of benefits to members.
- The British Trade Union.
Trade Union is a composition of workers that is
formed mainly to protect and promote the interest of workers.
Objectives of Trade Union
The main objective of Trade Unions are, to protect
and promote the interest of workers and their employment
conditions. Besides the main objectives the other objectives
of Trade Unions are as follows,
1. To provide fair and equal wages to the workers, by
taking into consideration their cost of living and
existing standard of living.
2. To enhance the working conditions of workers,
by providing shorter working hours, better leave
facilities, satisfactory social security, better housing
and education and other welfare benefits/activities.
3. To ensure that the worker gets an adequate share in
the increased profitability of industry through paying
them adequate bonus.
4. To provide security to the workers against the
exploitation and victimization by the capitalists.
5. To assure employment security by withstanding
retrenchment.
6. To secure the greater interest of society by helping in
the enhancement and development of the trade and
industries.
Growth and Development of Trade Unions
The growth and development of Trade Union
movement can be categorized into six important periods.
Starting with the social welfare period, the Trade Unions
became highly efficient and effective, period after period.
The six periods are summarized as follows:
1. Social welfare period (1875-1918)
2. Early Trade Union period (1918-1924)
3. Left-wing Trade Unionism period (1924-1934)
4. Trade Union’s unity period (1935-1938)
5. Second World War period (1939-1945)
6. Post-independence period (1947 till date).
72
The first period of Trade Union movement was
the period from 1875 to 1918. During this period the
condition of Indian workers was worse than the conditions
of England workers during their initial stages. Basically,
the development in large scale production brought the
opportunity to working class specially villagers to work in
factories and manufacturing units In early Trade Union period
a significant growth was observed in Trade Union movement.
Many Trade Union were formed during this period in the
cities of Bombay, Calcutta, Ahmedabad and Jaipur. It was
this period, when All India Trade Union Congress (A1TUC)
was established. The supportive members of A1TUC were
Mahatma Gandhi, Jawaharlal Nehru, Subhash Chandra Bose
and so on. In the period of left-wing unionism, communist
leaders played vital role. They were arrested and sentenced
to jail many times. By the end of fifth period i.e., second
world war period, AITUC became the strongest union, with
the membership of nearly 4,56,000 people.
After independence Trade Unions were formed
in many of the governmental undertakings They include
cotton, textiles industries unions, railways unions and so on.
Presently, in India nearly every industry has Trade Unions
to protect the rights of working class.
Q48. Describe the structures of trade unions in India.
Answer :
The structure of Trade Unions in India has three levels.
1. Plant level/Shop level/Local level
2. State level
3. Central level.
The working of every central federation moves down
to state level where it has state branches or state committees
and then to local level. The Trade Unions in India are
affiliated to two types of organizations. They are,
(i) National federations
(ii) Federation of unions. .
(i) Natiorjal Federations
The National Federations consist of all Trade Unions
irrespective of the industry. The National Federations
coordinate the activities of various Trade Unions. The
National Federations of labour are dependent on various
political parties for their working. These unions either
follow the militant policy or policy of cooperation with
employers and government. The leaders of these unions are
selected by politicians. Even some unions have their leaders
as MLAs, MPs, corporators of city corporations ete. The
National Federations may be seen in petroleum industry,
transport industry, electricity-boards, craft unions like taxi
driver’s union, rickshaw puller’s union etc. The national
federations regulate the working of various local unions.
When an industrial dispute occurs, these unions allow the
affiliated unions to bargain by themselves by just acting as
coordinator.
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Examples
Indian National Trade Union Congress (INTUC) in
its jurisdiction has central organizations, affiliated unions,
industrial federations, regional branches and councils
functioning under the control of central organizations.
(ii) Federations of Unions
These are the association of various Trade Unions
which are combined to gain strength and usually work as a
group. These unions can be at local, regional, state, national
and international level. Some of the local organizations are
the Labour Progressive Federation of Chennai; Bharatiya
Kamgar Sena etc.
Many unions are affiliated to either of the following
central organizations,
❖ All-India Trade Union Congress - AITUC
❖ Bharatiya Mazdoor Sangh - BMS
❖ The Centre of Indian Trade Unions - C1TU
❖ Hind Mazdoor Kissan Panchayat - HMKP
❖ The Hind Mazdoor Sabha - HMS
❖ Indian Confederation of Labour - ICL
❖ The Indian National Trade Union Congress - INTUC
❖ TheNational Federation of Independent Trade Unions
-NFITU
❖ The National Front of Indian Trade Unions - NFITU
❖ National Labour Organisations - NLO
❖ The Trade Union Coordination ommittee - TUCC
❖ The United Trade Union Congress - UTUC
❖ The United Trade Union Congress-Lenin Sarani -
TUTUC - LS
The following federations and associations have not
joined the Central Workers’ Organizations,
❖ The All-lndia Bank Employees’ Association.
❖ The All-India Bank Employees’ Federation.
❖ The All-India Chemical and Pharmaceutical
employees Federation.
❖ The All-lndia Defence Employees’ Federation.
❖ All-India Defence Workers Federation.
❖ All India Electricity Employees Federation.
❖ The All-India Insurance Employees’ Association.
❖ All India Port and Dock Workers’ Federation.
❖ All India Pvt. Employees Federation.
♦♦♦ The All-India Railwaymen’s Federation.
❖ The National Federation of Indian Railwaymen.
❖ The National Federation of Posts and Telegraphs
Employees.
UNIT-2 : Industries and Tertiary Sector of India
Q49. Write a note on trade unions Act, 1926. What
are the objectives of trade unions Act, 1926?
Answer :
Trade Union Act 1926
The Trade Unions Act, 1926 was earlier known as
Indian Trade Union act but later on the act was amended in
1947, 1960 and 1962 and the term ‘Indian’ was omitted. In
India, the Trade Unions are mainly regulated by the Trade
Unions Act, 1926 which was mainly enforced to provide
protection to the union leaders for the acts done by them in
relation to the legitimate Trade Union activities.
The Trade Unions act was made in 1926 and was
amended in 1929 for outlining the procedure for registration
of a Trade Union. The main objective of the act is to make
provisions for registering the Trade Unions which are
formed by the workers in order to protect their legitimate
rights while fighting with the employers. This act offers
different immunities to the Trade Union leaders for the first
time during their involvement in the union activities in the
Trade Union movement in India. The detailed provisions
were outlined for formation, procedure, registration which
includes conditions of registration, advantages of procedure,
advantages of registration and the immunities available to
the union leaders both from civil and criminal laws in the
union activities of a registered Trade Union.
Objectives of the Act, 1926
The law considers a registered Trade Union as an
artificial person which is capable of enjoying the rights and
discharging liabilities like a natural person. In addition to
the necessary provisions for administration and penalties,
the act also makes the provisions for:
i a) The conditions regulating the registration of Trade
Unions.
(b) Laying down the obligations of a registered Trade
Union and
<c) Fixing the rights and liabilities of registered Trade
Unions.
In 1982, the amendments were made in the act for
attaining the following objectives:
1. To minimize the multiplicity of unions, the prevailing
provision of enabling any seven workmen to form
a Trade Union has been changed to a minimum
qualifying membership of 10% of workmen working
in an industry or an establishment where Trade Union
function or 100 workmen, whichever is less for the
registration of Trade Unions.
2. No machinery is available to resolve the Trade Union
disputes occurring from inter-union and intra-union
rivalries. Thus, “Trade Union dispute” is defined in
a new way to make a new provision for resolving
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73
those disputes through voluntary arbitration or by
empowering the government and the parties to the
dispute for referring it to the registrar of Trade Unions
for adjudication.
3. The Trade Unions Act, 1926 does not specifies
any time limit for registration of Trade Unions. A
provision is made for a period of 60 days for the
registration of Trade Unions by the registrar after the
completion of all the formalities by the Trade Union.
A provision is also made that the Trade Unions whose
registration has been cancelled will be eligible for
re-registration only after the expiry of a period of
6 months from cancellation date, (subject to some
conditions which are fulfilled by the Trade Union).
4. In the current provisions of the Act, 50% of the
office bearers in the executive of a registered Trade
Union will be the persons who are involved in the
industry with which the Trade Union is related, but
now this limit is increased to 75% for promoting the
development of internal leadership.
5. To empower the registrar of Trade Unions for
verifying the membership of registered Trade Unions
and related matters and report the matter to the state
and the central governments.
Q50. Explain the legal framework of governing trade
union in India.
Answer :
The ILO convention number 87 i.e., the principle of
freedom of association is being regarded as the fundamental
right of workers and employers. This principle is included
in the article 19(i) of Indian constitution. The rules and
procedures for the registration and management of Trade
Unions in India are included in Trade Unions Act, 1926.
The introductory statement of ILO constitution of
1919 stated that “the recognition of the principle of freedom
of association” is one of the primary objectives of the
organisation.
According to ILO convention number 87, the principle
of freedom of association is a right of workers and employers
to join and create the organisation on their own choice
without acquiring prior power and can join the federation
or association at the international level. These organisations
or federations are not subjected to any arbitrary dissolution
or suspension by the administrative authority.
Being establishers of the organisation, workers and
employers holds the right,
1. To make rules and draw their own constitution
2. To elect representatives of their choice and organise
their activities
3. To oppose the involvement of the legislation and
any other measures that restricts the freedom of the
workers and employers.
74
The procedure and rules for gaining legal authority
for the employers and workers organisations should not
restrict their right to organise their activities. In order to
enjoy these rights of ILO convention, workers and employers
organisation must obey and follow the laws that are common
to all individuals and organisations. These laws should not
restrict the freedom that is provided by the constitution (the
right to organise).
The various rights of Trade Unions that are provided
by ILO constitution are,
(i) Right to Freedom of Association
The workers and employers shall have a right to form
and establish the organisation on their own choice and also
the Trade Unions.
(ii) Right to Engage in Collective Bargaining
This right includes the right of Trade Unions to
represent their representatives in the conferences with
employers and help them in taking necessary actions.
(iii) Right to Strike
This right include the freedom to participate in secret
ballots and can take active participation in strikes and other
industrial actions to protect their interests.
(iv) Right to Participate in Decision Making
This right includes the freedom to participate in the
meetings and consultations with the management of firm to
take decisions with respect to the workers benefits and the
right to disseminate the information which is relevant to the
unions.
(v) Right to Regulate their Own Internal Affairs
This right include the freedom to enhance democracy
in order to regulate their own internal affairs and issues.
(vi) Other Rights
The other rights includes the rights of the members
of Trade Unions and officials to protect them from the
adverse effects of industrial actions and to promote the
facilities for their better performance in all the activities
which includes access to work place, dissemination of
information addressing members, making representations
in the conferences and so on.
Indian Constitution and Freedom of Association
The principle of freedom of association is being
included in article 19(c) of the Indian constitution. It is
not mandatory for the workers to take part in the unions.
It is also not mentioned in the constitution as to restrict the
persons who are willing to join the unions. According to the
Indian constitution it is not mandatory to get registration and
recognition for Trade Unions.
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Though, the convention number.87 has not yet beer,
officially approved in India, the employers and workers in
India are still enjoying the freedom of association as the
fundamental right. Later with the ILO’s declaration in 1998
gave a confirmation that the right to association is being
considered as a fundamental right of workers and employers
Q51. Explain in detail the provisions/features of trade
union Act, 1926.
Answer :
The following are the provisions/salient features <
Trade Unions Act, 1926,
1. Definition and Scope
According to section 2(h) of Trade Union Act 192'
a Trade Union can be defined as “any combination, whethi
temporary or permanent, formed primarily for the purpose
regulating the relations between worker-men and employ
or between worker-men and workmen, or between employ
and employers, or for imposing restrictive conditions on t
conduct of any trade or business, and includes any federati
or two or more Trade Unions.
Therefore, Trade Union is a combination may
temporary or a permanent one which includes both worki
and employers. The following persons are allowed to jc
the Trade Unions,
(i) Police and defence personnel
(ii) Dismissed and retrenched workers in industry
(iii) Children below 15 years.
Managers can also participate in unions. Prior to t
amendment of Trade Union Act in 2001, Trade Union w
supposed to have seven members but after amending the.
in 2001, the members were increased to 10% or 100.
2. Registration
A Trade Union must get itself registered with
registrar of Trade Unions. Section 4 of this Act provides
rules for registration with respect to the number of memb
that are to be included in the union.
A union of the seven members must get registe
with the registrar as a Trade Union. The registrar may car
the application if half of the members decided to withdi
from the union before registration.
Section 5 of this Act, provides the layout of
application form and procedure for registration,
applicant should include/enclose the following statemi
while sending the application to registrar:
(a) Names, occupations and addresses of memt
making the application.
(b) Name of Trade Union and the addresses ;
occupations of the office bearers of the Trade Un
(c) Names, ages, occupations and addresses of of
bearers of union.
—..... ......... ................. -____ -
UNIT-2 : Industries and Tertiary Sector of India
d) A general statement showing assets and liabilities of
union in a prescribed manner.
(i) According to section 8, registrar will enter the
Trade Union details into a register within 60
days from the date of submitting the application
along with all the necessary enclosures.
(ii) According to section 7 of this Act, the registrar
will give a chance to the applicants to change the
name of the union if (it has already registered)
the name is already existing in the register for
any other Trade Union.
(iii) According to section 9 of this act, registrar
will assign the application for examination. If
it satisfies all the conditions of the Act, then
registrar will issue a certificate of registration. It
is an evidence that the union has been registered
duly under the Trade Unions Act, 1926.
3. Cancellation of Registration
According to section 10 of this Act, registrar may
.ancelthe registration of a Trade Union in the following
conditions,
a) If the application is not filled by the Trade Union.
If the registrar has come to know that the certificate
is fraudulent one.
If the applicant and the union make an active
participation in any illegal strike.
d> If the primary objectives of the union is no longer
statutory in nature.
Re-registration of a Trade Union
Section 11 and 12 of this Act, provides the procedure
: ar re-registration of a Trade Union. The registrant’s whose
registration has been cancelled by the registrar can apply
for the re-registration after 6 months from the date of
cancellation.
Section 12 of this Act, represents the notification of
■ny change in the address of the registered Trade Union head
: ffi^e to the registrar for further communications within 14
fays from the date of changing the address.
5. Incorporation
According to section 13, after registration the Trade
Union shall be incorporated as a corporate body with its
name. The registered Trade Union shall have a perpetual
succession, a common seal and power to contract and also
a right to sue and be sued.
6. Duties and Liabilities of Registered Trade Union
Section 15 of this Act provides the duties and
liabilities of a registered Trade Union. The Trade Union
should,
(a) Notify the address change of its registered head office
(b) Maintain general funds
(c) Funds for political purposes.
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7. Distinction between Registration and
Recognition of Trade Unions
In section 28 of the Trade Union Act, 1960, the
procedure, conditions and rights for recognition of a Trade
Union are being included.
Registration of a Trade Union can be done w ith
registrar whereas recognition is to be carried out by the
management as a collective bargaining agent or with the
collective bargaining council.
8. Privileges of Registered Trade Unions
The registered Trade Unions in India have virtual (de-
facto) recognition only but not (dejure) legal recognition.
Management will respond to the issues of the Trade
Unions if the membership of the union is greater in number.
If the union has smaller membership, then the management
of the firm will not take into consideration those issues and
appeals.
In such circumstances, if the union has political
support then they can proceed through the minister for
adjudication. In India, the registered Trade Union can effect
the union dynamics of the industry through the government.
9. Privileges of Recognised, Representative
Unions
The duty of representative unions is not only to
represent the issues of the unions, but also to enter the
agreements with respect to the wages and working conditions
of the organisation. Employers mSy also provide financial
support and also educational training and non-bargaining
activities. These unions have to be liable for both the benefits
and obligations of these agreements.
10. Amalgamation of Trade Union
(a) Section 24 to 27 of this Act basically emphasizes on
the amalgamation and dissolution of Trade Unions.
The registrar will approve the amalgamation if 60% of
the votes are recorded in favour of the amalgamation.
(b) Dissolution of Registered Trade Union
(Section 27)
To dissolve a registered trade union, the dissolution
notice should be signed by 7 members and by the trade
union secretary within 14 days of the dissolution and
it should be sent to the Registrar to get registered by
him. The dissolution will have effect from the data of
registration, if the registrar is satisfied that dissolution
is as per the trade union rules.
11. Submission of Returns
According to section 28 of this Act, the registered
Trade Union should submit the returns report including the
receipts and expenditure during a particular year. Registered
Trade Union should send a copy of the changed rules to the
registrar within 15 days.
Registrar will forward the copy to state and central
governments by enclosing all the necessary information.
76
12. Power to Make Regulations (Sec- 29)
The suitable government is given authority to make
regulations in the following affairs,
(i) The way in which trade unions and its rules shall
be registered and the fees that shall be paid on
registration.
(ii) When a registered Trade union has shifted its head
office from one state to another, the registration or
transfer is required.
(iii) The process that might be followed by the registrar in
❖ Checking the registered trade unions membership
under Section 28 A, or
. ❖ The judgement of any conflict brought to him
under section 28 C.
13. Penalties and Procedure
The registrar of trade unions has the power to levy
penalty on the trade unions under sections 31 to 33 if they
furnish incorrect statements or information regarding returns.
(i) Failure to submit returns (Section 31)
(ii) Supplying False Information about Trade Unions
(Section 32)
(iii) Cognizance of Offence (Section 33).
Q52. What are the problems/issues in management
of trade unions in India? Explain.
Answer :
The Trade Unions in India are weak and are failing
due to the following problems/weaknesses,
1. Irregular Growth
Trade Unions are mostly found in large scale industrial
sectors and in big industrial centres. Small scale sectors,
agricultural sector and domestic sectors usually do not have
Trade Unions as the employees of these sectors consider their
employeras their boss who provides livelihood to them and
do not wish to join any union. Trade Unionism has influenced
only a part of the working class in India. The variations
of caste, language, religion etc., which exist between the
employees also lessens the strength of Trade Unions.
2. Weak Financial Position
The mean annual income of unions is very less and
insufficient. This is mainly due to the low subscription rates
and the inability of the members to pay the subscription
fee on time. Mostly the workers are very poor and are not
interested in joining these unions. So, in order to increase the
number of members, low subscription rates are fixed by the
Trade Unions. Due to its weak financial position, the Trade
Unions are unable to organize welfare programmes for its
employees.
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3. Small Size
Greater number of unions mostly have low
membership. Although there has been an increase in the
number of unions and union memberships, the average
membership is limited or unfavorable. According to Trade
Union Act, 1926, any seven employees can form a union.
In most of the organizations, the unions formed are the
plant unions wherein conflicts take place between the union
leaders. Due to these reasons, a greater number of small
unions has emerged/increased significantly.
4. Political Leadership
Trade Unions are created and controlled usually by
the political parties and outsiders. They are not rooted in the
working class. Politicians take undue advantage of Trade
Unions and workers for their own personal and political
benefits. These politicians for the sake of their own personal
respect and reputation, organizes, extend or delay the strike
period. Hence, due to these reasons political leadership is
considered as one of the major obstacles to the Trade Union
movement in India.
5. Multiplicity of Unions
The survival of the rival unions with different ideas
views and principles is the main reason for the inadequate
growth of Trade Union movement. Many unions exist in
the same industry. The Trade Unions Act, 1926, motivates
the employees of small sector to create separate unions.
Political outsiders also create their own unions for increasing
their political sway. In certain cases, the employers usually
promote the split-up of the unions for ascertaining their
bargaining power.
6. Inter-union Rivalry
The formation of several unions lead to different
rivalries. The Trade Unions try to influence the workers by
misrepresenting and taking advantage of each other. The
employers try to exploit the conflicts occurring between
the unions and makes the unions compete against each
other. Inter-union rivalry abolishes the basis of Trade Union
movement, lessens the collective bargaining power and
decreases the worker’s effectiveness in protecting their
legitimate rights.
7. Problem of Recognition
Employers do not have any compulsion to identify
any union or give identification to any of the unions. Several
times, the employers usually do not accept to identify the
Trade Unions on the basis that the unions include merely
minority of workers or that two or more unions exist.
8. Absence of Paid Office-bearers
Several unions mostly do not have paid office-bearers.
The union activists who work on an unpaid basis or honorary
basis invests very less time and energy towards the union
activities. The union officers usually do not have sufficient
knowledge and skill as they are not trained.
-_____________ •
UNIT-2 : Industries and Tertiary Sector of India 77
9. Indifference of Members (b) Gherao

The workers mostly lack interest in the unions
activities and also do not wish to attend the meetings of
unions. The members are indifferent towards the activities
of the unions and are usually unenthusiastic.
10. Opposition from Employers
In India, the Trade Unions need to bear/tolerate the
opposition from the employer’s side. These employers coerce
and discriminate the labour leaders, form rival unions and
also bribe the union officials.
2.10 INDUSTRIAL DISPUTES
Q53. Define industrial disputes. What are the forms
of industrial disputes?
Answer :
Industrial Disputes
“Industrial dispute means any dispute or difference
between employers and employees, or between employers
and workmen, (or) between workemen and workemen which
is connected wit the employment or non-employment, or the
terms of employment or with the conditions of labour of any
person.”
— Industrial Disputes Act, 1947
Forms of Industrial Disputes
Gherao is a violent form of portraying the mismatch
of thoughts between employer and workers.
It was first initiated in Bengal and was gradually
spread all over the nation.
In this form of agitation, the managers are taken within
the organizational premises by the workers or trade unions
and are prevented from leaving the premises or getting in
touch with any other person.
(c) Picketing and Boycott
Picketing
In this form of agitation, the workers use aggressive
methods of pelting the stones at organizations’ infrastructure,
damaging the office property and causing harm to the
visitors. In such type of situation, the employers take the help
of the police forces for controlling the picketing agitation.
Boycott
Boycott is a claim and silent method of displaying
the worker’s grievances to their employers.
The workers tend to cause loss to business by stepping
their work related tasks and forces the management to accept
their demands.

The various forms of industrial disputes are as (d) Strike

follows, Strike is one of the important weapon of labour or
(a) Demonstration trade union which can be used against the employer at
the time of disagreement between employer and labour.
(b) Gherao
According to the Industrial Disputes Act, 1947 the labour
(c) Picketing and Boycott or trade unions is required to give a prior notice of strike in
(d) Strike . the important services like electricity, water supply, nuclear
power plant, etc.
(e) Lockouts
f (e) Lockouts
(a) Demonstration

Demonstration is a two faceth form of agitation (both
violent and peaceful) which is undertaken to resolve the
unsettled labour issues.
The measures involved in demonstration are:
❖ Shouting slogans outside the organizational
premises..
❖ Burning dummy figures of management and
Lockouts is an important weapon of employer which
is often used against the threat of striking workers. In lockout,
the employer prevents the employees from working. Lockout
may take place due to several reasons.
Q54. What is Industrial Disputes Act, 1947? State its
objectives.
Answer :

authority. Industrial Disputes Act, 1947

❖ Prolonged strikes and hunger strikes etc. The Industrial Disputes Act. 1947 is one of the laws
Demonstration uses coercive ways for convincing the governing Industrial Relations in India. The Act came into
employers to arrive at a mutually acceptable solution to the force on 1st April, 1947 and has been amended several times
impending issues. since then.
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Objectives of Industrial Disputes Act, 1947
Objectives of the Act, in accordance with the
judgement given by supreme court are as follows,
(a) To promote measures for securing and preserving
amity and good relations between the employers and
the employees, to minimise the differences and to get
the dispute settled through adjudiciary authorities.
(b) To provide a suitable machinery for investigation and
settlement of industrial disputes between employers
and employees, between employers and workmen;
or between workmen and workmen with a right of
representation of employee registered trade union or
by an association of employers.
(c) To prevent illegal strikes and lockouts.
(d) To provide relief to workmen in matters of layoffs,
retrenchment, wrongful dismissals and victimization.
(e) To give the workmen the right of collective bargaining
and promote conciliation.
According to Patna High court, the basis of the Act is
“amelioration of the conditions of workmen in an industry”.
Q55. Highlight the salient features of industrial
disputes Act, 1947.
Answer :
The salient features of Industrial Disputes Act, 1947
are as follow,
SECTORS OF INDIAN ECONOMY
8. The Act includes 40 Sections grouped into seven
Chapters, each chapter dealing with,
Chapter-I: Preliminary matters.
Chapter-Il: Various authorities under the Act.
Chapter-Ill : Reference of disputes to various
authorities.
Chapter-IV : Procedures, powers and duties of
authorities.
Chapter-V: Unfair labour practices.
Chapter-VI: Penalties for illegal strikes.
Chapter-VII: Miscellaneous provisions.
The act has five schedules, each schedule deals with,
Schedule 1 : Specifies the industries which may be
declared to be the public utility sendees.
Schedule 2 : Matters within the jurisdiction of Labour
courts.
Schedule 3 : Matters within the jurisdiction of
Industrial tribunals.
Schedule 4: Conditions of service for change ofwhich
notice to be given.
Schedule 5 : Unfair labour practices.
9. The Act gives some definitions in different sections.
They are,
❖ Appropriate Government (Section 2)
❖ Award (Section 2b)

1. A permanent machinery (Conciliation) has been set up ❖ Employer (Section 2g)

for the speedy and amicable settlement of industrial ❖ Industry (Section 2j)
disputes. ❖ Industrial Dispute (Section 2k).
2. Compulsory arbitration in public utility services, 10. The Act provides the following machinery for settling
including the enforcement of arbitration awards, has the industrial disputes,
been recognised.
(i) Conciliation
3. Strikes arid lockouts during pendency of conciliation (a) Works Committee (Section 3)
and arbitration proceedings and the arbitration awards,
(b) Conciliation Officer (Section 4)
enforced by the government order are prohibited.
(c) Board of Conciliation (Section 5).
4. Specific time limits for various stages of conciliation
and arbitration, to eliminate delays are prescribed. (ii) Arbitration

5. An obligation on employers to recognise and deal Court of Inquiry (Section 6).

with representative trade union has been imposed. (iii) Adjudication
6. Works committees to provide machinery for mutual (a) Labour Court (Section 7)
consultation between employers and employees have
(b) Industrial Tribunal (Section 7A)
been set up.
(c) National Tribunal (Section 7B).
7. Industrial disputes may be referred to an industrial
tribunal where both the parties to any industrial Conciliation can be described as “quasi-administrative
dispute, apply for such reference where the appropriate machinery” and Arbitration and Adjudication are called
government considers it expedient to do so. “quasi-judicial machineries”.
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UNIT-2 : Industries and Tertiary Sector of India
Q56. What are the different types of industrial Q57. What are the causes of industrial c s ..
disputes?
Answer s
Answer :
The causes of industrial disputes can be categorized
The following are the different types of industrial into,
disputes,
1. Industrial Causes
1. Interest Dispute
The industry-related factors that cause industrial
Interest disputes are known as economic disputes or disputes are,
conflicts of interest. It mainly deals with the ascertainment
of the terms and conditions of employment for workers
(a) The employment methods or policies followed by
the organisations in employing an individual may
across the industry. Generally such disputes, originates from
the demands of trade unions or proposals for better wages, sometimes be the reasons for the conflict/dispute.
job security, fringe benefits or other employment terms and (b) The type of work, unpleasant working conditions,
conditions. non-availability of machinery to do the work, working
As there are no hard and specific standards for setting hours etc., may lead to industrial strike.
such disputes, the disputing parties bargain and compromise (c) Rights and obligations and their interprets Jons by
to resolve such disputes. employees and employers.
2. Grievance Disputes (d) Dismissal of an individual or other form of disciplinary
Grievance disputes are also known as legal disputes actions.
of conflict or rights. They originate from a single worker (e) Agreements that are registered and enforceable.
or from a group of workers in the same group as a protest
against the day to day working relations. Grievances are (f) Separation or dislocation of the functions of an
related to the fields, like over time payment, promotion, employee.
demotion, transfer etc. (g) Increasing population and rise in cost of *l i \ g.
The interested parties should resolve such disputes in
(h) Rivalry among trade unions.
a tactful manner as, if these disputes are not resolved then it
may result in bitter hateful working relations and a climate of (i) Attitude and temperament of industrial workers.
industrial strike between the management and the workers. 2. Managerial Causes
3. Disputes Related to Unfair Labour Practices
The management practices which are not in
These disputes arise as a result ofunfair/discriminatory accordance with legal requirements and which are unfair to
treatment of employees, who actively participate in trade employees are the sources of disputes.
union activities, by the management. The aim of such unfair
Some of the managerial practices that cause f 'ustrial
labour practices is to restrain/prevent the employees, from
disputes are,
joiping/establishing trade unions.
(a) Discriminatory Labour Policies: Many of th labour
In many countries many strict laws are enforced to
practices adopted by the management may lead to
prevent such unfair practices.
industrial friction. They are,
4. Recognition Disputes
(i) Di scharging or dismissing the work ers by way of
This type of disputes occur if the management does discrimination or any other unnecessary issues.
not want to recognize a trade union for collective bargaining.
Such a refusal may be because of the different reasons like, (ii) Assigning a work to the workers v !uc s not
mentioned in job profile.
(a) The management refuses to recognize the concept
of trade unions as it dislikes the trade unions due to (iii) Forcing the employees to join a particular trade
trade union victimisation. union or refraining from joining a trade union.

(b) The management refuses to recognize trade unions (b) Ineffective Leadership/Supervision'. Ill-treatment
as there are more than one trade union, making of workers by adopting the age-old master-servant
conflicting claims to recognition. In such a case, the relationship, authoritarian working climate of the
parties may follow the guidelines of voluntary codes organisations may be some of the causes of industrial
of discipline as laid down in different countries. disputes.
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80 SECTORS OF INDIAN ECONOMY I

(c) Disinterest of management to involve employees in Q58. Explain the machinery for settlement of
decision-making. grievances according to industrial disputes Act.
(d) Managements unwillingness to recognize a particular Answer :
trade union.
The following figure shows the settlement machinery
3. Government Machinery for industrial disputes, □
Though government acts as a balance between the
management and workers in settling the disputes, sometimes
□
■
government related factors become the causes of industrial
1
disputes.
Various government related factors that cause
i dustrial disputes are,
(a) Variations in economic policies like Privatisation and
Liberalization may cause many strikes and disturb the
industrial relations.
(b) Improper and inadequate labour laws and their
implementation.
(c) Government’s inability to see whether labour laws
are perfectly implemented by the employers. 5.

(d) Lack of confidence of employers and employees in

governments conciliation machinery.
Failure of Governments conciliation machinery in
solving the dispute.
4. Political and Legal Causes
Many political and legal factors interfere in the
peaceful working of industrial relations and cause industrial
disputes.
Various political and legal factors include,
(a) Politics influencing the trade union movement
Political instability
(b)
(c) Strained central-state relations
(d) Existence of multiple labour laws.
5. Economic Causes
Bbyal Commission on Labour in India says that the
reasons for any strike are entirely or largely the economic
reasons.
Various economic causes are,
(a) Low Wages'. Increase in the prices may demand for
increase in wages and the less wages given may be
the cause for industrial dispute.
(b) DA and Bonus'. Rise in prices may also demand for
mor Dearness Allowance and the requirement of
bonus and the non-fulfillment of these needs may
pause industrial strike.
Figure: Machinery for Settlement of Industrial Disputes
The various methods for setting industrial dispute?
are as follows,
1. Exploration
Exploration is an attempt to settle the disputes
in which the government appoints a board as a court Mi
investigate into the dispute. Exploration may be compulsory!
or optional. It is compulsory when the government appoints]
a 'Court of Inquiry' to explore into the dispute withoid
informing the parties. It is optional when either or both ofthe]
parties to the dispute apply for investigation on the problem'
dispute. When exploration is made compulsory, the lockouts
and strikes should be stopped. Exploration has no seri
impact on the dispute because it just analyses the facts a
the dispute and tries to bring about a cordial solution to
dispute.
2. Mediation
Mediation is one of the methods to settle the dispute^
in which a third person guides both the parties in decision­
making.
In this method, the third-person neither impose
his will nor his judgement on the parties but just acts as 1
mediator. Mediation mainly aims at adjusting the difference
between the parties and tries to bring them to a voluntas
agreement so that the work is not stopped.
3. Collective Bargaining

(c) Increasing Industrial Profits: Rise in the profits
demand for worker’s share in the increased percent
of profits and the unwillingness of the management
may cause industrial disputes.
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“Collective bargaining is a negotiation between
employer or group of employers and a group of work:
people to reach an agreement on working conditions.”
- Encyclopedia Britanm

«
UIMIT-2 : Industries and Tertiary Sector of India
4. Conciliation
Conciliation is one of the most important method for
the prevention and settlement of industrial disputes through
the intervention of a neutral third party. Conciliation is
defined as, “the practice by which the services of a neutral
third party are used in a dispute as a means of helping the
disputing parties to reduce the extent of their differences and
to arrive at an amicable settlement or agreed solution. It, is
a process of rational and orderly discussion of differences
between the parties to a dispute under the guidance of a
conciliator”.
— International Labour Organisations
The process of conciliation has developed mainly in
connection with disputes arising from the failure of collective
rargaining and therefore conciliation is described as an
"Extension of Collective Bargaining”. Conciliation aims at
voluntary settlement of the dispute.
5. Arbitration
Arbitration is the process in which a neutral third
rarty intervenes/is asked to intervene into the problematic
:aation/dispute. The arbitration process analyses the
- ^gaining situation, listens to both the parties to the dispute,
pffiers the information, identifies the causes of dispute and
-tcommends the actions that are acceptable and amicable
•nd bind both the parties.
6. Adjudication
Adjudication is the process in which a neutral third
rarty appointed by the government intervenes into the
fispute with an aim to give the final settlement. Failure of
. .mediation to settle the dispute leads the government to
-iter the dispute to adjudication.
Code of Discipline
The code of discipline aims at defining the duties
-d responsibilities of both the workers and the employers,
wording to Third Five Year Plan, code lays down some
esponsibilities for both the workers and management with
aim of promoting harmonious industrial relations.
Grievance Procedure
A grievance procedure is an organized sequential
ar:cess which is framed to end up the conflicts of the
-ployees. Grievance acts as a means for exchanging
amplaints, discontent and frustrations of the employees.
Consultative Machinery
The consultative machinery set by the government
■ -eferred at the last to settle the disputes. Consultative
- inery mainly aims at bringing the parties together by
■moving the differences between them and by settling the
MBHXite.
■ 5IA PUBLISHERS AND DISTRIBUTORS PVT. LTD.
81
Q59. What are the remedial measures of industrial
disputes under the Industrial Disputes Act,
1947?
Answer :
The following remedial measures are provided under
the Industrial Disputes Act, 1947,
1. Conciliation
Conciliation is one of the most important method for
the prevention and settlement of industrial disputes through
the intervention of a neutral third party. Conciliation is
defined as, “the practice by which the services of a neutral
third party are used in a dispute as a means of helping the
disputing parties to reduce the extent of their differences and
to arrive at an amicable settlement or agreed solution. It is
a process of rational and orderly discussion of differences
between the parties to a dispute under the guidance of -a
conciliator”.
- International Labour Organisations
2. Voluntary Arbitration
Ifthe proceeding of the conciliation fails to resolve the
dispute, then the conciliation officer may advise or convince
the disputant parties to refer the dispute to the arbitrator who
is an independent party, appointed by the mutual agreement
of the disputants. Both the parties to the dispute gives out
the viewpoints to the arbitrator who listens and gives his
award of judgement on the dispute. He is only required to
produce a report by conducting fair hearings by collect ! ng al!
the available facts about the problem, the report needs to be
submitted to the government which publishes its judgement
within the 30 days from the receipt of the report. After a
period of 30 days it will become a final binding for all the
members of the disputes whether they directly or indirectly
linked to the settlement.
3. Adjudication
Adjudication is the process in which a neutral third
party appointed by the government intervenes into the
dispute with an aim to give the final settlement. Failure of
conciliation to settle the dispute leads the government to
refer the dispute to adjudication. Adjudication can be done by,
(i) Labour Courts
The Labour court includes one independent person
(who is known as the presiding officer) who is or has
been working as a high-court judge or a district-judge
for afleast 3 years and who is having a judicial office
experience for more than a period of 7 years.
The Labour court deals with the disputes which arc
related to,
(a) Legality of order given by employer
(b) Withdrawal of any statutory privilege
(c) Strike or lockouts
(d) All matter except the reserved matters of the
industrial tribunals.
82 ________ _____________________ __________ _
(ii) Industrial Tribunal
fhe industrial tribunal also consists of one presiding
officer who is appointed by the government. It’s
sdiction is much wider than the labour court’s
jurisdiction. In order to provide advise to the presiding
officer in the proceedings two assessors are appointed
by the concerned government. The industrial tribunal
makes judgements in the following matters,
{a) Compensation and others allowances.
(b) Working hours and resting hours.
(c) Working shift.
(d) Classification on the basis of grades.
, e) Discipline rules
if) Rationalisation and so on.
(iii) National Tribunal
National tribunals also consists of independent person
(who is known as adjudicatory body) and must be
appointed by the central government in order to
resolve the national disputes which can influence the
industries in different states.
2.11 UN-ORGANIZED SECTOR______________
Q.iO. Explain unorganized sector of India with its size.
Answer :
Ut organized Sector
Unorganized sector can be defined as a part of the
country’s workforce working under unorganized enterprises
or hoi a lolds and self-employed workers who are incapable
of fa c h i ring their efforts towards achieving a common
goat. 1 h , are usually casual labours, wage earners, unpaid
and paid family labour whose socio-economic conditions
are advers^ and unfavourable and piece rate workers. They
remain unorganized due to illiteracy, ignorance, casual
nature of employment and superior control of the employers.
Unorganized sector is also called as informal sector.
According to the central statistical organization
unorganized sector consists of enterprises having a maximum
of 20 employees without power or 10 employees with power.
The < orkers are included in the household sector as they
are not registered under any kind of legal stipulation such
as the Industrial Act of 1948.
The National Commission for Enterprises in
Unorganized Sector (NCE US) stated that, “The unorganised
sector consists of all unincorporated private enterprises
owned by individuals or households engaged in the sale and
production of goods and services operated on a proprietary
or partnership basis and with less than ten total workers”.
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SECTORS OF INDIAN ECONOMY
Some of the characteristics of unorganized labour are
casual labours, labours working in small scale industries,
construction workers, hand loom workers, employees
in shops and commercial establishments, cigar workers,
workers in tanneries, sweepers and scavengers, tribal and
unprotected labour.
The National Sample Survey Organization (NSSO)
has suggested the following criteria for identifying an
unorganized sector,
1. In service industries, the enterprises which are not
run by state, central or local bodies of the government
and enterprises of the public sector constitute the
unorganized sector.
2. In manufacturing industries, all enterprises except
those which are covered under the Annual Survey of
Industries are considered as unorganized sector.
Size of Unorganized Sector
Unorganized sector contributes 90% workers to the
total workforce of the country while the contribution of
formal sector is 10% only. This shows the dominance of
the unorganized sector in employment despite the lack of
workplace benefits and social security 84.7% of the total
job opportunities in India are in unorganized sector. Trade,
construction and manufacturing are the top contributors
of employment to unorganized sector. The report of the
committee on unorganized sector has revealed that the
unorganized sector offers a major contribution to the Indian
economy which is helpful to meet the needs of the formal
economy. Various studies have proven that employees
of formal employment are more productive than those
of unorganized employment and the quantum of value
contributed by an individual employee in a formal job is
twice the contribution of employee working in an informal job.
The workers in informal sector do not have privileges
such as job security, social security, perks and other
workplace benefits which are enjoyed by the formal sector.
The informal workers work in unfavourable conditions and
are granted no protection from various legislations. The units
which operate under informal sector are not included in the
fiscal revenue net of the government which results in lower
GDP ratio.
The informal sector needs a regulatory framework for
ensuring that the workers of this sector are provided adequate
opportunities to safeguard their dignity and contribute to
the country’s wellbeing. Several policies of government
intend to regulate the informal sector to bring it into the tax
net and reduce its share in the economy which may lead
to the end of the sector itself. The informal sector remains
important for the country’s economy, despite its insignificant
contribution to the national income. It is the primary
source of employment generation in the manufacturing and
service sector. A major part of this sector consists of casual
UNIT-2 : Industries and Tertiary Sector of India
employees, self-employed and contractual employees. For
example, Ola has created a huge workforce of self-employed
auto-rickshaw drivers and car drivers across the country
which covers small as well as medium towns.
Q61. What are the categories of workers among the
unorganized workers?
Answer :
The following are the categories of workers among
the unorganized or informal workers,
1. WageWorkers
Wage workers are the workers who are employed
either directly by employers or through contractors or
agencies. They are paid daily or weekly wage among the
unorganized or informal workers wage workers comprise
of temporary and casual workers and those workers who
are employed by households such as domestic workers.
It also includes regular workers among the unorganized
workers. According to the employment-unemployment
survey conducted by NCEUS, there were about 393 million
informal workers and 1.4 million formal workers working
in unorganized sector in the year 2004-05. There were 29.1
million informal workers and 33.45 million formal workers
working in organized or formal sector in 2004-04.
2. Self-employed Workers in Unorganized Sector
Self-employed workers include workers who work
in farm enterprises or non-farm enterprises or engage in
trade or a profession either individually or with other people
as partners or as home workers. It also includes unpaid
family workers. They all suffer from social insecurity and
job insecurity and are referred to as weaker sections of the
society. Regular workers obtain salary or wages on regular
basis and do not suffer from job insecurity but they are prone
to diseases, illnesses, old age and injuries. They don’t receive
social securities against such adversities. But, contract or
casual workers are affected by social insecurity as well as
iob insecurity.
3. Other Categories
In addition to the above categories, workers of
.tnorganized sector are further classified into the following
categories,
ii) Service Category
It includes workers like fishermen, midwives, barbers,
domestic workers, fruit and vegetable vendors and
newspaper vendors etc.
ii) Occupational Category
This category includes marginal and small farmers,
leather workers, landless agricultural labourers,
artisans, workers engaged in animal husbandry,
weavers, packing and labeling, beedi-making,
construction and building, oil mills, saw mills, stone
and kilns quarries etc.
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S3
(iii) Employment Nature Category
It includes casual labourers, contract labourers,
bonded labourers and migrant workers,
(iv) Specially Distressed Workers Category
The workers who are specially distressed such as
scavengers, toddy tappers, drivers of animal driven
vehicles, carriers of head loads, unloaders and loaders
fall under this category.
2.12 FOREIGNJTRADE ______ _
Q62. Define Foreign Trade. State the evolution and
characteristics of foreign trade.
Answer :
Foreign Trade
The process of exchanging goods and services among
individuals or firms located in two or more countries is
known as international trade, This trade needs various modes
of transport and foreign exchange services.
‘Import trade’ refers to the trade wherein the foreign
goods are purchased by the domestic markets for the purpose
of consumption.
‘Export trade’ refers to the trade wherein the domestic
goods are being sold in the foreign markets.
‘Entrepot trade’ refers to the trade where the imported
goods are being exported again to some other country.
Evolution of Foreign Trade
Foreign trade refers to the import and export of
goods or services by any country. Since the early known
civilization, trade and commerce had taken place between
different countries. Today foreign trade plays a vital role in
the world economy. For example, the global foreign trade
in the year 2001 was more than 15,000 billion dollars.
The evolution of foreign trade in India had been
continuing long before the british rule. During the 17th and
18th centuries, goods sych as pepper, gold, precious stones,
Indian handicrafts etc were exported to China, Egypt, Greece
and so on.
The Indian foreign trade evolved further as a result of,
(a) The industrial revolution in Britain.
(b) The opening up of the Suez canal in Egypt.
(c) The development of ship building and expansion of
the Indian railways.
However, during the british rule, India exported
only raw material products to Britain and other European
countries. After independence the Government of India has
initiated radical measures to boost the exports from India and
to reduce or substitute imports, thus helping India become
self sufficient and self reliant.
 J
84 SECTORS OF INDIAN ECONOMY
During the year 1950 -51 India’s exports, were valued at 601 crores which has increased to 4,22,500 crores by the
year 2004-05. It may be stated that foreign trade has evolved and developed over the past decades.
Characteristics of Foreign Trade
The following are the characteristic features of foreign trade or international trade,
t
1. Immobile Means of Production
The factors of production are immobile between different countries. While the factors of production such as capital,
labour can move easily from one location to another, within a country. It cannot move freely in international trade.
The reasons for such immobility could be difference of language, legal restrictions, high cost of transport, climate,
cultural differences and so on.
2. Different Geographic Resources
Another feature of foreign trade is that each country possesses a different geographic and climatic conditions, which
is suitable for the production of a certain product. For example, the climate of Brazil is favourable for growing coffee.
Bangladesh for jute, U.S.A for apples, India for Mangoes and so on.
3. Different Natural Resources .
Another feature of international trade is that different countries are gifted with different resources and countries
generally export the goods which they possess in abundance.
For example, the climate and land of Saudi Arabia is dry and infertile and is not suitable for agriculture whereas it
has the largest reserves of petrol, which it exports, Australia has vast grazing grounds for rearing of sheeps and so on.
4. Different Markets
Different countries possess different type of markets, for different goods. For example, in the U.S.A, left hand cars
are manufactured. These cars cannot find or suitable in the Indian automobile market, which follows right hand driving.
5. Currency Difference
In international trade, the legal tender to trade would change according to the country. For example, an Americar.
trader need to pay in Indian rupees when trading with India.
6. Different Government Systems
Another feature of foreign trade is that different countries follow different government systems. Thus, the questior.
of social welfare and national interest does not arise in case of foreign trade.
7. Multiple Trade Policies
Country would follow a single domestic trade policy. Whereas in case of international trade, different policies mas
be adopted with regard to exports, imports, taxation, transfers etc.
Q63. What do you mean by domestic trade? Distinguish between foreign trade and domestic trade.
Answer^:
Domestic or Home or Internal Trade
In home trade, both the buyers and sellers are usually located in the same country. Therefore, the national currenc)
could be used for making payments for the exchange in home trade. Home trade is sub-divided into two,
(a) Wholesale Trade
(b) Retail Trade.
(a) Wholesale Trade
Wholesaler possess certain type of goods that are bought from the producers or the manufacturers. These goodr
are sold to the retailers in small quantities. For instance, a wholesaler doing a business of shoes would provide only this
product and will be engaged in the activities of purchasing and selling of shoes only.
(b) Retail Trade
In the distribution channel, a retailer is regarded as the last link. Retailer deals with supplying goods to the consumers
A retailer can either directly purchase goods from the manufacturer or purchase from the wholesaler. Retailer sell the
products/commodities in very small quantity to the end users i.e., ultimate customers. For instance, a retailer purchases 1(
dozens of soaps from a wholesaler on a particular date and he sell 2 or 3 soaps to different customers.
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UNIT-2 : Industries and Tertiary Sector of India 85
Foreign Trade Vs Domestic Trade
Some of the differences between foreign trade and domestic trade are,

S.No. Basis Foreign Trade Domestic Trade

1. Area Foreign trade is carried out outside the Domestic trade is carried out within
boundaries of a country. national boundaries of a country.
2. Means of Shipping of goods through water ways and Generally roadways and railways- are used for
transport airways are the most common modes oftransport. domestic transport.
3. Currency Foreign trade payments are made in foreign Domestic trade payments are made in the
currency. domestic currency.
4. Rules Rules of the foreign country or international The rules and laws of the domestic country are
bodies are applicable. applicable in case of domestic trade.
5. Risk factor The foreign trade involves a high degree of risk. Domestic trade involves a lesser degree of risk.
Q64. Explain in detail different types of foreign trade.
Answer :
The process of exchanging goods and services among individuals or firms located in two or more countries is known
as international trade.
Foreign trade can be primarily of three types,

1. Import Trade
‘Import trade’ refers to the trade wherein the foreign goods are purchased by the domestic markets for the purpose of
.onsumption. In other words, when a country purchases goods from another country for consumption, it is known as import
rade. It is the most common type of foreign trade. For example, India purchases petro chemical products from middle eastern
countries for consumption.
2. Export Trade
‘Export trade’ refers to the trade wherein the domestic goods are being sold in the foreign markets.
In other words, when one country sells any goods or services to another country, it is known as export trade.
For example, India exports agricultural products, engineering goods, I.T services etc to other countries.
3. Entrepot Trade
‘Entrepot trade’ refers to the trade where the imported goods are being exported again to some other country.
In other words, when goods are imported by a country for re-exporting them to other countries, it is known as
entrepot trade. Generally, countries dealing in entrepot trade construct large storage warehouses, packaging and sorting
infrastructures near the sea port.
_____ Example of countries offering entrepot trade are Dubai, Hong Kong, Singapore etc._____________________ ____
L65. State the significance of foreign trade.
tnswer :

The following points highlights the significance of forei' c trade in an country,

It helps the country to utilize its natural resources effectively.
It helps the country to export its surplus production to other countries.
It helps the country to use or adopt new technologies developed by other countries.
It helps the country to promote capital formation and bring external economies in industrial activities.
It enables the country to produce economical, competitive and cost-effective goods.
It develops a economic and political bonding between countries.
.............. .... - - 5IIA PUBLISHERS AND DISTRIBUTORS PVT. LTD.
86
7. According to Herberler, foreign trade plays a important
role in economic development of the country because
it enable the country to make availability of following
factors,
(a) Availability ofcapital by means of international
investments.
(b) Availability of raw material, goods and
machineries by means of developments.
(c) Availability of latest technologies and their
usage.
8. It helps in creating a dynamic change by putting
pressure of heavy competition in export and import
markets.
9. It helps in increasing the profitability of domestic
businesses.
10. It helps to reduce the poverty of under developed or
developing countries like India.
11. It helps to increase the productivity of workers and
organizations and also leads to worker’s welfare
through higher wages.
12. It acts as an engine of economic growth.
Thus, the concept of foreign trade is very important
for developing country like India where imports and exports
play a crucial role in development of economy. Therefore,
government of India should concentrate on increasing the
foreign trade.
2.13 BALANCE OF PAYMENT
Q66. Define balance of payment. State its significance.
Answer : Model Paper-I, Q6(b)
Balance of Payments (BOP)
In any country, balance of payments influences the
level of exchange rate which is dependent on the exchange
rate regime.
Thus, fundamental components of balance of
payments are current account, capital account, financial
account, net errors and omissions account and reserves and
related terms.
The following equation helps us to know the relation
between the exchange rates and balance of payments.
Balance ofpayments=(X- Af) + (CT- CO)+(FI-FO) +(X * 9)
Where,
X- M - Net result of exports and imports of
goods and services.
CI - CO = Net result of in and outflow of capital.
Fl - FO = Net of in and outflow of finances.
F*B= Official reserves expressed in
monetary terms.
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SECTORS OF INDIAN ECONOMY
Significance of BOP
The data related to the balance of payment of both
the home country and the host country is significant to
international managers, investors, consumers and the
government officials. The data influences and is in turn
influenced by various macroeconomic variables such as price
levels, exchange rates, gross domestic product, employment
and interest rates.
The BOP data is significant because of the following
reasons,
1. It helps to forecast the future market potential of a
country particularly for a small period of time.
2. If BOP is found to exist in deficit, then such countries
are not able to import the large quantity of goods
which they used to practice if they were having BOP
surplus.
3. The BOP helps to know the pressure on the foreign
exchange rate of a country, firm’s trading potential,
country’s foreign exchange gains and foreign
exchange losses.
4. If any changes occur in BOP, then it would like to
predict the removal of foreign exchange controls.
5. The alterations or modifications in the BOP of
a country, indicates the removal of control over
payment of dividends, interest, license fees, royalty
fees or any other cash payments to foreign firms or
investors.
6. BOP data indicates the high risk associated with the
foreign exchange of certain countries.
Q67. Discuss in detail the major components of BOP.
Answer :
The BOP account has three main components. The)
are,
1. Current account
2. Capital account and
3. Official reserves.
1. Current Account
The current account records all the income-relatec
flows. These flows could arise on account of trade in goods
and services and transfer payments among countries. Trad:
in goods consists of exports and imports.
It is also referred as merchandise trade. As explainer
earlier, a country’s exports i.e., sales of goods to residents
of another country are a source of reserves.
Similarly, a country’s imports i.e. purchases of goods
from another country are a source of reserves. Thus, the)
enter on the credit and the debit side of the BOP account
respectively.
JNIT-2 : Industries and Tertiary Sector of India
Trade in services consists of payments and receipts on
recount of interest, dividend, professional services, income
n assets like patents and copyrights, tourism, transport,
nsurance, income from other physical property, banking
md other financial services, consultancy services and other
frctor services involving residents of two countries.
If a country receives any of these services and pays
\ r them, it results in the use of reserves and hence appears
an the debit side of the BOP account. If it extends these
ervices and receives payment for the same, it results in a
source of reserves and gets recorded as a credit entry m that
country’s BOP account.
By definition, the BOP account always balances. But,
±e individual components may or may not balance. This
-eality results in widely discussed deficits or surplus arising
s the BOP account.
2. Capital Account
The capital account records movements on account of
■ temational purchase or sale of assets. Assets include any
rm in which wealth may be held - money held as cash or
- the form of bank deposits, shares, debentures, other debt
-struments, real estate, land, factories, antiques etc.
Any purchase of a foreign asset by a resident can
-e entered as a debit item in that country’s BOP account,
rule any purchase by a foreign resident of a domestic asset
: recorded as a credit item. The excess of the credits over
rebits in this account over a particular period is referred as,
re capital account surplus. The excess of debits over credits
known as capital account deficit.
Official Reserves
Official reserves include gold, reserves of convertible
reign currencies, SDRs and balances with the IMF, which
ire the means of international payment. Foreign currencies
ray be field in the form of balances with foreign Central
' inks, or as foreign government securities.
The official reserves account reflects the ‘means of
.mational payment’ acquired or lost during the period
r which the BOP account is constructed. If there is a net
..-plus in the current account and the capital account taken
gether (generally referred to as the overall BOP surplus or
tply as the BOP surplus), then there will be an increase in
official reserves as the inflows will exceed the outflows.
This will appear as a debit entry in the BOP account,
cause of the double-entry system. As each credit entry
quires a corresponding debit entry, every inflow' and
flow of reserves gets announced in the current or capital
. ount (depending on the nature Of transaction) as well as
fie official reserves account.
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Due to the double entry system any transaction
appearing as a credit entry in the current or the capital
account also appears as a debit entry on account of its effect
on the official reserves. The net effect is of a BOP surplus
getting reflected as a debit entry as an increase in the official
reserves. Similarly, a BOP deficit will appear as a credit entry
in a different way.___________________ ______________
Q68. List out the various reasons for the deficit in
current account and capital account
Answer :.
Reasons for Deficit in Current Account
The various reasons for deficit in current account are
as follows,
(i) In the year 1985, the Indian government had
liberalised imports by initiating the liberalised import/
export policy which led to the significant increase in
imports.
(ii) Inspite of the progress of the exports and Indian
economy there was an increased demand for raw
materials, the components and capital goods which
led to the broadening of the import regime. The rate of
annual growth of imports was 16.8% which was found
to be at much low rate when compared to the annual
growth rate of exports which was 18.7% during the
seventh five year plan.
(iii) The Indian economy was affected unfavourably due to
outbreak of gulf war in 1990. Because of the adverse
affect of such wars, the deficit was encountered in the
BOP.
(iv) By adopting several liberalization measures for
bringing rapid industrialization, there was an increased
demand for capital goods, technology, machinery and
technical personnel thereby increasing the country’s
expenditure for importing such requirements.
(v) The deficit of balance of payments was increased due
to the gradual growth rate of invisible accounts and
interest burden of the country.
(vi) During imports, if Indian rupee has undergone
devaluation against the currency of an imported
country then India had to pay more amount for
importing the capital goods.
(vii) The balance of payment crisis that occurred during
the year 1990-1991 and due to prevailing political
instability in 1990, made the government to borrow
heavily from IMF. *
(viii) Even after the adoption of positive measures by the
government, there was not much improvement in the
performance of the exports causing to the emergence
of deficit in the BOP.
(ix) During the year 2005-2006, there was a heavy import
of capital goods because of the fast growth of Indian
economy.
 88 _ _ ____ _ _ _
Reasons for the Deficit in Capital Account
The reasons for deficit in capital'account are as follows, (
1. During the period of 1956-1957 to 1979-1980, most
of the deficit of capital account was financed with the
inflow of concessional assistance, due to which there
was a reduction in the debt servicing.
2. During 1980-1981 to 1997-1998, the loans at market
interest rates were used to finance the complete deficit.
3. During the year 1980, the loans at concessional
rate was around 90% of the total debt to which was
declined to just 35% in 1990.
4. There was a sharp decline in the loans maturity period
from 40.8 years (in 1980) to 29.1 years (in 1990).
5. There was an increase in the interest rates during
1980-1981 to 1998-1999, when the interest rates of
1956-1957 and 1979-1980 were compared.
6. During the 1980-1981 to 1998-1999, the quality of
external financing was adversely effected.
7. In 1980-1981, there was an increase in the total debt
from 19,470 crores to 3,36,646 crores in 1996-1997.
Q69. Explain the position of India’s balance of
payments.
Answer :
The position of India’s balance of payments in post­
independence was unfavourable. Before independence, India
exported more goods to the nations rather than importing.
Moreover, the deficit of balance of payments are explained
in different plans. They are as follows,
1. Pre Planning Period
The period between 1947-1951 is said to be pre
planning period. The deficit of India’s balance of payments
on current account was upto value of ? 240 crore. But
the rupeefwas devalued and economic situation had no
improvement.
2. First Plan (1951-56)
During the 1st five year plan, the deficit of balance of
payment was about ? 42 crore.
3. Second Plan (1956-61)
In this time period, the balance of payments deficit
increased to ? 1,725 crore because of heavy imports of
machines, raw materials and food grains.
4. Third Plan (1961-66)
The balance of payments deficit increased to ? 1,951
crores in this plan because of shortage of food grains and
heavy import of military machineries during Indo-China and
Indo-Pak war.
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Three Annual Plans (1966-69)
The balance ofpayment defeat on current acc:>.
increased to T 2,015 crores. This increment was due I
large imports of foodgrains to support the famine condit::
prevailing in the country.
6. Fourth Plan (1969-74)
The fourth plan was favourable till the account c
100 crore. The balance of payments found to be favours
for the first time after independence during 1969-1 -'
The factors which helped to attain favourable balar
of payments were raise in exports, decrease in imp:
considerable increase in receipts.
7. Fifth Plan (1974-78)
During this five year plan the balance of paym c
found to be favourable and increased. The value inert,
to ? 3,082 crores. The various factors which were he
for balance of payments position such as reduction in
deficit of balance of trade, restrictions on smuggling, n
indians residing abroad etc.
8. Sixth Plan (1980-85)
The balance of payment deficit increased to ? 112
crores and said to be unfavourable.
9. Seventh Plan (1985-90)
The balance of payment deficit of current accc
amounted to ? 38,313 crores. The main reasons for det
is due to fall in invisible receipts of other countries, ha
rising prices of petrol and highly affected balance of tn
I. lilt.
and balance of payments.
10. Eighth Plan (1992-97)
The eighth plan was planned to start for the year ■
However, it was launched from the year 1992. Durir.
1990-1991, there was an increase in the deficit amour h
T 17,366 crore but simultaneously foreign exchange res
decreased to T 4,388 crore.
11. Ninth Plan (1997-2002)
This plan experienced the balance of payments cd
on current account was about ? 62,715 crores. The
between 2001-02 said to positive shift as there was inc - al
in balance of payments on current accounts about ? - *■
crores.
12. Tenth Plan (2002-07)
In the consecutive years 2002-03 and 2003-' -
balance of payment on current account was about su
of ? 19,987 crores and 45,343 crores.
13. Eleventh Plan (2007-12)
During this eleventh plan the growth rate of e ■.?«
adversely affected due to which the balance resulted : I
negative and the balance of payments on current acod
resulted as a deficit of ? 68,914, ? 1,31,614 crores cjb
(2008-09) year.
UNIT-2 : Industries and Tertiary Sector of India 89
India’s Balance of Payment Position (vi) Political Uncertainty
In the year 1990 to 1991, the current account
Plans Balance of Payments
experienced the deficit at large rate and the political
on Current Account
uncertainty also led to the rising inflation and fiscal deficit.
(? in Crores)
First plan -42 (vii) Depressed Conditions in World Markets
Second plan - 1,725 There was a marginal fall in exports in dollars during
Third plan - 1,951 1991-92 which signified the depressed conditions, in the
world markets and downfall of exports to the soviet union.
Fourth plan + 100 (Favourable)
Fifth plan + 3,082 (Favourable) (viii) Global Economic Slowdown

Sixth plan -11,384
Seventh plan -38,313
Eighth plan - 59,832
Ninth plan -62,715
Tenth plan:
(2002-03) + 19,987 (Favourable)
(2006-07) - 45,343
Eleventh plan:
(2008-09) - 1,31,614
The table shows, the position of India’s balance of
payment during these year plans.
Q70. Discuss in detail factors responsible for the
growing crises in balance of payments.
Answer :
The factors which are responsible for the growing
crises in balance of payments are,
(i) Import Liberalization
Import liberalization is one of the major factors
responsible for the crises in balance of payments. The
liberalization policy was first introduced by the then Prime
Minister of India, Late Rajiv Gandhi which resulted in a
large inflow of imports.
(ii) High Import Base of the Country
The balance of payments position deteriorated
because of 18.7 percent of annual growth rates of export is
more than the growth rate of imports.
(iii) High Import Intensity
High import intensity in the industrial development
cause by intensive industrialization process in the country in
: rder to gain the requirements such as color TVs, VCRs, etc.
(iv) Depreciation of Rupee
The immediate depreciation of rupee with respect
to dollar and other currencies during 1987-91 also led to
increase in the value of imports.
(v) Downfall in the Invisible Account
The trade deficit was seen due to the deterioration in
the invisible account due to low and high rate of interests.
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The present global economic downfall is the factor
for the growing trade deficit and imbalance of balance of
payments.
(ix) Higher Volume of Gold and Crude Oil Imports
The most important factors responsible for high
volume current account deficit in India’s balance of payments
are such as high volume of gold and crude oil imports.
2.13.1 Foreign Trade Policies of India
Q71. Explain the importance and implementation of
trade policies in India.
Answer :
Importance of Indian Foreign Trade Policy
Indian foreign trade policy is an important model
that provides a guidance to the exports and imports of
the country. It is a policy statement created by the central
government. It specifies the type of policy which governs
the external trade in the upcoming years. Its specifications
with respect to external trade include,
❖ Import and exports of merchandise and services.
❖ The encouragement to improve exports by reducing
duties and by providing subsidies and other
concessions to exports.
This policy statement is considered very important
as it specifies the government policy details to external
trade. Specially in the developing countries like India, it
plays a vital role in promoting economic growth. It also
provides guidance to the private sector regarding the role
of external trade and how private sector contribution could
be helpful in developing the country.
Once in every five years, the ministry of commerce
and industry of the government of India announces the
foreign trade policy also referred as exim policy.
The objectives of foreign trade policy are as follows,
1. To increase the percentage share of the country in
global products trade within the next 5 years.
2. To act as a tool for country’s economic growth by
generating employment opportunities.
90
Implementation of India’s Foreign Trade Policy
The department of commerce, ministry of commerce
and industry has the responsibility of formulating,
implementing and supervising the foreign trade policy under
the Foreign Trade Development and Regulation Act, 1992.
The government may appoint any person as the Directorate
General of Foreign Trade (DGFT). The director general
is entrusted with the responsibility of formulation and
implementation of the export and import policy. He shall also
play the role of‘facilitator’ in promoting exports of India.
The main role of DGFT is to implement different
export promotion schemes for the promotion of India’s
foreign trade. Earlier, DGFT worked as a regulator. But now
in the liberalized economic scenario, its role has become
effective and wide ranging. DGFT performs the following
major functions,
1. Exim Policy Implementation
DGFT and its regional offices implement the foreign
trade policy or exim policy of India by implementing several
guidelines and schemes.
2. Coordinates with other Officials
To attain the primary objectives of Foreign Trade
Policy, DGFT cooperates with different state governments
and departments of the ministry of commerce and industry.
3. Provides Importer Exporter Code (IEC) No.
It issues a ten (10) digit code number called Importer
Exporter Code (IEC) number to importers and exporters of
India. All exporters and imports should have IEC number.
4. Implementation of Bilateral Treaties
It regulates the transmission of goods from India to
other adjacent countries as per the bilateral treaties between
India and neighbouring countries.
5. Trade Promotion with Neighbouring Countries
It takes several initiatives for trade promotion with the
neighbouring countries. As per the provisions of the export
policy schedule 2, it also grants permission of free export.
6. Other Functions
The other functions of DGFT include,
(i) Controlling DEPB rates.
(ii) Setting Standard Input-Output Norms (SION).
(iii) Formulating and modifying ITS-HS codes.
(iv) Dealing with quality complaints ofthe foreign buyers.
(v) Coordinating with economic offices such as DRI
authorities, customs commissioners, central excise
authorities.
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Q72. Discuss in detail major trade policies of India.
Answer :
Till now, the government of India has announced
many foreign trade policies. They are,
1. Exim Policy 1985
In the year 1985, the government announced the
first export-import policy. This policy was formulated to
facilitate production, make provisions for quicker and
easier access to imported inputs, upgrade technology,
strengthen export production, arrange savings in imports.
The important features of this exim policy are,
(i) Import Export pass book scheme was initiated and
201 items of industrial machinery were considered
on open general licence.
(ii) Import of 67 raw material items and components
was transferred to limited permissible list.
(iii) For the import of computer and computer based
system, a two tier policy was adopted.
2. Exim Policy 1988
The government announced the second Import
Export Policy (Exim Policy) on March 30,1988. This policy
was introduced after making necessary modifications to
Exim Policy 1985.
Some of the characteristic features of Exim Policy
1988 are as follows,
(i) In open general licence, 754 items were considered.
(ii) There was a wide scope for import replenishment.
(iii) Import of 26 items decanalized.
(iv) Export and trade houses were fixed with eligibility
limits.
3. Exim Policy 1990
In the year 1990, the government of India terminated
the previous policy 1988 and announced a new import­
export policy for a 3 year period. This new policy had the
following provisions,
(i) Expansion of open general licence list of imports
and inclusion of 82 capital goods items.
(ii) Import of certain raw materials has been canalized.
(iii) There was an expansion of replenishment licensing
scheme.
(iv) Introduction of blanket advances schemes and dun
exemption scheme.
(v) Additional licences to export and trading houses tc
import raw materials and components.
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UNIT-2 : Industries and Tertiary Sector of India
4. Exim Policy 1991
In order to improve balance of payments of India,
EXIM policy of 1990 liberalised the trading mechanism
by expanding the OGL (Open General License) list and
by introducing the scheme of star trading houses. Radical
changes and reforms have been introduced in EXIM policy
since 1991. The new trade policy of 1991 not only removed
import restrictions but also liberalised the quantitative
restrictions and trade policies. The new trade policy of
1991, was characterised by the following features.
5. Exim Policy 1992-97
On March 31, 1992, the government announced a
new five year export import policy. This policy period was
quite similar to that of the eighth plan.
The objectives of the EXIM policy 1992 - 97 are as
follows,
(i) To prepare an action plan for globalizing the India’s
foreign trade.
(ii) To encourage modernization, productivity and
competitiveness of Indian industries as to increase
the capabilities of India’s exports.
(iii) To give more encouragement to international standards
of quality for increasing brand image of India’s
products.
(iv) To give access to raw material, intermediates,
consumables and capital goods available in
international markets as to increase exports of India.
(v) To reduce licensing, quantitative and other
discretionary controls from the framework of India’s
foreign trade.
(vi) To encourage research and development and
technological capabilities of the country.
(vii) To simplify the policies and procedures of exports
and imports.
6. Exim Policy 1997-2002
The EXIM policy of 1997-2002 aimed at integrating
the achievements of the previous years policies and
liberalization practices by de-regulating and simplifying
the procedures through the elimination of quantitative
restrictions.
The policy fixed a target of increasing the exports
from US $90 to 100 billion by the end of 2002 and to secure
1 percent share in world trade.
7. Exim Policy 2002-07
The EXIM Policy 2002-07 was announced on
March 31,2002 by Union Commerce and Industry Minister
Mr. Murasoli Maran. This policy aimed at increasing
india’s share in global trade to one percent arid sought to
reorganize and strengthen the previous policies. The main
focus of this policy was trade liberalization, openness,
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transparency etc. It aimed at improving international
competitiveness of the economy. The policy involves
several institutional, infrastructure, and fiscal measures
proposed to promote exports, which contributes towards
the economic development of the country.
8. Foreign Trade Policy 2004-09
On 31st August 2004, the commerce minister Shri
Kamal Nath announced the new foreign trade policy of the
union government. The policy stated “Trade is not an end
in itself, but a means to economic growth”.
The main objectives of foreign trade policy 2004-09
are as follows,
(i) To increase the percentage share of India in the
global merchandise trade by 2009.
(ii) To improve economic growth by generating
employment in rural and semi urban areas.
9. Foreign Trade Policy 2009-14
On 27* August 2009, the UPA government announced
its new five year foreign trade policy for the period 2009-
14. The main objectives of foreign trade policy 2009-14 are
as follows,
(i) To reverse the diminishing trend of exports and to
provide additional aid to the badly affected sectors
in the developed countries.
(ii) To attain an annual growth of export to the 15
percent for 2 years i.e., 2009-11.
(iii) To double the percentage share of India in the global
trade by 2020.
10. Foreign Trade Policy 2015-20
On 1st April, 2015, the new five year foreign trade
policy was announced by the BJP led National Democratic
Alliance (NDA) Government. This policy replaced the
earlier policy 2009-14.
The new foreign trade policy (2015-20) provides
a framework for the exporters and units in SEZ to raise
exports of goods/services. It also aims at generating more
employment opportunities and increasing value addition in
the country by considering the vision of prime minister i.e.,
“Make in India”.
Q73. Explain the important objectives of foreign
trade policy 2015-2020.
Answer :
Foreign Trade Policy (2015-2020)
On 1st April, 2015, the new five year foreign trade
policy was announced by the BJP led National Democratic
Alliance (NDA) Government. This policy replaced the
earlier policy 2009-14.
92 SECTORS OF INDIAN ECONOMY
The new foreign trade policy (2015-20) provides 2. Service Exports from India Scheme (SEIS)
a framework for the exporters and units in SEZ to raise The object of this scheme is to encourage the exports
exports of goods/services. It also aims at generating more of specified services from India. The services will be
employment opportunities and increasing value addition in rewarded under this scheme based on specific conditions.
the country by considering the vision of prime minister i.e., The rate of reward depends on the net foreign exchange
“Make in India”. amount.
Objectives of Foreign Trade Policy (2015-2020) 3. Export Promotion Capital Goods Scheme
The following are the objectives of foreign trade In order to minimize the problems of exports of
policy2015-20, goods/services, a number of improvements have been
taken place in export promotion capital goods scheme.
1. The object is to increase exports from 466 billion
These improvements include additional flexibility in the
dollars to 900 billion dollars by 2019-20.
fulfilment of export obligation and the upgradation of
2. To increase share of India in world exports from 2 advanced technology. Under this scheme, the custom duty
percent to 3.5 percent. is eliminated for the import of capital goods. Transfer of
3. The policy introduced new schemes such as capital goods is permitted to some organizations like group
Merchandise Exports from India Scheme [MEIS] companies and managed hotels.
and Service Exports from India Scheme [SEIS]. 4. Duty Exemption/Duty Remission Scheme
4. To provide higher benefits under MEIS for the Duty exemption scheme allows duty free import
export items with value addition and high domestic of inputs needed for the export production. The scheme
content. includes both advanced authorization and duty free import
authorization. The advance authorization licence will
5. To provide additional incentives to those units which
be issued as duty exemption scheme to allow duty free
are located in SEZs.
imports of inputs that are physically incorporated in the
6. To promote manufacturing of domestic capital export product. Apart from this, the scheme allows fuel, oil,
goods, export obligation decreased to 75% under energy etc., which are utilized to obtain the export product.
Export Promotion Capital Goods Scheme [EPCG]. Advanced authorization licence may also be issued to some
7. To align foreign trade policy to the “Make in India”, physical exporters like exports to SEZ to manufacturer
“Digital India”, “Skill India” initiatives. exporters or merchant exporters for the import of inputs
required for the export product.
8. Duty credit scrips can now be freely transferrable
5. Star Export Houses
for the purpose of payment of custom duty, service
tax and excise duty. A new rationalised scheme was introduced to
categorize the status holders as Star Export Houses and
9. The foreign trade policy will be reviewed after two-
they are designated from one star to five stars. These stars
and-half years. It is different from annual reviews.
will be designated on the basis of total imports during the
10. Greater support will be provided for the export of present and previous three years.
defence agricultural and eco-friendly products. 6. Export Oriented Unit Scheme
Q74. Discuss the measures announced in the This scheme plays a vital role in increasing exports.
current Foreign Trade Policy (2015-2020). Export Oriented Units (EOU’s) are exempted from service
Answer : tax. Permission has been given to EOU’s to retain 100
percent of export earnings in exchange earner’s foreign
The following measures have been introduced in currency account. There is an extension in income tax
cunent foreign trade policy (2015-2020) to strengthen the benefits i.e., the plant and machinery are extended to
India’s foreign trade,
Domestic Tarrif Area (DTA) units that further convert to
1. Merchandise Exports from India Scheme EOU’s.
(MEIS) 7. Free Trade and Warehousing Zones
This scheme is related to the export of specific The scheme “Free Trading and Warehousing Zones”
goods to the specific markets. The main purpose of this was launched to create trade-related infrastructure to
scheme is to make India more competitive by decreasing facilitate the independent import and export of goods and
infrastructural inefficiencies and linked costs incurred in services and to carryout trade transactions with freedom.
exporting of goods made in India. “Duty Credit Scrip” will The scheme aims at making India “a global trading hub”.
be given as a reward for the exporters under this scheme. . The Foreign Direct Investments (FDI) are completely
Export of goods via courier or foreign post offices through allowed for the development of the zones and their
e-commerce will be entitled for such rewards. infrastructural facilities.
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2.14 SPECIAL ECONOMIC ZONES (SEZs)
Q75. What are SEZ’s? State its objectives and
privileges.
Answer :
SEZ’s
SEZ’s for special Economic zones. It refers to a
specific geographic area which enjoys excellent benefit in
relation to tax, availability of land, electricity, water and
other infrastructures requirements which are required by
various types of industries. Thus, in simple terms SEZ
is a special industrial area which enjoys various types of
privileges, in comparison to non-SEZ areas. For example:
If the normal tax on production of goods in the country is
20%, any goods which are produced in SEZ area may be
taxed only 1% or may even be exempted from any kind
of tax. The main aim of establishing SES is encouraging
Foreign direct investment, in the country and export
promotion.
Previously, the government of India has established
EPZ (Export Promotion Zones). These are now being
converted into SEZ.
Objectives of SEZ
The main objectives of establishing SEZ are,
(a) To promote exports of the country by establishing
SEZ where goods and services are manufactured at
competitive price. Thus boasting exports.
(b) To promote foreign and domestic investments.
(c) To create employment in the country.
d) To develop industrial infrastructure in the country.
e) To provide simplified legal procedures for setting up
of industries in SEZ areas.
(f) To provide “ease of doing business” for potential
entrepreneurs by providing single window clearance
for legal requirement.
f
Privileges/Advantages of SEZ
The various advantages enjoyed by SEZ include the
following
1. Industries and business establishments operating
from SEZ area are exempted from paying any kind
of tax on their income for the initial 10 or 20 years
(as per the governments decision)
2. Any type of machinery or technical knowledge
which is imported for SEZ is exempted from
customer duty and other type of taxes.
: Business establishments in SEZ are provided income
tax holidays on business income.
- Assured supply of electricity and water, as per the
requirement of SEZ.
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5. Simplified labour law procedures for SEZ.
6. Exemption from VAT, and other type of central or
state tax. •
7. Freedom for the SEZ businesses to develop
residential townships inside SEZ, play grounds,
clubs, etc.
8. The government would provide logistics and other
infrastructure such as artificial labor for transporting
SEZ products to the sea prob for exports.
9. Ready and uninterrupted supply of skilled workforce,
raw material, water, electricity etc.
10. Well connected roadways, railways, and easy access
to airports.
Q76. Discuss the present and future state of Special
Economic Zone’s (SEZ) in India.
*
Answer :
India is one ofthe first countries in Asia to understand
the important role played by SEZ. Thus, may SEZ had been
established in various areas of the country. Some important
SEZ established in India include the following.
1. Falta food processing unit (West Bengal)
2. Salt lake city (West Bengal)
3. Shree Renuka SEZ (Karnataka)
4. SEEPZ (Andheri East, Maharashtra)
5. Wipro Infotech SEZ, Electronic city (Banglore).
Present and Future State of SEZ in India
The present performance of SEZ in India is
satisfying and future of SEZ holds good potential for its
further growth The following points highlights the present
and future state of SEZ in our country.
1. The government of India had approve 588 Special
Economic Zones (SEZ) in the country so far.
2. During the year 2004-2005. the total value of goods
exported from SEZ was around 18,000 crore, which
increase main fold by the year 2017-18.
3. Many foreign and Indian firms are investing large
amount of capital in SEZ across the country leading
to quick development, employment generation,
increase in exports etc.
4. The parliament of India enacted laws related to SEZ
in the year 2006. However even before the enactment
of this law, many SEZ were already established in
the country.
5. The Government stated that the industries which
are set up in SEZ need to be net foreign exchange
earners.
94
6. Many SEZ had been established in various states of
the country some public, some private and a few as
public, and private partnership.
*
7. The special economic zone bill 2005 was enacted
in May 2005 and after the ascent of the president of
India, become an Act on June 23rd 2005.
8. The future of SEZ looks promising. The government
had provided for 100% tax exemption for 5 years,
and all factors of production at concessional rates to
SEZ.
9. IT services, hardware and semi conduct industries
had been the major beneficiary of SEZ whereas
other sectors such as Auto, Biotech, food processing,
Pharma, Petro- Chemicals, Textiles Footware
ect., had also benefited immensely through the
establishment of SEZ across India.
Thus it can be concluded that the SEZ have a bright
future in developing the industrial economy of our country.
2.15 FOREIGN EXCHANGE
Q77. What is Foreign Exchange Market? Explain
the distinctive features of Foreign Exchange
Market.
Answer : Model Paper-Ill, Q6(b)
Foreign Exchange Market
A foreign exchange market can be defined as “a
market where one currency is traded for another”. It creates
a mechanism of exchanging different monetary units for
circulation in different countries and thus facilitates transfer
of purchasing power from one country to another.
Distinctive Features of Foreign Exchange Market
Following are the distinctive features of foreign
exchange market,
1. Over the Counter Market
It is an over-the-counter market. It does not denote a
particular place or floor where dealers assemble and transact
foreign currencies. Rather, it is a network of banks, brokers
and dealers spread across the various financial centres of the
world. The market relies more on communication network
and that is why transactions are based normally on verbal
and followed by written communication.
2. Dealing Room
All the professionals who deal in currencies, options,
futures and swaps assemble in a dealing room. This is a
forum where all transactions related to foreign exchange
are carried out. It facilitates instant access to the entire
information and communication.
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Major agencies which participate in the market
communicate between themselves through a network '
telephones, faxes and other means of communications
supplied by Routers, Telerate, Bloom rang etc. “Dealing
2000”, “Electronic Booking System (EBS)”, “MINEX” etc.
are popular these days.
3. Round-the-Clock Market
The world wide forex market is a 24-hour market. It
is open virtually 24 hours a day, at least one of the financial
markets of the world. When New York market closes at
3.00 P.M. the Los Angeles market remains open as the
corresponding time there is 12.00 P.M.
When the Los Angeles market closes, it is the opening
time at Sidney and Tokyo. When Tokyo closes, the Hong
Kong market is still open as it would be only 2.00 P.M there.
At the time of the Hong Kong market closing, the Singapore
market can be accessed, as it being only 1.00 P.M.
Before the closing of Singapore market, the Bahrain
market opens. The closing time of the Bahrain market finds
both Frankfurt and Zurich markets open, it being only 12.00
P.M. there. London market being one hour behind these tw o.
it remains open even after these two markets close down
Again, before the London market closes down, it is the
opening time at New York market.
4. Largest Financial Market
The foreign exchange market is the largest financial
market in the world. A recent estimate placed the average
foreign exchange trading volume at $1300 billion in 2000.
daily increased from over $650 million in 1990. The average
daily foreign exchange trading transactions are increasing
at a growing rate with the advent of globalization of the
activities around the world.
5. Volume of Transactions
Over the years, there has been a sizable growth in
foreign exchange operations. This increase may be attributec
to every active participation of financial institutions anc
corporates as they go about trying to manage this exchange
rate risk. About five percent of volume traded on marke:
represents the need of international trade and tourism.
The figure is higher at 10 to 15 percent, pertaining to
movement of capital like investment funds. The bulk share of
foreign exchange operations comes from commercial banks
More and more exchange operations are concentrated in
certain banks such as Citibank, Morgan, Uniondes Banques
Suisses, Barclays and Midlands etc.
6. High Volatility
Foreign exchange market is one of the most volatile
markets in the world. Exchange rates fluctuate once in even
four seconds. This volatility is due to the influence of demanc
and supply forces in the market and has attracted speculators
and arbitrators to take part in the forex market.
• -
UNIT-2 : Industries and Tertiary Sector of India
Q78. Classify FE markets.
Answer :
The most active foreign exchange market is that of
United Kingdom (London), followed by those of United
States of America, Japan, Singapore, Switzerland, Hong
Kong, Germany, France and Australia.
All the other remaining markets combined together
represents only about 15 percent of the total volumes traded
globally. The foreign exchange markets are classified on the
basis of timing of actual delivery of foreign exchange.
There are two major kinds of forex market. They are,
1. Spot Market
It refers to the transactions involving sale and
purchase of currencies for immediate delivery at a rate
existing on the day or transaction which is known as spot
rate. The delivery of foreign exchanger takes place on the
second working day from the day of contract.
2. Forward Market
It refers to the transactions that are to be settled on
a future date as specified in the contract. The delivery of
foreign exchange takes place on a date farther beyond two
days, say after a fortnight, one month, two months or so on.
The rate of exchange for the transaction is agreed on
the day the deal is finalized and is known as forward rate.
The other markets that exist are known as “derivatives
forex market” because they derive their value from
the underlying exchange rate and nature of contractual
obligations to be honored. They are classified as,
(i) Future Market
It is localized exchange where derivative instruments
called “futures” are traded with currency as its
underlying financial instrument. A currency future
contract is a commitment to deliver or take delivery
of a given amount of currency(ies) on a specific future
' date at a price fixed on the date of contract.
(ii) Option Market
In this market, the derivative instrument “option”
is traded which gives choice to a foreign exchange
market operator to buy or sell a foreign currency on
or upto a date at a specified rate. Option contract gives
its holder a right but no obligation to buy or sell a
currency sometime in the future.
(iii) Swap Market
In this market, the instrument called as “swaps” are
traded. These instruments permit exchange of two
streams of cash flow in two different currencies
and are used to cover financial risk by the business
firms. Normally, this exchange is affected through
intermediary financial institutions.
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Q79. Describe the structure and organization of
foreign exchange markets in India.
Answer :
Structure of Foreign Exchange Market
The main players in the foreign exchange market are
large commercial banks, forex brokers, large corporations
and central banks. The central bank normally enter the
market to smoothen out fluctuations in the exchange rate or
to maintain fixed exchange rates.
Large commercial banks deal in the market both for
executives as their clients (both corporater and individuals)
orders and on their own account. They act as market makers,
e., they stand ready to buy or sell their currencies at specific
i.
prices at all points of time. Commercial banks give on
demand to quote for a particular currency against another
currency, i.e., the rate at which they are ready to buy or sell
the former against the latter.
At these rates, they stand ready to take any side of the
transaction (buy or sell) that the customer chooses maximum
and the minimum amount of the currencies acceptable to the
bank, though not specified at the time of making a quote,
generally understood according to the conventions of the
markets.
This.may not necessarily be applicable to amounts
smaller or larger than those acceptable according to the going
conventions. In the foreign markets, there are numerous
market makers and all of them would be giving different
quotes for the same pair of currencies simultaneously at any
point of time.
It would be very difficult for a player to keep track
of all the quotes available in the market and hence chooses
the one that is considered the most favorable.
As a result, a number of trades may be taking
place simultaneously at different exchange rates. The
market making activity of commercial banks, along with
speculation, makes markets extremely liquid, especially for
the major currencies of the world.
The foreign exchange brokers do not actually buy or
sell any currency. They do the work of bringing buyers and
sellers together. They deal in most of the major currencies
and hold exhaustive information about it. Other players in the
market, especially commercial banks approach the brokers
for information about the quotes of other commercial banks.
The brokers serve three important purposes in foreign
currencies. First, instead of hunting around in the market for
quotes, one can approach a broker and find out these prices.
Second is that brokers help the prospective buyers or sellers
keep their identity secret till the deal is struck.
96
This prevents the quote being affected by the
inquirer’s position, i.e., whether he needs to buy or sell.
Lastly, even when there is buying or selling requirements,
commercial banks can keep their quotes from going too far
away from the quotes by other banks by inquiring about the
market quotes .from the brokers.
While small corporations generally approach
commercial banks for their needs, large corporations some
times operate in the market on their own.
Organization/Operation/Functions of the Foreign
Exchange Market
(i) Helps in transfer of purchasing power due to
international trade and capital transactions include
those parties living in countries with different national
currencies.
(ii) Facilitates parties to deal in a foreign currency.
(iii) The foreign exchange market is a source of credit for
maintaining inventory.
(iv) The foreign exchange market helps in providing
“hedging” facilities related to transferring of foreign
exchange risk to other person who can handle risk.
(v) It provides specialized instruments like banker’s
acceptances, letter of credit and so on that are
available to finance foreign trade.
(a) Letter of Credit (L/C)
It is a bank document, where bank has an obligation
to pay specific amount on specific date. The procedure to
undergo is presentation of documents to bank as per the credit
terms. L/C is considered as strong promise legally from the
bank side.
(b) Draft
According to the Indian negotiable instruments Act,
1881.
“The bill of exchange is an instrument in writing
containing an unconditional order, signed by the maker,
directing a certain person to pay a certain sum of money
only to, or to the order of, a certain person, to the bearer of
that instrument”.
The Bill of Exchange (B/E) is used for financing a
transaction in goods which means that it is essentially a trade
related instrument.
(c) Negotiable Instrument
Financial instruments are the negotiable instruments
which are borrowed against a person for a payment of certain
amount of money and the interest or dividend to be paid over
intervals at a future date. Financial instrument also consist
of primary and secondary securities wherein the primary
market, the securities are issued directly by the borrower
to the final purchaser or saver and the secondary securities
deal indirect issue with of shares or securities. Example, the
financial intermediary issue, the securities to the saver Bank
deposits, Mutual funds and Insurance policies.
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(d) Banker’s Acceptance
It is established after bank transactions involved in
international trade. It refers to an acceptance by a specific
bank to pay specified amount, within the date of maturity
(specified) in future.
(e) Bill of Lading (B/L)
It is a special type of document used in international
logistics which helps in the efficient transfer of containers,
automobiles, crater and other forms of cargo that does not
require entire capacity of a ship. It is usually issued by the
carrier to the shipping company.
Q80. Discuss about exchange rate mechanism
and mechanism involved in foreign exchange
transfers.
Answer :
Exchange Rate Mechanism
As stated earlier the Exchange Rate Mechanism
(ERM), was established to provide some exchange rate
stability between the currency of the member countries of
the European Monetary system.
The currencies under ERM were stabilized against
each other by the actions of central banks. These floated
freely against non-member currencies, such as US dollar,
Swiss franc and yen etc. All the currencies of EMS countries
do not form part of ERM.
The British pound and Italian lira were withdrawn in
1992 after the speculators, led by legendary George Soros,
speculated by massive selling of pound in the forex markets.
The point which was brought home by this speculation was
that exchange rate stability can not be maintained in the long
run when the economy of one or more member countries
does not support the particular level of the exchange rate.
A government can succeed in maintaining the levels
by raising interest rates only for a short term without
damaging the economy. This is precisely what happened in
case of pound sterling.
During 1990-1992 period, the UK economy was weak
and based on fundamentals of the economy it was not in a
position to sustain its exchange rate against ERM currencies.
This led to speculation on the foreign exchange markets and
countries were forced to realign their currencies in ERM.
In fact, the speculation was so intense that the whole
system was under threat of collapse despite central banks
unprecedented intervention in the forex markets. This
resulted in September, 1992, sterling and lira being forced
out of ERM. Peseta, escudo and Irish punt were devalued
against the other ERM currencies.
UNIT-2 : Industries and Tertiary Sector of India
The speculation could not be arrested and in August
1993, further speculation against French franc, Belgian
franc and Danish krone forced the EC authorities to allow
wider fluctuations of ±15% on either side of central rate, in
the exchange rates between the remaining currencies in the
system. However, the Dutsche mark and Dutch guilder still
move in narrow band ±2 1/4%.
Mechanism Involved in Foreign Exchange Transfers
Commercial banks deals or plays a prominent role in
foreign exchange transactions.
Banks are centralized in foreign exchange market,
due to their feature of demand liabilities. According to this
feature, banks acts as a payment principal in any financial
system.
In traditional economies, for international transactions
there must be possessing direct communication with bank
whether it may be through written transfer orders, phone,
telegraphic etc.
Hence, for payment in international transactions
there is a necessity to own demand deposit in bank directly
or indirectly in foreign country, where subsequent transfer
takes place to the foreign receipt of funds. Majority of banks
maintain demand deposits rather than cunent accounts only
with national clearing system members. Thus, funds in
accounts are available to their clients so that they can transfer
to foreign payee as per their client’s instructions.
Thus, in international transactions two payments
simultaneously takes place through national systems.
Foreign exchange transactions are cleared only after
when a deal is concluded.
Thus, value date refers to a delivery date on which
payments of funds are actually made. This date is usually,
two business days after trading date. In foreign exchange
transactions there is a relation between payments which took
place between two national systems. System of accounts
is necessary for payer and payee in the form of demand
accounts with bank which in turn becomes a part of national
clearing system correspondent relationships are maintained
between banks in order to structure working balances of
such clearing system. The structure will help to minimize
relationships between accounts, transactions. As a result
account holders may have satisfaction through their service.
International payments also follow the same principles
as mentioned above. In international transactions, banks have
relationship with other banks in abroad through accounts.
Banks will use the accounts of their correspondents abroad.
So, that they can decrease the number of their holding
accounts. For this they also follow vehicle currency
phenomenon, which means, currency acts an exchange
medium for other.
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In order to decrease number of accounts and funds
banks will focus on accounts in only one country. So that they
can clear international transactions by using that country’s
clearing system.
Foreign exchange trading practices are affected
by relationship model maintained through accounts and
economics. Thus, U.S dollar is widely used as “foreign
exchange agent”, by using it investors feel that markets are
active and liquid.
Q81. Discuss about money changers and about their
offices.
Answer :
In India, Reserve Bank of India regulates foreign
exchange market. The entities that are authorized by reserve
bank of India can deal in foreign exchange. They can be
authorized as authorized dealers or as money changers. The
authorized dealers are generally commercial banks and forms
a large part of the inter-bank market in India.
The authorized dealers are allowed to both buy and
sell foreign currency from their customers and deal in all the
items classified as foreign exchange by the Act governing
foreign exchange markets. Thus, they are permitted to deal
with all documents relating to exports and imports.
The authorized dealers have to operate within the
rules, regulations and guidelines issued by the Foreign
Exchange Dealers Association of India (FEDAI) from time
to time.
The offices/branches of authorized dealers are
classified into three categories. They are,
Category A
These are the offices/branches which keep independent
foreign currency accounts with overseas correspondent
banks/branches in their own names.
Category B
These are the offices/branches which keep independent
foreign currency accounts but have powers to operate the
accounts maintained abroad by their head office of the
branches categorized as “A”.
Category C
The branches which fall in neither of the above
categories and yet handle foreign exchange business through
category A or B branches fall under category C.
On the other hand, money changers can be either
full-fledged money changers or restricted money changers.
Money changers can only buy the foreign currency from their
customers. They are allowed to deal only in notes, coins and
traveller’s cheques and are required to offset their position
in the market only.
98
The Indian foreign exchange market consists of three
tiers. The first tier consists of all the transactions between
the authorized dealers and the Reserve Bank of India.
The second tier is the inter-bank market in which the
authorized dealers deal with one another. Money changers
are required to offset their positions created by dealing with
their^ustomers in the inter bank market.
The third tier is the retail segment, where authorized
dealers and money changers deal with their customers.
Being the financial capital of the country, Mumbai
(formerly Bombay) is the biggest foreign exchange market
in India. However, New Delhi, Chennai (formerly Madras)
and Kolkatta are aslo very important centres where foreign
exchange markets are growing. Smaller centres like
Hyderabad, Bangalore and Cochin also have small sized
foreign exchange markets.
2.15.1 FEMA_____ __________
Q82. Discuss how FERA being replaced by FEMA.
Answer :
Foreign Exchange Regulations Act (FERA), 1973 is
used to regulate the foreign exchange transactions and also
regulated certain aspects of the administration of business
outside the country by Indian companies and in India
by foreign companies. The FERA’s main objective was
preservation and proper utilization of the foreign exchange
resources of the country.
As those is a substantial increase in foreign
exchange reserves, growth in foreign trade liberalization of
Indian investments etc, all these changes necessitates the
government to modify FERA. Consequently, the Foreign
Exchange Management Act (FEMA)t was introduce by
Finance Minister in Lok Sabha on August 4,1998. FEMA bill
became an act in 1999 and replaced the FERA. On January
1, 2000, the FEMA came into effect and extended to whole
of India and also applies to all branches, offices and agencies
outside India.
£ (d)
Objectives of FEMA
The following are the objectives of FEMA,
❖ To facilitate external trade and payments.
❖ To promote the systematic development and
maintenance of foreign exchange market.
Dealing in Foreign Exchange
According to section 3 of FEMA, no person shall,
(a) Deal in any foreign exchange or foreign security with
any person outside India.
(b) Receive any payments by order or on behalf of any
person resident outside India in any manner.
(c) Make any payment to or for the credit of any person
resident outside India in any manner.
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(d) No person shall undertake any financial transaction
in India as a consideration for or in association
with acquisition of any asset outside India, without
permission from the reserve bank.
Thus, according to FEMA, all dealings in foreign
exchange or foreign security and all payments from outside
the country to India shall be made with the general or special
permission of the reserve bank and only through authorized
persons. The FEMA act imposes restrictions on any payment
outside India except with special permission from the reserve
bank.
Holding of Foreign Exchange
According to section 4 FEMA, without the permission
of reserve bank, no person is allowed to acquire, hold, own,
possess or transfer any foreign exchange, foreign security
or any immovable property situated outside India.
Current Account Transactions
Section 5 of FEMA, allows any person to sell
foreign exchange to an authorized person or to draw foreign
exchange from an authorized person for a current account
transaction. However, the current account transactions are
restricted by the central governments in public interest.
Capital Account Transaction
The Reserve Bank with the advice of central
government may allow any person to sell foreign exchange
to an authorized person or to draw foreign exchange from
an authorized person under the section 6 of FEMA.
The following are restricted, prohibited and regulated
by the reserve bank,
(a) Transfer or issue of any foreign security by a person
resident in India.
(b) Any security is issued or transferred by a person
outside India.
(c) Any security or foreign security is transferred or issued
by any branch, office or agency in India of a person
resident outside India.
Any borrowing or leading in foreign exchange in
whatever form or by whatever name called.
(e) Deposits between persons resident in India and
persons resident outside India.
The FEMA allows a person resident in India to hold,
own, transfer or invest in foreign currency, foreign security
or any immovable property located outside India such as
currency, security or property was acquired, held or owned
by such person when he 'as resident outside India or
received from a person who was resident outside India. In
case of Indian currency, a person resident outside India may
hold, own transfer or invest in Indian currency, security of
any fixed property located in India. If such currency, security
or property was acquired, held or owned by such person
when he was resident in India or received from a person
who was resident in India.
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UNIT-2 : Industries and Tertiary Sector of India
The FEMA Act, empowers the reserve bank to
prohibit, restrict, or regulate establishment in India a branch,
office of other place of business by a person resident outside
India in order to carry on activity relating to such branch,
office or other place of business.
The Reserve Bank has no authority to impose any
restriction on the drawing of foreign exchange for payments
due on amortization of loans or for depreciations of direct
investments in the normal course of business.
Export of Goods and Services
According to sections 7 of FEMA, every exporter of
goods or services should provide to the Reserve Bank or to such
authority details such as true and correct material fact, amount
representing the full export value etc. Further he must provide
other information which is required by Reserve Bank in order
to ensure the realized value of exports by such an exporter.
Realization and Repatriation of Foreign Exchange
According to sections 8 of FEMA, if an amount of
foreign exchange is due or has accrued to any person, then
he will take appropriate steps to realize and get back it to
India within the time. According to the guidelines of RBI.
However, there are several exemption permitted to this
clause.
The following are exempted from the operations of
section 4 and section 8,
(a) Possession of foreign currency of foreign wins by any
person upto certain Jimit as specified by the Reserve
Bank.
(b) If foreign exchange was required in the form of gift
or received from a person resident outside India may
be exempted upto certain limits as specified by the
Reserve Bank. < material and the production inputs and also helps in
(c) If any person received foreign exchange through
employment, business trade etc., then he is exempted
upto certain limit as the Reserve Bank may specify.
(d) Reserve bank may specify upto a certain limit for
other receipts in foreign exchange.
Administration of the Act
The FEMA has delegated an important role to the
Reserve Bank of India in the administration of this act. With
the consultation of the central government, the RBI lays
down the rules, regulations and norms relating to several
sections of the Act.
The Act make it necessary for the central government
to appoint as many officers of the central governmental as
adjudicating authorities for conducting enquiries relating
to contravention of the Act. In order to hear the appeals
against the order of the adjudicating authorities, this act
has a provision for the appointment of one or more special
directors (appeals). The central government may establish
an appellate tribunal for foreign exchange to hear appeals
against the orders of the adjudicating authorities, and the
special directions (appeals).
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2.15.2 Convertibility _____ __
Q83. What is Convertibility? What are its types.
Answer : Model Paper-ll, Q6(b)
Convertibility
Convertibility refers to the process of converting one
currency into other i.e, from Indian Rupee into US Dollar.
Types of Convertibility
There are two types of convertibility. They are as
follows,
(i) Current Account Convertibility
Current account convertibility can be defined as,
freedom to buy or sell foreign exchange for global transaction
compiling of the payments due related with the foreign trade,
other current business covering services and normal short­
term banking and audit facilities, payments due as interest on
loans and as net income from other investments, payments of
moderate amount of amortization of loans for depreciation
of direct investments and moderate remittances for family
living expenses.
Advantages of Current Account Convertibility
Following are the advantages of current account
convertibility,
1. It helps in minimizing the foreign exchange rationing
distortions.
2. It helps in establishing internal markets in order
to increases productivity and competition and also
enhances the production inputs.
3. It also enhances the use of capital machineries raw
importing the foreign technology.
4. It develops the allocative efficiency and in moving
to areas of production along with the comparative
advantage of the country.
5. The contribution of all these factors improves
the structure of incentives, creates employment
opportunities, stimulates investment which further
leads to the growth of the country.
Disadvantages of Current Account Convertibility
Following are the disadvantages of current account
convertibility,
1. The larger volumes of unemployment and idle
capacity would lead to short run if in case the domestic
product are greatly abandoned in respect of the
imported goods and services. _ .
2. If imported goods are easily available then the real
wages needs to be reduced greatly in order to compete
with the imported products.
3. Domestic product must be qualitative otherwise they
cannot compete with foreign products.
100
4. The reinforcing multiplier effect on domestic product
will decline the purchasing power of domestic income.
5. Due the harsh environment on domestic enterprises
pressure imposed on population will get unsustainable.
(ii) Capital Account Convertibility
The tarapore committee was established By the
Reserve Bank of India (RBI) in February 1997 gave the
following definitions of capital account convertibility (CAC),
“Capital account convertibility can be defined as
the freedom to convert local financial assets into Foreign
financial assets and vice-versa at market determined rates
of exchange for any purpose what so ever, without needing
any permission from the government”.
This implies that export or import of goods takes place
or can make payments or receive it for the services rendered.
CAC allows free movable of local currency into foreign
currency and vice-versa. CAC helps in converting overseas
financial assets into domestic financial assets. It attracts
Foreign Direct Investment (FDI). The CAC helps in efficient
allocation of capital and provides the way to economy in terms
of capital inflows and outflows. CAC provides the facility to
make investment in foreign equity, extend loans to foreigners
and buy real estate in foreign lands and vice-versa.
Advantages of Capital Account Convertibility
Following are the advantages of capital account
convertibility,
1. Organizations in order to promote their businesses
can start openings in various branches in different
countries of the world.
2. Banks are given permission to take loans from other
overseas market and use their funds outside their
native country. This concept would help in the growth
of the native/local banks.
3. It motivates the investors to invest their money in
thq' foreign financial markets which would further
increase the investment levels.
4. Global investor’s level of confidence would be
boosted up for making investments.
Disadvantages of Capital Account Convertibility
Following are the disadvantages of capital account
convertibility,
1. The introduction of liberalization is eventhough
advantageous for every country but sometimes it
increases the risk of the country with respect to the
capital flows reversals as it would use greater currency
and balance of payment crisis.
2. The main objective ofthe capital account convertibility
would be of no use if in case the capital flow’s
structure is not checked properly.
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3. Indonesia, Thailand and South Korea are the three
Asian countries which faced a severe economic crisis
because of receiving not private capital inflows of
nearly US $$93.0 billion in the year 1996.
Q84. What are the effects of current account
convertibility and capital account
convertibility? Give an illustration.
Answer :
The current account and capital account convertibilities
both are inter related with each other. They both effects the
balance of payments of a country either directly or indirectly.
A debit in the current account lead to a credit in the capital
account. For instance, ‘y’ an exporter has exported good, to
‘Z’ who resides in UK. The outflow has lead to an immediate
debit in the current account of the country. Now ‘Z5 issues a
cheque to ‘y’, ‘y’ presents the cheque to the Indian bank say
for example, Andhra bank collects the cheque and sends it to
the bank in UK for clearing the cheque amount. The bank in
UK directly credits the amount to Andhra bank immediately
records the increase in capital account of a country, which is
being credited. In this way the current account is debited and
the capital account is credited. Thereby setting-off the balance
of payments to zero. The current account convertibility and
capital account convertibility may either have a favourable or
unfavourable effect on balance of payment of a country. This
can be clearly understood with the help of following examples.
If in case the price of commodities have increased in
the country. ‘AT a business man in India find an opportunity
to make a greater profits by importing from united states.
This would increase the imports and decrease the exports of
the country. Here, the current account would be credited and
the capital account would be debited. Therefore, the country
would face a deficit as a result of the above a transactions,
as the number of imports are increase and the exports are
decreasing. It is due to this reason that the inflation rate
increases in the country as the demand for its products and
services reduces over time in the foreign market.
In order to make the balance of payment reach the
equilibrium point the country must impose restrictions on the
import of products or services. For example, if in case, the
currency falls weak say ?40/US$ today. ‘AT imports goods
from US on a.condition to make payment after 30 days.
After 30 days the rupee value becomes weak against the $
e., ?45/US$ Here in such a case the capital assets of the
i.
country would decrease as there will be greater outflow of
rupee in case the currency is weak there will be an adverse
affect.
The curre-.t account comprises of the following,
1. Merchandise
Merchandise refers to those products which can be
moved from one place to another. For instance, televisions,
table, chains and so on.
UNIT-2 : Industries and Tertiary Sector of India ________ 101
Balance of trade is the difference between merchandise export and import of the country. It helps in understanding
the value of goods and services which are being exported and imported by the country.
2. Services
It includes the income which is generated from tourism, insurance, shipping, military expenditures and interest
payments. Such type of a trade is also known as trade of invisible.
3. Unilateral Transfers
Unilateral transfers is the last components of the cunent account. It refers to the gifts and grants which are being
transferred from one country to another.
The capital account compresses of the following,
1. Direct Investments in Foreign Countries
These are the investments made by an individual of one country into the fixed asset of another country. Such
investments are usually made in order to carry out and promote the business in other countries.
2. Portfolio Investment
The purchase or sale of long term financial assets, i.e., securities or bonds, of one country by another is referred to
as portfolio investment.
3. Other Capital Investments
The purchase or sale of short-term financial assets i.e., short-term, loans, short-term securities, of one country to
another is called as other capital investment.
The effects of all the above can be understood clearly with the help of the following illustration,
Illustration
Record the effect of following transaction and the balance of payment statement
(i) An Indian company exports tables worth ?40,000 to USA on an agreement of collecting its payment after 3 months,
(ii) A tourist spends ? 10,000 in Germany, he is an Indian resident.
(iii) ?3,00,000 is given by the Indian government as a aid program for the flood victims of neighouring country.
(iv) Foreign balance in an Indian bank account is increased to make a payment of foreign stock worth ?1000 beinj
purchased by an Indian resident.
(v) Short-term bills of Indian worth the 500 are purchased by a foreign investor and its payment is m ade by his Indiar
bank account.
Solution :

Debit (?) Credit (?)

1. Outflow of short term capital merchandise exports 40,000 40,000
2. Tourism services outflow of short-term capital 10,000 10,000
3. Unilateral transfer outflow of short-term capital 3,00,000 3,00,000
4. Inflow of long term capital (foreign stock) 1,000
Outflow of short-term capital 1,000
5. Outflow of short-term capital 500
in flow of short-term capital 500
The balance of payment of India is as follows,
Debit (?) Credit (?)
Merchandise 40,000
Services 10,000
Unilateral transfer 3,00,000
Short-term capital
[10,000 + 3,00,000 + 1000 - (40,000)] 2,71,000
Long-term capital 1,000
3,11,000 3,11,000

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102
2.16 BANKING SECTOR
Q85. Explain origin and growth of banking in India.
Explain the evolution of banking system in
India.
Answer :
Origin and Growth of Banking in India
The money lenders, banking firms, private bankers of
India were called as indigenous bankers by the British. The
Hundi is another financial instrument which was used for
payment on demand or after a specific time limit to a person
whose name is written on it. It worked well and even the
royal families followed this system of traditional banking
in India.
Banking system in India started in 1770 with the
establishment of the first joint stock bank namely the bank
of Hindustan by Britishers in Calcutta, but it failed. In
1806, commercial bank was established in Bengal. Bank
of Bengal, Bank of Mumbai and Bank of Madras together
called presidency banks. These banks are financed partly by
East India Company. In 1881, the first indigenous bank i.e
oudh commercial bank was started.
The term bank is derived from an Italian word ‘Banco’
which means ‘Bench’. The bench signifies the benches that
were used in the market place of Italy by Lombard Jews to
exchange bills and money. In India, banking system can
be traced with the establishment of Bank of Calcutta in
the year 1786. In the 18th century English Agency houses
were founded in Bombay and Calcutta which became the
source of origination for banking in India. In the year,
1935 RBI was established as the Central Bank of India on
the recommendation of Hilton Young Commission which
offered financial aid to the urban population only. After
the independence, banking sector of India was taken under
private ownership. In order to provide financial aid to both
urban and rural population, RBI was nationalized in the
year 1949 by the Government of India. Many other major
banks were also nationalized for the development of national
economy. In the year 1990, liberalization of banking system
was started to improve the profitability and financial stability
of public sector banks.
Evolution of Banking in India
The evolution of the Indian banking system is divided
into four different phases which are as follows,
1. The Pre-independence (pre-1947) Phase
During this period, many banks were established as
there were not set standards for entry. Some banks which
exist even today are the result of the Swadeshi movement.
This phase witnessed the failure of several banks and was
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marked by two world wars and great depression. The global
pressure and mismanagement of banks were the two major
reasons for the failure of the banks. The RBI was therefore
established in 1935 to overcome such failures. The absence
of an appropriate regulatory framework restricted the control
of RBI over the banks.
2. 1947 to 1967
The Banking Companies Act was introduced in
1949 in the post-independence era, for solving the issue of
banking failures. The safety and soundness of the banking
sector wras improved by the RBI. This act also granted the
authority of regulating and controlling the banking sector
to the RBI. The introduction of deposit insurance boosted
the confidence of the depositors in the banking system.
The banking system was also expanded in the rural areas.
RBI’s efforts to ensure adequate credit to productive sectors
resulted in the development of complex regulated interest
rate structure.
3. 1967 to 1991-92
The number of banking companies come down from
648 to 89 by 1969. The narasimhan committee (1991)
acknowledged the tremendous changes of public sector
banks in 1969.
Strict social controls over the banking sector were
witnessed from 1967 to 1991-92. Direct lending to the
‘priority sector’ was introduced for assuring equal flow of
credit to agriculture and small sectors. The banks expanded
rapidly without considering the profitability and asset quality.
The medium and large firms faced the credit problems due to
strict targets for the priority sector lending. This resulted in
the acquisition of many non-performing assets by the banks.
In 1990s, the financial sector of India had the
following characteristic features,
❖ Controlled and regulated interest rates.
❖ High rates of CRR and SLR which resulted in
the withdrawal of large amount of resources from
productive lending.
❖ The extensive flow of small funds among the banks.
❖ The accounting practices were not transparent and
has limited disclosure.
❖ There was large public ownership and decreased
efficiency and productivity.
❖ There was small amount of capital and large amount
of non-performing loans.
❖ Huge investment was made in government bonds
which facilitated high government borrowing at
concessional interst rates.
❖ There were shift barriers for the entry of new and
efficient players in the banking sector.
❖ There was limited access to private sector banks.
UNIT-2 : Industries and Tertiary Sector of India
This phase also witnessed lack of depth in the capital
and foreign exchange markets. The development of the
financial system was also restricted as monetary policy was
given less importance than the fiscal policy.
4. 1991-92 and Beyond
1991-92 was one of the most productive phases in
India’s banking history.
This phase is divided by RBI into two sub phases
: 1991-92 to 1997-98 and beyond 1997-1998. In the first
phase, a powerful committee on the financial system was
established by the government under the chairmanship of
Mr M. Narismham. This committee became popular by the
name of‘Narsimham communittee’.
The five principles that guided these reforms were (1)
Cautious and sequenced reform measures (2) Introduction
of reinforcing standards (3) Introduction of complementary
reforms (4) Development of financial institutions and (5)
Development and integration of financial markets.
The first sub phase focussed on improving the
profitability, competitiveness, capital position and asset
quality of banks. Risk aversion was also developed by banks.
The se'cond sub phase of 1997-98 showed a shift
towards the prudential standards with the international best
practices. The private sector banks were permitted to operate
which lead to an increase in the competition. The number of
non-performing assets were decreased sharply. During this
phase the-technology was introduced into the banks.
A high level committee was established in 2007
under speeding the chairmanship of Prof. Raghuram Rajan
for speeding the financial sector reforms. The following are
the committee’s terms of reference,
(a) Recognizing the emerging challenges for fulfilling the
financing needs ofthe Indian economy and identifying
real sector reforms which helps those needs to be met
easily by the financial sector.
(b) Analysing the performance of the different segments
of financial sector and recognising changes which
helps in meeting the needs of real sector.
(c) Identification of changes in the regulatory and
supervisory infrastructure which facilitates the
financial sector to play its role.
(a) Identification of changes in the areas of economy and
the conduct of monetary and fiscal policy.
Annexure 2 presented 35 proposals which was created
by the committee. Annexure III outlined the major policy and
legal reforms which occurred in the Indian banking sector
since 1991-92.
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Q86. Discuss various types of banks.
Answer :
Banks can be broadly classified into the following
two types, as shown in the figure:
Figure
1. Central Bank
Central bank is an autonomous institution which holds
immeuse powers and control over the entire banking system
of the country. In India the Reserve Bank of India (RBI) is the
central bank of the country. According to R.P. Kent “Central
bank is the institution charged with the responsibility of
managing the expansion and contraction of the volume of
money in the interest of the general public welfare”.
2. Commercial Bank
Commercial Banks are business enterprises which
are involved in finances, financial instruments and provide
financial services for a price which maybe in the form
of interest, commission or a discount and so on. “They
accept deposits of money from the public (savings), for the
purpose of lending or investment (to meet working capital
requirements or corporates)”-Banking regulation act 1949
banks are categorized into,
Public sector Example : SBI, Andhra Bank
Private sector Example : Milli Bank
Foreign sector Example : HSBC, HDFC.
The different types of commercial banks are as
follows:
(a) Deposits Banks
It is one of the type of commercial bank which deals
with short term deposit and loans. Deposit banks
accepts deposits from the public and lend money to
the customers who are in need of loans. Deposit banks
extend loans for a short period ranging from 3 to 6
months.
104
(b) Industrial Banks
Industrial banks extend long term loans to the
industries which requires huge capital for buying
heavy machineries and equipments. Moreover,
they also deals with the process of buying shares
and debentures of companies which would help the
companies to hold fixed capital. Industrial banks
performs the following functions.
(i) Accepting long-term deposits.
(ii) Extending long-term loans to the industries for
fulfilling their credit needs
(iii) Helps the companies in dealing with the
purchase and sales of shares and debentures.
(c) Savings Banks
Savings banks are basically started with an aim to
encourage the small savers like, poor or middle class
customers to save their money in the form of deposits
in these banks. However, in India due to absence or
such banks, post offices performs the function of
savings banks.
(d) Agricultural Banks
Agricultural banks are of two types:
(i) Agricultural co-operative banks and
(ii) Land mortgage banks and co-operative bank.
Agricultural banks are established to help the farmers
by providing short, medium or long-term loans.
(e) Exchange Banks
Exchange banks are the commercial banks which
exclusively deals with the foreign trade such as,
discounting, accepting and collecting foreign bills of
exchange. They perform the functions of buying and
selling foreign currency. These banks also provide
services like that of the other ordinary banks.
(f) Mfscellaneous Banks
Miscellaneous banks are special kind of commercial
banks which are established to meet the specialized
needs of the customers.
For instance - Investments banks in England and
America are formed with an objective to control the
distribution of capital into several uses.
Q87. Explain the organization structure of commercial
banks. What are the functions recently introduced
in Indian commercial banks?
Answer :
Organization Structure of Commercial Banks
The organization structure of commercial banks is
shown in the following figure,
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Commercial banks
i
Scheduled commercial Unscheduled commercial
banks (300) banks
1
Nationalised Private Regional Foreign Public
banks (19) sector rural banks (196) banks (45) sector banks
banks (32)
Figure: Organization Structure of Commercial Banks
Scheduled Commercial Banks
The S.C.Bs constitute those banks which have been
included in the second schedule of RBI Act 1934, vice-versa
for unscheduled CBs.
The S.C.Bs are further classified or subdivided by
RBI as public sector banks, old private sector banks, new
private sector banks and foreign banks.
The composition of S.C.Bs in India arv 300, which
includes the SBI and its associated banks (8), nationalised
banks (19), private sector banks (32), RRBs (196) and
foreign banks (45). During 1994-95, ten more banks were
added in the S.C.Bs and the Bank of Karad was taken over
by Bank of India. The total number of branches of S.C.Bs is
64,918 of which 36679 (56.5%) were located in rural areas,
on 30th June, 1999.
Unscheduled Commercial Banks
Unscheduled Banks are the banks which are not
included in the schedule of Banking Regulation Act, 1949.
These types of banks can function in all banking sectors
and there are no statutory restrictions on unscheduled
banks. However, since May 1997 there were no un-schedule
commercial banks emerged in India. According to RBI, there
are four types of non-schedule commercial banks available
in Indian banking sector. They are listed below,
1. Subhadra Local Area Bank Ltd which is located in
Kolhapur.
2. Coastal Area Bank Ltd which is located in Vijayawada.
3. Krishna Bhima Samrudhi Local Area Bank Ltd
which is located in Mahboobnagar.
4. Capital Local Area Bank Ltd which is located in
Phagwara Navsari.
Functions Recently Introduced in Indian
Commercial Banks
Previously, the CBs did not help' in providing financial
assistance to S.S.I units. But the SBI along with RBI initiated
a scheme for provision of credit to small scale industries.
This was seen more after nationalization in July 1969. The
CBs have also introduced the ‘Lead bank scheme’ where
each district is allotted to one S.C.B for proper development
of banking facilities.
..
UNIT-2 : Industries and Tertiary Sector of India
RBI setup a committee under the chairmanship of
Shri P.R Nayak to look after the supply of credit to the
needed S.S.Is. This committee recommended granting of
increased credit to S.S.Is and providing immediate solution
to the S.S.I’s problems. The CB intimated the foreign banks
to extend at least 10% of their net bank credit to S.S.I.
According to a development report by IDBI, the CBs have
provided the small scale units with Rs. 27,612 crores that
accounted for 27% of total gross bank credit of Rs. 102953
for the industrial sector. Further, it was noticed that the bank
credit to S.S.I units have increased from 22% in March 1993
to 27% in March 1995.
Facilities Offered to S.S.I’s
The facilities offered to SSI’s are as follows,
1. Arrangement of Finance
A network or group of SFCs, NSIC, SSICs, CBs,
cooperative banks, RRBs extend financial assistance to S.S.I
units. The SIDBI offers refinance to industrial loans already
provided by them to small enterprises. The S.F.C sanctions
term loans for meeting the working capital requirements
for setting up of new enterprise and for expansion or
modernisation of existing units.
2. Regional Testing Centres (RTCs)
RTCs provide testing facilities for raw material,
semi-finished and finished goods which are primarily
manufactured in the small sector. RTCs are located in 4 areas
that is Kolkata, Mumbai, Chennai and New Delhi. These
testing centres provide facilities in the field of chemical,
mechanical, electrical, metallurgy and metrology. They also
assist in quality improvement and quality control of goods.
3. Tool Rooms
Tool rooms or tool design institutes assist in tool
designing, manufacture oftools, jigs, fixtures, moulds and dies,
etc. There are about ten tool rooms which are located in Kolkata,
Luahiana, Jalandhar, Hyderabad, Nagpur, Indore, Ahmedabad.
The tool rooms are operated and run by state government mainly
at Lucknow, Delhi, Bangalore, Mysore and Goa.
4. Central Footwear Training Institute (CFTI)
The function of CFTI is to train manpower in footwear
industry, developing new designs of footwear to promote
exports. CFTIs are generally located in Agra and Chennai.
5. Facilities and Concessions
The central government extends a bunch of incentives
and facilities to small enterprises.
(i) Exemption and concession in excise duty to S.S.Is.
(ii) Fiscal incentives, reservation of certain items
manufactured for production and purchase.
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Q88. Explain in detail about the classification of.
scheduled commercial banks.
Answer :
Reserve bank of India Act, 1934 comprises scheduled
commercial banks in its second schedule. Scheduled
commercial banks are further divided into four categories,
1. Public sector banks
2. Private sector banks
3. Foreign banks in India and
4. Regional rural banks.
There are 81 scheduled commercial banks out of
which 26 constitutes the public sector banks, 21 are reserved
for private sector banks whereas the remaining 34 belongs
to foreign banks.
1. Public Sector Banks
Government has the chief authority in public sector
banks. Public sector banks broadly classified into two
categories,
(a) State bank of India and its associates and
(b) Nationalised banks.
(a) State Bank of India
The state bank of India was introduced on July 1,1955.
The five subsidiaries under the state bank of India
includes the State Bank of Bikaner and Jaipur, the
State Bank of Hyderabd, the State Bank of Mysore,
the State Bank of Patiala and, the State Bank of
Travancore.
The state bank of India is the largest commercial bank,
in the world with an aggregate ofnearly 16055 branches
comprising 4607 branches of its associate bank,
131 foreign offices in 32 countries and 2410 ATMs
networked with SBI ATMs in India. SBI holds a total of
17% market share with an asset base of about? 542503
crore. It is considered as the country’s largest bank
wherein there exists 100 million accounts with a total
workforce of about 2,14,845.
SBI has funded 17 RRBs till March 31, 2009. SBI
has five non-banking subsidiaries,
The current plan of SBI is to make itself as “Universal
bank” which helps in meeting the different needs of
the society through reformation of its branches into
‘super shoppe’ wherein its products such as banking,
insurance, mutual funds and credit cards would be sold.
106
(b) Nationalised Banks
Banks are nationalised under the banking companies
Act, 1970. This phase of nationalisation constitutes
the second stage of nationalisation. In 1969, nearly
fourteen big Indian joint stock banks belonging to
the private sector undergone the nationalisation
process. During the third stage of nationalisation,
six commercial banks in the private sector with
an average deposits of over ? 200 crores were
nationalised on August 15,1980. Presently, there are
27 nationalised Banks, the state bank of India and its
six associates and 19 nationalized banks and IDBI.
The main objective for nationalisation was to provide
financial assistance by network to the rural and semi
urban areas.
From there onwards, the Nationalisation of banks
commenced. The objectives of Nationalised banks
were,
(i) To provide major banking facilities exclusively
to the rural and semi-urban areas.
(ii) To spread awareness of agricultural finance and
to overcome the causes for the downfalls of the
agricultural finance system.
(iii) To facilitate the reserve bank in the formulation
of its credit policies.
(iv) To provide assistance to the government in
carrying out the broad economic policies.
2. Private Sector Banks
The Narasimham committee, stated in its report that
the RBI should allow the establishment of new banks if they
are capable of fulfilling the minimum start-up capital and
other requirements. And also stated that there should be no
discrimination between the public sector and private sector.
The banks (Established after the committee report are known
as new private sector banks.
In a recent scenario there exists 21 private sector
banks out of which 14 banks are old whereas, the remaining
banks are new banks. New banks generated profits from the
first year itself. The public sector banks are facing heavy
competition from the private sector banks.
In January 2001, the guidelines relating to the
establishment of new private sector were updated or revised.
(a) It recommended to raise initial minimum paid-up
capital from ? 100 crore to ? 200 crore. Further, the
initial minimum paid up capital shall be increased
to ? 300 crore in the next three consecutive after the
establishment of a business enterprise.
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(b) It allowed a Non-Banking Finance Company (NBFC)
to transform into a commercial bank if it satisfies the
following conditions,
(i) Establishes with a total minimum net worth of
? 200 crore.
(ii) Holds a credit rating of ‘AAA’ or its equivalent
ratings in the previous year.
(iii) Sufficient capital of less than 12 percent and
(iv) Net NPAs whose worth should not be more than
5 percent.
(c) The guidelines restrict the huge industrial houses
to advertise any new bank. The individual firms
associated directly or indirectly with large industrial
houses are only allowed to contributes a maximum of
10% in the total equity of a new private sector bank.
(d) The option would be provided to those promoters who
are having expertise in financing the priority areas
and also in establishing banks which are specialised
in financing the operations of rural agro-based
industries.
3. Foreign Banks in India
A survey conducted identifying the number of foreign
banks in India on April 30,2010. Atotal of 34 foreign banks
have been identified in India with 311 branches. Furthermore,
45 foreign banks are operating in India by establishing their
representative offices. The standard chartered bank consists
ofthe highest number of branches (i.e., 92) among all foreign
banks in India.
Some foreign banks have been operating in India
over the hundred years. For instance ANZ Grindlays and
standard chartered banks have been operating in India for
more than a decade. Few foreign banks have established
various entities that are operating in India as subsidiaries
constituting either the non-banking financing companies or
limited companies in the non-financial sector which comprise
different businesses like dealing in securities, leasing and
finance, information and technology.
Examples : HSBC, Bank of America and so on.
The RBI guidelines for foreign banks in India,
(a) In the first stage, from March 2005 to 2009, the
eligible foreign banks were allowed to establish
their presence by initiating a wholly-owned banking
subsidiary or by converting the existing branches into
a subsidiary.
(b) For making the presence, the wholly-owned banking
subsidiary is required to have a minimum capital of
? 300 crore and a strong corporate governance for its
operations.
UNIT-2 : Industries and Tertiary Sector of India 107
(c) In the second stage in April 2009, the new foreign banks were permitted to operate in India if the banks were found
to be financially sound wherein they consider the international and home country ranking, rating, international
presence and economic and political relations between the two countries.
(d) The minimum capital stipulated is USD 25 million has to be divided among 3 branches where the first two branches
get a capital of about USD 10 million while the remaining amount of USD 5 million must be allocated to the third
branch. More branches are allowed after observing the operations of present branches. 12 licenses are determined
in compliance with India’s commitment make to WTO, per annum for new and for expanding the existing banks.
(e) Foreign banks are required to lend an aggregate of about 32% of their adjusted net bank credit or credit equal to the
off-balance sheet exposures, whichever is found to be more.
4. Regional Rural Banks

The main purpose of regional rural banks was to at deliver the rural credit facilities to the backward areas Thereby,
ensuring their financial soundness. Central government respective state government and sponsors (Commercial banks) are
responsible for the contribution of initial capital base of RRBs. The regulatory framework of regional rural banks (RRB’s)
has been proposed by the Reserve Banks of India (RBI) and NABARD.
Examples

Andhra Pradesh Grameena Vikas Bank, Arunachal Pradesh Rural Bank, Baroda Gujrat Bank, Himachal Gramin
Bank etc.

Q89. Explain functions of commercial bank.

Answer :

The functions of commercial bank are basically divided into the following two types:
1. Primary functions and
2. Secondary functions.
Function of Commercial Banks
..... —r~ ......... —
, , i I____
| Primary Function! 1----------
Secondary Functions | ...
♦
.... ♦_____ -------- 1 .. —1 ...... i.--------,
Accepting Deposits! Granting Loans or | Provision of Payments | Agency Services | Utility Services | New Services |
Creation of Credit
*■ Remittance *■ Safe Deposit >■ Mobile
*• Fixed Deposits ' Money at Call of Funds Banking
•> Night Safe
Recurring Deposits *■ Cash Credit *• Income Tax Service *■ Basic
Consultant Services
paving Deposits *- Overdraft Travellers
-► Acting as *■ Value Added
Cheque
+- Current Deposits ■> Discounting of Bills Trustee Services
■*- Letter of Credit
of Exchange Acting as *• Retail
*- Home Safe Deposits
■> Loans Representative Balancing
f---- 1---- 1 >• Paying Utility Services
Demand Personal Service ■> Automatic
Loans Loans *■ Purchase Extension
and Sales of Deposit
Securities
■> Execution of
Standing Orders
■> Collection and
Payment of Credit
Instruments
*- Collection of
Dividends on
Shares

Figure: Function of Commercial Bank

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108
1. Primary Functions
The primary banking functions of commercial banks are:
(i) Acceptance of deposits from the public and
(ii) Creating credit.
(i) Acceptance of Deposits from the Public
The primary/basic function of the commercial banks
is to accept the savings as deposits from the public and to
mobilise such savings of the household section. Usually the
commercial banks offer three types of deposits on the basis
of the needs of different classes of depositors.
(a) Demand deposits
(b) Saving deposits and
(c) Time deposits (or) Fixed deposits
(d) Other deposits.
(a) Demand Deposits
Demand deposits are also known as “Deposits in
current account”, because the depositor can easily
withdraw the deposited amount with the help of
cheque at any time, upto the limit of credit balance
in his current account, without any prior intimation.
This type of account is maintained by the businessmen
or commercial industrial firms. Banks need not pay
any interest on the credit amount of current account.
(b) Saving Deposits
The amount deposited in the savings bank account is
referred as saving deposits. Commercial bank offers
this type of deposit in order to motivate the people
for savings especially from households. A saving
deposit is different from that of the demand deposit
as the depositor cannot easily withdraw the amount
j&om his savings bank account as an when they like
because there are certain restrictions and conditions
on the withdrawal of saving deposits which are laid
down by the bank. Interest is paid by the bank on
the savings account deposits as per the guidelines of
central bank (RBI).
(c) Fixed Deposits
It is also known as “time deposit”. In case of fixed
deposits the amount deposited can be withdrawn
only after the expiry of a fixed time period. The
banks usually pays a higher rate of interest on fixed
deposits, when compared to savings deposits. The
rate of interest is paid as per the guidelines of RBI.
The interest rates are co-terminus i.e., longer the time
period higher the rate of interest.
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(d) Other Deposits
To attract customers, commercial banks also provide
deposits such as recurring deposits, old age pension
schemes, Health benefit deposits and so on.
(ii) Creating Credit
The second important primary function of the
commercial banks is the creation of credit by providing
loans and advances. Customers usually withdraws only a
small portion of the deposits from their bank accounts at a
time and the excess of deposit which is left over is used by
the banks to extend credit to anyone who is in need of loans.
The banks keep a small sum total deposits as its cash
reserve. It is the central bank who decides the size of the
cash reserve and the excess of that cash reserve is utilized
by the banks for credit purpose or derivative deposits in the
following ways:
(a) Overdraft
Overdraft is a short term loan wherein the customer
can withdraw excess amount from his current account
upto certain fixed extent. Bank provide this facility to
the cunent account holder against collateral security.
(b) Cash Credit
The concept of cash credit is similar to that of the
overdraft. In cash credit the amount which can
be withdrawn from the account is transferred to a
separate account instead of permitting the borrower
to overdraw from his accoun..
(c) Loans and Advances
Loans and advances are usually provided by the
banks either against the hypothecation of inventory
or mortgage of any fixed assets. The borrower needs
to repay such loans and advances to the banks either
after a specific time period or in installments over the
specific period of time.
(d) Discounting Bills of Exchange
The commercial banks performs the function of
discounting bills of exchange in order to provide
quick finance for the working capital.
2. Secondary Functions
The secondary functions of commercial banks
includes the following:
(i) Client’s Agent
The commercial banks acts as an agent of its client
and collect or pay interest, rent, dividends, insurance and so
on, as per the customer’s instructions on behalf of them.
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(ii) Client’s Buyer or Seller

The commercial banks may also buy and sell the securities of its clients.
(iii) Safeguards Valuables
The commercial banks protects the valuables like confidential documents of its clients by providing safe deposits
vaults or bank lockers to its customers.
(iv) Provides Information to the Client’s
The commercial banks provides credit information to its clients with the help of issuing letters of credit, credit­
standing, underwriting loans, collecting and providing information and so on.
(v) Other Functions

The commercial banks also provide facilities like, foreign exchange transfer of money from one branch to another
branch, person-to-person and so on.
Q90. Write about the nationalization of banks in detail.

Answer :

Nationalization of Banks

The nationalization of banks in India was undertaken with the objective to align the economic, financial and social
policies of independent India and put it on the path of fast economic growth. The first step towards nationalization of banks
began with the passing of banking companies Act, 1969. This led to the nationalization of the Reserve Bank of India.
Further, in the year 1955, through the nationalization of the State Bank of India.
The biggest attempt towards nationalization of banks was made on 19th July 1969, by the then Prime Minister Shri
Indira Gandhi, who nationalized the following 14 commercial banks, each of which had a capital of more than 50 crores.
On July 19, 1969 the government of India a through on ordinance nationalized 14 major commercial banks.

14 Commercial Banks Nationalized on 19th July 1969

1. Bank of India 8. Dena Bank 4

2. P.N.B 9. Syndicate Bank
3. Bank of Baroda 10. Indian Bank
4. Central Bank of India 11. United Bank of India
5. Union Bank of India 12. United Commercial Bank
6. Bank of Maharashtra 13. Indian Overseas Bank
7. Allahabad Bank 14. Canara Bank

It was stated that the aim of this nationalization was “To serve better the needs of development of the economy
in confirmity with national priorities and objectives”. Thus, 85% of the total banking deposits came into public control.
Further on 15 April 1980, the following 6 private banks were commercialized,
(a) VijayaBank
(b) Andhra Bank
(c) Oriental Bank of Commerce
(d) Punjab and Sindh Bank
(e) New Bank of India (Merged with Punjab National Banks in 1993)
(f) Corporation Bank Limited.
This made the public banking sector strong and the RBI along with the nationalized banks accounted for 91% of
the total commercial bank deposits as of April 1980.

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Reasons for Nationalization of Banks
Following are the reasons for nationalization of banks,
1. Equi Distribution of Wealth
The most important reason for nationalization was
equi distribution of financial wealth. Previously, the private
banks were owned and managed by big businessmen and
ir.dustralist and thus majority portion of bank loans was
granted to their business entities only. Nationalization of the
banks ensured that small businessmen also got the advantage
of securing bank loans.
2. Encouraging Agriculture and S.S.I
A major reason of nationalization was to provide
sufficient loans to the agricultural sector and the small
scale industries, both these sector employed huge number
of workers.
3. Eliminate Fraud
Prior to the nationalization of banks, fraud,
malpractice and favouratism was rampant in the Indian
banking sector, which granted loans to the big industralist
only. Bank nationalization eliminated all such malpractices.
4. Expansion of Banks
Nationalization of banks helps in the expansion of
banking facilities to small towns and cities across India.
Thus, providing easy access to financial institutions to
customers across India.
5. Provision of Adequate Training for Bank Staff
Thus, it may be stated that the nationalization ofbanks
was a major bold step in the right direction.
Q91. Write briefly about the various emerging trends
in commercial banks in India.
Answer :
The following are the latest emerging trends in
commercial banking in India,
(a) E-Banking
E-Banking is also known as online banking and
internet banking. In simple words, e-banking refers to the
performance of any or all banking transactions using the
internet as a safe and secure platform for completing the
banking transaction.
(b) Mobile Banking
The increasing use of mobile phones has led to the
introduction of mobile banking. The developed countries
provide the mobile banking services for payment of small
value transactions at low cost. The mobile banking consists
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of two types of models, (a) The bank led model (b) The
telecom led model. In India the bank-led model is used. The
countries which don’t have a wide spread banking network
may use the telecom-led model.
(c) Core Banking
Core banking is a banking service provided by a group
of networked bank branches where customers may access
their bank agent and perform basic transactions from any of
the member branch offices. Core banking solution is defined
as the set of robust software components or integration of
core banking components that are developed and tailored to
satisfy the requirements of the individual businesses in order
to face the challengers in the banking sector. The modules of
core banking solution include saving bank account, current
account, fixed deposits, cash credit, etc., and in addition
include ATM and internet banking. While replacing the
traditional solutions with core banking solution, banks
should follow a holistic approach to minimize and effectively
manage the risks associated with it.
There has been an increase in the technological
advancement which resulted in the generation of core
banking solution. The reasons for this are,
(i) Increase in cut throat competition
(ii) Market expansion and
(iii) Reduction in the costs of the products.
(d) Bancassurance
The distribution channels set-up by banks for
the purpose of selling insurance products is known as
Bancassurance.
The ‘bancassurance’ is a French term which was first
introduced in 1980. Earlier French banks sold more insurance
policies. Elowever, the selling of insurance policies by banks
became a common practice in most of the European countries
and the United States. This practice was adopted even by
most of the Asian Banks.
The increased population in India and a wide network
of banks with low insurance penetration forced the Indian
banks to enter into the insurance business.
(e) Banking Ombudsman
Banking Ombudsman scheme has been formulated
by Reserve Bank of India for providing service to the Bank
clients. Bank Ombudsman resolves the problems relating
to Banking service and other matters as specified under the
scheme. Banking Ombudsman came into force from Jan-
1-2006. The members of Banking Ombudsman are elected
by RBI. The NRI’s can even file the complaints if they are
facing deficiency in the services provided to them by the
Banks. Numerous complaints have been settled by Banking
Ombudsman.
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2.17 MONEY MARKET
Q92. What do you mean by money market? What are
the main constituents of Indian money market?
Answer :
Money Market
Money market is an important constituent of Indian
nnancial system. Reserve Bank of India defined money
market as “a centre for dealings, mainly of a short-term
character in monetary assets, it meets the short-term
requirements of the borrowers and provides liquidity or cash
: lenders. It is the place where short-term surplus investable
r ands at the disposal of the financial and other institutions
ind individuals are bid by borrowers, again comprising
institutions and individuals and also by the government”.
Constituents/Components of Money Market
The main constituents or components of the Indian
money markets are as follows,
1. Call Money Market
Call money market consists of overnight financing
and money needed at short notice for periods upto 14 days.
It is meant to balance the short-term needs of the banks. Call
money markets exist in all developed money markets. In fact,
it is the most sensitive part of the financial system. In India,
the call money market is centered in Mumbai. Institutions
ike IDBI, GIC, NABARD participate in the call money
market.
Features of Call Money Market
Some of the features of call money market are,
(i) Call money market is highly liquid in nature.
(ii) Call rates are fixed on the basis of the market
determinants.
i iii) Borrowers and lenders need to have a current account
with RBI because of short-term unsecured nature of
^market.
2. Treasury Bill Market
Treasury bill market is mainly concerned with the
treasury bills. The treasury bills are referred as the short
erm liability of the central government in India. These bills
ere offered for settling the temporary deficits faced by the
government.
Features of Treasury Bill Market
Some of the features of treasury bill market are,
Transaction costs are very low in case of treasury
bills.
ti) Treasury bills are highly liquid in nature.
iii) Treasury bills are available easily in RBI and other
commercial banks.
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3. Commercial Bill Market
Commercial bills are the credit instruments which
helps the business organizations and banking organizations.
The commercial bill legally aims at repaying the seller in
case of late payments by the purchaser. Usually, commercial
bills emerge from local transactions.
Features of Commercial Bill Market
Some of the features of commercial bill market are,
(i) Commercial bill is basically a written instrument
inclusive of an unconditional order duly signed by the
drawer, ordering a particular person (i.e., drawee) to
make payment of a particular amount on a certain date.
(ii) Commercial bills facilitate in transfer of ownership.
(iii) Payment of the commercial bills can be made either
immediately or after some time.
4. Certificate of Deposits Market
A certificate of deposit is a type of certificate given
by the bank to its depositors for a particular time period.
These certificates are same like conventional term deposits
but with the only difference that they are to be negotiated
and traded in short-term money market.
Features of Certificate of Deposits Market
Some of the features of certificate of deposits market
are,
(i) Certificate of deposits are the liabilities of commercial
banks or the financial institutions.
(ii) The maturity period varies from two weeks to one year.
(iii) Certificate of deposits are negotiable instruments.
5. Commercial Paper (CP’s)
Commercial paper is a short-term instrument of raising
funds by corporate. It is a sort of unsecured promissory note
sold by the issuer to the investor. The maturity of the CPs
is flexible. Highly rated corporate which can obtain funds
at a cost lesser than the cost of borrowing from banks are
particularly interested in issuing CPs.
Features of CP’s
Some of the features of commercial paper are,
(i) Commercial paper is unsecured and short-term loan
in nature.
(ii) It is one of the safest investment instrument as the
financial condition of a company may be forecasted
easily within short period of time.
(iii) Commercial papers can be issued at discount.
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6. Participation Certificates (PC’s)
Like certificates of deposits, banks also issue
participation certificates normally for periods ranging 6
months to one year. The purpose of developing participation
certificates is to allow a bank to obtain funds from other
banks and financial institutions when needed. There are two
types of PCs, 91 days PCs and 91-180 days PCs.
Features of PC’s
Some of the features of participation certificates are,
(i) Participation certificates have the combined features
of bonds and shares.
(ii) Participation certificates have guaranteed share in
profits.
(iii) They does not have right to vote.
7. Money Market Mutual Funds (MMMF’s)
A scheme of money market mutual funds was
introduced by the Reserve Bank of India in April 1992. The
objective of the scheme v as to provide an additional short­
term avenue to the individual investors.
Features of MMMF’s
Some of the features of MMMF’s are,
(i) The scheduled commercial banks and public financial
institutions usually sets up the MMMF’s.
(ii) Establishment of MMMF’s require approval from
RBI.
(iii) The shares of MMMF’s can be issued not only to the
residents but also to NRI’s (Non-Resident Indians).
Q93. What are the objectives and functions of money
market? Who are the major players in money
market?.
Answer :
Objectives of Money Market
The following are the objectives of money market,
(i) To help firms in executing the monetary policy of the
country’s central bank effectively.
(ii) To provide a path to the commercial banks to invest
for the short-term needs.
(iii) To fulfill the statutory requirements of statutory
liquidity ratio and cash reserve ratio.
Role/Functions of Money Market
The main functions of money market are as follows,
1. Money market expands the supply of funds by
producing different types of credit instruments which
suits and attracts various financial sectors/companies/
institutions.
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2. Smooth and efficient functioning of money market
assists in reducing the overflow or excess supply of
funds and inflexibility in the money market which
has been resulted due to seasonal variations.
3. Money market helps in controlling the seasonal ups
and downs in the interest rates.
4. Money market helps the whole country by increasing
the availability of liquidity amount.
5. To make funds available easily and on time to the
authorized borrowers (i.e., financial institutions/
organizations), the money market expands the supply
of funds and lends it at very less rates.
6. The money market increases the profitability of
financial institutions and individuals by giving
profitable investment opportunities for short-term
surplus funds.
Major Players in Money Market
Some of the major players in money market are listed
below,
❖ All Scheduled Commercial Banks
❖ Life Insurance Corporation of India
❖ General Insurance Corporation of India and its
Subsidiaries
❖ ICICI (Industrial Credit and Investment Corporation
of India Ltd.)
❖ UTI (Unit Trust of India)
❖ IRBI (Industrial Reconstruction Bank of India)
❖ Export Credit Guarantee Corporation Ltd.
❖ IDBI (Industrial Development Bank of India)
❖ IFCI (Industrial Finance Corporation cr India)
❖ NABARD (National Bank of Agriculture and Rural
Development)
❖ DFHI (Discount and Finance House of India Ltd.)
Q94. State the defects of money market.
Answer :
The following are the defects of Indian money market,
1. Existence of Unorganized Market
One of the main defect of the Indian money market is
the presence of indigenous bankers who do not differentiate
between the short-term finance or long-term finance.
Similarly, NBFC’s (Non-Banking Financial Companies)
raises funds from public but are not under the control and
regulation of RBI. The indigenous bankers and NBFC’s carry
out their operations outside the organized market. The control
and supervision of RBI is limited in unorganized sector.
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UNIT-2 : Industries and Tertiary Sector of India
2. Lack of Integration
The other significant drawback of money market is
lack of integration. The Indian money market is divided into
different heads which does not have any cordial relationship
with each other. The various heads in money market such
as, SBI and its subsidiaries, foreign exchange banks,
urban cooperative banks and indigenous bankers restricts
themselves in their respective business and are independent
in their respective fields. The Indian banks and foreign banks
presently does not have friendly relations with each other.
After enacting the Banking Regulation Act 1949, the banks
are becoming slowly united with each other.
3. Presence of Several Interest Rates
The other drawback of Indian money market is the
presence of several interest rates such as government rate for
borrowing, lending and deposit rates of commercial banks
and cooperative banks, lending rates of DFHI’s and so on.
The reason behind the presence of several interest rates is
immobility of funds from one area to another area.
4. Seasonal Stringency of Money
Another defect of Indian money market is the seasonal
stringency of money within an year. The period from
November to June was considered as busy season, as funds
' ere significantly needed to and for transferring the crops
from villages to cities and towns and high interest rates was
. barged under this season. The period from July to October is
considered as slack-season or off-season in which the banks
cave huge excess funds and low-interest rates were charged
curing this season. For this reason, more fluctuations exists
n the interest rates within a year.
5. Non-existence of Bill Market
One more defect of Indian money market is the
absence of commercial bill market or discount market
r specially for short-term commercial bills. This absence is
cue to some historical disasters like bank practices storing
•uge amount of cash for liquidity purposes, improper
craftjhg of bazar hundi, lack of warehousing facilities for
crong agricultural products etc.
6. Highly Sensitive Call Money Market
The funds borrowed in call money market are based
n the call money rates which are market determined and
cere are wide fluctuations in these rates. RBI made efforts
: reduce these fluctuations in the call-money-rates which
- as continued to be highly volatile.
Non-existence of Well-organized Banking
System
Well developed banking system in India is still
acking. This is the main defect of the Indian money market.
Before nationalization of banks (1969), branch banking
» as very slow in India. There are very less banks and were
i c ussing themselves in large cities and mandi towns.
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Q95. What is capital market? What are the components
of capital market? State the objectives and
importance of capital market.
Answer :
Capital Market
The capital market is an important element of the
Indian financial system. It is a market for long-term funds
for both debt and equity and such funds are raised within and
outside the country. The capital market facilitates economic
growth by mobilizing the savings of economic sectors and
directing them towards the channels of productive uses.
Components of Capital Market
The capital market is sub-divided into three
components. They are as follows,
1. Equity Market
(a) Primary Market (New Issue Market)
(b) Secondary Market (Stock Exchange).
2. Debt Market
(a) Government Securities Market.
(b) Long-term Loans Market.
Objectives of Capital Market
The following are the objectives of capital market,
(i) To develop those aspects which are important in the
effective functioning of capital market.
(ii) To eliminate impediments and develop incentives for
expanding the long-term investments related to the ,
productive activities.
(iii) To obtain greater participation of general public by
facilitating stock market and brokerage sendees.
(iv) To regulate the transactions at the stock exchange in
a fair and efficient manner.
(v) To protect the interest of the investors.
(vi) To provide the facility of e-commerce for enhancing
the capital markets.
(vii) To manage the compensation fund for protecting
investors from the financial loss caused due to the
failure of a licensed broker.
Importance of Capital Market
The role/importance of capital market in India’s
industrial growth can be explained with the help of following
points,
1. Savings Mobilization and Capital Acceleration
The capital market plays a significant role in a
developing country like India where there exists shortage of
resources along with increased demand for investments by
governments and industrial firms. Thus, capital markets help
in mobilizing savings from different sectors of the people
and also helps in getting good returns.
 114
2. Development of Industrial Growth
The capital market acts as a central market in
transferring the resources to the industrial sector of the
economy. The development of industrial sector helps the
people to make investments in productive activities than the
unproductive activities. Therefore, capital markets contribute
towards the industrial growth by mobilizing funds from the
public and transferring them to industrial sector.
3. Raising Long-term Capital
Presence of stock exchange helps the companies
to raise the permanent capital. The clashes of interests
are solved by the stock exchange by providing different
opportunities to the investors to either buy or sell the
securities and at the same time keeps the permanent capital
unaffected.
4. Ready and Continuous Market
The stock exchange helps the buyers and sellers to
conveniently buy and sell the securities as these securities
are easily marketable and are more liquid in comparison to
the other assets.
5. Proper Channelization of Funds
The capital market besides creating liquid with the
help of pricing mechanism also channelizes the funds to
the prospective industries. The people will be guided by the
current market price of security and its return so as to invest
in the specific firm and this result in the effective utilization
of public resources.
6. Providing Varieties of Services
Various services are provided by the financial
institutions such as,
(i) Providing long-term and short-term loans to the
entrepreneurs for starting, developing or expanding
their business enterprises.
(ii) Providing underwriting facilities.
(iii) Encouraging participation in the equity capital.
(iv) Providing effective advice for managing the
investment in securities of industries.
2.18 PUBLIC FINANCE
Q96. Define Public Finance. Discuss briefly its
subject matter and nature.
Answer :
Public Finance
The term ‘Public’ means a group ofpeople represented
by the government and the term ‘finance’ means monetary
r^burces. The word ‘Public Finance’ is derived from an
Italian word ‘Fisc’ which means government treasure. It
deals with the expenditure and revenue activities of the
government at the local, state and central levels.
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Public finance can be defined as the branch of
economics which studies the income, expenditure and
various other economic activities of the government
related to its special economic objectives like economic
development, full employment, price stability, equitable
distribution of wealth and income etc.
Bastable defined public finance as “Public finance
deals with expenditure and income of public authorities and
their mutual relation as also with financial administration
and control”.
According to Buchnan, “Public finance studies the
economic activities of government as a unit”.
Findley Shiras also stated that, “Public finance is a
study of the principles underlying the spending and raising
of funds by public authorities”.
Subject Matter of Public Finance
The subject matter of public finance refers to the
financial activities of the government. It can be broadly
classified into the following parts,
1. Financial Administration
It is a branch of public finance which deals with
the study of financial administration or expenditure and
income ofthe government. It also studies various problems
related to the drafting of the budget, its application and
its acceptance etc.
2. Theory of Public Expenditure
It deals with the problems of the government relating
to its expenditure. It is done for distributing the resources of
the country and for achieving the objectives such as defence,
administration, full employment, economic development
price stability.. Prof Musgrave also called it as allocation
branch.
3. Theory of Public Revenue
It deals with the study of various sources of revenue
ofthe government like deficit financing, public debt, taxation
etc. It also analyzes their comparative disadvantages anc
advantages. In addition to economic development, equitable
distribution of wealth and income is the main objective of
the taxation policy of the government. Therefore, Prof.
Musgrave also called it as distribution branch.
4. Federal Finance
This branch of public finance studies the distributor
of the various sources of expenditure and income among
the state and the central governments in the federal system, j
Hence it is regarded as the subject-matter of public finance :
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UNIT-2 : Industries and Tertiary Sector of India
5. Stability and Growth
At present, public finance highly aims at bringing
economical stability and growth by solving the various
related problems. In order to achieve this goal, the
government of India has formulated a fiscal policy consisting
of several fiscal instruments facilitated towards achieving
economic stability. Therefore, Prof. Musgrave also called it
as stabilization branch.
Nature of Public Finance
Public finance acts as a science and as an art by nature.
Therefore, the nature of public finance can be understood
will by using the following,
1. Public Finance as a Science
The following points highlight the nature of public
finance as a science,
(i) Science can be defined as a systematic study of
casual relationship between the factual information
public finance is a systematic study of expenditure
and revenue of the government and the relationship
between them. Hence public finance is considered as
a science.
(ii) It is mainly concerned with the limited and definite
field of human knowledge.
(iii) It utilizes scientific methods for studying its various
subject-matters.
(iv) Its principles are empirical.
(v) It acts as a positive science, as it provides factual
information regarding the expenditure and income
problems of the government. For example, the study
of public finance offers information of various types
of taxes, continuous increase in the expenditure of
government public debt etc.
It also acts as a normative science, as it prescribes
the quantum of taxes, direct and indirect taxes to be
levied, public expenditure incurred on various items.
2. Public Finance as an Art
According to J.N. Keynes, “Art is the application.
of knowledge for achieving definite objective”. The fiscal
policy of public finance utilizes the information of revenue
and expenditure of the government for achieving the
objectives of economic equality, complete employment,
price stability, economic development etc. For achieving
economic equality, taxes must be levied by carefully
planning their volume and timing to prevent opposition by
the people. This process itself is an art. It addition to this,
budget making is also an art. Hence, public finance is an
art. Regarding this Mrs. Ursla Hicks has stated that, “Public
Finance is an art. It is concerned with real problems”.
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2.18.1 Tax Structure of India_____ ______
Q97. Define Tax. What are the characteristics and
objectives of Tax?
Answer :
Definition of Tax
According to Prof. Adams, ‘Tax’ is defined as, ‘a source
of derivative revenue from the state point of view, a coerced
payment from the angle of the citizen, a demand for money by
state in conformity to established rules, from the administrative
point of view and a contribution from individuals for common
expenditure from a theory point of view’.
Characteristics of Tax
The following are the important characteristics features
of tax,
1. Tax is levied by governmental bodies in order to meet
the socio-economic objectives of the country.
2. Payment of tax is must for citizen. Defaulters are liable
to face legal punishments.
3. Collection of tax is legal and it can be imposed only by
government authorities.
4. Tax has to be paid regularly and periodically or as per
the regulations of the respective country.
5. It is a major source of income to the government for
meeting overall expenditure.
6. The purpose of collecting taxes by the government is to
promote welfare of the citizens.
7. At present, tax has to be paid only in form of cash.
In ancient days people use to give ornaments and
agricultural products etc, in respect to tax.
8. In general, tax is imposed on Income, Wealth and
Commodities.
Objectives of Tax
The basic objective of imposing tax on individuals by
government is to raise fund for meeting overall expenditure.
Apart from basic objectives, taxation also includes many
other objectives. They can be studied under two heads namely
Traditional objectives and Modem objectives.
1. Traditional Objectives
This type is subdivided into main and subsidiary
objectives. They are as follows,
(a) Main Objectives
❖ Raising of fund for meeting day to day expenditure.
❖ Maintenance and promotion of Socio-Economic
welfare of citizens.
❖ Redistribution of wealth so as to uplift the
backward sections.
❖ Protection of domestic trade and industry from
international businesses.
❖ Ensuring satisfactory development rate in all the
regions of the country.
116 SECTORS OF INDIAN ECONOMY
(b) Subsidiary Objectives (i) Income Tax
❖ Encouraging savings and thereby investing in The government imposes tax on the individual’s income
public limited companies. which arise from different sources. According to the state
❖ Accelerating true economic growth. of tax (i.e., progressive, proportional, regressive), the
rate of tax rises or remains constant or declines with the
❖ Controlling the consumption of scarce rise in income.
commodities.
(ii) Inheritance Tax
2. Modern Objectives
If any person receives a property from his/her ancestor
With the passage of time, certain objectives have also
he/she is liable to pay tax on such property' or wealth
been added in the concept of Taxation. In past, taxation was used
which is imposed by the government.
only to fulfill certain specified basic requirements. But in present
days, taxation is a key instrument for governmental authorities (iii) Dividend Tax
in ensuring effective economic growth and in balancing income
Divided tax is collected by government from companies
and wealth of individuals. Some of the modem objectives of
when they pay dividends to the shareholders.
taxation are as follows,
❖ Encouraging and motivating the concept of capital (iv) Estate Duty
formation. This type of tax is charged on the whole property which
❖ Increasing employment opportunities. is left by a deceased person. At present, estate duty has
been dissolved in India.
❖ Controlling inflation as well as deflation.
Note
❖ Controlling and regulating consumption on the
significant commodities. According to 2015 budget, Wealth Tax Act is dissolved
in the country because of greater administration cost and
❖ Strengthening exports in comparison to imports.
inability to collect wealth tax. In order to compensate the loss,
❖ Restricting threats from international competitors to the government therefore has raised the total surcharge to 12%
domestic industry. from 10%.
Q98. Explain tax structure in India. Some of the indirect taxes imposed by central
Answer : government are,
Indian Tax Structure (a) Customs Duty

The constitution of India allows Central Government,
State government as well as local government (municipalities
and panchayats) to impose taxes on the individuals. Some
are direct taxes and some are indirect taxes levied by these
government on individuals. An overview of Indian tax structure
can be understood from the following figure,
(b)
Indian Tax Structure
These taxes are popularly known as tariffs. They are
generally imposed on exchange of goods and services
between countries. Therefore, a country imposes custom
duty on both imports and exports and then collects
revenue tariffs on imports.
Excise Duty

The excise duty is imposed by the government for

producing the goods for home consumption. Generally,
the central government collects it at a specified rates.
Cerltral Government State Cgovernment Lo cal Government
(c) Sales Tax
h - Sales tax is represented as tax on total expenditure. The
I 1
government imposes sales tax as a proportion or share
Direct Indirect Indi rect Taxes of the retail price of a product at the time of sale.
Taxes Taxes Taxes Taxes
2. State Government
Figures: Structure of Indian Tax system.
The taxes levied by state government on its individuals
1. Central Government are as follows,
The central government of India imposes direct and ❖ Direct Taxes
indirect taxes on individuals. Direct taxes imposed by central
government are as follows, Following are the direct taxes,

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(i) Professional Tax Forms of Direct Taxes
Professional tax is imposed by state government Following are the direct taxes levied by the central
on salaried employees, professionals (Chartered government,
Accountants, lawyers, Engineer’s etc) and on business.
A specified amount has to be paid in lumpsum annually 1. Income Tax
by all these individuals as professional tax. Salaried At present Income Tax Act, 1961 is in force in India.
employees are given option of paying their professional Income tax is mainly computed on the total annual income
tax monthly. of a person. It is charged every year on both legal and illegal
(ii) Agricultural Income Tax income earned by a person. The scope of total income relies
Presently Agricultural Income Tax is not levied by any
upon the residential status of a person.
state in India. But income from agriculture will be taken 2. Dividend Tax
into account while calculating tax on total income.
Dividend tax is paid by the companies on the dividend
❖ Indirect Taxes paid to the shareholders. This is an additional tax to the
Following are the indirect taxes, company’s income tax.
(i) Value Added Tax (VAT) 3. Inheritance Tax
VAT is a common tax applied by the government at each If any person receives a property from his/her ancestor
point of exchange of goods from basic production to he/she is liable to pay tax on such property or wealth which
final consumption. The evaluation of VAT is based on is imposed by the government. However, this type of tax is
the difference between the sale price of goods or services not functioning today.
(outputs) and the cost of goods and services (inputs)
bought for its production. Except VAT, the cost of inputs 4. Estate Duty
consists of charges including all taxes. The whole tax This type of tax is charged on the whole property
is bom by the final consumer as the tax passes from the which is left by a deceased person. At present, estate duty
producer of raw materials to consumer which covers has been dissolved in India.
both producers and traders at each point of exchange.
Note
(ii) Entertainment Tax
According to 2015 budget, Wealth Tax Act is dissolved
State government impose entertainment tax on
cinemas, T.V serials, trade fairs, exhibitions and other in the country because of greater administration cost and
entertainment related activities. inability to collect wealth tax. In order to compensate the
loss, the government therefore has raised the total surcharge
(iii) Motor Vehicle Tax
to 12% from 10%.
When a vehicle is purchased by an individual, he need
Advantages of Direct Taxes
to pay motor vehicle tax to state government. Motor
vehicle tax has to be paid once in life time, whereas Following are the advantages of direct taxes,
other taxes have to be paid periodically.
1. Equity
3. Local Government
Direct taxes are equitable as poor people are required
Local government relates to municipalities in urban to pay low or no tax and rich people are required to pay high
areas and panchayats in rural areas. The taxes imposed by local tax.
authorities are,
2. Economy
❖ Property tax
Compared to indirect taxes, the cost involved in
❖ Octroi
collecting direct taxes is less because direct taxes are paid
❖ Sewerage tax directly to the government.
❖ Municipal tax etc. 3. Controls the Effects of Business Cycle
Q99. What are direct taxes? Explain with their Direct taxes may be used to reduce the effects of
advantages and disadvantages. inflationary and deflationary trends by either raising or
Answer : reducing the tax rates.
Direct Tax 4. Certainty

A tax which is imposed by the government on a Both tax payer and government are certain about the
particular person where he cannot transfer the burden of tax amount of tax to be paid or received and time at which tax
to any other person is known as direct tax. has to be paid or received.
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5. Reducing the Inequalities
Basically direct taxes affect the rich people. The
government can improve the standard of living of poor
people by spending tax amount on increasing the income
levels of poor people.
Disadvantages of Direct Taxes
Following are the disadvantages of direct taxes,
1. Complex Laws
The provisions of direct taxes include the exemptions,
deductions, chargeability of income and so on. These
provisions may be difficult to understand for a common man
and would take the help of a ‘tax consultant’.
2. Unpopular
Compared to indirect taxes, direct taxes are not much
famous among tax payers. Usually people resist paying direct
taxes.
3. Possibility of Tax Evasion
Possibility of tax evasion is more in case of direct
taxes than compared to indirect taxes.
4. Arbitrary Tax Rates
Generally, tax rates are decided by the minister in
charge by taking the help of tax department officials who
do not know how to evaluate the tax payment capacity of
the people.
Q100. Discuss indirect tax with its form, advantages
and disadvantages.
Answer :
A tax which is imposed by the government on a
particular person but he can transfer the burden of tax to
other persons is known as indirect tax. Therefore, tax payers
are not tax bearers in case of indirect taxes.
Forms of Indirect Taxes
The follow ing are the popular forms of indirect taxes
which a^e imposed by the government,
1. Excise Duty
The excise duty is imposed by the government for
producing the goods for home consumption. Generally, the
central government collects it at a specified rates.
2. Value Added Tax (VAT)
VAT is a common tax applied by the government
at each point of exchange of goods from basic product <
to final consumption. The evaluation of VAT is ba^ed on
the difference between the sale price of goods or services
(outputs) and the cost of goods and services (inputs) bought
for its production. Except VAT, the cost of inputs consists of
charges including all taxes. The whole tax is borne by the
final consumer as the tax passes from the producer of raw
materials to consumer which covers both producers and
traders at each point of exchange.
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SECTORS OF INDIAN ECONOMY
3. Custom Duty
These taxes are popularly known as tariffs. They
are generally imposed on exchange of goods and services
between countries. Therefore, a country imposes custom
duty on both imports and exports and then collects revenue
tariffs on imports.
4. Sales Tax
Sales tax is the tax on total sale of goods. The
government imposes sales tax as a proportion or share of
the retail price of a product at the time of sale. .
Advantages of Indirect Taxes
Following are the advantages of indirect taxes,
1. Productivity
Government can generate huge revenues by levying
certain taxes. For example, tax on goods and services with
inelastic demand. Thus, indirect taxes are considered to be
highly productive in nature.
2. Wide Coverage
Indirect taxes covers both rich and poor people to
contribute to the government which is nothing but taking
part in the development of the country.
3. Convenience
Indirect taxes usually included in the price of goods
and services itself. So, tax payer does not come to know that
he has already paid tax while purchasing such goods and
services. Hence, tax payer does not feel burden to pay tax.
Disadvantages of Indirect Taxes
Following are the disadvantages of indirect taxes,
1. High Cost of Collection
There is high administrative cost of collecting indirect
taxes as have to be collected in small amounts from huge
number of people.
2. Violation of Ability to Pay Principle
Rich as well as poor people need to pay same amount
oftax on the prices of goods which is oppose to the principle
of‘ability to pay’.
3. Uncertainty
Revenue which is to be collected through indirect
taxes involves uncertainty as it is difficult to predict the
demand for goods which is affected by various factors.
4. Inflationary in Nature
Indirect taxes results in increase in the prices of
raw materials, finished goods etc which ultimately creates
inflationary trends in the country'.
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2.18.2 GST__________
Q101. Define GST. Explain its origin and important
concepts.
Answer :
Goods and Services Tax [GST]
GST is widely established and a complete tax that
is imposed on goods and services utilized in an economy.
GST is primarily a tax on final consumption and is imposed
at every level of production-distribution chain with relevant
setoff’s in regard of the tax remitted at early levels.
GST is also defined as tax on goods and services which
is imposed at every point of sale or provision of service.
Origin of GST
GST is also known as Value Added Tax (VAT) or
Harmonized Sales Tax (HST) which was initially developed
by German economist in 18th century. He levied sales tax on
the final price on goods charged to the consumer but not on
the cost of manufacturing or distribution. The tax is always a
constant percentage of the final price, irrespective of number
of transactions the goods went through. In 1954, the tax was
finally accepted by finance. Maurice Laws, joint director of
French Tax Authority, was the first person who introduced
VAT on 10th April, 1954. For the first time tax was imposed
on large businesses later on it extended to all business sectors.
The end consumers of products and services cannot
recover VAT on purchases, but it is possible for businesses
to recover VAT on the material and services that are brought
to perform further supplies or services directly or indirectly
which are sold to the final consumers. Value-Added Tax is
introduced because very high sales taxes and tariff’s leads
to smuggling and cheating.
VAT avoids cascade effect of sales tax only by
imposing the tax on production at each level. It has been
obtaining benefits in worldwide over traditional sales taxes.
Essentially, VAT is applied to all commercial activities
including the distribution and production of goods and
services. It is evaluated and collected on the value added to
goods in every business transaction. Here, the government
levied tax on the gross margin of each transaction.
Important Concepts of GST
The important concepts of GST are taxable event,
supply and service.
1. Taxable Event
It is that on occurrence of which the charge is constant
and creates or attracts the tax liability. This liability cannot
be resulted at anytime earlier or later point of time. If
taxable event occurs to be at a specified point of time, the
levy and collection of that tax is postponed to later date for
management’s advantage.
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119
If the liability to pay tax arises and liability to pay tax
arises by the occurrence of taxable event then tax becomes
payable and it can be levied only on taxable event. But, in
seventh schedule to constitution, all taxable events are not
considered in the legislative entries.
Example : Supply of goods and services.
GST means a tax that is imposed on supply of goods or
services or both except on alcoholic liquor for consumption
of human. Hence, branch transfers and stock transfers are
also considered in net GST.
2. Supply
Supply is that which can be supplied or provided, the
available collection of goods required or demanded with an
amount adequate for a given purpose or use. “Consideration”
is not needed for supply. Free supply of goods and services
are liable to GST. In addition, there is no requirement for
two legal entities. The goods or services are supplied from
one branch to another branch.
3. Service
It means the activity which is performed by an
individual for remuneration and involves a declared service.
It should not involve,
(a) An activity which amounts to only,
(i) Transfer of title in goods or services or
immovable property in the manner of sales, gift
or in any other way,
(ii) A transaction in monetary or actionable claim.
(b) A service that is provided to the employer by any
employee with respect to the employment.
(c) The fee collected in any court or tribunal initiated
under the law for the time being in force.
Q102. Why GST is the preferred tax structure? Discuss
the taxes under GST. State the benefits of GST.
Answer :
The application of GST make sure that tax regime
provided by India is similar to the world. It will enhance
the global cost competitiveness of local goods and services
and also promotes an impartial tax structure that is equal to
geographical locations and business processes.
Various obstacles in the prevailing taxation system
in India will be eliminated by the application of GST. Few
obstacles are as follows:
(a) Tax Cascading
With the help of input tax credit mechanisms, the
Goods and Services Tax Act will resolve the issue of tax­
cascading. In this system, sellers or vendors of goods and
services can utilize tax credits on the amount of GST paid
to available procurements. Credits can be utilized by the
manufacturers for the GST paid to obtain inputs, capital
120 SECTORS OF INDIAN ECONOMY
goods and services used in the manufacturing process. Taxes Under GST
Similarly, wholesalers and retailers can utilize credits for
the GST paid for acquiring stock. The final customer who The former tax regime in India consisted of numerous
buys the product for consumption cannot take advantage of taxes such as Excise Duties, Value Added Tax or Central
any tax credit. Sales Tax, Service Tax, Entry Tax and Octroi. All these taxes
There are many products and services that does not will be substituted with the following taxes under GST,
come under the reach of CENVAT and service tax. The
exempted sectors cannot demand any credit of the input
tax. Similarly under the state VAT, credits are not permitted
for the inputs obtained and utilized in relation to exempted
sectors. Unworthiness in making use of credits results in tax
cascading. Effect of tax cascading in India is immensely high
because of huge number of exemptions.
(b) Complexity
In India, currently there is Central Sales Tax and
respective VAT Acts for each state and union territory relating
to taxing of sale of goods. This complication is eliminated
by the Goods and Services Tax through a unified code for
exertion of state GST in different states. The GST not only
includes huge number of indirect taxes but also resolves
the problem of classification by establishing only one or
Central Goods and Service Tax (CGST)
two rates of tax. Apart from this, there are some categories
which are exempted or zero rated. Central Goods and Service Tax is also known as
Activities in supply chain are accountable to CGST. It is levied in the course of supply of goods and
several taxes. For instance, excise duty is applicable to services in the states and union territories. The taxes which
manufacturing of goods and state VAT or CST is applicable are included under CGST are as follows:
to the sale of manufactured goods. Uniform single tax is
ensured by the GST throughout the complete supply chain. (i) Central Excise Duty
(c) Double Taxation (ii) Service Tax
GST does not make any variation in goods and
services, as it is imposed at every phase in the supply (iii) Additional Duties of Customs (ADC)
chain. This helps in resolving double taxation problem. The (iv) Special Additional Duty of Customs (SAD)
problem is not only in the taxes of customs duties, excise
duties and service tax but also between service tax and VAT. (v) Duties of Excise (Medicinal and Toilet Preparations)
In the case of BSNL vs. UOI (2006(3)SCC-l), the (vi) Additional Duties of Excise (Goods of Special
problem of double taxation was conveyed by the honorable
Importance)
supreme court stating that same activity cannot be viewed
as both j^oods and services, therefore both service tax and (vii) Additional Duties of Excise (Textiles and Textile
VAT should not be imposed on the same set of dealings. Products)
Application of GST will solve the confusion of the
assessee relating to category of tax applicable on particular (viii) Cesses and Surcharges.
transactions like software development, sale of sim cards The taxes which are not included in CGST are:
by telecom operators, online subscription of newspapers,
value added services provided by telecom operators, right (i) Excise Duty on Petroleum Products
to distribute movies etc. (ii) Excise Duty on Tabacco Products
(d) Composite Contracts
(iii) Basic Customs Duty
Huge number of works contracts include the supply
of goods and services which are provided to customers under (iv) Other Import Duties - Antidumping.
various supply Chain arrangements. These situations rise due
State Goods and Service Tax (SGST)
to overlapping in taxation of goods and services as state does
not have the power to levy tax on services whereas centre State Goods and Service Tax is also known as SGST
cannot levy tax on sales of goods within the state. In this It is levied while dispensing the goods and services within
situation, application of GST is the complete solution. the state. The taxes that are included under SGST are,
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(i) Value Added Tax
(ii) Purchase Tax
(iii) Luxury Tax
(iv) Entry Tax
(v) Entertainment Tax
(vi) Taxes on Advertisements.
The taxes that are not included under SGST are,
(i) VAT on petroleum products
(ii) State Excise on Alcoholic Products
(iii) Stamp Duty
(iv) Electricity Duty
(v) Entertainment Duty
(vi) Royalty
(vii) Vehicle Tax.
Integrated Goods and Service Tax (IGST)
Integrated Goods and Service Tax is also known as
IGST. It is levied on goods and services in the course of
supply between the states or union territories or between the
states and union territory and viceversa. Central Sales Tax
is replaced by IGST.
Countervailing duty and special additional duty is
replaced by IGST in case of imports and other taxes which
come underneath customs will be the same eventhough GST
rollout. The person importing services have to pay IGST on
reverse charge basis. IGST has to be paid on export of goods.
Union Territory - Goods and Service Tax (UT GST)
Union Territory Goods and Service Tax is also known
as UT GST. It is levied in the course of supply of goods
and services within or between the union territories. The
government has made a clause that this act need no amendent
ev^n if a new union territory is formed in future.
GST Cess
A new tax is imposed on selected goods like Pan
masala, Tobacco products, Coal, aerated waters etc under
GST which is charged on rate basis on the transaction value.
On coal and solid fuels, it is imposed on per ton basis. The
government informs the list of goods which come under cess
from time to time based on the advice of the GST council.
Cess is imposed to recompensate the states in case of revenue
loss while adopting GST for the first five years.
Benefits of GST
The benefits of GST are as follows,
1. It removes cascading effect of taxes throughout
the supply chain by lowering the cost of carrying
out business and develops competitiveness in the
economy.
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2. It abolishes variety of taxes, rates, exemptions and
exceptions.
3. It removes dual taxation of similar transaction.
4. It reduces the production cost.
5. It implements uniformity in taxes throughout the
territory, irrespective of place of manufacture or
distribution.
6. It delivers absolute surety and clarity of taxes.
7. It develops acceptance to tax throughout the economy.
8. It increases and develop progress of the company.
2.18.3 Budgets and Economic Survey
Q103. What is a budget? What are its components?
Explain the importance and structure of budget.
Answer :
Budget
Fiscal policies carry out its operations with the help of
budget. Sometimes, fiscal policy is also called as budgetary
policy. The term ‘budget’ is originated from the French
word “Bougette” which refers to leather bag or wallet used
for lifting financial papers. In simple words, budget refers
to papers which includes financial matters.
Budget is an estimation of revenue and expenditure.
According to Philip V. Taylor, “budget is a master financial
plan of the government. It brings estimates of anticipated
revenues and proposed expenditures, employing schedule of
activities to be undertaken towards the direction of national
objectives. It is a device for consolidating various interests,
objectives, desires and needs of the people into a programme
whereby they provide for their safety, convenience and
comforts”.
Components of Budget
Budget consists of four components. They are,
(i) Certain review of economy
(ii) Major policy announcement
(iii) Expenditure proposal
(iv) Tax proposal.
Fiscal policy performs three main functions which
are as follows,
(i) Allocation Function of Budget Policy
It deals with the provision for social goods. In this
function, the total resources are classified into private
and social goods.
122 ofindian ecorumt

(ii) Distribution Function of Budget Policy

It deals with the fair and equal distribution of income and wealth.
(iii) Stabilization Function of Budget Policy
It deals with creating high-employment opportunities, adequate price stability and attaining pr oper rate of economic
growth by considering its impact on trade and balance of payments.
Thus, budget consists of revenue and expenditure. Revenue and expenditure is classified into capital and revenue
account. Receipts are shown as capital receipts and revenue receipts, and expenditure is represented as revenue expenditure
and capital expenditure.
1. Public Revenue
It consists of revenue budget and capital budget.
(a) Revenue Budget
Revenue budget includes revenue receipt and revenue expenditure.
❖ Revenue Receipts
It covers tax revenue and other revenues.
Tax Revenue: It includes taxes and other duties imposed by the union government.
Other Revenue: It includes receipts of interest and dividends on investments made by government included
fees and receipts of the services offered by government.
❖ Revenue Expenditure
An expenditure incurred for operating government departments and different services such as interest paid on
debt, subsidies and so on. Thus, an expenditure which does not lead to the creation of an asset is called as revenue
expenditure.
(b) Capital Budget
Capital budget includes capital receipts and capital payments.
❖ Capital Receipts
It covers market loans (loans raised by government from public), borrowings by government from RBI and other
parties (by selling the treasury bills), loans received from foreign bodies and government, recoveries of loans
given by union government to states, union territory government and other parties.
❖ Capital Payments
Capital payment consists of expenditure incurred on purchase of assets such as land, buildings, machinery etc.,
investment in shares, loans and advances given by union government to state and union territory companies,
corporations and other parties.
Mobilization of Resources
The funds mobilized for financing development expenditure is classified under the following heads,
❖ Taxation
❖ Profits of public sector
❖ Domestic non-monetary borrowing
❖ External borrowing
❖ Borrowing from RBI also called ‘Monetized Borrowing’.
Few other sources of revenue are fee, fines, forfeitures and escheats, tributes and indemnities, gift and grants.
2. Public Expenditure
Public expenditure is divided into two types. They are as follows,
(a) Non-plan expenditure
(b) Plan expenditure.
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(a) Non-plan Expenditure

Non-plan expenditure is classified into two types,

❖ Revenue Expenditure

It consists of interest payments, defence revenue expenditure, main subsidies (export, food and fertilizer),
interest and other subsidies, debt relief to farmers, postal deficit policies, pension and other general services,
social service, economic service and grants to states and union territories, and grants to foreign government.
❖ Capital Expenditure

It consists of defence capital expenditure, loans to public entities, loans to states and union territories and loans
to foreign government.
(b) Plan Expenditure

Plan expenditure deals with financing central plans like agriculture, rural development, irrigation and flood control,
energy, industry, minerals, transport, telecommunications, science and technology and environment, social services
and others including central assistance for state plans and union territories.
Structure of Budget

The structure of budget is illustrated in the figure given below,

(Income from
PSUs).

Figure: Structure of Budget

—cortance of Budget

Budget is one of the important government measure which influences the entire economy. It is considered as the
prrr e factor of the growth and development of Indian economy. Budget is released annually by the Finance Minister. The
■si: e from all the states eagerly wait when finance minister releases the annual budget in the parliament in the presence
s re Prime Minister and other ministers.
Nearly, half of the GDP is utilized for government sector and is spend by the Union Government, State Government
■u _ nion territories under different development and non-development categories. This signifies the distributive and
«fc»eiopment significance of the budgetary operations.
Government expenditure is substantialy increasing in absolute and relative terms. The total budgetary expenditures
t i per cent of GDP is around 50 per cent (including centre, states and union territories) from which central government
renditure accounts to one-fourth of the GDP.
The gross capital formation which has arised from the budgetary operations of the central government has increased
sgruficantly over the years.
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124 SECTORS OF INDIAN ECONOMY
The budget policy of a developing country like India should meet the following objectives,
(a) Increase the speed of economic development by gathering resources for public sector and its optimum allotment.
(b) As per the national preference, improving the production rate in the private sector.
(c) Encourage exports and support import substitution.
(d) Enhance the income distribution.
(e) Attain economic stabilisation (stability).
Besides effective allotment of budgetary resources, different fiscal incentives and disincentives can also be utilized
by the budget for fulfilling the above stated objectives.
Q104. Give the highlights of Economic Survey 2017.
Answer :
Some of the important highlights of economic survey of 2017 are as follows,
1. India occupies center position in the world economy.
2. Focusing energetic youth to avail the benefits of growth and employment.
3. In 2017, IMF has forecasted that there will be rise of 3.4 percent in world GDP.
4. India face risk in the form of oil prices, rising dollar and volatile commodity prices.
5. India have witnessed many historic reform in last year which makes it as an engine of global growth.
6. Agenda of budget is transform, energise and clean India.
7. There was a temporary impact of note ban on economy.
8. An expected growth of 4.6% in agriculture sector and targeted agriculture expenditure is ? 10 lakh crore.
9. Abolition of Foreign Investment Promotion Board (FIPB).
10. Service charge will be removed, if rail tickets are booked through IRCTC.
11. Aadhar cards will be issued to senior citizens focusing on their health condition.
12. Expenditure relating to defense excluding pension will be ? 2.74 lakh crore.
13. Government planning to start strategic crude oil reserves in Odisha and Rajasthan.
14. New metro rail policy will be announced which results in job opportunities for youth.
15. Surcharge of 10% will be charged to individual whose annual income is ? 50 lakh to 1 crore.
16. Small firms with turnover of ? 50 crore has to pay tax of 25% instead of 30%.
17. It is suggested by Black Money SIT that no cash transaction will be accepted above 3 lakhs.
18. Income tax rate was reduced from 10% to 5% for tax slab of ? 2,50,000 to 5,00,000.
19. There is no changes in fertilizer subsidy in 2017-18 at ? 700 billion.
20. Poetical parties can receive donations either by cheques or digital modes a maximum amount of? 2000 from one
source._____________ _____ _________ , ____________________________________________________ _
Q105. Explain the impact of budget on different sectors.
Answer :
Budget have both positive and negative impact on different sectors. Some of the important sectors are explained
below,
1. Impact on Infrastructure
Infrastructure investment and development were key priorities of the government even previous budgets also
spend much on infrastructure sector. Budget of 2017 greatly emphasize on infrastructure development with increased
expenditure of INR 3,961 billion. According to report, it is observed that government has given high budgetary allocations
to infrastructure sector with additional benefits to solve long standing problems in the sector.
2. Impact on Consumer Business
Budget of 2017 aimed at increasing the purchasing power of the rural population by bringing more than 1 crore
households out of poverty by increasing their livelihood. There will be increase in disposable income of consumer because
of direct tax incentive which will be in form of fall in individual taxes and corporate tax rates for small and medium players.
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3. Impact on Manufacturing

From past two years, government is emphasizing on developing a long term growth plan of manufacturing sector
by investing resources in both infrastructure and rural market development. A considerable amount is allocated to these
sector in financial budget 2017.
4. Impact on Regulatory and Financial Measures

Union budget of 2017 has planned to increase transparency in funding political parties and regulatory payment
systems. Beside this, new provisions were made to avoid generation ofunaccounted money, widening of investment avenues
of private trusts and benefit the farmer community.
5. Impact on Energy and Resources

Greater dependency of India on Oil and Gas forced government to take many steps to increase domestic production
of Oil and Gas and protecting the resources abroad for energy security. Some of the steps taken by government in budget
were establishment of an integrated oil company, fall in Basic Customs Duty (BCD) on LNG from 5% to 2.5%, target to
reach 1,75,000 MW of renewable power capacity by 2022.
6. Impact on Life Sciences and Health Care

In Indian Union Budget 2017, the government has shown the necessity to make changes in Drugs and Cosmetics
Rules to get drugs at reasonable prices and enhance the use of generic medicines. Government proposed to make new rules
for regulatory medical devices which generate investments and minimize cost of such devices.
7. Impact on Foreign Portfolio Investment (FPI)

Foreign portfolio investors are allowed to directly access the bond trading platforms, the investor base will be
increased through government and corporate paper.
8. Impact on Financial Services
The finance minister seems to be more pleased with financial services sector in 2017. Some of the key reforms
were announced like setting up of long term irrigation fund, micro irrigation fund and dairy processing and infrastructure
development fund. Additional ? 80,000 million were allocated for completing 10 million houses under the Pradhan Mantri
Awaas Yojana-Gramin. Legal framework of stressed assets was strengthened and INR 1,00,000 million were kept to
re-capitalise banks to handle stressed assets.
9. Impact on Technology, Media and Telecommunications (TMT)
The main theme of budget was digital economy, large scale technology investments were intend to have this paradigm
shift. India’s TMT sector is considered as platform which will accelerate economic growth. Budget have focussed on overall
TMT sector by emphasizing on digital economy, develop digital transactions to widen the tax base, create opportunities
for technology interventions like infrastructure, financial services, education, health care, governance and public services.

2.39 FINANCIAL RELATIONS BETWEEN CENTRE AND STATES

Q106. Briefly discuss the financial relation between the central government and the state government.

Answer :

The financial relations between the central government and the state government are contained under article 268
to 293 in part XII (A) of the constitution of India. There are various subjects upon which the central government levies
tax and there are other subjects upon which the state government levies tax. The following points highlight the financial
relation between the centre and states.
1. The subject list which are exclusively taxed by the central government include customs duty, corporate tax, capital
gains, railway fares, additional surcharge on income tax etc.
2. The states enjoys exclusive powers to tax subjects such as land revenue sales tax, agricultural income, stamp duty
entry/ tax, taxes on vehicles and luxury items tax.
3. Any subjects which are not included in the list of subjects taxed by either the central or state, would be by default
taxed by the central government.
4. The constitution of India do not recognize any concurrent jurisdiction in relation to taxes.
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126 SECTORS OF INDIAN ECONOMY
5. Apart from the exclusive powers, of the centre and state, there are three categories of taxes as discussed below,
(a) Some categories of taxes are levied by the center but collected by the state government. These includes stamp
duty on bills of exchange, excise duties on medicines etc.
(b) Some categories of taxes are levied and collected by the center but the proceeds are proportionately distributed
to the states. Example: Estate duty on property, duty on property tax (except for agricultural property) tax on
railway fares.
(c) Some categories of taxes are levied and collected by the center but the proceeds are distributed between the
center and the states. Example: Taxes on non agricultural income etc.
6. Overall, the central government of India collects more tax money in comparison to the state governments. However
Article 275 states that the center may provide grant in aid to any state it thinks is in need of financial assistance.
7. A finance commission appointed every five years. It appraises and advises the president of India about the various
updates about the financial relationship between the center and the states.
8. Based on the recommendations of the planning commission, the central government would provide loans or give
guarantees on loans taken by any state.
9. Article 301 of the Indian constitution, which deals with freedom of trade, commerce guarantees free trade across the
full territory of India. However the Indian parliament has the power to impose temporary restrictions, in the interest
of the general public.
10. Taxes on income other then agricultural income are levied by the central government. However the state governments
_____ may levy taxes upon profession, trade etc.____________________________________________________________
Q107. Throw some light upon the centre-state conflict on finances.
Answer :

In recent years, there had been growing conflict between the centre and states, on the matter of finances (tax revenues).
These are highlighted under the following points,
1. The basic assumption about a strong centre and weak state is debated by states such as Tamil Nadu, West Bengal,
Maharashtra, Jammu and Kashmir etc. They advocate for a strong centre and equally strong state (in relation to
.finances).
2. Some states expressed that the central government is interfering in the affairs of the states. Example: Law and order
is a state subject.
3. The sources of finance of the central government are highly elastic. However in case of state governments they are
relatively inelastic. Thus many states are forced to depend upon the centre for financial requirements.
4. Many states argue that the central government is not imposing all taxes covered under article 269 of the constitution,
the proceeds of which goes to the states.
5. The central government had recently imposed surcharges upon income tax. However these are not shared with the
states.
6. Some states believe that the central government is duplicating various departments, which are to be looked after by
the respective states. Example: Education, Public health etc. Rather, the central government can provide the finances
to the respective states.
7. The sources of the central government had been continuously increasing since past many decades. For example: the
tax revenues of the central government in 1950-51 was only 360 crore. This increase to more than 7,00,000 crore
during 1990-2000. The tax revenues of the states are not increasing at such faster rate.
8. Another sources of centre-state conflict on finance is the abolishment of railway passenger tax. Instead of it, the
centre provides a fixed arbitrarily grant to the states, which is very less.
9. The central government do not share the corporate tax revenues with th respective state governments. The states
argue that they contribute a lot towards, the development of corporate by providing roads infrastructure, electricity
etc. But the corporate tax revenues are not shared with them.
10. Thus many states argue that the central government has little work to do but enjoys substantial financial independence
whereas the state government which performs all vital public functions is started off finances (tax revenues).
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UNIT-2 : Industries and Tertiary Sector of India_____________ ________________ _____ 127

INTERNAL ASSESSMENT
1. Multiple Choice

1. There are types of materials produced in the industry. [ ]

(a) Four

(b) Three

(c) Two

(d) None of the above

2. occurs when industry is established on a large-scale. [ 1

(a) Privatization

(b) Globalization

(c) Liberalization

(d) Industrialization

3. provides a basis for growth of per capital income and national income of a country. [ ]
(a) Consumerism

(b) Industrialization

(c) Globalization

(d) None of the above

4. Iron and steel is a industry. [ 1

(a) Large-scale

(b) Small-scale

(c) Medium-scale

(d) None of the above

5. Feeder Industries are the part of industry. [ 1

(a) Small-scale

(b) Large-scale

(c) Medium-scale

(d) None of the above

6. The difference between a nations exports and imports is [ ]

(a) Balance of payment

(b) Equilibrium

(c) Balance of trade

(d) Balance of nation

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128 SECTORS OF INDIAN ECONOMY
7. Like any other commodity, the price of currency depends upon_______ . [ ]

(a) Demand

(b) Supply

(c) Both (a) and (b)

(d) None of the above

8. _____ involves the basic balance in addition to the short term private non-liquid capital balance. [ ]

(a) Net liquidity ,

(b) Gross liquidity

(c) Basic balance

(d) Settlement balance

9. Factors affecting balance of trade include all except . [ ]

(a) Endowment factors

(b) Supply

(c) Productivity factors

(d) Trade barriers

10. Favourable balance of trade is also known as_______ . [ ]

(a) Both (c) and (d)

(b) Equilibrium trade

(c) Positive trade

(d) Trade surplus

II. Fill in the Blanks <>

£
1. The situation where the exports exceeds imports is _____ balance of trade.

2. ________ = Exports of goods = Imports of goods.

3. Unfavourable balance of trade is also known as.

4. ________ is a key factor that decides every country’s international trade.

5. _____ . influences the level of exchange rate in a country.

6. One common measure used to measure the surplus or deficit of BOP is_______ .

7. Balance of payment can be represented in equation form as________ .

8. ________ can also bring the variations in imports and exports of a country.

9. The________ factors consist of labour and capital.

10. A major import of India is________.

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UNIT-2 : Industries and Tertiary Sector of India

I. Multiple Choice

1- (b)
2. (d)

3- (b)
4. (a)

5- (a)

6- (c)
7. (c)

8- (a)

9. (b)
10. (d)

II. Fill in the Blanks

1. Favourable

2. Equilibrium balance of trade

3. Trade deficit

4. Demand

5. Balance of payment

6. Balance or Current account

7. Y = C + I + G + (X - M)

8. Trade Cycles

9. Endowment

/ 10. Petroleum.

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r.r
 SECTORS OF INDIAN ECONOMY
130 ' _
III. Very Short Questions and Answers

• QI. What do you understand by Industrialization?

Answer :

Industrialization can be defined as the process of manufacturing capital good and consumer goods and creating
infrastructure to offer goods and services to various business and individuals. It occurs when industry is established on a
large scale in a country or an area. It play an important role in developing the economy of underdeveloped nations which
posses several resources and huge manpower like India. Industrialization is necessary along with agricultural development
as they dependent on each other. It also promotes the growth per capita income and national income of a country.

Q2. Write a short note of Information Technology (IT) Industry.

Answer :

Information Technology (IT) Industry is one of the major and growing industry of India. This is the industry which
is undergoing rapid evolution and changing the shape of Indian business organizations It includes business like, software
development, Consultancies, Software management, Online services, Business Process Outsourcing (BPO) etc. During
1990, Indian IT industry started exporting its software products and at that time it exported around $ 100 million. Currently,
it is working on global level and its exports are around $ billion with 2.8 million employees who are working in it.

Q3. List out industrial policies of India.

Answer :

The various industrial policies of the government are as follows,

1. Industrial Policy Resolution (IPR) of 1948

2. Industrial Policy Resolution (IPR) of 1956

3. Industrial Policy Resolution (IPR) of 1973 and 1977

4. Industrial Policy Resolution (IPR) 1980.

5. Industrial Policy Resolution (IPR) 1991.

Q4. Define Social Security.

Answer :

Late President Mr. V.V.Giri stated that “social security is the security that the state furnishes against the risks which
an individual of small means cannot stand the risks, which an individual of small means cannot stand up by himself or
even in private combination with his fellows”.

Frid Lander defined social security as “a program of protection provided by society against the contingencies of
modem life like-sickness, unemployment, old age, industrial accident against which the individual cannot be expected to
product himself and his family by his own ability and foresightedness.

Q5. What is a Foreign Exchange Market?

Answer :

A foreign exchange market can be defined as “a market where one currency is traded for another”. It creates a
■ mechanism of exchanging different monetary units for circulation in different countries and thus facilitates transfer of
purchasing power from one country to another.
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 Important Questions

Unit-1

SHORT QUESTIONS
Q1. Write briefly about the role or place of agriculture in some areas of Indian economy.
Answer : Important Question

For answer refer Unit-I, Page No. 2, Q.No. 1.

Q2. Why agriculture development is essential for economic growth?
Answer : Important Question

For answer refer Unit-I, Page No. 3, Q.No. 3.

Q3. What are wages and minimum wages?
Answer : Important Question

For answer refer Unit-I, Page No. 4, Q.No. 5.

Q4. Write about agricultural marketing.
Answer : Important Question

For answer refer Unit-I, Page No. 4, Q.No. 6.

Q5. What do you mean by warehousing and agricultural labour?
Answer : Important Question

For answer refer Unit-I, Page No. 4, Q.No. 7.

Q6. What is NABARD?

Answer : Important Question

For answer refer Unit-I, Page No. 5, Q.No. 9.

ESSAY QUESTIONS
Q1. Discuss briefly the place or role of agriculture in Indian economy.

Answer : Important Question

For answer refer Unit-I, Page No. 6, Q.No. 10.

Q2. What do you mean by Green Revolution ? What are its achievements and weaknesses?

Answer : Important Question

For answer refer Unit-I, Page No. 10, Q.No. 15.

Q3. Describe the present state of the Indian Agriculture.

Answer : Important Question

For answer refer Unit-I, Page No. 12, Q.No. 17.

Q4. Define food security. Write about food security legislation.

Answer : Important Question

For answer refer Unit-I, Page No. 14, Q.No. 19.

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IQ.2 SECTORS OF INDIAN ECONOMY
Q5. Explain in detail Public Distribution System (PDS). What is the impact of PDS on poverty?

Answer : Important Question

For answer refer Unit-I, Page No. 15, Q.No. 21.

Q6. Define marketing and agricultural marketing and explain its significance.

Answer : Important Question

For answer refer Unit-I, Page No. 16, Q.No. 22.

Q7. What do you mean by warehouse and warehousing? State the objectives of warehousing.

Answer : Important Question

For answer refer Unit-I, Page No. 18, Q.No. 25.

Q8. Define Agricultural Labour. Briefly describe the classification of agricultural labourers. What are the
various causes of growth in the number of agricultural labourers?

Answer : Important Question

For answer refer Unit-I, Page No. 20, Q.No. 28.

Q9. Write a note on Minimum Wage Act, 1948. Discuss the provisions concerning Minimum Wages Act,
1948.

Answer : Important Question

For answer refer Unit-I, Page No. 23, Q.No. 31.

Q10. What do you understand by rural credit?

Answer : Important Question

For answer refer Unit-I, Page No. 25, Q.No. 32.

Q11. Explain in detail about Regional Rural Banks (RRBs).

Answer : Important Question

For answer refer Unit-I, Page No. 31, Q.No. 36.

Q12. Define NABARD and explain the silent features NABARD.

Answer : Important Question

For answer refer Unit-I, Page No. 33, Q.No. 38.

r Unit-2

SHORT QUESTIONS
Q1. Define Industry. What is the Role of Industry?
Answer : Important Question

For answer refer Unit-II, Page No. 40, Q.No. 1.

Q2. Write about Industrialization.
Answer : Important Question

For answer refer Unit-II, Page No. 40, Q.No. 2.

Q3. Write a short note on social security.
Answer : Important Question

For answer refer Unit-II, Page No. 41, Q.No. 4.

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Important Questions IQJ3
Q4. What do you understand by industrial dispute Q8. Who is a Labourer? What are the features of a
and industrial dispute Act? Indian Labour?
Answer : Important Question Answer : Important Question

For answer refer Unit-II, Page No. 41, Q.No. 6. For answer refer Unit-ll, Page No. 61, Q.No. 34.
Q5. Explain briefly the concept of convertibility. Q9. Define labour policy. Explain in detail about it.
Answer : Important Question Answer : Important Question

For answer refer Unit-II, Page No. 42, Q.No. 8. For answer refer Unit-II, Page No. 63, Q.No. 37.
Q6. Critically analyze the SEZ policy in brief. Q10. What is Social Security? Write about the need
Answer : Important Question and features of social security in India.

For answer refer Unit-II, Page No. 43, Q.No. 10. Answer : Important Question

ESSAY QUESTIONS For answer refer Unit-II, Page No. 67, Q.No. 43.
Q1. What is a Industry? Explain the classification Q11. Define industrial disputes. What are the forms
of industries. of industrial disputes?
Answer : Important Question Answer : Important Question

For answer refer Unit-II, Page No. 44, Q.No. 11. For answer refer Unit-II, Page No. 77, Q.No. 53.

Q2. What do you mean by Industrialization? What Q12. Explain unorganized sector of India with its size.
role it played in Indian economy? Answer : Important Question

Answer : Important Question

For answer refer Unit-II, Page No. 82, Q.No. 60.
For answer refer Unit-II, Page No. 45, Q.No. 13. Q13. Define Foreign Trade. State the evolution and
characteristics of foreign trade.
Q3. Explain the pattern of Industrialization in India.
Answer : Important Question
Answer : Important Question
For answer refer Unit-II, Page No. 83, Q.No. 62.
For answer refer Unit-II, Page No. 46, Q.No. 14.
Q14. What is Foreign Exchange Market? Explain
Q4. Explain briefly about the large-scale industry of the distinctive features of Foreign Exchange
India. What are the different types of large-scale Market.
industries?
Answer : Important Question
Answer : Important Question
For answer refer Unit-II, Page No. 94, Q.No. 77.
For answer refer Unit-ll, Page No. 48, Q.No. 17.
Q15. Explain origin and growth of banking in India.
Q5. Define small-scale industry. What are its types Explain the evolution of banking system in
and characteristics? India.
Answer : Important Question Answer : Important Question

For answer refer Unit-ll, Page No. 54, Q.No. 26. For answer refer Unit-II, Page No. 102, Q.No. 85.
Q6. What do you mean by the term ‘Technology’? Q1G. What do you mean by money market? What are
State its components and features. the main constituents of Indian money market?
Answer : Important Question Answer : Important Question

For answer refer Unit-II, Page No. 57, Q.No. 29. For answer refer Unit-ll, Page No. 111. Q.No. 92.
Q7. What are the major advantages and issues of Q17. Define GST. Explain its origin and important
Indian Information Technology Industry? concepts.

Answer : Important Question Answer : Important Question

For answer refer Unit-II, Page No. 59, Q.No. 32. For answer refer Unit-II, Page No. 119, Q.No. 101.

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 MODEL
FACULTY OF COMMERCE PAPER
B.Com (CBCS) lll-Year Vl-Semester Examination

SECTORS OF INDIAN ECONOMY

(Common Paper for All Streams)

Time: l'/2 Hours Max. Marks:

PART - A ( 2 x 5 = 10 Marks )

Note : Answer any Two of the following questions not exceeding one page each.

1. What are the objectives of economic planning for agricultural sector? (Unit-I, Page No. 2,

2. What are wages and minimum wages? (Unit-I, Page No. 4,

3. Write about Industrialization. (Unit-ll, Page No. 40,02*

4. What do you understand by industrial dispute and industrial dispute Act? (Unit-ll, Page No. 41,06

PART - B ( 2 x 15 = 30 Marks )

Note: Answer the following questions not exceeding four pages each.

5. (a) Discuss briefly the place or role of agriculture in Indian economy. (Unit-I, Page No. 6, Qi

OR

(b) Write briefly about the impact of green revolution on Indian economy. (Unit-I, Page No. 11,

6. (a) Explain the pattern of Industrialization in India. (Unit-ll, Page No. 46, Q1
X
OR

(b) Define balance of payment. State its significance. (Unit-ll, Page No. 86, Q66

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MP.2 SECTORS OF INDIAN ECONOMY

MODELiQ
paperX
FACULTY OF COMMERCE ■ &

B.Com (CBCS) lll-Year Vl-Semester Examination

SECTORS OF INDIAN ECONOMY

(Common Paper for All Streams)

Time: l'A Hours Max. Marks; 43

PART - A ( 2 x 5 = 10 Marks )

Note : Answer any Two of the following questions not exceeding one page each.
■■v.’ir-v

1. What do you mean by large and small scale industries. (Unit-ll, Page No. 40, Q3)

2. What do you mean by warehousing and agricultural labour? (Unit-I, Page No. 4, Q7)

3. What do you mean by money market? Explain briefly. (Unit-ll, Page No. 43, Q9)

4. What is NABARD? (Unit-I, Page No. 5, Q9)

PART - B ( 2 x 15 = 30 Marks )

Note: Answer the following questions not exceeding four pages each.

5. (a) Describe the present state of the Indian Agriculture. (Unit-I, Page No. 12, Q17)

OR

(b) Explain in detail Public Distribution System (PDS). What is the impact of PDS
on poverty? (Unit-I, Page No. 15, Q21)

6. (a) Define small-scale industry. What are its types and characteristics?. (Unit-ll, Page No. 54, Q26)

OR

‘(b) What is Convertibility? What are its types. (Unit-ll, Page No. 99, Q83)

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MODEL QUESTION PAPERS WITH SOLUTIONS MP

MODEL |C
PAPERkJ
• FACULTY OF COMMERCE
B.Com (CBCS) lll-Year Vl-Semester Examination

SECTORS OF INDIAN ECONOMY

(Common Paper for All Streams)

Time: 1% Hours Max. Marks:

PART - A ( 2 x 5 = 10 Marks )

Note : Answer any Two of the following questions not exceeding one page each.

1. Explain briefly about trade or labour union movement. (Unit-ll, Page No. 41, C

2. Why agriculture development is essential for economic growth? (Unit-I, Page No. 3, C

3. Write about agricultural marketing. (Unit-I, Page No. 4, C

4. Critically analyze the SEZ policy in brief. (Unit-ll, Page No. 43, Q’

PART - B ( 2 x 15 = 30 Marks )

Note: Answer the following questions not exceeding four pages each.

5. (a) What do you mean by warehouse and warehousing? State the objectives
of warehousing. (Unit-I, Page No.18,Q;

OR

(b) What do you understand by rural credit? (Unit-I, Page No. 25, Qi

6. (a) Define trade union. State the objectives of trade union. Explain growth and
development of trade union. (Unit-ll, Page No. 71,

OR

(b) What is Foreign Exchange Market? Explr’ the distinctive features of Foreign
Exchange Market. (Unit-ll, Page No. 94, QI

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