Business Environment 1

Department of Distance Education
Punjabi University, Patiala
Class : B.Com. 3 Semester : 6

Paper : B.C. 604 Unit : 1
(Business Environment)
Medium : English
Lesson No.
1.1 : Indian Business Environment
1.2 : National Income, Saving and Investment
1.3 : Price Level
1.4 : Trade and Balance of Payments
1.5 : Indian Planning : Basic strategy of Indian Planning
1.6 : Twelfth Five Year Plan (2012-17)
1.7 : NITI Aayog : Role and Functions
Department website : www.pbidde.org

B.COM. PART-III B.C. 604
BUSINESS ENVIRONMENT
LESSON NO. 1.1 AUTHOR : KARAMBIR SINGH
INDIAN BUSINESS ENVIRONMENT

1.1.0 Objective
1.1.1 Introduction
1.1.2 Concept of Business
1.1.3 Business Environment
1.1.3.1 Internal Business Environment
1.1.3.2 External Business Environment
1.1.4 Micro Environment
1.1.4.1 Suppliers
1.1.4.2 Customers
1.1.4.3 Marketing Intermediaries
1.1.4.4 Competitors
1.1.5 Macro Environment
1.1.5.1 Economic Environment
1.1.5.2 Political and government Environment
1.1.5.3 Demographic Environment
1.1.5.4 Technological Environment
1.1.5.5 Social Environment
1.1.5.6 International Environment
Self check Exercise
1.1.6 Changing Dimensions of Business Environment in India
1.1.7 Summary
1.1.8 Glossary
1.1.9 Answers to self check Questions
1.1.10 Exercise
1.1.11 Recommended Readings
1.1.0 OBJECTIVE
Business activities are the backbone of any economy. The survival and success
of business enterprise is very much essential for the growth of economy. But in the
fight for success and survival, business has to confront with various Internal as well
as External forces. This chapter aims at making the readers familiar about such
Internal and External forces which are an integral part of Business Environment.
1.1.1 INTRODUCTION
The existence and success of Business enterprise depends upon the various
1
B.Com. Part-III 2 B.C. 604
factors which affect the functioning of the enterprise. These factors might be internal
or external. The Internal factors consist of supplier, customer, competitors, market
intermediaries etc. these are more or less controllable by the business enterprise. It
is the external Environmental factors which affect the business enterprise most.
The success and survival of the business depend much upon the extent on its ability
to adopt to the changing environmental factors.
1.1.2 CONCEPT OF BUSINESS
Business is something related to those activities. which are carried out with
the objective of earning profits. These activities might relate to production of goods
and services, trading of goods and services etc. In earlier days, the Profit maximization
was the main objective of business. Social responsibilities of the business towards
customers, society and employee were totally ignored. But in recent times the
customer has gained a central position. And the objectives of the Profit maximization
is achieved through increased customer satisfaction.
1.1.3 BUSINESS ENVIRONMENT
Business Environment refers to these aspects of the surroundings of business
enterprise which have influence on the functioning of business. Business cannot
exist in vacuum. Its factors which are in and around the Business enterprises
influence the working of the business enterprise. These environmental factors can
be termed as Business Environment. The Business environment factors are dynamic
in nature and goes on changing rapidly. The existence and success of the Business
enterprise depends on the ability of the business to adopt the changes in the business
environmental factor.
Arthur M. Weimer has defined, "Business Environment encompasses the
climate or set of conditions - economic, social, political or institutional - in which
business operations are conducted". Several forces operate outside a business and
they all form parts of the business environment as discussed in this chapter.
The Business Environment can be divided into two parts:
(1) Internal Environment
(2) External Environment
The factors relating to Business Environment has been further discussed with
the help of following chart :
6. Human Resource
Government Environment
The Survival and Success of a business firm depends upon Internal as well as
External factors. Although the Internal factor such as physical resources, financial
resources, skill and organization affects the business but these factors are more or
less controllable. It is mainly the external environmental factors which are beyond
the control of a firm and the success and survival of the firm will very much depends
upon the extent on its adaptability to the environment. The External environmental
factors which are regarded as uncontrollable include government and legal factors,
demographic factors, Socio cultural factor, geophysical factors etc.
1.1.3.1 Internal Business Environment : Internal Environment includes internal
factors of the business which can be controlled by business. It refers to environment
within the organization. Internal Environment includes 5 Ms. i.e. Men, Material
Money, Machinery and Management available with business.
1.1.3.2 External Business Environment : The External Business environment
consists of a micro environment and a macro environment. Micro environment
includes the suppliers, marketing intermediaries, competitors, customers and the
Public. Whereas the Macro environment consists of such forces which affect all the
factors of micro environment namely, the demographic, economic, natural,
technological, political and cultural forces. The micro forces need not necessarily
affect all the firms in a particular industry in the same way. For example, a firm
which depends on a supplier may have a supplier environment which is entirely
different from that of a firm whose supply source is different. When Competing firms
in an industry have the same micro elements, the relative success of the firms
depend on their relative effectiveness in dealing with these elements.

A Company and the forces in its micro environment operate in a larger macro
environment of forces that shapes opportunities and pose threats to the company.
The Macro forces such as Economic environment, Political and Government
environment, Socio cultural environment, Demographic environment, Physical and
Technological environment are more uncontrollable than the micro forces.
Since Independence, Indian Business Scenario has undergone a sea change. Macro
environmental factors like incomes are changing, demographic factors like population
size are changing. Government conditions are also changing in a positive way, India
is on the threshold of business revolution. And now Indian economy is considered as
one of the most dynamic economies of the world. Following points will further clarify
the present business scenario :
1.1.4 MICRO ENVIRONMENT The forces which are close to the company and affect
its ability to work constitute micro environment. It is known as operating environment
of business. It includes suppliers, customers, market intermediaries, competitors
and public as explained here :
1.1.4.1 Suppliers :- Every business enterprise requires a numbers of suppliers, who
supply raw materials and components to the company . So multiple suppliers and
reliability on supplier reduce the risk in business.
1.1.4.2 Customers :- A business exists only because of its customers. A company
make several policies to attract and satisfy the customers like research, after sale-
service, advertisement etc.
1.1.4.3 Market Intermediaries :- Every business enterprise may be assisted by
market intermediaries which include agents and brokers who help the company to
find customers. It is a link between the company and final cosumer.
1.1.4.4 Competitors :- Business has to adjust its various activities according to actions
and reactions of competitors. A business unit will have to understand the strategies
framed by competitors and respond timely by making counter-strategies.
1.1.5 MACRO ENVIRONMENT
The term Macro Environment refers to "the forces and institutions outside
the organisation that can be potentially affect the organisations performance".
Following are the elements of Macro Environment :
1.1.5.1 Economic Environment :
Economic environment of a business consists of Economic Conditions of the
country, Economic Policies followed by the government and the overall economic system
of the country, the economic conditions of a country, for example, the nature of the
economy, the stage of development of the economy, the distribution of income and
assets etc. are among the very important determinants of business strategies. In
India although at present, the per capita income is not comparable with that of
developed countries, but incomes as well as investments are steadily and rapidly
rising. Business prospects are generally bright. Although there is a growth in the
income but income disparities still exist. Despite these income disparities, lot of
demand of goods exists, and thus exist the business opportunities.
Types of Economic Environment
1. Mixed Economy
2. Capitalistic System
3. Socialistic System
India follows the mixed economic system. Private and Public sector co-exist in
the mixed economic system. At the time of independence, the responsibility of
development of socio-economic structure was entrusted to the public sector. Thus
strategic and core areas were reserved for public sector only. And Private sector was
assigned only with non strategic areas to flourish. But now, sectors which were
previously reserved for Public sector are being opened up for the Private sector. Thus
providing enormous opportunities for the business to grow. Now only 3 industries are
reserved exclusively for the public sector. These are atomic Energy, minerals specified
in the schedule to the atomic energy (control of production our use order) 1953 and
rail transport.
Indian Mixed economic system is some what a capitalistic system with the
socialistic approach thus, getting the benefits of both the Systems. Economic Policies
of the government are directed in such a way so as to further the prosperity of the
society as a whole like Promotion and establishment of new industries in the backward
area location which may have many disadvantages. However, the government is
providing incentives for units located in these backward areas, which may compensate
them for these disadvantages, at least to some extent. Similarly, till now, the
government has followed the policy of restriction of concentration of Economic Power
by large industrial houses and foreign concerns. But now the restriction regime is
the thing of the Past. Economic Policy reforms in July, 1991 have opened up new
areas for private sector and for foreign concerns. A large number of restrictions have
been removed. Now India is marching towards free market economy.
The fully free market economy however is an abstract system rather than a
real one. Today, even the so called market economy is subject to a number of
government regulations.
Economic policies of the government are trying to provide a Liberalised
Economic system in which foreign capital is invited, and private sector is relieved
from the clutches of unnecessary regulations and control so that it can grow to its
maximum extent. Now the business firms whether domestic or foreign, are more
inclined to invest in such a liberalized developing economy like India rather than
investing in developed countries which are more or less have reached to a saturation
level in certain respects. Now more and more multinational companies are increasing
their stake in India.
1.1.5.2 Political and Government Environment :
Economic Policy, Economic Conditions and Economic system had a close
relationship with the Political and government environment. Although Indian
government followed the mixed approach but somewhat it has more or less tried to
emulate the central planned economic system of socialistic countries. The government
till now had followed the policy of Protectionism to Domestic companies from
international competition, but now the government has liberalised the Indian economy.
Now the Indian Economy is marching towards to be the part of global economy more
strongly. Now free market economy forces are playing its role. More and more foreign
Collaboration, joint venture, Strategic alliances are taking places.
Multinational companies are feeling comfortable while investing in India. The
state of multinational companies is increasing in India.
Due to these policies, the Business environment is changing. It is becoming
increasingly competitive both locally and at international level. Where these
liberalized economic policies are providing enormous opportunities to domestic
business firms to grow internationally, at the same place, the domestic business
firms are being put at risk of being swallowed by the multinational companies. The
policy of protectionism followed by the government has somewhat made the domestic
firm inefficient. This has happened due to lack of international competition. But now
the globalisation thrust of the government has put these domestic firms to the
exposure of competition by the large multinational houses .But it will not be in the
interest of the nation in the Long run to protect these inefficient units which are
eating our precious resources. It will always be in the interest of the nation to promote
healthy competition. Now the Indian government is Providing motivation in somewhat
other ways to promote the level of Indian companies. Given the proper environment
and to become important players in the global market. Japan and Asian Tigers
demonstrate that even devastated and developing economies can rapidly grow to
become powerful forces to be reckoned within the global economy.
Moreover the changing policy environment in India is contributing to the growth
of Indian large industrial houses also. Their strength to compete in international
market would have been better in the changing condition, e.g. cut in the tariff rate
has helped the Indian companies such as Reliance, to garner profits at existing level.
The Industry and the government should be very vigilant against the
government drawback of such Transformation. The drawbacks like dumping by foreign
companies should be taken care of. Moreover, this transformation would have been
more smooth if a substantial internal liberalization had proceeded the external
liberalization.
1.1.5.3 Demographic Environment:

Demographic environment consists of population size, growth rate, age
composition, sex composition etc. of population, family size, economic stratification
of the population, educational level, language, Caste, religion etc. These all factors which
represent the characteristics of population are relevant to the success of business.
India is one of the highest populated countries and still its population is
growing at a rapid speed. A rapidly increasing population indicates a growing demand
for many Products. The income level of large size of Indian population is very low and,
moreover a significant size of Indian population is below the poverty line. Even this
fact throw open enormous opportunities to the business like providing housing
facilities, medical facilities, education facilities etc. to the people. One more fact, is
the size of Indian middle class which is larger than the total population of any other
country except China and U.S.A.
High population growth rate also indicates an enormous increase in labour
supply. This is an added advantage to the Business firms operating in India, as
compared to developed countries, in which, due to shortage of labour supply, capital
intensive techniques are being followed.
The another important fact of the population is that the most of the Indian
population lives in of rural areas. This has led to the rapid growth of rural market.
Now most of the Business started directing their towards tapping of rural market.
This has opened up now opportunities to the business world. Business firms are
inventing new products for meeting the demand of rural people.
Now even the financial institutions have increased their sphere of activities
to rural areas. More and more banking and credit facilities are being provided to the
rural people. They have contributed to the demand of additional goods and thus
contributing to additional opportunities to the business. Credit cards, ATM, Credit
limits are now not the new names to the rural people. This has revolutionalised the
Indian Business scenario.
Occupational structure of the population in the country is changing. This
decades, as like any other underdeveloped country, Agriculture sector has remained
the primary sector. But now Service sector is growing and throwing open enormous
entrepreneurial opportuniting in the service sectors. The growth of service sector
will help the agriculture sector to shed away the additional labour force it is
accommodating. This will help in rising the income level thus contributing to more
demand of Products. This will open up new vaster of opportunities to the business
firms.
1.1.5.4 Technological Environment :
Till decade, the Indian government has followed the policy of Protectionism. It
was more like a closed economy thus restricting contracts with the global economy.
Imports were restricted which prohibited the free flow of Technology from and to the
outside world. Although Technical advancement have been made over the years but
still in many industries, Primitive and labour intensive methods were being followed,
Perhaps this was due to the availability of abundant labour and lack of international
competition.
Now, the Indian economy has been Liberalised Foreign collaboration, merger,
acquisition, and Direct investment of foreign capital is also taking place. This has
resulted into inflow of foreign Technology. Now Indian business firms can afford
advanced Technology and advance equipments, and thus can compete with the foreign
firms. These Liberalised import procedures and cut duties have further boosted up
the Indian business scenario.
To Promote entrepreneurship in risky and high Technological projects, the
government is promoting venture capital. Even now the foreign venture capital firms
have been permitted to do business in India but with prior permission from Foreign
Capital Promotion Board. Promotion of venture capital firm has added a new dimension
to the Indian business firms.
Overall, Indian business firms are not too far behind in the Technological
front. And now they are competing with the best in the world.
1.1.5.5 Social Environment :
Social environment encompasses the social responsibility of the business and
the alertness or vigilance of the consumers, and of society at large. In India, more
and more consumers and society at large are becoming aware of their rights. Large
number of consumer protection societies are cropping up. And even law has been
enacted to protect the rights of the consumer. Significant developments have led to
the wide acceptance of its social responsibilities by the business. Now the business
firms are being entrusted with the responsibility of improving the quality of life in
our society. And the business firms are responding to the needs and demands of the
society at large.
1.1.5.6 International Environment :
Due to Liberalisation and globalisation measures, Indian Economy is now
closely linked to the trends in the international market. The Indian firms which are
Importing or Exporting to the foreign market are exposed to the risk and opportunities
of the global trends. As like depression of 1930 in U.S.A., had started depression in
the world market.
1.1.5.7 Natural Environment :
Geographical and ecological factors such as natural resource endowments,
weather and climate global context, part facilities, etc. are all relevant to business.
Differences in geographical conditions between markets may sometimes call for
changes in the marketing mix. Geographical and ecological factors also influence
the location of certain industries. For example : (1) Industries like cement
manufacturing with high material index tend to be located near the raw material
source. (2) Climate and weather conditions affect the location of certain industries
like the cotton textile industry. (3) Topographical factors may affect the demand pattern.
(4) Textile industry located near coastal area. And now, the depletion of natural
resources, environmental pollution and disturbance of the ecological balance have
caused great concern.
Self Check Exercise
Ques.1. Discuss the factors relating to Internal Business Environment.
Ques.2. Discuss the factors relating to External Business Environment.
1.1.6 CHANGING DIMENSIONS OF BUSINESS ENVIRONMENT IN INDIA
Before 1991, Indian economy was a closed economy, strictly under the control
of government and dominated by public sector, leading to lack of competition. During
90's the economy witnessed the worst international financial crisis and the
Government of India had to declare liberalisation and globalization of the Indian
economy to deal with the crisis. This led to significant changes in almost all the
sectors of the economy.
1 Changes in the economic environment :
(i) Liberalisation i.e. shifting of economy from a closed economy to a free
market economy.
(ii) Shifting from a socialist ideology to a capitalistic ideology.
(iii) Shifting from protective environment to a competitive business.
(iv) Free entry and exit of foreign brands in India.
(v) Increased inflow of Foreign Direct Investment through incentives and
policy liberalization.
(vi) Shifting from ISI to ISO quality standards.
(vii) Shifting from to private sector.
(viii) Greater emphasis on the development and promotion of service sector
for the growth of Indian economy.
(ix) Considering guidelines from WTO, IMF and IBRD while formulating
domestic and foreign economic policies.
2. Changes in Legal Environment :
(a) Abolition of all restrictive provisions of MRTP Act (Monopolies and
Restrictive Trade Practices).
(b) Replacing FERA (Foreign Exchange Regulation Act) by FEMA (Foreign
Exchange Management Act).
(c) Enactment of Consumer Protection Act.
(d) Enactment of Environment Protection Act.
(e) Replacement of Company Act 1956 with a new legislation.
(f) Enactment of SEBI.

(g) Abolition of IDRA Act (Industrial Development and Regulation Act).
3. Changing Political Environment :
India is having a multi party political system comprising of large number of
national and regional political parties. These regional and state level political parties
play an important role in the formation of central government of India. All major
political parties have their own philosophy for development of the country. The play
objectives change every five years depending upon on the current political party in
power. Important aspects of changing political environment in India are :
(a) Continuous political uncertainty.
(b) Coalition governments at the centre.
(c) Increasing role of regional and state level political parties in national
politics of the country.
(d) Reducing role of government in the economic affairs of the country.
(e) People have become more politically conscious and have developed
interest in politics and political processes.
(f) Growing impact of International politics.
(g) Increasing influence of politicians on economic decision-making and
policy formulation.
4. Changes in Social and Cultural Environment :
(a) Change in eating habbits, tastes and preferences of the people.
(b) Emergence of a large middle class.
(c) Shifting from a joint family system to nuclear families.
(d) Improvement in standard of living of people.
(e) Improvement in status of women in society because of economic
independence.
(f) Change in occupational profiles with larger percentage of people joining
service industry.
(g) Birth rate and death rate have decreased.
(h) Growth of education through privatisation.
(i) Declining social values.
(j) Business firms are becoming more socially responsible.
(k) Growing concern for protection of human rights and consumer rights.
5. Changing Technical Environment :
The most major changes in 21st century are in the field of technology. More
and more industrial and technological growth has led to improvements in both quality
and efficiency of products and services. Even the jobs are becoming more scientific
and technical requiring only specialized and skilled personnel.
Significant changes in this direction are :

(a) Complex division of labour.
(b) Specialization in every field.
(c) Increase in competition.
(d) More stress on research and development.
(e) Biological engineering and genetic engineering is gaining importance.
(f) Industry is offering multi-utility products and services.
6. Changing Physical and Natural environment :
The enactment of Environmental Protection Act and increasing role of non-
government organisations and society in general has created many problems for the
industry. Increasing pollution of air, water and soil has created markets for certain
new products such as mineral water, frozen foods, cosmetics etc. Significant changes
in this field are :
(a) Ecological imbalance.
(b) Unhealthy living conditions.
(c) Increase in urbanization leading to a fall in the area covered under
cultivation.
(d) The judiciary is also actively restraining the corporate sector by giving
judgements in favour of preservation of the natural environment.
7. Changing International Environment :
(a) Growing importance of international bodies, WTO, IMF, UNO etc.
(b) Increasing pressure of international politics.
(c) International bodies are framing policies and programmes for member
countries to follow.
Every businessman has to continuously watch and monitor all these
environmental factors in order to frame policies and strategies for the future.
1.1.7 SUMMARY
At present Indian business scene is full of expectations with the globalisation
and Liberalization measure. Indian business is becoming more integrated with the
global business. Now world level Technology is at its feet. Government is playing a
supportive role. And in more Congenial environment, Indian business is making a
steady progress. It will help Indian Economy to be one of most dynamic economy of the
world.
1.1.8 GLOSSARY
1. Internal Environment : It covers internal factors of the business which can be
controlled by it.
2. External Environment : It consists of external factors which are beyond the
control of business.
3. ATM : Automatic teller machine.

4. Business : Activities which are carried on to earn profit.
5. Intermediaries : Distributors, wholesalers, retailers.
1.1.9 ANSWERS TO SELF CHECK QUESTIONS
Ans.1. Factors affecting internal Business Environment
1. Physical Resources
2. Financial Resources
3. Managerial skill
4. Type / Nature of organization
5. Work culture
Ans.2. External Environment based factors are as mentioned below:
(A) Micro Environment Factors
1 Suppliers
2 Marketing intermediaries
3 Customers
4 Public
5 Competitors
(B) Macro Environmental factors
1. Economic Environment
2. Political and Government Environment
3. Demographic Environment
4. Technological Environment
5. Social Environment
6. International Environment
7. Natural Environment
1.1.10 EXERCISE
(A) Short Questions :
Q1. What do you mean by micro environment ?
Q2. Distinguish between internal and external environment.
Q3 Write a short note on :-
(a) Marketing intermediaries
(b) Demographic Environment
(c) International Environment
(B) Long Questions :-
Q1 What is business ? How does the business of today diffes from that of four or
five decades ago ?
Q2 "Today a firm can ignore environment at its own Peril". Discuss the statement
with the help of example from real business world.
Q3 What do you mean by business Environment ? Outline and explain different

environmental factors that Create a profound impact on business.
1.1.11 RECOMMENDED READINGS
1. Business Environment
By-Francis Cherulinum
2. Essentials of Business Environment
By-K Aswathappa.
By-Rosy Joshi
-Sangam Kapoor
NATIONAL INCOME, SAVING AND INVESTMENT
1.2.0 Objective
1.2.1 Introduction
1.2.2 National Income and Position of Per Capita Income in India
1.2.3 Savings in India
1.2.4 Sources of Savings
1.2.5 Causes of Low Savings in India
1.2.5.1 Rising Population
1.2.5.2 Lower Productivity
1.2.5.3 Domestic Inflation
1.2.5.4 Demonstration effects in Urban Areas
1.2.5.5 Non Contribution of Private Sector
1.2.5.6 Problem of Public Sector
1.2.5.7 Heavy Taxation
1.2.5.8 Less Facilities of Investment
1.2.6 Measures to Raise the Level of Savings
1.2.6.1 Household Sector
1.2.6.2 Public Sector
1.2.6.3 Private Corporate Sector
1.2.6.4 Reduction in Non-Development Expenditure
1.2.6.5 Efficient Management of Public Enterprise
1.2.6.6 Price Stability
1.2.7 Investment Scenario in India
1.2.7.1 Gross Fixed Capital Formation
1.2.7.2 Increase in Stocks
1.2.8 Rate of Capital Formation
1.2.9 Factors Responsible for Low Rate of Capital Formation
1.2.10 Measures to improve the rate of Capital Formation
1.2.11 Summary
1.2.12 Glossary
1.2.13 Exercise
14
1.2.0 OBJECTIVE
The process of Capital formation is of utmost importance for economic
development of the Country. This chapter aims at giving a detailed overview of income,
saving and investment position of India, Also an effort having been made to give an
overview of the measures which can be helpful to increase the rate of Capital formation
in India.
1.2.1 INTRODUCTION
The basic aim of economic planning in India is to bring about rapid economic
growth through the development of agriculture, Industry, Power, Transport and
Communications and all other sectors of the economy. One measure of Economic
growth of a country is the continuous expansion, years after years, of real national
income and real per capita income. Indian planners aimed at increasing national
income and per capital income on the assumption that the continuous increase in
these incomes would remove poverty and misery and raise the standard of living of masses.
1.2.2 NATIONAL INCOME AND POSITION OF PER CAPITA INCOME IN INDIA
India National income has been estimated to have increased at an annual
average rate of 3.9 percent, over the same period India's population too has increased
at an annual average rate of about 2.1 percent. Thereby, per capita income has
increased only at a nominal rate of about 1.8 percent annum during the entire course
of planning. Each of the five year plan had a fixed target of growth to achieve. Let us
have a look at the data in table below :
Table-1 Growth Rates Of National Incomes During Plans :
Plan I II III IV V VI VII VIII IX X XI

Actual Rate 3.6 4.0 2.2 3.3 5.2 5.3 5.6 6.7 5.5 7.8 8.7
It would be seen from the above table that the actual achievement in terms of
rate of growth during each of the plan has fallen short of respective plan target, except
during the first plan and more recent fifth, sixth and seventh plans. As a matter of
fact during the formative years of economic planning viz. 1960-75. The economy was
in a very bad shape, inspite of much-touted green revolution that had its beginning
in the 2nd half of the decadle of sixties. Much of the fall in the rate of growth could be
attributed to cuts in public investment, followed by a slow response of the private
corporate investment.
The Economy picked up since the fifth plan; the rate of growth has been more
than 5% per annum during the period 1975-95 the upward momentum in the economy
could be sustained as revealed by the fact that the rate of growth during the eight
plan has been the highest so far. Most of the growth till the seventh plan has been
deficit-funded, i.e. by taking resort both to deficit financing and borrowing from abroad.
This pattern of growth brought us face to face with the worst ever crisis in the form of
(a) BOP deficits, and (b) Fiscal deficits, we seemed to have reached a stage at the
beginning of decade of nineties where all doors seemed to have been shut to our
faces. In response, we had to undertake a programmer of structural readjustment of
the economy, as a result, inflow of foreign capital increased. It played an important
role in accelerating economic growth in the country. During the eighth five year
plan national income rose at the rate of 6.7 percent per annum against a target of 5.6
percent per annum. But in the next plan (ninth plan), the economy performed below
par and was not able to achieve the targets. The National income during the ninth
plan rose by 5.5 percent against the target of 6.5 percent per annum. This lackluster
performance of the economy during the ninth plan period has been largely due to the
failure of industrial sector which registered a more 5.85 percent per annum increase
in the industrial production. Lately, the industrial sector has manifested all signs of
stagnation. Infact, during 2001-02 industrial production increased by only 2.7 percent.
This growth rate of the industrial sector was the lowest during the last ten years.
Over the years, it has been noticed that although India has succeeded in
Aceelerating the growth but more or less, the growth was erratic. Secondly Indian
Economy is an agricultural economy. And the National income level of the country
and the rate of growth in it fluctuates with the fluctuations in performance of
agricultural sector. Moreover, increase in national income has not been able to
contribute towards growth process fully due to increase in population at an alarming
rate. Consequently per capita income has not increased at an expected rate. As per
CSO data in 1950-51 , India's per capita net national product at 1993-94 prices was
Rs. 3687. Since then it rose to Rs. 10753 in 2001-02. Thus over a period of 51 years
the per capita net national product rose at the Rate of 2.1 percent per annum. This is
a modest performance by all means.
In the tenth plan 2002-2007 our national increased at the rate of 7.8 percent
p.a. and our per capita income recorded an increase of 6.1 percent p.a. In 2007-2008
growth rate of natural income was 8.7 percent and growth rate of per capita income
was 7.2 percent.
Table-II : GNP is Growth Rate of GDP of Different nations (annual average in percent)
Country 2011-12
Japan 1.7
U.S.A 1.8
Germany 0.3
Russia 3.3
China 8.2
India 7.0
Pakistan 3.0
Brazil
Although the figure of Per Capita income of different countries are not
comparable due to number of factors. But inspite of all the factors, the difference of
per capita income of developed countries like U.S.A and U.K and India's Per Capita
income is significant.
A High rate of Capital formation is essential though not a sufficient condition
for a high rate of growth. There are also other important factors bearing on rate of
growth such as technological, institutional and attitudinal changes, but the rate of
Capital formation is of strategic significance. The process of capital formation involves
three distinct through independent activities. The first thing that is required for
Capital formation is saving. After that those savings are mobilized and then canalized
into raising of productive capacity of the country i.e. investment of saving. Here we
woll discuss Saving and Investment aspect of capital formation.
1.2.3 SAVINGS IN INDIA
Saving may be defined as that part of money income which is not spent on the
consumption. Saving in an economy is expressed in terms of a ratio-as a percentage
of gross domestic Product at Market Price was 8.9 percent. The rate of saving over
the years have been depicted in the following table.
Table-III : Showing Gross Domestic Savings (at current prices)
Year Gross Domestic Savings
(As Percent of GDP at Market Prices)
1950-51 8.9
1960-61 11.6
1970-71 14.6
1980-81 18.9
1990-91 23.1
2000-01 23.4
2006-07 34.8
2010-11 32.3
As the above table shows, the Saving Rate in India has increased from 8.9
percent in 1950-51 to 24.0% in 2001-02. No doubt it is quite a good achievement. But
still it has to be pushed up for accelerating the face of growth One more fact to note is
that the saving rate in India was around 14 or 15 percent toll the end of 4th plan. It
was only from the fifth plan onward that the saving rate showed; on upward trend.
Moreover many times, in spite of increase in money and real income, there is no
corresponding increase in Saving Rate. This is due to inflationary effects of Deficits
financing, which is resorted to meet the finance requirements of the plans. These
inflationary effects eats up the major part of the income, thus reducing saving capacity.
1.2.4 SOURCES OF SAVINGS
The Sources of domestic Savings can be classified into three broad categories
as follows:
i) Public sector
ii) Domestic Private Corporate Sector
iii) Household Sector
The Public sector includes the departmental enterprises, Public corporations
and Joint stock companies. The Private corporate sector includes Financial
institutions, non-financial Public and Private limited companies and all Types of co-
operative institutions. The Household sector includes all households, incorporated
business enterprises and non-profit making institutions.
Table-IV shows estimates of savings in India from 1950-51 to 2006-07.
Table-IV : Gross Domestic Savings (at Current prices) Rs. In crores
Year House hold Pvt. Corporate Public Gross Rate of G.D.
Sector Sector Sector Domestic as a % of
Savings Savings Savings Savings GDP
1950-51 612 93 182 887 8.9
1960-61 1,254 281 454 1,989 11.6
1970-71 4,634 672 1,343 6,649 14.6
1980-81 19,868 2,339 4,929 27,136 18.9
1990-91 1,09,897 15,164 6,279 1,31,340 23.1
2000-01 4,42,136 90,143 (-)40,194 4,92,085 23.4
2006-07 9,85,822 3,22,242 1,33,359 14,41,423 34.8
It may be noted that at the beginning of the first plan (1950-51) the rate of
savings was 8.9% . In the year 2006-07, it had gone upto 34.8% of gross domestic
product. In the gross domestic saving of India, largest share is of household sector
and there has been a sharp rise in the saving rate of corporate sector.
1.2.5 CAUSES OF LOW SAVINGS IN INDIA
The Rate of saving is low in the Indian Economy. The following are the main
causes of low rate of savings :
1.2.5.1 Rising Population : India's Population is increasing at an alarming rate.
Moreover the Per capita income is very less as compared to the developed countries,
when population rises very fast, it eats away the growing income of the economy. At
low level of income the level of saving also remains low.
1.2.5.2 Lower Productivity : Productivity in both agricultural and industrial sector is
very low in India as compared with the productivity in other countries. At low productivity,
the level of output, employment, income and finally savings also remains very low.
1.2.5.3 Domestic inflation : Rising prices adversely affects the purchasing power of
the people. As a result of high prices, the disposable income of the people diminishes,
which in turn leads to low level of savings.
1.2.5.4 Demonstration effects in urban Areas : As the Economy is opening up, the
contracts with developed countries are increasing. Due to Demonstration affects people
in India are buying unproductive durable goods which is eating up their savable
income thus lowering overall saving Rate.
1.2.5.5 Non-contribution of Private Sector : In the Private corporate sector, there is
a considerable misuse of funds, by the company directores and high executives. For
raising the amount of savings in the corporate sector, stringent measure must be
devised to prevent misuse of resources. Further, in fixing salaries of CEO's and
declaring dividends and their disbursements, the corporate sector has not acted with
restraint. This has dried up its potential saving source to a great extent.
1.2.5.6 Problem of Public Sector : Public sector has never contributed much towards
gross domestic savings. At certain times its contribution is negative. Unproductive
expenditure by the government inefficiency and corruption in the public sector are
the main causes of failure of Public Sector.
1.2.5.7 Heavy Taxation : Large part of the income goes towards the payment of taxes.
Taxpayers are left with less disposable income thereby reducing their capacity to save.
1.2.5.8 Less facilities of Investment : In an underdeveloped country like India
facilities of investment are very much limited. There is actual shortage of capable
entrepreneurs, banking institutions, modern technology, lack of security of
investment etc. so volume of investment is low and also rate of capital formation.
1.2.6 MEASURES TO RAISE THE LEVEL OF SAVINGS The following measures can
be taken to raise the level of saving in the Indian Economy :
1.2.6.1 Household Sector : Household sector has contributed most in the domestic
savings. The following steps can be taken to improve the household's savings.
(a) Programmer should be evolved for raising the earning capability of the poor.
(b) Fiscal savings of the household should be augmented by extending
banking facilities, giving incentives to potential savings and adopting
attractive interest policies.
(c) Efforts should be made to mobilized savings of self-employed persons
and unorganized workers.
(d) There should be persistent vigilance on the increase in money supply
and price movements. Price stability is the prime prerequisite for
inducing a higher saving rate in economy.
1.2.6.2 Public sector : In order to raise the level of saving in the public Sector, the
following steps can be taken :
(a) Agricultural income should be taken under the purview of taxation.
(b) Luxury expenditure should be heavily taxed.
(c) Steps should be taken to plug tax evasion.
(d) The government should curb its non developmental expenditure.
1.2.6.3 Private Corporate Sector : The level of corporate saving can be raised by
adopting the following measures :
(a) Large Proportion of Profits diverted to investment should be given liberal

concessions.
(b) Blanket curbs on the business should be removed.
1.2.6.4Reduction in Non-development expenditure :
Government should apply cuts on non-development expenditure as on
administration, defence etc. Reduction in there expenditure will increase the saving.
1.2.6.5 Efficient Management of Public Enterprises :
Government has set up large number of enterprises in public sector. If there
enterprises are run efficiently, their profit can increases which increase the saving.
1.2.6.6 Price Stability : Checking of rise in price will enable people to save more
thereby capital formation will occurs.
1.2.7 INVESTMENT SCENARIO IN INDIA
Investment refers to Domestic Capital formation. It refers to investment in
capital stock, national output and income. It involves (a) Gross fixed capital formation
(b) increase in stock.
The rate of capital formation is the ratio of gross capital formation to be gross
domestic Product. Thus the Rate of Capital formation indicates the proportion of GDP
which is applied to its own growth. A High rate of capital formation is essential though
not a sufficient condition for a high rate of growth. There are also other important
factors bearing on the rate of growth such as technological, institutional and
attitudinal changes, but the rate of capital formation is of strategic significance.
Followings are the estimates of Gross Domestic Capital formation in the given table.
Table-V : Gross Domestic Capital formation (investment) [(As percent of GDP at
current Market Prices)].
Plan-End GD Capital Gross fixed capital Change in stock as
formation at formation a % of GDP
Current Prices as a % of GDP
(Rs. Crore)
Ist Plan (1951-56) 1,409 11.9 0.6
IInd Plan (1956-61) 2,470 12.7 1.9
IIIrd Plan (1961-66) 4,469 15.1 1.2
IVth Plan (1969-74) 11,391 14.1 2.7
Vth Plan (1974-78) 18,677 17.2 1.5
VIth Plan (1980-85) 49,355 19.6 2.0
VIIth Plan (1985-90) 1,19,258 22.4 1.3
VIIIth Plan (1992-97) 3,34,999 22.8 (-)1.0
IXth Plan (1997-2003) 5,21,355 23.0 0.2
Xth Plan (2002-07) 14,87,786 32.5 2.4
Capital Formation has substantially increased in India during the period of

planning. It can be assessed from the earlier table. The table shows that in 10th plan
contribution of gross fixed capital to total gross domestic product is 32.5% and that of
increase in stock is 2.4%.
The most important source of finance for gross capital formation in India has
been domestic saving. The other source of finance is the capital, new borrowings
from the rest of world, and capital transfers from the rest of the world India must
raise its domestic saving rate to raise the rate of capital formation as the proposition
of borrowed foreign capital is a risky one.
1.2.7.1 Gross Fixed Capital Formation : It comprise such investment as
(1) Constructions - (i) Residential Buildings
(ii) Non residential Buildings
(iii) Land improvement
(iv) other type of construction
(2) Machinery and Equipment
(3) Live stock - Breeding stock, Cattle, draught animals etc and producer.
1.2.7.2 Increase in Stocks :- It comprises of stocks lying with Government, trade and
producer.
(i) Stock of Raw Material
(ii) Work-in- Progress
(iii) Finished Goods
(iv) Stocks of Strategic
(v) Live Stocks
1.2.8 RATE OF CAPITAL FORMATION :- Rate of Capital Formation refers to the
percentage of investment made each year out of the gross domestic product.
Rate of Capital Formation = Capital Formation on Investment
Gross Formation Product
x 100
1.2.9 FACTORS RESPONSIBLE FOR LOW RATE OF CAPITAL FORMATION
In India, the Rate of Capital formation is very low in comparison to that of
advanced countries of the world. Following are the main factors which causes Low
Rate of Capital formation:
(i) Low Per Capita income
(ii) Vicious circle of Poverty
(iii) High growth Rate of Population
(iv) Small size of market
(v) Lack of enterprises
(vi) Lack of Financial institutions to mobilise savings
(vii) Lack of infrastructure
(viii) High level of Taxation
(ix) Deficit Financing
(x) Demonstration effect and conspicous consumption

(xi) Low Level of Technical Know-how
1.2.10 MEASURES TO IMPROVE THE RATE OF CAPITAL FORMATION IN INDIA
The Rate of capital formation can be increased by raising the level of savings
and investment for which following measures may be adopted :
(i) Increase in Per Capita income.
(ii) Measures to increase in Savings.
(iii) Facilitation for mobilisation of savings.
(iv) Increase in the efficiency and profitability of public sector enterprises.
(v) Reduction in unproductive expenditure of Government.
(vi) Suitable Monetary policy.
(vii) Rationalisation of taxation structure with a view to promote savings and
investment.
(viii) Supportive industrial policy.
(ix) Price stability.
(x) Organised money and capital market.
(xi) Regulation of Deficit Financing Practice.
(xii) Increase in the technical and vocational educational facilities.
1.2.11 SUMMARY
India is on the road of development. And for rapid development of Indian
economy, high rate of Capital formation is the pre-condition. The Rate of Capital
formation in India is low due to low growth rate of per capita income and low rate of
savings. India should must strive towards controlling population and increasing
productivity so that income and saving rate can be increased. And consequently
capital formation rate can be improved to improve upon the development process.
Further, the government should must strive hard to break the vicious circle
of poverty at somepoint, only then the level of income, saving and investment can be
improved to ensure the high rate of economic growth.
1.2.12 GLOSSARY
1. Per Capita Income: It is a ratio between national income and population of
that country.
2. Investment/ Capital formation: It is the increase of stock of capital.
3. Net Capital Formation: It is arrived by deducting depreciation and obsolesce
from gross capital formation.
4. N o n - d e v e l o p m e n t e x pe n d i t ur e: Am o u n t s p e n t o n n o n - d ev e l o p m e n t
expenditures.
5. National Income: It is refers to the market value of goods and services produced
by an economy during one year.
1.2.13 EXERCISE
Q.1. Analyse the changes in the growth rates recorded in the national income
and per capita income of India.
Q.2. Why Indian economic is not responding to saving rate in terms of increased
growth rate?
Q.3. Analyse the factors responsible for low rate of savings.
(B) Long Questions :
Q.1. Discuss the various measures to raise the level of savings on the country.
Q.2. What do you mean by investment? What are the major determinants of
investment?
Q.3. Explain the unsatisfactory rate of investment in India. What are the various
factors responsible for the gap between the actual and desired rate of investment
in India.
1. Indian Economy
By- Mishra,Puri.
2. Indian Economy
By- Ruddar Dutt., Sundram
By-Rosy Joshi
-Sangam Kapoor
PRICE LEVEL
1.3.0 Objective
1.3.1 Introduction
1.3.2 Price Movements in India
1.3.3 Causes of Increase in Price level
1.3.3.1 Increase in money supply
1.3.3.2 Irregular growth in production
1.3.3.3 Increase in demand of food grains and consumer goods
1.3.3.4 Rise in administered Prices
1.3.3.5 Excessive Resort to Indirect Taxes
1.3.3.6 Other factors
1.3.4 Consequences of Price Rise
1.3.4.1 Adverse effects on investment and savings
1.3.4.2 Inter-Sectoral Terms of Trade
1.3.4.3 Balance of Payment Position
1.3.4.4 Promotion of Inequality
1.3.5 Measures for Price Stability
1.3.5.1 Maintaining proper supply of essential goods
1.3.5.2 Proper administered Price Policy
1.3.5.3 Reducing Inequalities of Income
1.3.5.4 Integration of Prices and Income structure
1.3.5.5 Economic development within means
1.3.6 Summary
1.3.7 Glossary
1.3.8 Exercise
1.3.0 OBJECTIVE
India is experiencing continuous Price rise since independence. And moreover,
over the year, the price rise is not mild. This types of inflation continuously effecting
the developmental process in India. This chapter aim and having an overview about
the magnitude and trends of Price rise in India, its effects on the developmental
Process and the measures taken by government to count it.
24
1.3.1 INTRODUCTION
India is one the leading developing nation of the world. It is pursuing ultimate
economing growth as its aim Price stability is viewed as a necessary condition to
ensure the desired development performance of the country. Although certain level
of Price rise follows the process of the country, But steep rise in prices work against
the development process of the country. It can devastate any economy in the world.
India is also experiencing price rise over the years.
Prise rise affects all the concerned parties in the society like investors,
consumers, suppliers, producers etc. It works to the disadvantage of the poor persons
most. As the prices rise, the value of money declines so does the real income in the
hands of poor. Consequently, they will have less to consume and less to save. It adversely
affects the saving and investment process, thus Jeopardising the whole process of
economic growth. It also distorts the income distribution process, resulting in heavy
concentration of income in hands of rich.
1.3.2 PRICE MOVEMENT IN INDIA
India is faced with a critical problem of rising prices. It was only in the first
plan period, that the price fall was recorded. And after that prices arc continuously
increasing. The whole sale price index number which stood at 89 (with the base year
1961-62), had fallen to the level of 74, thus recording a fall of 3.2% p.a. during that
period. In the second plan, the government took a major initiative in establishing
heavy industries. For that it pushed up investment, less by domestic saving but more
than by borrowings and deficing. This resulted into increase in money supply and
thus pushing up prices. The whole sale price index level which stood at 74 in 1955-
56, rose to 110.5 in 1963-64. Thus registering a increase of 49.4 percent in price
level during these eight years. During this period prices rose by 5.1 percent per annum.
While formulating the Second five year plan, the planners seemed not to have bothered
much about the prices, as the first plan experienced comparative price stability. But
during the second plan period, prices exhibited a disturbing trend and this became a
matter of major concern. Hence a separate chapter. The special chapter on price
policy consisted of scope, limitation and constituent of Price policy. Successive plans
have emphasized the needs for achieving price stability and distributive justice.
However the basic objectives and approach enumiated in the price policy formulated
in the third plan have been continued in the successive plans without any remarkable
change.
Inspite of the recognition of the problem and undertaking measures, the prices
continued to rise in the successive plans. From 1964-65 onwards for about seventeen
years, price level rose at an average rate of 9.1 percent per annum. During this
period, there were certain years in which the economy experienced hyper inflation
like during 1971-72 to 1974-75, the annual rate of rise in prices was 16.3 percent.
And during 1974-75 there was highest price rise of 25.2 percent. Such a high rate of
inflation caught the attention of government and the public at large. Certain
exceptional measures were taken to control the inflation.
Despite the initiative taken by the government the prices continued to rise
even after 1981-82. During the period from 1981-82 to 1993-94, the prices rose by 8.2
percent. During 1995-96, the prices rose at the rate of 5.0% Although this rate of
inflation was less as compare to the inflation. But this was more or less due to non
revision of administered prices. And even in May, 1998, the rate of inflation was
running at 6.4 percent. The rise in prices of primary goods further pushed up the
inflation rate. It recorded 7.1 percent in 2000-01 however, the fiscal year 2001-02
recorded the lowest increase in wholesale prices at 3.6 percent per annum. As per
the current data available. The Average wholesale price inflation (WPI) increased by
5.0 percent during April -Sept, 2003-04 the rate in inflation was mainly on account of
the rise in the prices of food articles especially manufactured food products.
1.3.3 CAUSES OF INCREASE IN PRICE LEVEL
Indian Economy is in the developing stage. Development process needs
continuous and sustained investment in a large quantity. As the Domestic saving
might not meet the requirement, the government might resort to high taxation,
external borrowing and deficit financing. Although indirect taxation does also have
an inflationary impact but basically it is the deficit financing which put's a major
pressure on prices, it increase money supply, without matching the growth in the
production, which pushes up the prices.
Although increase in money supply is not the only cause but it is an important
one factor and also affects the increase in prices. Various factors which affect the
increase in prices discussed below :
1.3.3.1 Increase in money supply : The first and foremost factor of course, is the
rapidly rising money supply. Excessive deficit financing by the government and the
commercial sector resulted in the expansion of monetary resources with the public
far excess of growth of GDP in real terms. Between 1950-51 and 1991-92, money
supply increased at the average annual rate of 14.0 percent. During the same period,
real national income as measured by the supply of goods and services, increased at
the rate of 3.8 percent per annum. It was the wide gap between demand and supply
that resulted in the rise in prices of the order of 6 percent per annum during this
period. Infact the gap between the demand the supply has been widening during recent
years. During the decade of 1982-92 money supply expanded at an average annual
rate of 17.0 percent as against the rise of just 5 percent in the real national income,
wholesale prices increased at a faster rate of about 9 percent per annum during the
decade.
One more important fact to note is that increase in money supply is not
correspondingly followed by the increase in price at the same rate. Rather some times,
the rise in prices is more than the rate of rise in money supply.
1.3.3.2 Irregular growth in Production : Indian economy is an agricultural economy.
The productive level of Agriculture mostly depends upon nature in India. Draughts,
floods seriously affects the productivity of agriculture in India. Thus causing irregular
growth in the production of agricultural goods on the other hand industrial sector is
marred by the inefficiency of Public sector. Thus causing low production on the
industrial fronts. Set backs to production (Agricultural as well as industrial) have
stocked the inflationary firm from time to time by causing reduced availability of
supplies in the market and by giving rise to inflationary anticipations.
1.3.3.3 Increase in Demand of food Grains and Consumer Goods : Demand for
marketed foodgrains has also been rising due to structural changes such as growing
urbanization of the population and rapid increase in the number of agricultural
labourers and small farmers.
1.3.3.4 Rise in administered Prices : The prices of large number of commodities in
the economy are formally or informally controlled by government. These commodities
are either vital raw materials or items that are essential for final consumers. The
poorer sections interest in particular are greatly dependent on a suitable pricing
policy with regard to essential commodities. Accordingly, the government has been
taking the responsibility to intervene in the determination of prices of selected
essential commodities. (Such as rice/wheat, sugar, edible oil, cloth etc.)
Over the years, Economic and Political power of the cultivators growing which
reinforce the necessity for remunerative prices of foodgrains. As a result, procurement
prices of foodgrains has been raised from year to year and this has contributed in
rise of price level. Moreover many upward revision of government controlled prices
and rates (such as petroleum products, iron and steel etc.) since independence owing
to cost escalation have also contributed from time to time in price level.
1.3.3.5 Excessive resort to Indirect Taxes : For finding the investment for
development purposes, government has resorted to, besides domestic saving, taxation,
External borrowing and deficit financing. Taxation includes direct taxes and indirect
taxes while direct taxes mops up additional resources with the Public while on the
other hand indirect taxes increase the cost of products. This puts more pressure on
middle and lower income group of people. Excessive resort to indirect taxes in India
has tended to raise the price level.
1.3.3.6 Other Factors : Besides the above mentioned factors, world inflation,
deterioration in terms of trade, devaluation of the rupee, accumulation of black money,
hoarding, black marketing and removal of price and distributive factors are also
responsible for price inflation in India.
1.3.4 CONSEQUENCES OF PRICE RISE

As we have seen, that there is an inherent, tendency for the price to rise
during the development process. Mid rise in prices provides a boost for the development
in the economy but hyper inflation is harmful to the society as a whole and more
particularly to poor sections of the society. A country like India where unemployment
and poverty are prevalent, inflation causes a serious impact on the overall development
of the society. Among the many consequences, most important are as follows. :
1.3.4.1 Adverse Effect on investments and savings : Saving and Investment rising
adversely affect the level of investment and saving in a developing economy.
Investment gets adversely affected because of the following reasons :
(a) i nv estment deci si on s of lo n g t erm ch aract er cann ot be saf ely
implemented.
(b) Investible resources in the private sector get diverted to those channels
which yield quick profits.
(c) Country real capital stock fails to increase, although the money value
of the capital stock increases.
Similarly, rising prices adversely affect both the ability and willingness to
save on the part of the people. Due to inflation, the purchasing power gets eroded.
People have to spend more to maintain their given level of living. Moreover, they
would be less willing to abstain from present consumption.
1.3.4.2 Inter-Sectoral Terms of Trade : Prices of agricultural goods generally shows
a higher rise as compared to price of non-agricultural goods. This may seem to favour
the agriculturist. But the benefits of rising prices are generally pocketed by the big
farmers; the small farmers and the landless labourers, who form the bulk of agricultural
population find themselves to be the loser, as they have to purchase non-agriculture
goods at higher prices.
Similarly, rising prices of agricultural goods sets in motion a Chain Process
where higher wages cause higher prices and higher prices cause demand for higher
wages. The chain reaction does not help anybody at the end.
1.3.4.3 Balance of Payments position : A country's balance of payments position is
adversely affected by rising prices. Inflation at home may have the following effects :
(d) Domestic producers may be tempted to sell in the home market.
(e) Exportable goods may be rendered non competitive in the international
markets.
(f) Foreign goods may become relatively cheaper. It may encourage the
demand for imports.
(g) Foreign producers may be tempted to sell in this market.
While the effects of (c) and (d) can be checked in our economy because of the
exchange control regulations (imports are not freely allowed), the (a) and (b) are real
dangers. When exports get contracted, the balance of payments may turn adverse.
1.3.4.4 Promotion of Inequality : Inequalities of income are generally caused because
of the existence of the sources of unearned income, like rent, interests and a part of
profits. Rising prices promote inequalities of income in the following ways :
(a) The share of unearned income in the total income goes up.
(b) The share of earned income, i.e. wages increase, they increase only
after the prices have increased. Rent, interest, etc. may increase well
before the prices have gone up.
(c) The difference in the rate of growth of income cause inequalities of
income to multiply.
I n sh o r t , i n a p o o r co u n t r y c h a r ac t e r i ze d by u n e m p lo y m e n t a n d
underemployment, rising prices are sufficient to put the whole economy out of balance.
Therefore, it is necessary that immediate steps should taken to hold the price line
stable.
1.3.5 MEASURES FOR PRICE STABILITY
There is a general agreement in India that inflation is a destabilizing and
disruptive factor and every effort must be made to avoid it. The motto in India, is
therefore, growth with stability. It is an essential element of overall stability. Absolute
price stability is neither practicable nor desirable. some price rise is inevitable in a
developing economy, and may be even desirable. But it does not have to be of the
order actually experienced in India, particularly since 1963-64. What we need is
relative price stability. To achieve this goal, a number of measures have to be adopted.
Some of them are as follows :
1.3.5.1 Maintaining proper supply of essential goods :
Particular attention will have to be given to increase domestic production and
efficient management of supplies in the case of essential commodities. Where
necessary domestic production will have to be supplemented by timely imports. Since
the maintenance of adequate stocks of food grains with public agencies help in keeping
in check the market expectation of price rises, continued efforts will have to be made
to maximize the procurement of food grains. The public distribution system will have
to be further expanded, strengthened and streamlined in order to make available
essential consumer goods to people throughout the country at reasonable prices.
Besides hoarding, profiteering and other anti-social activities will have to be effectively
curbed by taking action against those indulging in such activities.
1.3.5.2 Proper administered price policy:
In our economy, through direct measures of intervention, the government
plays an important role in improving the distribution of real incomes and ensuring a
much greater degree of equity in the society. The public distribution system has a
particularly vital role in ensuring the availability of essential commodities to the
lower income groups at reasonable prices.

In the recent years, there is a increase in administered prices again and
again, due to increase in costs. It starts chain reaction and causes the prices of
other commodities to rise. Now it is necessary to face squarely the issues involved in
the determination of administered prices. When is an increase in cost, the options
are limited.
(i) The most preferred option is to absorb, to the extent possible, the burden of
the cost increase by improving the productivity and efficiency of the concerned
enterprises.
(ii) Raising administered prices and thereby causing other prices also to increase.
(iii) Holding the administered prices unchanged, leading to higher losses (or lower
profits), which may be met by higher subsidies from the budget, this in turn,
can be sustained by either.
(a) Tolerating a higher budget deficit, which may have atleast as much inflationary
impact as raising administered prices, or
(b) Reducing plan expenditure, at the expense of development.
The issue involved are complex and the government must introduce such
policies regarding administered prices, which will help in reducing inflationary
pressure on the economy while at the same time generating sufficient resources for
development.
1.3.5.3 Reducing Inequalities of Income : Another urgent step required is to reduce
the inequalities of income. We know that our fiscal system (Taxation etc.) has been
very effective in this direction. The result is that the additional income generated in
the economy does not get percolated to the lower level. A comprehensive policy would
have to be drawn to combat inequalities. Fiscal policy alone may not sufficient,
redistributive measures which increases the real income of the poor would have to
be adopted.
Similarly, policies would have to be designed which curb extravagant
consumption and hence should also check socially undesirable production.
1.3.5.4 Integration of Prices and Income Structure: It is essential that a proper
relationship between price structure and income structure should be evolved. Given
a proper price income structure, any rise in the income of any factor should be
consistent with the rise in production and productivity of that commodity.
1.3.5.5 Economic Development within means: The programme of economic
development should be limited to the availability of real saving in the economy. This
implies that no unnecessary additional money should be pumped in the economy.
Deficit financing should not be resorted as routine measure. It should be used with
caution. At least expenditure on non productive activities should be controlled.
1.3.6 SUMMARY
Indian economy is faced with various acute problems, Price rise is one of them.
Although certain level of price rise compulsorally happens in the process of
development. But the level of price Rise in India is quite high which is creating
problem. There are various factors which are causing increase in prices like increase
in money supply, irregular production, increase in administered prices etc. Increase
in money supply is one of the main reason which is contributing maximum in the
rise in price band. Government has to undertake various stringent measures to control
the rise in prices. Among these measures controlling the level of deficit financing,
linkage of Price and income structure, controlling hoarding and black marketing change
in financial policies are the main but ultimately, it is in the will of government at the
end, which can play a decisive role in controlling the increase in Prices.
1.3.7 GLOSSARY
1. Inflation: Trends of price rise
2. Inequality: Unequal distribution of goods/services/incomes
3. Balance of Payment: Balance between revenue generated from exports and
payment made in course of import.
4. Price Stability: No major change in prices
5. Money Supply: Circulation of currency in the country.
1.3.8 EXERCISE
(a) Short Questions :-
Q1 : Write a short note on a balance of payments position in India.
Q2 : What are the consequences of Price rise in India?
(b) Long Questions :
Q1 : Discuss the price Movements in India Since independence.
Q2: "India's main problem is to reconcile economic growth with price stability",
Explain the statement critically.
Q3: Discuss the causes of rise in Price level in India. And Also discuss the
measures taken to check it.
- Indian Economy - By Sudhir Dawra.
- Indian Economy - By E. Chandram.
LESSON NO. 1.4 AUTHOR : HARNEET RAINA
TRADE AND BALANCE OF PAYMENTS

1.4.0 Objective
1.4.1 Introduction
1.4.2 Meaning of Balance of Payments
1.4.3 Significance of BoP Accounts
1.4.4 Structure of Balance of Payments Accounts
1.4.4.1 The Current Account
1.4.4.2 The Capital Account
1.4.4.3 The Account of financing of surplus or deficit
1.4.4.4 Errors and Omissions
1.4.4 Balance of Payments Account of India
1.4.5 Balance of Trade
1.4.6 Disequilibrium of the balance of payments
1.4.7 Autonomous and Accommodating Transactions
1.4.8 Development in India's BOP during the Q1 (First Quarter) (April-June) of 2016-
17)
1.4.9 Summary
1.4.10 Exercise
1.4.0 OBJECTIVE
The main objective of this chapter is to explain the concept of balance of
payments of a country and its impact in the economy the types of transactions included,
the structure of BOP. Also the development in Quarter 1 in India's BOP has been
given to know the current state of BOP Accounts
1.4.1 INTRODUCTION
The balance of payments accounts are an integral part of the national income
accounts for an open economy. They record all transactions between ‘residents’ of
the country concerned and these of other countries, where residents are breeadly
interpreted as all individuals, business, and governments and their agencies,
international organisations are also classified as ‘foreign’ residents for this purpose.
The state of the balance of payments plays on essential role in providing information
to both governments and private individuals and firms.
32
1.4.2 MEANING OF BALANCE OF PAYMENTS

The balance of payments is a summary of all the international transactions of
a country and its citizens during a specified period of time. This period is usually one
year, though many countries have now started preparing the quarterly accounts for
the purposes of forecasting.
Balance of payments is a statement of accounts showing all monetary
transactions of a country with rest of the world. The monetary transactions may arise
out of : (i) export and import of goods (called merchandise), (ii) export and import of
services (called invisibles), (iii) international sale and purchase of financial assets
(like stocks and bonds), and (iv) international sale and purchase of real assets (like
plant and machinery).
In other words, balance of payments is a set of accounts showing economic
transactions of a country with rest of the world.
“The balance of payments of a country is a systematic record of all economic
transactions between its residents and residents of foreign countries".
-Kindleberger
The Balance of Payments is a statistical statement for a given period showing :
1. Transactions in goods and services and income between an economy and the
rest of the world.
2. Changes of ownership and other changes in that country's monetary gold,
special Drawing Rights (SDR's) and claims on and Liabilities to the rest of the
world; and
3. Unrequired transfers and counterpart entries that are needed to balance.
The balance of payments of a country may be expressed through the following
relation :
B=R-P
Here B denotes the balance of payments; R, total receipts; and P, total payments.
1.4.3 Significance of the BoP Accounts : Significance of the BoP accounts is
highlighted by the following observations.
(i) BoP accounts show export-import status of the country. If export>import, the
level of AD tends to rise. This points to the growth potential of the economy.
(ii) BoP accounts reflect investment by the foreigners in the purchase of stocks
and bonds in the domestic market. Higher investment points to a healthy
state of our economy.
(iii) BoP accounts also show the extent of FDI (Foreign Direct Investment). Increase
in FDI is a sign of GDP growth.
(iv) International borrowing is an important component of BoP accounts. In the
context of less developed countries like India, international borrowing reflects
our economic dependence on rest of the world.
(v) Since all forex-transactions are routed through RBI, BoP accounts reflect the
movement of forex reserves with the RBI. Healthy reserves of forex is a sign of
an healthy economy.
(vi) BoP accounts help the government to formulate a suitable strategy of growth.
In case growth process is hurt because of high imports and low exports, the
government must take steps to curb imports and increase exports.
1.4.4 STRUCTURE OF BALANCE OF PAYMENTS ACCOUNTS

The structure of balance of payments accounts in India consists of :
If records all current transactions which involve either the export or import of
goods and services. The goods exported are termed as ‘visible’ exports. The services
performed for people of other countries are called as the ‘invisible’ exports. These
include shipping, banking and insurance tourist expenditure etc.
Current account records (i) export (X) and import (M) of goods, (ii) export and
import of services, and (iii) current transfers. Export and import of goods is separated
from the export and import of services. Export and import of goods is considered as
'visible trade, while the export and import of services is considered as 'invisible trade'.
Because, goods are seen while crossing the border, but services are not. Goods are
tangible while services are not. Services are further split into two components:
(i) factor services, and (ii) non-factor services. Factor services involve payments in
terms of income (investment income+compensation of employees). Non-factor services
(like of shipping, insurance, banking) involve payments in terms of revenue. Current
transfers refer to 'transfers for free'. These are unilateral transfers by way of gifts,
grants and workers' remittances (residents settled abroad sending money to their
home country. For purpose of BoP accounting current transfers are also cosideredas
an element of 'invisibles'. So that, 'invisibles' in the current account of BoP includes:
(i) Monetary transactions on account of export and import of non-factor services,
(ii) Monetary transactions on account of export and import of factor services. Factor
services generate factor incomes classified as (a) investment income, and
(b) compensation of employees.
(iii) Current transfers.
The Capital account includes all transactions involving the lending or
bomruings of capital of both short and long term maturities and basically reflects the
net change during the accounting period in the financial claims and liabilities of
domestic citizens, business firms or financial institutions vis-a-vis the rest of the
world.
Capital account is that account which records all such transactions between
residents of a country and rest of the world which cause a change in ownership of
assets. Unlike current account, the capital account transactions do not involve the
movement of goods and services between one country and rest of the world.
Capital account transactions should not be misunderstood as those trasactions
which relate to the export and import of capital goods like plant and machinery. All
such goods which cross the borders (whether these are consumer goods like milk for
the babies or capital goods like plant and machinery) are recorded as mechandise
and included in current account BoP. Capital account BoP transactions mainly relate
to : (i) physical assets (like land and building as well as plant and machinery) which
remain within the domestic economy, but the ownership of which changes on account
of their international sale and purchase, (ii) financial assets (like stocks and bonds),
(the ownership of which changes when these are purchased by one country from the
other, and (iii) international claims arising out of loans/borrowings.
The deficit on current account, apart from the short or long term capital
movements, may be adjusted through the transactions involving the sale of gold. The
gold selling to exporting countries can obtain the necessary amount of foreign
exchange for discharging their foreign liabilities.
The balance of payments accounts also include the item, ‘Errors and
Omissions’. Since a larger number of items us the balance of payments account are
estimated from the incomplete data, these may be subject to errors of an uncertain
magnitude.
1.4.5 Balance of Payments Account of India
The different components of balance of payment account of India can be through
the following table :-
I. Current Account
1. Exports
2. Imports
3. Trade Balance
4. Invisibles (net)
A. Non-factor services
B. Income
C. Transfers
5. Goods and Services Balance

6. Current Account Balance
II. Capital Account
1. Capital Account Balance
(i) External Assistance (net)
(ii) External Commercial Bomruings (net)
(iii) Short Term Debt
(iv) Banking Capital (net)
(v) Foreign Investment (net) of which
A. FDI (net)
B. Portfolio (net)
(vi) Other flows (net)
III. Errors and Omissions
IV. Overall Balance
V. Reserve [Increase (-)/Decrease (+)]
1.4.6 Balance of Trade
Balance of Trade is defined as the difference between the value of merchandise
(or goods) exports and the value of merchandise (or goods) imports. In other words, it
is the balance of goods or the balance of merchandise trade.
The balance of trade, can be expressed through the equation
Y = C + I + G + (X-M) where
Y = national income
C = consumption expenditure
I = Gross domestic investment
G = Government expenditure
X = the export of goods and services
M = import of goods and services
If X = M, there is an equilibrium in the balance of trade.
If X > M, there is a balance of trade surplus or balance of trade is favourable
tax the home country.
If X < M, there is a balance of trade deficit or the balance of trade is unfavourable
to the home country.
1.4.7 DISEQUILIBRIUM OF THE BALANCE OF PAYMENTS
A disequilibrium in BoP occurs when the sum total of current account balance
and capital account balance is not zero; instead it is either some positive number or
some negative number. In case the sum total of current account balance and capital
account balance is some positive number, it indicates BoP Surplus. On the other
hand, if the sum total of current account balance and capital account balance is
some negative number, it indicates BoP Deficit. Thus, we have:
(i) BoP Disequilibrium when :

Current account balance+Capital account balance is NOT equal to zero, and it
causes the movement of official reserves.
(ii) BoP Surplus when :
Current account balance+Capital account balance is some positive number,
pointing to net inward flow of foreign exchange, and causing an increase in official
reserves.
(iii) BoP Deficit when :
Current account balance+Capital account balance is some negative number,
pointing to net outward flow of foreign exchange, and causing a decrease in official
reserves.
The amount of International payments must necessarily be in balance; for
every credit entry there has to be an offsetting debit entry. However, a state of
disequilibrium of the balance of payments of a country assumes either the form of a
surplus or a deficit. The disequilibrium is said to be favourable when the difference
between the demand for and supply of foreign exchange is positive. On the contrary,
a negating difference between the two denotes an unfavourable disequilibrium of
payments.
A temporary disequilibrium manifests a payments situation in which in
payments, for a short time, exceed the out-payments followed by a period in which an
opposite situation prevails. Such deficits or surpluses are caused by random variations
is trade, seasonal fluctuations, the effects of weather on agricultural reflect and so
on. The disequilibrium from such reasons are temporary and expected to reverse
themselves within a short period of time.
The Chronic or fundamental disequilibrium This disequilibrium is due to
the fundamental changes in the economic position of a country. The main factors
that lead to such a situation are the shifts in consumer tastes at home or abroad
which affect the country's imports or exports, technological improvements in products
or methods of production in the industries of home country or abroad etc.
1.4.8 AUTONOMOUS AND ACCOMMODATING TRANSACTIONS
If a country has a deficit or surplus in its balance of current account, there
are some off-setting transactions on the capital account to bring the balance of
payments in a state of equilibrium.
(i) Autonomous transactions or autonomous capital flows :
Autonomous transactions or capital flows are those which own in the current
and capital accounts for business or profit motive independently of the BOP
considerations. They arise out of autonomous economic activities as credit or debit
transactions. Whether the balance of payment is surplus or deficit that depends on
the balance of the autonomous items. There transactions are also known as about
the line transactions.
(ii) Accmodating transactions or accomodating capital flows :

Those transactions which are necessitated by the disequilibrium in the balance
of payments are regarded as the accomodation or amactions. These are the capital
flows that take place specifically to equalize the balance of payments in the book-
keeping sense. The accomodating transactions are also termed as Below the Line
Transactions.
For example, If India, a non gold exporting country, is forced to export gold
worth Rs. 1200 crore to settle, its balance of payments deficit, then this item included
on the credit side of India's BOP International Liquidity Account is an accomodating
transaction.
Autonomous and Accomodating Items of BoP Account
BoP transactions or items in BoP account are often classified as autonomous
items and accomodating items. The difference is as under :
Autonomous items refers to such BoP transactions which are undertaken with
a view to making profits. It is due to these transactions that there is a BoP deficit/
surplus. Accomodating items, on the other hand, refer to such transactions which
are udnertaken by the central bank of a country with a view to correcting BoP
imbalance and restoring BoP equilibrium. It is important to note that accomodating
items do not cause any movement of goods and services across the borders. These
relate only to the movement of official reserves with a view to correcting BoP
imbalances.
Often the accommodating items are not reflected as an element of BoP accounts.
These are therefore called "below the line" items, while autonomous items are called
"above the line" items. Thus, when BoP deficit/surplus is estimated, it is with
reference to only the autonomous items or autonomous transactions of BoP.
Autonomous and Accommodating Items of BoP
Autonomous Items Accommodating Items
(i) Autonomous items refer to such BoP (i) Accommodating items are free from the
transactions which are undertaken for considerations of profit.
considerations of profit.
(ii) Autonomous items are the cause of (ii) Accommodating items are meant to
BoP imbalance (BoP surplus or BoP deficit). correct BoP imbalance.
Or
Accommodating items are meant to
correct BoP imbalance
(iii) Autonomous items may involve the (iii) Accommodating items do not involve
movement of goods across the borders the movement of goods across the borders.
(like export and import of consumer goods These items only involve the movement
or capital goods. of official reserves with the RBI.
(iv) Autonomous items are classified as (iv) Accommodating items are classified as
'above the line' items of BoP. 'below the line' items of BoP.
1.4.9 DEVELOPMENT IN INDIA'S BALANCE OF PAYMENTS DURING THE Q1 (FIRST

QUARTER) (APRIL-JUNE) OF 2016-17)
1. The Current Account deficit (CAD) narrowed to US $ 0.3 billion (0.1 percent of
GDP) in Q1 of 2016-17.
2. The contraction in the CAD was on account of a lower trade deficit (US $ 23.8
billion) than in Q1 of last year.
3. On a BOP basis, menchandise imports declined sharply by 11.5 percent vis-a-
vis merchandise exports.
4. Net services receipts declined largely due to fall in net earnings on account of
travel, financial services and other business services.
5. Net payment on account of primary income (dividend, interest and profit)
increased marginally in Q1 of 2016-17.
6. Private transfer receipts, mainly representing remittances by Indians employed
overseas hence also declined.
7. Portfolio investment recorded a net inflow of US $ 2.1 billion in Q1 of 2016-17.
8. Foreign Exchange Reserves increased by US $ 7.0 billion in Q1 of 2016-17.
1.4.10 SUMMARY
This Chapter basically focuses on the concept of the Balance of Payments, its
meaning and how it impacts the economy. The balance of payments accounts are an
integral part of the national income accounts for an open economy. They record all
transactions behind residents of the country concerned and those of other countries.
The structure of balance of payments includes the current account, capital account,
account of financing, errors and omissions. Their an various types of disequilibriums
which offset the BOP accounts, hence they are offset by the accomodating transactions
so as to keep the BOP in balance. Developments of the BOP during first quarter of
2016-17 is also given so as to thew the current state of BOP accounts.
1.4.11 EXERCISE
Q.1. Explain the meaning of balance of Payments.
Q.2. What is the structure of balance of payments accounts ?
Q.3. Distinguish between balance of trade and balance of payments.
Q.1. What do you mean by balance of Payments ? Explain clearly the temporary and
fundamental disequilibrium in the BOP of a country.
Q.2. What do you mean by Balance of Trade ? Distinguish clearly between the
autonomous and accomodating transactions in the balance of payments

account.
1. International Economics
By : B.O. Sodersten and Geoffrey Read
(3rd edition) (2004)
2. International Economics
By : K.C. Rana and K.N. Verma
(2014 edition)
LESSON NO. 1.5 AUTHOR : MRS. SAROJ CHAUHAN
ECONOMIC PLANNING IN INDIA :

BASIC STRATEGY OF INDIAN PLANNING
Structure of the Lesson :
1.5.1 Introduction
1.5.2 Need and objective of Economic Planning
1.5.3 Objectives of Indian Development Strategy about planning
1.5.4 Strategy of Indian Planning
1.5.5 Strategy of different plans
1.5.5.1 Strategy of the First Plan
1.5.5.2 Strategy of the Second Plan
1.5.5.3 Strategy of the Third Plan
1.5.5.4 Strategy of the Fourth Plan
1.5.5.5 Strategy of the Fifth Plan
1.5.5.6 Strategy of the Sixth Plan
1.5.5.7 Strategy of the Seventh Plan
1.5.5.8 Strategy of the Eighth Plan
1.5.5.9 Strategy of the Ninth Plan
1.5.5.10 Strategy of the Tenth Plan
1.5.5.11 Strategy of the Eleventh Plan
1.5.6 Summary
1.5.7 Exercise
1.5.8 Suggested Books
1.5.1 INTRODUCTION
Indian Economy remained stagnant during the British rule. The Britishers
used Indian resources for the betterment of their own country. They were
instrumental in keeping it in a state of backwardness. When India got freedom, it
was realized that political freedom is of no use if it is not accompanied by economic
freedom. The country therefore set before itself the goal of economic growth with
stability. To achieve that goal the government of India decided to launch a
programme of planned development. We in this lesson study the rationale of planning
and current five year plans for an under-developed country like India.
1.5.2 NEED AND OBJECTIVE OF ECONOMIC PLANNING
Planning is needed to solve following problems :
41
(1) To increase Rate of Capital Formation :

To increase the rate of Capital formation, we have to step up the rate of
domestic savings. Majority of the population of under-developed countries falls into
the category of poor peasants and labourers whose capacity to save is extremely
low due to low levels of income and high propensity to consume. The savings of
middle classes are insignificant and moreover whatever they save, they save for
specific social occasions and spend it on them. The rich class is a very small
group and even amongst them most of them are feudal landlords who indulge in
conspicuous consumption and hardly save in the form of cash that can be used for
productive purposes. The only class that tries to save is the profit earning class
which is very small. The domestic saving in these countries are, therefore, very
low leading to low capital formation and low levels of income which is popularly
known as the vicious circle of poverty. The vicious circle has to be broken by the
government by stepping up the rate of domestic savings. For this the government
can either use fiscal policy and increase savings by forced means or it can provide
incentives to various classes to save more. In both the cases, we are looking up to
a central body rather than the market forces and therefore, the need for planning
in these countries. The third alternative of importing capital from outside equally
speaks of the need for a planning authority.
(2) To make up for the Deficiency of the Enterpreneurial Ability :
Because of the structural organisation of under-developed country the
market mechanism may not throw correct signals as far as economic development
is concerned and it may perpetuate stagnation. But even if we assume that
market mechanism throws correct signals they may not be taken by the private
enterpreneurial class because for various reasons the private initiative in under-
developed countries is very poor. In such a situation government has to play the
leading role and start some industries in the public sector when private
entrepreneurs are not likely to come up and give encouragement in those sectors
where the private entrepreneur is reluctant. For all this, we need planning and a
central planning authority.
(3) To increase Employment Opportunities :
Again, because of the uncontrolled increase of population in most under-
developed countries of today, widespread unemployment and disguised
unemployment exists in these countries. Left to free market forces, it will keep
on increasing and become a big hurdle in the process of economic development. It
is only the central planning authority that can, on the one hand adopt measures
to check the rate of growth of population and on the other, provide gainful
employment opportunities to this unemployed labour force. Even the countries
which are under-populated need a central planning authority to encourage the
population to concentrate in some areas, develop those areas and move out only if
the numbers increase.
(4) To solve the Problem of Regional Disparities :
In any country and more so in an under-developed country, as the
development process gathers momentum, the regional disparities increase.
Generally, private firms left to themselves will tend to cluster round one centre of
activity and acceleration of activity in one sector will be accompanied by
retardation of activity in others. An under-developed country cannot afford to
overlook this and to reduce these regional disparities, some sort of planning is
must.
(5) To give Priority to the Social Sector :
Private enterpreneurs give more importance to individual interest than
the social interest, but through economic planning Government compel individual
interest also to work under social interest. Hence to augment and promote social
interest India adopted economic planning. For example, under private enterprise
there is nothing to induce and industrial to invest money in creating health,
education, transport or communication facilities, which is essential for the
development of the country. And this work is undertaken by government through
planning.
The above arguments are relevant to India and to any other country
wanting to achieve rapid economic development. Though there are a few people in
the private business and some walks of life who advocate extreme laissez-faire
policy but the majority of Indians are in favour of the policy of development
through planning.
The set up that India has chosen is termed as democratic socialism or
socialistic pattern of society. The planning process and techniques chosen are in
conformity with the social and political objective. Indian planning is a mixture of
planning by inducement and planning by direction. Both the private and public
sectors play their different roles. However, views differ regarding their
comparative share in economic development. It has been rightly remarked that,
India's planning is democratic both constitutionally and in substance for some
sort of controls and state intervention are essential for lifting the economy for the
welfare of the masses. It is, however, felt that Indian planning in its democratic
set up should be indicative rather than imperative as has been the experience of
France.
1.5.3 OBJECTIVES OF INDIAN DEVELOPMENT STRATEGY ABOUT PLANNING
India's development strategy of planning has certain objectives. These
consist mainly in removing some critical scarcities as discussed below :
First is removing the scarcity of foreign exchange, which is a crucial
factor. Economic development of an under-developed country, cannot indefinitely

rely on foreign aid. India realized this when it faced foreign exchange crisis in
1956-57. Export-promotion has therefore become an integral part of country's
development process. Side by side with export-promotion and import substitution
has also to be encouraged.
Secondly, to have the growth without inflation the scarcity of consumer
goods has to be surmounted. Since heavy industry, increases the money supply
which is not matched by the corresponding increase in output. It create
inflationary pressure and becomes an obstacle to the process of development.
Again since the population is growing there is more need for consumer goods. To
avoid the anticipated scarcity of consumer goods small scale and cottage
industries were encouraged to produce them. It was estimated that since small
scale industries have a negligible gestation period and low cost of production
because of the possibility of using local resources, they will be able to meet the
challenge.
Thirdly, removing the scarcity of domestic savings is another implication
of India's development strategy. Rapid industrialisation is not possible without
capital formation because we need it for agriculture, we need it for infrastructure
and above all we need it for heavy industries. Since for various political and
economic factors, we cannot attract enough foreign capital and we do not have
enough domestic savings. To step up the rate of domestic savings is, therefore,
essential for rapid industrialisation. It is a check on prices. Stepping up the rate
of investment is also essential for gradually doing away with foreign aid.
Fourthly, public sector has to play a significant role in the process of
economic growth, strategy of industrialisation through the development of heavy
industry calls for a dominant public sector.
1.5.4 STRATEGY OF INDIAN PLANNING
After having established the need for planning in India, we now consider
the question of basic strategy of planning in India. A development strategy is
mainly concerned with :
(a) Size of plan to be adopted
(b) The pattern of investment
(c) Sectoral allocation of investment
(d) Techniques of resources mobilisation
(e) Adoption of suitable monetary and fiscal policy etc.
All this has to be decided keeping in mind the objectives that an economy
has set before itself. According to lady Ursula Hicks, "The term strategy, is a long-
run concept. It is not immediately operational in the sense that strategy, must
look forward for 15 or 20 years. We can not precisely foretell what will happen in
India or the world at large. So the strategy must be a flexible, although it would
have certain elements which, no doubt would run through in any case. A
development strategy, therefore indicate the general pattern that the plans are
going to allow. While framing a suitable development strategy for an under-
developed country two things must be kept in mind. First, the economy should be
required to mark the minimum effort necessary to achieve a maximum rate of
growth. Second, the process of transformation should take a very long period of
time.
Basic outlines of Indian development strategy are well-established and run
from plan to plan, providing a continuity to the whole process. This however, does
not mean that the policy is inflexible and incapable of amendment. This is implied
by the change of priorities from plan to plan but a single long term design runs
through the entire planning process. This long-term design is governed by the goal
or raising real national income in such a fashion that continuing growth becomes
self sustaining and eventually the country can be self-supporting in the
international market. Prof. J.P.Lewis had observed that the Indian development
strategy is mainly addressed to following three operational goals.
First, the strategy undertakes in any plan period, to promote a stated
minimum increase in per capita real income. This per capita real income and
output target is the number around which the whole quantitative design of the
plan rotates. Investment is one of the means of achieving this aim and is seen in
that light.
Second, keeping in view the target of continued self-sustaining expansion
of output and therefore of the net investment, technical skills and managerial and
other input flows, a fraction of the maximum possible output gains, in the real
terms must be sacrificed in order to reinforce the advance later on.
Thirdly, India should become self-supporting in the international market.
Imports and exports have to be brought into balance.
A secondary goal of the strategy is the provision of social equality between
various classes of society including the traditional under-privileged groups
achieving greater equality of economic opportunity and reducing the inequalities
of income distribution, solving the problem of massive unemployment and under-
employment (that demoralizes the economy and comes in the way of
implementation of any development plan) and also the reduction of regional
inequalities. These goals, though considered secondary have never been lost sight
of by the planners.
Any country while formulating its development strategy, has to choose
between various alternatives available, that is, whether to have balance or
unbalanced growth, whether to give emphasis to the development of agriculture of
industry, and if Industry whether to emphasis on heavy industries or light

consumer goods industries.
1.5.5 STRATEGY OF DIFFERENT PLANS
In the light of main objectives of economic planning, strategy of different
plans has been different as discussed here.
1.5.5.1 Strategy of First Plan : The objective of the First plan was to
rehabilitate the economy disrupted on account of World War-II and partition of the
country, and to increase the production of foodgrains, cotton and jute. Hence, the
strategy adopted was to give priority to the (1) development of agriculture, (2)
improve the facilities of irrigation, (3) development of transport etc. According to
the strategy of the plan, 4.9% of the total public sector outlay was spent on heavy
and basic industries.
1.5.5.2 Strategy of Second Plan : Strategy of the second was based on
Mahalanobis Model, which emphasized the need for the establishment of large and
basic industries so as to achieve rapid rate of economic development. Main
elements of this strategy were :
(i) Establishment of iron and steel plants and other basic industries.
(ii) Emphasis on the development of cottage industries with a view to
increase employment opportunities and production of consumer goods.
Thus, agricultural development was accorded low priority.
1.5.5.3 Strategy of Third Plan : "Balanced Growth" was adopted as the
strategy of Third Plan. Agriculture and Industry both received equal treatment
with regard to their development. Main elements of this strategy were :
(1) Development of agriculture to achieve self-sufficiency in the
production of foodgrains.
(2) Completion of the construction of basic industries set-up during the
second plan.
(3) Establishment of new industries.
(4) I nitiation of employment-oriented programmes to augment
employment opportunities.
(5) Removal of inequalities in the distribution of income and wealth.
Due to the losses suffered in the Third Plan, the succeeding fourth plan
had to be deferred for three years and in its place three one-year plans were
introduced. The main element of the strategy of the three one-year plans was
'stability' in the economy so as to pave the way for the smooth initiation of the
fourth plan. Greater stress was laid on the development of agriculture.
1.5.5.4 Strategy of Fourth Plan : Since the strategy of the annual plans
was considered sound the basic strategy of the Fourth Plan was continuation of
the same things which is clear from two principal objectives that is : (a) Growth
with stability and (b) Progressive achievement of self-reliance. The strategy was
keeping in with the general strategy of opening in India. Fourth Plan strategy is
called Gadgill strategy. The most important feature is the new Agricultural
strategy.
In the field of manpower planning, the strategy was to relate educational
programmes to special and economic objectives. This required the coordination of
development programmes in the other sectors and the drawing up of a perspective
plan on the basis of manpower needs, social demand, and likely availability of
financial, material and human resources.
It was for the first time that planner revolved a sound and realistic
strategy.
The development strategy of the Fourth Plan revolved around decentralised
decision making with social purpose. In the rural sector, this was to be achieved
by the Panchayati Raj Institutions and the extension of co-operative activity. In
the industrial sector the emphasis was to be on the decentralised decision
making on the part of both small and large private sector units. Steps towards this
were to be taken by the state in two ways : (a) By providing assistance and
incentive for decentralisation of industry (b) By imposing disincentives in large
cities adopting measures for decongestion of metropolitan areas.
1.5.5.5 Strategy of Fifth Plan : The two strategic objectives of the Fifth
plan were :
(a) the removal of poverty and
(b) attainment of self-reliance.
As visualised by the Commission, the basic causes of poverty are the
under-development resulting in low national income and because of large size of
population still lower of per capita income, and hence aggregate consumption and
secondly the inequality in the distribution of income. For this, rising rate of
growth of domestic product should be accompanied by falling rate of growth of the
population.
Self-reliance, one, of the pillars of development strategy was emphasised. It
was postulated that external assistance should be done away with, within a period
of 10 to 12 years.
1.5.5.6 Strategy of Sixth Plan : Strategy of planning as given in the Plan
document is like this : "The strategy adopted for the Sixth Plan consists of
strengthening the infrastructure for both agriculture and industry so as to create
condition for an accelerated growth in investment, output and exports, and
providing through special programmes designed for the purpose, increased
opportunities for employment especially in the rural areas and the unorganised
sector and meeting the minimum basic needs of the people. The attack on the
problem of poverty is effective only in the conditions of an expanding economy.
Since growth by itself may not however, suffice, other programmes and policies
will need to be adopted with the specific aim of improving the living conditions of
the masses and to bring about a reduction in inequalities of income and wealth."
1.5.5.7 Strategy of Seventh Plan : In this plan, strategy of the
development of agriculture, small and medium industries was adopted in place of
the strategy of the development of heavy and capital intensive industries. Main
elements of this strategy were :
(i) Intensive development of agricultural and irrigational sectors.
(ii) Relatively less stress on large and heavy industries.
( ii i ) Promoting the development of small and medium-sized industries.
(iv) Export policy was formulated in accordance with the general policy of
economic development.
(v) Science and modern technology was further developed.
(vi) Efforts were made for environment protection.
(vii) Better utilization of existing production capacity.
1.5.5.8 Strategy of Eighth Plan : The objective of the Eighth Plan was to
achieve a growth rate of 5.6% and proper development of human resources. The
main elements of this strategy were :
(i) More emphasis was given to the investment in the private sector in
comparison to the public sector.
(ii) It gave priority to the development of social services, infrastructure and
agriculture.
( ii i ) I nternal sources of financing were given more importance in
comparison to the external sources.
(iv) To eliminate unemployment by the end of 20th century.
1.5.5.9 Strategy of Ninth Plan : The main slogan of this plan was to
achieve 'Growth with Equality'. The main elements of this strategy were :
(i) Priority to agriculture and agricultural development.
(ii) Stability in prices.
( ii i ) Food and nutritional security for all and especially for weaker sections of
society.
(iv) To provide minimum basic services like safe drinking water, primary
healthcare and education.
(v) Reduction in growth rate of population.
(vi) Environmental protection.
(vii) Encouragement to people's participation in the development process like
promoting Panchayati Raj Institutions, setting up of voluntary organisations.
(viii) Achieving self-reliance.

1.5.5.10 Strategy of Tenth Plan : This plan covered the period of 2002-07. The
basic aim of the plan was to achieve equitable development process and people
oriented planning. The main elements in this strategy were :
(i) To increase rate of growth of national income and per capita income.
(ii) To improve basic social services, education, health, drinking water and
sanitation.
( ii i ) Reduction in poverty.
(iv) Promoting employment.
(v) Reduction in growth rate of population.
(vi) Environmental protection.
(vii) Development of agriculture, small and cottage industries.
(viii) Development of infrastructure.
(ix) Control over fiscal deficit and inflation.
(x) Technological upgradation and reduction in capital output ratio.
(xi) Promoting foreign investment.
(xii) Disinvestment of public sector units.
1.5.5.11 Strategy of Eleventh Plan : This plan covered the period of (2007-
2012). The main strategy of this plan was ‘Faster and more inclusive economic
growth’. The main elements of this strategy were income and poverty, Health,
infrastructure, Environment, women and children. The objectives were :
(1) To achieve rapid growth and to bring general improvement in the living
conditions of people.
(2) To ensure that benefits of growth reach all sections of papulation specially
rural areas.
(3) To double the growth rate of agriculture.
(4) Providing better health and educational facilities.
(5) Promoting employment opportunities.
(6) More focus on private sector and development of infrastructure.
(7) Control over inflation and promoting foreign investment.
1.5.6 SUMMARY
When India became free, it got a poor backward and stagnant economy in
inheritance. Further the partition of the country made the situation worse. At
that time, it was realised that the solution of the problem would require an active
state role in economic development. By looking at the five year plans, it may be
concluded that the India has made significant progress in different spheres, like
agriculture, industry, transport, communication and foreign trade have recorded
impressive growth.
In spite of the significant progress made our achievements have not been
adequate.
1.5.7 EXERCISE
Q1. Discuss in short the strategy of economic planning in recent years.
Q2. What changes, if any, are needed in Indian economic planning to
accelerate development?
Q3. Write short note on a 11th five year plan.
Q1. Critically examine the strategy followed in the formulation of Indian Plan.
Q2. The strategy of economic development adopted in the ninth Five Year Plan
is the basic strategy of Indian Planning Discuss.
Q3. What main changes would you suggest in the strategy of development of the
Indian Economy under the present conditions? Give reasons in support of
your answer.
1.5.8 SUGGESTED BOOKS
Indian Economy : By Ruddar Dutt and K.P.M.
Sudharam
Leading Issues in Development Economics : By G.M. Meier.
Indian Economy, its Nature and problems : By Alak Ghosh
Government of India : Various Plan Documents
TWELFTH FIVE YEAR PLAN (2012-17)

Structure of the Lesson :
1.6.0 Objective
1.6.1 Introduction
1.6.2 Twelfth Five Year Plan (2012-17)
1.6.3 Target of Twelfth Five Year Plan
1.6.4 Objectives of Twelfth Five Year Plan
1.6.5 Resource Allocation Priorities
1.6.6 Key areas of Twelfth Plan
1.6.7 Achievements/Progress under Economic Planning
1.6.8 Summary
1.6.9 Exercise
1.6.10 Suggested readings
1.6.0 OBJECTIVE
The main objective of this chapter is to highlight the key areas of current
five year plan i.e. Twelfth five year Plan (2012-2017). This chapter also focuses on
the main objectives, targets and resource allocation priorities as set by the
Planning commission in this plan.
1.6.1 INTRODUCTION
The Planning commission in India has been producing Five Year Plans
since 1951. These plans set the strategic direction for the Government of India
for the following five years. In December 2012, the Planning Commission
published the near final draft of 12th Five Year Plan. The 12th Plan says that it
must be guided by a vision of India moving forward in a way that would ensure a
bread-based improvement in living standards of all sections of the people through
a growth process which is faster than in the past, more inclusive and also more
environmentally sustainable.
1.6.2 TWELFTH FIVE YEAR PLAN (2012-17)
A Planning Commission meeting held on 21st April, 2011 under the
chairmanship of Prime Minister Manmohan Singh, the Deputy Chairman of the
Planning Commission Montek Singh Ahluwalia presented an outline on the
“Issues for approach to the 12th Five Year Plan”. In the meeting, the planning
commission made argument in favour of higher inflow of foreign capital and also
51
stressed on the importance of increasing the pace of economic reforms 10 as to

reach the milestone of attaining 9.0 to 9.5 percent growth rate in the economy.
The meeting also agreed that under the regime of economic reforms to attain all
round development of the economy. It in essential to reach the specific target of
growth both agriculture and manufacturing industry.
1.6.3 TARGET OF 12TH FIVE YEAR PLAN
The Planning Commission expects that during five years of Twelfth Plan
the attainment of economic growth rate would reach between 9.0 to 9.5 percent. In
order to attain the targeted growth rate, the planning commission feels that the
following primary conditions need to be fulfilled :
1. The door for foreign investment should be opened more to attract
investment in different important sectors including infrastructure.
2. For the interest of development, the issues of foreign trade regulations
need to be revisited under the present region of economic liberatisation.
3. Additional importance should be given on development of agriculture for
attaining atleast 4 percent growth rate. For that purpose the area under
Rashtriya Krishi Vikas Yojana (RKVY) needs to be expanded.
4. Manufachuing industries has failed to fulfill the target during the Eleventh
Plan. Thus, this sector should try to attain 11 to 12 percent growth rate.
5. More stress to be given on health, education and infrastructure.
6. After patrol, the price of diesel needs to be deregulated or decontrolled and
be kept under market determined price mechanism.
7. Burden of subsidy on LPG Cylinder and Kerosene needs to be reduced.
Subsidy should only be given on these two items for people Lying below the
poverty Line.
8. During the five year period (2012-17) of the twelfth plan, the country will
require at least 1 Lakh MW of electricity. Considering the shortage of coal,
more importance should be given on atomic energy and also on non-
conventional sources of energy.
9. Some other major targets are to increase green cover by one million
hectare every year and adding 30,000 MW of renewable energy generation
capacity in the plan period, to reduce emission intensity of the GDP in line
with the target of adding over 88,000 MW of power generation Capacity in
the 12th five year plan.
1.6.4 OBJECTIVES OF 12TH FIVE YEAR PLAN
The basic objective of the Twelfth plan is to attain faster, more inclusive
and sustainable growth. The other objectives are as follows :-
1. Energy, water and environment present major sectoral challenges for the
country. The plan wants to address them with out sacrificing growth.
2. The plan aims at finding adequate resources to create a world class

infrastructure.
3. To reduce poverty and improving effectiveness of programmes directly
aimed at the poor.
4. To improve regional equality across states and within states and special
plans for disadvantaged and backward regions.
5. To improve living conditions for SCs, STs, OBCs, Minorities and special
programme for socially vulnerable groups.
6. To generate attractive employment opportunities for Indian Youth and
faster creation of jobs, especially in manufacturing.
7. To eliminate gender gaps and stronger efforts at health education and skill
development
1.6.5 RESOURCE ALLOCATION PRIORITIES IN TWELFTH PLAN
Planning Commission has identified the following priorities in resource
allocation for the Twelfth Plan :-
1. Health and Education received less than projected in Eleventh Plan.
Allocations for these sectors will have to be increased in 12th plan.
2. Health, Education and Skill Development together in the Centre's Plan will
have to be increased by atleast 1.2 percent point of GDP.
3. Infrastructure, including irrigation and watershed management and urban
infrastructure will need additional 0.7 percentage point to GDP over the
next 5 years.
4. Since Centre's GBS will rise by only 1.3 percentage points cover 5 years, all
other sectors will have a slower growth in allocation.
5. Must reduce the number of centrally sponsored schemes (CSS) to a few
major schemes for the rest, create new flexi-fund which allow Ministries to
experiment in other CSS areas.
6. Use of PPP must be enceruraged, including in the social sector, i.e. health
and education. Efforts on this front need to be intensified.
7. Distinction between plan and non-plan being reviewed by Rangarajan
Committee.
1.6.6 KEY AREAS OF TWELFTH FIVE YEAR PLAN
1) Agriculture and Rural Development :
The Twelfth Plan wants to put much importance on the development of
agriculture and rural development. India should aim for atleast 4 percent growth
in agriculture production during the Twelfth Plan period with focus in non-cereals
food items including milk and fishery. Accordingly, the twelfth plan set target to
attain atleast 4 percent growth for agriculture. Cereals are on target for attaining
1.5 percent to 2 percent growth. Plan decided to concentrate more on other foods
and on animal husbandry and fisheries were feasible. As land and water are the
critical constraints thus technology must focus on land productivity and water use
efficiency. Farmers need better functioning markets for both inputs and outputs.
Also, they require better functioning markets for both inputs and outputs. Also,
they require better rural infrastructure, including storage and food processing.
The presentations emphasized that the status need to amend Agriculture Produce
Marketing Committee (APMC) Act for providing better market to farmers,
modernism land records and enable property recorded land lease markets.
Rashtriya Krishi Vikas Yojana (RKVY) has helped convergence and innovation and
gives state governments flexibility in operationalising it. Therefore, twelfth Plan
aims to expand RKVY.
In nutshell,
- Growth rate of atleast 4% is to be achieved.
- Expenditure amounting 1% of GDP is to be incurred in agricultural
research.
- Promotion of Rashtriya Krishi Vikas Yojana and Accelerated irrigation
Benefit Programme.
- Promotion of Agro-based industries and agro export.
2) Industry :
The Planning Commission presentation observed that manufacturing
industry in showing weak performance as the growth rate in industry during the
Eleventh Plan is around 8 percent. At present there is need to grow at 11-12
percent per year to create 2 million additional jobs per year. Indian industry must
develop greater domestic value addition and more technological depth to cater to
growing domestic demands and improve trade balance. The presentation wanted to
turn up FDI and trade policies to attract quality investment in critical areas
during the Twelfth Plan. If also wanted to improve business regulation framework.
The document also mentioned that some industrial sectors should be given
special attention because they contribute most to our objectives i.e.
(1) Creating large employment : textiles and garments, leather and footwear,
gems and jewelery, food processing industries.
(2) Deepening technological capabilities : machine tools, IT hardware and
electronics.
(3) Provide strategic security : telecom equipment, aerospace, shipping,
defence equipment.
In nutshell,
- Growth rate to be achieved between 9.8%-11.5%.
- To strengthen the manufacturing sector National Manufachuing Policy is
to be implemented.
- Main focus on pharmaceutical, auto-components and textiles industry.

- Promotion of Special Economic Zones and National Investment and
Manufacturing Zones.
3) Education and Skill Development :
In respect of education and skill development, the commission in its
presentation to NDC aims at universalisation of secondary education by 2017. It
must aim at raising the Gross Enrolment Rah's (GER) in higher education to 20
percent by 2017 and 25 percent by 2022. The Commission its Twelfth Plan
presentation wants to focus on quality of education (Eleventh Plan's emphasis was
on quantity). Thus the plan must invest in faculty development and teacher's
training. The plan must aim at significant reduction in social gender and regional
gaps in education. Targets are to be set for this purpose in respect of major
curriculum reforms, stress is given on vocational skill development for ensuing
employability in response to charging market needs. It also encouraged research
and innovation in higher education with cross-linkages between institution and
industry.
In nutshell,
- More promotion of Sarva Shiksha Abhiyan.
- Gross enrolment Rah's in higher education is expected to be 21%.
4) Health :
The commission in its 12th plan presentation observed that better health
does not mean only curative care but also about better prevention which needs
clean drinking water, sanitation, better nutrition, child care etc. Thus
convergence of schemes across Ministries is needed. The commission proposed
that expenditure on health by center and states will increase from 1.3 percent of
GDP to atleast 2.0 percent and perhaps 2.5 percent of GDP by the end of twelfth
plan. The plan proposed to improve quality of NRHM services. It also proposed to
expand the health insurance cover to all disadvantaged groups.
In nutshell,
- Public healthcare expenditure rose to 2.5% of GDP.
- Zero growth rate of HIV/AIDs.
- Vaccination of all children to fight diseases.
5) Power Sector and Energy
The commission set a target of raising 1,00,000 MW capacity of the power
sector during Twelfth Plan as compared to that of achievement of 50,000 MW
during the Eleventh Plan. Considering the shortage of coal produced in India, Coal
India must become a coal supplier and not just a mining company. The
commission feels that Coal India should plan to import coal to meet the coal
demands. This requires blending of imported and domestic coal as supplied by coal
India. In respect of petroleum and natural gas the commission feels that there is
need for further expansion of new NELP blocks during the Twelfth Plan. Stable and
clearer production sharing contracts will incentivise exploration and encourage
investment. Moreover, pipeline network for transportation of natural gas LNG is
limited which need quick expansion during the plan for its optimal use.
In nutshell,
- 9.9% of GDP in to be spent on the development of infrastructure.
- Energy supply to be increased by atleast 6.5%.
- Promotion of Public-Private Project.
- Upgradation of need.
- As 2010-2020 is the decade of innovation, Research and Development
expenditure needs to be raised to 2% of GDP.
- To set up National innovation Council.
1.6.7 ACHIEVEMENTS/PROGRESS UNDER ECONOMIC PLANNING
The main achievements of Indian Plans are as under:
1. Increase in National Income :
During planning period national income has increased manifold. The
average annual increase in national income was registered to be 1.2 percent from
1901 to 1947.
This increase was recorded to be 3 percent in two decades i.e. 1950-70.
Moreover, average annual growth rate of national income was 4 per cent in 1970-
80 which, further, increased to 5 percent in 1980-90. From 1980-81 to 2011-12, it
increased to 8.1 percent. Thus, a rise in national income has been key indicator
for economic development of India.
2. Increase in Per Capita Income :
Before independence, increase in per capita income was almost zero. But
after the adoption of economic planning in free India, per capita income has
continuously been increased. In the first plan, it raised by 1.8 per cent and in
Second Plan, it was 2.0 per cent.
During Third Plan, it declined to (-) 6.8 per cent. In Three annual plans,
growth of per capita income was registered at 1.5 per cent.
In Fourth Plan, it came down to 1.0 per cent. In Fifth Plan, it was 2.7 per
cent. During Sixth and Seventh Plan, it was 3.2 per cent and 3.6 per cent
respectively. In Eighth Plan, it rose to 4.6 per cent. In 2011-12, its rise was
registered at 5.6%.
3. Development in Agriculture :
Agricultural productivity has also marked an upward trend during the plan
period. The production of food grains which has 510 lakh tonnes in 1950-51
increased to 1804 lakh tonnes in 1990-91 and further to 2416 lakh tonnes in
2010-11.
Thus, agriculture production during planning period has increased. During

the entire planning period, growth rate of agricultural production remained 2.8 per
cent per annum.
However, use of chemical fertilizer, better seeds, irrigation and improved
methods of cultivation has increased productivity per hectare and per worker
many times. This development has laid the foundation of green revolution and
other institutional changes in agriculture sector.
4. Development of Industry :
In the first year plan much of the capital was invested to develop the
industry and defence. About fifty percent of the total outlay of the plan was
invested for their development. As a result, industrial production increased to a
great extent, in year 2008-09 the industrial growth rate was 8.6% and in year
2010-11 it was 8.2%.
5. Development of Transport and Communication :
During the planning period, much attention has been paid towards the
development of transport and communication. In the first two plans, more than
one-fourth of the total outlay was invested on the development of transport and
communication and same was the case of other plan. So because of it, there is a
significant improvement in these fields.
6. Self Reliance :
During the last four decades, considerable progress seems to have been
made towards the achievement of self reliance. We are no longer dependent on
other countries for the supply of food grains and a number of agricultural crops.
In the same fashion, we have made substantial investment in basic and
heavy industries. We are in a position to produce all varieties of basic consumer
goods.
7. Employment :
During the planning period, many steps have been taken to increase the
employment opportunities in the country. In the first five year plan employment
opportunities to 70 lakh people were provided.
In the fourth and fifth plans about 370 lakh persons got employment. In the
seventh five year plan, provisions have been made to provide employment to 340
lakh people. In 11th plan there was a target of creating 58 million employment
avenues.
8. Development of Science and Technology :
In the era of planning, India has made much progress in the field of
science and technology. In reality, the development is so fast that India stands
third in the world in the sphere of science and technology. Indian engineers and
scientists are in a position that they can independently establish any industrial
venture.
9. Capital Formation :
In India due to the development of agriculture, industry and defense, the
rate of capital formation has also increased. In 1950-51, the rate of capital
formation was 11.5 percent.
The rate of capital formation during Second, Third and Fourth plan was
12.7 per cent, 13.5 per cent and 14.5 per cent respectively. It was 24.1 per cent in
seventh plan and 26 per cent in Eighth plan and 24 percent in Ninth Plan. In
eleventh plan the rate increased to 35.1% of GD.
10. Social Services :
Social services, like, education, health and medical facilities, family
planning have also expanded considerably.
As a result of these services: (i) Death rate reduced from 27 per thousand
in 1951 to 7.2% per thousand in 2010. (ii) Average life-expectancy increased from
32 years in 1951 to 65.4 in 2010-11. (iii) Several deadly diseases like malaria etc.
have been eradicated, (iv) The number of school going students has increased
three-fold and that of collegiate five-fold since 1951. (v) A chain of National
Laboratories and Research Centers has been set up across the country. (vi)
Number of hospital-beds, doctors, nurses, medicines and family planning clinics
and medical facilities has greatly increased.
Failure of Economic Planning
In the span of 61 years, there are certain areas where economic planning
failed to achieve desired results.
These are :-
1. Stagnant Economy :
When India was freed, it has deep marks of stagnation. During the phase of
sixty one years of economic planning, its growth rate is zero or near zero. Similar
trend has been noticed after the adoption of plans. This fact is also reflected from
the national income by industrial origin. The occupational structure also provides
gloomy picture majority of people are still engaged in agriculture sector.
2. Poverty :
These five year plans have miserably failed to make a dent on poverty as
29.8 per cent of population is still in tight grip of poverty. Poverty is greatly
responsible for poor diets, low health and poor standard of living. A proportion of
the population has to go even without the most essential needs of daily life. In
short, both underdevelopment and inequality are responsible for poverty in the
country.
3. Unequal distribution of Income and Wealth :
Another failure of the planning is that the distribution of income and other
assets in rural and urban areas continues to be skewed. The bulk of increased
income has been pocketed only by the rich few while weaker section of the society
lives from hand to mouth and lead a very miserable life. There is no second
opinion to say that 10 per cent people of this country possessed 31.1% of national
income as compared to 3.6% by bottom 10% of population of country.
4. Mounting Unemployment :
The unemployment is a constant threat to the social atmosphere of the
country as they resort to various unlawful activities. In 2009 the number of
registered unemployed was 3.82 crore. The pitiable position is found in rural
areas where disguised unemployment and white collar unemployment (educated
unemployment) in urban areas are in a deplorable position. The rising
unemployment may be attributed to galloping population, capital intensive
techniques, defective education system and unstable agriculture.
5. Abnormal Growth of Population :
In all plans, main objective was to check over-population but it has
miserably failed to bridge the galloping population. The rapid growth of population
has aggravated the situation to the worst. This problem gives birth to twin
problems of poverty and unemployment.
6. Inflationary Pressure :
Inflation has started with the onset of heavy doses of investment
programmes during different five year plan periods. Now, it turned to the gravity of
the problem as it has created serious imbalances in the socio-political and
economic relations.
The people with fixed income group find it extremely difficult to maintain
the standard of living. Abnormal rise in prices has generated other problems of
corruption, black marketing, dishonesty and immorality etc. In year 2011-12 the
inflation rate was 8.4%.
7. Adverse Balance of Payments :
Truly, the production of agricultural and industrial sector has increased
manifold but still we are dependent on imports. In our plans, we have stressed on
export promotion and import substitution to correct the adverse balance of
payments but no headway has been made in this direction. It has continuously
been un favourable. The situation has further deteriorated since the penultimate
year of the Sixth Five Year Plan. The situation in Eleventh Plan has not improved
rather it is still dismal. During this period also, position of external debt is not
encouraging.
8. Unproductive Expenditure :
India is deficient in capital due to rising expenditure on unproductive
channels. Moreover, huge investments are made on the construction of five star
hotels and other wasteful consumption. Its benefits go in the hands of few affluent
people where generally wealth concentrates. Consequently, the rich becomes rich
and the poor lag behind.
9. Huge Amount of Deficit Financing :
To mobilize the resources for different plans, government has absolutely
failed to manage from internal resources. The government at this time is left with
no alternative but deficit financing. At every successive plan, there is huge
amount of deficit finance.
10. Biased Growth Profile :
At last, Indian plans have given many evils like the growth of monopolistic
practices, large inequalities, and poverty but still it has delivered biased growth in
favour of more well to do section of the society. If has widened the gap between
man to man, region to region. The result is that a large many are below poverty
line.
1.6.8 SUMMARY
The presentation made by Planning Commission on “Issues of Approach to
the Twelfth Five Year Plan” will simply encourage agriculture, education, health
and social welfare through plan expenditure on the respective areas by the
government in order to achieve greater inclusion growth, the commission has
given stress on better form sector performance with a growth of atleast 4 percent
faster creation of jobs, consolidated and stronger efforts health, education and
skill development and also on attaining greater effectiveness of the programmes
designed for poor. For the Twelfth Plan, the commission has seright to develop an
inclusive and participating approach to the entire planning process.
1.6.9 EXERCISE
(A) Long Questions :
1) Explain the main areas of Twelfth Five Year Plan.
2) Discuss the targets and objectives of Twelfth Five Year Plan.
(B) Short Questions :
1) Discuss Resource allocation priorities in Twelfth Plan.
2) Discuss steps taken by the government for agricult ure and rural
development in twelfth plan.
1.6.10 SUGGESTED READINGS
Business Environment By Ravinderjit Singh
Karambir Singh
Business Environment By Harleen Juneja
NITI AAYOG : ROLE AND FUNCTIONS

1.7.0 Objective
1.7.1 Introduction
1.7.2 History
1.7.3 NITI Aayog replaced the Planning Commission
1.7.4 Constitution of NITI
1.7.5 Planning Commission and NITI Aayog
1.7.6 Role of NITI Aayog
1.7.7 Objectives of NITI Aayog
1.7.8 Seven Pillars of effective governance in NITI Aayog
1.7.9 Functions of NITI Aayog
1.7.10 Challenges
1.7.11 Advantages
1.7.12 Scope
1.7.13 Summary
1.7.14 Exercise
1.7.0 OBJECTIVE
The main aim of this chapter is to explain the Role and functions of the
National Institute for Transforming India (NITI) Aayog and also to discuss about
the objectives and how and why it replaced the Planning Commission.
1.7.1 INTRODUCTION
The National Institution for Transforming India, also called NITI Aayog,
was formed via resolution of the Union Cabinet on January 1, 2015. NITI Aayog is
the premier policy ‘Think Tank’ of the Government of India, providing both
directional and policy inputs. While designing strategic and long term policies
and programmes for the Government of India, NITI Aayog also provides relevant
technical advice to the Centre and State. Shri Narendra Modi is the Chairperson
of NITI Aayog.
1.7.2 HISTORY
On May 29, 2014, the Independent Evaluation Office submitted an
assessment report to Prime Minister Modi with the recommendation to replace
the Planning Commission with a "control commission". On August 13, 2014, the
Union Cabinet scrapped the Planning Commission, to be replaced with a diluted
version of the National Development and Reform Commission (NDRC) of India. On
61
January, 1 2015 a Cabinet resolution was passed to replace the Planning

Commission with the newly formed NITI Aayog (National I nstitution for
Transforming India). The first meeting of NITI Aayog was chaired by Narendra
Modi on February 8, 2015.
Finance Minister Arun Jaitley made the following observation on the
necessity of creating NITI Aayog, "The 65-year-old Planning Commission had
become a redundant organisation. It was relevant in a command economy
structure, but not any longer. India is a diversified country and its states are in
various phases of economic development along with their own strengths and
weaknesses. In this context, a 'one size fits all' approach to economic planning is
obsolete. It cannot make India competitive in today's global economy".
1.7.3 NITI AAYOG REPLACED THE PLANNING COMMISSION
Director General, Independent Evaluation Office, laid the ground for the
dissolution of t he Pla nning Commission. He has been appoin ted as an
independent evaluator by the Government of India, with full authority to evaluate
any scheme, programme or project, without the government interfering in any
manner whatsoever. He evaluate the Planning Commission itself.
The Planning Commission was created in 1950 through a mere Cabinet
resolution. It has no Constitutional sanctity. It came into being through a mere
executive order and then it just continued to grow, taking over jobs assigned to
other institutions like the Finance Commission. For example, allocation of funds
to t he Stat es was the job of the Finance Commission, sacrified by the
Constitution, but the Planning Commission appropriated this task to itself.
Because of a different historical context, it even got into micromanagement of
devolution of funds, how schemes should be run and even to the extent of how the
states should spend those funds. When we started looking at the schemes, and
travelled to the States, we realised that the States were not very happy with the
way such schemes were designed centrally and literally pushed down their
throats.
The States were made to follow the "one size fits all" theory of the Planning
Commission for the implementation of the schemes, The States wanted more
flexibility; they wanted freedom to design their own schemes, the way they should
be implemented and the way funds meant for various schemes should be spent.
They wanted to experiment with new ideas, new ways of implementing ideas. At
the moment they are denied this freedom. We realised that the real problem in
schemes not benefiting people lay not so much in the schems as such but in the
way they were approached by the States. We realised that different approaches
should have been adopted by different States, which, at the moment, is not
available. The Planning Commission did try to inject some flexibility, but that did
not have much impact. Also, the majority of the staff at the Planning Commission
are generalists, not domain experts, which made it frustrating for the States to
explain different issues. That is when we started looking at the Planning
Commission itself. The them Prime Minister Manmohan Singh too said that we
needed to reform the Planning Commission. So we started looking at the
historical background, why it was created and whether it was still serving the
purpose for which it was created. We realized that the Planning Commission was
initially envisaged only as a think tank, but over a period of time it appropriated
to itself the work of other institutions and started the tight-fisted approach of
allocating funds between the Centre and the States and among different Central
Ministries. This was a task which should have been done by the Finance
Commission and the Finance Ministry, for which they are mandated, but the
Planning Commission appropriated this job to itself. I have explained in the
report how and why this happened and have recommended that they should just
be a think tank, thinking big for the long term, generate fresh ideas, look at
innovations, suggest systemic reforms and not get involved in the humdrum of
routine administration.
The Government of India, in keeping with its reform agenda, constituted
the NITI Aayog to replace the Planning Commission Instituted in 1950. This was
done in order to better serve the needs and aspirations of the people of India. NITI
Aayog is an important evolutionary change from the past and it acts as the
platform of the Government of India to bring states to act together in national
interest. This key tasks of the Aayog are - Team India Hub and the knowledge
and Innovation Hub. The Team India Hub leads the engagement of state with the
central government, while the knowledge and Innovation Hub builds NITI's think
tank capabilities.
1.7.4 CONSTITUTION OF NITI
The Prime Minister serves as the Ex-officio chairman. The governing
council consists of all state Chief Ministers, Chief Ministers of Delhi and
Puducherry, Lieterant Governor of Andaman and Nicobar, and vice chairman
nominated by the Prime Minister. In addition to full members, there are two part
time members and four ex-officio members and a chief executive officer. The
temporary members are selected from the reading universities and research
institution.
1.7.5 PLANNING COMMISSION AND NITI AAYOG
On 29 May, 2014 the Independent Evaluation Office submitted an
assessment report to Prime Minister Modi with the recommendation to replace
the Planning Commission with a ‘Control Commission’. On 13 August 2014, the
Union Cabinet replaced the Planning Commission with a diluted version of the
National Advisory Council (NAC) of India. On 1 January 2015 a cabinet resolution

was passed to replace the Planning Commission with the newly formed NITI
Aayog. The first meeting of NITI Aayog was chaired by Narendra Modi on 8
February 2015.
1.7.6 ROLE OF NITI AAYOG
The Cabinet resolution lists 13 different tasks which may be grouped
under four major heads, nameles
(i) Fostering, Co-operative federalism by providing structured support to
states in a continuous basis :
The most important note and responsibility of NITI Aayog relates to
promoting “Co-operative federalism through structured support initiatives and
mechanisms with the states on a continuous basis”. The Seventh Schedule to
the const itutio n dema rcates the L egisla tive domains and f unctional
responsibilities of the union and states in terms of union, state and concurrent
subjects. Recent years have shown the need for co-operation in areas such as
energy and environment, education and environment, education and poverty
alleviation where the need for coordinated action and speedy decisions are
critical for pursuing the developmental agenda.
(ii) Strategic Planning :
One of the major tasks assigned to NITI Aayog is strategic planning at both
macro and sectoral levels and formulation of a strategic vision and long-term
policies and programme framework both for the macro economy and for different
sectors. Perspective planning helps to make projections on the macro variables
and keep the policy perspective in view. The strategy and policies required to
improve the standard of Living of the projected population and improve human
development to empower the people to productively engage them in economic
activities over a long-term horizon are important.
(iii) Innovation and Knowledge Hub :
NITI Aayog is also acting as a knowledge and innovation hub and providing
research inputs by undertaking and accessing globally available research. It is
also closely aligned to strategic planning as a think tank facilitating partnerships
between the stakeholder. Formulation of strategic vision and policies and
programmes aligned to it as well as initiating and monitoring them requires
state of the art research, technology upgradation and capacity building. It has a
strong data bank consolidating data and information on economic, demographic,
geographic and social variables relevant for research and policy.
(iv) Co-ordination :
The forth important role or task of th e Aay og is to ensure
int ergovernmenta l and interdepartmental co-ordi nation . The disast rous
consequences of lack of co-ordination between the infrastructure, including

environmental, ministries on economic growth were clearly evident in the last
years of the previous government.
1.7.7 OBJECTIVES OF NITI AAYOG
1) To evolve a shared vision of national development priorities, sectors and
strategies with the active involvement of states in the Light of national
objectives.
2) To faster co-operative federalism through structured support initiatives
and mechanisms with the states on a continuous basis, recognizing that
strong states make a strong nation.
3) To develop mechanisms to formulate credible plans at the village level and
aggregate these progressively at higher levels of government.
4) To ensure, on areas that are specifically referred to it, that the interests
of national security are incorporated in economic strategy and policy.
5) To pay special attention to the sections of our society that may be at risk
of not benefiting adequately from economic progress.
6) To design strategic and long term policy and programme frameworks and
initiatives and monitor their progress and their efficacy. The lessons
learnt through monitoring and feedback will be used for making innovative
improvements, including necessary mid, course corrections.
7) To provide advice and encourage partnerships and international like
minded Thi nk Tan ks, as well as education al and policy research
institutions.
8) To create a knowledge, innovation and entrepreneurial support system
through a collaborative community of national and international experts,
practitioners and other partners.
9) To offer a platform for resolution of inter-sectoral and inter-departmental
issues in orders to accelerate the implementation of the development
agenda.
10) To actively monitor and evaluate the implementation of programmes and
initiatives, including the identification of the needed nexurces.
11) To f ocus on techn ology upgradation an d capa city building for
implementation of programmes and initiatives.
12) To undertake other activities as may be necessary in order to further the
execution of the national development agenda.
1.7.8 SEVEN PILLARS OF EFFECTIVE GOVERNANCE IN NITI AAYOG
1) Pro-People :- It fulfils aspirations of society as well as individuals.
2) Pro-Activity :- It includes activities in anticipation of and response to
citizen needs.
3) Participation :- It includes involvement of citizenry.

4) Empowering :- It includes empowering women in all aspects.
5) Inclusion of All :- It includes inclusion of all such as SC, ST, OBC,
minorities, gareeb, gaon, kisaan.
6) Equality :- It includes equality of uppontinity for the youth.
7) Transparency :- In includes making government visible and responsive.
1.7.9 FUNCTIONS OF NITI AAYOG
1) The institution serves as a ‘think-tank’ of the government.
2) It provides governments at the central and state levels with relevant
strategic and technical advice across the spectrum of key elements of
policy and also acts as a directional and policy dynamo.
3) Instead of control, the focus of the Aayog is on being a catalyst and
providing a platform for the states and the centre to come together and
discuss matters of economic policies and development plan.
4) It evolves a shared vision of national development priorities.
5) It also develop mechanisms to formulate Credible plans to the village level
and aggregate these progressively at higher levels of government and
ensures special attention to the sections of society that may be at risk of
not benefiting adequately from economic progress.
1.7.10 CHALLENGES
(1) EXPECTATIONS : When an institution older than hald a decade is replaced
by a new one, people look up to it as bringing immediate change and
development. This expectation of witnessing immediate changes from the
people in general and from the intellectual critics (read : supporters of
Nehruvian institutions) in particular might come as a hindrance to NITI
Ayog. Let us hope that it does things for the long run and does not bend
down to the pressures.
(2) TOO MANY VOICES : The NITI Aayog has a considerably large amount of
members as compared to the planning commission. The membership
ranges from ministers to subject experts to state executive heads. Coming
up with a consensus and trying to convince everybody is going to be a
challenge.
1.7.11 ADVANTAGES
(1) ENTHUSIASM : A new structure brings in new hope and enthusiasm. As
can be seen in the current NITI Ayog, there have been a spur in the
planning and brainstorming activities for development.
(2) FLEXIBILITY : This is the most important advantage. The planning
commission was bound with the idea of 5-year plans, with the coming of
NITI Ayog, there have been things like the 15 year vision document and
mid- term goals o f 7 years wi th per iodic review s and necessary

amendments can be made in due course.
(3) COOPERATIVE FEDERALISM : With the planning commission, the whole
planning was cen tral, but NITI Ayog takes into account constant
consultations with the heads of state governments and union territories.
(4) STRENGTH : NITI Ayog is one third of what PC used to be. I believe they
aer trying to be leaner in their operation and transforming into a think
tank by taking less bureaucrats and more domain experts, as a result now
many advisors are working on multiple sectors.
(5) BUDGET : Earlier they used to have a budget allocated to programme/
studies which now they don't but get it from done from concered state/
union department.
1.7.12 THE SCOPE OF NITI AAYOG
The objectives of NITI Aayog is to evolve a shared vision of national
development priorities, sectors and strategies with the active involvement of
states in the light of national objectives. Focusing on the same, the PIB states,
through the following India will be able to face complex challenges.
(1) Leveraging of India's demographic dividend and realization of the potential
of yout h , men and women , through educat ion, skill development,
elimination of gender bias and employment.
(2) Elimination of poverty and the chance for every Indian to live a life of
dignity and self-respect.
(3) Redressal of inequalities based on gender bias, caste and economic
disparities.
(4) Integrate villages institutionally into the development process.
(5) Policy support to more than 50 million small businesses, which are a
major source of employment creation.
(6) Safeguarding of our environmental and ecological assets.
1.7.13 SUMMARY
The Planning Commission was established in 1950 to oversee the
planning of the country. It made five year plans, which detailed everything.
Because of increased globalisation and need of the hour this commission of ‘one
size fits all’ was abolished and was overtaken by the NITI Aayog which became
effective from January 1, 2015. NITI Aayog replaced the Planning Commission
and therefore has come up with more innovative and modified version of it. The
role of the Aayog includes fostering co-operative federalism, strategic planning,
innovation and knowledge hut and co-ordination. The effectiveness of the NITI
Aayog in transforming India will depend upon the clarity in the functions
assigned. The abolition of Planning Commission power the way for restoring the
role of finance commission to assess the total requirements of the states.
1.7.14 EXERCISE
A) Long Questions :
1) Discuss the objectives and functions of NITI Aayog.
2) Discuss the role of NITI Aayog.
B) Short Questions :
1) Which are the seven pillars of Effective Governance in NITI Aayog.

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Department of Distance Education

Punjabi University, Patiala

Class : B.Com. 3 Semester : 6

1.2 : National Income, Saving and Investment

1.3 : Price Level

1.4 : Trade and Balance of Payments

1.5 : Indian Planning : Basic strategy of Indian Planning

1.6 : Twelfth Five Year Plan (2012-17)

1.7 : NITI Aayog : Role and Functions

Department website : www.pbidde.org

LESSON NO. 1.1 AUTHOR : KARAMBIR SINGH

INDIAN BUSINESS ENVIRONMENT

depend on their relative effectiveness in dealing with these elements.

1.1.5.3 Demographic Environment:

(f) Enactment of SEBI.

Significant changes in this direction are :

3. ATM : Automatic teller machine.

Q3 What do you mean by business Environment ? Outline and explain different

LESSON NO. 1.2 AUTHOR : KARAMBIR SINGH

NATIONAL INCOME, SAVING AND INVESTMENT

Plan I II III IV V VI VII VIII IX X XI

(a) Large Proportion of Profits diverted to investment should be given liberal

Capital Formation has substantially increased in India during the period of

(x) Demonstration effect and conspicous consumption

LESSON NO. 1.3 AUTHOR : KARAMBIR SINGH

1.3.4 CONSEQUENCES OF PRICE RISE

lower income groups at reasonable prices.

LESSON NO. 1.4 AUTHOR : HARNEET RAINA

TRADE AND BALANCE OF PAYMENTS

1.4.2 MEANING OF BALANCE OF PAYMENTS

1.4.4 STRUCTURE OF BALANCE OF PAYMENTS ACCOUNTS

5. Goods and Services Balance

(i) BoP Disequilibrium when :

(ii) Accmodating transactions or accomodating capital flows :

1.4.9 DEVELOPMENT IN INDIA'S BALANCE OF PAYMENTS DURING THE Q1 (FIRST

autonomous and accomodating transactions in the balance of payments

LESSON NO. 1.5 AUTHOR : MRS. SAROJ CHAUHAN

ECONOMIC PLANNING IN INDIA :

(1) To increase Rate of Capital Formation :

factor. Economic development of an under-developed country, cannot indefinitely

industry, and if Industry whether to emphasis on heavy industries or light

(viii) Achieving self-reliance.

LESSON NO. 1.6 AUTHOR : HARNEET RAINA

TWELFTH FIVE YEAR PLAN (2012-17)

stressed on the importance of increasing the pace of economic reforms 10 as to

2. The plan aims at finding adequate resources to create a world class

- Main focus on pharmaceutical, auto-components and textiles industry.

Thus, agriculture production during planning period has increased. During

LESSON NO. 1.7 AUTHOR : HARNEET RAINA

NITI AAYOG : ROLE AND FUNCTIONS

January, 1 2015 a Cabinet resolution was passed to replace the Planning

National Advisory Council (NAC) of India. On 1 January 2015 a cabinet resolution

consequences of lack of co-ordination between the infrastructure, including

3) Participation :- It includes involvement of citizenry.

mid- term goals o f 7 years wi th per iodic review s and necessary

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