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com 1
 CONTENT

CLASS: 9 - ECONOMICS ........................................................................................................................................................ 3

CHAPTER: 1 - THE STORY OF VILLAGE PALAMPUR ........................................................................................................... 3
CHAPTER: 2 - PEOPLE AS RESOURCE ..................................................................................................................................... 6
CHAPTER: 3 - POVERTY AS A CHALLENGE ......................................................................................................................... 10
CHAPTER: 4 - FOOD SECURITY IN INDIA ............................................................................................................................. 16
CLASS: 10 - ECONOMIC DEVELOPMENT ........................................................................................................................23
CHAPTER: 1 - DEVELOPMENT ................................................................................................................................................ 23
CHAPTER: 2 - SECTOR OF THE INDIAN ECONOMY ............................................................................................................ 27
CHAPTER: 3 - MONEY AND CREDIT ...................................................................................................................................... 34
CHAPTER: 4 - GLOBALISATION AND THE INDIAN ECONOMY........................................................................................ 38
CHAPTER: 5 - CONSUMER RIGHTS ........................................................................................................................................ 42
CLASS: 11 - INDIAN ECONOMY ON THE EVE OF INDEPENDENCE ............................................................................46
CHAPTER: 1 - INDIAN ECONOMY ON THE EVE OF INDEPENDENCE .............................................................................. 46
CHAPTER: 2 - INDIAN ECONOMY 1950-1990 ........................................................................................................................ 50
CHAPTER: 3 - LIBERALISATION, PRIVATISATION AND GLOBALISATION: AN APPRAISAL .................................... 59
CHAPTER: 4 - POVERTY ........................................................................................................................................................... 66
CHAPTER: 5 - HUMAN CAPITAL FORMATION IN INDIA ................................................................................................... 73
CHAPTER: 6 - RURAL DEVELOPMENT .................................................................................................................................. 76
CHAPTER: 7 - EMPLOYMENT: GROWTH, INFORMALISATION AND OTHER ISSUES .................................................. 79
CHAPTER: 8 - INFRASTRUCTURE .......................................................................................................................................... 87
CHAPTER: 9 - ENVIRONMENT AND SUSTAINABLE DEVELOPMENT ............................................................................. 90
CHAPTER: 10 - DEVELOPMENT EXPERIENCES OF INDIA: A COMPARISON WITH NEIGHBOURS ............................ 98
CLASS: 12 - INTRODUCTORY MACROECONOMICS ....................................................................................................103
CHAPTER 1: INTRODUCTION ............................................................................................................................................... 103
CHAPTER: 2 - NATIONAL INCOME ACCOUNTING ........................................................................................................... 104
CHAPTER: 3 - MONEY AND BANKING ................................................................................................................................ 109
CHAPTER: 4 – DETERMINATION OF INCOME AND EMPLOYMENT .............................................................................. 113
CHAPTER: 5 - GOVERNMENT BUDGET AND THE ECONOMY ........................................................................................ 114
CHAPTER: 6 - OPEN ECONOMY MACROECONOMICS ..................................................................................................... 118

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 CLASS: 9 - ECONOMICS
CHAPTER: 1 - THE STORY OF VILLAGE
PALAMPUR
OVERVIEW
• The purpose of the story of village
Palampur is to introduce some basic
concepts relating to production and this
we do through a story of a hypothetical
village called Palampur. Palampur is
well- connected with neighbouring
villages and towns. This village has
about 450 families belonging to several
different castes.
ORGANIZATION OF PRODUCTION
• In villages across India, farming is the
main production activity. The other
production activities, referred to as non-
farming activities include small
manufacturing, transport, shop-keeping,
etc.
• Organisation of Production The aim of
production is to produce the goods and
services that we want. There are four
requirements for production of goods
and services.
• The first requirement is land, and other
natural resources such as water, forests,
minerals.
• The second requirement is labour, i.e.
people who will do the work. Some
production activities require highly
educated workers to perform the
necessary tasks. Other activities require
workers who can do manual work. Each
worker is providing the labour
necessary for production.
• The third requirement is physical
capital, i.e. the variety of inputs
required at every stage during
production. What are the items that
come under physical capital?
1. Tools, machines, buildings:
Tools and machines range from
very simple tools such as a
farmer's plough to sophisticated
machines such as generators,
turbines, computers, etc. Tools,
machines, buildings can be used
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in production over many years,
and are called fixed capital.
2. Raw materials and money in
hand: Production requires a
variety of raw materials such as
the yarn used by the weaver and
the clay used by the potter. Also,
some money is always required
during production to make
payments and buy other
necessary items. Raw materials
and money in hand are called
working capital. Unlike tools,
machines and buildings, these
are used up in production.
• There is a fourth requirement too. You
will need knowledge and enterprise to
be able to put together land, labour and
physical capital and produce an output
either to use yourself or to sell in the
market. This these days is called human
capital. We shall learn more about
human capital in the next chapter. Every
production is organised by combining
land labour, physical capital and human
capital, which are known as actors of
production
FARMING IN PALAMPUR
Land is fixed
• 75 per cent of the people of Palampur
are dependent on farming for their
livelihood. The well-being of these
people is closely related to production
on the farms. But one of the main
problems of the Palampur village is that
the land area under cultivation is
practically fixed. Since 1960 in
Palampur, there has been no expansion
in land area under cultivation. By then,
some of the wastelands in the village
had been converted to cultivable land.
The standard unit of measuring land is
hectare.
Is there a way one can grow more from the same
land?
• To grow more than one crop on a piece
of land during the year is known as
multiple cropping. It is the most
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 common way of increasing production
on a given piece of land. The main
reason why farmers are able to grow
different crops in a year is due to the
well-developed system of irrigation and
other infrastructure requirements like
electricity, well, distribution channels
etc.
ODSTU.COM
Fig. Different crops
• Not all villages in India have such high
levels of irrigation. Apart from the
riverine plains, coastal regions in our
country are well-irrigated. In contrast,
plateau regions such as the Deccan
plateau have low levels of irrigation. Of
the total cultivated area in the country a
little less than 40 per cent is irrigated
even today. In the remaining areas,
farming is largely dependent on rainfall.
ODSTU.COM
Table. Cultivated area over the years
• Is it important to increase the area under
irrigation? Why?
• Yield is measured as crop produced on
a given piece of land during a single
season. Till the mid-1960s, the seeds
used in cultivation were traditional ones
with relatively low yields. Traditional
seeds needed less irrigation. Farmers
used cow-dung and other natural
manure as fertilizers. All these were
readily available with the farmers who
did not have to buy them.
• The Green Revolution in the late 1960s
introduced the Indian farmer to
cultivation of wheat and rice using high
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yielding varieties (HYVs) of seeds.
Compared to the traditional seeds, the
HYV seeds promised to produce much
greater amounts of grain on a single
plant. As a result, the same piece of land
would now produce far larger quantities
of foodgrains than was possible earlier.
HYV seeds, however, needed plenty of
water and also chemical fertilizers and
pesticides to produce best results.
ODSTU.COM
Fig. Modern Farming Methods: HYV seeds, chemical
fertilizer etc
• Higher yields were possible only from a
combination of HYV seeds, irrigation,
chemical fertilisers, pesticides etc.
Farmers of Punjab, Haryana and
Western Uttar Pradesh were the first to
try out the modern farming method in
India. The farmers in these regions set
up tubewells for irrigation, and made
use of HYV seeds, chemical fertilizers
and pesticides in farming. Some of them
bought farm machinery like tractors and
threshers, which made ploughing and
harvesting faster. They were rewarded
with high yields of wheat.
ODSTU.COM
Table. Production of pulses and wheat ( in Million
Tonnes)
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Will the land sustain?
• Land being a natural resource, it is
necessary to be very careful in its use. The
modern farming methods have overused the
natural resource base. In many areas, the
Green Revolution is associated with the loss
of soil fertility due to increased use of
chemical fertilizers. Continuous use of
groundwater for tube well irrigation has
reduced the water table below the ground.
Chemical fertilizers provide minerals which
dissolve in water and are immediately
available to plants.
• But these may not be retained in the soil for
long. They may escape from the soil and
pollute groundwater, rivers and lakes.
Chemical fertilizers can also kill bacteria
and other microorganisms in the soil. -
Therefore, soil becomes less fertile and
degraded by overusing of chemical
fertilizers. The consumption of chemical
fertilizers in Punjab is highest in the
country.
How is land distributed among the farmers of
Palampur?
• All the people engaged in agriculture do not
have sufficient land for cultivation in
Palampur. The large number of small plots
scattered around the village are cultivated
by the small farmers. On the other hand, in
Palampur, there are 60 families of medium
and large farmers who cultivate more than 2
hectares of land. A few of the large farmers
have land extending over 10 hectares or
more.
ODSTU.COM
Graph. Distribution of Cultivated Area and Farmers
Who will provide the labour?
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• Small farmers along with their families
cultivate their own fields. Thus, they
provide the labour required for farming
themselves. Medium and large farmers hire
farm labourers to work on their fields. Farm
labourers come either from landless
families or families cultivating small plots
of land. A farm labourer might be employed
on a daily basis, or for one particular farm
activity like harvesting. or for the entire
year. The minimum wages for a farm
labourer set by the government is Rs 115
(April, 2011) per day.
The capital needed in farming
• Most of the small farmers have to borrow
money to arrange for the capital. They
borrow from large farmers or the village
moneylenders or the traders. Since the rate
of interest on such loans is very high, they
are put to great distress to repay the loan.
"The medium and large farmers have their
own savings from farming. They are thus
able to arrange for the capital needed.
Sale of surplus farm products
• The farmers retain a part of the wheat for
the family's consumption and sell the
surplus one.-The traders at the market buy
the crop and sell it further to shopkeepers in
the towns and cities. The large farmers are
able to sell the entire produced crop at the
market and earn good income. They can
save most of their money in the bank
account and later use the savings for
lending to small farmers. They can even
buy tools, machines, cattle or trucks for
improving agriculture.
NON-FARMING ACTIVITIES IN
PALAMPUR
• Only 25 per cent of the people working in
Palampur are engaged in activities other
than agriculture.
o Dairy
o Small-Scale Manufacturing
o Shop Keeping And
o Transportation
• These different types of non-farming
activities practiced in the village.
• As more villages get connected to towns
and cities through roads, transport and
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 •A division of labour exists between men • Mid-day meal scheme has been
and women in the family because of the implemented to encourage attendance and
historical and cultural reasons. The retention of children and improve their
household work done by women is not nutritional status.
recognized in the national income.
• Among the organized sector, teaching and
medicine attract the women the most. Some ODSTU.COM
women have entered administrative and
other services including job that needs high
levels of scientific and technological
competence.
QUALITY OF POPULATION
• The quality of population depends upon the
literacy rate, health of a person indicated by
Graph. Trends in Literacy Rates In Post-Independent India
life expectancy and skill formation acquired
• The eleventh plan endeavoured to increase
by the people of the country. The quality of
the enrolment in higher education of the 18
the population ultimately decides the
to 23 years age group to 15% by 2011-2012
growth rate of the country. Illiterate and
and to 21% by twelfth plan.
unhealthy population are a liability for the
• The strategy focuses on increasing access,
economy. Literate and healthy population
quality, adoption of states: specific
are an asset.
curriculum modification, vocational and
EDUCATION
networking on the use of information
• Education is an important input for the
technology
growth of a person. It opens new horizons
• The plan also focuses on distant education,
for the person. Provides new aspiration.
convergence of formal, non-formal, distant
Develops values of life. Contributes
and IT educational institutions.
towards the growth of the society.
ODSTU.COM
Enhances the national income and cultural
richness. Increases the efficiency of
governance.
• The policies that can add to the literate
population of India:
• There is a provision made for providing Table. Number of Institutions of Higher Education,
universal access, retention and quality in Enrolment and Faculty
elementary education along with a special HEALTH
emphasis on girls. • The health of a person helps him to realize
• Schools like Navodaya Vidyalaya have his potential and provides the ability to
been established in each district. fight illness. Improvement in the health
• Vocational streams have been developed to status of the population has been the
equip large number of high school students priority of the country.
with occupations related to knowledge and • Our national policy aims at improving the
skills. accessibility of health care, family welfare
• "Sarva Siksha Abhiyan" is a significant step and nutritional service, with a special focus
towards providing elementary education to on the under-privileged segment of the
all children in the age group of six to population.
fourteen years by 2010. • Increase in longevity of life is an indicator
• The bridge courses and back-to-school of the good quality of life marked by self-
camps have been initiated to increase the confidence.
enrolment in elementary education.

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 poverty ratio is less than the national
average. On the other hand, poverty is still a
serious problem in Orissa, Bihar, Assam,
Tripura and Uttar Pradesh. As the Graph
3.2 shows, Orissa and Bihar continue to be
the two poorest states with poverty ratios of
47 and 43 per cent respectively. Along with
rural poverty, urban poverty is also high in
Orissa, Madhya Pradesh, Bihar and Uttar
Pradesh.
• In comparison, there has been a significant
decline in poverty in Kerala, Jammu and
Kashmir, Andhra Pradesh, Tamil Nadu,
Gujarat and West Bengal. States like
Punjab and Haryana have traditionally
succeeded in reducing poverty with the help
of hi growth rates. Kerala has focused more
on human resource development. In West
Bengal, land reform measures have helped
in reducing poverty. In Andhra Pradesh and
Tamil Nadu public distribution of food
grains could have been responsible for the
improvement.
GLOBAL POVERTY SCENARIO
• The proportion of people in developing
countries living in extreme economic
poverty-defined by the World Bank as
living on less than $1.25 per day-has fallen
from 43 per cent in 1990 to 22 per cent in
2008. Although there has been a substantial
reduction in global poverty, it is marked
with great regional differences. Poverty
declined substantially in China and
Southeast Asian countries as a result of
rapid economic growth and massive
investments in human resource
development.
• Number of poor’s in China has come down
from 85 per cent in 1981 to 14 per cent in
2008. In the countries of South Asia (India,
Pakistan, Sri Lanka, Nepal, Bangladesh,
Bhutan) the decline has not been as rapid.
Despite decline in the percentage of the
poor, the number of poor has declined
marginally from 61 per cent in 1981 to 36
per cent in 2008. Because of different
poverty line definition, poverty in India is
also shown higher than the national
estimates.
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• In Sub-Saharan Africa, poverty in fact rose
from 51 per cent in 1981 to 47 per cent in
2008. In Latin America, the ratio of poverty
remained the same. It has declined from
11% in 1981 to 6.4 per cent in 2008.
Poverty has also resurfaced in some of the
former socialist countries like Russia,
where officially it was non-existent earlier.
Table 3.2 shows the proportion of people
living under poverty in different countries
as defined by the international poverty line
(means population below $l a day). The
Millennium Development Goals of the
United Nations calls for reducing the
proportion of people living on less than S1
a day to half the 1990 level by 2015.
Poverty: Comparison among Some Selected
Countries.
ODSTU.COM
Graph. Poverty Ratio in Selected Indian States, (As per 2011
Census)
ODSTU.COM
Graph. Share of people living on $1.90 a day, 2005–2019
CAUSES OF POVERTY
• There were a number of causes for the wide
spread poverty in India. One historical
reason is the low level of economic
development under the British colonial
administration. The policies of the colonial
government ruined traditional handicrafts
and discouraged development of industries
like textiles. The low rate of growth
persisted until the nineteen-eighties. This
resulted in less job opportunities and low
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 over the country. Ration shops also known efficient and targeted. In 1992, Revamped
as Fair Price Shops keep stock of food Public Distribution System (RPDS) was
grains, sugar, kerosene oil for cooking. introduced in 1,700 blocks in the country.
These items are sold to people at a price The target was to provide the benefits of
lower than the market price. Any family PDS to remote and backward areas. From
with a ration card" can buy a stipulated June 1997, in a renewed attempt, Targeted
amount of these items (e-g. 35 kg of grains, Public Distribution.
5litres of kerosene, 5 kgs of sugar etc.) Fig. Some Important Features of PDS
every month from the nearby ration shop.
• The introduction of Rationing in India dates
back to the 1940s against the backdrop of
the Bengal famine. The rationing system
was revived in the wake of an acute food
ODSTU.COM
shortage during the 1960s, prior to the
Green Revolution. In the wake of the high
incidence of poverty levels, as reported by
the NSSO in the mid-1970s, three important
food intervention programmes were
introduced: Public Distribution System Note: W - Wheat; R - Rice; BPL - Below poverty line; APL -
Above poverty line
(PDS) for food grains (in existence earlier
Source: Food Corporation of India, fci.gov.in/sales.php-
but strengthened thereafter); Integrated
view-41,2019 (updated on 19 November, 2020)
Child Development Services (ICDS)
• "National Food for Work Programme
(introduced in 1975 on an experimental
o National Food for Work Programme
basis) and Food- for-Work*"
November 14, 2004 in 150 most
(FFW)(introduced in 1977-78). Over the
backward districts of the country
years, several new programmes have been
with the objective of intensifying
launched and some have been restructured
the generation of supplementary
with the growing experience of
wage employment. The programme
administering the programmes. At present,
is open to all rural poor who are in
there are several Poverty Alleviation
need of wage employment and
Programmes (PAPs), mostly in rural areas,
desire to do manual unskilled work.
which have an explicit food component
It is implemented as a 100 per cent
also. While some of the programmes such
centrally sponsored scheme and the
as PDS, mid-day meals etc. are exclusively
food grains are provided to States
food security programmes, most of the
free of cost. The Collector is the
PAPs also enhance food security.
nodal officer at launched on the
Employment programmes greatly
district level and has the overall
contribute to food security by increasing the
responsibility of planning,
income of the poor.
implementation, coordination,
CURRENT STATUS OF PUBLIC
monitoring and supervision. For
DISTRIBUTION SYSTEM
2004-05, Rs 2,020 crore have been
• Public Distribution System (PDS) is the
allocated for the programme in
most important step taken by the
addition to 20 lakh tonnes of food
Government of India (Gol) towards
grains.
ensuring food security. In the beginning the
o System (TPDS) was introduced to
coverage of PDS was universal with no
adopt the principle of targeting the
discrimination between the poor and non-
poor in all areas. lt was for the first
poor. Over the years, the policy related to
time that a differential price policy
PDS has been revised to make it more
was adopted for poor and non-poor.

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 CLASS: 10 - ECONOMIC DEVELOPMENT
CHAPTER: 1 - DEVELOPMENT
• The idea of development or progress has
always been with us. We have aspirations
or desires about what we would like to do
and how we would like to live.
• Similarly, we have ideas about what a
country should be like. What are the
essential things that we require? Can life be
better for all? How should people live
together? Can there be more equality?
Development involves thinking about these
questions and about the ways in which we
can work towards achieving these goals.
This is a complex task and in this chapter
we shall make a beginning at understanding
development.
• Without me they cannot develop, in this
system cannot develop.
WHAT DEVELOPMENT PROMISES -
DIFFERENT PEOPLE, DIFFERENT GOALS
• Landless rural labourers: More days of
work and better wages; local school is able
to provide quality education for their
children; there is no social discrimination
and they too can become leaders in the
village.
• Prosperous farmers from Maharashtra:
Assured a high family income through
higher support prices for their crops and
through hardworking and cheap labourers;
they should be able to settle their children
abroad.
• A girl from a rich urban family: She gets
as much freedom as her brother and is able
to decide what she wants to do in life. She
is able to pursue her studies abroad.
• What do you think would be the
developmental goals of the following
people? Farmers who depend only on rain
for growing crops? A rural woman from a
land owning family? Urban unemployed
youth? A boy from a rich urban family? An
Adivasi from Narmada valley?
• Do all of these persons have the same
notion of development or progress? Most
likely not. Each one of them seeks different
things. They seek things that are most
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important for them, i.e., that which can
fulfil their aspirations or desires. In fact, at
times, two persons or groups of persons
may seek things which are conflicting.
• A girl expects as much freedom and
opportunity as her brother, and that he also
shares in the household work. Her brother
may not like this. Similarly, to get more
electricity, industrialists may want more
dams. But this may submerge the land and
disrupt the lives of people who are
displaced - such as tribals. They might
resent this and may prefer small check
dams or tanks to irrigate their land.
• So, two things are quite clear: one, different
persons can have different developmental
goals and two, what may be development
for one may not be development for the
other. It may even be destructive for the
other.
INCOME AND OTHER GOALS
• What people desire are regular work, better
wages, and decent price for their crops or
other products that they produce. In other
words, they want more income. Besides
seeking more income, one-way or the other,
people also seek things like equal treatment,
freedom, security, and respect of others.
They resent discrimination. All these are
important goals. In fact, in some cases,
these may be more important than more
income or more consumption because
material goods are not all that you need to
live.
• Money, or material things that one can buy
with it, is one factor on which our life
depends. But the quality of our life also
depends on non-material things mentioned
above. If it is not obvious to you, then just
think of the role of your friends in your life.
You may desire their friendship. Similarly,
there are many things that are not easily
measured but they mean a lot to our lives.
These are often ignored. However, it will be
wrong to conclude that what cannot be
measured is not important.
• For development, people look at a mix of
goals. It is true that if women are engaged
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 and telegraph services, police stations, see the changing importance of the sectors
courts, village administrative offices, over the forty years.
municipal corporations, defence, transport,
banks, insurance companies, etc. are
required. These can be considered as basic
services. In a developing country the
government has to take responsibility for
the provision of these services. ODSTU.COM
• Second, the development of agriculture and
industry leads to the development of
services such as transport, trade, storage
and the like, as we have already seen.
Greater the development of the primary and
secondary sectors, more would be the
demand for such services. • A remarkable fact about India is that while
there has been a change in the share of the
• Third, as income levels rise, certain sections
of people start demanding many more three sectors in GDP, a similar shift has not
taken place in employment. Graph 3 shows
services like eating out, tourism, shopping.
the share of employment in the three sectors
private hospitals, private schools,
in 1970-71 and 2009-10. The primary
professional training etc. You can see this
change quite sharply in cities, especially in sector continues to be the largest employer
even now.
big cities.
• Fourth, over the past decade or so, certain
new services such as those based on
information and communication technology
have become important and essential. The
production of these services has been rising
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rapidly. In Chapter 4, we shall see examples
of these new services and the reasons for
their expansion.
• However, you must remember that not all
of the service sector is growing equally
well. Service sector in India employs many • Why didn’t similar shift out of primary
different kinds of people. At one end there sector happen in case of employment? It is
are a limited number of services that because not enough jobs were created in the
employ highly skilled and educated secondary and tertiary sectors. Even though
workers. At the other end, there are a very industrial output or the production of goods
large number of workers engaged in went up by eight times during the period,
services such as small shopkeepers, repair employment in the industry went up by
persons, transport persons, etc. These only three times. The same applies to
people barely manage to earn a living and tertiary sector as well. While production in
yet they perform these services because no the service sector rose by 14 times,
alternative opportunities for work are employment in the service sector rose less
available to them. Hence, only a part of this than three times.
sector is growing in importance. You shall • As a result, more than half of the workers in
read more about this in the next section. the country are working in the primary
Where are most of the people employed? sector, mainly in agriculture, producing
• Graph 2 presents percentage share of the only a quarter of the GDP. In contrast to
three sectors in GDP. Now you can directly this, the secondary and tertiary sectors

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 the earnings. Credit therefore plays a vital
and positive role in this situation.
• In rural areas, the main demand for credit is
for crop production. Crop production
involves considerable costs on seeds,
fertilisers, pesticides, water, electricity,
repair of equipment, etc. There is a
minimum stretch of three to four months
between the time when the farmers buy
these inputs and when they sell the crop.
Farmers usually take crop loans at the
beginning of the season and repay the loan
after harvest. Repayment of the loan is
crucially dependent on the income from
farming
• In case, the failure of the crop made loan
repayment impossible. Famers had to sell
part of the land to repay the loan. Credit,
instead of helping left situation worse off.
This is an example of what is commonly
called debttrap. Credit in this case pushes
the borrower into a situation from which
recovery is very painful.
• In one situation credit helps to increase
earnings and therefore the person is better
off than before. In another situation,
because of the crop failure, credit pushes
the person into a debt trap. whether credit
would be useful or not, therefore, depends
on the risks in the situation and whether
there is some support, in case of loss.
TERMS OF CREDIT
• Every loan agreement specifies an interest
rate which the borrower must pay to the
lender along with the repayment of the
principal. In addition, lenders may demand
collateral (security) against loans. Collateral
is an asset that the borrower owns (such as
land, building, vehicle, livestock’s, deposits
with banks) and uses this as a guarantee to a
lender until the loan is repaid.
• If the borrower fails to repay the loan, the
lender has the right to sell the asset or
collateral to obtain payment. Property such
as land titles, deposits with banks, livestock
are some common examples of collateral
used for borrowing.
FORMAL SECTOR CREDIT IN INDIA
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• We have seen in the above examples that
people obtain loans from various sources.
The various types of loans can be
conveniently grouped as formal sector loans
and informal sector loans. Among the
former are loans from banks and
cooperatives. The informal lenders include
moneylenders, traders, employers, relatives
and friends, etc. In Graph you can see the
various sources f credit to rural households
in India. Is more credit coming from the
Formal sector or the informal sector?
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• The Reserve Bank of India supervises the
functioning of formal sources of loans. For
instance, we have seen that the banks
maintain a minimum cash balance out of
the deposits they receive. The RBI monitors
the banks in actually maintaining cash
balance. Similarly, the RBI sees that the
banks give loans not just to profit-making
businesses and traders but also to small
cultivators, small Scale industries, to small
borrowers etc. Periodically, banks have to
submit information to the RBI on how
much they are lending, to whom, at what
interest rate, etc.
• There is no organisation which supervises
the credit activities of lenders in the
informal sector. They can lend at whatever
interest rate they choose. There is no one to
stop them from using unfair means to get
their money back.
• Compared to the formal lenders, most of the
informal lenders charge a much higher
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 interest on loans. Thus, the cost to the
borrower of informal loans is much higher.
• Higher cost of borrowing means a larger
part of the earnings of the borrowers is used
to repay the loan. Hence, borrowers have
less income left for themselves. In certain
cases, the high interest rate for borrowing
can mean that the amount to be repaid is
greater than the income of the borrower.
This could lead to increasing debt and debt
trap. Also, people who might wish to start
an enterprise by borrowing may not do so
because of the high cost of borrowing.
• For these reasons, banks and cooperative
societies need to lend more. This would
lead to higher incomes and many people
could then borrow cheaply for a variety of
needs. They could grow crops, do business,
set up small- scale industries etc. They
could set up new industries or trade in
goods. Cheap and affordable credit is
crucial for the country's development.
Formal And Informal Credit: Who gets what?
• In Urban areas 85 per cent of the loans
taken by poor households in the urban areas
are from informal sources. Only 10 per cent
of their loans are from informal sources,
while 90 per cent are from formal sources.
A similar pattern is also found in rural
areas. The rich households are availing
cheap credit from formal lenders whereas
the poor households have to pay a large
amount for borrowing.
• What does all this suggest? First, the formal
sector still meets only about half of the total
credit needs of the rural people. The
remaining credit needs are met from
informal sources. Most loans from informal
lenders carry a very high interest rate and
do little to increase the income of the
borrowers. Thus, it is necessary that banks
and cooperatives increase their lending
particularly in the rural areas, so that the
dependence on informal sources of credit
reduces. Secondly, while formal sector
loans need to expand, it is also necessary
that everyone receives these loans.
• At present, it is the richer households who
receive formal credit whereas the poor have
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to depend on the informal sources. It is
important that the formal credit is
distributed more equally so that the poor
can benefit from the cheaper loans.
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SELF-HELP GROUPS FOR THE POOR
• In the previous section we have seen that
poor households are still dependent on
informal sources of credit. Why is it so?
Banks are not present everywhere in rural
India. Even when they are present, getting a
loan from a bank is much more difficult
than taking a loan from informal sources.
Bank loans require proper documents and
collateral. Absence of collateral is one of
the major reasons which prevents the poor
from getting bank loans. Informal lenders
such as moneylenders, on the other hand,
know the borrowers personally and hence
are often willing to give a loan without
collateral.
• The borrowers can, if necessary, approach
the moneylenders even without repaying
their earlier loans. However, the
moneylenders charge very high rates of
interest, keep no records of the transactions
and harass the poor borrowers.
• In recent years, people have tried out some
newer ways of providing loans to the poor.
The idea is to organise rural poor, in
particular women, into small Self Help
Groups(SHGs) and pool (collect) their
savings. A typical SHG has 15-20
members, usually belonging to one
neighbourhood, who meet and save
regularly. Saving per member varies from
Rs 25 to Rs100 or more, depending on the
ability of the people to save. Members can
take small loans from the group itself to
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 CLASS: 11 - INDIAN ECONOMY ON THE EVE OF INDEPENDENCE
CHAPTER: 1 - INDIAN ECONOMY ON THE
EVE OF INDEPENDENCE
LOW LEVEL OF ECONOMIC
DEVELOPMENT UNDER THE COLONIAL
RULE
• India had an independent economy before
the advent of the British rule. Though
agriculture was the main source of
livelihood for most people, yet, the
country's economy was characterised by
various kinds of manufacturing activities.
India was particularly well known for its
handicraft industries in the fields of cotton
and silk textiles, metal and precious stone
works etc. These products enjoyed a
worldwide market based on the reputation
of the fine quality of material used and the
high standards of craftsmanship seen in all
imports from India.
• The economic policies pursued by the
colonial government in India were
concerned more with the protection and
promotion of the economic interests of their
home country than with the development of
the Indian economy. Such policies brought
about a fundamental change in the structure
of the Indian economy- transforming the
country into supplier off raw materials and
consumer of finished industrial products
from Britain.
• Obviously, the colonial government never
made any sincere attempt to estimate India's consumption-wheat, vegetables, grains, fowls,
national and per capita income. Some
individual attempts which were made to
measure such incomes yielded conflicting
and inconsistent results. Among the notable
estimators Dadabhai Naoroji, William
Digby, Findlay Shiras, V.K.R.V. Rao and
R.C. Desai - it was Rao, whose estimates
during the colonial period was considered
very significant. However, most studies did
find that the country's growth of aggregate
real output during the first half of the
twentieth century was less than two per cent
coupled with a meagre half per cent growth
in per capita Output per year.
AGRICULTURAL SECTOR
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• India's economy under the British colonial
rule remained fundamentally agrarian-about
85 per cent of the country's population lived
mostly in villages and derived livelihood
directly or indirectly from agriculture.
• However, despite being the occupation of
such a large population, the agricultural
sector continued to experience stagnation
and, not infrequently, unusual deterioration.
Agricultural productivity became low
though, in absolute terms, the sector
experienced some growth due to the
expansion of the aggregate area under
cultivation.
• This stagnation in the agricultural sector
was caused mainly because of the various
systems of land settlement that were
introduced by the colonial government.
Particularly, under the zamindari system
which was implemented in the then Bengal
Presidency comprising parts of India's
present-day eastern states, the profit
accruing out of the agriculture sector went
to the zamindars instead of the cultivators.
Agriculture During Pre-British India: The
French traveller, Bernier, described seventeenth
century Bengal in the following way: "The
knowledge I have acquired of Bengal in two visits
inclines me to believe that it is richer than Egypt. It
exports, in abundance, cottons and silks, rice, sugar
and butter. It produces amply-for its own
ducks and geese. It has immense herds of pigs and
flocks of sheep and goats. Fish of every kind it has
in profusion. From rajmahal to the sea is an endless
number of canals, cut in bygone ages from the
Ganges by immense labour for navigation and
irrigation.
• However, a considerable number of
zamindars, and not just the colonial
government, did nothing to improve the
condition of agriculture. The main interest
of the zamindars was only to collect rent
regardless of the economic condition of the
cultivators; this caused immense misery and
social tension among the latter. To a very
great extent, the terms of the revenue
settlement were also responsible for the
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 country (like legal advice, computer
service, advertisement, security-each
provided by respective departments of the
company). As a form of economic activity,
outsourcing has intensified, in recent times,
because of the growth of fast modes of
communication, particularly the growth of
Information Technology ((T). Many of the
services such as voice-based business
processes (popularly known as BPO or call
centres), record keeping, accountancy,
banking services, music recording, film
editing, book transcription, clinical advice
or even teaching are being Outsourced by
companies in developed countries to India.
With the help of modern
telecommunication links including the
Internet, the text, voice and visual data in
respect of these services is digitised and
transmitted in real time over continents and
national boundaries. Most multinational
corporations, and even small companies,
are outsourcing their services to India
where they can be availed at a cheaper cost
with reasonable degree of skill and
accuracy. The low wage rates and
availability of skilled manpower in India
have made it a destination for global
outsourcing in the post-reform period.
Global Footprint
• Owing to globalisation, you might find
many Indian companies expanding their
Wings to many other countries. In 2000,
Tata Tea surprised
the world by
acquiring the UK
based Tetley, the
inventor of the tea
bag, for Rs 1,870 crore. In the year 2004,
Tata steel bought the Singapore-based Nat
steel for Rs 1,245 crore and Tata Motors
completed the buyout of Daewoo’s heavy
commercial vehicle unit in South Korea for
Rs 448 crore. Now VSNL is acquiring
Tyco's undersea cable network for Rs 572
crore, which will control over 60,000 km
undersea cable network across three
continents. The Tatas also plan to invest Rs
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8,800 crore in fertiliser, steel and power
plants in Bangladesh.
• World Trade Organisation (WTO): The
WTO was founded in 1995 as the successor
organisation to the General Agreement on
Trade and Tariff (GATT). GATT was
established in 1948 with 23 countries as the
global trade organisation to administer all
multilateral trade agreements by providing
equal opportunities to all countries in the
international market for trading purposes.
WTO is expected to establish a rule-based
trading regime in which nations cannot
place arbitrary restrictions on trade. In
addition, its purpose is also to enlarge
production and trade of services, to ensure
optimum utilisation of world resources and
to protect the environment. The WTO
agreements cover trade in goods as well as
services to facilitate international trade
(bilateral and multilateral) through removal
of tariff as well as non-tariff barriers and
providing greater market access to all
member countries.
• As an important member of WTO, India has
been in the forefront of framing fair global
rules, regulations and safeguards and
advocating the interests of the developing
world. India has kept its commitments
towards liberalisation of trade, made in the
WTO, by removing quantitative restrictions
on imports and reducing tariff rates.
TABLE. Growth of GDP and Major Sectors (in %)
Source: Economic Survey for various years, Ministry of
Finance, Government of India.
Note: *Data pertaining to Gross Value Added (GVA).
The GVA is estimated from GDP by adding subsidies
on production and subtracting indirect taxes.
• Some scholars question the usefulness of
India being a member of the WTO as a
major volume of international trade occurs
among the developed nations. They also say
that while developed countries file
complaints over agricultural subsidies given
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 • With a view to improving the performance
of the public sector, there was a consensus
on reducing its role and opening it up to the
private sector. This was done through
disinvestment and liberalisation measures.
• Globalisation is the outcome of the policies
of liberalisation and privatisation. It means
an integration of the economy of the
country with the world economy.
Outsourcing is an emerging business
activity.
• The objective of the WTO is to establish a
rule based trade regime to ensure optimum
utilisation of world resources.
• During the reforms, growth of agriculture
and industry has gone down but the service
sector has registered growth.
• Reforms have not benefited the agriculture
sector. There has also been a decline in
public investment in this sector.
• Industrial sector growth has slowed down
due to availability of cheaper imports and
lower investment.
CHAPTER: 4 - POVERTY
WHO ARE THE POOR?
• Push cart vendors, street cobblers, women
who string flowers, ragpickers, vendors and
beggars are some examples of poor and
vulnerable groups in urban areas. The poor
people possess few assets and reside in
kutcha hutments with
walls made of baked
mud and roofs made of
grass, thatch, bamboo
and wood. The poorest
of them do not even have such dwellings. In
HOW ARE POOR PEOPLE IDENTIFIED?
rural areas many of them are landless. Even
• If India is to solve the problem of poverty,
if some of them possess land, it is only dry
or waste land. Many do not get to have eve
two meals a day. Starvation and hunger are
the key features of the poorest households.
The poor lack basic literacy and skills and
hence have very limited economic
opportunities. Poor people also face
unstable employment.
• Malnutrition is alarmingly high among the
poor. Il health, disability or serious illness
makes them physically weak. They borrow
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from money lenders who charge high rates
of interest that lead them into chronic
indebtedness. The poor are highly
vulnerable. They are not able to negotiate
their legal wages from employers and are
exploited. Most poor households have no
access to electricity. Their primary cooking
fuel is firewood and cow dung cake. A
large section of poor people do not even
have access to safe drinking water. There is
evidence of extreme gender inequality in
the participation of gainful employment,
education and in decision-making within
the family. Poor women receive less care on
their way to motherhood. Their children are
less likely to survive or be born healthy.
• Scholars identify the poor on the basis of
their occupation and ownership of assets.
They state that the rural poor work mainly
as landless agricultural labourers,
cultivators with very small landholdings,
landless labourers who are engaged in a
variety of non- agricultural jobs and tenant
cultivators with small land holdings. The
urban poor are largely the overflow of the
rural poor who had migrated to urban areas
in search of
• alternative employment and livelihood,
labourers who do a variety of casual jobs
and the self-emloyed who sell a variety of
things on roads ides and are engaged in
various activities.
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it has to find viable and sustainable
strategies to address the causes of poverty
and design schemes to help the poor out of
their situation. However, for these schemes
to be implemented, the government needs
to be able to identify who the poor are. For
this there is need to develop a scale to
measure poverty, and the factors that make
up the criteria for this measurement or
mechanism need to be carefully chosen.
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 • There are many factors,
other than income and
assets, which are associated
with poverty; for instance,
the accessibility to basic
education, health care, ODSTU.COM
drinking Water and
sanitation. They need to be
considered to develop
Poverty Line. The existing
mechanism for determining
the Poverty Line also does not take into Laureate, has developed an index known as
consideration social factors that trigger and Sen Index. There are other tools such as
perpetuate poverty such as illiteracy, ill Poverty Gap Index and Squared Poverty
health, lack of access to resources, Gap. You will learn about these tools in
discrimination or lack of civil and political higher classes.
freedoms. THE NUMBER OF POOR IN INDIA
• The aim of poverty alleviation schemes • When the number of po0or is estimated as
should be to improve human lives by the proportion of people below the poverty
expanding the range of things that a person line, it is known as 'Head Count Ratio.
could be and could do, such as to be healthy • You might be interested in knowing the
and well-nourished, to be knowledgeable total number of poor persons residing in
and participate in the life of a community. India. Where do they reside and has their
From this point of view, development is number or proportion declined over the
about removing the obstacles to the things years or not? When such a comparative
that a person can do in life, such as analysis of poor people is made in terms of
illiteracy, ill health, lack of access to ratios and percentages, we will have an idea
resources, or lack of civil and political of different levels of poverty of people and
freedoms. their distribution; between states Andover
• Though the government claims that higher time.
rate of growth, increase in agricultural • The official data on poverty is made
production, providing employment in rural available to the public by the Planning
areas and economic reform packages
introduced in the 1990s have
resulted in a decline in poverty
levels, economists raise doubts about
the government's claim. They point
out that the way the data are
collected, items that are included in
the consumption basket, ODSTU.COM
methodology followed to estimate
the poverty line and the number of
poor are manipulated to arrive at the
reduced figures of the number of
poor in India.
• Due to various limitations in the
official estimation of poverty, scholars have Commission. It is estimated on the basis of
attempted to find alternative methods. For consumption expenditure data collected by
instance, Amartya Sen, noted Nobel the National Sample Survey Organisation

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 benefited farmers as well as consumers.
Second component is provision of physical
infrastructure facilities like roads, railways,
warehouses, god owns, cold storages and
processing units. The current infrastructure
facilities are quite inadequate to meet the
growing demand and need to be improved.
Cooperative marketing, in realising fair
prices for farmers' products, is the third
aspect of government initiative.
• The success of milk cooperatives in
transforming the social and economic
landscape of Gujarat and some other parts
of the country is testimony to the role of
cooperatives. However, cooperatives have
received a setback during the recent past
due to inadequate coverage of farmer
members, lack of appropriate link between
marketing and processing cooperatives and
inefficient financial management. The
fourth element is the policy instruments like
(i) assurance of minimum support prices
(MSP) for agricultural products (ii)
maintenance of buffer stocks of wheat and
rice by Food Corporation of India and (ii)
distribution of food grains and sugar
through PDS.
• These instruments are aimed at protecting
the income of the farmers and providing
food grains at a subsidised rate to the poor.
However, despite government intervention,
private trade (by moneylenders, rural
political elites, big merchants and rich
farmers) predominates agricultural markets.
The need for government intervention is
imminent particularly when a large share of
agricultural products, is handled by the
private sector.
• Agricultural marketing has come a long
way with the intervention of the
government in various forms. Some
scholars argue that commercialisation of
agriculture offers tremendous scope for
farmers to earn higher incomes provided the
government intervention is restricted. What
do you think about this view? Emerging
Alternate Marketing Channels: It has been
realised that if farmers directly sell their
produce to consumers, it increases their
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incomes. Some examples of these channels
are Apni Mandi (Punjab, Haryana and
Rajasthan); Hadaspar Mandi (Pune); Rythu
Bazars (vegetable and fruit markets in
Andhra Pradesh) and Uzhavar Sandies
(farmers markets in Tamil Nadu).
• Further, several national and multinational
fast food chains are increasingly entering
into contracts/alliances with farmers to
encourage them to cultivate farm products
(vegetables, fruits, etc.) of the desired
quality by providing them with not only
seeds and other inputs but also assured
procurement of the produce at pre- decided
prices. It is argued that such arrangements
will help in reducing the price risks of
farmers and would also expand the markets
for farm products. Do you think such
arrangements raise incomes of small
farmers.
DIVERSIFICATION OF AGRICULTURAL
ACTIVITIES
• Diversification of agricultural activities
mean basically to grow multiple crops and
extension of activities subsidiary to
agriculture. It has two aspects: (1) Change
in cropping pattern (i) Diversification of
agricultural activities.
• Need of Diversification-i) To reduce the
risk of agriculture, (ii) To meet challenges
of poverty and other odd situations, (iii) To
reduce the burden of population on
agriculture.
• Diversification of Agriculture Activities
in India- i) Animal husbandry, (ii)
Fisheries, (iii) Pottery, (iv) Horticulture, (v)
Use of I.T.
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 the house and at family terms who are not
paid for such Work. As they certainly
contribute to the maintenance of the
household and farms, do you think that their
number should be added to the number of
women workers?
Worker-Population Ratio in India, 2017-2018
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SELF-EMPLOYED AND HIRED WORKERS
• Types of Labour - (i) Self-Employed
Labour-An arrangement in which a worker
uses his own resources to make a living is
known as self-employed. He owns and
operates an enterprise to earn his livelihood.
(ii) Hired-Workers-Those people who are
hired by others on paid wages or salaries as
a reward for their services are called hired
workers.
• Hired workers can be of two types: (a)
Casual Workers-Those people who are not
hired by their employers on a regular or
permanent basis and do not get social
security benefits are called casual workers.
(b) Regular Workers-This type of workers
are hired on permanent basis by the
employer.
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EMPLOYMENT IN FIRMS, FACTORIES
AND OFFICES
• In the course of economic development of a
country, labour flows from agriculture and
other related activities to industry and
services. In this process, workers migrate
from rural to urban areas. Eventually, at a
much later stage, the industrial sector
begins to lose its share of total employment
as the service sector enters a period of rapid
expansion. This shift can be understood by
looking at the distribution of workers by
industry.
• Generally, we divide all economic activities
into eight different industrial divisions.
They are (1) Agriculture (ii) Mining and
Quarrying (iii) Manufacturing (iv)
Electricity, Gas and Water Supply (v)
Construction (vi) Trade (vii) Transport and
Storage and (vii) Services. For simplicity,
all the working persons engaged in these
divisions can be clubbed into three major
sectors viz. (a) primary sector which
includes (i) and (i) (b} secondary sector
which includes (i1i), (iv) and (v) and (c)
service sector which includes divisions (vi),
(vii) and (vii). Table 7.2 shows the
distribution of working persons in different
industries during the year 1999-2000.
TABLE. Distribution of Workforce by Industry, 2017-
2018
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 • Primary sector is the main source of
employment for majority of workers in
India. Secondary sector provides
employment to only about 16 per cent of
workforce. About 24 per cent of workers
are in the service sector. Table also shows
that more than three-fourth of the workforce
in rural India depends on agriculture and
mining and quarrying. About 10 per cent of
rural workers are working in manufacturing
industries, construction and other divisions.
Service sector provides employment to only
about 13 per cent of rural workers.
Agriculture and mining is not a major
source of employment in urban areas where
people are mainly engaged in the service
sector. About 60 percent of urban workers
are in the service sector. The secondary
sector gives employment to about 30 per
cent of urban workforce.
• Though both men and women workers are
concentrated in the primary sector, women
workers concentration is very high there.
More than three fourth of the female
workforce is employed in the primary
sector whereas only half of males work in
that sector. Men get opportunities in both
secondary and service sectors.
GROWTH AND CHANGING STRUCTURE
OF EMPLOYMENT
• In Chapters 2 and 3, you might have studied
about the planning strategies in detail. Here
we will look at two developmental
indicators growth of employment and GDP.
Fifty years of planned development have
been aimed at expansion of the economy
through increase in national product and
employment. During the period 1960-2000,
Gross Domestic Product (GDP) of India
grew positively and was higher than
employment growth. However, there was
always fluctuation in the growth of GDP.
During this period, employment grew at a
stable rate of about 2 per cent.
• Above Chart also points at another
disheartening development in the late
1990s: employment growth started
declining and reached the level of growth
that India had in the early stages of
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planning. During these years, we also find a
widening gap between the growth of GDP
and employment. This means that in the
Indian economy, without generating
employment, we have been able to produce
more goods and services. Scholars refer to
this phenomenon as jobless growth. SO we
have seen now employment has grown in
comparison to GDP. Now it is necessary to
know how the growth pattern of
employment and GDP affected different
sections of workforce. From this we will
also be able to understand what types of
employment are generated in our country.
• Let us look at two indicators that we have
seen in the preceding sections employment
of people in various industries and their
status. We know that India is an agrarian
nation; a major section of population lives
in rural areas and is dependent on
agriculture as their main livelihood.
Developmental strategies in many
countries, including India, have aimed at
reducing the proportion of people
depending on agriculture.
• Distribution of workforce by industrial
sectors shows substantial shift from farm
work to non-farm work. In 1972-73, about
74 per cent of workforce was engaged in
primary sector and in 1999-2000, this
proportion has declined to 60 per cent.
Secondary and service sectors are showing
promising future for the Indian workforce.
You may notice that the shares of these
sectors have increased from 11 to 16 per
cent and 15 to 24 per cent respectively.
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• The distribution of workforce in different
status indicates that over the last three
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 • More public expenditure, (ii) Better
research and development, (iii)
Technological Innovation, (iv) Use of
renewable energy sources.
TABLE: Trends in Sectoral Share of Commercial Energy
Consumption (in %)
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HEALTH
• Development of health infrastructure
ensures a country of healthy manpower for
production of goods and services. In recent
times, scholars argue that people are
entitled to health care facilities. It is the
responsibility of the government to ensure
the right to healthy living. Health
infrastructure includes hospitals, doctors,
nurses and other para-medical
professionals, beds, equipment required in
hospitals and a well-developed
pharmaceutical industry.
• It is also true that mere presence of health
infrastructure is not sufficient to have
healthy people: the same should be
accessible to all the people. Since, the
initial stages of planned development,
policy-makers envisaged that no individual
should fail to secure medical care, curative
and preventive, because of the inability to
pay for it. But are we able to achieve this
vision? Before we discuss various health
infrastructure, let us discuss the status of
health in India.
State of Health Infrastructure
• Over the years, India has built up a vast
health infrastructure and manpower at
different levels. At the village level, a
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variety of hospitals technically known as
Primary Health Centres (PHCs) have been
set up by the government.
• India also has a large number of hospitals
run by voluntary agencies and the private
sector. These hospitals are manned by
professionals and para-medical
professionals trained in medical, pharmacy
and nursing colleges.
TABLE: Public Health Infrastructure in India, 1951-
2018
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Sources: National Commission on Macroeconomics
and Health, Ministry of Health and Family Welfare,
Government of India, New Delhi, 2005 ; National
Health Profile for various years available on
www.cbhidghs.nic.in
Health System in India
• India's health infrastructure and health care
is made up fa three-tier system-primary,
secondary and tertiary. In order to provide
primary health care, hospitals have been set
up in villages and small towns which are
generally manned by a single doctor, a
nurse and a limited quantity of medicines.
They are known as Primary Health Centres
(PHC), Community Health Centres (CHC)
and sub-centres. Auxiliary Nursing
Midwife (ANM) is the first person who
provides primary healthcare in rural areas.
• When the condition of a patient is not
managed by PHCS, they are referred to
secondary or tertiary hospitals. They are
mostly located in district headquarters and
in big towns. AU those hospitals which
have advanced level equipment and
medicines and undertake all the
complicated health problems, which could
not be managed by primary and secondary
hospitals, come under the tertiary sector.
The tertiary sector also includes many
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 •India, Pakistan and China have many
common points in their plans for
development. While India and Pakistan
became independent nations in 1947 and ODSTU.COM
the communist China came into existence in
1949, after a revolution. All these countries
started their planning along similar lines.
India announced its First Five Year Plan for
1951-56, Pakistan announced its Medium-
Term Development Plan in 1956.
• China announced its First Five Year Plan in
1953. Since 2013, Pakistan was working on
the basis of 11th Five Year Development
Fig. Land use and agriculture in India, China and
Plan, where as, China is working on 13th
Pakistan
Five Year Plan (2016-21). Until March ODSTU.COM

2017, India has been following Five Year

plan based development model.
DEMOGRAPHIC INDICATORS
• India is a populous country just like China.
These two countries together comprise one- TABLE. Annual Growth of Gross Domestic Product (%),
third of the population of the world. As far 1980–2017
as Pakistan is concerned, its population is
much less around 10% when it is compared
with China or India. The density of
population in China is the lowest as
compared to Pakistan and India. China has
a low fertility rate but Pakistan has a high ODSTU.COM
rate. Both these countries have high
urbanisation rate. In India, this trend is
slower (27.8%) as compared with Pakistan
(33.4%) and Chia (36.1%).
GROSS DOMESTIC PRODUCT
• Economic development of a country can be
judged through GDP growth rate. GDP
growth rate explains the growing rate of
Fig. Industry in India, China and Pakistan
valuable output of the country. Per capita ODSTU.COM

income was 460 US dollars in India

whereas it was 420 US dollars in Pakistan.
Per capita GDP (PPP) in US Dollars was
3100 in India against 2200 in Pakistan. TABLE. Sectoral Share of Employment and GVA (%) in 2018–
• It means per capita income and GDP both 2019
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were higher in India in comparison to
Pakistan. Pakistan's GDP is roughly 12% of
India's GDP and India's GDP is approx.
40% of China's GDP. China has impressive TABLE. Trends in Output Growth in Different Sectors, 1980–
growth rates in recent decade. China's 2015

growth rates have crossed 8 % per annum in INDICATORS OF HUMAN DEVELOPMENT

recent years. • The human Development Index is an
important indicator. As far as human

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 CLASS: 12 - INTRODUCTORY MACROECONOMICS
CHAPTER 1: INTRODUCTION
EMERGENCE OF MACROECONOMICS
• Macroeconomics, as a separate branch of
economics, emerged after the British
Economist John Maynard Keynes published
his celebrated book The General Theory of
Employment, Interest and Money in 1936.
• Classical Thinking: The dominant thinking
in economics before Keynes was that all the
labourers who are ready to work will find
employment and all the factories will be
working at their full capacity. This school
of thought is known as the classical
tradition.
• The Great Depression of 1929 and the
subsequent years saw the output and
employment levels in the countries of
Europe and North America fall by huge
amounts.
• Unemployment rate may be defined as the
number of people who are not working and
are looking for jobs divided by the total
number of people who are working or
looking for jobs.
• Approach of Keynes: approach was to
examine the working of the economy in its
entirety and examine the interdependence of
the different sectors. This is how Macro
Economics was born.
CONTEXT OF THE PRESENT BOOK OF
MACROECONOMICS
• Production in a Capitalist country:
production activities are mainly carried out
by capitalist enterprises.
• Natural resources: a part consumed in the
process of production (e.g. raw materials)
and a part fixed (e.g. plots of land).
• Labour: The most important factor to carry
the production is human labour.
• After producing output with the help of
these three factors of production, namely
capital, land and labour, the Entrepreneur
sells the product in the market. The money
that is earned is called revenue.
• After paying rent for services, interest, and
wages to labour, the remaining part of
income left is known as Profit.
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• Investment expenditure: When producer
keep his profit in order to buy new
machinery, factors of production, new
factories in order to expand its productivity,
this process is called as Investment
Expenditure.
• In short, a capitalist economy can be
defined as an economy in which most of the
economic activities have the following
characteristics
a) There is private ownership of means
of production
b) Production takes place for selling
the output in the market
c) There is sale and purchase of labour
services at a price which is called
the wage rate (the labour which is
sold and purchased against wages is
referred to as wage labour). Firms:
Also known as Production Units.
• In both the developed and developing
countries, apart from the private capitalist
sector, there is the institution of State. The
role of the state includes framing laws,
enforcing them and delivering justice. We
shall use the term “Government” to denote
state.
• The state, in many instances, undertakes
production – apart from imposing taxes and
spending money on building public
infrastructure, running schools, colleges,
providing health services etc. These
economic functions of the state have to be
taken into account when we want to
describe the economy of the country.
• There is another section in an economy
which is called as Household sectors. By a
household we mean a single individual who
takes decisions relating to her own
consumption, or a group of individuals for
whom decisions relating to consumption are
jointly determined.
• We must remember that the households
consist of people. These people work in
firms as workers and earn wages. They are
the ones who work in the government
departments and earn salaries, or they are
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 the intermediate goods that have entered
into their production as inputs. Counting
them separately will lead to the error of
double counting. Whereas considering
intermediate goods may give a fuller
description of total economic activity,
counting them will highly exaggerate the
final value of our economic activity.
• Flows are defined over a period of time.
Income, or output, or profits are concepts
that make sense only when a time period is
specified. These are called flows because
they occur in a period of time. Therefore we
need to delineate a time period to get a
quantitative measure of these.
• Stocks are defined at a particular point of
time. The buildings or machines in a factory
are there irrespective of the specific time
period. There can be addition to, or
deduction from, these if a new machine is
added or a machine falls in disuse and is not
replaced. These are called stocks.
• Wear and tear of capital is called
depreciation.
• New addition to capital stock in an
economy is measured by net investment or
new capital formation, which is expressed
as Net Investment = Gross investment –
Depreciation.
• Depreciation is it is the cost of the good
divided by number of years of its useful life.
• Founding father of modern economics:
Adam Smith.
CIRCULAR FLOW OF INCOME AND
METHODS OF CALCULATING NATIONAL
INCOME
• Four kinds of contributions that can be
during the production of goods and services
(a) contribution made by human labour,
remuneration for which is called wage (b)
contribution made by capital, remuneration
for which is called interest (c) contribution
made by entrepreneurship, remuneration of
which is profit (d) contribution made by
fixed natural resources (called „land‟),
remuneration for which is called rent.
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Fig.: Circular Flow of Income in a Simple Economy
• Simplified Economy - There is only one
way in which the households may dispose
of their earnings – by spending their entire
income on the goods and services produced
by the domestic firms.
• Other channels of disposing their income
are closed: we have assumed that the
households do not save, they do not pay
taxes to the government – since there is no
government, and neither do they buy
imported goods since there is no external
trade in this simple economy.
• The aggregate consumption by the
households of the economy is equal to the
aggregate expenditure on goods and
services produced by the firms in the
economy. The entire income of the
economy, therefore, comes back to the
producers in the form of sales revenue.
• When the income is being spent on the
goods and services produced by the firms, it
takes the form of aggregate expenditure
received by the firms.
• Since the value of expenditure must be
equal to the value of goods and services, we
can equivalently measure the aggregate
income by “calculating the aggregate value
of goods and services produced by the
firms”.
• When the aggregate revenue received by
the firms is paid out to the factors of
production it takes the form of aggregate
income.
• The uppermost arrow, going from the
households to the firms, represents the
spending the households undertake to buy
goods and services produced by the firms.
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 economy. Investment made with
expectation of profit is called induced
investment. It depends upon (i) Marginal
efficiency of capital, and (i) rate of interest.
• Autonomous Investment: This investment
is independent of income and employment.
Such investment is made by the government
with the motive of social welfare.
SHORT RUN EQUILIBRIUM OUTPUT
• Short Run: According to J. M. Keynes, "A
period of time during which level of output
is determined exclusively by the level of
employment in the economy, is termed as
short run.
• Full Employment: It refers to a situation,
where all those workers who are able to
work and willing to work get employment
at prevailing wage rate.
• In an Economy: Income Equilibrium Level
= Output Equilibrium Level = Employment
Equilibrium Level Short Run Equilibrium,
i.e., Keynesian Approach AD = AS
Approach
o Employment is determined at a
point where AlD - AS.
o If AD> AS, firm will employ more
factors of production and it will
again attain AD = AS.
o If AD< AS, firm will cut
employment and it will bring again
AD = AS.
Change in Equilibrium: Equilibrium position
described above may be of full employment or may
not be of full employment. It only determines the
level of income. Therefore, for full employment we
have to twist AD or AS. But AS depends on
technological factors therefore if AD increases, it
will raise the level of employment. S= 1 Approach.
INVESTMENT MULTIPLIER AND ITS
WORKING
• Multiplier: It establishes relation between
investment and income. It measures the
change in income due to change in
investment. K = DDYI = Change in Income
Change in Investment.
• Forward and Backward action of
multiplier: Multiplier is two-edge
instrument and hence, it works in both
direction. (i) Forward Action: Additional
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investment creates additional income many
more times. ii) Backward Action:
Withdrawal of investment decreases income
many more times.
CHAPTER: 5 - GOVERNMENT BUDGET
AND THE ECONOMY
• Budget is a financial statement showing the
expected receipt and expenditure of
Government for the coming fiscal or
financial year.
Objectives of Government Budget:
• Encouragement to economic development,
(ii) Balanced Regional development, (iii)
Redistribution of Income and Property, (iv)
Economic stability, (v) Generation of
employment, (vi) Management of public
enterprises.
Components of Government Expenditure:
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1. Revenue Budget /The Revenue Account:
The Revenue Budget shows the current
receipts of the government and the
expenditure that can be met from these
receipts. It shows revenue receipts and
revenue expenditure of the government. It
Include Revenue Receipts and Revenue
Expenditure.
o Revenue Receipts: Revenue
receipts are receipts of the
government which are non-
redeemable, that is, they cannot be
reclaimed from the government. (a)
Which do not cause any reduction in
assets and; (b) Which do not create
any corresponding liability to the
government. Example: Tax receipts
of the government. They are divided
into tax and non-tax revenues.
▪ Direct Tax: Direct Taxes
are those taxes which are
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 social and economic services
provided by the government.
BALANCED, SURPLUS AND DEFICIT
BUDGET
• The government may spend an amount
equal to the revenue it collects. This is
known as a balanced budget. If it needs to
incur higher expenditure, it will have to
raise the amount through taxes in order to
keep the budget balanced. When tax
collection exceeds the required expenditure,
the budget is said to be in surplus.
However, the most common feature is the
situation when expenditure exceeds
revenue. This is when the government runs
a budget deficit.
MEASURES OF GOVERNMENT DEFICIT
• When a government spends more than it
collects by way of revenue, it incurs a
budget deficit.
• There are various measures that capture
government deficit and they have their own
implications for the economy.
Table : Receipts and Expenditures of the Central
Government, 2019–20 (PA)
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Revenue Deficit
• The revenue deficit refers to the
excess of government’s revenue
expenditure over revenue receipts
Revenue deficit = Revenue expenditure –
Revenue receipts
Fiscal Deficit
• Fiscal deficit is the difference between the
government’s total expenditure and its total
receipts excluding borrowing.
✓ Gross fiscal deficit = Total
expenditure – (Revenue receipts
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+ Non-debt creating capital
receipts)
✓ Gross fiscal deficit = Net
borrowing at home + Borrowing
from RBI + Borrowing from
abroad
• Revenue deficit is a part of fiscal deficit
(Fiscal Deficit = Revenue Deficit + Capital
Expenditure - nondebt creating capital
receipts).
• A large share of revenue deficit in fiscal
deficit indicated that a large part of
borrowing is being used to meet its
consumption expenditure needs rather than
investment.
• Primary Deficit:
o Borrowing requirement of the
government includes interest
obligations on accumulated debt.
o The goal of measuring primary
deficit is to focus on present fiscal
imbalances.
o To obtain an estimate of borrowing
on account of current expenditures
exceeding revenues, we need to
calculate what has been called the
primary deficit.
o It is simply the fiscal deficit minus
the interest payments
o Gross primary deficit = Gross fiscal
deficit – Net interest liabilities
o Net interest liabilities consist of
interest payments minus interest
receipts by the government on net
domestic lending.
FISCAL POLICY
• One of Keynes‟s main ideas in The General
Theory of Employment, Interest and Money
was that government fiscal policy should be
used to stabilise the level of output and
employment.
• Through changes in its expenditure and
taxes, the government attempts to increase
output and income and seeks to stabilise the
ups and downs in the economy.
• In the process, fiscal policy creates a
surplus (when total receipts exceed
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 • If some private savers decide to buy bonds,
the funds remaining to be invested in
private hands will be smaller.
• Thus, some private borrowers will get
„crowded out‟ of the financial markets as
the government claims an increasing share
of the economy‟s total savings.
• Also, if the government invests in
infrastructure, future generations may be
better off, provided the return on such
investments is greater than the
rate of interest. The actual debt
could be paid off by the growth
in output. The debt should not
then be considered burdensome.
The growth in debt will have to
be judged by the growth of the
economy as a whole.
Deficit Reduction
• Government deficit can be
reduced by an increase in taxes
or reduction in expenditure.
• In India, the government has been trying to
increase tax revenue with greater reliance
on direct taxes (indirect taxes are regressive
in nature – they impact all income groups
equally).
• There has also been an attempt to raise
receipts through the sale of shares in PSUs.
• However, the major thrust has been towards
reduction in government expenditure.
• This could be achieved through making
government activities more efficient
through better planning of programmes and
better administration
CHAPTER: 6 - OPEN ECONOMY
MACROECONOMICS
• An open economy is one which interacts
with other countries through various
channels. So far we had not considered this
aspect and just limited to a closed economy
in which there are no linkages with the rest
of the world in order to simplify our
analysis and explain the basic
macroeconomic mechanisms. In reality,
most modern economies are open. There
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are three ways in which these linkages are
established.
a) Output Market: An economy can
trade in goods and services with
other countries. This widens choice
in the sense that consumers and
producers can choose between
domestic and foreign goods.
b) Financial Market: Most often an
economy can buy financial assets
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from other countries. This gives
investors the opportunity to choose
between domestic and foreign
assets.
c) Labour Market: Firms can choose
where to locate production and
workers to choose where to work.
There are various immigration laws
which restrict the movement of
labour between countries.
• Movement of goods has traditionally been
seen as a substitute for the movement of
labour. We focus on the first two linkages.
Thus, an open economy is said to be one
that trades with other nations in goods and
services and most often, also in financial
assets.
• Indians for instance, can consume products
which are produced around the world and
some of the products from India are
exported to other countries. Foreign trade,
therefore, influences Indian aggregate
demand in two ways. First, when Indians
buy foreign goods, this spending escapes as
a leakage from the circular flow of income
decreasing aggregate demand. Second, our
exports to foreigners enter as an injection
into the circular flow, increasing aggregate
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 demand for goods produced within the
domestic economy.
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THE BALANCE OF PAYMENTS
• The balance of payments (BoP) record the
transactions in goods, services and assets
between residents of a country with the rest
of the world for a specified time period
typically a year. There are two main
accounts in the BoP – the current account
and the capital account.
• The current account records exports and
imports in goods and services and transfer
payments.
• When exports exceed imports, there is a
trade surplus and when imports exceed
exports there is a trade deficit.
Fig. Components of Current Account
Autonomous and Accommodating Transactions:
• Trade in services denoted as invisible trade
(because they are not seen to cross national
borders) includes both factor income (net
income from compensation of employees
and net investment income, the latter
equals, the interest, profits and dividends on
our assets abroad minus the income
foreigners earn on assets they own in India)
and net non-factor income (shipping,
banking, insurance, tourism, software
services, etc.).
• Transfer payments are receipts which the
residents of a country receive „for free‟,
without having to make any present or
future payments in return.
• They consist of remittances, gifts and
grants. They could be official or private.
The balance of exports and imports of
goods is referred to as the trade balance.
• Adding trade in services and net transfers to
the trade balance, we get the current
account balance
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• The capital account records all
international purchases and sales of assets
such as money, stocks, bonds, etc. We note
that any transaction resulting in a payment
to foreigners is entered as a debit and is
given a negative sign. Any transaction
resulting in a receipt from foreigners is
entered as a credit and is given a positive
sign.
Components of Capital Account
• BoP Surplus and Deficit
• Any current account deficit is of necessity
financed by a net capital inflow.
• Alternatively, the country could engage in
official reserve transactions, running down
its reserves of foreign exchange, in the case
of a deficit by selling foreign currency in
the foreign exchange market.
• The decrease (increase) in official reserves
is called the overall balance of payments
deficit (surplus).
• The balance of payments deficit or surplus
is obtained after adding the current and
capital account balances.
• International economic transactions are
called autonomous when transactions are
made independently of the state of the BoP
(for instance due to profit motive). These
items are called „above the line‟ items in
the BoP.
• The balance of payments is said to be in
surplus (deficit) if autonomous receipts are
greater (less) than autonomous payments.
• Accommodating transactions (termed
„below the line‟ items), on the other hand,
are determined by the net consequences of
the autonomous items, that is, whether the
BoP is in surplus or deficit.
• The official reserve transactions are seen as
the accommodating item in the BoP (all
others being autonomous).
• Errors and Omissions constitute the third
element in the BoP (apart from the current
and capital
accounts) which is the „balancing item‟
reflecting our inability to record all
international transactions accurately.
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