CLASS 11

INDIAN ECONOMIC DEVELOPMENT

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 INDEX

TOPICS PAGES
1) Indian Economy On the Eve 03-10
Of Independence
2) Indian Economy 1950-1990 11-24
3) Liberalisation, Privatisation, 25-36
Globalisation
4) Poverty 37-46
5) Human Capital Formation In 47-55
India
6) Rural Development 56-67
7) Employment: Growth, 68-81
Informalisation and Other
Issues
8) Infrastructure 82-92
9) Environment and Sustainable 93-104
Development
10)Comparative Development 105-112
Experiences of India and Its
Neighbours

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 CHAPTER 1
INDIAN ECONOMY ON THE EVE OF INDEPENDENCE

BACKGROUND:
British Colonial Rule
The famous Kohinoor diamond has been doing rounds in the news. It was a prized
possession of pre-colonial India which the British took with them on their way back
home. The talks of taking it back have caused a stir in the recent past. However, it
forms a very small fraction of what our colonizers took away. As a consequence, our
country was in a grim state when they left. This forms the basis that governs our
current policies and future prospects.

The Pre-Colonial State

Before the advent of colonial rule, India was a self-sufficient and flourishing economy.
Evidently, our country was popularly known as the golden eagle. India had already
established itself on the world map with a decent amount of exports. Although primarily
it was an agrarian economy, many manufacturing activities were budding in the pre-
colonial India. Indian craftsmanship was widely popular around the world and garnered
huge demands. The economy was well-known for its handicraft industries in the fields
of cotton and silk textiles, metal and precious stone works etc. Such developments
lured the British to paralyze our state and use it for their home country’s benefits.

India: The British Colony

The British came to India with the motive of colonization. Their plans involved using
India as a feeder colony for their own flourishing economy back at Britain. This
exploitation continued for about two centuries, till we finally got independence on 15
August 1947. Consequently, this rendered our country’s economy hollow. Hence, a
study of this relationship between the colonizers and its colony is important to
understand the present developments and future prospects of India. The colonial rule
is marked with periods of heavy exploitation. The British took steps that ensured
development and promotion of the interests of their home country. They were in no
way concerned about the course of Indian economy. Such steps transformed our
economy for the worse- it effectively became a supplier of raw materials and a

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consumer of finished goods. The colonial kings robbed India of education,
opportunities etc. reducing Indians to mere servants. Undoubtedly, they never tried to
estimate colonial India’s national and per capita income. Some individuals like –
Findlay Shirras, Dadabhai Naoroji, William Digby, V.K.R.V. Rao and R.C. Desai
tried to estimate such figures. Although the results were inconsistent, the estimates of
V.K.R.V. Rao are considered accurate. Notably, India’s growth of aggregate real
output was less than 2% in the first half of the twentieth century coupled with a
half percent growth in per capita output per year. By and large, India faced a
herculean task to recover from the blows that two centuries of colonial rule landed on
its economy.

Agricultural Sector
The Pre-Colonial Scenario of Agricultural Sector:
During the pre-British era, a major part of India’s population was dependent on
agriculture. The farming technologies and irrigation facilities were not satisfactory.
However, agriculture in villages was self-sustaining and independent. The village
communities either purchased or consumed the raw materials and articles directly.
Consequently, starvations and famines were rare if not frequent. Of course,
agricultural practices remained primitive, but the villages functioned independently and
were self-sufficient. All of this went for a toss when the Britishers set feet on the Indian
subcontinent.

DURING BRITISH RULE

During the British rule also the Indian economy remained agrarian. Rough estimates
claim that about 85% of the economy derived their livelihood directly or indirectly from
agriculture. Though, unlike the pre-colonial India, the feature of self-sufficiency
vanished in the colonial state. This led to various famines which the colonizers paid
no heed to provided it didn’t affect their profit margins. Effectively, the agricultural
sector continued to experience deterioration and stagnation, particularly marked by
low levels of agricultural productivity.

Stagnation of Agricultural Sector during British Rule

The Indian agricultural sector, which supported almost the entire economy, went
towards stagnation. There was a negligible introduction of reforms to ensure an
increase in productivity. On the contrary, the Britishers continued to extract profits
which broke the knees of Indian agricultural sector. The major cause of this sorry state
of Indian agriculture was the various land settlement systems of the colonial
government. The highlight of this was the zamindari system which was practiced in
the then Bengal presidency. Under this, the majority of profits went to the zamindars
instead of the cultivators, ultimately filling up the pockets of their colonial bosses Just

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like their colonial masters, the zamindars did nothing to improve the state of
agriculture. They were only concerned with collecting rent despite the economic
condition and the plight of the cultivators. However, the revenue settlement policy
particularly fuelled this ruthless nature adopted by the zamindars. Under this, the rent
can be paid until a fixed date, failing which their colonial masters would take away all
their rights.
Agricultural technologies remained primitive with no efforts to improve conditions from
the British side. Even after the introduction of fertilizer technology farmers used natural
manure, which resulted in low yields. This coupled with lack of proper irrigation
facilities aggravated the misery. The motive behind agricultural activities shifted from
self-sustainability to commercialization focused upon the increase of profits of
colonials. As a result, there was an increase in the yield of cash crops, but it helped
the farmers in no way. Farmers were now mass producing cash crops instead of food
crops, which were ultimately used for the benefit of British industries. These cash
crops include cotton, jute, oilseeds, sugarcane, tobacco etc. Additionally, at the time
of partition, a large portion of fertile and highly irrigated land went to Pakistan,
especially the jute producing areas that went with East Pakistan (now Bangladesh).
Hence, the jute industry received a heavy setback. By and large, the Britishers further
added to the plight of Indian agricultural system and left with an enormous task ahead
of us.

Industrial Sector
The Pre-Colonial Industrial Sector in India
Before the rise of the British empire in India, it was known for its handicraft industry.
Evidently, this industry enjoyed worldwide demand and was held in a high regard.
Indian craftsmanship was applauded in all parts of the world. The textile industry was
among the most important urban handicraft industry. Articles made up of wool, cotton
and silk were famous both inside and outside the country’s boundaries. Additionally,
various metal industries, stone carving, marble work, shipbuilding and tanning and
leather industries were taking shape. These industries potentially accelerated India’s
growth, establishing it on the world map. However, the British Raj took every step to
ensure that this wasn’t the case.

Industrial Sector under British Rule

On setting foot in India, the Britishers were looking to cripple out the blooming industrial
phase. With this in mind, they eyed the aforesaid industries. In effect, they chalked out
a plan to decentralize these flourishing industries. This de-centralization served two
purposes. Firstly, Indian export volume was made dominant with raw materials
directed to Britain. Effectively, from a prominent exporter of manufactured handicraft
items, India was reduced to a mere exporter of raw materials. Secondly, this ensured

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that there was a low level of local supply to meet Indian demands for finished goods.
Hence, India was forced to turn towards British to meet its demands. Furthermore, the
downfall of aforesaid industries gave rise to large-scale unemployment. Interestingly,
colonials shrewdly erased this unemployment, identically born as a result of their
policies, by offering employment for working in tea, coffee, indigo plantations and jute
industries, completely owned by the colonials. At the same time, increased local
demand was being profitably met by the British imports. During the second half
nineteenth century, the modern industry began taking shape in India at a very slow
pace. The notable ones are cotton and jute textile industries. However, the cotton
industries confined to western parts of India were controlled by Indians. Whereas, the
jute textile industries, controlled by foreigners, were limited to the Eastern part
(Bengal). Further, some other industries started coming up after the second world war
for example- sugar, paper, cement, steel, and iron industry. Notably, 1907 saw the
incorporation of the Tata Iron and Steel Company (TISCO).

Foreign Trade
Before the colonial period, India was a big player in the foreign trade. Having
established itself well on the world map, pre-colonial India was blooming with
opportunities. At the beginning of 19th century, the share of India in the world economy
was around 20% which was steadily increasing. By the time British left India the share
was reduced to around 4%. Thus the colonial rule paralyzed the foreign trade also by
a large proportion.

Foreign Trade (17th and 18th Century):

Pre-colonial India enjoyed a worldwide market for its manufactured products. The
excellent levels of craftsmanship were held in high regard and enjoyed a global
reputation. Notable ones are handicrafts and textile industries. Shawls and carpets
from Kashmir and Amritsar, silk sarees of Benaras and silk cloth of Nagpur are some
examples. Pre-British India also excelled in the artistic handicraft industry which
includes jewellery made of gold and silver, brass, copper and bell metal wares, marble
work, carving works in ivory, wood, stone, artistic glassware etc. All of the above-
mentioned items including cinnamon, pepper, opium, indigo etc. constituted a major
proportion of exports from India. Effectively, India was exporting high quality
manufactured goods to European countries and owned a respectable share in the
world economy.

The Colonisation Effect on Foreign Trade

The Britishers aimed at diverting this large volume of trade for their benefits. In the
light of British era, the foreign trade of India with rest of the world was cut off by the
help of restrictive policies of commodity production, trade and tariff. As much as half
of the foreign trade was restricted to Britain. Before colonial period, India was exporting

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manufactured goods which enjoyed worldwide demand. Under the colonial rule, India
was reduced to a supplier of raw materials like jute, cotton, indigo, wool, sugar etc.
and importer of finished consumer goods like silk and woollen clothes and light
machinery manufactured in the factories of Britain. Additionally, the opening of Suez
Canal intensified this control of Britishers over Indian foreign trade. The remaining
volume of foreign trade was allowed with a handful of countries namely China, Ceylon
(Sri Lanka) and Persia (Iran). Interestingly, even this trade was heavily monitored by
the colonials. As a matter of fact, there was a large generation of export surplus under
the British Raj. At the same time, this export came at the cost of low productions of
essential goods like clothes, food grains, kerosene etc. Resources were heavily being
used to produce items for export, leading to an acute shortage of civil goods.
Additionally, there was no flow of gold or silver as a result of this surplus. Ironically,
this export surplus never made its way to India. It was used to make payments for an
office set up in Britain, war expenses of the British and import of invisible items. Such
brutalities eventually led to the dawn of a rising foreign trade aspect of India.

Demographic Condition
The motive behind colonization was to reduce India to a feeder economy. Evidently,
death, famines and misery was a common feature of colonial India. Did you know the
first official census by British was recorded in as late as 1881? This was because the
Britishers were least interested in Indian demography. Notably, the demographic data
collected since 1881 clearly indicates the plight of Indian colony.

Demographic Condition in Colonial India

The colonial government took no interest in conducting a census in India before 1881.
In such a state, this job was taken up by some individuals like Findlay Shirras,
Dadabhai Naoroji, V.K.R.V. Rao etc. However, the demographic data collected was
not consistent and accurate. Notably, the estimates of V.K.R.V. Rao are considered
the best. It was not until 1881 that the colonials were interested in studying Indian
demography. The colonial rule is characterized by two centuries of exploitation.
Mostly, the policies and steps taken aimed at fulfilling British interests. Indian citizens
were treated as slaves and servants. Under their colonial masters, they were deprived
of even basic human amenities. Thus hunger and deaths became a feature of colonial
India. These coupled with famines and influenza epidemic proved to be disastrous.
Evidently, the life expectancy in India hit an all-time low under the colonial rule.

Official Demographic Data

The first census revealed unevenness in Indian population growth. Thereafter, a
census was carried out every 10 years. Before 1921 India was in the first stage of
demographic transition. The second stage of transition began in 1921. However, at
this stage, both population growth rate and the total population was very high. Literacy

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levels were around 16 percent. Furthermore, the female literacy rate was 7 percent.
This means that a majority of the Indian population was illiterate with even worse
conditions for women.
The Colonials took no steps to change the scenario. On the contrary, they emphasized
on snatching education away from Indian slaves reducing them to mere servants.
Colonial India was fighting to fill its empty stomach. This plight was further aggravated
by the scarcity of public health facilities. A hunger stricken state was thus also a victim
of rampant air and water-borne diseases. Consequently, life expectancy was recorded
to be 32 years! Then again mortality rates were skyrocketing, with infant mortality rate
at 218 per thousand.
There are no official records about poverty. Though it can be clearly concluded that
widespread poverty was a common sight. Thus Indian population had to live in abject
poverty, constant fear of diseases, starvation, and death. In a nutshell, the Indian
demographic profile during colonial rule was horrible for human standards.

Occupational Structure
Employment in India before Colonisation
Pre-British India was sprawling with opportunities. Popularly known as the golden
eagle, it was among the most important contributors to the world economy. Pre-
colonial India saw traders from all around the world. Urban handicraft industry was a
highlight of the then industrial sector. But various other industries, although sparse,
were arriving on the scene. The sprawling industrial sector promised a bright future.
This gave birth to a number of employment alternatives. People found employment in
the industrial sector (dominated by the urban handicrafts) and agricultural sector.
Skilled craftsmen formed the majority of these workers. Evidently, India was known for
its excellent craftsmanship. Additionally, individual villages were self-sufficient and the
village communities directly consumed these outputs. Some other occupations were-
tending cattle, weaving, goldsmith, pottery, washermen, carpentry, cobblers, surgeons
etc. Sadly, all these affirmations went away with the dust since the advent of the East
India Company.

Occupational Structure of Colonial India

The colonial exploitation forced India to transform from a country of combined
agricultural and manufacturing activities to a colony fulfilling Britain’s interests. The
Colonials carried out a decentralization of the Indian industries. This forced India to
become a mere exporter of raw materials to Britain. The Indian economy under
colonial rule became primarily agrarian. The workforce was diverted towards tea,
indigo and coffee plantations. People left with no other option after the downfall of
industrial sector either flocked to these plantations or were forced by the colonials to
do so. Evidently, the agricultural sector accounted for the largest share of the

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workforce which was around 70-75%. The manufacturing and the services sectors
accounted for only 10 and 15-20 percent respectively.
Also, there were increasing regional variations under the British rule. There was a
decline in the workforce on agriculture in the parts of the then Madras Presidency,
West Bengal and Maharashtra coupled with an increase in the workforce on
manufacturing and services sector. At the same time, there was an increase in the
workforce in agriculture for Orissa, Rajasthan, and Punjab. By and large, there was a
drastic change in the occupational structure after the advent of colonization. The
selfish interests of colonials completely transformed the volume of the workforce.

Infrastructure
Infrastructure in Pre-colonial India
The state of infrastructure during the pre-British India was very poor. The
transportation and communication lines were below average. In fact, most of the
villages lacked connectivity by pucca roads. Consequently, natural dusty tracks were
the roads predominant in India. However, such roads spelt misery during monsoons
as they became muddy and difficult to traverse.
Additionally, during natural calamities, these roads became unfunctional as a result
of which various areas became inaccessible and were cut-off. Animal-drawn carriages
were the most common mode of transport. This meant it would generally take a lot of
days to travel to other places. Hence the movement of passengers and freights was
very inefficient and slow. Water transport was not very popular except in some parts
of North India where rivers were navigable. In a nutshell, the pre-colonial state of
infrastructure in India was far below satisfactory and the Britishers were responsible
for most of our infrastructure development.

Infrastructure Development in British India

In their long history of two centuries of exploitation, Britishers did everything to drain
Indian wealth and support their home country. The poor state of infrastructure was a
major hurdle to this process.
Transportation of materials from the countryside to ports was inefficient and time-
consuming. In fact, various routes became inaccessible due to an absence of
permanent roads. Development of infrastructure was thus a necessity to empower
colonial motives. Hence, the development of telegraphs, roads, railways, ports, ports
and water transport was aimed at British empowerment rather than providing basic
amenities to people.
The Various Aspects of Infrastructure Development The roads in pre-colonial India
were not fit for modern transport and acted as a major hurdle for colonial
administration. As a countermeasure, various British officials called for the

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development of roads. The roads which were built facilitated mobilization of the British
army and eased out the movement of raw materials from the countryside to the nearest
railway station to ultimately a port on it’s their way towards Britain. However, the
Britishers did not want to spend money for development in a colony. Thus, a shortage
of funds always prevailed.
The introduction of a railway system in 1950 completely revamped the infrastructure.
It is considered as a bright side to the colonial rule if it had one. Initially, the government
searched for British private companies keen to invest in this plan. But companies
refrained from such an investment. After certain negotiations, the Indian railway
system started taking shape. Eventually, at the beginning of 20th century, the colonial
government bought all the railway tracks and entered into the process of direct
investment. This development helped in breaking the geographical and cultural
barriers in India. People could now undertake long-distance travel easily.
But again this led to commercialization of agriculture, profits from which never reached
Indian people. This accelerated the exploitation of Indian resources. Consequently,
the negative side outweighed the social benefits Indians gained from the introduction
of railways. The British also introduced inland waterways and sea lanes, telegraph and
improved postal service. However, most of the canals became uneconomical and
eventually inoperational. The government exclusively used telegraph facility to
maintain law and order. The postal service was an essential facility for the general
public. However, it remained inadequate due to lack of development. For the most
part, infrastructural developments undertaken by colonials ensured fulfilment of selfish
motives.

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 CHAPTER 2
INDIAN ECONOMY 1950-1990

Types of Economy
It is said that every economy in the world is unique in some way or another. No two
economies are identical. However, these economies do share many of the same
features and characteristics. So economists have been able to identify four different
types of Economy.

TRADITIONAL COMMAND
ECONOMY ECONOMY

Types of
Economy

MARKET
MIXED ECONOMY
ECONOMY

I. Traditional Economy
A traditional economy, as the name suggests, is based on a traditional approach.
These economies are based on ancient rules and are the most basic type of economy.
The focus in a traditional economy is only on the goods and services that match their
customs, beliefs, and history. Such traditional economies tend to focus primarily on
agriculture, cattle herding, fishing etc. A traditional economy will use the barter system
and has no concept of currency or money. Their economies center around their tribes
or families. Such economies believe in only producing what and how much they
require. They find no need to produce any market surplus.
There is no concept of trading. If such traditional economy does not adapt it becomes
very vulnerable to change in their environment. Once such economies evolve they

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begin to adopt farming. They even trade their surplus crop and start evolving from this
traditional economy. And when a traditional economy interacts with a market or a
command economy it becomes a traditional mixed economy. Then money (currency)
starts to take importance in their lives as well. This type of traditional economy is suited
to underdeveloped and developing economies. Even today such economies can be
found in some pockets of Africa and the Middle East.

II. Command Economy

A command economy is the opposite of a free market economy. In a command
economy system, there is one centralized power, which in most cases is the
government. So the government makes all decisions regarding the economy. It will
decide which goods and services will be produced, in what quantities. The price will
also be determined by such centralized power and not by market forces. A command
economy is a characteristic trait of a communist country.
Countries like Cuba, China, and the previous USSR are practical examples of this
command economy system. Such economies are also known as Planned Economies
because the government plans all the forces of the economy, nothing is decided by
the free market. In such a planned economy there cannot be any competition.
The government has a monopoly in almost all the businesses and sectors. All
businesses follow the regulations and instructions of the government and are not
influenced by the forces of the economy. One of the biggest disadvantages of such a
command economy is that the government cannot plan or provide for all its citizen’s
individual needs. And so this often leads to rationing. In an ideal world under such a
command economy the government should be able to provide a living to all its citizens.
However, the reality is different.

III. Market Economy

This is the complete opposite of a command economy. A free market economy relies
entirely on the free market and free market trends. There is no involvement or
interference from the government or any such controlling power. This means there are
no rules or regulations imposed on either buyers or sellers. The entire economy is
determined by the participants of the economy and the laws of demand and supply.
Theoretically, a free market economy can show very high levels of growth.
It makes private organizations (only these exist) very powerful and influential in the
country. So it may create an imbalance of wealth and a scenario where the rich get
richer and poor get poorer. Realistically there are no perfect free market economies in
the world. Every economy has some level of government regulation as it is necessary.
Like for example laws that prevent monopolies, or restrict production of harmful

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substances. Even anti-pollution laws that affect production are a hindrance for a
market economy. So in the modern world free market is a subjective definition.
Currently, the United States is considered the epitome of capitalism. Hong Kong is
also a good example of a free market economy.

IV. Mixed Economy

A mixed economy is a perfect marriage between a command economy and a free
market economy. So, by and large, the economy is free of government intervention.
But the government will regulate and oversee specific sensitive areas of the economy
like transportation, public services, defence etc. Such an economy is known as a dual
economy. The best examples of such a mixed economy are India and France. Such a
mixed economy allows private businesses the freedom to operate in the economy with
minimum oversight. At the same time, the government can regulate the economy so it
does not adversely affect the public interests. Both public sector and private sector
can co-exist peacefully in one economy. It is the perfect blend of socialism and
capitalism. In fact, most economies of the world are currently considered as mixed
economies.

Five Year Plan

After India gained independence in 1947 it basically had to rebuild its economy from
scratch. The leaders of those times had to pick the type of economy India would be
and also outline the economic planning as well. This is where the five year plan was
born. An economic plan allocates the resources of a nation to fulfil the general and
specific goals as planned by the government for a specified period. In India, these
plans are made for five years and hence are known as five year plans. These five year
plans are ultimately a short-term plan for a perspective plan. A perspective plan
outlines the long-term goals of a nation, spanning twenty years. In India, after the
independence, the government set up a Planning Commission in 1950. This
commission would be responsible for framing and implementing the five year plans of
the country. They began their efforts with the first five year plan in 1950.

Indian Economy after Independence

In the post-independence era, the leaders of the country had some precarious
decisions to take. One of them was which type of economic model would India follow?
In those times there were two models followed by most countries in the world –
capitalist economy and socialist economy. Our first Prime Minister Jawaharlal Nehru
preferred the socialist model. But in a democracy like India, a pure socialist economy
can not flourish. Capitalism was also not suited since the government had to build up
an economy and look after the common man and his needs.

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So as a solution our economy combined aspects of both socialism and capitalism. It
was decided India would develop a strong socialist society, where the public sector
would take care of its citizens. But the government would also promote and encourage
a strong private sector for the future. There would be no prohibition on private property
or wealth keeping our democracy in mind.

The Goals of the Five Year Plans

GROWTH MODERNISATION

SELF RELIANCE EQUITY

Growth:
This is the first and the most basic goal of an economic plan. Growth in terms of an
economy focuses on the increase of the Gross Domestic Product (GDP) of the
country. GDP is a way to measure the growth of an economy. Higher the GDP more
the common public can benefit from the economic policies of the country.
This economic growth actually happens due to an increase in the production capacity
of a nation for either its goods or its services. This can be due to an influx of capital
into the economy as well. The sector in which the growth is happening is also
important. There are three basic sectors – agricultural, industrial and service. Their
respective contributions make up the structural composition of the GDP. For very
many years India’s primary focus was the agricultural sector. It was the main
contributor to our GDP. And it also saw the highest growth rate in the few initial five
year plans.

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Modernisation:
Modernisation refers to the integration of technology in the economy. Innovation,
inventions, and advancement in technology play a huge part in upgrading our
economy and increasing its output. One example would be the introduction of modern
agricultural techniques which increased output. Over the years, the Indian economy
also saw a major boom in the IT industry due to modernization.
Another aspect of modernization would be our advancement as a society. Leaving
behind discriminatory practices and pushing towards an equal, fair and modern
society.

Self Reliance:
A new economy like India’s post-independence can become too reliant on imports. So
for seven editions of the five year plan, the government promoted self-reliance. This
basically meant that anything we were capable of producing domestically we did not
import. Especially food and agricultural products were never imported as long as
possible.
This was to ensure we not only became self-reliant but also to protect our sovereignty.
Because importing basic essentials from other nations would make us dependent on
them. Then after 1991, the government finally opened up our economy to the global
markets once we had already established a domestic base.

Equity:
Now the previous three goals mainly relate to the economy. But the development of
the economy only is not sufficient. The five year plans must also focus on the
development of our society. It is essential to ensure that these benefits from the
economy are enjoyed by all members of the society. This is where equity comes in.
Equity focuses on ensuring that all citizens of our country have their basic needs for
food, housing, clothing etc fulfilled. It also looks to reduce the wealth gap and the
inequality in our society.

Land Reforms
During the British times, the tillers of the lands were not its owners. So a farmer did
not have actual ownership of the land. The ownership was with the intermediaries, i.e.
the zamindars, jagidars etc. The farmer would farm the land and pay rent to these

15
zamindars. This did not motivate the zamindars to invest in the farm or invest in the
agricultural practices. They were only focussed on collecting their rent. And as you
can imagine the farm and the farmer both suffered. But after independence, the
government realized that the agricultural output was not sufficient for the whole
country. One way to boost the produce was to make the tillers of the land its owner.
And so efforts were made to abolish the intermediaries and this was known as the land
reforms.

Objectives of the Land Reforms:

The government of a newly independent India had a few objectives in mind to
implement these land reforms. Let us take a look at the few important ones
➢ The main objective was to bring systematic and complete changes to the
agrarian structure of the country.
➢ Its other main aim was to abolish the intermediaries of the semi-feudal
landlordism system of India, i.e. get rid of the zamindars
➢ Bring about equity in the economy and society and ensure social justice for past
atrocities towards farmers
➢ The land reforms would also prevent any exploitation of the tenant farmers by
the hands of the landlords
➢ And finally to motivate these farmers and implement practices to increase
agricultural output.

Steps taken for Land Reforms:

Immediately after independence, many states in India passed the Zamindari Abolition
Act. In the states of Uttar Pradesh, Andhra Pradesh, Bihar etc the surplus land of the
landlords were seized by the states. Although the Supreme Court found the act
unconstitutional, the legislature amended the article and corrected their actions. By
the abolition of intermediaries of all types, nearly 2 crore tenants became owners of
their own lands.
The tenure laws were updated and the land reforms were finally showing some
positive results. The other important step taken was the imposition of the land ceiling.
This law fixes the total amount of land an individual or family can hold. Not only does
the law implement the fixation of the ceiling, it also allows the government to take over
the surplus land. Such land was then distributed among landless farmers or small
farmers. The imposition of such a ceiling was to deter the concentration of land in the
hands of a few.
The reforms also promoted consolidation of holdings. If a farmer had a few plots of
land in the village, under this scheme these lands would be consolidated into one big
piece of land. This can be done by the purchase or exchange of land. Actually, one
problem of agriculture in India is that the land parcels are too small for commercial
farming. This method can solve the problem of land fragmentation. To solve the
problems of land subdivision and lack of financing the government also began

16
promoting co-operative farming. Here farmers can pool their lands and resources and
gain the advantages of economies of scale and capital investment. But co-operative
farming in India has only seen limited success.

Importance of Land Reforms:

The main incentive of these land reforms is to act as an incentive for the farmers and
the cultivators of the land. If the government can assure their protection (from
exploitation) and provide them financial help, these farmers are willing to do the hard
work. Once he is actually granted ownership he can raise credit and cultivate his land
to the full potential.
Another major advantage of such land reforms is that they can increase the agricultural
output of the country. This is done without any major influx of capital by the state. India
was anyways struggling with food self-sufficiency. These land reforms were a cost-
free method to increase grain and agricultural output from farms. And once the farmer
is self-sufficient he will sell the market surplus and help the economy.
These land reforms also helped in establishing a relationship between the farmers and
the government. During the British rule these farmers were heavily exploited and
hence they became disenfranchised. These reforms opened a dialogue between the
government and the farmers. They both cooperated to boost the agricultural sector of
our economy. And land reforms fulfilled one of the major goals of the five-year plan –
Equity. It provided social justice to the crores of farmers across the country. It made
sure the farmers benefitted from their own labour and promoted equality of wealth.

Green Revolution
The Green Revolution started in 1965 with the first introduction of High Yielding Variety
(HYV) seeds in Indian agriculture. This was coupled with better and efficient irrigation
and the correct use of fertilizers to boost the crop. The end result of the Green
Revolution was to make India self-sufficient when it came to food grains.
After 1947 India had to rebuild its economy. Over three-quarters of the population
depended on agriculture in some way. But agriculture in India was faced with several
problems. Firstly, the productivity of grains was very low. And India was still monsoon
dependent because of lack of irrigation and other infrastructure. There was also an
absence of modern technology. And India had previously faced severe famines during
the British Raj, who had only promoted cash crops instead of food crops. The idea
was to never depend on any other country for food sufficiency.
So in 1965, the government with the help of Indian geneticists M.S. Swaminathan,
known as the father of Green Revolution, launched the Green Revolution. The
movement lasted from 1967 to 1978 and was a great success.

17
Features of the Green Revolution:
The introduction of the HYV seeds for the first time in Indian agriculture. These seeds
had more success with the wheat crop and were highly effective in regions that had
proper irrigation. So the first stage of the Green Revolution was focused on states with
better infra – like Punjab and Tamil Nadu.
➢ During the second phase, the HYV seeds were given to several other states.
And other crops than wheat were also included into the plan
➢ One basic requirement for the HYV seeds is proper irrigation. Crops from HYV
seeds need alternating amounts of water supply during its growth. So the farms
cannot depend on monsoons. The Green Revolution vastly improved the inland
irrigation systems around farms in India.
➢ The emphasis of the plan was mostly on food grains such as wheat and rice.
Cash crops and commercial crops like cotton, jute, oilseeds etc were not a part
of the plan
➢ Increased availability and use of fertilizers to enhance the productivity of the
farms
➢ Use of pesticides and weedicides to reduce any loss or damage to the crops
➢ And finally the introduction of technology and machinery like tractors,
harvesters, drills etc. This helped immensely to promote commercial farming in
the country.

Market Surplus:
The Green Revolution by and far was a success. But now there was another aspect
to it. The government had to ensure that the benefit of the higher productivity was
passed on to the general public. If the farmers kept the grains for themselves then the
benefit of the higher productivity would be lost. But thankfully this did not happen. Due
to the high yield and productivity of the farms, the farmers started selling their produce
in the markets. The portion of the produce which is sold by them is known as market
surplus. And so the higher output caused due to the Green Revolution started
benefiting the economy. There was a decline in the prices of grains and such food
products. The common man was able to easily afford to buy them. The government
was even able to stock grains and build a food bank in case of future food shortages.

Impact of the Green Revolution:

Increase in Agricultural Production: Foodgrains in India saw a great rise in output. It
was a remarkable increase. The biggest beneficiary of the plan was the Wheat Grain.
The production of wheat increased to 55 million tonnes in 1990 from just 11 million
tonnes in 1960.

18
● Increase in per Acre Yield: Not only did the Green Revolution increase the total
agricultural output, it also increased the per hectare yield. In case of wheat, the per
hectare yield increased from 850 kg/hectare to an incredible 2281 kg/hectare by 1990.
● Less Dependence on Imports: After the green revolution, India was finally on its
way to self-sufficiency. There was now enough production for the population and to
build a stock in case of emergencies. We did not need to import grains or depend on
other countries for our food supply. In fact, India was able to start exporting its
agricultural produce.
● Employment: It was feared that commercial farming would leave a lot of the labour
force jobless. But on the other hand, we saw a rise in rural employment. This is
because the supporting industries created employment opportunities. Irrigation,
transportation, food processing, marketing all created new jobs for the workforce.
● A Benefit to the Farmers: The Green Revolution majorly benefited the farmers.
Their income saw a significant raise. Not only were they surviving, they were
prospering. It enabled them to shift to commercial farming from only sustenance
farming.

Industrial Policy
Industrial development is a very important aspect of any economy. It creates
employment, promotes research and development, leads to modernization and
ultimately makes the economy self-sufficient. In fact, industrial development even
boosts other sectors of the economy like the agricultural sector (new farming
technology) and the service sector. It is also closely related to the development of
trade. But just after independence India’s industrial sector was in very poor condition.
It only contributed about 11.8% to the national GDP. The output and productivity were
very low. We were also technologically backward. There were only two established
industries – cotton and jute.
So it became clear that there needed to be an emphasis on industrial development
and increasing the variety of industries in our industrial sector. And so the government
formed our industrial policies accordingly.

Control of the State:

One of the biggest hurdles in industrial development was the lack of capital. Private
industrialists did not have enough capital to build a new industry. And even if they did,
the risk involved was too high. So in 1948, it was decided that state would play the
primary role in promoting the industrial sector. So the state would have absolute and

19
complete control over all industries that were vital to the economy and the needs of
the public.
Coal, petroleum, aviation, steel etc were all reserved exclusively for the state. The
private sector could provide services complementary to those by the state. The public
enterprises thus had a monopoly over the markets for many years to come.

Industrial Policy Resolution 1956:

During the second five-year plan the industrial policy resolution came into action. The
aim was to introduce more private capital int the industry but in a systematic manner.
So this resolution classified industries into three categories as seen below,
a) First Category: Industries exclusively owned only by the State
b) Second Category: Industries for which private sectors could provide
supplementary services. These industries would still be mainly the
responsibility of the State. And also only the State could start new
industries.
c) Third Category: The remaining industries which fell to the Private
Sector.
While any private company or individual could start an industry falling in the third
category it was not that simple. The state still maintained control over these industries
via licenses and permits. Every new industry needed a license and many permits from
the appropriate ministry. They even needed permissions and permits to expand the
present industry. The aim behind such an industrial policy was to keep a check on the
quality of the products. It was also an important tool to promote regional equality, i.e.
make sure industries were developed in economically backward areas.

Small Scale Industries:

In 1955 a special committee known as the Karve Committee advised the promotion
of small-scale industries for the purpose of rural development. It was believed that
since small-scale industries are more labour intensive they would create more
employment. Also, the manpower requirement of small-scale industries is semi-skilled
or unskilled which was suitable for those times. However, these small-scale industries
cannot match up to large scale industries. So there were special goods and products
reserved by the government. These could only be manufactured by small and medium
scale industries. Such industries also got financial aid in form of loans and tax and
duty breaks.
Strengthening of Infrastructure for Industrial Development One of the first
requirements for the development of the economy is to improve the infrastructure of

20
the country. The various other sectors of the economy cannot develop without the
support of infrastructure facilities like transport, rail, banking communication etc. So to
develop these industries the government formed appropriate industrial policies. The
development of most of these industries fell to the public sector. Like for example, the
rail industry to this day remains firmly in the public sector.

Promotion of Capital Goods Industry:

Capital goods are goods used in the production of other goods. Capital goods are not
for direct sale to the consumer. But they are a hallmark of a good industrials sector.
So the government decided to focus on the capital goods industry for the development
of our industrial sector.
So the Mahalanobis model came into effect in the second five-year plan. The
focus here was on heavy industries, especially those that produce capital goods. This
was to create a robust capital base for the economy. So industries of heavy metals,
chemicals, machine building, tools, electrical etc all saw growth in this period.
Such industries have massive capital requirements. But the government ensured they
had enough capital to function smoothly. Soon there was a development of high-tech
goods in the market as well.

Subsidies
A subsidy, often viewed as the discussion of a tax, is an instrument of fiscal policy.
Derived from the Latin word ‘subsidium’, a subsidy factually implies coming to support
from behind. Subsidies are useful for both economy and citizens as well. These have
a long-term impact on a financial system like green revolution etc. These are only for
the reason that farmers receive good quality of grain on subsidized prices.
Subsidies, by means of creating a block between consumer prices and producer costs,
lead to changes in demand or supply decisions. These are often aimed at:
i. Suggesting higher consumption/ production
ii. Balancing market deficiency including internalization of externalities;
iii. The success of social policy objectives including redistribution of
income, population control, etc.

Transfers and Subsidy:

Transfers which are directly income supplements need to be distinguished from a
subsidy. An unconditional transfer to an individual will add to his income and will

21
distribute it over the entire range of his expenditures. A subsidy, however, refers to a
particular good, the relative price of which has been lesser because of the subsidy
with a view to changing the consumption/ distribution decisions in favour of the
subsidized goods. Even when the subsidy is hundred percent, i.e. the good is supplied
free of cost, it should be distinguished from an income-transfer (of an equivalent
amount) which need not be spent completely on the subsidized good.

Mode of Administering a Subsidy:

The range of alternative means of administering a subsidy are:
1. Subsidy to producers
2. Subsidy to consumers
3. Providing Incentives Instead of Subsidizing
4. Production/sales through public enterprises
5. Cross-subsidization

Subsidy Targeting:
A subsidy can be spread among individuals according to a set of selected criteria, e.g.
merit, income-level, social group etc. Two types of errors arise if we do not do the
proper targeting, i.e. exclusion errors and inclusion errors. In the previous case, some
of those who deserve to receive a subsidy are disqualified. While, in the second case,
some of those who do not deserve to receive subsidy get integrated with the subsidy
programme.

Effects of a Subsidy:
a)Allocative effects: these relate to the sectoral distribution of resources.
b)Redistributive effects: these generally depend upon the flexibility of demands of
the relevant groups for the subsidized good as well as the flexibility of supply of the
same good and the mode of administering the subsidy.
c)Fiscal effects: subsidies have obvious fiscal effects since a large part of subsidies
originate from the budget. They in a straight line increase fiscal deficits.
d)Trade effects: a regulated price, which is to a large extent lower than the market
clearing price, may reduce domestic supply and lead to an increase in imports.
e) The subsidies may also lead to unmanageable or unplanned economic effects.
They would result in inefficient resource allocation if forced on a competitive market or

22
where market imperfections do not give a good reason for a subsidy, by diverting
economic resources missing from areas where their marginal productivity would be
superior. For instance, a price control may lead to lower production and shortages and
thus generate black markets resulting in profits to operators in such markets and
economic rents to private people who have right to use to the distribution of the good
concerned at the controlled price.
The various examples of subsidies are:
● food subsidy
● electricity
● public irrigation
● Subsidies to elementary
● Subsidies for health

Trade Policy
India’s trade policy has been through many stages over the last few decades. There
were transitory phases and some short-term policies to deal with the changing
economy. But overall the trade policy followed some basic themes spread over three
specific periods. From independence until the 1980’s there was the general policy of
planned regulation and import substitution. After the 1980’s the government started to
focus on some partial form of liberalization. And then came the phase after 1991 which
focused on liberalization, privatization, and globalization.

Inward Looking Strategy:

Just after independence, the government was looking to boost trade and industry in
the country. We were an economy heavily dependent on the agricultural sector, and
to change that the development of trade and industry was of the essence. So for many
years, the first seven Five-year plans precisely,
India adopted the trade policy of inward-looking, or better known as Import
Substitution. The policy was simple, we were going to substitute the imports of our
economy with domestic production. This trade policy was applied to almost all sectors
of the economy.
The aim of this policy was to boost domestic production and also protect domestic
goods from international competition. In a way, this policy closed off our economy from
the world. But during the initial stages of development, this was secondary to our main
aim of boosting domestic production.

23
Such a protection of imports was done through two steps.
● Tariffs: Firstly tariffs were imposed on imports. Such tariffs make imports costlier.
This, in turn, will help the production as well as the sale of domestic products.
● Quotas: Another measure was to impose quotas on imports. This means only a
specific quantity of goods can be imported. And hence the domestic market will have
to make up to meet the demand.

Trade Policies and Industrial Development:

We already saw that one of the aims of any trade policy is to influence industrial
development in the country. The trade policies of the first seven plans had a profound
effect on the GDP of the country and the industrial growth as well. The contribution of
the industrial sector was only 11.8% in 1950. By 1991 it had more than doubled and
was now at 24.6% of the GDP. And it was not just growth, but the industrial sector also
saw great diversification.
Initially, the main contributors of the sector were the cotton and the jute industries.
But the trade policy of the plans promoted many other small-scale industries.
Protecting the domestic market from foreign imports really helped the small and
medium scale industries boom in the economy. It even assisted indigenous industries,
especially in the automobile and electronics sector.

Public Sector Enterprises:

India adopted a mixed economic system. It had ideologies of both socialism and
capitalism. One feature of the earlier five year plans was the massive development of
the public sector. Most of the major industries like telecom, air travel, railways, defence
etc were entrusted to the public sector. And for many years they were successful in
ensuring that all members of the public got access to these products. However, some
economists and academics have been critical of this over-dependence on the public
sector. Some were even critical of the performance of such public companies. During
the initial few years after independence, these companies were essential. But some
economists were of the opinion that after a few years they were actually blocking the
entry of private players into the market.
We have now come to the realization that state and national enterprises may have
overstayed their welcome. They continued with the production and the monopolization
of certain goods and services even though their services were no longer of any
requirement. The best example here is the telecom industry. The government had a
monopoly over this industry until the 1990’s. The private sector was capable of
providing this service, but the government never granted any licenses. This lead to
slow and poor service by the public company.

24
 Chapter 3
Liberalisation, Privatisation and Globalisation

INTRODUCTION:
Since independence, India followed the mixed economy framework by combining the
advantages of both capitalist and socialist (planned) economic system. This policy
resulted in the establishment of various rules and laws, which were aimed at
controlling and regulating the economy; became major hindrances in growth and
development of the economy. However, some scholars state that increasing role of
public sector in economic activities has helped Indian economy to:
a) achieve growth in savings,
b) develop a diversified industrial sector which produces a variety of goods and
c) achieve food security through sustained expansion of agricultural output.
In 1991, the government of India initiated a series of economic reforms due to a
financial crisis and pressure from international organisations like World Bank and IMF.
These reforms came to be known as the New Economic Policy (NEP).

Need for Economic Reforms

1.Fall in foreign exchange reserves: In 1991, India met with a foreign exchange or
external debt crisis.
a. The government was not able to make repayments on its borrowings from
abroad.
b. The foreign exchange reserves declined to a level that was not adequate-
• to finance imports for more than two weeks and
• to pay the interest that needs to be paid to international lenders.

2.Financial crisis: The origin of the financial crisis can be traced from the inefficient
management of the Indian economy in the 1980s.
a. Development policies required that even though the revenues were very low, the
government had to overshoot its revenue to meet challenges like unemployment,
poverty and population explosion. The continued spending on development
programmes of the government did not generate additional revenue.

25
b. Moreover, the government was not able to generate sufficient revenue from internal
sources such as taxation.
c. The government was spending a large share of its income on areas which do not
provide immediate returns such as the social sector and defence.
d. The income from public sectors undertakings (PSUs) was also not very high to meet
the growing expenditure.
Hence our foreign exchange, borrowed from other countries and international financial
institutions, was spent on meeting consumption needs.

3.Mounting government debts: In the late 1980s, government expenditure began to

exceed its revenue by such large margins that meeting the expenditure through
borrowings became unsustainable. Moreover, no attempt was made to reduce such
profligate government spending.

4. Adverse Balance of Payments: Imports grew at a very high rate without matching
growth of exports. Slow growth of exports was due to low quality and high prices of
Indian goods in the international market. Also, no sufficient attention was given to
boost exports to pay for the growing imports.

5. Rising prices of essential goods: The economic crisis in 1991 was further
compounded by rising prices. Prices of many essential goods rose sharply due to
inefficiencies in private as well as public sector production and high tariffs even on
essential imports.
To manage the economic crisis in 1991, India approached the International Bank for
Reconstruction and Development (IBRD), popularly known as World Bank and
the International Monetary Fund (IMF) and received $7 billion as loan. For availing
the loan, India was required to liberalise and open up the economy by
• reducing the role of the government in many areas (or Liberalisation),
• removing restrictions on the private sector (or Privatisation) and
• removing trade restrictions between India and other countries (Globalisation).
India agreed to the conditions of World Bank and IMF and announced the New
Economic Policy (NEP) in July 1991.
The New Economic Policy consisted of wide-ranging economic reforms. The three
broad components of NEP are – Liberalisation, Privatisation and Globalisation. The
main aim of the policy was to create a more competitive environment in the economy
and remove the barriers to entry and growth of firms. This set of policies can broadly

26
be classified into two groups: the stabilisation measures and the structural reform
measures.

Classification of New Economic Policy

Stabilisation measures are short term measures, intended to correct some of the
weaknesses that have developed in the balance of payments and to bring inflation
under control. (E.g. Devaluation of rupee which means reduction in the value of rupee
i.e. domestic currency in terms of foreign currency).
Structural reform policies are long term measures, aimed at improving the efficiency
of the economy and increasing its international competitiveness by removing the
rigidities in various segments of the Indian economy through a range of policies which
fall under three heads viz. Liberalisation, Privatisation and Globalisation.

LIBERALISATION
It refers to the removal or reduction of government controls and restrictions
from various sectors of the economy like industrial sector, financial sector,
fiscal (tax) reforms, foreign exchange markets and trade and investment sectors
for making the economy more competitive.
Need for Liberalisation: Prior to 1991, there were large number of government
restrictions on the entry and growth of private enterprises. Liberalisation was
introduced to put an end to these restrictions and open various sectors of the economy.

1.Industrial Sector Reforms:

Before 1991, the industries were regulated in various ways:
• Industrial licensing was compulsory to start a firm, close a firm or to expand or
diversify production.
• Private sector was not allowed in many industries.
• Some goods were reserved only for small-scale industries.
• There was control on price fixation and distribution of certain selected industrial
products.
The various measures under industrial policy reforms include:
a) Reduction in Industrial Licensing: Industrial licensing was abolished for almost
all products except alcohol, cigarettes, hazardous chemicals, industrial explosives,
electronics, aerospace, drugs and pharmaceuticals.

27
b) De-reservation of public sector: The only industries which are now reserved for
the public sector are a part of defence equipment, atomic energy generation and
railway transport.
c) De-reservation of small-scale industries: Many goods produced by small-scale
industries have now been de-reserved.
d) Removal of price control: In many industries, the market has been allowed to
determine the prices.

2.Financial Sector Reforms (Banking Sector Reforms):

(Before 1991 the RBI was regulator and it decides the amount of money that the banks
can keep with themselves, fixes interest rates, nature of lending to various sectors,
etc.)
• The role of RBI was reduced from regulator to facilitator of financial sector. This
means that the financial sector was allowed to take decisions on many matters
without consulting the RBI.
• The reform policies led to the establishment of private sector banks, Indian as
well as private.
• Foreign investment limit in banks was raised to around 50 percent.
• Those banks which fulfil certain conditions have been given freedom to set up
new branches without the approval of the RBI and rationalise their existing
branch networks. e. Foreign Institutional Investors (FII), such as merchant
bankers, mutual funds and pension funds are now allowed to invest in Indian
financial markets.
Financial Sector: Financial sector includes financial institutions such as commercial
banks, investment banks, stock exchange operations and foreign exchange market.
The financial sector in India is regulated through various norms and regulations by the
Reserve Bank of India (RBI). The RBI decides the amount of money that the banks
can keep with themselves, fixes interest rates, nature of lending to various sectors,
etc.

3.Tax Reforms (or Fiscal Policy Reforms):

Tax reforms are concerned with the reforms in government’s taxation and public
expenditure policies. (Government’s taxation and public expenditure policies are
collectively known as its fiscal policy.)

Types of taxes:
There are two types of taxes:

28
a) Direct taxes consist of taxes on incomes of individuals, as well as, profits of
business enterprises. The burden of such taxes cannot be shifted. E.g. Income tax,
wealth tax, corporate tax etc.
b) Indirect taxes are the taxes levied on commodities and services. The burden of
these taxes can be shifted to the consumers. E.g. GST, Value Added Tax (VAT) etc.

The major tax reforms made are:

a. Since 1991, there has been a continuous reduction in the taxes on individual
incomes as it was felt that high rates of income tax were an important reason for tax
evasion.
b. The rate of corporation tax, which was very high earlier, has been gradually reduced.
c. Efforts have also been made to reform the indirect taxes, in order to facilitate the
establishment of a common national market for goods and commodities.
d. In order to encourage better compliance on the part of taxpayers, many tax
procedures have been simplified and the rates also substantially lowered.
e. Recently, the Indian Parliament passed a law, Goods and Services Act 2016, to
simplify and introduce a unified indirect tax system in India. This law came into effect
from July 2017. This is expected to generate additional tax revenue for the
government, reduce tax evasion and create ‘one nation, one tax and one market.’
Note: ‘Goods and Services Tax’ is a comprehensive Indirect Tax which has replaced
many indirect taxes in India. The Goods and Services Tax Act was passed in the
parliament on 29th March, 2017 to simplify and introduce a unified indirect tax system
in India. The Act came into effect in 1st July, 2017. It is a comprehensive, multi-stage,
destination-based tax that is levied on every value addition. GST has been identified
as one of the most important tax reforms post-independence. The government of India
implemented GST following the credo of ‘One Nation and One Tax’ and wanting a
unified market in order to ensure the smooth flow of goods and services across the
country. GST has replaced 17 indirect taxes (like Value Added Tax, Service Tax,
Excise duty, Sales Tax etc) 23 cesses of the Centre and States, thereby eliminating
the need for filing multiple returns and investments. It has rationalised the tax
treatment of goods and services along the supply chain from producers to consumers.

4.Foreign Exchange Reforms:

(Before 1991, Fixed exchange rate system was followed by the RBI.)
The major reforms made in the foreign exchange market are:

29
a) In 1991, as an immediate measure to resolve the balance of payment crisis, the
rupee was devalued against foreign currencies. (Devaluation refers to reduction in the
value of domestic currency with respect to foreign currency.) This led to increase in
the inflow of foreign exchange by making exports cheaper and more competitive.
b) It also led to freeing the determination of rupee value in the foreign exchange market
from government control. Now markets determine exchange rates based on the
demand and supply of foreign exchange.

5.Trade and investment Policy Reforms:

(Before 1991, India was following Import substitution policy with high tariffs and
quotas-a regime of quantitative restrictions on imports. These policies reduced
efficiency and competitiveness which led to the slow growth of the manufacturing
sector.)
Objective: To increase international competitiveness of industrial production and also
foreign investments and technology into the economy. The aim was to promote the
efficiency of local industries and adoption of modern technologies.
The important trade and investment policy reforms include:
a) Dismantling of quantitative restrictions (Quotas) on imports and exports-
Quantitative restrictions on imports of manufactured consumer goods and agricultural
products were also fully removed from April 2001.
b) Reduction tariff rates– Export duties have been removed to increase the
competitive position of Indian goods in the international markets and import duties
have also been reduced.
c) Removal of licensing procedures for imports – Import licensing was abolished
except in case of hazardous and environmentally sensitive industries.

Privatisation
It implies shedding of the ownership or management of a government owned
enterprise and its transfer to the private sector.

Privatisation can be done in two ways:

a) by withdrawal of the government from ownership and management of public sector
companies (Disinvestment).
b) by outright sale of public sector companies (Complete privatisation)

30
Disinvestment: Privatisation of the public sector undertaking by selling off part of the
equity of PSEs to the private sector/ public is known as disinvestment.

Types of disinvestment :
1. Minority disinvestment: A minority disinvestment is one such that, at the end of it,
the government retains a majority stake in the company, typically greater than 51%,
thus ensuring management control. E.g. NTPC (National Thermal Power Corporation)
2. Majority Disinvestment: A majority disinvestment is one in which the government,
post disinvestment, retains a minority stake in the company i.e. it sells off a majority
stake E.g. BALCO sale to Sterlite.
3. Complete privatisation: It is a form of majority disinvestment wherein 100% control
of the company is passed on to a buyer. Example: Modern Bread, ITDC Hotels.

Strategic Disinvestment Sale: It refers to the sale of 51% or more stake of a PSU
to the private sector who bids the highest with the objective of improving
efficiency so the management control is with strategic partner.

Purpose of privatisation/ disinvestment:

According to the government the purpose of sale was mainly toa. improve financial
discipline and facilitate modernisation. b. It was also felt that private capital and
managerial capabilities would be effectively utilized to improve the performance of the
PSU’s. c. It was felt that privatisation could provide strong impetus (encouragement)
to the inflow of FDI.

Navraratnas (profit making PSU’s):

• In order to improve efficiency of PSUs, infuse professionalism and enable them to
compete more effectively in the liberalised global environment, the government
choose nine PSUs and declared them as maharatnas, navratnas and miniratnas
• They were given greater managerial and operational autonomy in taking various
decisions to run the company efficiently and thus increase their profits.
• Greater operational, financial and managerial autonomy has also been granted to
profit making enterprises referred to as miniratnas.
The granting of Navratnas status resulted in better performances of these companies.
Of late the government has decided to retain them in the public sector and enables
them to expand themselves in the global market and raise resources by themselves
from financial markets.

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 GLOBALISATION
Globalisation means integrating the economy of the country with the world
economy through removal of barriers on international trade and capital
movements.
• It is a complex phenomenon.
• It is an outcome of the set of various policies that are aimed at transforming the
world towards greater interdependence and integration.
• It involves creation of network and activities transcending economic, social and
geographical boundaries.
• In short, Globalisation implies turning the world into one whole or creating a
borderless world.

Outsourcing: Outsourcing refers to the hiring of regular services by a company

from external sources, mostly from other countries, which was previously provided
internally or from within the country. E.g. legal advice, computer service,
advertisement, security- each provided by respective departments of the company.
Outsourcing is one of the important outcomes of the globalisation process.
With increasing population and government’s inability to provide employment,
outsourcing services have proved to be a boon for countries like India which has skilled
manpower available at cheaper rates. Thus, India has been benefited from
outsourcing in terms of generating employment opportunities as well as it contributes
to the GDP and foreign exchange reserves of our country. The developed countries
are opposing it because the domestic workers have been replaced by the workers in
developing countries. It has resulted in the loss of jobs in favour of developing
countries. The domestic workers are struggling to find jobs especially with low skills.
This is leading to inequalities between the highly skilled persons and the lower ones
(as highly skilled persons are willing to work at lower wages).

Effects of Globalisation:
The process of globalisation through liberalisation and privatisation policies has
produced positive as well as negative results both for India and other countries.

Positive effects:
a. greater access to global markets;
b. high (advanced) technology
c. increased possibility of large industries of developing countries to become important
players in the international arena.

32
Negative effects:
a. Globalisation is a strategy of the developed countries to expand their markets in
other countries.
b. It has compromised the welfare and identity of people belonging to poor countries.
c. Market-driven globalisation has widened the disparities among nations and people.

World Trade Organisation (WTO)

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

Aim (Functions) of WTO:

a. To establish a rule-based trading regime in which nations cannot place arbitrary
restrictions on trade.
b. To enlarge production and trade of services.
c. To ensure optimum utilisation of world resources.
d. To protect the environment.
e. 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.

Relation between WTO and India:

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.
Some scholars question the usefulness of India being a member of WTO. According
to them:
a. A major volume of international trade occurs among the developed nations.
b. Developing countries feel cheated as they are forced to open their markets for
developed countries but are not allowed to access to the markets of developed
countries.

33
 Indian Economy During Reforms
Positive effects of reforms:
1. The growth of GDP increased from 5.6% during 1980-91 to 8.2 % during 2007-12.
During the reform period, the growth of agriculture has declined, while the industrial
sector reported fluctuations, the growth of the service sector has gone up. This
indicates that this growth is mainly driven by growth in the service sector.
2. The foreign investment, which includes foreign direct investment (FDI) and foreign
institutional investment (FII) has increased from about US $100 million in 1990-91 to
US $ 36 billion in 2016- 17.
3. There has been an increase in the foreign exchange reserves from about US $ 6
billion in 1990-91 to about US $ 321 billion in 2014-15. India is one of the largest
foreign exchange reserve holders in the world.
4. India is seen as a successful exporter of auto parts, engineering goods, IT software
and textiles in the reform period.
5. Rising prices have also been kept under control.

Negative effects of reforms:

The NEP has been widely criticised for not being able to address some of the basic
problems facing our economy especially in the areas of employment, agriculture,
industry, infrastructure development and fiscal management.
1. Growth and Employment - Though the GDP growth rate has increased in the
reform period, scholars point out that the reform led growth has not generated
sufficient employment opportunities in the country other than the service sector. This
is known as ‘Jobless growth’.
2. Reforms in Agriculture - Reforms have not been able to benefit agriculture. The
growth rate in the agriculture sector has been decelerating in the reform period
because:
o Public investment in agriculture sector especially in infrastructure, which
includes irrigation, power, roads, market linkages and research and extension
has fallen in the reform period.
o The removal of fertiliser subsidy has led to increase in the cost of production,
which has severely affected small and marginal farmers.
o A number of policy changes such as reduction in import duties on agricultural
products, removal of minimum support price and lifting of quantitative
restrictions on agricultural products have adversely affected Indian farmers as
they have to face increased international competition.

34
 o The export-oriented policy strategies in agriculture have resulted in a shift from
production of food grains for the domestic market towards production of cash
crops for exports thereby putting immense pressure on prices of food grains.
3. Reforms in Industry- Industrial growth has also recorded a slowdown during the
reform period because of decreasing demand of industrial products due to various
reasons such as:
o Domestic manufacturers are facing competition from cheaper imports, which
have replaced the demand for domestic goods.
o The infrastructure facilities, including power supply, have remained inadequate
due to lack of investment.
o A developing country like India still does not have access to developed
countries’ markets because of non- tariff barriers. (For e.g. Although all quota
restrictions on exports of textiles and clothing have been removed in India, USA
has not removed their quota restrictions on import of textiles from India and
China.)
4. Effect of disinvestment: The assets of PSEs have been undervalued and sold to
the public sector. This means that there has been a substantial loss to the government.
Moreover, the proceeds from disinvestment were used to offset the shortage of
government revenues rather than using it for the development of PSEs and building
social infrastructure in the country.
5. Fiscal Policy and Reforms: Economic reforms have placed limits on the growth of
public expenditure, especially in social sectors.
o The tax reductions in the reform period, aimed at yielding larger revenue and
to curb tax evasion, have not resulted in increase in tax revenue for the
government.
o The reform policies involving tariff reduction have reduced the scope for raising
revenue through custom duties.
o incentives provided to foreign investors to attract foreign investment, has further
reduced the scope for raising tax revenues. This has a negative impact on
developmental and welfare expenditure.

Effect of reforms on welfare and social justice:

o It has increased the income and quality of consumption of only high- income
groups and the growth and employment has been concentrated only in some
select areas in the services sector such as telecommunication, information
technology, finance, entertainment rather than vital sectors such as agriculture
and industry, which provide livelihoods to millions of people in the country.
o It has adversely affected the agricultural sector incomes due to removal of
subsidies and import duties.

35
o Due to export oriented agricultural strategies and shift towards cash crops,
there has been a rise in price of food grains affecting the lower income groups
adversely.
o It has resulted in the wiping out of small manufacturing and retail outlets
because of cheap imports.
o Globalisation has increased the inequalities of income and wealth between the
rich skilled and the poor unskilled population.

36
 CHAPTER 4
POVERTY
Poverty refers to a situation where people are not able to meet their basic
minimum needs of life such as food, clothing and shelter.
Poverty is a challenge not only for India, but for the entire world as more than one fifth
of the world’s poor (around 270 million people) live in India alone and are not able to
meet their basic needs.
Major aim of India after independence – reduction of poverty and providing minimum
basic needs to the people.
The successive five-year plans after independence laid emphasis on the upliftment of
the poorest of the poor (Antyodaya), integrating the poor into the mainstream and
achieving minimum standard of living for all.

Characteristics of a poor person/ Identifying the poor:

• Malnutrition is alarmingly high among the poor. Starvation and hunger are the key
features of the poorest households.
• The poor people possess few assets. They lack proper housing.
• Ill health, disability or serious illness and poor access to medical facilities make them
physically weak. Their children are less likely to survive or be born healthy.
• They have limited economic opportunities as the poor person lacks basic literacy
and skills. So, they face unstable unemployment. Lack of income yielding assets such
as land etc. lead to unemployment.
• They borrow 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 safe drinking water and electricity. Their
primary cooking fuel is firewood and cow dung cakes.
• Gender inequality prevails within the family in regard to participation of gainful
employment, education and in decision-making.

Rural Poor vs Urban Poor

37
The rural poor are those who work mainly as landless agricultural labourers,
cultivators with very small landholdings, or 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-employed who sell a variety of things on roadsides and are
engaged in various activities. Examples of urban poor people are push-cart vendors,
ragpickers, cobblers, beggars etc.

Rural Poverty
• A large section of the rural poor in India is the small farmers. The land they have is
less fertile and dependent on rains. Their survival depends on subsistence crops and
sometimes on livestock.
• With rapid growth of population and without alternative source of employment, the
per head availability of land has steadily declined leading to fragmentation of land
holdings.
• The income from these small land holdings is not sufficient to meet family's basic
requirements.

Urban Poverty
• A large section of the urban poor in India are largely the overflow of the rural poor
who had migrated to urban areas in search of alternative employment and a livelihood.
• Industrialisation has not been able to absorb all these people. The urban poor are
either unemployed or intermittently employed as casual labourers.
• Casual labourers are the most vulnerable in society as they have no job security, no
assets, limited skills, sparse opportunities and no surplus to sustain them.

Attempts made to identify number of poor in the country after

independence:
• In 1962, Planning Commission now called as NITI Aayog formed a Study
Group.
• In 1979, another body called the ‘Task Force on Projections of Minimum
Needs and Effective Consumption Demand’ was formed.

38
 • In 1989 and 2005, ‘Expert Groups’ were constituted for the same purpose.

Categories of poor:
1.Chronic Poor
• Always poor
• Usually poor but who may sometimes have a little more money (example: casual
workers)

2. Transient Poor
a) Churning poor who regularly move in and out of poverty. (e.g. small farmers and
seasonal workers)
b) Occasionally poor who are rich most of the time but may sometimes have a patch
of bad luck.

3.Non-Poor
Who are never poor.

Poverty Line
Poverty Line is cut-off point on the line of distribution, which usually divides the
population of the country as poor and non-poor.
o It is the minimum amount of money (usually in terms of monthly per capita
expenditure) needed for a person to meet his basic needs.
o The concept of poverty line is used to measure the extent of poverty in a
country.

Estimation of poverty line:

39
(a) Calorie based estimation: The Planning Commission has defined poverty line on
the basis of recommended nutritional requirements of 2400 calories per person per
day for rural areas and 2100 calories per person per day for urban areas.
(b) Per capita expenditure based estimation: The government of India uses Monthly
Per Capita Expenditure (MPCE) as proxy for income of households to identify the poor.
Based on 2011-12 prices, the poverty line was defined for rural areas as consumption
worth Rs 816 per person a month and for urban areas it was Rs 1,000 per person per
month.

Limitations of using Per Capita Monthly Expenditure or Limitations

of Poverty Line:
1. It groups all the poor together and does not differentiate between the very poor and
the other poor. Hence, it would be difficult to identify who among the poor need help
the most.
2. This mechanism takes into account expenditure on food and a few select items as
proxy for income. There are many factors, other than income and assets which are
associated with poverty like the accessibility to basic education, health care, drinking
water and sanitation which need to be considered to develop poverty line.
3. The existing mechanism for determining poverty line also does not take into
consideration social factors that trigger and perpetuate poverty such as illiteracy, ill
health, lack of access to resources, discrimination or lack of civil and political
freedoms.
4. Many a times, the way the data are collected, items that are included in the
consumption basket, 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.

Measures
of Poverty

Absolute Relative
Poverty Poverty

40
Absolute poverty: It is a condition characterized by severe deprivation of basic
human needs, including food, safe drinking water, sanitation facilities, health, shelter,
education etc. It depends not only on income but also on access to social services. (It
refers to the total number of people living below poverty line).
Relative poverty: It refers to poverty of people, in comparison to the other people,
regions or nations.
People who have a considerable amount of income can meet their basic necessities
but still be considered poor under the relative poverty model as their economic
condition is not good enough with respect to that of the society, they live in.

Relation between Employment and Poverty

Yes, there does exist a direct relationship between unemployment and poverty. An
unemployed person has no means to earn a living and cannot fulfil his basic needs.
He cannot avail quality education, medical facilities and has no means to create
income-earning assets.
A large section of urban poor in India are largely the overflow of the rural poor who
migrate to urban areas in search of employment and a livelihood.
a) The urban poor are either unemployed or intermittently employed as casual
labourers. Casual labourers are among the most vulnerable in society as they have
no job security, no assets, limited skills, sparse opportunities and no surplus to sustain
them.
b) Poverty is, therefore, closely related to nature of employment. Unemployment or
under employment and the casual and intermittent nature of work in both rural and
urban areas that compels indebtedness, in turn, reinforces poverty.
c) Indebtedness is one of the significant factors of poverty.

Poverty Trends in India 1973-74 to 2011-12

When the number of poor is estimated as the proportion of people below the
poverty line, it is known as ‘Head Count Ratio’.
a) The official data on poverty is now made available to the public by the NITI Aayog
(erstwhile, Planning Commission). It is estimated on the basis of consumption
expenditure data collected by the National Sample Survey Office (NSSO).
b) In 1973-74, more than 320 million people were below the poverty line. In 2011-12,
this number has come down to about 270 million.

41
c) In terms of proportion, in 1973-74, about 55 per cent of the total population was
below the poverty line. In 2011-12, it has fallen to 22 per cent.
d) In 1973-74, more than 80 per cent of the poor resided in rural areas and this
situation has not changed even in 2011-12. This means that more than three-fourth of
the poor in India still reside in villages.

Rural Urban Poverty

a) In the 1990s, the absolute number of poor in rural areas had declined whereas the
urban numbers increased marginally.
b) The poverty ratio (number of poor to total population) declined continuously for both
urban and rural areas.
c) During 1973-2012, there has been a decline in the number of poor and their
proportion. The ratio is declining much slower than the absolute number of poor in the
country.
d) The gap between the absolute number of poor in rural and urban areas got reduced
whereas in the case of ratio the gap has remained the same until 1999-2000 and has
widened in 2011-12.

Inter State Poverty

a) The proportion of poor in India during 1973-2012 has come down from 55 to 22 per
cent.
b) Six states - Tamil Nadu, Uttar Pradesh, Bihar, Madhya Pradesh, West Bengal and
Orissa - contained a large section of poor in 1973-74.
c) During 1973- 2012, many Indian states like West Bengal and Tamil Nadu reduced
the poverty levels to a considerable extent due to socialist government and green
revolution as well as economic development.
d) The poverty levels in four states - Odisha, Madhya Pradesh, Bihar and Uttar
Pradesh are still far above the national poverty level.

Causes of poverty in India

The poor are deprived of quality education and unable to acquire skills which fetch
better incomes. Also access to health care is denied to the poor. These can be caused
as a result of (i) social, economic and political inequality (ii) social exclusion (iii)
unemployment (iv) indebtedness (v) unequal distribution of wealth. Poverty is also

42
explained by general, economy-wide problems, such as (i) low capital formation, (ii)
lack of infrastructure, (iii) lack of demand (iv) pressure of population.

Historical reasons:
1) De-industrialisation: There was substantial de-industrialisation in India under the
British rule. Imports of manufactured cotton cloth from England displaced much local
production, and India became an exporter of cotton yarn, and not cloth which resulted
in massive unemployment and poverty in India.
2) Decline of agriculture: The British introduced the revenue settlement systems like
zamindari system which exploited farmers and caused immense misery and poverty.
British policies involved sharply raising rural taxes that enabled merchants and
moneylenders to become large landowners. The British Raj impoverished millions of
people in India by exporting raw materials and food grains to Britain. Many people died
due to famine and hunger.
3) Drain of wealth: India’s foreign trade with Britain resulted in drain of wealth from
India as Britain’s main goals were to provide market for British exports, use the export
surplus generated to service its debt payments to Britain and for India to provide
manpower for the British imperial armies.

After independence:
1.Unequal distribution of income and assets: The unequal distribution of income
and assets has led to the persistence of poverty in India.
• Ownership of land is an important determinant of material well-being.
Those who own some land have a better chance to improve their living
conditions.
• Since independence the government has attempted to redistribute land
amongst the landless. However, this move was successful only to a limited
extent.
2) Rapid population growth:
• With the rapid growth of population and without alternative sources of employment,
the per head availability of land for cultivation has steadily declined leading to
fragmentation of land holdings.
• The income from these land holdings is not sufficient to meet the family’s basic
requirements.
3) Indebtedness:
• Indebtedness is one of the significant factors of poverty.

43
• This situation arises among farmers due to their inability to pay back the loans they
have taken for cultivation and other domestic needs either due to crop failure or due
to drought or other natural calamities.
• Unemployment or underemployment and the casual and intermittent nature of work
in both rural and urban areas that compels people to borrow at very exorbitant interest
rates leads to indebtedness which in turn, reinforces poverty.

4) Social exclusion:
• Most members of scheduled caste and scheduled tribes are not able to participate
in the emerging employment opportunities in different sectors of the urban and rural
economy as they do not have the necessary knowledge and skills to do so.

5) Unemployment and underemployment:

• A large section of urban poor in India are largely the overflow of the rural poor who
migrate to urban areas in search of employment and a livelihood.
• However, industrialisation has not been able to absorb all these people Thus the
urban poor are either unemployed or intermittently employed as casual labourers who
are among the most vulnerable in society as they have no job security, no assets,
limited skills, sparse opportunities and no surplus to sustain them.
• Poverty is, therefore, closely related to nature of employment.

6) Inflation:
• A steep rise in price of food grains and other essential goods further intensifies the
hardship and deprivation of lower income groups.

7) Low economic development and slow industrial growth:

• Growth has been quite low in both agricultural as well as industrial sector. In
agriculture sector, there has been a decline in public investments in the last two
decades resulting in low productivity accompanied by the problem of small and
fragmented land holdings.
• Industrialisation has not been able to absorb the overflow of the rural poor who
migrate to urban areas in search of employment.

44
Scholars cite several factors that have led farmers to commit
suicides:
1. The shift from traditional farming to the farming of high yielding commercial crops
without adequate technical support combined with withdrawal of the state in the area
of agricultural extension services in providing counselling on farm technologies,
problems faced, immediate remedial steps and lack of timely advice to farmers
2. Decline in public investment in agriculture in the last two decades.
3. Low rates of germination of seeds provided by large global firms, spurious seeds
and pesticides by private agents.
4. Crop failure, pest attack and drought.
5. Debt at very high interest rate of 36 % to 120 % from private money lenders.
6. Cheap imports leading to decline in pricing and profits.
7. Lack of access to water for crops which forced the farmers to borrow money at
exorbitant rates of interest to sink borewells that failed.

Vicious circle of poverty

It implies circular constellation of forces tending to act and react one another in such
a way as to keep a poor country in a state of poverty In economics, the cycle of poverty
is the "set of factors or events by which poverty, once started, is likely to continue
unless there is outside intervention".

45
This cycle can be broken only with some external stimulus such as foreign investments
which will lead to higher capital formation, higher productivity and higher income.

46
 CHAPTER 5
HUMAN CAPITAL FORMATION IN INDIA

Human Capital: It refers to the stock of skill, ability, expertise, education and
knowledge embodied in the people of a country at a point of time.

Human Capital Formation: Human capital formation is the process of adding to the
stock of human capital over a period of time. It refers to development of abilities, skills,
education and experience among the population of the county.
It is the process of acquiring and increasing the number of persons who have the skill,
education and experience which are essential for the economic and political
development of a country.

Sources of Human Capital Formation:

1.Expenditure on Education:
• Labour skill of an educated person is more than that of an uneducated person,
which enables him to generate more income than the uneducated person and hence
contributes more to the economic growth.
• Spending on education by individuals is similar to spending on capital goods by
companies with the objective of increasing future profits over a period of time. It

47
increases productivity and efficiency of labour. Thus, individuals invest in education
with the objective of increasing their future income.
• Education is sought not only as it confers higher earning capacity on people but
also for its other highly valued benefits:

o It gives one a better social standing and pride.

o It enables one to make better choices in life.
o It provides knowledge to understand the changes taking place in society.
o It also stimulates innovations.
o It facilitates adaptation of new technologies.
Thus, expanding educational opportunities in a nation accelerates the development process.

2. Expenditure on Health:
• It is an important source of human capital formation as it directly increases the supply
of healthy labour force.
• A sick labourer without access to medical facilities is compelled to abstain from work
and there is loss of productivity.
• The various forms of health expenditure are:

o Preventive medicine (such as vaccination);

o Curative medicine (medical intervention during illness);
o Social medicine (like spread of health literacy);
o Provision of clean drinking water and
o Good sanitation facilities.

3. Expenditure on giving On-the-Job-Training:

Firms spend on giving on-the-job-training to their workers.
This may take different forms:

o The workers may be trained in the firm itself under the supervision of skilled
worker;
o The workers may be sent for off-campus training. In both these cases firm incur
some expenses.
• Firms will thus, insist that workers should work for a specific period of time, after
their on-the-job training, during which it can recover the benefits of the enhanced
productivity owing to the training.

48
• It is a source of human capital formation as the returns of such expenditure in the
form of enhanced labour productivity is more than the cost of it.

4. Expenditure on Migration:
• People migrate in search of jobs that fetch them higher salaries than what they may
get in their native places.
• Unemployment is a reason for rural-urban migration in India.
• Technically qualified persons, like doctors, engineers etc. migrate to other countries
because of higher salaries that they may get there.
• Migration in both these cases involves cost of transport, higher cost of living in the
migrated places and psychic costs of living in a strange socio-cultural setup.
• The enhanced earnings in the new place outweigh the cost of migration; hence,
expenditure on migration is also a source of human capital formation.

5. Expenditure on Information:
• People spend to acquire information relating to labour market & other markets like
education and health. For e.g. people want to know the level of salaries associated
with various types of jobs, whether educational institutions provide the right type of
employable skills and at what cost.
• This information is necessary to make decisions regarding the investment in human
capital as well as for efficient utilisation of the acquired human capital stock.
• Thus, expenditure incurred for acquiring information relating to labour market and
other markets is also a source of human capital formation.

Difference between Physical Capital and Human Capital:

49
50
Note: According to Human Development perspective, every individual has a right to
get basic education and basic healthcare, irrespective of their contribution to labour
productivity. This means that every individual has the right to be literate and lead a
healthy life.

Importance or Role of Human Capital Formation:

o Effective use of physical capital
o The growth and productivity of physical capital depends extensively on the
human capital formation. Educated, skilled and healthy people make use of
physical capital in an effective manner and raise productivity of capital.
o High productivity and production – Labour skill of an educated person is
more than that of an uneducated person, which enables him to generate more
income than the uneducated person and hence contributes more to the
economic growth. Similarly, a healthy person could provide uninterrupted
labour supply for a longer period of time. This implies human capital formation
raises productivity and production.
o Inventions, innovations and technological improvement – The human
capital formation stimulates innovations and creates ability to absorb new
technologies.
o Increases life expectancy – Formation of human capital raises life expectancy
of the people. Health facilities and availability of nutritive food enable people to
live a healthy and long life. This in turn, adds to the quality of life.
o Improves quality of life – Educated and healthy people lead a good quality
life.
o Control of population growth – It has been observed that educated persons
have smaller families as compared to illiterate families. So, spread of education
is necessary to control the population growth rate.

Relationship Between Human Capital and Economic

Growth:
Economic growth means the increase in per capita real income (or increase in per
capita availability of goods and services) of a country.

o The contribution of an educated person to economic growth is more than that

of an illiterate person.
o Similarly, a healthy person also contributes to economic growth by providing
uninterrupted labour supply for a longer period of time.

51
 o Thus, both education and health, along with many other factors like on-the-job
training, job market information and migration, increase an individual’s income
generating capacity.
o The human capital formation not only increases the productivity of human
resources but also stimulates innovations and creates ability to absorb new
technologies.
o Education provides knowledge to understand changes in society and scientific
advancements, thus, facilitate inventions and innovations.
o Similarly, the availability of educated labour force facilitates adaptation to new
technologies.

Cause and Effect Relationship between Human Capital and Economic Growth:
Human capital formation stimulates the process of economic growth. However,
economic growth also impacts human capital formation. Growth implies increase in
per capita real income (or increase in per capita availability of goods and services).
Higher income facilitates higher investment on education and skills implying human
capital formation. On contrary increase in human capital leads to efficient/ better
utilization of fixed capital, better quality of life, higher life expectancy, implying increase
in productivity/ efficiency leading to increase in GDP growth.

o However, it is difficult to prove cause and effect relation between human capital
and economic growth, due to measurement problems.
o For example, education measured in terms of years of schooling, teacher-pupil
ratio and enrolment rates may not reflect the quality of education;
o Similarly, health services measured in monetary terms, life expectancy and
mortality rates may not reflect the true health status of the people in a country.
Hence it is difficult to establish a relation of cause and effect from the growth of human
capital (education and health) to economic growth. However, growth in each sector
has reinforced the growth in every other sector. It is believed that the causality between
human capital and economic growth flows in either directions ie.
 higher income causes building of high level of human capital and
 high level of human capital causes growth of income.
Note: The analysis of improvement in education and health sectors and growth in real
per capita income in both developing and developed countries shows that there is
convergence in the measures of human capital but no sign of convergence of per
capita real income. The analysis of the indicators (crude death rate, infant mortality
rate, life expectancy and literacy rates) show that human capital growth (improvement
in education and health sectors) in developing countries has been faster but the growth
of per capita real income has not been that fast.

Indicators of Educational Achievements in India:

52
(a) Adult Literacy Rate (per cent of people aged 15+)
(b) Primary completion rate (per cent of relevant age group)
(c) Youth literacy rate (per cent of people aged 15+ to 24).

State of Human Capital Formation in India:

o India recognised the importance of human capital in the Seventh Five Year
Plan.
o Trained and educated on sound lines, a large population can itself become an
asset in accelerating economic growth and in ensuring social change in desired
directions.
o India is a federal country with a union government, state governments and local
governments (Municipal corporations, Municipalities and Village Panchayats).
The constitution of India mentions the functions to be carried out by each level
of government.
o Accordingly, expenditure on both education and health are to be carried out
simultaneously by all the 3 tiers of the country.
o The Draft National Education Policy 2019 states that “India aspires to take its
place beside the United States and China as the third largest economy by 2030-
2032… By 2030-2032 we will be the third largest economy at over ten trillion.
Our ten trillion economy will not be driven by natural resources, but by
knowledge resources. Thus, we need a knowledge society based on a robust
education system, with all the requisite attributes and characteristics in the
context of changes in knowledge demands, technologies, and the way in which
society lives and works”. This policy vision suggests how human formation in
India will move its economy to a higher growth trajectory position.
o India as a Knowledge Economy - The Indian software industry has been
showing an impressive record over the past two decades. Entrepreneurs,
bureaucrats and politicians are now advancing views about how India can
transform itself into a knowledge-based economy by using information
technology (IT). There have been some instances of villagers using e-mail
which are cited as examples of such transformation.

Need for different forms of government interventions in education

and health sectors:
The expenditure on education and health assume a great importance in the formation
of human capital. The government intervention in the education and health sectors is
important because of the following reasons:
a) The education and health care services create both private and social benefits and
this is the reason for the existence of both private and public institutions in the

53
education and health service markets. Expenditure on education and health make
substantial long-term impact and they cannot be easily reversed. Hence, government
intervention is essential.
b) Individual consumers of these services do not have complete information about the
quality of services and their costs. In this situation, the providers of education and
health services acquire monopoly power and are involved in exploitation. The role of
government in this situation is to ensure that the private providers of these services
adhere to the standards stipulated by the government and charge the correct price.
c) Regulatory authorities in India:
• The ministries of education at the union and state level, departments of education
and various organisations like National Council of Educational Research and Training
(NCERT), University Grants Commission (UGC) and All India Council of Technical
Education (AICTE) facilitate institutions which come under the education sector.
• Similarly, the ministries of health at the union and state level, departments of health
and various organisations like and National Medical Commission and Indian Council
for Medical Research (ICMR) facilitate institutions which come under the health sector.
d) In India, a large section of the population is living below the poverty line and they
cannot afford to access basic education and health care facilities. Moreover, a
substantial section of people cannot afford to reach super specialty healthcare and
higher education. Furthermore, when basic education and health care is considered
as a right of the citizens then it is essential that the government should provide
education and health services free of cost for the deserving citizens and the socially
oppressed classes.

Problems in Human Capital Formation:

a) Inadequate resources - The resources allocated to the formation of human capital
have been much less than the resources required. Due to this reason, the facilities for
the formation of human capital have remained grossly inadequate.
b) High growth of population - The continuous rise in population has affected the
quality of human capital as it reduces per head availability of the facilities.
c) Brain Drain - People migrate from one place to another in search of better job
opportunities and better salaries. This leads to the loss of a class of skilled labourers
like doctors, engineers etc. who have high calibre and are rare in a developing country.
The cost of such loss of quality human capital is very high.
d) Lack of proper manpower planning- There is an imbalance between demand and
supply of human resources of various categories, especially in case of highly skilled
personnel. The absence of such balancing has resulted in the wastage of resources.

54
e) Low academic standards- The quality of education imparted by many of our
educational institutions is far below the international standards. In respect of
education, the performance is unsatisfactory especially in the field science and
technology and development of modern technology.

Future Prospects on Education

Education for All — Still a Distant Dream:

o Though literacy rates for both — adults as well as youth — have increased, still
the absolute number of illiterates in India is as much as India’s population was
at the time of independence.
o In 1950, when the Constitution of India was passed by the Constituent
Assembly, it was noted in the Directive Principles of the constitution that the
government should provide free and compulsory education for all children up
to the age of 14 years within 10 years from the commencement of the
constitution.
In 2009, the Government of India enacted the Right of Education Act to make
free education a fundamental right of all the children in the age group of 6-
14 years.
Still we are not able to achieve the target of 100 percent literacy in India.

Gender Equity — Better than Before:

The differences in literacy rates between males and females are narrowing
signifying a positive development in gender equity;
However, still there is a need to promote women education in India because —
• It improves economic independence and social status of women.
• Women education makes a favourable impact on fertility rate and healthcare of
women and children.
• If the women are educated, there is a greater probability that the children in family
would be educated and hence it may help in achieving better literacy rates.

55
 CHAPTER 6
RURAL DEVELOPMENT

Rural development:
Rural development is a comprehensive term which essentially focuses on action
for the development of areas that are lagging behind in the overall development of
the village economy.
It is a process of improving the standard of life and social economic welfare of the
people living in rural areas.

Key issues in rural development in India:

• Development of human resources: Rural human capital can be developed by
providing quality education and skill development and enabling them to better and
more affordable access to healthcare and sanitation facilities.
• Land reforms: It includes the objectives like realising the goal of land to the tiller,
reducing the concentration of land in few hands and increasing agricultural
productivity and production.
• Development of Infrastructure: It is the key to any development process. It
involves improvement in electricity, irrigation, credit, marketing and transport
facilities (including construction of village roads and feeder roads to nearby
highways); better facilities for agriculture research and extension and information
dissemination. There is a need for improving the quantity and quality of these basic
infrastructure facilities in rural areas to realise its true potential.
• Development of the productive resources of each locality: It is required to
enhance opportunities of employment (particularly other than farming) in order to
increase income in rural areas.
• Alleviation of poverty: Special measures should be taken for alleviation of poverty
and bringing about significant improvement in the living conditions of the weaker
sections of the population living in rural areas. This can be done by emphasizing
on greater access to productive employment opportunities.

Need for Rural Development in India:

Mahatma Gandhi had always maintained that the real growth of India lies in the
growth of villages.

56
The importance of rural development in India lies in the fact that –
• Agriculture is the main source of livelihood in the rural sector, with more than two-
third of India’s population still (directly or indirectly) depending on it and one-fourth of
rural population in India still living in abject poverty.
• Although the share of agriculture sector’s contribution to GDP was on a decline, the
population dependent on this sector did not show any significant change.
• During the 1991-2012 (i.e. After the initiation of reforms) the growth rate of agriculture
sector decelerated to about 3 per cent per annum due to decline in public investment,
removal of fertiliser subsidy and change in government policies.
• In recent years, this sector has become volatile. During 2014-15, the GVA growth
rate of agriculture and its allied sectors was less than one per cent.
• Inadequate infrastructure, lack of alternate employment opportunities in the industry
or service sector, increasing casualisation of employment etc., further impede rural
development.

Importance of (or Need for) credit in rural areas:

• Growth of rural economy depends primarily on infusion of capital, from time to time,
to realise higher productivity in agriculture and non-agriculture sectors.
• Small and marginal farmers practise subsistence farming, they need credit as they
have no surplus production.
• Secondly, credit assumes a very important role in rural areas because of long
gestation period. Long gestation period means, the time gap between crop sowing and
realisation of income after production is quite long due to which farmers borrow from
various sources to meet their initial investment on seeds, fertilizers, implements
(agricultural purpose) and for other purpose like family expense of marriage, death,
religious ceremonies (non-agricultural purpose).
• Thus, credit in rural economy is required for two purposes –

Agriculture
Purpose Non-Agriculture
Purpose

57
 Sources of Rural
Credit

Non-
Institutional
Institutional
Source
Source
a) Non- Institutional Sources:
It includes money lenders, traders. Commission agents, landlords, relatives and
friends.
Since independence these sources have been exploiting small and marginal
farmers and landless labourers by lending them on high interest rates and by
manipulating the accounts so as to keep them in a debt-trap.

b) Institutional Sources:
It is based on multiagency approach. India adopted social banking and multiagency
approach in 1969 to adequately meet the needs of rural credit.
• They are expected to provide adequate credit to farmers at cheaper interest rate
and assist small and marginal farmers in raising their agricultural productivity and
maximising their income.
It includes institutions namely –

o Commercial Banks
o Regional Rural Banks (RRBs)
o Cooperative Credit Societies
o Land Development Banks
o Self Help Groups (SHGs)
o National Bank for Agriculture and Rural Development (NABARD).

58
 National Bank for Agriculture and Rural Development (NABARD) National
Bank for Agriculture and Rural Development was set up in 1982 as an
apex body to coordinate the activities of all institutions involved in the
rural financing system.

Micro-credit programmes/ system

• Micro credit refers to credit and other financial services provided to the poor through
Self-Help Groups (SHGs).
• Recently SHGs have emerged to fill the gap in the formal credit system because the
formal credit delivery mechanism has not only proven inadequate but has also not
been fully integrated into the overall rural social and community development. Since
some kind of collateral is required, vast proportion of poor rural households were
automatically out of the credit network.
• SHGs are playing a crucial role in meeting credit requirements of the poor by
inculcating saving habits among the rural households.
• They promote thrift in small proportions by a minimum contribution from each
member.
• From the pooled money, credit is given to the needy members to be repayable in
small instalments at reasonable interest rates.
• These Self-Help Groups have also helped in the empowerment of women in rural
economy. However, the borrowings are mainly confined to consumption purposes.

The Poor Women’s Bank – A SHG in Kerala

• ‘Kudumbashree’ is a women-oriented community-based poverty reduction
programme being implemented in Kerala.
• In 1995, a thrift and credit society was started as a small savings bank for poor
women with the objective to encourage savings.
• The thrift and credit society mobilised Rs 1 crore as thrift savings.
• These societies have been acclaimed as the largest informal banks in Asia in terms
of participation and savings mobilised.

Critical evaluation of the rural banking system

Positive effects of the rural banking system (Achievements):

59
 o The credit facilities helped farmers to avail services and a variety of loans for
meeting their production needs which helped in raising both farm and non-farm
output.

o Buffer stocks has been created and food security has been achieved; Famines
became events of the past.

Negative effects of the rural banking system (Drawbacks):

o The formal credit delivery mechanism has not only proven inadequate but has
also not been fully integrated into the overall rural social and community
development. Since some kind of collateral is required, vast proportion of poor
rural households were automatically out of the credit network.
o With the possible exceptions of the commercial banks, other formal institutions
failed to develop a culture of deposit mobilisation – lending to worthwhile
borrowers and effective loan recovery.
o Agricultural loan default rates have been chronically high. Since a major
proportion of are wilful defaulters.

Suggestions to improve the situation:

o Banks need to change their approach from just being lenders to building up
relationship banking with the borrowers.
o (Farmers should also be encouraged to inculcate the habit of thrift and efficient
utilisation of financial resources.

Agricultural Marketing
Agricultural marketing is a process that involves the assembling, storage,
processing, transportation, packaging, grading and distribution of different
agricultural commodities across the country.
Problems faced by farmers in agricultural marketing

o Prior to independence, farmers while selling their produce to traders, suffered

from faulty weighing and manipulation of accounts.
o Farmers who did not have the required information on prices prevailing in
markets were often forced to sell at low prices.

60
 o They also did not have proper storage facilities to keep back their produce for
selling later at a better price. More than 10 per cent of goods produced in farms
are wasted due to lack of storage.
o Inadequate transportation facilities and bad weather roads have added to the
problem of taking agricultural produce to the nearby markets.

Measures taken by the government to improve agricultural

marketing:
Regulation of markets to create orderly and transparent marketing conditions.
Provision of physical infrastructure facilities like roads, railways, warehouses, go-
downs, 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 which farmers pool in their product, has been encouraged
to ensure a fair price to farmers.
Various policy instruments aimed at protecting the income of the farmers and providing
food grains at a subsidised rate to the poor, initiated by the government like

o assurance of minimum support prices (MSP) for agricultural products

o maintenance of buffer stocks of wheat and rice by Food Corporation
of India and
o distribution of food grains and sugar through PDS (public distribution
system).

Cooperatives
• The aim of cooperative marketing is to realise fair price for farmers products.
• Under this, marketing societies are formed by farmers to sell the output collectively
and to take the advantage of collective bargaining, in order to obtain better price.
• Milk cooperatives in Gujarat have been very successful in transforming the social
and economic conditions of Gujarat and some other parts of the country.
• However, cooperatives have received a setback during the recent past due to –

o inadequate coverage of farmer members;

o lack of appropriate link between marketing and processing cooperatives;
o inefficient financial management.

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Emerging Alternate Marketing Channels:
It has been realised that if farmers directly sell their produce to consumers, it increases
their incomes. In this context there arises need for alternate marketing channels.
1. Farmers set up their own mandis and sell their product directly to consumers that
would fetch them comparatively higher price, thereby, attractive profits. Some
examples are Apni Mandi (Punjab, Haryana and Rajasthan); Hadaspar Mandi (Pune);
Rythu Bazars (vegetable and fruit markets in Andhra Pradesh and Telangana) and
Uzhavar Sandies (farmers markets in Tamil Nadu).
2. Several national and multinational fast-food chains are increasingly entering into
contracts/ alliances with farmers wherein they directly sell produce of farmers to
customers. They encourage farmers 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. Such arrangements help
in reducing the price risks of farmers and expanding the markets for farm products.

Diversification into productive activities (Agricultural Diversification)

Agricultural (or Rural) diversification includes two aspects –
1. Diversification of crop production i.e. change in cropping pattern
2. Diversification of production activities i.e. shift of workforce from agriculture to other
allied activities (livestock, poultry, fisheries etc.) and non-agriculture sector.
Need for agricultural diversification:
The need for diversification (i.e. focus on allied activities, non-farm employment and
other emerging alternatives of livelihood) arises from the fact that –
a) There is greater risk in depending exclusively on farming for livelihood. Thus,
diversification towards new areas (non-farm employment) is necessary to reduce the
risk from agriculture sector and provide productive sustainable livelihood options to
rural people.
b) Much of the agricultural employment activities are concentrated in the Kharif
season. However, during the Rabi season, it becomes difficult to find gainful
employment in areas where there are inadequate irrigation facilities. Therefore,
expansion into other sectors is essential to provide supplementary gainful employment
and in realising higher levels of income for rural people to overcome poverty and other
tribulations.
c) Agriculture is already overcrowded. Thus, a major proportion of the increasing
labour force needs to find alternate employment opportunities in other non-farm
sectors.

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Tamil Nadu Women in Agriculture (TANWA):
• It is a project initiated in Tamil Nadu to train women in latest agricultural techniques.
• It induces women to actively participate in raising agricultural productivity and family
income.
• Women are forming Farm Women’s Group, which functions like SHG.
• Many other Farm Women’s Groups are creating savings in their group by functioning
like mini banks through a micro-credit system.
• With the accumulated savings, they promote small-scale household activities like
mushroom cultivation, soap manufacture, doll making or other income generating
activities.

Different ways of diversifying into productive activities

other than farming

a) Animal Husbandry and Dairying:

Animal Husbandry: Animal Husbandry (or Livestock farming) is that branch of
agriculture, which is concerned with the breeding, rearing and caring of farm animals.
• In India, the farming community uses the mixed crop-livestock farming system —
cattle, goats, fowl are the widely held species.
• Livestock production provides increased stability in income, food security, transport,
fuel and nutrition for the family without disrupting other food-producing activities.
• Today, livestock sector alone provides alternate livelihood options to over 70 million
small and marginal farmers including landless labourers of which a significant number
is of women.
• In India, poultry accounts for the largest share with 58% in the distribution of
livestock.
Dairying: It is that branch of agriculture which involves breeding, raising and utilization
of dairy animals for the production of milk and the various dairy products processed
from it.
• Dairying is the business of producing, storing and distributing milk and its products.

63
 Operation Flood
In India milk production has increased by about ten times between 1951-2016 due to
successful implementation of ‘Operation Flood’ (also known as white revolution started
by National Dairy Development Board in 1970, under the expert guidance of then
chairman, Dr. Verghese Kurien)

o It is a system whereby all the farmers can pool their milk produced according
to different grading (based on quality) and the same is processed and marketed
to urban centres through cooperatives.
o In this system the farmers are assured of a fair price and income from the supply
of milk to urban markets. The Gujarat state is held as a success story in the
efficient implementation of milk cooperatives like Amul, which has been
followed by many other states.

Measures that can be taken to improve livestock production:

a) It requires improved technology and promotion of good breeds of animals to
enhance productivity.
b) Improved veterinary care and credit facilities to small and marginal farmers and
landless labourers would enhance sustainable livelihood options through livestock
production.

b)Fisheries: It involves catching, processing and selling of fish and other

aquatic animals.

• The fishing community regards the water body (sea, oceans, rivers, lakes, natural
aquatic ponds, streams etc.) as ‘mother’ or ‘provider’ as they provide life-giving
source to the fishing community.

• In India, after progressive increase in budgetary allocations and introduction of

new technologies in fisheries and aquaculture, the development of fisheries has
come a long way.

• In India, the total fish production contribution from inland sources is about 65 per
cent and 35 per cent comes from the marine sector (sea and oceans). Today total
fish production accounts for 0.9 per cent of the total GDP.

• West Bengal, Andhra Pradesh, Kerala, Gujarat, Maharashtra and Tamil Nadu are
the major fish producing states in India.

64
 • Even though women are not involved in active fishing, still, 60 per cent of the
workforce in export marketing and 40 per cent in internal marketing are women.
• A large proportion of fish worker families are poor. The fishing community today
is facing major problems such as rampant underemployment, low per capita
earnings, absence of mobility of labour to other sectors and a high rate of illiteracy
and indebtedness.

Measures that can be taken to improve fisheries:

a) Problems related to over- fishing and pollution need to be regulated and

controlled.

b) There is a need to increase credit facilities through cooperatives and SHGs

for fisherwomen to meet the working capital requirements for marketing.

c) Welfare programmes for the fishing community have to be changed in a

manner, which can provide longterm gains and sustainable livelihoods.

c) Horticulture: Horticulture refers to the branch of agriculture that deals with

growing of fruits, vegetables, tuber crops, flowers, medicinal and aromatic plants,
spices and plantation crop for commercial purposes. These crops provide food and
nutrition besides providing employment.
• India has adopted horticulture as it is blessed with a varying climate and soil
conditions.
• In India, the horticulture sector contributes nearly one-third of agriculture output and
six per cent of Gross Domestic Product (GDP).
• India has emerged as a world leader in producing a variety of fruits like mangoes,
bananas, coconuts, cashew nuts and a number of spices and is the second largest
producer of fruits and vegetables.
• The period between 1991-2003 is also called a period of 'Golden Revolution'
because during this period, the planned investment in horticulture became highly
productive and the sector emerged as a sustainable livelihood option.
• Horticulture has improved economic condition of many farmers and has become a
means of improving livelihood for many unprivileged classes.

65
• Flower harvesting, nursery maintenance, hybrid seed production and tissue culture,
propagation of fruits and flowers and food processing are highly remunerative
employment options for women in rural areas.

Measures that can be taken to improve Horticulture:

Horticulture has emerged as a successful sustainable livelihood option and needs to
be encouraged significantly. Enhancing its role requires investment in infrastructure
like electricity, cold storage systems, marketing linkages, small-scale processing units
and technology improvement and dissemination.

Green Revolution Vs Golden Revolution

Green Revolution:
• It refers to the large increase in production of food grains in the late 1960s, resulting
from the use of high yielding variety (HYV) seeds and increased use of fertiliser and
pesticide with the correct quantities as well as regular supply of water.
• It led to increase in the production, especially, of rice and wheat.
• As a result of this revolution, India became self-sufficient in the production of food
grains (rice and wheat).

Golden Revolution:
• The period 1991-2003 is referred to as the period of Golden Revolution as in this
period planned investment in horticulture became highly productive and the sector
emerged as a sustainable livelihood option.
• It led to increase in the production of fruits, vegetables, flowers, aromatic plants,
spices etc.
• As a result of this revolution India became a world leader in the production of
mangoes, bananas, coconut and spices. For rural people, diversification or focusing
on associate activity is important as it gives them an opportunity to earn extra income
and overcome poverty.

Role of Information Technology (IT) in sustainable

development and food security:

66
IT has revolutionised many sectors in the Indian economy. It is widely accepted that
IT can play a critical role in achieving sustainable development and food security in
the twenty-first century.
• Through appropriate information and software tools, government can predict areas
of food insecurity and vulnerability so that action can be taken to prevent or reduce the
likelihood of an emergency.
• IT can also spread (circulate) information regarding emerging technologies and its
applications, prices, weather and soil conditions for growing different crops etc.
• IT can act as a tool for releasing the creative potential and knowledge embedded in
the society. It also has potential of employment generation in rural areas.

Adoption of Village by Parliamentarians:

• In October, 2014, the Government of India introduced a new scheme called Saansad
Adarsh Gram Yojana (SAGY).
• Under this scheme, Members of India's Parliament need to identify and develop one
village from their constituencies.
• To begin with, MPs can develop one village as a model village by 2016, and two
more by 2019, covering over 2,500 villages in India.
• According to the scheme, the village can have a population of 3,000-5,000 in the
plains and 1,000- 3,000 in the hills and should not be MPs' own or their spouse's
village.
• MPs are expected to facilitates village development plan, motivate villagers to take
up activities and built infrastructure in the areas of health, nutrition and education.

67
 CHAPTER 7
Employment: Growth, Informalisation and other Issues

Why do people work?

Work plays an important role in our lives as individuals and as members of society.

o People work for ‘earning’ a living.

o Being employed in work gives us a sense of self-worth and enables us to relate
ourselves meaningfully with others.
o By engaging in various economic activities - work, every working person is
actively contributing to the national income and hence, the development of the
country.
o We work not only for ourselves, but also for those who depend on us, like our
family. It gives us a sense of accomplishment when we work to meet their
requirements.
Gross Domestic Product (GDP) – GDP refers to the total money value of all final
goods and services produced within the domestic territory of a country in a year.
Gross National Product (GNP) – GNP refers to the total money value of all final
goods and services produced by the normal residents of country in a year.

Economic activities - Those activities which contribute to the gross national product
are called economic activities.
Worker - All those persons who are engaged in various economic activities and hence
contribute to the gross national product are workers.
It is generally believed that people who are paid by an employer for their work are
workers. However, this is not true. It also includes self-employed persons, like
shopkeepers, cobblers etc.

o All those who are temporarily abstain from work due to illness, injury or other
physical disability, bad weather, festivals, social or religious functions or some
other reasons.
o all those who help the main workers in these economic activities. Hence, the
term workers include all those people, who are engaged in work/ economic
activities, whether for others (i.e. paid workers) or for themselves (self
employed workers).

68
Nature of employment in India:
• The nature of employment in India is multifaceted. While estimating the number of
workers, all those who are engaged in economic activities are included as employed.
• Some get employment throughout the year; some others get employed for only a
few months in a year like seasonal workers.
• Many workers do not get fair wages for their work.
• A small section of Indian workforce is getting regular income. Proportion of workforce
employed in the formal sector has increased after independence.
• Even after 70 years of planned development, around half of the Indian workforce
depends on farming as the major source of livelihood. Although there has been a
substantial shift from farm work to nonfarm work in last four decades.

State of Employment in India

1) During 2011-12, India had about a 473 million strong workforce. Since majority of
our people reside in rural areas, the proportion of workforce residing there (rural areas)
is higher. So, out of 473 million workers, about three fourth were rural workers.
2) Men form the majority of workforce in India. About 70 per cent of the total workers
are men and the rest are women (men and women include child labourers in respective
sexes).
3) Women workers account for one-third of the rural workforce whereas in urban
areas, they are just one-fifth of the workforce. This is due to the fact that –

o Rural women participate in large number in productive activities as compared

to urban women.
o Secondly, in rural areas, many women carry out works like cooking, fetching
water and fuelwood and participate in farm labour. They are not paid wages in
cash or in the form of grains; at times they are not paid at all. For this reason,
these women are not categorised as workers. However, Economists argue that
these women should also be called workers.

Worker-Population Ratio
Worker-population ratio is an indicator which is used for analysing the employment
situation in the country. It is calculated by dividing the total number of workers in a
country by the population in that country and multiplying it by 100.

69
“Population is defined as the total number of people who reside in a particular locality
at a particular point of time”.

Significance of Worker-Population Ratio:

It indicates the proportion of population that is actively contributing to the production
of goods and services of a country.

o If the ratio is high, it means that high proportion of population is involved directly
in economic activities.
o if the ratio for a country is medium, or low, it means that low proportion of
population is involved in economic activities.
Worker-Population Ratio is higher in rural areas than urban areas. For every 100
persons, about 35 (by rounding off 34.7) are workers in India. In urban areas, the
proportion is about 34, whereas in rural India, the ratio is about 35.

Causes for such a difference between worker population ratio in

rural and urban areas:
• People in rural areas have limited resources to earn a higher income and participate
more in the employment market.
• Many in rural areas do not go to schools, colleges and other training institutions.
Even if some go, they discontinue in the middle to join the workforce; whereas, in
urban areas, a considerable section is able to study in various educational institutions.
• Urban people have a variety of employment opportunities. They look for the
appropriate job to suit their qualifications and skills whereas in rural areas, people
cannot stay at home as their economic condition may not allow them to do so.

Men particularly rural men, form the major section of workforce in India or
(Worker Population Ratio is lower for women in general, and urban women, in
particular,) i.e. As compared to females (16.5%), more males (52.1%) are found to be
working. The difference in participation rates is very large in urban areas: For every
100 urban females, only about 14 are engaged in some economic activities. In rural
areas, for every 100 rural women about 18 participate in the employment market.

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Causes for such a difference between worker population ratio in men
and women:
• It is common to find that where men are able to earn high incomes, families
discourage female members from taking up jobs.
• Women in rural areas perform many household activities like cooking, fetching water
and fuelwood and they also participate in farm labour. These are not recognised as
productive work as they are not paid wages for such work. Hence women are not
categorised as workers. This narrow definition of work leads to non-recognition of
women’s work and, therefore, to the underestimation of the number of women workers
in the country.

Types of
workers

Casual Regular
Self-
wage salaried
employed
labourers employee

1. Self-employed: Workers who own and operate an enterprise to earn their livelihood
are known as self-employed.
2. Casual wage labourers: Labourers who are casually engaged in others’ farms/
enterprises and in return, get a remuneration for the work done are known as casual
wage labourers.
3. Regular salaried employee: When a worker is engaged by someone or an
enterprise and paid his or her wages on a regular basis, they are known as regular
salaried employees.
For example, in a construction industry, workers are employed at different levels, so
the status of each one of them is different from another, like the cement shop owner
71
is self-employed. The construction workers are known as casual wage labourers and
workers like the civil engineer working in that construction company are regular
salaried employees.
Status-wise distribution of workers in India or worker-population ratio as per their
status in the society

o About 52 per cent of workforce in India are self-employed.

o About 25 per cent of India’s workforce are casually employed.
o About 23 per cent of India’s workforce are regular salaried employees. Hence,
majority of workers in India are self-employed. Casual wage labourers and
regular salaried employees together account for less than half the proportion of
India’s workforce.

The above chart shows the status wise distribution of employment by gender. It shows
that:
1) Self-employment is a major source of livelihood for both men and women as this
category accounts for more than 50 per cent (52%) of the workforce.
2) Casual wage work is the second major source for both men (24%) and women
(27%), a little more for the latter.
3) When it comes to regular salaried employment, men are found to be engaged in
greater proportion (24%) whereas women form only (21%). The reason could be skill
requirement. Since regular salaried jobs require skills and a higher level of literacy
which is most commonly found in men.

72
The above chart shows the status wise distribution of employment by Region. It shows
that:
1) The self-employed and casual wage labourers are found more in rural areas than
in urban areas. Self-employment is a major source of livelihood in rural areas (58%)
as compared to 38% in urban areas. Since in case of rural areas, majority of those
depending on farming own plots of land and cultivate independently.
2) In urban areas, the share of, both self-employment and regular wage salaried jobs
are greater. But 47% (A larger proportion) of workforce in urban areas are engaged
as regular salaried employees as compared to 13% in rural areas. Due to illiteracy and
lack of skills. Moreover, the nature of work in urban areas is different and enterprises
require workers on a regular basis. Obviously, in urban areas everyone cannot run
factories, shops and offices of various types.,
3) In case of rural areas, casual workers account for second major source of of
employment with 29% of workforce. Casual workers in urban areas account for only
15%.

Industrial sectors of the economy

All economic activities of a country can be broadly classified into three categories:
1. Primary sector includes Agriculture, Forestry, Fishing etc.
2. Secondary sector includes Mining and Quarrying, Manufacturing, Electricity, Gas
and Water Supply and Construction.
3. Service sector includes Transport and Storage and various other Services.

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1) Primary sector is the main source of employment (44.6%) for majority of workers
in India.
2) Secondary sector provides employment to only about 24.4% of workforce.
3) About 31 per cent of workers are in the service sector (second major source of
employment).

Distribution of Employment (Male-Female) in different sectors:

1) Though both men and women workers are concentrated in the primary sector,
women workers’ concentration is very high there. About 57 per cent of the female
workforce is employed in the primary sector whereas less than half of males (40.7%)
work in that sector. It happens because men get opportunities in both secondary and
service sectors.
2) Only 18% of female workforce are employed in the secondary sector.
3) Service sector gives employment to 25.2% of female workers.

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The above chart shows trend in two developmental indicators — growth of
employment and GDP. It shows that:

o During the period 1950–2010, Gross Domestic Product (GDP) of India grew
positively and was higher than the employment growth.
o However, there was always fluctuation in the growth of GDP and during this
period, employment grew at the rate of not more than 2%.
o However, in the late 1990s: employment growth started declining and reached
the level of growth that India had in the early stages of planning. During these
years, the gap between the growth of GDP and employment was widening.
o The period between 1990 to 2012, GDP growth rate has increased from a
meagre 3.4% in 1991 to 7.8% in 2012. However, employment growth rate has
shown a declining trend from 1.5% in 1991 to 1.12% in 2012. Between the
period 1999-2005 the employment generation was at peak since independence
ie 2.28% p.a. with the corresponding GDP growth rate standing at a decent
6.1% p.a.
o The gap between the two variables is maximum in the period 2005-2010 when
the employment growth hit the lowest in history of independent India i.e. 0.28%.
In the same period GDP growth rate had hit the highest level since
independence to the tune of 8.7% p.a. Indian economy has witnessed the
peculiar phenomena of “jobless growth” over all these years. Jobless growth
refers to a situation when the economy is able to produce more goods and
services without proportionate increase in employment opportunities.
o Learning from the situation government had put in serious efforts on
employment front and brought it to a level of 1.12% p.a. between the period
2010-12.

Changing structure of employment

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. However major proportion of workforce is still
employed in the primary sector.
Distribution of workforce by industrial sectors (Sector-wise):
1) In 1972-73, about 74 per cent of workforce was engaged in primary sector and, this
proportion has declined to about 50 per cent in 2011-12. It shows substantial shift from
farm work to non-farm work.
2) Secondary and service sectors are showing promising future for the Indian
workforce as the shares of these sectors have increased from 11 to 24 per cent and
15 to 30 per cent, respectively.

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3) Tertiary sector is the second most source of employment (30%).

Status-wise distribution of workforce

The distribution of workforce in different status indicates that over the last four decades
(1972-2018), people have moved from self-employment and regular salaried
employment to casual wage work, yet self-employment continues to be the major
employment provider.
• The share of self- employment declined from 61.4% in 1972-73 to 52% in 2011-12.
• The share of regular salaried employees has increased from 15.4% in 1972-73 to
22.8% in 2011-12.
• The share of casual workers has increased from 23.2% in 1972-73 to 25% in 2011-
12.

The process of moving from self-employment and regular salaried employment

to casual wage work is known as casualisation of workforce.

Informalisation of workforce in India

• One of the objectives of development planning in India, since India’s independence,
has been to provide decent livelihood to its people. It has been envisaged that the
industrialisation strategy would bring surplus workers from agriculture to industry with
better standard of living as in developed countries.
• Even after 70 years of planned development, around half of the Indian workforce
depends on farming as the major source of livelihood.
• Economists argue that, over the years, the quality of employment has been
deteriorating. Only a small section of Indian workforce is getting regular income. Even
after working for more than 10-20 years, some workers not get maternity benefit,
provident fund, gratuity and pension.
• Developmental planning envisaged that as the economy grows, more and more
workers would become formal sector workers and the proportion of workers engaged
in the informal sector would dwindle. But in India during 1972-2018, people have
moved from self-employment and regular salaried employment to casual wage work
implying that the proportion of workforce in the informal sector to the total workforce
has increased.
In the recent years India has witnessed an unprecedented shift of the workforce from
the formal sector to informal sector. This process whereby, the proportion of informal

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worker in the total workforce increases is known as Informalisation of workforce. The
government has initiated the modernization of the informal sector and provision of
social security of measure to the worker in the informal sector.

Sectors of
Employment

Formal Informal
Sector Sector

Formal Sector Employment:

• The information relating to employment in the formal sector is collected by the Union
Ministry of Labour through employment exchanges located in different parts of the
country.
• Government/ public sector is the major formal sector employer in the country.
• In 2012, out of about 30 million formal sector workers, about 18 million workers were
employed by the public sector.
• Men form the majority of the workforce, as women constitute only about one-sixth of
the formal sector workforce.
• The reform process initiated in the early 1990s resulted in a decline in the number of
workers employed in the formal sector due to the expansion of the service sector.
• Hence, Since the late 1970s, many developing countries, including India, started
paying attention to enterprises and workers in the informal sector as employment in
the formal sector is not growing.
• International Labour Organisation (ILO), the Indian government has initiated the
modernisation of informal sector enterprises and provision of social security measures
to informal sector workers.

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 • In 2011-12 there were about 473 million workers in India. There are about 30 million
workers in the formal sector and the remaining 443 million are employed in the informal
sector.
• It means, only 6% of people are employed in the formal sector and the rest 94% are in
the informal sector.

Male vs Female in formal and informal sectors

• In the formal sector, out of 30 million workers, 24 million (80%) are male workers and
only 6 million (20%) are women.
• In the informal sector, out of 443 million workers, male workers account for 310 million
(69.9 i.e. 70%) and remaining 133 million (30%) are women.
Thus, in India more proportion of workforce are employed in the informal sector and men form
the major section of workforce in both format as well as informal sectors as compared to
women.

Unemployment
Unemployment refers to a situation in which people who are willing and able to
work at the prevailing / existing wage rate, do not get work.
NSSO defines unemployment: A situation in which all those who, owing to lack of work,
are not working but either seek work through employment exchanges, intermediaries,
friends or relatives or by making applications to prospective employers or express their
willingness or availability for work under the prevailing condition of work and
remuneration.
How to identify unemployed person?
There are a variety of ways by which an unemployed person is identified. Economists
define unemployed person as one who is not able to get employment of even one hour
in half a day.

Types of
unemployment

Open Disguised Seasonal

unemployment unemployment unemployment

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1.Open unemployment – It refers to a situation in which persons who are able and
willing to work at prevailing wage rate but do not find any gainful work.

2.Disguised unemployment - It refers to a situation in which more people are

engaged in a work than are actually required. If excess of persons are removed from
work there is no change in the total output.
• For example: A farmer has four acres of land and he actually needs only two
workers to carry out various operations on his farm in a year, but if he employs
five workers on the same land then three extra workers are disguised
unemployed.
• Disguised unemployment is a common form of unemployment in rural India.
Since in rural areas agriculture is the only occupation due to the absence of
alternative occupation.
• A study showed that in the late 1950s, about one-third of agriculture workers in
India were disguisedly unemployed.
• In such type of unemployment person apparently seems to be employed, but
marginal productivity of the surplus labour (contribution of extra workforce) is
zero.

3.Seasonal unemployment: It refers to a situation where the seasonal nature of the

work results in unemployment during a part (some months) of the year.
• This is also a common form of unemployment prevailing in rural India.
• This type of unemployment is mostly found in rural areas where agriculture is a
seasonal activity and there are no employment opportunities in the village for
all months in the year. So, when there is no work to do on farms, people go to
urban areas and look for jobs. They come back to their home villages as soon
as the rainy season begins.

Causes of unemployment:

o Slow rate of economic growth The rate of growth of GDP has been less than
the projected rate and moreover, the employment opportunities have not kept
pace with the growth rate even after globalisation due to jobless growth.

o Increase in rate of growth of population India has become one of the most
populous country with a major proportion of its population in the working age
group. Thus, it has not been able to generate enough employment opportunities

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 to absorb the large growing workforce. Further, the per capita availability of
resources has also declined.

o Underdeveloped agriculture There has been an increasing pressure on land

and the primitive methods of agriculture such as over dependence on
monsoons for irrigation etc has resulted in massive rural unemployment and
underemployment in the country.

o Faulty planning and insufficient infrastructural facilities The government

has not been able to encourage labour-intensive technique of agricultural and
industrial production, which could have absorbed the excessive labour migrant
force from rural areas. Insufficient infrastructures like power, transportation,
irrigation networks, roads and communication facilities have hampered the
expansion of both agriculrtural and industrial work opportunities.

o Inadequate employment planning There has been very little priority given to
the employment objective in the various plans and the implementation of the
employment schemes by the government has been ill planned and half-hearted.

o Defective education system The prevailing education system is not suited to

the requirements of the industrial and services sector as it fails to impart
vocational or technical education in line with their needs thus resulting in
educated unemployment.

Government policies and Employment generation

Since Independence, the Union and State governments have played an important role
in generating employment or creating opportunities for employment generation. Their
efforts can be broadly categorised into two - direct and indirect.
1.Direct measures of employment generation: Under this, the government
employ people in various departments for administrative purposes. It also runs
industries, hotels and transport companies, and hence, provides employment
directly to workers. For example, when a government owned steel company
increases its output, it will result in direct increase in employment in that
government company.

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 2.Indirect measures of employment generation: When the output of goods and
services from government enterprises increase, then private enterprises which
receive raw materials from government enterprises will also raise their output and
hence increase the number of employment opportunities in the economy. In the
above example, private companies, which purchase steel from it, will also increase
their output and thus employment. This is the indirect generation of employment
opportunities by the government initiatives in the economy.

Other Measures
The government has implemented many programmes that aimed at alleviating
poverty, are through employment generation. They are also known as employment
generation programmes.

Wage employment programme such as:

1.Mahatma Gandhi National Rural Employment Guarantee Act 2005 - It promises
100 days of guaranteed wage employment to all rural households who volunteer to do
unskilled manual work. This scheme is one of the many measures the government
has implemented to generate employment for those who are in need of jobs in rural
areas. In 2018-19, nearly five crore households got employment opportunities under
this law.
2.Self-employment programme:
REGP (Rural Employment Generation Programme), PMRY (Prime Minister’s Rozgar
Yojana, SJSRY (Swarna Jayanti Shahari Rozgar Yojana). These programmes have
now become Prime Minister’s Employment Generation Programme (PMEGP). SGSY
(Swarna Jayanti Gram Swarozgar Yojana) is one such programme. This has now been
structured as National Rural Livelihoods Mission (NRLM) which has been renamed as
Deendayal Upadhyay Antyodaya Yojana (DAY- NRLM) and National Urban
Livelihoods Mission for urban poor has been renamed (DAY-NULM).
3.Other programmes initiated by the government
Pradhan Mantri Gram Sadak Yojana, Pradhan Mantri Gramodaya Yojana and Valmiki
Ambedkar Awas Yojana, PDS (Public Distribution System), ICDS (Integrated Child
Development Scheme etc. All these programmes aim at providing not only
employment but also services in areas such as primary health, primary education, rural
drinking water, nutrition, assistance for people to buy income and employment
generating assets, development of community assets by generating wage
employment, construction of houses and sanitation, assistance for constructing
houses, laying of rural roads, development of wastelands/ degraded lands.

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 Chapter 8
Infrastructure
Infrastructure can be defined as a supporting structure that provides supporting
services in the main areas of industrial and agricultural production, domestic and
foreign trade and commerce.
Infrastructure refers to all such services and facilities, which are needed to provide
different kinds of services in an economy and which are essential in raising the pace
of economic growth of a country.
Infrastructural services include:
• Roads, railways, ports, airports, dams, power stations, oil and gas pipelines,
telecommunication facilities, etc.
• The country’s educational system including schools and colleges.
• Health system including hospital.
• Sanitary system including clean drinking water facilities.
• The monetary system including banks, insurance and other financial institutions.

Types Of
Infrastructure

ECONOMIC
INFRASTRUCTURE SOCIAL INFRASTRUCTURE
is associated with energy, is associated with education,
transportation and health and housing.
communication.

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Infrastructure, both economic and social, is essential for the development of a country.
• Both Economic and Social Infrastructure are interdependent and complementary to
each other. Economic infrastructure improves the quality of economic resources and
raises production. It cannot be possible until the population is literate and healthy to
use them efficiently. Thus, both economic and social infrastructure are necessary for
growth and development of a country.

Importance of Infrastructure
Infrastructure, both economic and social, is essential for the development of a country.
As a support system, it directly influences all economic activities by increasing the
productivity of the factors of production and improving the quality of life.
The importance of infrastructure is explained in following points:
1.Agricultural development: The development of modern agriculture depends on the
infrastructural facilities like modern roadways, railways and shipping facilities for
speedy and large-scale transport of seeds, pesticides, fertilisers and the produce It
also depends to a considerable extent on the adequate expansion, and development
of irrigation facilities. In recent times, agriculture also depends on insurance and
banking facilities because of its need to operate on a very large scale.

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2.Economic development: Infrastructure contributes to economic development of a
country both by increasing the productivity of the factors of production and improving
the quality of life of its people. Thus, development of infrastructure and economic
development go hand in hand.
• Agriculture depends, to a considerable extent, on the adequate expansion and
development of irrigation facilities.
• Industrial progress depends on the development of power and electricity
generation, transport and communications.

3.Better quality of life: Well developed infrastructure leads to better quality of life.
• Inadequate infrastructure can have multiple adverse effects on health.
Improvements in water supply and sanitation have a large impact by reducing
morbidity (meaning proneness to fall ill) from major waterborne diseases and
reducing the severity of disease.
• The quality of transport and communication infrastructure can affect access to
health care. However, air pollution and safety hazards connected to
transportation also affect morbidity, particularly in densely populated areas.

4.Generates employment: Infrastructure help in generating employment as many

people get employment in infrastructural projects like construction and maintenance
of roads, railways, electricity plants etc.

The state of infrastructure in India

Traditionally, the government has been solely responsible for developing the country’s
infrastructure. However, due to inadequacy of government’s investment in
infrastructure, the private sector by itself and also, in joint partnership with the public
sector, has started playing a very important role in infrastructure development.
1. A majority of people in India live in rural areas. Despite so much technical progress
in the world, rural women are still using bio-fuels such as crop residues, dung and fuel
wood to meet their energy requirement. About 85 per cent of the rural households use
bio-fuels for cooking.
2. Rural people walk long distances to fetch fuel, water and other basic needs.
3. As per the census 2011 shows that in rural India only 56 per cent of rural households
have an electricity connection and 43 per cent still use kerosene.

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4. Tap water availability is limited to only 31per cent rural households. About 69 per
cent of the population drinks water from open sources such as wells, tanks, ponds,
lakes, rivers, canals, etc.
5. Access to improved sanitation in rural areas was only 30 per cent.

It is widely understood that infrastructure is the foundation of development, India is yet

to wake up to the call. India invests very less i.e. only 30 per cent of its GDP on
infrastructure, which is far below that of China and Indonesia. Some economists have
projected that India will become the third biggest economy in the world a few decades
from now. For that to happen, India will have to boost its infrastructure investment. if
proper attention is not paid to the development of infrastructure, it is likely to act as a
severe constraint on economic development.

Infrastructural requirements change with development level of countries:

In any country, as the income rises, the composition of infrastructure requirements
changes significantly.

• For low-income countries, basic infrastructure services, like irrigation, transport

and power, are more important.
• As economies mature and most of their basic consumption demands are met,
the share of agriculture in the economy shrinks and more service-related
infrastructure is required.
• This is why, the share of power and telecommunication infrastructure is greater
in high-income countries.

Health
‘Health is a state of complete physical, mental and social well-being and not
merely the absence of disease or infirmity.’
• Health is not only absence of disease but also the ability to realise one’s potential. It
is a yardstick of one’s well-being.
• Health is the holistic process related to the overall growth and development of the
nation.
• It may be difficult to define the health status of a nation in terms of a single set of
measures. The health status is usually measured by taking into account indicators like

85
infant mortality and maternal mortality rates, life expectancy and nutrition levels, along
with the incidence of communicable and noncommunicable diseases.
• Development of health infrastructure ensures a country of healthy manpower for the
production of goods and services.
• It is the responsibility of the government to ensure the right to healthy living. Health
facilities are accessible to all the people of the country.

Health infrastructure:
• Health infrastructure includes hospitals, doctors, nurses and other para-medical
professionals, beds, equipment required in hospitals and a well-developed
pharmaceutical industry. Mere presence of health infrastructure is not sufficient to
have healthy people. It should be accessible to all 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.

State of Health Infrastructure in India:

Role of Government

• The government has the constitutional obligation to guide and regulate all
health-related issues, such as medical education, adulteration of food, drugs
and poisons, medical profession, vital statistics, mental deficiency and lunacy.
• The Union Government evolves broad policies and plans through the Central
Council of Health and Family Welfare.
• It collects information and renders financial and technical assistance to state
governments, union territories and other bodies for the implementation of
important health programmes in the country.

Expansion / Growth of public health infrastructure in India:

1. At the village level, a variety of hospitals, technically known as Primary Health
Centres (PHCs), have been set up by the government.
2. 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.

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3. Since Independence, there has been a significant expansion in the physical
provision of health services. During 1951–2018,

• The number of government hospitals and dispensaries together increased from

9,300 to 53,800 and hospital beds from 1.2 to 7.1 lakhs.
• Nursing personnel increased from 18,000 to 30 lakh and
• Allopathic doctors from 62,000 to 11.5 lakhs.
4. The expansion of health infrastructure has resulted in the eradication of smallpox,
guinea worms and the near eradication of polio and leprosy.

Role of Private Sector in Health Infrastructure:

In recent times, the role of private sector, in providing health services, has
considerably grown.

• More than 70 per cent of the hospitals in India are run by the private sector.
They control nearly two-fifth of the beds available in the hospitals.
• Nearly 60 per cent of dispensaries are run by the private sector.
• Private sector provides healthcare for 80 per cent of out-patients and 46 per
cent of in-patients.
• In recent times, private sector has been playing a dominant role in medical
education and training, medical technology and diagnostics, manufacture and
sale of pharmaceuticals, hospital construction and the provision of medical
services. In 2001-02, there were more than 13 lakh medical enterprises
employing 22 lakh people.
• More than 80 % of them are single person owned and operated by one person
occasionally employing a hired worker.

Medical Tourism in India:

• Since the 1990s, owing to liberalisation measures, many non-resident Indians

and industrial and pharmaceutical companies have set up state-of-the-art
super-specialty hospitals to attract India’s rich and medical tourists.
• Foreigners come to India for surgeries, liver transplants, dental and even
cosmetic care because India’s health services combine the latest medical
technologies with qualified professionals and are cheaper for foreigners as
compared to costs of similar healthcare services in their own countries.

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 • In 2016, as many as 2,01,000 foreigners visited India for medical treatment.
This figure is likely to increase by 15 per cent each year.  Experts predict that
by 2020 India could earn more than 500 billion rupees a year through such
‘medical Tourism’.
However, the private sector in India has grown independently without any major
regulation; some private practitioners are not even registered doctors and are known
as quacks. The role of government in providing healthcare is still very important as
poor people can depend only on government hospitals, due to huge expenses in
private health services.

Health
System in
India

Primary Secondary Tertiary

health care health care health care

Primary health care includes:

• Education concerning prevailing health problems and methods of identifying,
preventing and controlling them;
• Promotion of food supply and proper nutrition and adequate supply of water and
basic sanitation; • Maternal and child health care;
• Immunisation against major infectious diseases and injuries;
• Promotion of mental health and provision of essential drugs.

Secondary health care:

Includes hospitals which have better facilities for surgery, X-ray, Electro Cardio Gram
(ECG) which are called secondary health care institutions. They function both as

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primary health care provider and also provide better healthcare facilities. They are
mostly located in district headquarters and in big towns.

Tertiary health care:

Includes 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. The tertiary sector also includes many premier
institutes which not only impart quality medical education and conduct research but
also provide specialised health care. For example, All India Institute of Medical
Science, New Delhi; Post Graduate Institute, Chandigarh; Jawaharlal Institute of
Postgraduate Medical Education and Research, Pondicherry; National Institute of
Mental Health and Neuro Sciences, Bangalore and All India Institute of Hygiene and
Public Health, Kolkata.

Community and Non-profit Organisations in Healthcare

o It functions with the idea that the people can be trained and involved in primary
healthcare system.
o SEWA in Ahmedabad, ACCORD in the Nilgiris could be the examples of some
such NGOs working in India.
o Trade unions have built alternative healthcare services for their members and
also to give low-cost healthcare to people from nearby villages. The most well-
known and pioneering initiative in this regard has been Shahid Hospital, built in
1983 and sustained by the workers of CMSS (Chhattisgarh Mines Shramik
Sangh) in Durg, Madhya Pradesh.
o In the rural areas, initiatives like in Thane, Maharashtra, where in the context of
a tribal people’s organisation, Kashtakari Sangathan, trains women health
workers at the village level to treat simple illnesses at minimal cost.

Indian Systems of Medicine (ISM)

India has its own well-developed system of health care, namely – AYUSH. It includes
six systems— Ayurveda, Yoga, Unani, Siddha, Naturopathy and Homeopathy.
• At present, there are 4,095 AYUSH hospitals and 27,951 dispensaries and as many
as 8 lakh registered practitioners in India.

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• ISMs have huge potential and can solve a large part of our healthcare problems
because they are effective, safe and inexpensive.

Indicators of health:
The health status of a country can be assessed through indicators, such as infant
mortality and maternal mortality rates, life expectancy and nutrition levels, along with
the incidence of communicable and noncommunicable diseases.

Trends in health in comparison with other countries:

1. Infant Mortality/1000 live births is quite high in India (30) as compared to China
(7.4), Sri Lanka (6.4) and USA (5.6).
2. Same holds true for Under-5 mortality/1000 live births reflecting poor child
healthcare facilities in India. India (37), China (8.6), USA (6.5) and Sri Lanka (7.4).
3.This is despite the 89% of children being immunised for diseases like DTP etc.
almost at par with China (89%) but far behind Sri Lanka (99%) and USA (94%) in this
regard.
4. However, expenditure on health sector in India is 3.7 % of the total GDP. This is
abysmally low as compared to other countries, both developed and developing.
5. Though India is the second most populated country in the world, but the health
status of a great majority of the people is far from satisfactory as compared to China
and other developed countries.
6. However, over the last five decades, India has built a vast health infrastructure and
made considerable progress in improving the health of its people.

Challenges of health sector in India:

1. India has about one-fifth (17%) of the world’s population but it bears a frightening
20 per cent of the global burden of diseases (GBD). GBD is an indicator used by
experts to gauge the number of people dying prematurely due to a particular disease,
as well as, the number of years spent by them in a state of ‘disability’ owing to the
disease. Reasons for high GBD
➢ A 2017 study shows nearly two thirds of GBD, now known as Total Burden of
Disease was caused by non-communicable diseases associated with heart,
respiratory system – lungs, kidney, obesity and lifestyle.
➢ Diarrhoea, lower respiratory system and other common infectious diseases
account for one-sixth of total deaths in India.

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 ➢ Out of 4.1 million early deaths occurring globally due to air pollution, 1.1 million
deaths occur in India alone. d) The proportion of deaths occurs due to cancer
(8 per cent) injuries (11 per cent) also has been increasing over the last two
decades.

2. Poor State of PHC At present, less than 20 per cent of the population utilises public
health facilities. Only 38 per cent of the PHCs have the required number of doctors
and only 30 per cent of the PHCs have sufficient stock of medicines.

3. Urban-Rural and Poor-Rich Divide People living in rural areas do not have
sufficient health infrastructure. This has led to differences in the health status of
people.

▪ Though 70 per cent of India’s population lives in rural areas, only one-fifth of its
hospitals (including private hospitals) are located in rural areas.
▪ Rural India has only about half the number of dispensaries. Out of about 7.13
lakh beds in government hospitals, roughly 30 per cent are available in rural
areas.
▪ There are only 0.36 hospitals for every one lakh people in rural areas, while
urban areas have 3.6 hospitals for the same number of people.
▪ The PHCs located in rural areas do not even offer X-ray or blood testing
facilities, which for a city dweller, constitutes basic healthcare.
▪ Villagers have no access to any specialised medical care, like paediatrics,
gynaecology, anaesthesia and obstetrics.
▪ Even though 530 recognised medical colleges produce about 50,000 medical
graduates every year, the shortage of doctors in rural areas persists. While one-
fifth of these doctor graduates leave the country for better monetary prospects,
many others opt for private hospitals, which are mostly located in urban areas.
▪ In rural areas, the percentage of people who have no access to proper
healthcare facilities has increased over the last few years. There is a sharp
divide between urban and rural healthcare in India. If we continue to ignore this
deepening divide, we run the risk of destabilising the socio-economic fabric of
our country.

Women’s Health
Women constitute about half of the total population in India. Yet they suffer many
disadvantages as compared to men in the areas of education, participation in
economic activities and healthcare.

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Women’s health across the country has become a matter of great concern as:

▪ The deterioration in the child sex ratio in the country from 927 in 2001 to 919 in
2011 points to the growing incidence of female foeticide.
▪ Five per cent of girls aged between 15-19 years are not only married but have
already borne children at least once.
▪ More than 50 per cent of married women in the age group of 15–49 years have
anaemia and nutritional anaemia caused by iron deficiency, and this has not
declined since 2005.
▪ The GBD Study 2017 reports that premature deaths due to neonatal disorders
tops in both the years 2007 and 2017 and this has not declined since 2005.

Measures for improving health infrastructure

Health is a vital public good and a basic human right. All citizens can get better health
facilities if public health services are decentralised.

▪ Success in the long-term battle against diseases depends on education and

efficient health infrastructure. It is, therefore, critical to create awareness on
health and hygiene and provide efficient systems.
▪ Telecom and IT can play an important role in improving the health process in
the economy.
▪ The effectiveness of healthcare programmes also rests on primary healthcare
So, serious steps should be taken to improve them.
▪ The ultimate goal should be to help people move towards a better quality of life.
▪ There is a sharp divide between urban and rural healthcare in India i.e. there is
a wide gap between rural-urban areas and between poor and rich in utilising
health care facilities. So serious measures should to be taken to provide basic
healthcare to all, accessibility and affordability needs to be integrated in our
basic health infrastructure.

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 Chapter 9
Environment and Sustainable Development

Environment
Environment is defined as the total planetary inheritance and the totality of all
resources. It includes all the biotic and abiotic factors that influence each other.
• Biotic elements/ factors include all living elements—the birds, animals and plants,
forests, fisheries etc.
• Abiotic elements include non-living elements—air, water, sunlight, land etc.

Functions of Environment
The environment performs four vital functions:
a) It supplies both renewable and non-renewable resources.
▪ Renewable resources are those which can be used without the possibility
of the resource becoming depleted or exhausted. That is, a continuous
supply of the resource remains available. Examples of renewable resources
are the trees in the forests and the fishes in the ocean.
▪ Non-renewable resources are those which get exhausted with extraction
and use, for example, fossil fuel.
b) It assimilates waste.
c) It sustains life by providing genetic and bio diversity.
d) It also provides aesthetic services like scenery etc.

The environment is able to perform these functions without any interruption as long as
the demand on these functions is within its carrying capacity.

Carrying capacity of the Environment

It means that the resource extraction is not above the rate of regeneration of the
resource and the wastes generated are within the assimilating capacity of the
environment. When this is not so, the environment fails to perform its vital function of
life sustenance and this results in an environmental crisis.

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 Absorptive capacity of the environment
Absorptive capacity means the ability of the environment to absorb degradation.

Environmental crisis
Today the world is facing the problem of environmental crisis. The main factors
responsible for this are:
1. The rising population of the developing countries and the affluent consumption and
production standards of the developed world have placed a huge stress on the
environment in terms of its first two functions – supplying resources and assimilating
waste. Consequently,

▪ Many resources have become extinct and

▪ the wastes generated are beyond the absorptive capacity of the environment.
2. Due to past development, rivers and other aquifers has polluted and dried up making
water an economic good.
3.The intensive and extensive extraction of both renewable and non-renewable
resources has exhausted some of the vital resources and we are compelled to spend
huge amounts on technology and research to explore new resources.
4. Due to degraded environmental quality — decline in air and water quality (seventy
per cent of water in India is polluted), incidence of respiratory and water-borne
diseases have increased which has added to the health cost. Hence the expenditure
on health is also rising.
5. Global environmental issues such as global warming and ozone depletion also
contribute to increased financial commitments for the government.

Global warming
Global warming is a gradual increase in the average temperature of the earth’s lower
atmosphere as a result of the increase in greenhouse gases since the Industrial
Revolution. During the past century, the atmospheric temperature has risen by 1.1°F
(0.6°C) and sea level has risen several inches.
Much of the recent observed and projected global warming is human-induced. It is
caused by man-made increases in carbon dioxide and other greenhouse gases in the
atmosphere.

Factors contributing to global warming:

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a) Burning of coal and petroleum products (sources of carbon dioxide, methane,
nitrous oxide, ozone); b) Deforestation, which increases the amount of carbon dioxide
in the atmosphere;
c) Methane gas released in animal waste; and
d) Increased cattle production, which contributes to deforestation, methane
production, and use of fossil fuels.
A UN Conference on Climate Change, held in Kyoto, Japan, in 1997, resulted in an
international agreement to fight global warming which called for reductions in
emissions of greenhouse gases by industrialised nations. The atmospheric
concentrations of carbon dioxide and CH4 have increased by 31 per cent and 149 per
cent respectively above pre-industrial levels since 1750.

Effects of global warming:

a) Melting of polar ice with a resulting rise in sea level and coastal flooding;
b) Disruption of drinking water supplies dependent on snow melts;
c) Extinction of species as ecological niches disappears;
d) More frequent tropical storms; and
e) An increased incidence of tropical diseases

Reversal of Supply-Demand relationship for environmental resources

▪ In the early days when civilisation just began, or before this phenomenal
increase in population, and before countries took to industrialisation, the
demand for environmental resources and services was much less than their
supply.
▪ Also, the pollution was within the absorptive capacity of the environment and
the rate of resource extraction was less than the rate of regeneration of these
resources. Hence environmental problems did not arise.
▪ But with population explosion and with the advent of industrial revolution to
meet the growing needs of the expanding population, the demand for resources
for both production and consumption went beyond the rate of regeneration of
the resources; the pressure on the absorptive capacity of the environment
increased tremendously - this trend continues even today.
▪ Thus, we are now faced with increased demand for environmental resources
and services but their supply is limited due to overuse and misuse. Hence there
has been a reversal of supply-demand relationship for environmental quality.

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 Ozone Depletion
Ozone depletion refers to the phenomenon of reductions in the amount of ozone in the
stratosphere.

Cause of ozone depletion

The problem of ozone depletion is caused by high levels of chlorine and bromine
compounds in the stratosphere. The origins of these compounds are: a)
Chlorofluorocarbons (CFC), used as cooling substances in air conditioners and
refrigerators, or b) As aerosol propellants, and bromo-fluorocarbons (halons), used in
fire extinguishers.

Effects of ozone depletion

As a result of depletion of the ozone layer, more ultraviolet (UV) radiation comes to
Earth and causes damage to living organisms.

▪ UV radiation seems responsible for skin cancer in humans;

▪ It also lowers production of phytoplankton and thus affects other aquatic
organisms.
▪ It can also influence the growth of terrestrial plants.
A reduction of approximately 5 per cent in the ozone layer was detected from 1979 to
1990.

State of India’s environment

1. India has abundant natural resources in terms of rich quality of soil, hundreds of
rivers and tributaries, lush green forests, plenty of mineral deposits beneath the land
surface, vast stretch of the Indian Ocean, ranges of mountains, etc.
2. The black soil of the Deccan Plateau is particularly suitable for cultivation of cotton,
leading to concentration of textile industries in this region.
3. The Indo-Gangetic plains — spread from the Arabian Sea to the Bay of Bengal —
are one of the most fertile, intensively cultivated and densely populated regions in the
world.
4. India’s forests, though unevenly distributed, provide green cover for a majority of its
population and natural cover for its wildlife.
5. Large deposits of iron-ore, coal and natural gas are found in the country.

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6. India accounts for nearly 8 per cent of the world’s total iron-ore reserves. Other
minerals like bauxite, copper, chromate, diamonds, gold, lead, lignite, manganese,
zinc, uranium, etc. are also available in different parts of the country.

The most pressing environmental concerns of India:

Some of the most pressing environmental concerns of India are air pollution, water
contamination, soil erosion, deforestation and wildlife extinction. The priority issues
identified are:

▪ Land degradation
▪ Biodiversity loss
▪ Air pollution with special reference to vehicular pollution in urban cities
▪ Management of fresh water and
▪ Solid waste management.

Land degradation
Land degradation refers to a decline in the overall quality of soil, water or vegetation
condition, commonly caused by human activities.
Land in India suffers from varying degrees and types of degradation stemming mainly
from unstable use and inappropriate management practices.
Causes of land degradation:
Some of the factors responsible for land degradation are:

▪ Loss of vegetation occurring due to deforestation

▪ Unsustainable fuel wood and fodder extraction
▪ Shifting cultivation
▪ Encroachment into forest lands
▪ Forest fires and over grazing
▪ Non-adoption of adequate soil conservation measures
▪ Improper crop rotation
▪ Indiscriminate use of agro-chemicals such as fertilisers and pesticides
▪ Improper planning and management of irrigation systems
▪ Extraction of ground water in excess of the recharge capacity
▪ Poverty of the agriculture-dependent people

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 Deforestation
Deforestation refers to cutting, clearing and removal of rainforest, where land
is thereafter converted to a non-forest use.

▪ Deforestation is rising at such a rapid scale that it has totally disturbed the
ecological balance of the country.
▪ The per capita forest land in the country is only 0.06 hectare against the
requirement of 0.47 hectare to meet basic needs, resulting in an excess
felling of about 15 million cubic metre forests over the permissible limit.
▪ It leads to soil erosion, occurrence of more floods, changes in climate etc.

Soil erosion
Soil erosion takes place when the surface soil washed away through excessive
rains and floods.

▪ Deforestation is one of the major reasons for soil erosion.

▪ As per the estimates, soil is being eroded at a rate of 5.3 billion tonnes a year,
which is in excess of recharge capacity. As a result of which the country loses
0.8 million tonnes of nitrogen, 1.8 million tonnes of phosphorus and 26.3 million
tonnes of potassium every year. According to the Government of India, the
quantity of nutrients lost due to erosion each year ranges from 5.8 to 8.4 million
tonnes.
India supports approximately 17 per cent of the world’s human and 20 per cent of
livestock population on a mere 2.5 per cent of the world’s geographical area. The high
density of population and livestock and the competing uses of land for forestry,
agriculture, pastures, human settlements and industries exert an enormous pressure
on the country’s finite land resources.

Air pollution
Air pollution is the presence of materials in air in such concentration, which are
harmful to man and the environment.

▪ In India, air pollution is widespread in urban areas where vehicles are the major
contributors and in a few other areas which have a high concentration of
industries and thermal power plants.
▪ Vehicular emissions are of particular concern as these are ground level sources
and have the maximum impact on the general population.

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 ▪ The number of motor vehicles has increased from about 3 lakhs in 1951 to 23
crores in 2016. In 2016, personal transport vehicles (two-wheeled vehicles and
cars only) constituted about 85 per cent of the total number of registered
vehicles, thus, contributing significantly to total air pollution load.
▪ India is one of the ten most industrialised nations of the world. However, this
status has brought with it unwanted and unanticipated consequences such as
unplanned urbanisation, pollution and the risk of accidents. The CPCB (Central
Pollution Control Board) has identified seventeen categories of industries
(large and medium scale) as significantly polluting.

Pollution Control Boards

In order to address two major environmental concerns in India, viz. water and air
pollution, the government set up the Central Pollution Control Board (CPCB) in 1974.
This was followed by states establishing their own state level boards to address all the
environmental concerns.
Main functions of Pollution Control Boards

o They investigate, collect and disseminate information relating to water, air and
land pollution, lay down standards for sewage/trade effluent and emissions.
o These boards provide technical assistance to governments in promoting
cleanliness of streams and wells by prevention, control and abatement of water
pollution, and improve the quality of air and to prevent, control or abate air
pollution in the country.
o These boards also carry out and sponsor investigation and research relating to
problems of water and air pollution and for their prevention, control or
abatement.
o They organise, through mass media, a comprehensive mass awareness
programme for the same.
o The PCBs prepare manuals, codes and guidelines relating to treatment and
disposal of sewage and trade effluents.
o They assess the air quality through regulation of industries.
o In fact, state boards, through their district level officials, periodically inspect
every industry under their jurisdiction to assess the adequacy of treatment
measures provided to treat the effluent and gaseous emissions.
o They also provide background air quality data needed for industrial siting and
town planning.

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o The pollution control boards collect, collate and disseminate technical and
statistical data relating to water pollution. They monitor the quality of water in
125 rivers (including the tributaries), wells, lakes, creeks, ponds, tanks, drains
and canals.

Chipko or Appiko
• The Chipko Movement, which aimed at protecting forests in the Himalayas.
• In Karnataka, a similar movement took a different name, ‘Appiko’, which means
to hug.
• On 8 September 1983, when the felling of trees was started in Salkani forest in
Sirsi district, 160 men, women and children hugged the trees and forced the
woodcutters to leave. They kept vigil in the forest over the next six weeks.
• Only after the forest officials assured the volunteers that the trees will be cut
scientifically and in accordance with the working plan of the district, did they leave
the trees.
• When commercial felling by contractors damaged a large number of natural
forests, the idea of hugging the trees gave the people hope and confidence that
they can protect the forests.
• On that particular incident, with the felling discontinued, the people saved 12,000
trees. Within months, this movement spread to many adjoining districts.
• Indiscriminate felling of trees for fuelwood and for industrial use has led to many
environmental problems.
• Twelve years after setting up of a paper mill in Uttar Kanara area, bamboo has
been wiped out from that area. “Broad-leaved trees which protected the soil from
the direct onslaught of rain have been removed, the soil washed away, and bare
laterite soil left behind. Now nothing grows but a weed”, says a farmer. Farmers
also complain that rivers and rivulets dry up quicker, and that rainfall is becoming
erratic. Diseases and insects earlier unknown are now attacking the crops.
• Appiko volunteers want the contractors and forest officials to follow certain rules
and restrictions. For instance, local people should be consulted when trees are
marked for felling and trees within 100 metres of a water source and on a slope of
30 degrees or above should not be felled.

Sustainable development
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 Sustainable development is a kind of development that minimises
environmental problems and meets the need of the present generation
without compromising the ability of the future generation to meet their own
needs.
Hence, sustainable development is the development which will allow all future
generations to have a potential average quality of life that is at least as high as that
which is being enjoyed by the current generation.
The United Nations Conference on Environment and Development (UNCED),
defined it as: ‘Development that meets the need of the present generation without
compromising the ability of the future generation to meet their own needs’.
Edward Barbier defined sustainable development as one which is directly
concerned with increasing the material standard of living of the poor at the grass
root level — this can be quantitatively measured in terms of increased income, real
income, educational services, health care, sanitation, water supply etc. In more
specific terms, sustainable development aims at decreasing the absolute poverty
of the poor by providing lasting and secure livelihoods that minimise resource
depletion, environmental degradation, cultural disruption and social instability.
Sustainable development is, in this sense, a development that:

o meets the basic needs of all, particularly the poor majority, for employment,
food, energy, water, housing, and
o ensures growth of agriculture, manufacturing, power and services to meet
these needs.

The Brundtland Commission

The Brundtland Commission emphasises on protecting the future generation. This
implies that we have a moral obligation to hand over the planet earth in good order to
the future generation; that is, the present generation should bequeath a better
environment to the future generation. At least we should leave to the next generation
a stock of ‘quality of life’ assets no less than what we have inherited. The present
generation can promote development that enhances the natural and built environment
in ways that are compatible with:
(i) conservation of natural assets;
(ii) preservation of the regenerative capacity of the world’s natural ecological system;
and
(iii) avoiding the imposition of added costs or risks on future generations.

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 Strategies for sustainable development
1.Use of non-conventional sources of energy:

• India, is hugely dependent on thermal and hydro power plants to meet its
power needs. Both of these have adverse environmental impacts.

• Thermal power plants emit large quantities of carbon dioxide which is a

greenhouse gas. It also produces fly ash which, if not used properly, can cause
pollution of water bodies, land and other components of the environment.
Hydroelectric projects inundate forests and interfere with the natural flow of
water in catchment areas and the river basins. Wind power and solar rays are
cleaner and greener energy sources but are not yet been explored on a large
scale due to lack of technological devices.
A. Wind power:
In areas where speed of wind is usually high, wind mills can provide electricity
without any adverse impact on the environment. Wind turbines move with the wind
and electricity is generated.
B. Solar Power through Photovoltaic Cells:

o India is naturally endowed with a large quantity of solar energy in the form of
sunlight. We use it in different ways. With the help of photovoltaic cells, solar
energy can be converted into electricity. These cells use special kind of
materials to capture solar energy and then convert the energy into electricity.
o This technology is extremely useful for remote areas and for places where
supply of power through grid or power lines is either not possible or proves very
costly. (In recent years India is taking efforts to increase the power generation
through solar. India is also leading an International body called International
Solar Alliance (ISA)).

2. Use of cleaner fuels:

A. LPG, Gobar Gas in Rural Areas

o Households in rural areas generally use wood, dung cake or other biomass as
fuel. This practice has several adverse implications like deforestation, reduction
in green cover, wastage of cattle dung and air pollution.

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 o To overcome this situation, use of LPG and gobar gas plants are being
promoted (through easy loans and subsidies) as they are cleaner fuels and help
in reducing household pollution to a large extent.

B. CNG in Urban Areas

• In urban areas, the use of CNG is being promoted to be used as fuel.

• In Delhi, the use of Compressed Natural Gas (CNG) as fuel in public transport
system has significantly lowered air pollution and the air has become cleaner.

• In the last few years many other Indian cities also began to use CNG.

3. Mini-hydel Plants
• In mountainous regions, streams can be found almost everywhere. A large
percentage of such streams are perennial. Mini-hydel plants use the energy of such
streams to move small turbines. which generate electricity and can be used locally.
• Such power plants are more or less environment-friendly as:

➢ they do not change the land use pattern in areas where they are located;
➢ they generate enough power to meet local demands.
➢ they do not require large scale transmission towers and cables and avoid
transmission loss.

4. Traditional Knowledge and Practices:

➢ Traditionally, Indian people have been close to their environment. All practices
relating to our agriculture system, healthcare system, housing, transport etc.,
used to be environment friendly.
➢ Only recently have we drifted away from the traditional systems and caused
large scale damage to the environment and also our rural heritage. Now, it is
time to go back.
➢ For example, India is very much privileged to have about 15,000 species of
plants which have medicinal properties. About 8,000 of these are in regular use
in various systems of treatment including the folk tradition.
➢ With the sudden onslaught of the western system of treatment, we ignored our
traditional systems such as Ayurveda, Unani, Tibetan and folk systems.

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➢ Now a days these healthcare systems are in great demand again for treating
chronic health problems. Every cosmetic produce — hair oil, toothpaste, body
lotion, face cream etc is herbal in composition.
These products environment friendly and are relatively free from side effects as
they do not involve large-scale industrial and chemical processing.

5. Use of Bio composting:

• To increase agricultural production, the use of chemical fertilisers has increased
significantly.
• This has adversely affected large areas of productive land as well water bodies
including ground water system due to chemical contamination.
• Also, the demand for irrigation has been going up year after year.
• In certain parts of the country, cattle are maintained only because they produce
dung which is an important fertiliser and soil conditioner.
• Earthworms can convert organic matter into compost faster than the normal
composting process. This process is now being widely used. Indirectly, the civic
authorities are benefited too as they have to dispose reduced quantity of waste.
• Farmers, in large numbers all over the country, have again started using compost
made from organic wastes of different types.

6. Bio-pest Control:
With the advent of green revolution, the use of chemical pesticides for higher yield
has increased. The adverse impacts of these are:

o Food products were contaminated.

o Soil, water bodies and even ground water were polluted with pesticides.
o The milk, meat and fishes were found to be contaminated.

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 Chapter 10
Comparative Development Experiences of India
and its Neighbours

Formation of regional and economic groupings

1. Nations have been primarily trying to adopt various means which will strengthen
their own domestic economies. Hence, they are forming regional and global economic
groupings such as the SAARC, European Union, ASEAN, G-8, G-20, BRICS etc.
2. National are eager to try and understand the developmental processes pursued by
their neighbouring nations as it allows them to better comprehend their own strengths
and weaknesses vis-à-vis their neighbours.
3. With globalisation, it is being considered essential by developing countries as they
face competition not only from developed nations but also amongst themselves in the
relatively limited economic space enjoyed by the developing world.
4. Besides, an understanding of the other economies in our neighbourhood is also
required as all major common economic activities in the region impinge on overall
human development in a shared environment.

Similarities in the developmental strategies of India, China

and Pakistan
1. All the three nations have started towards their developmental path at the same
time. While India and Pakistan became independent nations in 1947, People’s
Republic of China was established in 1949. In a speech at that time,
2. All three countries had started planning their development strategies in similar ways.
While India announced its first Five Year Plan in 1951, Pakistan announced its first
five year plan, now called the Medium Term Development Plan, in 1956. China
announced its First Five Year Plan in 1953.
3. India and Pakistan adopted similar strategies, such as creating a large public sector
and raising public expenditure on social development.
4. Till the 1980s, all the three countries had similar growth rates and per capita
incomes.
5. All the three countries introduced economic reforms. China in 1978, Pakistan in
1988 and India in 1991.

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India, Pakistan and China have similar physical endowments but totally different
political systems.
• India is the largest democracy of the world with a secular and deeply liberal
Constitution for more than half a century,
• Pakistan has militarist political power structure and
• China, the command economy, has only recently started moving towards a
democratic system and more liberal economic restructuring.
All the three countries follow the similar planned pattern of development. However, the
structures established to implement developmental policies are quite different.
Since 2013, Pakistan is working on the basis of 11th Five Year Development Plan
(2013–18), whereas, China is now working on 13th Five Year Plan (2016–20). Until
March 2017, India has been following Five Year Plan- based development model.

China’s developmental path

1.After the establishment of People’s Republic of China in 1949, under one party rule,
all critical sectors of the economy, enterprises and lands owned and operated by
individuals were brought under government control.
2. The Great Leap Forward (GLF) campaign initiated in 1958 aimed at industrialising
the country on a massive scale. a) People were encouraged to set up industries in
their backyards. b) In rural areas, Commune system was started under which people
collectively cultivated lands. c) In 1958, there were 26,000 communes covering almost
all the farm population. d) Problems faced in GLF:

o A severe drought caused havoc in China killing about 30 million people.

o When Russia had conflicts with China, it withdrew its professionals who had
earlier been sent to China to help in the industrialisation process.
3. In 1965, Mao introduced the Great Proletarian Cultural Revolution (1966–76)
under which students and professionals were sent to work and learn from the
countryside.
4. The present day fast industrial growth in China can be traced back to the reforms
introduced in 1978. China introduced reforms in phases.
a) In the initial phase, reforms were initiated in agriculture, foreign trade and
investment sectors. In agriculture, for instance, commune lands were divided into
small plots, which were allocated (for use not ownership) to individual households.
They were allowed to keep all income from the land after paying stipulated taxes.

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b) In the later phase, reforms were initiated in the industrial sector. Private sector firms,
in general, and township and village enterprises, i.e., those enterprises which were
owned and operated by local collectives, in particular, were allowed to produce goods.
c) Enterprises owned by government (known as State Owned Enterprises—SOEs),
which we, in India, call public sector enterprises, were made to face competition.
d) The reform process also involved dual pricing. This means fixing the prices in two
ways; farmers and industrial units were required to buy and sell fixed quantities of
inputs and outputs on the basis of prices fixed by the government and the rest were
purchased and sold at market prices.
e) In order to attract foreign investors, special economic zones (SEZ) were set up.

Pakistan’s developmental path

1. After gaining independence in 1947, Pakistan also followed the mixed economy
model with coexistence of public and private sectors.
2. In the late 1950s and 1960s, Pakistan introduced a variety of regulated policy
framework (for import substitution-based industrialisation). The policy combined tariff
protection for manufacturing of consumer goods together with direct import controls
on competing imports.
3. The introduction of Green Revolution led to mechanisation and increase in public
investment in infrastructure in select areas, which finally led to a rise in the production
of food grains.
4. In the 1970s, nationalisation of capital goods industries took place. Pakistan then
shifted its policy orientation in the late 1970s and 1980s when the major thrust areas
were denationalisation and encouragement of private sector.
5. During this period, Pakistan also received financial support from western nations
and remittances from emigrants to the Middle-east. This helped the country in
stimulating economic growth. The then government also offered incentives to the
private sector. All this created a conducive climate for new investments. 6. In 1988,
reforms were initiated in the country.

Demographic indicators
1. China is the most populous country (1393 million) among the three. The population
of Pakistan (212 million) is very small and is about one-tenth of China or India (1352
million).

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2. Though China is the largest nation and geographically occupies the largest area
among the three nations, its density is the lowest (148 per sq. km) and India’s density
is the highest (455 per sq. km), and Pakistan (275 per sq. km).
3. The population growth as being the highest in Pakistan (2.05), followed by India
(1.03) and China (0.46). The one-child norm introduced in China in the late 1970s
was the major reason for low population growth.
4. The sex ratio (the proportion of females per 1000 males) is low and biased against
females in all three countries due to son preference prevailing in all these countries.
No of females per thousand males in Pakistan it is 943, in China it is 949 and in India
it is 924.
5. The fertility rate is also low in China (1.7) and very high in Pakistan (3.6).
6. Urbanisation is high in China (59 percent) and very low in India having with only 34
per cent of its people living in urban areas and in Pakistan it is 37 percent.

Annual growth of Gross Domestic Product

o China has the second largest GDP (PPP) of $22.5 trillion in the world,
whereas, India’s GDP (PPP) is $9.03 trillion and Pakistan’s GDP is $ 0.94
trillion, roughly about 11 per cent of India’s GDP. India’s GDP is about 41
per cent of China’s GDP. China was able to maintain near double-digit
growth during 1980s (for one decade (ie. 1980-90)
o In the 1980s, Pakistan was ahead of India (in terms of annual growth of
GDP) at 6.3% and India was at the bottom 5.7%. China was having double-
digit growth of 10.3%.
o In 2015–17, there has been a decline in Pakistan and China’s growth rates
(to 5.3% and 6.8% respectively), whereas, India met with moderate increase
in growth rate (7.3%). The reform processes introduced in Pakistan and
political instability over a long period are reasons behind the declining
growth rate in Pakistan.

Why are there less number of people employed in agriculture in China?

o China and Pakistan have more proportion of urban population than India.
o In China, due to topographic and climatic conditions, the area suitable for
cultivation is relatively small — only about 10 per cent is cultivable which is
40 per cent of India’s cultivable land.

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 o Until the 1980s, more than 80 per cent of the people in China were
dependent on farming as their sole source of livelihood. Since then, the
government encouraged people to leave their fields and pursue other
activities such as handicrafts, commerce and transport.
o As a result, proportion of workforce engaged in agriculture reduced to 26%
in 2018-19, with contribution to GDP at 7%.
o Moreover, there is greater urbanisation in China.

Human development indicators

Human development indicators are income indicators such as GDP per capita, or
proportion of population below poverty line or health indicators such as mortality rates,
access to sanitation, literacy, life expectancy or malnourishment.
1. China is moving ahead of India and Pakistan. This is true for many indicators —
income indicator such as GDP per capita, or proportion of population below poverty
line or health indicators such as mortality rates, access to sanitation, literacy, life
expectancy or malnourishment. However these improvements were attributed not to
the reform process but the strategies that China adopted in the perform period.
2. Pakistan is ahead of India in reducing proportion of people below the poverty line
and its performance in sanitation is same as for India. But both have high maternal
mortality rate.
3. In China, for one lakh births, only 27 women die whereas in India and Pakistan,
about 178 and 174 women die respectively.
4. All the three countries report providing improved drinking water sources for most of
its population. 5. India has the largest share of poor (proportion of people below the
international poverty rate of $ 3.20 a day), 60.4 and China has least, 7.0 among the
three countries.
6. Infant mortality rate is the highest in Pakistan (57.2), followed by India (29.9) and
the least in China (8.5) per 1000 live births.
7. In 2015, life expectancy at birth was the highest in China (76.7 years) followed by
India (69.4 years) and then Pakistan (67.1 years).
8. Mean years of schooling (% aged 15 and above) is the highest in China (7.9)
followed by India (6.5) and then Pakistan (5.2). Hence, China is moving ahead of India
and Pakistan but these do not include liberty indicators, without these, HDI are
incomplete.

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 Liberty indicators
‘Liberty indicator’ is a measure of ‘the extent of democratic participation in social and
political decision making’. Some obvious ‘liberty indicators’ are
1) The extent of Constitutional protection given to rights of citizens.
2) The extent of constitutional protection of the Independence of the Judiciary and the
Rule of Law.

Development strategies – An appraisal:

o China did not have any compulsion to introduce reforms as dictated by the
World Bank and International Monetary Fund to India and Pakistan.
o The new leadership at that time in China was not happy with the slow pace of
growth and lack of modernisation in the Chinese economy under the Maoist
rule.
o They felt that Maoist vision of economic development based on
decentralisation, self-sufficiency and shunning of foreign technology, goods
and capital had failed.
o Despite extensive land reforms, collectivisation, the Great Leap Forward and
other initiatives, the per capita grain output in 1978 was the same as it was in
the mid-1950s.

Effects of reforms in China (post reforms):

1. It was found that establishment of infrastructure in the areas of education and
health, land reforms, long existence of decentralised planning and existence of
small enterprises had helped positively in improving the social and income
indicators in the post reform period.
2. Before the introduction of reforms, there had already been massive extension
of basic health services in rural areas. Through the commune system, there
was more equitable distribution of food grains.
3. Since each reform measure was first implemented at a smaller level and then
extended on a massive scale, it enabled the government to assess the
economic, social and political costs of success or failure.
4. When reforms were made in agriculture by handing over plots of land to
individuals for cultivation, it brought prosperity to a vast number of poor people.
It created conditions for the subsequent phenomenal growth in rural industries
and built up a strong support base for more reforms. This is how reform
measures led to rapid growth in China.

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 Effects of reforms in Pakistan (post reforms):
1. In Pakistan the reform process led to worsening of all the economic indicators.
As compared to 1980s, the growth rate of GDP and its sectoral constituents have
fallen in the 1990s.
2. Though the data on international poverty line for Pakistan is quite healthy,
however the official data of Pakistan indicate rising poverty there. The proportion
of poor in 1960s was more than 40 per cent which declined to 25 per cent in 1980s
and started rising again in the recent decades (1990’s).
The reasons for the slowdown of growth and re-emergence of poverty in Pakistan’s
economy, are that:

a) Agricultural growth and food supply situation were based not on an

institutionalised process of technical change but on good harvest. When
there was a good harvest, the economy was in good condition, when it was
not, the economic indicators showed stagnation or negative trends.
b) In Pakistan most foreign exchange earnings came from remittances from
Pakistani workers in the Middle-east and the exports of highly volatile
agricultural products; there was also growing dependence on foreign loans
on the one hand and increasing difficulty in paying back the loans on the
other.
c) However, during the last few years, Pakistan has recovered its economic
growth and has been sustaining. In 2017-18, the Annual Plan 2019-20
reports that, the GDP registered a growth of 5.5 per cent, highest when
compared to the previous decade. While agriculture recorded growth rate
far from satisfactory level, industrial and service sectors grew at 4.9 and 6.2
per cent respectively. Many macroeconomic indicators also began to show
stable and positive trends.

Conclusion
India, China and Pakistan have travelled about seven decades of developmental path
with varied results.

o Till thelate 1970s, all of them were maintaining the same level of low
development.
o The last three decades have taken these countries to different levels.
o India, with democratic institutions, performed moderately, but a majority of its
people still depend on agriculture. Infrastructure is lacking in many parts of the
country. It is yet to raise the level of living of more than one-fourth of its
population that lives below the poverty line.

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o The political instability, over-dependence on remittances and foreign aid along
with volatile performance of agriculture sector are the reasons for the slowdown
of the Pakistan economy. Yet, last three years, many macroeconomic indicators
began showing positive and higher growth rates reflecting the economic
recovery.
o In China, the lack of political freedom and its implications for human rights are
major concerns; yet, in the last four decades, it used the ‘market system without
losing political commitment’ and succeeded in raising the level of growth along
with alleviation of poverty and betterment of other human indicators.
o Unlike India and Pakistan, which are attempting to privatise their public sector
enterprises, China has used the market mechanism to ‘create additional social
and economic opportunities’.
o By retaining collective ownership of land and allowing individuals to cultivate
lands, China has ensured social security in rural areas.

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