Professional Documents
Culture Documents
Semester 4
Subject: Indian Economy
(Module-2)
By
Saheli Banerjee
City College of Commerce and Business Administration
Indian Economy
Chapter 1
Concepts of growth, Development and National Income:
• National product : It is the monetary value all final goods and service produced by an economy during a given
period of time. All the goods are referred to be final products only.
• National income : It is the sum total of all incomes arising out of economy activities. Gross domestic products: It
measures the aggregate money value of output produced within the geographical boundary of a country over a
year.
• GDP: Market value of final goods and services produced within the country plus income earned in the country by
the foreigners minus income received by the residents from abroad.
• GDP at market price: when domestic or national products is measured at current market prices . market prices
are inclusive of taxes and subsidies on commodities
• GDP at factor cost = GDP at market price minus indirect taxes plus subsidies.
• GNP = Gross national products is estimated by adding net property income from abroad to the figure for GDP the
net property income from abroad means the total payment of interest profits and dividends both coming and
leaving a country .
• GNP = Market value of domestically produced goods and services plus income earned by the nationals and in
foreign countries minus income earned by the foreigners.
• NDP & NNP = NDP of a country minus capital consumption allowance or depreciation is the net domestic
product (NDP).
Chapter 2
India’s Development
Strategies
A country whether it is developed or an underdeveloped one; needs a proper strategy of development. As the
objectives of an economy change, the strategies of development need to be change . India’s development
strategies focuses on the investment strategy which helps the country to invest more for the growth of the
economy. Developing countries are caught in vicious circle of poverty and to overcome this problem the
country has to allocate investible scarce resources among competing ends.
At the time of independence India’s development was known as inward looking development strategy.
In brief the crucial component of India’s macroeconomic environment under the following headings :
• Economic system which is of mixed variety, that means co existence of public and private sectors.
• Introduction of the five year plans which is regarded as a technique of managing an economy .
• Complete restrictions on trade policy( closed economy). This is called inward looking trade policy.
• During the 1950’s Nehru’s perception of the problems of the Indian economy centered of
industrialization, self reliance and import substitution and socialism
• However in 1991 this strategy has been replaced by a new economic policy based on market
principles known as import liberalisation coupled with export led industrialization for
achieving rapid economic development was introduced.
• Removal of restrictions on FDI for the entry of MNCs.
• Deregulations of interest rates ,sale of shares of PSEs, entry of private banks, movements
towards capital account convertibility.
• Outward looking trade policy( open economy) globalization, competition and knowledge
driven society.
• Market driven development and technology.
• Simplification of tax structure and laws and control of government expenditure and gradual
removal of subsidies.
• Decontrol over internal movement of food grains, abolition of subsidies and introduction of
contract farming.
Chapter 3
Basic Features Of The Indian Economy
There are large differences between the developed and developing countries. These differences are found in resource
endowment, size and income of the country, levels of human development. The most common features of less
developed economy are:
• Shortage of capital
• Massive unemployment
• Predominance of agriculture
• Dualistic economy
• Institutional backwardness
The Transition of the economy: from underdevelopment to developing stage:
Quantitative changes
Not only economic development is required in the country. During the plan period s growth plus change can take
place in India. The ways it can happen:
The Transition of the economy: from developing stage to the emerging stage:
When the economy primary sector is considered as the predominant one it means that the contribution of this
sector towards national income is the largest. In India sector wise shares in GDP and distribution of labour
force was low after independence. As economic development proceeds, the interrelationships among these
sectors undergo a change. The reasons behind this structural change are :
1. Economic development causes income levels to rise that triggers demand. On the other hand higher
income stimulates demand for industrial goods and service sector goods.
2. When economic development proceeds agriculture sector gets modernized and it pushes productivity of
land and labour but subject to the operation of the law of diminishing returns. Thus ultimately economic
development brings about a change in industrial and service sector.
• Occupational structure:
Service led Growth:
Service sector has emerged as the largest and fastest-growing sector in the global economy in the
last two decades, providing more than 60 per cent of global output and, in many countries, an even
larger share of employment. The growth in services has also been accompanied by the rising share
of services in world transactions. In line with the global trend, service sector in India has also
grown rapidly in the last decade. Its growth has in fact been higher than the growth in agriculture
and manufacturing sector. It now contributes around 51 percent of GDP. In the trade mode, services
trade has also grown at the same rate as goods trade over the 1990s (i.e., about 6.5 per cent) and its
share in total trade has reached around 24 per cent. Growth of trade in services has also been
accompanied by growth in the share of services in total inward FDI. FDI (approvals) into service
sector constituted around 30 percent of total FDI approvals in 2003.
Characteristics of service sector:
First, the entire decline in the share of agriculture sector in GDP, i.e., from 32 % in 1990 to 22 % in
2003, has been picked up by the service sector while manufacturing sector’s share has remained
more or less the same. In general, such a trend is mainly experienced by high-income countries and
not by developing countries.
second, in spite of the rising share of services in GDP and trade, there has not been a corresponding
rise in the share of services in total employment. This jobless growth of India’s service sector, with
no corresponding growth in the share of manufacturing sector, has raised doubts about its
sustainability in the long run.
Some important recent data on Indian Economy:
• Gross Domestic Product (GDP): The GDP growth rate is estimated to be 5% in 2019-20 as
compared to 6.8% in 2018-19. The GDP growth decelerated for the sixth consecutive quarter. In
2020-21, India’s GDP growth rate is expected to be in the range of 6.0%-6.5%.
• In the first half of 2019-20 (April-September), GDP is estimated to grow at 4.8% as compared to
the 2nd half of 2018-19 (October-March) at 6.2%. The survey observed that sluggish growth of
consumption and consequent decline in fixed investment led to the decline in GDP growth
during this period.
• The survey noted that the year 2019 was a difficult year for the global economy with world
output growth growing at its slowest pace of 2.9% since the global financial crisis in 2009. A
weak environment for global manufacturing, trade, and demand adversely impacted the Indian
economy.
• The survey also stressed that the concerns of over-estimation of India’s GDP are unfounded.
• Inflation: The Consumer Price Index (CPI) based inflation increased from 3.7% in 2018-19
(April to December, 2018) to 4.1% in 2019-20 (April to December). This increase was mainly
due to food inflation. The Wholesale Price Index (WPI) based inflation decreased from 4.3% in
2018-19 to 1.5% in 2019-20 (April to December).
• Current Account Deficit (CAD) and fiscal deficit: India’s CAD decreased from 2.1% of GDP in
2018-19 to 1.5% of GDP in 2019-20 (April-December). The fiscal deficit for 2019-20 is
estimated at 3.3% and the primary deficit for the year is estimated at 0.2% of GDP (primary
deficit is the fiscal deficit excluding the interest payments).
Some important recent data continues..
• Industry and infrastructure :
• The overall industrial sector growth is estimated to be 2.5% in 2019-20 as compared to 6.9% growth
in 2018-19. Manufacturing sector is estimated to grow at 2.0% during 2019-20. In 2018-19, share
of the Industry sector in GVA was 29.6%.
• Index of Industrial Production Growth (IIP) is 0.6% during 2019-20 (April-November). IIP is a
measure of industrial performance. It assigns a weight of 78% to manufacturing followed by 14% to
mining and 8% to electricity. Manufacturing activities were subdued due to a decrease in domestic
demand for key sectors such as automotive and pharmaceuticals.
• Service sector:
• Services sector is estimated to grow at 6.9% in 2019-20 as compared to 7.5% in 2018-19. The
services sector is estimated to contribute 55.3% to India’s GVA in 2019-20. Currently, the services
sector accounts for over 50% of the Gross State Value Added in 15 states and UTs. Sub-sectors such
as trade, hotels, transport, communication & services related to broadcasting, financial and real
estate services saw a deceleration during this period.
• The share of services exports in overall exports of India has been increasing. India’s share in the
world’s commercial services exports was 3.5% in 2018, twice the share in the world’s merchandise
exports at 1.7%.
• India’s rank in the human development index was 129 in 2018. Expenditure on social services
(including health and education) increased by 1.5% of GDP during the 2014-20 period. Out of
pocket expenditure as a percentage of total health expenditure declined from 64.2% in 2013-14 to
58.7% in 2016-17. The Survey also noted that the gross enrolment ratio at secondary, higher
secondary and higher education level need improvement.
• Total formal employment in the economy increased from 8% in 2011-12 to 10% in 2017-18. During
the 2011-18 period, 2.62 crore new jobs were created among regular wages/salaried employees. The
female participation in the labour workforce declined, especially in rural areas.
Chapter 4
:Indian Agriculture: Importance and Problems:
India's agriculture is composed of many crops, with the foremost food staples being rice and wheat. Indian
farmers also grow pulses, potatoes, sugarcane, oilseeds, and such non-food items as cotton, tea, coffee,
rubber, and jute (a glossy fibber used to make burlap and twine). India is a fisheries giant as well. A total
catch of about 3 million metric tons annually ranks India among the world's top 10 fishing nations. Despite
the overwhelming size of the agricultural sector, however, yields per hectare of crops in India are generally
low compared to international standards. Improper water management is another problem affecting India's
agriculture. At a time of increasing water shortages and environmental crises, for example, the rice crop in
India is allocated disproportionately high amounts of water. One result of the inefficient use of water is that
water tables in regions of rice cultivation, such as Punjab, are on the rise, while soil fertility is on the
decline.
In the years since its independence, India has made immense progress towards food security. Indian
population has tripled, and food-grain production more than quadrupled. There has been a
substantial increase in available food-grain per capita. Before the mid-1960s India relied on imports
and food aid to meet domestic requirements. However, two years of severe drought in 1965 and
1966 convinced India to reform its agricultural policy and that they could not rely on foreign aid
and imports for food security. India adopted significant policy reforms focused on the goal of food
grain self-sufficiency. This ushered in India's Green Revolution.
Importance Of Agriculture in the Indian Economy:
• Contribution to gross domestic product (or national income):
• This sector includes forestry and fishing also. This sector is also known as the primary sector
of the economy. At the time of Indian independence, this sector had the biggest share in the
Gross Domestic Product of India. But year by year its contribution goes on declining
and currently, it contributes only 17% of Indian GDP at current prices. It is worth to mention
that the agriculture sector provides jobs to around 53% population of India.
• Employment generation:
• Employment in agriculture (% of total employment) in India was reported at 43.21 % in 2019,
according to the World Bank collection of development indicators, compiled from officially
recognized sources. India - Employment in agriculture (% of total employment) - actual
values, historical data, forecasts and projections were sourced from the World Bank on April
of 2020.
• Poverty reduction:
• Agriculture has features that makes it an important part of the process of development. It not
only helps in earning income within the sector but also induces growth in other sectors.
Agriculture helps in removing poverty because it provides employment to the poor people
who are not educated and also have low skills, as well as supporting the growth of
non-agricultural employment in rural areas. Growth in agriculture also provides a larger
supply of food and contributes to lower food prices, and benefits both rural and urban
poor.
• Contribution to foreign trade:
According to a provisional estimate farm exports in 1960-61. Although it declined to 9.9% in
2010. However farm exports in 2013-14 increased to14.1% but again declined to12.3% in
2017-18.
Major Features of Indian Agriculture:
Although agriculture is the dominant sector of the Indian economy. Some of the basic characteristics
of the Indian agriculture are as follows:
• Instability of the production due to the dependence on the monsoon. Being of rein fed, Indian
agriculture exhibits instability in production, leading to fluctuations in income as well as general
price level.
• Commercialization and diversification: One of the main features of Indian agriculture is its
transitions from the traditional to commercial agriculture.
• Cropping pattern: The crops that are grown in India are divided into two broad categories: food
crops and non food crops or commercialized crops.
• Land ownerships: Vast inequality exists in the distribution of land in India. A great chunk of
land is owned by a relatively small section of rich farmers, landlords and moneylenders, while a
very little amount of land is owned by the majority farmers.
• The average size of the holdings: Another peculiarity as well as an important problem is the
smallness in the average size of holding. This makes the efficient use of land virtually
impossible and add to the difficulties of increasing capital equipment on the farms.
• Production technique: The technique of production in India’s agriculture is old and outmoded.
Use of chemical fertilizers high yielding varieties of seeds, tractors, machines are used on an
insignificant scale.
• The issue of land acquisition: Despite rural urban divide it is said that urbanization is necessary
to realize the country’s growth potential. Urbanization leads to land acquisition.
• Low productivity of Indian Economy:
The contribution of the Indian agriculture to GDP and employment potentiality go beyond the truth
that less than half of the India’s population depend on it and on the other hand rural agriculture
is still the main source of earning.
• Causes of low productivity:
• Overcrowding in agriculture: Overcrowding and the consequent pressure of population on
land have led to subdivision and fragmentation of holdings, decline in the area of land per
capita, disguised unemployment, and almost zero marginal productivity of labour.
• Inadequate non farm services: Indian agriculture has suffered because of the inadequacy of
such non farm services as provision of irrigation, seed, finance, marketing etc. Irrigation
facilities in India are inadequate.
• Non viable size of holdings: The average size of holding in India is very low at 1.15 hectares in
2011 to less than .5 hectares in 2016.
• Insecurity of land tenure: A potential force behind low productivity has been the absence of
proper incentives. The cultivator does not often own land he has no security of tenancy.
• Investment inadequacy: Compared to the industrial sector low volume of government
investment is attributed to the agricultural sector.
• Poor techniques of production: The Indian farmers have been using old and insufficient
methods and techniques of production generation after generation.
• Inadequate irrigation facilities: One of the important weakness of Indian agriculture is that
being rainfall dependent, the facilities of proper irrigation facilities are inadequate.
• Progress of agriculture during the plan period:
• The first five year plan: After independence the problem of food crisis and shortage of
industrial raw materials had been arisen.
• The second five year plan: Only 20-30% of the total contribution in GDP was coming from the
agricultural sector.
• The Third plan: During the third plan the government made greater allocation for agriculture
which was around 1745 crores.
• In 1966-67 a new strategy of agriculture had been adopted.
• The Fourth plan: This plan started with a massive boom in the agricultural production about
129 million tonnes .
• The Fifth plan: The growth target in the agricultural production has been fixed at 3.94%.
• The Sixth plan: During this plan period 4.3% was the total growth against 3.8% in the
agricultural production.
• The Seventh plan: This plan aimed at 4% growth and total 47 crore rupees had been collected
from the primary sector.
• The Eighth plan: This time agricultural and rural development stood at 22% of the total
investment. Growth during this period was 4.7%.
• The Ninth plan: It was targeted to grow at 4.5%
• The Tenth plan: This plan targeted increase in production of agricultural 5.1%
• The Eleventh plan: Agricultural growth rate is 4%
• The Twelfth plan: Targeted growth rate of agricultural production was 4%.
• Indian Agricultural Policy: Some important suggestions:
• Agricultural policy describes a set of laws relating to domestic agriculture and imports of
foreign agricultural products. Governments usually implement agricultural policies with the goal
of achieving a specific outcome in the domestic agricultural product markets.
• Agricultural policies use predetermined goals, objectives and pathway set by an individual or
government for the purpose of achieving a specified outcome, for the benefit of the individual(s),
society and the nations’ economy at large. Agricultural policies take into consideration the
primary, secondary and tertiary processes in agricultural production. Outcomes can involve, for
example, a guaranteed supply level, price stability, product quality, product selection, land use or
employment
• Food Security: Food security is a measure of the availability of food and individuals' ability to
access it. At the 1974 World Food Conference the term "food security" was defined with an
emphasis on supply. They said food security is the "availability at all times of adequate,
nourishing, diverse, balanced and moderate world food supplies of basic foodstuffs to sustain a
steady expansion of food consumption and to offset fluctuations in production and prices".
• Public Distribution System: The Indian food security system was established by
the Government Of India under the Ministry of Consumer Affairs, Food and Public
Distribution to distribute food and non-food items to India's poor at subsidised rates. It was
launched in the current form in June 1947. Major commodities distributed include staple food
grains, such as wheat, rice, sugar and essential fuels like kerosene, through a network of fair
price shops (also known as ration shops) established in several states across the country. Food
Corporation of India procures and maintains the public distribution system (PDS).
Chapter 5
Transforming Indian Agriculture: Land Reforms & Green Revolution
• Green Revolution:
• In the mid 1960s the Indian government adopted a new agrarian strategy which goes by the name of
Green Revolution. Modern practices and technologies were applied in the farm production. The new
strategy called by the name Intensive Agricultural District Programme( IADP) .
Later this was supplemented by the HYV programme, covering the whole country and this brought in
revolutionary success in the agricultural font.
During 1964-65 and 1976-77 the output of food grains increased at an annual rate of 2.6%. The total
grains output doubled between 1980-81 and 2017-18 from 130 million tonnes to 277.5 million tonnes.
During 2008-09 and 2013-14 the average annual growth rate of food grains output was 2.4% .
Some of the reasons behind the differential rates of growth are following:
• Differences in the availability of water supply
• Differences in the use of HYV seeds, fertilizers, pesticides etc.
• Differences in the nature and attitude of the agriculturists relating to risk and uncertainty.
Reasons for the failure of Green Revolution:
• Regions endowed with poor soil climate.
• Increase in inter personal inequalities
• Impact on employment
• Increase in the inter sectoral inequalities.
• Differences in the social class and inter class inequalities increased.
• Only big farmers can attain the benefits of Green Revolution.
• Land Reform :
Land reforms means a redistribution of the rights of ownership and0or use of land away from large
landowners and in favour of cultivators with very limited or no landholdings.
Objectives:
• To remove such impediments to increase in agriculture production as arise from the agrarian structure
inherited from the past.
• To eliminate all elements of exploitation and social injustice within the agrarian system, to provide
security to the tiller of the soil and assume equality of status and opportunity to all sections of the rural
populations.
Measures of Land Reform:
• Abolition of intermediaries: different types of land tenures Zamindari, ryotwari and mahalwari
system existed where intermediary interests in land were the most guiding motive.
• Tenancy reforms: Tenancy legislations have been taken three forms:
a. Regulation of rent
b. Providing security of tenure
c. Conferring rights of ownership for tenants
• Ceiling on landholdings: Land ceiling means the upper limit of the possession of landholdings that a
tenant can have.
• Consolidation of land holdings: Fragmented and subdivided landholdings as well as small sized
holdings have made Indian agriculture unremunerative.
• Cooperative farming: The efficiency of agriculture can be improved by establishing cooperative joint
farms. This means collective farmers retain ownership of land, marketing of crops etc.
• Reasons of the failure of land reforms:
• Growth of absence landlordism
• Inadequacy of ceiling laws
• Loose definition of personal cultivation
• Loopholes and exemptions in ceiling laws and tenancy laws
• Lack of political laws
• Unequal power relations
Operation Barga:
• The land reforms strategy taken by the Govt of West Bengal during 1977 -78, and the
redistribution of collected land among the landless farmers. This strategy is called operation
barga and the ultimate aim of this strategy was to help the conversion of the bargadars into
landowners.
The operation barga is a unique programme of tenancy reforms- is the serious attempt to
implement the legal provisions of tenure security, protection for bargadars and control over the
crop-share between landlords and tenants.
Till November 2007, 4lakh 54 thousand 630 hectres of land had been recorded for 15.34lakh
registered bargadars under this project.
Chapter 6
Rural Credit and Agricultural Marketing
Rural Credit in Indian Agriculture :
• Credit facilities are also an integral part of the process of commercialization of the rural economy.
• Sources of rural credit:
• Institutional sources: Cooperatives, nationalized banks, RBI, NABARD, Regional Rural Bank(RRBs)etc.
• Non institutional sources: moneylenders, traders and commission agents, relatives and landlords.